annualreport_2005

President’s Message The year began as I pondered hope while staring through the pane of a tiny window of a helicopter flying over the West coast of Sumatra. Over the deafening sound of the rotors, I tried to process how hope could surface amid the miles of broken coastline or, even more so, in the hundreds of thousands of hearts shattered by the unexpected tsunami. As images flashed below of flattened plots of land where homes once stood, now littered with fallen palm trees, piles of rubble and scattered fragments of life, I silently prayed for God to bring a movement of hope to sweep through this devastated land.

Questions flooded my mind from other patches of the world. I wondered how hope would spring forth to quench African fields so barren and dry, moistened only by the tears of those who had labored and received no harvest. How would hope soothe the pains that plague so many bodies weakened by the persistence of HIV/AIDS, or provide solace to the hearts and minds of little orphans who wonder why mommy and daddy have vanished. And I contemplated how hope could penetrate our own shores after their physical and emotional landscapes were reshaped by the fierceness of Hurricanes Katrina and Rita.

My questions were answered in more ways than one. As I walked the terrain in these hard places, I saw relentless hope overcome darkness and despair, manifesting itself through the hands and feet of our amazing staff and volunteers. I witnessed hope carving itself into places corrupted by injustice and inhumanity through the dignity of the grace-filled message we live by. And I saw hope usher renewal and restoration into hardened and unreached places through our relief and development programs.

I have seen how hope finds a way. It must find a way, for it is a hope that flows from the very heart of Jesus. He is the Giver of Hope and through His strength, such hope can change harsh landscapes and breathe new life into places where nothing else thrives. It is a love-based hope that unifies neighborhoods and communities, churches and families. It perseveres.

Through God’s grace, Food for the Hungry was there when hope came in and transformed lives. In the following pages, it is our prayer that you would deepen your understanding of these powerful movements of hope. Written as a narrative reflection on the fiscal year extending from October 1, 2004 - September 30, 2005, we pray that it serves as a reminder of the integral role your partnership with Food for the Hungry has in changing the contours of the hardest places.

Doing, loving and walking in hope,

Benjamin K. Homan President, Food for the Hungry, Inc. Phoenix, Arizona

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On December 26, 2004, as the morning sun shone brightly over the rugged coastal areas around the Indian Ocean, the promise of a new day appeared certain.

Tourists on holiday vacation sunbathed on white-sand beaches. Children ran about and played in the inviting sea. On the surface, life for millions in the South Asia region was off to a normal start.

Then, with hardly any warning, death arrived. A powerful earthquake struck deep under the ocean and unleashed a series of tsunamis that swallowed everything in its path. In a flash, roaring waves slammed into the shores of a dozen countries, engulfing resorts, towns and entire communities. Ferociously. Without mercy.

When the ocean quieted down, it seemed to have silenced hope as well. Dead bodies lay everywhere. Cries of agony reverberated throughout the islands. A frantic husband searched through the rubble for his wife. A mother sat in anguish as she hugged the lifeless body of her little child. A young father lay quietly beside a mound of sand, a grave he dug for his son.

But somehow, in the flattened communities of Meulaboh in the Indonesian province of Aceh, God’s hope emerged.

Food for the Hungry joined with the City of Phoenix (see “Rising to Help”, page 6, 16) and churches in America to steer the broken communities toward recovery. We developed and implemented sustainable, strategic programs that have since fueled Meulaboh’s transition.

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ried so many me rubble that bu From the very sa d transformation s, hope engineere short-lived dream growth. Through ndwork for future s and laid the grou ds of local laborer program, hundre m our cash-for-work fro ing debris ed income by clear earned much need importance: carried symbolic o, to , rk wo e Th s. street ss to rebuild, e villagers’ openne it demonstrated th w pathways to and reconstruct ne reclaim their lives recovery. ensure its longlocal market and To revitalize the partnership for the Hungry, in term health, Food livelihood oenix, launched a with the City of Ph ided grants to ov ram that has pr rehabilitation prog sufficient again. ners become selfhelp business ow ened to Anwar, t turnaround happ Such a significan all but thriving preneur whose sm tre en ld r-o ea -y a 48 e tsunami’s d into pieces by th kiosk was smashe feet, Food for r get back on his fury. To help Anwa lp, and he has ed him financial he fer of ry ng Hu e th n see success a painful loss. “I ca m fro ck ba d ce boun said. waiting ahead,” he oh’s urished in Meulab Likewise, hope flo termath, af i am cape. In the tsun agricultural lands ndering the re r, in ocean wate ed ch en dr lay ds croplan se, we designed farming. In respon soil unsuitable for ers restore crop agriculture work a program to help tivities. tablish farming ac growth and re-es

see our pain,” just came here to “We thought you ngry staff. “But to a Food for the Hu said a PKK baker u’ve taught us more than that. Yo you’ve done much again.” ings – and to laugh to welcome new th ize on our this hope material We also watched trina and Rita nt Hurricanes Ka own shores. Viole ed hundreds of people and displac of ds re nd hu d lle ki destroyed ighborhoods were Ne . rs he ot of s nd thousa vastation was the expanse of de and flooded, and ok root. t here too, hope to overwhelming. Ye New Orleansry partnered with ng Hu e th for od Fo -based John M. ct and Mississippi based Urban Impa ond to this crisis. n (JMPF) to resp Perkins Foundatio in the form of ugh the wreckage ro th ed sh pu pe Ho a counseling ical supplies, traum food kits and med oreover, hope ort for victims. M and economic supp ild the spiritual n process to rebu began a cultivatio sing the spiritual the region, addres in e ur ct ru st fra in verty that exists. and emotional po leans dangled laboh and New Or Not long ago, Meu hopelessness as on the precipice of make sense of residents tried to s. Hope seemed their collective los e a mirage. distant, elusive lik far. And in the Yet hope is never ides, spurring hard places, it ab in the land. transformations

ng for the pe remained stro And to ensure ho ry prioritized Food for the Hung most vulnerable, well-being for tal and emotional the physical, men umatized by the ren who were tra women and child e City of Phoenix llaboration with th tragic event. In co an approach rship, we crafted and the local leade embers of the al teachers and m that provides loc ’s Association ioned PKK Women government-sanct assistance and seling, livelihood with trauma coun training. phasis on English education with em

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Something enchanting occurs when the melody of hope gently breaks through the silent existence of villages that are tucked away, far from civilization, known only by those familiar with the beaten paths that lead to their dwelling places. There is such a place in the high valley of Bolivia, where the people resound a new chorus of hope and thanksgiving to God. Over 40 communities exist here, humbly dwelling, tilling their land, traveling down dusty paths on foot. By day, they are found in the backdrop of the virgin valleys of the Bolivian Andes, under the expanse of the azure blue skies. In the quiet of the setting sun, their existence is marked by the sounds of skilled fingers moving over yarn spun on wooden looms and the dull squeaking of handcart wheels coming in from a long day of cultivating the land.

The roads that run through these villages are worn, and the laboring here is hard. Day in and day out the Quechua people work to care for their land. A constant burden is the depletion and improper use of natural resources because of erosion, overuse of crop lands and poor farming techniques. Until Food for the Hungry came into this region, hope for the restoration of diminishing livelihoods was almost nowhere to be found.

Lorenzo is a recipient of this hope that has altered the tough landscapes of the high valley he calls home. His dark skin is leathered from toiling under the intense sun in these highlands, his hands calloused from years of physical labor with crude tools.

But the wrinkles that appear in the creases of his eyes now are from smiling over his land, with hand outstretched, eager to share about how life has changed.

“We have heard a new song in our land.”

He is a subsistence farmer, leading a group of women in building terraces. Prior to Food for the Hungry’s presence, he had little training on how to care for his land. But through the natural resource management program, he received a year of technical conservation training and now teaches others in his community about land protection.

“I want to thank Food for the Hungry, who has helped us to protect our soils and taught us how to take care of the environment. Thank you for the support you have given us, and please continue to help us.”

In Bolivia, a new song resonates, and that song is called hope.

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Around the world, God’s hope actualizes dreams

of the land. And children now walk with a steady, purposeful gait – not to find water from distant sources, but to discover knowledge in school classrooms.

for both the young and old. Across oceans and borders, on hilly terrains and rugged roads, hope walks the distance to free children and entire communities from the clutches of poverty. In developing communities, hope empowers countless young men and women to blaze a trail for change and pioneer transformation in their own land. Grateful communities have a name for this hope: Child Sponsorship.

Yambel Rosario, a sponsored child, knows this wonderful hope all too well. Yambel is a brilliant young man with a passion for painting. But growing up poor he struggled to keep up with the financial demands of his lessons.

Reluctantly, Yambel decided to give up his dream of becoming an architect. But Food for the Hungry did not give up on him. Thanks to a scholarship obtained through Food for the Hungry’s child sponsorship program, Yambel now paints his future with hope.

One such community is El Gajo in the Dominican Republic, a village perched on a hill in the mountain region of Constanza. To its north is a settlement called El Paraiso (“The Paradise”). Yet, before Food for the Hungry entered these communities, hardly anything resembled paradise here. Not in El Paraiso. Not in El Gajo. Here, life was strained and tense.

Neighbors built walls of apathy between one another.

Children trudged through slippery slopes to fetch water.

Supply of electricity flickered.

And not a single church was around to demonstrate God’s light.

Yambel declared: “Before Food for the Hungry worked with my family I never expected I could have the opportunities I now have. You and my sponsor came into my life, and cared enough to make it possible for me to reach my dream.”

He is only one of the many voices and faces of hope. And El Gajo is only one of the thousands of communities that have altered the patterns of hopelessness in the lives of its people. All across continents, the child sponsorship program traverses narrow walkways and rugged paths to remove mountains that stand in the way of young lives pursuing their destinies.

Just like the high valley in Bolivia, hope made its way into the rough landscape of this farming village. Today, a water system supplies clean water to many households and latrines have become common fixtures in many homes. A vibrant church stands to carry the hope of God to every part

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The statisti cs are stagge ring. In 200 infections w 5, there wer orldwide. In e close to 5 th e same year million new diseases; m , 3 million pe HIV ore than hal op le died of AID f a million wer people livin S -r el e at ch ed il dr g with HIV st en. Worldwid ands at 40 m e, the total n illion (sourc umber of e: UNAIDS).

Food for the Hungry is w orking in six altering hop African cou e to those de ntries to brin v as ta ted by the di a “cleansing” g lifesease. In Mag tradition pe agade, Mozam rformed by of the dead, v bique, il lagers to clea puts men, w nse families omen and ch hope is here. of th ildren at risk e spirits Armed with of contracti resources, F ng HIV. But and volunte oo d fo r ers tread th the Hungry e dry, narro health prom HIV/AIDS to w dirt roads oters the villagers to bring the .

V truth about ol unteers from pray with th local church em. And slow es visit the ly, people ga transformat sick and in knowledg ion occurs. e and confid ence, and One volunte er put it this way: “Chan horizon, fo ge is like th rming into e rain gath a h ea vy, swollen ering on th out on the la cloud, read e nd and tran y to pour it’s sform the d pastures.” blessing ry, cracked soil into fru itful green In Wogeda, Ethiopia, a y oung man n young men amed Liyac and women hew represen who have lo have found st their pare ts many hope for a be nts and sibl tt er fu tu ings to AIDS Food for the re through th , but Hungry. Liy e livelihood achew and th program of in the comm e other youn unity were gi g men ven the oppo participate, rtunity to and today, L iy achew helps flourishing run a business, an d his incom considerabl e h as increased y.

Echoing the sentiments of many wh experienced o have a major life change thro Hungry, Liy u gh Food for the achew exclai med: “Than a man of hop k s to God! Now I e and strengt am h.”

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Frequently,

ple who serve through Food for

life changes are sparked by the peo

the

into the core of or a pressing whisper that speaks ging nud t quie a s ken awa e Hop .

Hungry erence and is bigger ing that makes a meaningful diff eth som of t par a be to -ire des what we ple respond to pens when the hearts of God’s peo hap l erfu pow ing eth Som es. than ourselv the poor. ak, share and serve on behalf of that calling, and are unified to spe

dreds poverty, the humble service of hun of God’s hope to assuage even of people brought the healing balm

hope flowed into untold crevices the most hardened places. This sed new life and confidence. of hurt and brokenness and infu

In places calloused by deep-seated

tes,

r community through our Advoca

Hope seeped into community afte Short-term Team members and committed to forge into places void souls of the entrenched.

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Hunger Corps missionaries; those de of hope to stir something new insi

the

In 2005, God used Food for the Hungry to spark movements of hope that searched the deep places of a hurting world, triggering lasting transformation.

Through His grace and power, this hope continues to press forward, touching lives and reshaping the spiritual, physical and emotional landscapes of the hardest places.

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Board of Directors Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. Phoenix, Arizona We have audited the accompanying consolidated statement of financial position of Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. as of September 30, 2005, and the related consolidated statements of activities, functional expenses, and cash flows for the year 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 audit.

We conducted our audit 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the organization internal control over financial reporting. Accordingly, we express no such opinion. 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 audit provides 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, 2005, and the results of its activities, functional expenses, and cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

Atlanta, Georgia December 16, 2005

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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 Statement of Financial Position

Consolidated Statement of Activities

Year Ended September 30, 2005 Assets

Current Assets: Cash and cash equivalents Investments

Grants receivable Inventory of commodities awaiting monetization Prepaid expenses and other assets

$

3,168,733 2,951,695 1,842,813 1,704,681 496,434 10,164,356

Investments Held for Charitable Trusts Gift Annuity Reinsurance Asset Land, buildings, and equipment, at cost–net Child Vocational Scholarship Fund

Total Assets

159,975 468,231 2,269,550 1,157,713

$

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

Net Assets: Unrestricted: Undesignated Board designated - Child Vocational Scholarship Fund Net investment in land, buildings, and equipment

1,118,971 160,000 2,111,152 3,390,123

Temporarily restricted Permanently restricted - Child Vocational Scholarship Fund Total net assets

5,614,416 340,000 9,344,539

Total Liabilities and Net Assets

$ 14,219,825

See notes to financial statements.

Administrative allocations Child sponsorship International Hunger Corps staff support Child Vocational Scholarships granted Relief efforts and other projects

$

- - - -

$ 20,636,889 12,873,413 32,800,619

304,334

20,423 -

- -

3,534 43,848

5,511,204 2,966,573

(5,511,204) (2,966,573)

- -

- -

1,934,267

(1,934,267)

-

-

(50,624)

-

-

(4,494,304)

-

-

(16,889) 43,848

50,624

4,494,304

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

1,671,609

- 66,662,637

28,519,890

-

-

28,519,890

23,237,869 4,853,145

520,476

- - -

- - -

23,237,869 4,853,145

520,476

57,131,380

-

-

57,131,380

Supporting services: Fundraising General and administrative

4,480,061 3,016,035

- -

- -

4,480,061 3,016,035

7,496,096

-

-

7,496,096

Total Expenses 64,627,476

Change in Net Assets 363,552

1,671,609

Net Assets, Beginning of Year

3,026,571

3,942,807

Net Assets, End of Year

$ 3,390,123

$ 5,614,416

See notes to financial statements.

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$ 16,418,190

-

-

189,968

Total Support, Revenue and Reclassifications 64,991,028

$ 4,218,699 12,873,413 32,800,619

114,366

Net assets released from restrictions:

$1,024,019 101,328 884,038 1,704,681 558,542 4,272,608 557,934 44,744 4,875,286

Total

$ 14,219,825

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

Support, Revenue and Reclassifications Contributions Government grants Gifts-in-kind Investment income

Change in value of trusts and annuities Other income

Year Ended September 30, 2005 Temporarily Permanently Restricted Restricted

Unrestricted

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-

- 64,627,476 -

2,035,161

340,000

7,309,378

$

340,000

$ 9,344,539

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 Statement of Functional Expenses

Consolidated Statement of Cash Flows

Years Ended September 30, 2005 Program Ministries

Direct Program Distributions

Years Ended September 30, 2005

Cash Flows from Operating Activities:

Support Services

Information and Education

Fundraising

General and Administrative

Total

Grants to Food for the Hungry International

$

28,519,890

$

-

$

-

$

-

$

28,519,890

In-Kind Grants to Other Organizations

23,237,869

-

-

-

23,237,869

Grants to Other Organizations

457,188

-

-

-

457,188

Salaries and Benefits

3,110,384

294,657

1,000,894

1,700,326

6,106,261

Reconciliation of change in net assets to net cash provided by operating activities: Change in net assets

$

Depreciation

2,035,161

Non-cash stock gifts

(144,566)

Net realized and unrealized loss on investments

(173,020)

Net loss on sale of fixed assets

27,478

238,058

Interest added to loan principal

Net change in grant receivable and payable

(837,641)

-

Net change in bequest and promises-to-give receivable

1,183,961

Professional Services

196,335

40,105

256,471

210,156

703,067

Net change in commodity inventory

-

Travel

433,028

7,998

211,586

135,511

788,123

Net change in prepaids and other assets

(229,478)

269,833

456,188

Net change in accounts payable

369,176

Net change in accrued expenses

12,893

Net Cash Provided by Operating Activities

2,482,022

(250,317)

Office Expense

87,463

35,502

63,390

Occupancy

99,901

34,480

144,564

15,202

294,147

Postage

34,397

854

51,875

45,712

132,838

Interest

284

-

246

47,367

47,897

Depreciation

15,653

6,055

29,927

186,423

238,058

General Information, Education and Promotion

82,873

80,043

2,664,372

23,067

2,850,355

Other Expenses

335,639

20,782

56,736

382,438

795,595

Total Expenses

$

$

520,476

$

56,610,904

4,480,061

$

$3,016,035

$

64,627,476

See notes to financial statements.

1.

1.

1.

5.

2.

3.

2.

4.

2.

3.

3.

4.

Use of Resources

Commodities Distributed

Public Support

1. Programs. . . . . . . . . . 88% 2. Fund Raising. . . . . . . . 7% 3. Administrative. . . . . . . 5%

1. Seeds. . . . . . . . . . . . . 40% 2. Food. . . . . . . . . . . . . . . 5% 3. Other. . . . . . . . . . . . . . 9% 4. Clothing. . . . . . . . . . . 15% 5. Medical Supplies. . . . 31%

1. Individuals. . . . . . . . . 90% 2. Churches. . . . . . . . . . . 1% 3. Businesses. . . . . . . . . . 7% 4. Foundations. . . . . . . . . 2%

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In Fiscal Year 2005, Food for the Hungry management voluntarily applied more rigorous verification requirements for gift-in-kind shipments to external recipients, resulting in a reduction of reported gift-in-kind private donations as well as a decline in use of resources as shown.

For more information on gifts-in-kind, see section 7, page 33 of this report.

Cash Flows from Investing Activities: Fixed asset purchases

Proceeds from sale of fixed assets

900

Investment purchases

(1,116,948)

Proceeds from sale of investments

676,931

Net Cash Provided Used by Investing Activities

(689,434)

Payments on long-term debt

(131,499)

Change in trusts and annuities

(3,564)

Net Cash (Used) by Financing Activities

(135,063)

Increase in Cash and Cash Equivalents

Cash Flows from Financing Activities:

1,657,525

Cash and Cash Equivalents, Beginning of Year

1,511,208

Cash and Cash Equivalents, End of Year

3,168,733

$

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

$

43,655

Gifts-in-kind received and distributed

$

32,800,619

Fixed assets acquired through accounts payable

$

Non-cash transactions:

See notes to financial statements.

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17,212

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, 2005

September 30, 2005

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.

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 43 countries through the help of donors who support its 10 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 10 N.O.s are: Costa Rica, Canada, Hong Kong, Japan, Korea, Sweden, Switzerland, United Kingdom, United States, and United States–Korea.

The 43 countries that Food for the Hungry, Inc. has an ongoing presence in as a relief and development or exploratory fields, or supported by FHI are: Afghanistan, Bangladesh, Bolivia, Brazil, Cambodia, China, Costa Rica, DRC Congo, Cuba, Dominican Republic, Ethiopia, Guatemala, Haiti, Honduras, Indonesia, India, Iraq, Iran, Kazakhstan, Kenya, Krygystan, Laos, Malaysia, Mongolia, Mozambique, Myanmar, Nepal, Nicaragua, North Korea, Paraguay, Pakistan, Peru, Philippines, Romania, Rwanda, Sudan, Tajikistan, Tanzania, Thailand, Uganda, United States, Uzbekistan, and Vietnam.

total support and revenue.

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.

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, 2005, Food for the Hungry Foundation, Inc. had total assets of $2,321,288 and total liabilities of $2,281,270.

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 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 year ended September 30, 2005, totaled $28,518,890 of which $4,807,354 were commodities which were later monetized or awaiting monetization overseas, $4,755,396 were gifts-in-kind which were distributed overseas, and $5,603,842 were reimbursements for costs of shipping gifts-in-kind.

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, 2005, were $884,038.

Child Sponsorship $28 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.

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.

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.

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.

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

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, life skills training, and education.

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. There were no unconditional promises-to-give at September 30, 2005.

Micah Initiatives College students can receive first-hand experience and training through several programs offered through Micah Initiatives. Go-ED is an accredited overseas learning experience where college students spend a semester abroad. Other programs for college students include the College Campus Ministry and the Internship Program.

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. There were no recordable bequest receivables at September 30, 2005.

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.

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.

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.

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.

Summary Food for the Hungry, Inc. and Food for the Hungry Foundation, Inc. are not-forprofit 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, 2005, contributions approximated 34% of total support and revenue. In the same year, gifts-in-kind approximated 44% of total support and revenue, and cash government grants approximated 21% of

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.

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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.

the same accounting period as temporarily restricted contributions and net assets released from restrictions. Temporarily restricted contributions are subject to assessments ranging from 10% to 60%, which is used for general and administrative expenses. Assessments are classified as unrestricted contributions at the time the contributions are received.

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

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 statement of activities in contributions. The difference between assets in trust and liabilities is reported on the consolidated statement of financial position as net assets.

The present value of the expected payments to the trustors and annuitants over their life expectancy is included on the consolidated statement 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 statement of activities as change in value of trusts and annuities.

The present value of expected payments to annuitants over their life expectancy is $468,231 as of September 30, 2005. The present value of expected payments to trustors over their life expectancy is $89,703 as of September 30, 2005.

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 statement 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.

Public Support, Revenue and Expenses 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.

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.

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.

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, those for specific purposes as designated by the board, and those resources invested in land, buildings and equipment.

3. INVESTMENTS: Investments consist of the following: September 30, Money market funds Treasury notes Common stock Corporate bonds Mutual funds

Less long-term investments: Investments held for charitable trusts and annuities Endowment investments Current Investments

•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 statement 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

Investment income consists of: Interest and dividends Realized and unrealized gain on investments Investment fees

Less portion included in change in value of split-interest agreements Net investment income

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2005 $ 963,957 1,401,544 1,136,829 672,453 94,600 4,269,383

(159,975) (1,157,713) $ 2,951,695

$ 143,861 188,114 (7,218) 324,757

(20,423) $ 304,334

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

Notes to Consolidated Financial Statements September 30, 2005

Gifts-in-kind for the year ended September 30, 2005, include $9,017,483, of commodities received through the United States Agency for International Development (USAID), of which $4,210,129 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 $23,783,136 for the years ended September 30, 2005, relates to gifts-in-kind received through private donations, which were recorded at estimated fair value on the date of the gift.

Gifts-in-kind were distributed as follows:

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

Buildings and improvements

Furniture and fixtures Office equipment Computer equipment

Vehicles

Less accumulated depreciation

Land, buildings and equipment–net

Less debt secured by land, buildings and equipment

Net investment in land, buildings and equipment

2005 $ 168,851 1,691,189 283,359 211,968 631,618 29,420 3,016,405 (746,855) 2,269,550 (158,398) $ 2,111,152

Depreciation expense

$ 238,058

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 October 2006 to August 2008.

2005

$

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, 2005 was 5.61%.

Less current portion

444,888 603,286 (558,542) $ 44,744

Interest expense

$ 47,897

2006 2007 2008

$ 558,542 28,212 16,532 $ 603,286

September 30, Food for the Hungry International

Other agencies

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.

5. LONG-TERM DEBT: Long-term debt consists of the following:

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

During 2005, Food for the Hungry’s management voluntarily applied more rigorous verification requirements to external partners that facilitated gifts-in-kind to nonprofit organization recipients supported by Food for the Hungry other than those received directly by Food for the Hungry International. One external partner that facilitated both donations and shipments did not meet these more stringent requirements and hence the value of those shipments are not included in this report. Only gifts-in-kind donations and shipments that could be substantiated by supporting evidence obtained from and verified by independent third parties were deemed acceptable for reporting in the current year financial statements. This resulted in a substantial reduction in reported private donations of gifts-in-kind that, as noted above, were stated at $23,783,136 for the year ended September 30,2005.

158,398

Management has estimated that applying these new, more rigorous standards and reporting procedures to private gifts-in-kind transactions for the year ended September 30, 2004, would also result in a sizeable reduction/adjustment of giftsin-kind revenue and expense for that period. Because such a reduction would apply equally to revenue and expenses, there would be no effect on change in net assets or net assets as previously reported. Consequently, no adjustment to the prior year’s financial statement was deemed necessary.

8. LEASES Food for the Hungry, Inc. leases office space in Washington D.C. under a month to month operating lease agreement with monthly payments of $5,706.

Food for the Hungry, Inc. also leases office equipment with total monthly payments of $3,102, maturing from May 2006 to March 2009.

Total lease expense was $92,591 for the year ended September 30, 2005.

The future minimum payments are as follows: Year Ending September 30, 2006 $ 37,903

2007 21,058

2008 16,581

2009 6,885

$ 82,427

6. TEMPORARILY RESTRICTED NET ASSETS: Temporarily restricted net assets consist of the following: September 30, Program restrictions: Relief efforts and international projects

International Hunger Corps staff support

Child sponsorship

Child Vocational Scholarship Fund

Future interest in irrevocable trusts

Other

2005 $ 9,562,750 23,237,869 $ 32,800,619

2005 $ 3,632,637 917,859 243,382 657,713 70,272 92,553 $ 5,614,416

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 $172,194 for the year ended September 30, 2005.

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.

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