CONFIDENTIAL FINANCIAL OVERVIEW AMERICAN RED CROSS American mam. Con?dential Use 0719/ lay/1772mm? ReaI Cross -I- FY11 YTD Management Results BIOMEDICAL SERVICES Revenue Expense BIOMEDICAL SERVICES NET HUMANITARIAN SERVICES Revenue Expense HUMANITARIAN SERVICES NET SUPPORT SERVICES Pension Operating Net Excess/(Deficit) Consolidated Statement of Activities For the Period Ending December 31, 2010 (in thousands) CONFIDENTIAL YTD YTD . Annual At I Var'ance FY11 "a ge ge Forecast FY10 Final $1,095,471 $1,104,116 ($8,645) $2,206,222 $2,207,975 $2,207,196 1,061,757 1,073,432 11,675 2,139,775 2,138,358 2,147,708 33,714 30,684 3,030 66,447 69,617 59,488 373,728 409,119 (35,391) 864,224 795,593 886,131 424,755 427,717 2,962 854,012 829,565 889,193 (51,027) (18,598) (32,429) 10,212 (33,972) (3,062) (18,875) (20,564) 1,689 (76,659) (66,881) (54,588) 45,000 (36,188) (8,478) (27,710) 0 (31,236) 46,838 Cowdentz'a/ In?rmaz?z'onfor U56 0725/ [lg/American Red Cray; American RedCross 1 Crosswalk FY10 to FY11 American RedCross FY10 Year End Operating Surplus Lump Sum Merit Paid in FY10 Reduction in Donations (Haiti Halo) Reduction in Donations (Donor Fatigue) Health Benefits Increase Pension Funding Increase Biomed Cost increase Interest Expense Increase Haiti Cost Recovery Reduction Change in Disaster Variable Expense Other Expense Reduction Program FY11 Year End Forecast Co?dentz'a/ In?rmatz'onfor Use 0719/ [lg/American Red Crow CONFIDENTIAL 2 Crosswalk FY11 to FY12 FY11 Year End Forecast Pension Funding Increase (401K) Merit and Benefits Increase BioArch IT Increase for Maintenance Federated Revenue Decrease (United Way) SAF Revenue Reduction - Federal Grant Biomed Revenue Increase Biomed Expense Reduction Program To Cover Pension Req Haiti Cost Recovery Reduction FY12 Baseline American RedCross Cm?denlz'a/ Informaz?z'm?r U56 0719/ by American Red Cross CONFIDENTIAL (115) 3 CONFIDENTIAL A Fundamental Shift in Revenue A growing percentage of revenue is recurring rather than episodic Revenue growth in other lines of service Market share gains Episodic Dona?ons Active Fundraising Episodic Donations Active Fundraising Biomed Revenue United way Biomed Revenue Preparedness Preparedness Revenue Revenue SAF Grants SAF Grants Investments Investments $3.1 Billion $4.1 Billion Today 2016 Conjz?dmtz'a/ Information for Use 0719/ byAmm'wm Red Crow FY12 FY13 Year Forecast Revenue Biomedical Contributions/Legacies Bequests Grants and Contracts Health and Safety Other Total Revenue Expenses Direct Biomedical Fundraising Marketing Health and Safety Community Service Total Direct Expense Gross Margin Indirect (Org Sustaining Units) Finance HR IT Corporate Departments Net Interest Cost Total Indirect Expense Other Adjustments Retirement Benefits Increase (medical/dental etc) Merit Increase from FY1 1 Base Total Other Adjustments Contribution Margin Disaster Variable (HQ Chapters) Disaster Fixed (HQ Chapters) SAF Remaining Network, Ops and Haiti Recovery Total NET MARGIN FROM OPERATING ACTIVITIES lhulCmoss FY12 FY13 2,232 2,280 537 578 3,336 1,975 1,981 129 148 32 30 204 264 68 72 2,408 2,495 760 840 189 189 413 408 (91) (94) Coiy?identia/ Information for U56 0725/ [by/177267765272 Red Cray; CONFIDENTIAL Aligning Finance to One Red Cross 1. Separate Revenue from Expense Three types of reporting - Stewardship/Management/Audit New management reporting ONLY) - Direct Cost method to improve visibility, track investment objectives, capture expense reduction - Platform for evaluating best practices and internal benchmarks - Consistent representation of program delivery - Aligned with responsibility and accountability - No longer measured by margin No Assessment - Managed revenue and managed expenses American RedCross Con?dential Iiyformatz'en?r Use 0726/ @Amm'c?a? Red Cram 6 CONFIDENTIAL Aligning Finance to One Red Cross 2. Manage to one consolidated financial statement +m oOne audit opinion for FY11 (External for grant and statutory purposes) ?Approx. $5m savings FY11 oSeparate accounting for investments and restricted funds oAll Investments must be in SIP before year end! oOne treasury system Target 3? QTR FY11. oConsolidation of balance sheet and net assets (FY12) oCash requirements for operating deficits or large unfunded disasters will be shared proportionally by all chapters (FY12) One capital plan focused on service delivery (FY12) COI?dentz'a/ I #0777261!an for U56 0719/ @Amem?an Red Cross 7 CONFIDENTIAL Stewardship Reports Conceptual Outline February 16, 2011 +m Con?dential Dz?rmaz?z'on?r Use On_/y @Amerz'eem Red Cram 8 CONFIDENTIAL Guiding Principles Raise funds for One Red Cross entire mission Down the street, across the country and around the world Ties your chapter to national and international achievements Make donors feel part of a bigger movement One consistent set of statistics across all 3 areas 900909 One branded look and feel Cm?dem?z'a/ Information for Use 0an [lg/American Red Crow CONFIDENTIAL A New Stewardship Report Historically, local P&L-based annual reports Today, raising funds not just for one chapter - but for One Red Cross A new stewardship report that separates revenue and expense 9999 Reports local dollars raised and local service delivery but ties this to national and international dollars raised and service delivery Stewardship report replaces all local chapter annual reports Stewardship report is not your COE reports, management reporting, and one-off ?nancial summaries for local United Ways American Red Cross 1 Confidential I n?rmaz?z'an for Use 0725/ byAmerz'wm Red Cross 10 al- CONFIDENTIAL Basic Concept 9 Break the report into 3 parts, building on the structure of Down the street, Across the country and Around the world Down the street: local chapter?show donations, service delivery and attendant messaging/stories Across the country: national?depict One Red Cross fundraising, service delivery and messaging as styled above Around the world: international?tie the global Red Cross network to what we do in the local community RedCross Con?dential Information for Use 0729/ [lg/American Red Crow 11 CONFIDENTIAL Next Steps NHQ will? 0 Determine what chapter ?nancial data will be required in the report Identify what chapter service delivery stats will be needed Communicate these requirements to chapters before end-FY11 Involve chapter and DVPs in testing our draft concept/template Have a template designed and on Brand Central within 60 days of close of FY11 0 Give chapters the tools and guidelines needed to launch the reports 0900 Cory?identia/ I iyformaz?z'on for Use On?l [lg/American Red Crow 12 CONFIDENTIAL Questions? 1-m? Coiyidmlz'a/ szormaz?z'onfor U56 0729/ @Amerz?mn Red Cram 13 CONFIDENTIAL Aligning Finance to One Red Cross Support for expense reductions New Budget Process oRoles and Responsibilities - Finance vs operations oNew budget software Adaptive Planning oBudget to a chapter level or above oStandardized revenue and expense definitions No exceptions! oTimeline - Baseline status quo projection March 31St - Functional input for system level objectives - Revenue and Expense target setting April 30 - Budget development May June 30 +m Con?dential Iigformalion?r U56 0725/ [lg/American Red Cross 14 CONFIDENTIAL We must change the way we operate the Red Cross 0 Policy Changes Demonstration that we are all in this together and commitment to donor stewardship I Travel, Meal reimbursement, Blackberrys, IT equipment (lPADS/Laptops 9 Internal Benchmarks people are more likely to adjust if they see the same performance from their peers . Improve transparency transitioning the chapters from a fully allocated to a direct cost management report External benchmarks less effective but still necessary Change our risk profile . Transition to one financial audit for the system - Allocation of disaster resources Con?dential Information for U56 0129/ @Amm'ccm Red Crow 15 CONFIDENTIAL Cost reduction to Cost management 9 We need to build a competency in cost management rather than annual cost reductions! Tactics American Red Cross Direct cost management report in the chapters Functional control or oversight HR strategic alignment Transition to multi year plans vs. one year budget We must better understand our cost drivers for all elements of the business. Con?dential Informaz?zb?for U36 0an byAmm'am Red Crow 16 Confidential M?rmaz?z?on?r Use 0an byAmm'mn Red Cray; CONFIDENTIAL