ROSWELL UNITED METHODIST CHURCH, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT For the Years Ended December 31, 2014 and 2013

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1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT For the Years Ended December 31, 2014 and 2013

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Statements of Financial Position 3 Statements of Activities 5 Statements of Cash Flows 6 Notes to Financial Statements 7

3 Magoon, Freeman, Spain & Jones, LLC Certified Public Accountants Members Carl B. Magoon, CPA, PC Sammy V. Freeman, PC Joe Spain, Jr. CPA, PC Claire E. Jones, CPA, PC Karen J. Bates, PC Christopher J. Roper, CPA, PC INDEPENDENT AUDITOR S REPORT To the Finance Committee Roswell United Methodist Church, Inc. Roswell, Georgia We have audited the accompanying financial statements of Roswell United Methodist Church, Inc., which comprise the statements of financial position as of December 31, 2014 and 2013, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements. In accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements Mansell Road // Suite 575 // Alpharetta, GA // p: // f: //

4 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Roswell United Methodist Church, Inc. as of December 31, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Magoon, Freeman, Spain & Jones, LLC Alpharetta, Georgia June 26,

5 STATEMENTS OF FINANCIAL POSITION December 31, 2014 and 2013 ASSETS CURRENT ASSETS Cash $ 3,983,703 $ 2,673,026 Receivables, other Short-term investments 11,030 - Prepaid expenses 28,647 27,695 Total Current Assets 4,024,332 2,700,864 PROPERTY AND EQUIPMENT Buildings and improvements 14,282,823 14,282,823 Equipment 2,706,619 2,704,119 Land 1,792,011 1,792,011 Land improvements 508, ,755 Furniture and fixtures 279, ,385 Vehicles 275, ,991 19,845,053 19,818,084 Less: accumulated depreciation (9,891,930) (9,546,323) Net Property and Equipment 9,953,123 10,271,761 TOTAL ASSETS $ 13,977,455 $ 12,972,625 See Independent Auditor s Report. The accompanying notes are an integral part of these financial statements. -3-

6 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Note payable, current portion $ 214,107 $ 200,016 Capital lease, current portion 11,905 11,269 Accounts payable 124 1,529 Deferred revenue for tuition 59,321 61,746 Total Current Liabilities 285, ,560 LONG-TERM LIABILITIES Note payable, less current portion 1,885,342 2,224,562 Capital lease, less current portion 18,024 29,928 Total Long-Term Liabilities 1,903,366 2,254,490 TOTAL LIABILITIES 2,188,823 2,529,050 NET ASSETS Net assets, unrestricted 9,433,110 9,253,300 Net assets, temporarily restricted 2,355,522 1,190,275 Total Net Assets 11,788,632 10,443,575 TOTAL LIABILITIES AND NET ASSETS $ 13,977,455 $ 12,972,625-4-

7 STATEMENTS OF ACTIVITIES Temporarily Total Temporarily Total Unrestricted Restricted 2014 Unrestricted Restricted 2013 OPERATING SUPPORT AND REVENUES Contributions $ 5,092,734 $ 2,713,532 $ 7,806,266 $ 5,220,926 $ 1,587,529 $ 6,808,455 Tuition and related fees 571, , , ,442 Investment income Other revenue 38,791 18,263 57,054 46,012 25,913 71,925 Net assets added to (released from) restrictions 1,566,548 (1,566,548) - 1,611,881 (1,611,881) - Total Operating Support and Revenue 7,270,014 1,165,247 8,435,261 7,423,209 1,561 7,424,770 FUNCTIONAL EXPENSES Operating Expenses: Lay personnel staff 1,925,534-1,925,534 1,712,146-1,712,146 Ministerial staff 992, , , ,532 Trustees' expenses 803, ,575 1,069,059-1,069,059 Council on ministries 665, , , ,644 Depreciation expense 344, , , ,471 Operating expenses 106, , , ,547 Building debt service 100, , , ,657 Kindergarten expenses 510, , , ,996 Parents Morning Out expenses 51,183-51,183 37,795-37,795 Total Operating Expenses 5,500,448-5,500,448 5,954,847-5,954,847 Expenses Released from Temporarily Restricted Net Assets: Special gifts and other 1,589,756-1,589,756 1,616,445-1,616,445 Total Expenses Released from Temporarily Restricted Net Assets 1,589,756-1,589,756 1,616,445-1,616,445 Total Expenses 7,090,204-7,090,204 7,571,292-7,571,292 Increase (Decrease) in Net Assets 179,810 1,165,247 1,345,057 (148,083) 1,561 (146,522) NET ASSETS, Beginning of year 9,253,300 1,190,275 10,443,575 9,401,383 1,188,714 10,590,097 NET ASSETS, End of year $ 9,433,110 $ 2,355,522 $ 11,788,632 $ 9,253,300 $ 1,190,275 $ 10,443,575 See Independent Auditor s Report. The accompanying notes are an integral part of these financial statements. -5-

8 STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,345,057 $ (146,522) Adjustments to changes in net assets to net cash provided by operating activities: Depreciation 345, ,137 Donated investments (11,030) - Donated property and equipment (5,000) (19,389) Decrease (increase) in receivables, other (809) (143) Decrease (increase) in prepaid expenses (952) (23,366) Increase (decrease) in accounts payable (1,405) 593 Increase (decrease) in deferred revenue (2,425) 5,144 NET CASH PROVIDED BY OPERATING ACTIVITIES 1,669, ,454 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (21,969) (165,627) NET CASH USED IN INVESTING ACTIVITIES (21,969) (165,627) CASH FLOWS FROM FINANCING ACTIVITIES Payments on note payable (325,129) (250,500) Payments on capital leases (11,268) (10,668) NET CASH USED IN FINANCING ACTIVITIES (336,397) (261,168) NET INCREASE IN CASH 1,310,677 99,659 CASH, Beginning of Year 2,673,026 2,573,367 CASH, End of Year $ 3,983,703 $ 2,673,026 See Independent Auditor s Report. The accompanying notes are an integral part of these financial statements. -6-

9 NOTES TO FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A Summary of Roswell United Methodist Church s (the Church) significant accounting policies applied in the preparation of the accompanying financial statements is as follows: 1. Nature of Operations The Church was organized in 1836 and is engaged in the promotion of the Christian religion in accordance with the Discipline of the United Methodist Church, and is a member of the Georgia United Methodist Foundation. The Church also operates a preschool and kindergarten primarily for the children of members of its congregation. 2. Method of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, and in accordance with principles of not-for-profit accounting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Certain reclassifications have been made to the prior year s financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported activities or net assets. The Church has evaluated subsequent events through June 26, 2015, the date on which the financial statements were available to be issued, and is not aware of significant events that occurred subsequent to the balance sheet date but prior to the issuance of this report that would have a material effect on the financial statements. 3. Cash and Cash Equivalents For purposes of the statement of cash flows, the Church considers all short-term debt securities purchased with an original maturity of three months or less to be cash equivalents. The Church had no cash equivalents as of December 31, 2014 and 2013, respectively. -7-

10 NOTES TO FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Investments The Church receives gifts of securities throughout the year which consist of highly-liquid, short-term marketable securities where the carrying amounts of these securities approximate their current fair values. These securities are classified as available-for-sale. The Church s policy is to convert all donated investments to cash as soon as possible. 5. Property and Equipment Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of activities for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives for significant property and equipment categories are as follows: Buildings and improvements 5-60 years Equipment 5-20 years Land improvements years Furniture and fixtures 10 years Vehicles 10 years Details of depreciation expense for the years ended December 31, 2014 and 2013 is as follows: Church $ 344,534 $ 708,471 Kindergarten and preschool 1,074 1,666 $ 345,608 $ 710,137-8-

11 NOTES TO FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED 6. Net Assets Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions as follows: Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the Church and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Permanently restricted net assets - Net assets subject to donor-imposed stipulations that the Church maintain them permanently. Generally, the donors of these assets permit the Church to use all or part of the income earned on any related investments for general or specific purposes. The Church has no permanently restricted assets. 7. Revenue Recognition Contributions are recorded as income when received. Contributions are classified as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of donor restrictions. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. All other donor-restricted contributions are reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restrictions. Contributions that are required to be reported as temporarily restricted support are then reclassified to unrestricted net assets upon expiration of time restrictions or satisfaction of donor restrictions. All contributions of property are recorded at their estimated fair value at the date of donation and are reported as unrestricted support unless otherwise restricted by the donor. -9-

12 NOTES TO FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED 8. Revenue Recognition - continued Contributions, including unconditional promises to give, are recorded as received. All contributions are available for unrestricted use unless specifically restricted by the donor. At December 31, 2014 and 2013, the Church had no unconditional promises to give. Tuition income and other related fees are recognized as earned. Tuition received in advance for the ensuing school year is deferred until earned and included in the liabilities in the financial statements. Scholarships awarded are netted against gross tuition and fees to the extent they exceed incremental costs incurred. 9. Functional Expenses Functional expenses have been allocated between ministries based on an analysis of personnel time and expenses for the related activities. 10. Income Taxes The Church is a tax-exempt organization under the provisions of Internal Revenue Code Section 501(c)(3). The United Methodist Church received its Section 501(c)(3) determination letter from the Internal Revenue Service on October 16, 1974, and is classified as an other than private foundation. Roswell United Methodist Church, Inc. is covered by the blanket exemption of the United Methodist Church. 11. Fair Value of Financial Instruments The carrying amounts of accounts receivable, prepaid expenses, deposits, accounts payable, and deferred revenue approximate fair value because of their short-term nature. NOTE B CONCENTRATIONS OF CREDIT RISK The Church maintains its cash balances at local financial institutions. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At times during the year the Church may have amounts on deposit in excess of FDIC insurance limits. The Church had uninsured cash balances of $3,423,900 at December 31, If the financial institutions were not to honor their contractual liability, the Church could incur losses. It is management s opinion that there is low credit risk because of the financial strength of the institutions involved. -10-

13 NOTES TO FINANCIAL STATEMENTS NOTE C INVESTMENTS The Church receives gifts of securities throughout the year and the carrying amounts approximate their current fair values. These securities are classified as available-for-sale as they are usually sold within a short period of time after they are received from donors. At December 31, 2014 and 2013, the balance in investments totaled $11,030 and $-0-, respectively. Their carrying valued is measured on a recurring basis at a Level 1 within the fair value hierarchy used to measure assets which is defined as observable inputs such as quoted prices for identical instruments in active markets, meaning there are third parties sources that estimate the fair value. NOTE D NOTE PAYABLE In March 2011 the Church entered into an agreement with a financial institution to consolidate and refinance the balances of two prior notes. This loan was modified in March 2013, from the original rate of 5.5% to a fixed rate of 4.25% for the remainder of the loan term to March Loan payments are based on a 15 year amortization schedule, but the loan matures in 10 years, at which time a balloon payment of $667,315 will be due. The loan is secured by a negative pledge on Building B. The balance of the note payable as of December 31, 2014 and 2013 totaled $2,099,449 and $2,424,579, respectively. The principal maturities of the note payable for the years subsequent to December 31, 2014 are as follows: Years Ending December 31, Amount 2015 $ 214, , , , ,706 Thereafter 932,016 Total $ 2,099,

14 NOTES TO FINANCIAL STATEMENTS NOTE E CAPITAL LEASE OBLIGATIONS The Church leases certain equipment under capital leases. The leases range from one year to five years and the monthly lease payments range from $112 to $1,100 per month with an annual interest rate of 5.5% with varying maturity dates through June The following is a schedule of equipment under capital leases, which is included in property and equipment as of December 31, 2014 and 2013: Leased equipment $ 57,823 $ 57,823 Less: accumulated depreciation (30,839) (19,275) Net book value of leased equipment $ 26,984 $ 38,548 A summary of the future minimum lease payments under capital leases is computed as follows: Years Ended December 31, Amounts 2015 $ 13, , ,522 Minimum lease payments 32,030 Less: portion representing interest (2,101) Present value of minimum lease payments 29,929 Less: current portion of capital leases (11,905) Long-term Portion of Capital Leases $ 18,

15 NOTES TO FINANCIAL STATEMENTS NOTE F NET ASSETS The net asset details as of December 31, 2014 and 2013 is as follows: Net assets - unrestricted Church - unrestricted $ 8,912,911 $ 8,769,541 Church - internally designated 376, ,550 Total Church unrestricted net assets 9,289,587 9,158,091 Preschool & Kindergarten 141,195 93,060 Parents Morning Out 2,328 2,149 Total Net Assets - unrestricted 9,433,110 9,253,300 Net assets - temporarily restricted Columbarium 84,491 70,050 Clearance & Global Impact Funds 303, ,718 Special gifts 1,967, ,507 Total Net Assets - temporarily restricted 2,355,522 1,190,275 Total Net Assets $ 11,788,632 $ 10,443,575 NOTE G RETIREMENT PLAN The ministerial staff participates in a defined benefit plan dictated by the North Georgia Methodist Conference. The Church offers a 403(b) Plan (the Plan) to provide retirement benefits for its lay employees. Employees are eligible to participate in the plan after 12 months of service provided they work more than 20 hours per week and 1,040 hours per calendar year. All employees who participate in the plan are required to contribute 3.00% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The Church contributes 6.00% of each participating employee s annual compensation. The Church s pension contributions totaled $39,575 and $46,751 for the years ended December 31, 2014 and 2013, respectively. There were no unfunded pension liabilities during 2014 and

16 NOTES TO FINANCIAL STATEMENTS NOTE H RELATED PARTY ACTIVITIES The Church receives funds from the Roswell United Methodist Foundation (the Foundation) to help supplement costs for certain Church expenditures. These expenditures include, but are not limited to, providing subsidies for employee allowances and purchasing supplies and equipment to be used by the Church. For the years ended December 31, 2014 and 2013, the Church received $210,330 and $97,751 respectively, from the Foundation. The Church also received in-kind donations from the Foundation of $1,947 and $15,860 for the years ended December 31, 2014 and 2013, respectively. NOTE I SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 100,147 $ 119,