Your wonderful Christian witness and commitment to the Church's basic pastoral mission have remained constant even in these recent times of economic uncertainty, political upheaval and scandal within the Church. Let us remember that our God is always with us, offering us healing and peace.

The Church has a special responsibility as steward of the financial resources entrusted to it. Like other institutions, the Archdiocese has been adversely affected by the general economic downturn over the past three years. Consequently, we have had to make some painful but necessary cuts in services in order to reduce expenses and live within our present fiscal reality. This Financial Summary is offered to assist you in understanding the Archdiocese's Administrative Office finances for Fiscal Year 2002.

I am grateful to you for your continued witness to the Gospel and support for our Local Church of Los Angeles. Assuring you of my special prayers as we begin this New Year, I am

Sincerely yours in Christ,

Cardinal Roger Mahony
Archbishop of Los Angeles


General

The enclosed statements, shown on page A-2, present the financial results from operations of the Administrative Office of The Roman Catholic Archdiocese of Los Angeles (the "Administrative Office") for the fiscal year ended June 30, 2002 with comparative financial information for fiscal year ended June 30, 2001. The Archdiocese encompasses various institutions and organizations that are fiscally responsible to His Eminence Cardinal Roger M. Mahony, Archbishop of Los Angeles. The accompanying financial statements consist of the accounts of the administrative departments, including the Archdiocesan Cemetery and Mausoleum Offices (the "Cemeteries"), which consist of 11 cemeteries located in Los Angeles, Santa Barbara and Ventura counties, and the central Administrative Office, located on Wilshire Blvd in Los Angeles. The parishes are an integral part of the organization, but function as independent operating and accounting entities. Therefore, parishes are not included in the accompanying financial statements of the Administrative Office of the Archdiocese.

Presentation of the audited financial statements of the Administrative Office of the Archdiocese provides the Catholic faithful and other interested parties with an understanding of the administrative services of the Archdiocese. This presentation is consistent with how the Archdiocese operates, and is comparable to other dioceses in the Western United States.

Assets

Total assets decreased $17.3 million in fiscal year 2002. The primary causes of this decrease was a $2.8 million decrease in affiliate receivable due to a reassessment of the value of these accounts, a $7.6 million decrease in pledges receivable, a $9.7 million decrease in investments due to withdrawals and negative investment returns, and a $6.6 million decrease in property plant and equipment due to the accounting transfer of construction in progress to parish and school financial statements. The $6.6 million transfer is net of additions to construction in progress for the Cathedral complex.

These decreases were offset by increases in cash of $1.3 million, contracts receivable of $1.7 million due to higher cemetery sales, and other receivables of $5.0 million. The other receivables relate to the prepayment of insurance premiums and earthquake related money due from FEMA and $0.9 million in the priest's retirement plan due to updated actuarial estimates. The remaining difference is from a net increase in the other asset account balances of $0.5 million.

Liabilities

Total liabilities increased $46.2 million in fiscal year 2002. The primary driver of this increase was in notes payable, as the Administrative Office borrowed an additional $32.8 million to fund cemetery and mausoleum construction. In addition, pension plan obligations increased $10.5 million. The Administrative Office also incurred increases of $7.1 million in deferred revenue and $4.9 million in cemetery and mausoleum care funds due to increased cemetery sales.

These increases were offset by a decrease of $7.0 million in accounts payable and accrued expenses due to a payment for the lay employee pension plan. Additionally, insurance claims reserves decreased $0.9 million due to updated actuarial estimates. The remaining difference is from a net decrease in other liability account balances of $1.2 million.

Net Assets

Net assets decreased $63.5 million during the fiscal year ended 2002. The primary cause was a decrease in net assets before transfers of $17.3 million due to a decrease in revenues of $2.4 million and an increase in expenses of $14.0 million (as described in detail within the Revenue and Expenditures sections). Additionally, an accounting transfer of $50.6 million in capitalized construction-related costs to the financial statements of parish and schools was made during the fiscal year. These costs were incurred to repair parishes and schools after the 1994 Northridge earthquake. The decreases in net assets were offset by a transfer of notes receivable relating to the sale of the former St. Vibiana's Cathedral in the amount of $4.5 million.

As of June 30, 2002 the ending net asset balance of $285.9 million was comprised of $79.9 million of restricted funds, $149.9 million of designated funds, and $56.1 million of unrestricted funds. For fiscal year 2001, the ending net asset balance of $349.4 million was comprised of $68.4 million of restricted funds, $153.2 million of designated funds, and $127.8 million of unrestricted funds.

Revenues Operating

The operating revenue of the Administrative Office during fiscal year 2002 amounted to $95.8 million, which is a $2.4 million decrease from 2001. The total revenue is comprised of $52.0 million in donations and assessments, $6.7 million in rents, fees and other income, $41.8 million in cemetery sales, and a $4.8 million net investment loss.

The $52.0 million in donations and assessments was an increase of $1.6 million from the prior year. The increase is primarily due to the new Cathedral complex. Cathedral pledges and donations recorded as revenue in fiscal years 2002 and 2001 were $25.1 million and $21.5 million respectively. Other donations and assessments for fiscal year 2002 are comprised of assessments to parishes of $11.6 million, $13.4 million in Annual Appeal donations through "Together in Mission" and $1.9 million in miscellaneous donations. Additionally, the majority of the Cathedral donations were used for the construction of the Cathedral complex and were capitalized as fixed assets.

The $6.7 million in revenues from rents, fees and other sources in fiscal year 2002 reflect a decrease of $4.9 million from the previous year. This decrease was in line with expectations as the previous year had specific, nonrecurring revenue items that did not occur in the current year. These items include $2.1 million of deferred revenue recognition, a $1.2 million grant from the Education Foundation and a $0.7 million gain from the sale of real estate and equipment.

The $41.8 million in cemetery sales was an increase of $6.9 million over the prior year. The change was primarily attributable to two sources:

o The sale of crypts and niches increased $3.5 million due to the recognition of previously deferred pre-development sales at the San Fernando Mission mausoleum.

o Grave sales increased $2.8 million due to the opening of reserved land at Resurrection Cemetery.

The $4.8 million in negative investment return reflects a decrease of $6.0 million over the previous year. This decrease was due to the continued economic downturn in the current fiscal year.

Non-Operating

Non-operating revenues decreased by $12.3 million. This decrease was in line with expectations. During fiscal year 2001, the Administrative Office recognized $12.2 million in earthquake related funding to pay for repairs to parishes and schools needed after the 1994 Northridge earthquake.

Expenditures

The combined expenses of the Administrative Office amounted to $113.0 million in 2002, which represents a $14.0 million increase over fiscal year 2001. The increase in expense was primarily driven by the following factors:

o Increased subsidies provided to fund the operations of economically disadvantaged parishes and schools ($3.0 million).

o Increase in expenses related to the dedication and operation of the new Cathedral complex ($3.2 million).

o Increase in bad debt expense ($4.3 million), attributed primarily to a recognition of certain pledges, affiliate, and notes receivable which we do not expect to collect.

o Increased general administrative expenses ($4.2 million), which includes professional fees and legal settlements.

o Increase in cemetery operations ($4.0 million), consistent with the increase in sales for the same period.

These expense increases were offset by a net decrease ($4.7 million) in the other expense categories, primarily driven by the excess of billings over the actual cost of insurance claims.

Subsidies to Affiliated Organizations

The Administrative Office continued to provide financial assistance to various affiliated entities including certain parishes, elementary schools, seminaries, and The Tidings / Vida Nueva newspapers during fiscal year 2002.

Parishes and Elementary Schools

During fiscal year 2002, $10.1 million was distributed in financial assistance to parishes and elementary schools in economically disadvantaged areas of the Archdiocese. Funding distributed by the Administrative Office was collected from parishioners during the annual "Together in Mission" campaign.

High Schools

During the fiscal year 2002, the amount distributed in financial assistance to nine high schools amounted to $1.7 million. This amount is contributed to High Schools by the Administrative Office annually from unrestricted funds to subsidize the operations of Archdiocesan high schools. These high schools also receive funding from foundations through the Administrative Office on an annual basis.

The Tidings / Vida Nueva

Funding to The Tidings and Vida Nueva during fiscal year 2002 amounted to $1.1 million.