FISCAL YEAR 2018 ANNUAL REPORT YOUR SUPPORT AND HOW IT WAS USED FISCAL YEAR 2018 | ANNUAL REPORT 1 FY 2018 BOARD OF DIRECTORS CHAIR Angel L. Iscovich, MD VICE CHAIR Mark Schwartz CONTENTS SECRETARY James Selbert ASSISTANT SECRETARY Pamela Gann TREASURER Linda J. Gluck 03 18 Steve Ainsley • Steven Amerikaner How Direct Relief was Funded Strategic Foundation Partnerships Patricia Aoyama • Bitsy Becton Bacon Jeffrey Branch • David A. Brown Dante Di Loreto • Charles Fenzi, MD 07 20 Patrick Fitzgerald • David Lee Gibbs, PhD How Your Support was Used Investors Elizabeth Green, RN • Michael Kelly FISCAL YEAR 2018 ANNUAL REPORT Mark Linehan • Siri Marshall Jane Olson • Jamie Ruffing, PhD 13 34 27 S. La Patera Lane, Santa Barbara, CA 93117 Byron Scott, MD • Thomas Sturgess Financial Statements In Memoriam T: 805-964-4767 | TOLL-FREE: 800-676-1638 Steven A. Weintraub • Thomas Weisenburger, MD F: 805-681-4838 | DirectRelief.org INTERNATIONAL ADVISORY BOARD 16 35 Corporate Parnerships Guiding Principles IMPROVING E. Carmack Holmes, MD • S. Roger Horchow Donald E. Petersen • John W. Sweetland THE HEALTH MEDICAL ADVISORY BOARD AND Juan Carlos Alvarenga, MD Sofia Merajver, MD, PhD • Carol Millage, PharmD Federico Antillon, MD, PhD Charles Nicholson, MD • Raj Panjabi, MD, MPH Steve Arrowsmith, MD Bakht Sarwar, MD, MS LIVES Hon. Regina Benjamin, MD, MBA Ayesha Shaikh, MD, OB/GYN Elizabeth Duarte, MD Hambardzum Simonyan, MD OF PEOPLE Georges Dubuche, MD, MPH Tom Stern, MD • Larry Stock, MD, FACEP Adrian Ebner, MD • Paul Farmer, MD, PhD Elizabeth A. Toro, MD, MPH, OB/GYN Charles Fenzi, MD • Daron Ferris, MD David S. Walton, MD, MPH AFFECTED Charles Filipi, MD • Lynn Fitzgibbons, MD Thomas Weisenburger, MD Susan Fleischman, MD • Grace Floutsis, MD Beatrice Wiafe Addai, MD, PhD BY Henri Ford, MD, MHA, FACS, FAAP Hon. Jaime Galvez Tan, MD, MPH CHAIR EMERITI Paul Giboney, MD POVERTY William C. Gong, Pharm D, FASHP, FCSHP Thomas J. Cusack • Richard Godfrey ON THE COVER: Bert Green, MD • Elizabeth Green, RN Stanley C. Hatch • Dorothy F. Largay, PhD In the wake of Hurricane Harvey, Nancy Lessner • Rita Moya • John Romo Direct Relief emergency medical OR Dan Greenfield, MD • Douglas S. Gross, MD, PhD Angel L. Iscovich, MD • Rosie Jadidian, PharmD Denis Sanan • Nancy B. Schlosser supplies are delivered to Gulf Coast Karen Lamp, MD • Michael Maguire, MD PRESIDENT EMERITUS Sylvia Karczag Health Center in Beaumont, Texas. EMERGENCIES Laurinda Marshall, RN PRESIDENT & CEO Thomas Tighe PHOTO: Bimarian Films 2 ANNUAL REPORT | FISCAL YEAR 2018 HOW DIRECT RELIEF WAS FUNDED [ FY 2018 ] Nongovernmental, nonsectarian, and not-for-profit, Direct Relief provides assistance to people and communities without regard to politics, religious beliefs, or ethnic identities. Direct Relief relies entirely on private contributions. In Fiscal Year 2018 (July 1, 2017, through June 30, 2018), nearly 95,000 individuals, companies, and foundations gave in-kind and cash contributions to Direct Relief. Businesses and organizations provided products and expertise needed and leveraged for humanitarian purposes, and generous cash donations helped keep Direct Relief independent from external interests, maintaining the flexibility of its work. FISCAL YEAR 2018 | ANNUAL REPORT 3 92% 8% IN-KIND CASH $1.1 B $93.9M CASH AND IN-KIND CONTRIBUTIONS are used to cover internal costs and for goods and services foundations was spent. To fulfill its mission and program objectives, Direct to advance the organization’s mission and that cannot be Direct Relief’s activities are planned and executed Relief has long sought partnerships with businesses and obtained through in-kind donations. on an operating (or cash) budget that is approved by the organizations with particular expertise that is needed The strategic pursuit of in-kind resources enables Board of Directors prior to the onset of the fiscal year. The and can be leveraged for humanitarian purposes. This Direct Relief to provide far more humanitarian assistance cash budget is not directly affected by the value of in-kind approach has led to 200+ healthcare manufacturers and than would be possible in a model that relied entirely medical product contributions. Cash support—as distinct other corporations, in sectors ranging from technology upon raising cash and then converting the cash into from the value of contributed products—is used to pay goods and services. It makes little economic sense to incur for the logistics, warehousing, transportation, program to transportation,FY 2018 CO providingNTRIBUTED in-kind SUPPOR contributionsT: in the form of needed goods (primarily medical products) and the expense involved in raising funds to then purchase oversight, program and administrative staff salaries, $ 1.2B services that would otherwise have to be purchased. Direct something that a business may be willing and able to purchasing of essential medical products, acquisition Relief also solicits and receives cash contributions, which provide directly and more efficiently as its charitable of donated medical products, and all other program contribution. expenses. Direct Relief’s financial statements must account for In May of 2018 Direct Relief moved into a new 92% 8% both cash and in-kind contributions that are entrusted 155,000 square-foot state-of-the-art facility—with a IN-KIND CASH to the organization to fulfill its humanitarian mission. 128,000 square-foot warehouse and a 27,000 square- $1.1 B $93.9M In Fiscal Year 2018, over 92 percent of its total public foot office and meeting space—certified for domestic and support of $1.1 billion was received in the form of international pharmaceutical distribution. As of June 30, in-kind medical products and certain other donated 2018, the total project cost, including the cost of the land goods and services (such as transportation services from was $37.9 million. FedEx, online advertising from Google, and donated data The new Direct Relief headquarters was made possible analytics software from Qlik). through generous donations from individual donors and Merging cash and in-kind contributions in accordance our valued corporate supporters. Nearly four million FY 2018 CONTRIBUTED SUPPORT: with Generally Accepted Accounting Principles (GAAP) dollars in cash and pledges were raised in FY 2018, $ 1.2B can be confusing to non-accountants. These notes, in bringing the total campaign funds raised to $36 million addition to the financial statements on page 13, are to as of June 2018. To finance working capital needs for the 0M assist you in understanding how Direct Relief’s program facility construction, Direct Relief secured a $25 million $1,23 9M model is financed and works, to explain the state of the line of credit which is secured by all the assets of Direct 1,200 organization’s financial health, and to inform you about Relief, the Direct Relief Foundation, and the LLC. As of $1,10 how the money generously donated to Direct Relief in June 30, 2018, $13.4 million had been drawn to complete 1,000 7M FY 2018 by individuals, businesses, organizations, and the construction of the building. CONT’D $89 9M 800 $77 SOURCES OF CASH REVENUE: $93.9 M CATEGORIES OF CASH SUPPORT: $93.9 M 1% 600 5M 1,081 1,136 18% 61% BEQUESTS $45 $ MILLIONS 865 FOUNDATIONS DESIGNATED / $1.1M $17.1 M OTHER DESIGNATED 400 750 48% $57.4M INDIVIDUALS 34% 0M 435 $45.1 M UNDESIGNATED $31.6M $1,23 200 9M 1,200 $1,10 94 20 32 29 28 1,000 0 7M 34% FY 14 FY 15 FY 16 FY 17 FY 18 $89 CORPORATIONS 9M $31.7 M 800 CASH SUPPORT IN-KIND SUPPORT $77 4% CAPITAL CAMPAIGN $3.8 600 5M 4 ANNUAL REPORT | FISCAL YEAR1,081 2018 1,136 $45 $ MILLIONS 865 400 750 435 200 94 20 32 29 28 0 FY 14 FY 15 FY 16 FY 17 FY 18 CASH SUPPORT IN-KIND SUPPORT When taking an annual snapshot at the end of a fiscal to when humanitarian aid or cash is granted (subsequent an integral part of Direct Relief’s HOW year, several factors can distort a realistic picture of our fiscal years). humanitarian assistance programs. DIRECT RELIEF (or any nonprofit organization’s) financial health and In assigning a fair market value WAS FUNDED activities. Since the purpose of this report is to inform you, POLICY ON DESIGNATED to the in-kind medical donations FY 2018 we think it is important to call your attention to some of CONTRIBUTIONS received, Direct Relief uses a careful, these factors. Direct Relief has adopted a strict policy to ensure that conservative approach that complies with the relevant 100 percent of all designated contributions for a specific accounting standards, and the spirit and purpose of TIMING OF REVENUE RECOGNITION program or emergency response are used only on expenses disclosure, transparency, and accountability to the public. & EXPENSES related to supporting that program or response. Direct Direct Relief uses the following methodology in First is the timing of donations being received and the Relief has used similar policies for all disaster responses determining the fair market value of in-kind medical expenditure of those donations, whether in the form of in the last few years, including responses to the fires donations: U.S. Food and Drug Administration approved cash or in-kind medical products. Donations—including and mudslides in California, Syrian refugee crisis, Ebola pharmaceuticals, branded and generic, are recorded at those received to conduct specific activities—are recorded outbreak in West Africa, Hurricanes Maria, Irma, Harvey, estimated wholesale value, which approximates fair value, as revenue when they are received or promised, even if the Sandy, Katrina, and Rita, and earthquakes in Mexico, on the date received, based on the Wholesale Acquisition activities are to be conducted in a future year. The in-kind Ecuador, Nepal, Japan, Haiti, Pakistan, Peru, China, and Cost (WAC) as in the RED BOOK™ published by Truven product donations are also recorded in inventory upon Chile.