GREATER FOX CITIES AREA HABITAT FOR HUMANITY, INC.

Transcription

1 GREATER FOX CITIES AREA HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS Year Ended

2 CONTENTS Page INDEPENDENT AUDITORS REPORT 1-2 FINANCIAL STATEMENTS Statement of Financial Position 3-4 Statement of Activities 5 Statement of Functional Expenses 6 Statement of Cash Flows 7-8 Notes to Financial Statements 9-20

3 INDEPENDENT AUDITORS REPORT Board of Directors Greater Fox Cities Area Habitat for Humanity, Inc. Menasha, Wisconsin We have audited the accompanying financial statements of Greater Fox Cities Area Habitat for Humanity, Inc. (the Organization) (a not-for-profit corporation), which comprise the statement of financial position as of, and the related statements of activities, functional expenses, and cash flows for the year 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 the financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Organization 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 Organization 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. 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 Greater Fox Cities Area Habitat for Humanity, Inc. as of, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

4 Report on Summarized Comparative Information We have previously audited Greater Fox Cities Area Habitat for Humanity, Inc. s financial statements as of and for the year ended June 30, 2013, and our report dated October 23, 2013, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2013, is consistent, in all material respects, with the audited financial statements from which it has been derived. Certified Public Accountants Appleton, Wisconsin October 20,

5 STATEMENT OF FINANCIAL POSITION With Summarized Financial Information as of June 30, 2013 ASSETS Current assets Cash and cash equivalents $ 999,178 $ 277,337 Certificates of deposit 250,279 - Other receivables 4,747 1,601 Contributions and grants receivable: HFHI grants receivable 73,083 22,017 Other 58,000 25,000 Mortgage loans receivable, current portion 323, ,300 Prepaid expenses 40,214 33,425 ReStore inventory 86,717 74,529 Home construction in process 638, ,449 Owner-occupied home repairs in process 7,379 - Land for development 750, ,786 Homes for rehabilitation 118,785 - Total current assets 3,349,959 2,249,444 Property and equipment Land 117, ,600 Building and improvements 222, ,762 Office equipment 181, ,259 Trucks and trailers 138, , , ,409 Less accumulated depreciation 281, ,811 Net property and equipment 378, ,598 Other assets Investment 48,950 48,950 Beneficial interest in assets held by Community Foundation 902,191 - Mortgage loans receivable, less current portion 1,955,641 2,831,095 Total other assets 2,906,782 2,880,045 Total assets $ 6,635,473 $ 5,533,087 See notes to financial statements. 3

6 LIABILITIES AND NET ASSETS Current liabilities Lines of credit $ - $ 269,797 Notes payable, current maturities 104,991 55,711 Accounts payable 100, ,759 Accrued payroll 50,058 40,741 Mortgage escrows 252, ,327 Other current liabilities 40,640 13,385 Total current liabilities 548, ,720 Notes payable, less current maturities 576, ,097 Total liabilities 1,125,249 1,193,817 Net assets Unrestricted 5,431,795 4,248,503 Temporarily restricted 78,429 90,767 Total net assets 5,510,224 4,339,270 Total liabilities and net assets $ 6,635,473 $ 5,533,087 4

7 STATEMENT OF ACTIVITIES Year Ended With Summarized Financial Information for the Year Ended June 30, 2013 Temporarily Totals Unrestricted Restricted Support and other revenue Contributions $ 918,717 $ 30,000 $ 948,717 $ 884,394 Grants 453,354 20, , ,884 In-kind contributions 182, , ,413 Special events 28,187-28,187 22,834 Sales to homebuyers 1,542,651-1,542,651 1,323,973 Owner-occupied home repair services 70,762-70,762 32,064 Mortgage loans discount amortization 214, , ,804 ReStore income 762, , ,846 Return on beneficial interest on assets held by Community Foundation 15,086-15,086 - Investment and interest income 6,905-6,905 5,019 Gain on sales of mortgage loans receivable 979, ,215 43,866 Gain on other sales 70,988-70,988 54,644 Other income 6,573-6,573 3,418 Net assets released from restrictions 63,171 (63,171) - - Total support and other revenue 5,314,588 (12,338) 5,302,250 3,795,159 Expenses Program services - Housing 3,094,550-3,094,550 2,707,983 Program services - ReStore 642, , ,296 Management and general 175, , ,641 Fundraising 219, , ,562 Total expenses 4,131,296-4,131,296 3,629,482 Change in net assets 1,183,292 (12,338) 1,170, ,677 Net assets Beginning of year 4,248,503 90,767 4,339,270 4,173,593 End of year $ 5,431,795 $ 78,429 $ 5,510,224 $ 4,339,270 See notes to financial statements. 5

8 STATEMENT OF FUNCTIONAL EXPENSES Year Ended With Summarized Financial Information for the Year Ended June 30, 2013 Program Program Management Services - Services - and Fund- Totals Housing ReStore General raising Salaries and wages $ 379,390 $ 228,024 $ 93,780 $ 129,619 $ 830,813 $ 729,274 Employee benefits and payroll taxes 128,911 84,418 27,060 33, , ,281 Cost of sales to homebuyers 1,641, ,641,188 1,380,741 Cost of owner-occupied home repair services 71, ,268 29,923 Mortgage loans discount 595, , ,819 Goods purchased for resale - 38, ,824 46,901 Professional fees 4,942 7,893 29,591 1,066 43,492 35,070 Supplies 4,644 7, ,981 14,104 Telephone 12,708 5,993 5,117 3,916 27,734 23,272 Postage 2, ,876 7,135 18,048 Occupancy 20, ,679 5,366 3, , ,196 Insurance 20,501 7, ,509 28,792 Property tax 4,393 23, ,890 41,544 Equipment costs 12,043 14, ,378 22,755 Printing 6,436 6,582 1,318 17,134 31,470 22,835 Advertising 949 5,525 1,433 12,589 20,496 16,135 Travel 26,004 14,743 1,486 1,403 43,636 49,256 Conference and convention 1,963 1,193 2,187 2,838 8,181 4,479 Tithe and fees to HFHI 60, ,451 56,303 Interest 34, ,180 31,706 Depreciation 22,629 17,332 4,734 3,818 48,513 51,294 Other 43,212 27, ,065 77,463 71,754 Total functional expenses $ 3,094,550 $ 642,055 $ 175,437 $ 219,254 $ 4,131,296 $ 3,629,482 See notes to financial statements. 6

9 STATEMENT OF CASH FLOWS Year Ended With Summarized Financial Information for the Year Ended June 30, Operating activities Change in net assets $ 1,170,954 $ 165,677 Adjustments to reconcile change in net assets to net cash used for operating activities: Depreciation 48,513 51,294 Return on beneficial interest in assets held by Community Foundation (15,086) - Discount on mortgage loans receivable 595, ,819 Amortization of mortgage loans discount (214,468) (213,804) Discount on notes payable (13,419) (9,058) Amortization of notes payable discount 15,200 12,668 Non-cash sales to homebuyers (1,417,446) (1,210,968) Non-cash owner-occupied home repairs services (68,831) (31,754) Non-cash contribution of office equipment (1,265) - Non-cash contribution of land for development (113,700) (80,255) Gain on sales of mortgage loans receivable (979,215) (43,866) Gain on other sales (70,988) (54,644) Decrease (increase) in: Other receivables (3,146) 5,809 Contributions and grants receivable (84,066) 42,976 Prepaid expenses (6,789) (20,308) ReStore inventory (12,188) (5,227) Home construction in process (68,060) (87,302) Owner-occupied home repairs in process (7,379) - Land for development 136,418 92,394 Homes for rehabilitation (118,785) - Homes held for resale - 82,657 Increase (decrease) in: Accounts payable (138,449) 82,263 Accrued payroll 9,317 5,744 Mortgage escrows 29,236 18,298 Other current liabilities 27, Net cash used for operating activities (1,300,633) (655,920) See notes to financial statements. 7

10 STATEMENT OF CASH FLOWS, CONTINUED Year Ended With Summarized Financial Information for the Year Ended June 30, Investing activities Purchases of certificates of deposit $ (250,279) $ - Proceeds from sale of property and equipment - 4,500 Purchase of property and equipment (22,382) (35,009) Purchase of beneficial interest in assets held by Community Foundation (931,105) - Distributions from Community Foundation 44,000 - Proceeds from sales of mortgage loans receivable 2,530, ,046 Collections received on mortgage loans receivable 578, ,939 Collections on second mortgages 70,988 52,361 Net cash provided by investing activities 2,020, ,837 Financing activities Proceeds from lines of credit 550, ,917 Payments on lines of credit (820,736) (194,508) Proceeds from notes payable 368, ,459 Payments on notes payable (96,045) (111,141) Net cash provided by financing activities 2,292 10,727 Cash and cash equivalents Net increase 721,841 42,644 Beginning of year 277, ,693 End of year $ 999,178 $ 277,337 Supplemental cash flow information Cash paid for interest $ 18,980 $ 19,038 Non-cash investing and financing activities Sales to homebuyers for which mortgage loans receivable were obtained $ 1,417,446 $ 1,210,968 Owner-occupied home repairs services for which mortgage loans receivable were obtained $ 68,831 $ 31,754 Contribution of office equipment $ 1,265 $ - Contribution of land for development $ 113,700 $ 80,255 See notes to financial statements. 8

11 NOTES TO FINANCIAL STATEMENTS Note 1 - Nature of activities and significant accounting policies A. Nature of activities Greater Fox Cities Area Habitat for Humanity, Inc. (Organization) is a charitable organization located in Menasha, Wisconsin that is an affiliate of Habitat for Humanity International, Inc. (HFHI). The Organization is a non-denominational Christian not-for-profit organization whose purpose is to create decent, affordable housing in partnership with those in need and to make decent shelter a matter of conscience with people everywhere. This is achieved through the building of new homes and the repair of existing homes. Although HFHI assists with information resources, training, publications, prayer support, and in other ways, the Organization is primarily and directly responsible for its own operations. Such operations are conducted within the Fox Cities area and include acquisition of real estate to be improved upon, purchase of existing homes for rehabilitation, purchase of building materials, organization of construction/rehabilitation labor (volunteer and paid), financing of the sale of its completed projects and education of partner families. The Organization targets those in very low income economic groups, selling homes at no profit and financing them with non-interest bearing loans. All families who partner with the Organization are required to complete a homeowner education program. The program is designed to help prepare families for the financial responsibilities of becoming homeowners, how to best maintain their home and acclimate into their new neighborhoods. The Organization s Neighborhood Revitalization program expands its services to include owneroccupied home repairs for low-income residents by addressing home deterioration and unsafe living conditions. The program helps homeowners with critical home repairs, weatherization upgrades and home preservation. The Organization also operates ReStore, a resale store open to the public located in Appleton, Wisconsin. Since opening, the ReStore has been able to divert millions of pounds of potential waste from local landfills, while passing along those savings to customers. Most of the items sold at the ReStore are donated and the majority of the work at ReStore is performed by dedicated volunteers. Profits from the ReStore are used to fund the mission work of the Organization. The Organization is supported primarily through contributions, grants, income from its resale store and homeowner mortgage payments. B. Basis of accounting The financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables, and other liabilities. C. Basis of presentation The Organization is required to report information regarding its financial position and its activities in the following three classes of net assets: Unrestricted net assets - net assets that are neither temporarily nor permanently restricted by donor-imposed stipulations. 9

12 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 1 - Nature of activities and significant accounting policies, continued C. Basis of presentation, continued Temporarily restricted net assets - net assets that result from contributions whose use by the Organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Organization pursuant to those stipulations. Permanently restricted net assets - net assets resulting from contributions whose use by the Organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled and removed by actions of the Organization. The Organization had no permanently restricted net assets at. D. Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. E. Cash equivalents For the purposes of the statement of cash flows, the Organization considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. F. Contributions and grants receivable Unconditional promises to give are recognized as revenue and as assets in the period the promise is received. Conditional promises to give are recognized only when the conditions on which they depend are substantially met. G. ReStore inventory Inventory, consisting of construction and home improvement items, is primarily donated to the Organization throughout the year. At the end of its fiscal year, the Organization estimates the value of donated goods on hand based on the estimated retail value. Purchased inventory is stated at the lower of cost, determined by the first-in, first-out method, or market. H. Home and land inventory Costs incurred to purchase land, improve land, acquire homes for rehabilitation, construct new homes, and repair existing homes are accumulated in various asset accounts on the statement of financial position until the home or repair is sold to those in need based upon the Organization s selection criteria. 10

13 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 1 - Nature of activities and significant accounting policies, continued I. Property and equipment and depreciation All acquisitions and improvements of property and equipment in excess of $1,000 are capitalized while all expenditures for repairs and maintenance that do not materially prolong the useful lives of assets are expensed. Purchased property and equipment is carried at cost. Donated property and equipment is carried at the approximate fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated lives of the assets. J. Investment The Organization s investment consists of a minor interest in a limited partnership. The Organization carries its investment in the limited partnership at the lower of the fair value as of the date the investment was donated to the Organization (cost) or market value. The Organization s risk of loss is limited to the carrying amount of the investment. There is not a public market for this investment. Because the investment in the limited partnership is not readily marketable, its estimated value is subject to uncertainty and, therefore may differ from the value that would have been used had a ready market for such investment been available. K. Mortgage loans receivable Mortgage loans receivable consists of loans secured by real estate located in the Fox Cities area of Wisconsin. These mortgages are not actively marketed by third party investors. The loan terms typically include maturities of months and are non-interest bearing. Since the mortgage loans are non-interest bearing, they are discounted using a rate determined annually by HFHI, which is based on a national rate for a home purchaser with a credit risk similar to the homeowners qualified to purchase a home from the Organization. Once the rate is determined, it is not revised for any market changes. The Organization aims to sell homes at no profit by setting the home sale price at the estimated cost to build. At the time of the home sale, the Organization obtains a first mortgage and a second mortgage for each home. The second mortgage represents the difference between the fair value of the home at the time of the original sale and the actual sale price. The second mortgage would take effect if the homeowner sells, refinances, defaults, or the home is no longer their primary residence before a stipulated time period. The second mortgage is collected after the first mortgage is satisfied, and after certain other liens are satisfied. The second mortgages are designed to prevent the homeowner from selling the home and reaping a substantial benefit. Because the use of the second mortgage is unlikely and unknown, the Organization has not recorded a receivable for these second mortgages in the financial statements. The undiscounted value of the second mortgages not recorded in the financial statements totaled $4,641,585 at. If a second mortgage takes effect, the Organization includes the proceeds in gain on other sales on the statement of activities at the time it is collected. 11

14 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 1 - Nature of activities and significant accounting policies, continued K. Mortgage loans receivable, continued At times, the Organization will enter into agreements for the sale of mortgage loans receivable. During the year ended, the Organization entered into loan sale and servicing agreements for certain mortgage loans receivable with two financial institutions. Under the agreements, the Organization sold mortgage loans with recourse totaling $2,926,262 at the face value of the loans less a 2% discount totaling $395,389. The net proceeds from the sales totaling $2,530,873 were used to pay off an existing line of credit and to fund board designated unrestricted net assets (see Note 8). At the time of the sales, the mortgage loans had unamortized discounts totaling $1,374,604. The unamortized discounts netted with the 2% discount resulted in a net gain on the sales of mortgage loans receivable of $979,215. The Organization continues to service these and other previously sold mortgage loans receivable by collecting payments from homeowners on behalf of and remitting these payments to the purchasing financial institutions. Mortgage loans receivable serviced for others are not included in the accompanying statement of financial position. The unpaid principal balance of mortgage loans receivable serviced for others was approximately $3,136,000 at. The loan sale and servicing agreements contain clauses whereas for any sold mortgage loans receivable that become 90 days past due, the Organization must find a substitute mortgage loan receivable or repurchase the non-performing loan. During the year ended, the Organization was not required to substitute or repurchase any previously sold mortgage loans receivable. The Organization considers all of the mortgage loans receivable serviced at June 30, 2014 to be fully collectible; accordingly, no provision has been made for future losses that may result under the recourse arrangements. L. Contribution recognition Unconditional contributions are recognized as revenue when they are promised or received, as applicable, and are available for unrestricted use unless specifically restricted by the donor. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the revenue is recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. 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. Donated services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Organization. Volunteers provided services to the Organization throughout the year that have not been recognized as contributions in the financial statements because the recognition criteria were not met. The Organization estimates 63,110 volunteer hours were contributed during the year ended that did not meet the recognition criteria. M. Other revenue recognition The Organization recognizes income from sales to homebuyers when title and risk transfer to the homebuyer. The Organization recognizes income from home repair services when the service is completed. 12

15 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 1 - Nature of activities and significant accounting policies, continued N. Advertising The Organization uses advertising to promote its programs among the audiences it serves. The costs of advertising are expensed as incurred. During the year ended, advertising costs totaled $20,496. O. Functional allocation of expenses The costs of providing various programs and other activities have been summarized on a functional basis in the statement of activities and in the statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting activities benefited. P. Presentation of sales tax The Organization collects sales tax from certain customers and remits the entire amount to the appropriate governmental entities. The Organization s accounting policy is to exclude the tax collected and remitted from revenues and expenses. Q. Income tax status The Organization has received exemption from income taxes under Section 501(c)(3) of the Internal Revenue Code under a group exemption letter granted to Habitat for Humanity International, Inc. by the Internal Revenue Service. However, income from certain activities not directly related to the Organization s tax-exempt purpose is subject to taxation as unrelated business income. The Organization had no unrelated business taxable income for the year ended. The Organization is also exempt from Wisconsin income taxes. Penalties and interest assessed by income taxing authorities are included in management and general expenses, if applicable. The Organization had no interest and penalties related to income taxes for the year ended. The Organization s federal returns are subject to examination generally for three years after they are filed and its state returns are subject to examination generally for four years after they are filed. R. Summarized financial information The financial statements include certain prior-year summarized information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended June 30, 2013, from which the summarized information was derived. S. Subsequent events The Organization has evaluated events and transactions for potential recognition of disclosure in the financial statements through October 20, 2014, the date on which the financial statements were available to be issued. 13

16 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 1 - Nature of activities and significant accounting policies, continued T. Reclassifications Certain amounts in the prior-year summarized information have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements with no change in previously reported net assets or changes in net assets. Note 2 - Certificates of deposit The Organization holds certificates of deposit totaling $250,279 at. The certificates bear interest rates ranging from 0.40% % and have maturities of six to eighteen months, with penalties for early withdrawal. Any penalties for early withdrawal would not have a material effect on the financial statements. Note 3 - Contributions and grants receivable Unconditional contributions and grants receivable at totaled $131,083 and are receivable in less than one year. The Organization considers all of the contributions and grants receivable at June 30, 2014 to be fully collectible; accordingly, no allowance for uncollectible contributions has been established. At, the Organization also had a conditional promise to give of $56,000. The promise to give contains conditions such as providing occupancy to the homebuyer by a specific date and will be included in the financial statements in future years when the conditions are met. Note 4 - Beneficial interest in assets held by Community Foundation Beneficial interest in assets held by Community Foundation represents amounts held at the Community Foundation for the Fox Valley Region, Inc. (the Foundation). The Organization has two funds at the Foundation called the Greater Fox Cities Area Habitat for Humanity Fund I (the Fund I) and Greater Fox Cities Area Habitat for Humanity Fund II (the Fund II). These funds are legal assets of the Foundation with the restriction that the Foundation makes distributions to the Organization. The agreements governing the assets include a variance power allowing the Foundation to modify the restrictions on distributions from the funds. The funds were established by the Board of Directors to support the mission of the Organization (see Note 8). Since the funds were created as a result of an internal designation and are not donor restricted, it is classified and reported as unrestricted net assets. Distributions from the funds may be made at the Organization s request. The Organization works with the Foundation to maximize total return consistent with an acceptable level of risk. Fund assets are invested to balance mild liquidity needs with a reasonable level of expected appreciation over full market cycles. 14

17 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 4 - Beneficial interest in assets held by Community Foundation, continued Composition of and changes in the funds net assets for the year ended were as follows: Board-designated Fund I net assets, beginning of year $ - Contributions 583,333 Net appreciation 12,727 Amount appropriated for expenditure (44,000) Board-designated Fund I net assets, end of year $ 552,060 Board-designated Fund II net assets, beginning of year $ - Contributions 347,772 Net appreciation 2,359 Board-designated Fund II net assets, end of year $ 350,131 Note 5 - Mortgage loans receivable Mortgage loans receivable are recorded at the present value of future payments using a discount rate provided by HFHI. The Organization considers all of the mortgage loans receivable at to be fully collectible; accordingly, no allowance for uncollectible accounts has been established. Mortgage loans receivable as of are scheduled for collection as follows: Year ending June 30, 2015 $ 323, , , , ,000 Thereafter 2,959,605 Total mortgage loans receivable 4,541,605 Less discount at rates of 7.39% to 8.53% (2,262,964) Present value of mortgage loans receivable $ 2,278,641 Note 6 - Line of credit The Organization has a line of credit agreement with First National Bank - Fox Valley with an available line of $1,000,000 of which no amounts were outstanding as of. Interest is payable monthly at the prime rate (3.25% at ). Unpaid interest and principal are due April 30, The line is secured by mortgage loans receivable. 15

18 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 7 - Notes payable During the year ended, the Organization received non-interest bearing notes from HFHI. These non-interest bearing notes were internally discounted using a rate of 5%. The discounts on these notes totaled $13,419 and were included in in-kind contributions on the statement of activities. The discounts are amortized over the respective loan periods and are included in interest expense. During the year ended, the Organization amortized $15,200 of discounts related to these and other non-interest bearing notes. Following is a summary of notes payable as of : Habitat for Humanity International, Inc.: Shop fund non-interest bearing notes due in varying monthly principal installments totaling approximately $3,309, under repayment terms of 48 months, unsecured $ 227,975 First National Bank - Fox Valley: Note payable, non-interest bearing, secured by specific mortgage loans receivable with principal payments due monthly based on scheduled principal payments of the underlying mortgage loans receivable ($1,869 at ), with final principal payment due October ,908 Note payable due in monthly installments of $1,250 plus accrued interest at ICS demand index plus 2.5% (2.78% at ), with a final payment of unpaid principal and interest due November 2018, secured by mortgage loans receivable 291,250 Community First Credit Union: Note payable due in monthly installments of $511, including interest at 4.5%, with a final payment of unpaid principal and interest due January 2018, secured by land 30, ,782 Less discount at 5% for non-interest bearing notes 55,104 Net notes payable $ 681,678 The future scheduled maturities of the above notes payable for the five years succeeding are as follows: Year ending June 30, 2015 $ 104, , , , ,865 16

19 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 8 - Board-designated unrestricted net assets During the year ended, the Organization sold mortgage loans receivable to two financial institutions. These sales resulted in net cash proceeds of $2,530,873 (see Note 1K). The Organization used $600,829 of the proceeds to pay off an existing line of credit. The Organization s Board of Directors created reserves with the remaining proceeds. The board-designated unrestricted net assets include the following as of : Operating Reserve - The operating reserve includes funds designated for increased capacity to serve additional families in the upcoming year. The operating reserve is held entirely in cash in FDIC insured bank accounts. The Organization utilized approximately $132,000 of the operating reserve during the year in fulfilling its mission and growing its capacity. $ 595,786 Risk Reserve - The risk reserve includes funds designated to protect the Organization from unforeseen circumstances that may adversely impact its financial stability, ability to serve families or its sustainability. The risk reserve is held one-third in cash equivalents and certificates of deposit and two-thirds in the Fund I in the beneficial interest in assets held by Community Foundation (see Note 4). 852,339 Remainder Reserve - The remainder reserve includes the remainder of the proceeds from the mortgage loans receivable sales beyond the amounts required to sustain the board-designated operating and risk reserves for the year. The remainder reserve will be used exclusively to replenish the operating reserve one time per year. The Board of Directors approval is required for uses other than replenishment of the operating reserve. The remainder reserve is held in the Fund II in the beneficial interest in assets held by Community Foundation (see Note 4). 350,131 Board-designated unrestricted net assets $ 1,798,256 Note 9 - Temporarily restricted net assets Temporarily restricted net assets as of consist of the following: Time restrictions: Contributions and grants receivable $ 32,596 Purpose restrictions: Home construction 10,000 Vehicle for Neighborhood Revitalization program 15,000 Finance manager wages 20,833 Temporarily restricted net assets $ 78,429 17

20 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 10 - Multiple-employer defined contribution retirement plan During the year ended, the Organization had a co-employment agreement with The Employer Group, Inc. and Insperity PEO Services, L.P. The Organization participated in The Employer Group Retirement Savings Plan and the Insperity 401(k) Plan which are multi-employer, defined contribution retirement plans qualified under Section 401(k) of the Internal Revenue Code. The plans cover substantially all the Organization s employees who work at least 1,000 hours during the plan year. The plans provide for a matching contribution by the Organization equal to 50% of the employee s total contribution with the maximum contribution being equal to 3% of the employee s total compensation. In addition, the plans provide for a non-elective contribution equal to 3% of the employee s total compensation. For the year ended, the Organization contributed $44,465 to the plans. Note 11 - Leases The Organization leases warehouse, store space, and equipment under operating leases. These lease agreements provide for monthly rentals ranging from $201 to $7,150. Rent expense under these leases was $108,647 for the year ended. The leases for the store space and equipment expire in October 2023 and June 2016, respectively. Subsequent to, the Organization entered into a warehouse lease with monthly rent of $1,628 beginning October 2014 and an expiration date of December Future minimum lease payments (including subsequent warehouse lease) under the terms of the noncancelable operating leases with initial terms of one year or more are approximately as follows: Year ending June 30, 2015 $ 102, , , , ,800 Thereafter 403,800 Total minimum payments required $ 875,044 Note 12 - Transactions with Habitat for Humanity International, Inc. The Organization annually tithes 10% of its contributions (excluding restricted and in-kind contributions) to HFHI. These funds are used to construct homes in economically depressed areas around the world. For the year ended, the Organization tithed $55,451 to HFHI. Of this amount, $4,816 is in accounts payable at. U.S. affiliates are required to pay an annual fee to HFHI to offset a portion of the costs associated with efforts that benefit all affiliates - efforts such as brand protection and promotion, regulatory advocacy and gift-in-kind solicitation. For the year ended, the Organization paid a fee of $5,000 to HFHI. 18

21 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 12 - Transactions with Habitat for Humanity International, Inc., continued HFHI receives grants from the United States Department of Housing and Urban Development (HUD) in the Self-Help Homeownership Opportunity Program (SHOP). For the year ended, HFHI made $274,891 of these grants available to the Organization to purchase land for development and necessary infrastructure improvements. Of this amount, $70,487 is in contributions and grants receivable at June 30, During the year ended June 30, 2012, HFHI received a grant from the United States Department of Housing and Urban Development (HUD) in the Capacity Building for Community Development and Affordable Housing Program receivable over three years to cover a portion of the first three years of salary, eligible taxes, and training for the employee coordinating the Neighborhood Revitalization Initiative. During the year ended, the Organization received $13,401 of these funds, and the remaining $2,596 is in contributions and grants receivable at. The Organization had non-interest bearing notes payable with HFHI (see Note 7). During the year ended, the Organization amortized $7,188 of the discounts related to these non-interest bearing notes. Note 13 - Functional classification of expenses Expenses by function for the year ended was as follows: Program services $ 3,736,605 Supporting activities: Management and general 175,437 Fundraising 219,254 $ 4,131,296 Note 14 - Fair value measurement Financial Accounting Standards Board (FASB), ASC 820 Fair Value Measurements and Disclosures clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements in financial statements. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Organization s market assumptions. The fair value hierarchy specified by ASC 820 is as follows: Level 1 - Quoted prices in active markets for identical assets and liabilities. Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 19

22 NOTES TO FINANCIAL STATEMENTS, CONTINUED Note 14 - Fair value measurement, continued The Organization s beneficial interest in assets held by Community Foundation is carried at fair value. The fair value is provided by the Foundation and consists of the right to receive cash flows from the Foundation. The fair value provided by the Foundation is considered a level 3 input. Fair value is determined by allocating a portion of the Foundation s investment pools. The following is a reconciliation of beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended : Beginning balance - July 1, 2013 $ - Net gains (losses), realized and unrealized, included in change in net assets 15,086 Purchases 931,105 Distributions (44,000) Ending balance - $ 902,191 Change in unrealized gains (losses) related to Level 3 assets still held at $ 15,086 20