Annual Report 2004

Food for the Hungry

Meeting physical and spiritual needs worldwide

president’s message When I close my eyes, I can still see their faces; faces worn deep with lines, carved by the harshness of their circumstances; faces fighting to find hope when it is seemingly hidden.

I remember the faces in the hard places.

I see Masud from the devastated region of Darfur, Sudan, a place so wracked with suffering it has been referred to as “hell on earth”. I can still hear the strain in his voice as he painfully recounted when the feared militia group, the “Janjaweed”, raided his community. His pain was so visible as he described how they burnt his home to ashes, killing his daughter and others in his extended family. They left nothing.

I can see the squint of Tolessa’s eyes as we stood on his coffee farm under the blazing Ethiopian sun. I listened as he shared how much he had suffered at the hands of a witch doctor before he found freedom through the Lord and the interventions of our staff.

And I can still feel the small hand of Angie, my sponsored child in the slums of Peru, as she led me around her family’s humble one room shanty. I can see the tears that fell from her eyes as she told me with a grateful heart how Food for the Hungry helped continue her schooling and saved her from a dangerous family member.

These are just a few faces from the hard places I visited in the year we recall in this report. They are etched in my mind…and they serve as vivid reminders of why Food for the Hungry exists.

Our call remains just as strong and clear as it was over thirty years ago when our founder, Dr. Larry Ward, caught the vision of helping people one at a time.

Looking back on this past year, this call was fulfilled in many forms. Much needed relief was provided to the suffering during natural disasters, including those hit by the earthquake in Iran and the deadly hurricanes in the Caribbean. Hope was renewed in the Democratic Republic of the Congo as a Peace Train ran on hundreds of miles of long-dormant railroad that Food for the Hungry restored to provide a safe travel corridor to places ravaged by decades of civil war.

Gentle care was administered by our dedicated staff to HIV/AIDS orphans.

We continue to press forward, led by the light of this vision, casting hope, help and dignity to each person we encounter in the uncertain and rough terrain of the hard places we work.

In 2004 (Oct. 1, 2003 to Sept. 30, 2004), Food

As you read through the stories on the following pages, may they resonate as representatives of those faces that we encounter each day in the hard places – the lives you help transform through your partnership with Food for the Hungry.

Thank you for choosing to make a difference.

for the Hungry brought hope to more than 2.9

In His grace,

Benjamin K. Homan , President and Chief Executive Officer

million people in over 45 countries through immediate relief and long-term development projects.

ANNUAL REPORT 2004

Faces in the Hard Places

1

uganda francis: child soldier It was an October night in the quiet village of Omoro, Uganda. Francis, a child sponsored by Food for the Hungry, and his older brother were mourning the death of their mother. They were somberly making arrangements to bury her the next day.

They never got the chance.

Late that night their worst nightmare came true– the same one that every child in the region has while tossing and turning from fear. The Lord’s Resistance Army (LRA), a rebel group that abducts, tortures and kills children in northern Uganda, raided their village and snatched Francis and his brother, among other children.

Francis, at the young age of 12, was exposed to the harsh realities of a child soldier’s life. Captivity.

Murder. Brainwashing. Fear.

These horrors came to life each day in the following weeks. The children were forced to carry heavy crates of food and ammunition as they stumbled, exhausted, through the bush. Ax-wielding LRA soldiers told Francis to either kill dozens of other people or die himself.

He chose to live.

There were many lies. The LRA soldiers rubbed oil all over Francis’ body. “This will protect you from bullets,” they told him. “But if you try to escape, this oil will turn against you. You will become confused and die.”

They forced the new recruits to sleep tied to one another and trees. Forty-five days into his ordeal, Francis convinced one of the commanders that he no longer needed to be tied up at night. His older brother insisted that Francis escape, even though it meant leaving him behind. Francis took his opportunity and fled.

“It was God who directed my path as I ran alone through the darkness,” said Francis, as he recalled running as fast as he could through the blur of the thick bush. A man on a bike appeared out of nowhere and pedaled Francis to safety.

Francis is 14 now and orphaned. He lives in a camp where he attends secondary school and receives counseling and support through Food for the Hungry. Our staff is there, walking alongside Francis and countless other orphans who are struggling in the aftermath of captivity.

Food for the Hungry ministers to the poor in nine African countries through a variety of programs including HIV/AIDS education,

“Please pray for us,” Francis asks humbly. “I know God is good and full of love.”

child development, food security, agriculture training and micro-enterprise loans.

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FOOD FOR THE HUNGRY

ANNUAL REPORT 2004

Faces in the Hard Places

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cambodia soay ya: struggling farmer A delicately framed woman walks slowly along the dusty trail, slightly hobbling back and forth, balancing buckets across her neck that carry water from a distant pond. Her trek has lasted more than an hour, but she persistently continues step by step, focusing on her village ahead, her worn sandals leaving small footprints behind her.

She did this everyday in the dry season.

Her name is Soay Ya and she knows the importance of water. Soay Ya is a 47-year-old farmer in rural Cambodia, in an area that, like much of South Asia, suffers alternately from either too much of this precious commodity or too little – from flood or drought.

During the wet season her family’s water came from puddles that accumulated in their rice paddies. “One day I came to take water from the puddle, and there was a dead dog lying nearby,” she recounts. “I had no other choice but to drink and prepare food with that water.” Even though the water appeared clear, it was full of bacteria, infected from animal and human stool. “We didn’t know better, so we drank it without boiling.”

In Soay Ya’s community, water is so indispensable for everyday existence that people are forced to consume it, wash in it and cook with it, even when it is contaminated. And they suffer the consequences. Soay Ya’s family became dangerously thin. They grew pale and weak, sick from diarrhea. Sadly, their condition led to apathy and carried over to their hygiene as they cleaned their dishes in dirty water and never bothered washing their hands.

Food for the Hungry entered her village and started a water and sanitation project that dug wells, providing access to clean water. Hand pumps were installed and training developed to educate families on the importance of good hygiene. Life for Soay Ya’s family and many others in the community was immediately changed. “The village is full of good sanitation. Thanks to Food for the Hungry, illnesses have been reduced and happiness has grown,” Soay Ya exults.

A model Christian in the community, Soay Ya now has more time to focus on living an incarnational life to serve others.

“I have enough clean water to drink and cook every day, without spending time anymore to get it as I did before. I am able to spend time sharing with others about the true Living Water.”

In Asia, Food for the Hungry impacts individuals in twenty countries through church development, relief, water/sanitation, child development and agriculture projects.

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ANNUAL REPORT 2004

Faces in the Hard Places

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romania nuti: broken mother “Ce faci?”

Like so many times before, Heather stood in the doorway of Nuti’s house and called out to her, asking her how she was doing, following her inside where they would drink tea and share about their lives for hours. A strong bond has been created between the two – Heather, a Food for the Hungry Hunger Corps volunteer specializing in occupational therapy and Nuti, a Romanian chemistry professor.

It was started by a life-altering event that occurred six years ago.

Like most expectant parents, Nuti and her husband anxiously awaited the birth of their first child.

They carefully prepared and learned all they could about being parents. Nuti often found herself dreaming of how she would teach and nurture her beloved baby.

But nothing could have prepared Nuti for her child being born dead. In what seemed like an eternity, the doctors resuscitated the child, but the part of Silviu’s brain that allows him to think and move died during the 20 minutes he had no oxygen. Silviu, a beautiful little boy with dark eyes and a turned up nose, would have total inability to control his movements or to speak.

Nuti took her precious baby home from the hospital and began her own slow death. She quit her job and eventually stopped leaving the couple’s apartment. Her increasing depression deprived her of all her energy. She felt alone and angry, and each glance at her beloved Silviu reminded her of how hopeless life had become. She spent hours moving Silviu’s small arms and legs, willing them to respond, hoping for improvement but feeling only frustration. Unable to afford therapy and feeling the sting of being outcast as families with children who have disabilities often are in Romania, Nuti gave up.

Upon hearing about Nuti, Heather began visiting her and offered to provide therapy for Silviu. She has been working with Nuti and Silviu for over a year now, faithfully visiting each week. This gift of friendship has dramatically changed Nuti. She has found a renewed sense of energy. She is taking care of herself and her apartment, and is looking for a job.

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In Romania, Food for the Hungry implements

Nuti has not become a Christian yet, but she sees the peace and tranquility that belief has given others. She wants what they have and will soon find it. Our dedicated staff is committed to being there on this journey.

projects that minister to youth, including a

“Meeting the elemental human need for companionship is a great way to start affecting lives for Christ,” Heather shares. “Daily I pray for and long for Nuti to see that the friendship she feels is not anything man has given her. The acceptance and love she feels is from Christ. I just have the privilege of being a vessel for Him. As I give Him back the time and talents He has bestowed upon me, I get the joy of watching Him at work and am confident that He hears my prayers.”

reaching out to gypsies and alcoholics in the

FOOD FOR THE HUNGRY

camping ministry. Other programs focus on

region.

ANNUAL REPORT 2004

Faces in the Hard Places

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bolivia flora: gang member Flora Cruz quietly knits, focusing on the needle working its way in and out of the colorful fabric, slowly forming a small scarf. She looks up and smiles. “It’s for my niece,” she says shyly and looks back down. At first glance, one would never know that she has already experienced life at the edges of society. Barely 14, she has already known cold and hunger and poverty, often while sleeping on the streets.

Months ago, life was very different for Flora.

She lives in Horno Ck’asa, an outlying community of Sucre, Bolivia. Like so many, her family are first-generation city dwellers. They fled the poverty and poor education of remote Andean villages for the opportunity of the city, only to find a whole new kind of poverty once they arrived.

Flora’s family is very poor. They live in a shack – a tiny shanty with corrugated walls and with no modern conveniences. Her parents were usually out of work and rarely at home, leaving Flora unsupervised.

Flora sought the security she craved from an insecure world in a local gang. They became her new family. She ran around the town late at night with her brother and other gang members. But the price for such transient companionship and solidarity was steep – she stole and fought, and nearly landed in prison. When a local store was robbed, the blame logically fell on Flora and the other gang members, though they claimed it wasn’t them.

Sadly, Flora’s story is like those of thousands of Bolivians, like millions of children in the hard places. But often it just takes one person who cares enough to step in. For Flora, that person was Marina. As a Food for the Hungry child development worker, Marina began special programs for the children living in the slums of Horno Ck’asa. She reached out to Flora, encouraging her to rethink her lifestyle and invited her to participate in the activities.

In Latin America, Food for the Hungry works in eleven developing countries to implement programs that meet specific needs through

Food for the Hungry shared and modeled Jesus’ love – about the man who also knew cold and hunger and poverty and life at the edges of society. Flora has since received Jesus in her heart and has not run away from home or returned to her gang. And after seeing the change in their daughter’s life, her parents began to volunteer in Food for the Hungry activities to help other children benefit from the same ministry that saved their daughter from the streets.

“Thank you Food for the Hungry,” Flora says with quiet kindness. “You have helped me and also my family.”

health, natural resource, agriculture and child development projects.

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ANNUAL REPORT 2004

Faces in the Hard Places

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north america donna: local advocate “At first I was overwhelmed,” says Donna Bankoske, recalling her initial thoughts upon enlisting in the Food for the Hungry Volunteer Ministry. “There is so much need in the world, it was paralyzing.”

The 59-year-old homemaker, a wife, mother and grandmother in Murrysville, Pennsylvania, had received a call from God to minister to others – which is exactly what a volunteer with Food for the Hungry does. As a Ministry Representative, Donna educates others about how Food for the Hungry helps thousands of hurting people. She also communicates with others how they can, even while staying Stateside, bring hope to the hard places through their involvement with Food for the Hungry.

Donna broke the problem down to manageable size – to units of one. “I thought I had to figure out how to feed 500 kids,” she says, “but working in the volunteer ministry has transformed me. I am not paralyzed by the enormity of the problem anymore. Now I know how important the one is – the one child, the one person, the one community.

I know I can’t help everyone, but I can help one.”

That’s what inspired Dr. Larry Ward in the early 1970s. Similarly overwhelmed by the extent of the poverty he saw, he asked God for guidance and came to this heart conclusion: “They die one at a time, you can help them one at a time.”

This concept has spilled over into other areas of Donna’s life. “There are many divisions in my town,” she says. “In lots of cities, different groups of people just don’t associate with one another. So I have started breaking down those barriers in my own life by focusing on the one – finding one person, one friend, who is different than me and taking her out to lunch to get to know her. That one new friendship is significant.

Transformation comes one step at a time.”

One helping one, one step at a time. For the past two years Donna Bankoske has been spreading the message of how her friends and neighbors in eastern Pennsylvania can enhance their lives by helping God’s children, one at a time.

Food for the Hungry advocates for the poor from offices in both Phoenix and Washington,

Food for the Hungry’s Volunteer Ministry equips people from all walks of life to minister from right where they are to impact lives in developing communities around the world.

D.C., and collaborates with the United States Agency for International Development (USAID) in several project fields.

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FOOD FOR THE HUNGRY

ANNUAL REPORT 2004

Faces in the Hard Places

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meeting needs globally Food for the Hungry is an international relief and development organization that answers God’s call to meet the physical and spiritual needs of the poor in over 45 countries. Founded in 1971 by Dr. Larry Ward, Food for the Hungry exists to help individuals reach their Godgiven potential.

victims with emergency relief. Our ministry staff is also immersed in hundreds of developing communities around the world, implementing long-term development programs such as agriculture training, clean water and food security programs, child development, nutrition education and HIV/AIDS prevention programs.

In developing countries on nearly every continent, Food for the Hungry works with churches, leaders and families to provide the resources they need to help their communities become self-sustaining. Food for the Hungry is often one of the first organizations on the ground when disasters strike, providing shelter, distributing food and caring for

Food for the Hungry also empowers Americans to get involved and serve the poor through a variety of ministries including Hunger Corps, Short-term Team Ministry, Volunteer Ministry, Artist Program, Child Sponsorship and through overseas academic and internship programs for college and graduate students.

where we work Africa D.R. Congo Ethiopia Kenya Morocco Mozambique Rwanda Sudan Tanzania Uganda

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Asia Bangladesh Cambodia China Hong Kong* India Indonesia Japan* Kazakhstan Kyrgyzstan Malaysia Mongolia Myanmar Nepal No. Korea Philippines Sri Lanka Korea* Tajikistan Thailand Uzbekistan

FOOD FOR THE HUNGRY

Europe Sweden* United Kingdom* Switzerland* Romania Latin America Bolivia Brazil Costa Rica** Cuba Dominican Republic Guatemala Haiti Honduras Nicaragua Paraguay Peru

Middle East Afghanistan Iran Iraq North America Canada* Phoenix, AZ* Washington, D.C.*

*Local country office **Both local country office and development field

Use of Resources 3% Administrative

4% Fundraising 93% Programs

Commodities 5% Clothing

40% Medical Supplies 10% Seeds 32% Food 13% Other

ANNUAL REPORT 2004

Public Support 16% Foundations

1% Churches 8% Businesses 75% Individuals

Faces in the Hard Places

13

ministry philosophy Vision God called and we responded until physical and spiritual hungers ended worldwide.

Ministry Philosophy Statement Food for the Hungry seeks to walk with churches, leaders and families in overcoming all forms of human poverty by living in healthy relationship with God and His creation.

Scriptural Basis of the Vision “What does the Lord require of you but to do justice, love mercy, and to walk humbly with your God.” – Micah 6:8

our ministries Child Sponsorship The Child Sponsorship program provides the opportunity for an individual or a family to connect with a child in a developing country. Through a monthly pledge gift, the program provides children with access to nutritional food, medical care, education and spiritual training.

Volunteer Ministry The Volunteer Ministry empowers Americans to become U.S.-based advocates for the poor by providing resources for them to speak to individuals and groups, place displays in businesses and churches or engage churches and schools in life-changing ministry.

In 2004, over 14,000 children in 13 countries were sponsored and now live better lives both physically and spiritually.

Over 70 high-impact volunteers educated their communities about God’s heart for the poor in 2004.

Adopt-a-Community The Adopt-a-Community (AAC) program brings together American churches and Food for the Hungry to form a close relationship with an impoverished community by providing prayer, short-term team visits and child sponsorship.

Over 20 communities benefited from Adopt-a-Community relationships in 2004.

Short-term Team Ministry The Short-term Team Ministry provides opportunities for teams of individuals to serve on a one- or two- week mission trip and work alongside Food for the Hungry’s long-term missionaries, national staff and local community members.

In 2004, 374 short-term team members served alongside the poor in developing communities around the world.

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FOOD FOR THE HUNGRY

Artist Program The Artist program provides opportunities for American churches to host fund raising concerts with popular Christian recording artists, providing a platform to advocate for the poor and promote child sponsorship.

In 2004, the Artist program partnered with more than 35 Christian recording artists.

Hunger Corps The Hunger Corps ministry provides an opportunity for individuals to use their professional skills and talents to serve as long-term missionaries overseas.

Over 80 Hunger Corps missionaries served alongside the hurting in 2004.

Go-ED. Go-ED. is a new program that provides overseas academic and internship opportunities for college and graduate students.

ANNUAL REPORT 2004

Faces in the Hard Places

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FOOD FOR THE HUNGRY

Financial Table of Contents

Independent Auditors’ Report

18

Consolidated Statements of Financial Position

19

Consolidated Statements of Activity

20

Consolidated Statements of Functional Expenses

20

Consolidated Statements of Cash Flow

22

Notes to Consolidated Financial Statements

23

Board of Directors

25

ANNUAL REPORT 2004

Faces in the Hard Places

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Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Independent Auditors’ Report

Consolidated Statements of Financial Position

Years Ended September 30,

2004

Board of Directors Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. Phoenix, Arizona

We have audited the accompanying consolidated statements of financial position of Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. as of September 30, 2004, and 2003 and the related consolidated statements of activities, functional expenses, and cash flows for the years then ended.

These consolidated financial statements are the responsibility of the organization’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. as of September 30, 2004, and 2003 and the results of its activities, functional expenses, and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Atlanta, Georgia December 10, 2004

2003

Assets Current Assets: Cash and cash equivalents $ 1,511,208 $ 61,922 Investments 2,332,278 806,378 Grants receivable 840,883 368,784 Promises-to-give receivable - 16,000 Bequest receivable 1,183,961 708,961 Inventory of commodities awaiting monetization 574,753 1,114,476 Prepaid expenses and other assets 266,956 177,357 Property held for sale

-

467,715

6,710,039

3,721,593

Investments held for charitable trusts Gift annuity reinsurance asset Land, buildings and equipment, at cost-net Child Vocational Scholarship Fund

162,484 494,368 2,268,457 1,018,370

165,751 524,792 1,947,525 944,744

Total Assets

$ 10,653,718

Liabilities and Net Assets Current Liabilities: Accounts payable $ Accrued expenses Grants payable Amounts due other ministries from pending commodity sales Long-term debt - current portion

$

637,631 $ 88,435 719,749 574,753 576,386

7,304,405

1,100,094 54,999 368,784 1,114,476 1,535,202

2,596,954

4,173,555

Trusts and Annuities Long-Term Debt - net of current portion

588,987 158,399

615,247 61,838

Total Liabilities

3,344,340

4,850,640

Net Assets: Unrestricted: Undesignated Board designated Net investment in property and equipment

858,710 160,000 2,007,861

(1,950,534) 160,000 823,264

3,026,571

(967,270)

Temporarily restricted Permanently restricted - Child Vocational Scholarship Fund

3,942,807 340,000

3,081,035 340,000

Total net assets

7,309,378

2,453,765

Total Liabilities and Net Assets

$ 10,653,718

$

7,304,405

See notes to consolidated financial statements.

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FOOD FOR THE HUNGRY

ANNUAL REPORT 2004

Faces in the Hard Places

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Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Consolidated Statements of Activities Year Ended

Unrestricted

Support, Revenue and Reclassifications Contributions $ Government grants Gifts-in-kind Legacies and bequests Investment income Gain on sale of property Change in value of trusts and annuities Other income Net assets released from restrictions: Administrative allocations Child sponsorship International Hunger Corps staff support Child Vocational Scholarships granted Relief efforts and other projects

Total Support, Revenue and Reclassifications

Expenses Program ministries: Grants to Food for the Hungry International Gifts-in-kind to other organizations Other programs Information and education

Supporting services: Fundraising General and administrative

Total Expenses

Change in Net Assets Net Assets, Beginning of Year

Net Assets, End of Year

$

Temporarily Restricted

4,234,164 $ 6,993,908

68,694,675 1,440,000 48,031 2,532,104 (11,037) 37,284 3,845,361 3,227,452 1,992,754 75,000 2,591,384

95,701,080

September 30, 2004

Year Ended September 30, 2003

Permanently Restricted Total Unrestricted

12,426,587 $ - $ - - - - - - 148,626 - - 18,510 - - - (3,845,361) (3,227,452) (1,992,754) (75,000) (2,591,384)

861,772

16,660,751 $ 6,993,908 68,694,675 1,440,000 196,657 2,532,104 7,473 37,284

- - - - -

-

- - - - -

96,562,852

Temporarily Restricted

Permanently Restricted

Total

3,316,689 $ 6,995,171 55,399,611 708,961 48,165 - 2,515 (2,923)

10,350,009 $ - - - 137,496 - 27,423 -

- $ - - - - - - -

3,535,844 2,849,275 1,959,638 65,000 1,755,929

(3,535,844) (2,849,275) (1,959,638) (65,000) (1,755,929)

- - - - -

76,633,875

349,242

-

13,666,698 6,995,171 55,399,611 708,961 185,661 29,938 (2,923) - - - - 76,983,117

21,417,921 59,706,932 3,610,612 474,083

85,209,548

- - - -

-

- - - -

-

21,417,921 59,706,932 3,610,612 474,083

85,209,548

18,099,298 49,266,703 2,977,415 495,245

70,838,661

- - - -

-

- - - -

-

18,099,298 49,266,703 2,977,415 495,245 70,838,661

3,798,456 2,699,235

6,497,691

- -

-

- -

-

3,798,456 2,699,235

6,497,691

3,218,930 2,469,829

5,688,759

- -

-

- -

-

3,218,930 2,469,829 5,688,759

-

-

-

-

91,707,239

3,993,841 (967,270) 3,026,571

$

861,772 3,081,035 3,942,807

$

91,707,239

- 340,000 340,000

4,855,613

2,453,765

$

7,309,378

76,527,420

106,455

(1,073,725)

$

(967,270)

$

349,242 2,731,793 3,081,035

$

76,527,420

-

455,697

340,000 340,000

$

1,998,068 2,453,765

Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Consolidated Statements of Functional Expenses Program Ministries

Direct Program Distributions

Information and Education Fundraising

Grants to Food for the Hungry International $ 21,417,921 $ In-Kind Grants to Other Organizations 59,706,932 Grants to Other Organizations 65,150 Salaries and Benefits 2,682,744 Professional Services 163,411 Travel 211,816 Office Expense 61,916 Occupancy 76,896 Postage 37,171 Interest - Depreciation 9,730 General Information, Education and Promotion 72,979 Other Expenses

228,799

Year Ended September 30, 2004 $ 84,735,465 $ Year Ended September 30, 2003

$ 70,343,416

$

Years Ended September 30,

2004 2003

Support Services General and Administrative

Total

Total

- $ - - 273,776 48,647 18,135 19,240 29,828 691 - 5,742 61,333 16,691

474,083 $

- $ - - 775,347 138,539 139,371 61,180 95,646 66,877 - 26,711 2,447,642 47,143

3,798,456 $

- $ 21,417,921 $ - 59,706,932 - 65,150 1,440,383 5,172,250 136,045 486,642 136,681 506,003 250,288 392,624 48,117 250,487 43,177 147,916 82,372 82,372 173,679 215,862 11,511 2,593,465 376,982

669,615

2,699,235 $ 91,707,239

495,245

3,218,930

2,469,829

$

$

18,099,298 49,266,703 59,346 4,596,690 436,551 376,148 263,143 165,620 101,597 48,743 174,671 2,426,963 511,947

$ 76,527,420

See notes to consolidated financial statements.

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FOOD FOR THE HUNGRY

ANNUAL REPORT 2004

Faces in the Hard Places

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Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements September 30, 2004 and 2003

Years Ended September 30,

2004

Cash Flows from Operating Activities: Reconciliation of change in net assets to net cash provided by operating activities: Change in net assets $ Depreciation Noncash stock gifts Net realized and unrealized (gain) loss on investments Net (gain) loss on sale of fixed assets Interest added to loan principal Net change in grant receivable and payable Net change in bequest and promises-to-give receivable Net change in commodity inventory Net change in prepaids and other assets Net change in accounts payable Net change in accrued expenses

Net Cash Provided by Operating Activities

Cash Flows from Investing Activities: Fixed asset purchases Proceeds from sale of fixed assets Investment purchases Proceeds from sale of investments Purchase of gift annuity reinsurance asset

Net Cash Provided (Used) by Investing Activities

4,855,613 $ 215,862 (99,316) (198,283) 2,503,543 11,828 (121,134) (459,000) - (89,599) (462,463) 33,436

1,183,401

2003

455,697 174,671 (69,196) (124,080) 5,026 7,642 (724,961) (47,675) 622,585 (273,267)

26,442

(269,372) 2,488,622 (1,600,072) 313,049 -

(821,114) 7,299 (1,608,702) 1,752,073 -

932,227

(670,444)

Cash Flows from Financing Activities: Proceeds from line of credit draws Payments on long-term debt Change in trusts and annuities

- (658,869) (7,473)

465,137 (31,149) (29,938)

Net Cash Provided (Used) by Financing Activities

(666,342)

404,050

1,449,286 61,922

(239,952) 301,874

Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year

Food for the Hungry Foundation, Inc. (FHF) incorporated in the United States in 2003. FHF is organized and operated under the control and for the benefit of FHUS. Food for the Hungry International (FHI), incorporated in Geneva, Switzerland, works in 37 countries through the help of donors who support its 11 national organizations (N.O.s),–one of those being Food for the Hungry, Inc. These N.O.s, located around the world, raise funds, supply human resources, and help design and evaluate relief and development programs implemented in communities across South and Central America, Asia, Africa, Europe and the Middle East. The 11 N.O.s are: Costa Rica, Canada, Hong Kong, Japan, Korea, Norway, Sweden, Switzerland, United Kingdom, United States, and United StatesKorea.

Hunger Corps Staff also work with indigenous organizations to help them better serve the needs of people in their own communities. Missions opportunities are offered through Food for the Hungry, Inc.’s short-term teams and longer-term assignments with our unique Hunger Corps program.

General Relief and Development Food for the Hungry, Inc., using the Vision of Community philosophy, provides emergency relief and rehabilitation, community clean-water projects, health education and intervention, agriculture development, income generation, lifeskills training, and education.

Gifts-in-Kind Food for the Hungry, Inc. procures donations for food, seeds, clothing, medical supplies, and other commodities for use in relief, rehabilitation, and development programs. These donations are then matched with the needs of Food for the Hungry, Inc. and other agencies.

61,922

Supplemental Disclosures: Cash paid for interest, net of capitalized interest

$

70,573

$

36,669

Information and Education By providing information and implementing educational programs, Food for the Hungry, Inc. serves as an advocate for some of the poorest people in the world.

Summary Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. are not-for-profit corporations exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and are also exempt from state income taxes. Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. have been classified as a publicly supported organizations, which are not private foundations, under section 509(a) of the Code. Contributions by the public are deductible for income tax purposes. During the year ending September 30, 2004, contributions approximated 17% of total support and revenue of which FHF contributed $2,500,000. In the same year, gifts-in-kind approximated 71% of total support and revenue, and cash government grants approximated 7% of total support and revenue.

57,491,859

Property transferred to assets held for sale

-

467,715

Property acquired through loan

-

1,050,000

Equipment acquired through capital leases

281,216

71,122

Payments on long-term debt through sale of asset held for sale

$

496,430

$

See notes to consolidated financial statements.

FOOD FOR THE HUNGRY

-

Cash and Cash Equivalents Cash and cash equivalents consist primarily of cash on hand and cash on deposit.

These accounts may, at times, exceed federally insured limits. Food for the Hungry, Inc. has not experienced any losses in such accounts. Management believes it is not exposed to any significant credit risk on cash and cash equivalents.

Investments are held for the Child Vocational Scholarship Fund and to fund trusts and annuities for which Food for the Hungry, Inc. is trustee.

Child Sponsorship $26 a month helps provide a child with access to nutritious food, clothing, medical care, and spiritual nourishment through community development programs.

Because the programs are family and community based, gifts help the entire family and community.

$

68,694,675

Grants payable to Food for the Hungry International are related to government grants for which valid expenditures had been incurred at year end. Grants payable as of September 30, 2004, and 2003 were $719,749 and $368,784, respectively.

Food for the Hungry’s activities include:

1,511,208

The primary purpose of Food for the Hungry, Inc. is to provide support for the programs of Food for the Hungry International. Accordingly, grants to Food for the Hungry International for the years ended September 30, 2004 and 2003 totaled $21,417,921 and $18,099,298, respectively, of which $5,346,523 and $4,412,424 were commodities which were later monetized or awaiting monetization overseas, $3,641,221 and $1,720,485 were gifts-in-kind which were distributed overseas, and $2,835,250 and $2,685,270 were reimbursements for costs of shipping gifts-in-kind.

Investments Money market mutual funds, certificates of deposit, and cash in investment brokerage accounts held in trust for the Child Vocational Scholarship Fund and to fund trusts and annuities are included in investments. Investments are carried at market value. Donated securities are recorded at market value on the date of the gift and thereafter carried in accordance with the above provisions.

$

Gifts-in-kind received and distributed

Affiliated Organizations Food for the Hungry, Inc. and Food for the Hungry International have separate and distinct Boards of Directors. Therefore, the financial statements have not been consolidated with those of Food for the Hungry International.

The 37 countries with ongoing program activity carried out by, or supported by FHI are: Bangladesh, Bolivia, Brazil, Cambodia, China, Congo, Cuba, Dominican Republic, Ethiopia, Ghana, Guatemala, Haiti, Honduras, India, Iraq, Kazakhstan, Kenya, Krygystan, Laos, Mongolia, Mozambique, Myanmar, Nepal, Nicaragua, North Korea, Peru, Philippines, Romania, Rwanda, Sudan, Tajikistan, Tanzania, Thailand, Uganda, Uzbekistan, Vietnam and United States/Phoenix.

Cash and Cash Equivalents, End of Year

Non-cash transactions:

22

1. NATURE OF ORGANIZATION: Food for the Hungry, Inc. (FHUS) is a Christian international relief and development organization, incorporated in the United States in 1971, and dedicated to helping people in the poorest areas of the world by advocating for them and providing relief, rehabilitation, and development programs. The Operational Statement, or Vision of Community philosophy is: FHUS seeks to walk with churches, leaders, and families in overcoming all forms of human poverty by living in healthy relationship with God and His Creation.

Promise-to-Give Receivable Unconditional promises-to-give that are expected to be collected or granted within one year are recorded at net realizable value.

Bequest Receivable Bequests that have been approved by the probate court are recorded at net realizable value. The proceeds are considered measurable and expected to be collected within one year.

Inventory of Commodities Food for the Hungry, Inc. receives donations of commodities for monetization from the United States Agency for International Development (USAID). Proceeds from monetized commodities are used to fund program activities. These commodities are valued at the estimated future proceeds from monetization.

Property Held for Sale During the year ended September 30, 2003, the headquarters of Food for the Hungry, Inc. were relocated from Scottsdale, Arizona to Phoenix, Arizona. The Scottsdale property was held for sale at September 30, 2003, carried at lower of historical cost or net realizable value. The property was sold during the year ended September 30, 2004.

Land, Buildings and Equipment Expenditures greater than $1,000 for land, buildings and equipment are capitalized at cost. Donated items are recorded at fair market value on the date of the gift.

Depreciation is computed on the straight line method over the estimated useful lives of the assets, ranging from 2 years for software to 30 years for buildings.

Trusts and Annuities Food for the Hungry, Inc. has established a gift annuity plan that allows donors to contribute assets to the organization in exchange for the right to receive a fixed dollar annual return during their lifetimes. A portion of the transfer is considered a charitable contribution for income tax purposes.

As trustee, Food for the Hungry, Inc. administers irrevocable charitable remainder unitrusts. These trusts provide for the payment of lifetime distributions to the grantor or other designated beneficiaries. At the death of the lifetime beneficiaries, the trusts provide for the distribution of assets to Food for the Hungry, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements of Food for the Hungry, Inc. have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles. A summary of significant accounting policies followed are described below to enhance the usefulness of the consolidated financial statements to the reader.

The difference between the amount contributed for gift annuities and irrevocable agreements and the liability for future payments, determined on an actuarial basis, is recognized as income at the date of the gift and is included on the consolidated statements of activities in Contributions. The difference between assets in trust and liabilities is reported on the consolidated statements of financial position as net assets.

Principles of Consolidation The consolidated financial statements include the operations of Food For the Hungry, Inc. and Food for the Hungry Foundation, Inc., collectively referred to as the Food for the Hungry, Inc. All significant intercompany balances and transactions have been eliminated. For the year ended September 30, 2004, Food for the Hungry Foundation, Inc. had total assets of $1,701,358 and total liabilities of $1,701,358.

The present value of the expected payments to the trustors and annuitants over their life expectancy is included on the consolidated statements of financial position as a liability under the caption Trusts and Annuities. The liability is revalued annually based upon actuarially computed present values. The change in the present value, net of investment income, payments to annuitants, and terminations, is included on the consolidated statements of activities as Change in Value of Trusts and Annuities.

ANNUAL REPORT 2004

Faces in the Hard Places

23

Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc.

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

September 30, 2004 and 2003

September 30, 2004 and 2003

The present value of expected payments to annuitants over their life expectancy is $494,368 and $524,792 as of September 30, 2004, and 2003, respectively. The present value of expected payments to trustors over their life expectancy is $94,619 and $90,455 as of September 30, 2004 and 2003, respectively. In March 2002, Food for the Hungry, Inc. purchased a Nonparticipating Terminal Funding Group Annuity from an insurance company. The purpose of this policy is to reinsure the gift annuity obligations of Food for the Hungry, Inc. The insurance company has assumed all mortality and investment risk associated with the gift annuities. However, Food for the Hungry, Inc. remains liable for fulfilling the requirements of the gift annuity agreements. The value of this policy has been determined to equal the outstanding annuity obligations of Food for the Hungry, Inc. and is included on the consolidated statements of financial position as Gift Annuity Reinsurance Asset.

As a result of the reinsurance of the mortality and investment risk associated with gift annuities, changes in the present value of expected payments to annuitants over their life expectancies from the date of the policy forward represent changes in the associated Gift Annuity Reinsurance Asset and not income to Food for the Hungry, Inc. Food for the Hungry, Inc. has established a charity-advised fund with National Christian Charitable Foundation, Inc., d/b/a National Christian Foundation (NCF), with the understanding that Food for the Hungry, Inc. may appoint a volunteer committee which may make recommendations to NCF as to the grants to be made from the fund.

Net Assets The consolidated financial statements report amounts by classification of net assets as follows: Unrestricted amounts are those currently available at the discretion of the board for use in the organization’s operations, for specific purposes as designated by the board, and those resources invested in property and equipment.

Temporarily restricted amounts are those which are stipulated by donors for specific operating purposes, for capital projects, and time restrictions. See Note 6 for a summary of temporarily restricted net assets.

Permanently restricted amounts are those which represent permanent endowments where it is stipulated by donors that the principal remain in perpetuity and only the income is available as unrestricted or temporarily restricted, as specified in endowment agreements. Permanently restricted net assets consist of the Child Vocational Scholarship Fund. Each year, all or part of the investment income from the Child Vocational Scholarship Fund is available for award to graduates of the child sponsorship program for additional vocational training. The investment income can also be used by Food for the Hungry International staff toward funding of courses that would enable them to better serve the country in which they minister.

All contributions are considered available for unrestricted use unless specifically restricted by the donor or subject to legal restrictions.

Contributions are recorded as temporarily restricted if they are received with donor stipulations that limit their use through purpose and/or time restrictions. When donor restrictions expire, that is, when the purpose restriction is fulfilled or the time restriction expires, the net assets are reclassified from temporarily restricted to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. Food for the Hungry, Inc.’s policy is to record temporarily restricted contributions received and expended in the same accounting period as temporarily restricted contributions and net assets released from restrictions.

For contributions restricted by donors for the acquisition of property or other long-lived assets, the restriction is considered to be met when the property or other long-lived asset is placed in service.

Public Support, Revenue and Expenses Contributions are recorded when cash or unconditional promises-to-give Contributions are recorded when cash or unconditional promises-to-give have been received or ownership of donated assets is transferred to Food for the Hungry, Inc. Conditional promises-to-give are recognized when the conditions on which they depend are substantially met. Food for the Hungry, Inc. receives noncash gifts which are recorded as support at the estimated fair market value on the date of the gift. Goods given to Food for the Hungry, Inc. that do not have an objective basis for valuation are not recorded.

Revenue is recorded when earned. Expenses are recorded when incurred in accordance with the accrual basis of accounting.

Contributed Services Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, requires recording the value of donated services that create or enhance nonfinancial assets or require specialized skills. Many volunteers have contributed significant amounts of their time to activities of Food for the Hungry, Inc. However, since the above requirements were not met, the value of the contributed services is not recorded in the consolidated financial statements.

Functional Allocation of Expenses The costs of providing the various program services and supporting activities have been summarized on a functional basis. Accordingly, certain costs, such as depreciation and payroll, have been allocated among the program and supporting activities benefited.

24

FOOD FOR THE HUNGRY

Allocation of Joint Costs Food for the Hungry, Inc. has implemented the American Institute of Certified Public Accountants’ Statement of Position 98-2, Accounting for Costs of Not-for-Profit Organizations and State and Local Governmental Entities that Include Fundraising. Food for the Hungry, Inc.’s policy is to allocate all costs of activities which have a fundraising component as 100% fundraising.

Reclassification Certain information from the prior year consolidated financial statements has been reclassified to conform to the current year presentation format. As of September 30, 2003, a restatement of $708,961 was made to reclassify bequests receivable from temporarily restricted to unrestricted net assets. This amount was previously reported as promises to give receivable, implicitly time restricted, when in fact these gifts had been completed and Food for the Hungry, Inc. had legal ownership of and entitlement to the assets, subject to distribution by the executor.

Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates 3. INVESTMENTS: Investments consist of the following: September 30,

2004

2003 Money market funds $ 111,550 $ 78,256 Certificates of deposit - 20,406 Treasury notes 1,468,519 398,855 Common stock 1,163,298 856,976 Corporate bonds 662,041 139,821 Annuities - 207,632 Mutual funds

107,724

214,927 3,513,132 1,916,873 Less long-term investments: Investments held for charitable trusts and annuities 162,484 165,751 Endowment investments

340,000

340,000 Current investments $ 3,010,648 $ 1,411,122

Gifts-in-kind were distributed as follows:

5. LONG-TERM DEBT: Long-term debt consists of the following: September 30, Food for the Hungry Inc. leases various equipment from unaffiliated entities under capital lease agreements with total monthly payments of $10,643 due from December 2003 to August 2008.

$

Food for the Hungry, Inc. has a secured line of credit with a bank with a limit of $500,000 due on demand. The interest rate is LIBOR plus a sliding percentage depending on the loan balance. The rate at September 30, 2003 was 2.867%.

2004

260,596

2003

$

74,261

474,189

472,779

Food for the Hungry, Inc. has a loan secured by property with a bank.

Monthly payments are interest only, due March 2004. Interest is at the prime rate plus 2%, with a floor of 6.5%, which was the rate at September 30, 2003.

-

1,050,000

734,785 1,597,040 Less current portion (576,386)

(1,535,202)

$ 158,399 $ 61,838 Interest expense–net of capitalized interest $ 82,401 $ 48,743

The future minimum payments are as follows:

Year Ending September 30, 2005 $ 576,386

2006 113,654

2007 28,212

2008

16,533

$ 734,785

Investment income consists of: Years Ended September 30,

Interest and dividends $ Realized and unrealized gain on investments Investment fees

Less portion included in change in value of split-interest agreements

Total investment income $

2004 32,146

$

2003 93,888

182,546 (18,035)

196,657

124,080 (6,457) 211,511

- 196,657

25,850 185,661

$

4. LAND, BUILDINGS AND EQUIPMENT: Land, buildings and equipment consist of the following: September 30,

2004

2003 Land $ 147,105 $ 147,105 Buildings and improvements 1,658,853 1,591,232 Furniture and fixtures 283,837 33,839 Office equipment 200,266 192,997 Computer equipment 530,294 394,135 Vehicles

29,420

29,463 2,849,775 2,388,771 Less accumulated depreciation (581,318) (441,246) Land, buildings and equipment–net 2,268,457 1,947,525 Less debt secured by land, buildings, and equipment (260,596) (1,124,261) Net investment in land, buildings, and equipment $ 2,007,861 $ 823,264 Depreciation expense $ 215,862 $ 174,671 Buildings include capitalized interest of $6,195 for the year ended September 30, 2003.

6. TEMPORARILY RESTRICTED NET ASSETS: Temporarily restricted net assets consist of the following: September 30,

2004

Program restrictions: Relief efforts and international projects $ 2,390,389 $ International Hunger Corps staff support 717,277 Child sponsorship 248,907 Child Vocational Scholarship Fund 518,369 Future interest in irrevocable trusts 67,865 Other

-

3,942,807 Time restrictions: Promises-to-give

-

$ 3,942,807 $

Years Ended September 30, Food for the Hungry International Other agencies

2004 $ 12,264,461 59,706,932 $ 71,971,393

2003 $ 8,809,189 49,266,703 $ 58,075,892

In accordance with Interagency Standards established by the Association of Evangelical Relief and Development Organizations (AERDO), Food for the Hungry, Inc. only records the value of gifts-in-kind for which they were either the original recipient of the gift, were involved in partnership with another organization for distribution internationally, or granted the gift for use in a Food for the Hungry International program.

8. LEASES: Food for the Hungry, Inc. leases office space adjacent to the former Scottsdale, Arizona, facility and office space in Washington D.C. under an operating lease agreement with monthly payments of $1,736 and $4,525, respectively. The leases on the office space adjacent to the former Scottsdale, Arizona, facility expired in April 2004. The lease on the office space in Washington, D.C. will expire May 2005.

Food for the Hungry, Inc. also leases office equipment with total monthly payments of $8,089, maturing from December 2003 to August 2006.

Total lease expense was $72,917 and $91,524 for the years ended September 30, 2004 and 2003, respectively.

The future minimum payments are as follows: Year Ending September 30, 2005 $

2006

2007

2008

2009

$

64,723 24,076 14,914 13,770 6,885 124,368

9. RETIREMENT PLAN: Food for the Hungry, Inc. has a defined contribution pension plan covering substantially all employees over 18 years of age who have completed one year of service. Food for the Hungry, Inc. makes contributions based on a percentage of salary, and employees may make additional contributions. Vesting in Food for the Hungry, Inc. contributions is based on years of continuous service, which reaches 100% after the fifth year of service.

Retirement expense was $159,172 and $109,692 for the years ended September 30, 2004 and 2003, respectively.

2003

1,261,700 804,481 481,554 444,743 60,565 11,992 3,065,035 16,000 3,081,035

7. GIFTS-IN-KIND: Food for the Hungry, Inc. receives donations of food, clothing, medical supplies, and other commodities for use in relief and development programs. Food for the Hungry, Inc. transfers all such gifts-in-kind to Food for the Hungry International and similar not-for-profit organizations for ultimate distribution to the poor and hungry throughout the world.

Gifts-in-kind for the years ended September 30, 2004, and 2003 include $7,108,568 and $5,382,585, respectively, of commodities received through the United States Agency for International Development (USAID), of which $989,790 and $485,993 were distributed to foreign programs. The remainder was monetized overseas and the proceeds used in foreign programs. Such goods were valued at wholesale value using guidelines published by the United States Department of Agriculture and USAID. The remaining $61,568,107 and $50,017,026 for the years ended September 30, 2004 and 2003, respectively, relates to gifts-in-kind received through private donations, which were recorded at estimated fair value on the date of the gift.

Board of Directors 2004 Howard Berg Consultant Scottsdale, AZ

Maurice L. Martin Pastor Littleton, CO

Ray J. Berryman Businessman Windermere, FL

Scot Riddle Businessman Canyon Country, CA

Theodore S. Corwin, Jr. Businessman Hickory, NC

John Rowell Missions Executive Atlanta, GA

Shelle Ensio Engineer Tucson, AZ

John A. Tanksley Physician Springfield, MO

Randall L. Hoag Food for the Hungry, Int’l.

Bangkok, Thailand

Gregory L. Vestri Consultant Austin, TX

Benjamin K. Homan Food for the Hungry, Inc. Phoenix, AZ

Carolyn Wheeler Realtor/Developer Nicholasville, KY

Scott Krippayne Artist/Songwriter Tacoma, WA

ANNUAL REPORT 2004

Faces in the Hard Places

25

Food for the Hungry

Meeting physical and spiritual needs worldwide

1224 E. Washington Street Phoenix, AZ 85034 Phone: 480-998-3100 1-800-2-HUNGERS www.fh.org

Food for the Hungry would like to thank our advocate for the hurting world, photographer Rodney Rascona, and O’Neil Printing for their support in maintaining graphic industry standards at reduced costs, allowing us to be faithful stewards to God and our donors.