GOODWILL INDUSTRIES, INC. AND AFFILIATE

Transcription

1 GOODWILL INDUSTRIES, INC. AND AFFILIATE Consolidated Financial Statements DECEMBER 31, 2015 (WITH INDEPENDENT AUDITOR S REPORTS)

2 Table of Contents Independent Auditor s Report 1 Consolidated Financial Statements: Consolidated Statement of Financial Position 3 Consolidated Statement of Activities 4 Consolidated Statement of Program Revenues and Functional Expenses 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 Supplemental Information Schedule of Expenditures of Federal Awards and Note to Schedule 18 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 19 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance 21 Schedule of Findings and Questioned Costs 23 Page

3 INDEPENDENT AUDITOR S REPORT The Board of Trustees Goodwill Industries, Inc. Omaha, Nebraska: Report on Financial Statements We have audited the accompanying consolidated financial statements of Goodwill Industries, Inc. and affiliate (collectively, Goodwill), which comprise the consolidated statement of financial position as of December 31, 2015, and the related consolidated statements of activities, program revenues and functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.

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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Goodwill Industries, Inc. and affiliate as of December 31, 2015, and the changes in their net assets, and their cash flows for the year then ended, in accordance with accounting principles generally accepted in the Unites States of America. Other Matters Prior Period Adjustment As part of our audit of the 2015 financial statements, we also audited the adjustment described in Note 13 that was applied to beginning net assets and relates to the 2014 financial statements. In our opinion, such adjustment is appropriate and has been properly applied. Supplemental Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 12, 2016, on our consideration of Goodwill s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Goodwill s internal control over financial reporting and compliance. Omaha, Nebraska May 12,

5 Consolidated Statement of Financial Position December 31, 2015 Assets Current assets: Cash and cash equivalents $ 815,645 Accounts receivable - contracts 924,391 Federal grants receivable 482,641 Prepaid expenses and other assets 718,265 Inventory 1,283,513 Total current assets 4,224,455 Debt issue costs, net 337,232 Investments 3,295,464 Property and equipment, net 39,973,321 Other assets 920,240 Total assets $ 48,750,712 Liabilities and Net Assets Current liabilities: Accounts payable $ 546,777 Accrued liabilities 1,908,499 Current installments of long-term debt 905,036 Total current liabilities 3,360,312 Long-term debt, excluding current installments 19,471,748 Deferred compensation liability 1,152,752 Total liabilities 23,984,812 Net assets: Unrestricted 24,183,825 Temporarily restricted 489,206 Permanently restricted 92,869 Total net assets 24,765,900 Total liabilities and net assets $ 48,750,712 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statement of Activities Year ended December 31, 2015 Temporarily Permanently Unrestricted restricted restricted Total Changes in net assets: Revenue and support: Contributions $ 302, , ,002 Goods contributed for sale 10,801,689 10,801,689 Retail sales 19,441,279 19,441,279 Cost of goods sold (11,296,160) (11,296,160) Salvage 905, ,639 Contract services fees 4,996,429 4,996,429 Employment and training fees 4,247,767 4,247,767 Special events revenue 143, ,495 Recycling 74,307 74,307 Net investment income 50,975 50,975 Net realized and unrealized losses on investments (32,698) (5,591) (38,289) Miscellaneous revenue 23,071 23,071 Net assets released from restriction 99,036 (99,036) Total revenue and support 29,757, ,934 30,003,204 Expenses: Program services: Retail sales and salvage 16,190,770 16,190,770 Contract services 4,858,533 4,858,533 Employment and training 4,718,454 4,718,454 Support services: General and administrative 3,555,307 3,555,307 Fundraising 560, ,302 Total expenses 29,883,366 29,883,366 Net increase (decrease) in net assets (126,096) 245, ,838 Net assets at beginning of year as previously reported 23,537, ,272 92,869 23,873,853 Prior period adjustment 772, ,209 Net assets at beginning of year as restated 24,309, ,272 92,869 24,646,062 Net increase (decrease) in net assets (126,096) 245, ,838 Net assets at end of year $ 24,183, ,206 92,869 24,765,900 See accompanying notes to consolidated financial statements. 4

7 Consolidated Statement of Program Revenues and Functional Expenses Year ended December 31, 2015 Program services Retail Contract services Employment and training Support services sales and Commercial Other Ability One Federal General and Total salvage contracts contracts contracts Total Traditional grants* Total administrative Fundraising 2015 Program revenue $ 19,926, , ,074 4,303,177 5,346,751 1,161,544 3,086,223 4,247,767 35, ,497 30,353,526 Eliminations (350,322) (350,322) (350,322) Transfers 108, ,996 (108,996) Total program revenue $ 19,926, , ,752 4,303,177 4,996,429 1,161,544 3,195,219 4,356,763 (73,239) 796,497 30,003,204 Functional expenses: Salaries $ 7,414, , ,699 1,990,258 2,645, ,397 1,581,396 2,173,793 1,684, ,201 14,288,867 Payroll taxes 750,589 9,697 53, , ,980 63, , , ,800 24,563 1,413,776 Employee benefits 1,028,996 24,055 90, , , , , , ,771 43,315 2,750,632 Utilities 869,920 10,226 11,765 30,925 52,916 22,777 50,085 72, ,372 5,866 1,104,936 Rent 1,245,300 36,598 19,439 9,737 65,774 10,002 21,061 31,063 1,903 1,344,040 Maintenance and repairs 1,005, , , , ,821 9,744 40,734 1,236 1,451,569 Vehicles 163, ,816 5,892 24,450 47,437 47,437 6, ,631 Supplies 750,919 27,723 34, , ,466 52, , , ,090 9,791 1,718,541 Insurance 172,127 2,042 12,372 43,081 57,495 13,742 42,726 56,468 52,069 8, ,290 Public relations 517 1,103 1,103 74,177 32, ,356 Advertising 319,655 1,419 1, , ,839 Travel 35,870 1,541 5,458 10,160 17,159 6,436 28,309 34,745 63,597 16, ,838 Professional services 64, ,795 12,846 1, , , ,494 16, ,725 Student stipends 68,496 1,089,058 1,157,554 1,478 1,159,032 Postage 109, ,202 1,476 6,959 3, ,492 National dues 106,096 1,235 4, , ,853 4,495 19,345 23, ,789 Depreciation 1,271,275 7,689 19, , ,358 25,194 89, , ,031 12,954 1,781,586 Interest 466,142 1,364 9,168 10,532 51,943 2, ,262 Other 416, ,493 7,191 11,056 6,701 38,561 45, ,778 10, ,487 Eliminations (350,322) (350,322) (350,322) Total functional expenses $ 16,190, , ,666 4,103,002 4,858, ,738 3,731,716 4,718,454 3,555, ,302 29,883,366 * These amounts do not represent allowable federal expenditures. See accompanying notes to consolidated financial statements 5

8 Consolidated Statement of Cash Flows Year ended December 31, 2015 Cash flows from operating activities: Net increase in net assets $ 119,838 Adjustments to reconcile net increase in net assets to net cash provided by operating activities: Depreciation and amortization 1,800,495 Other 59,984 Decrease (increase) in: Accounts receivable - contracts (234,242) Federal grants receivable (237,013) Prepaid expenses and other assets (203,265) Inventory (25,655) Increase (decrease) in: Accounts payable (121,263) Accrued liabilities 380,482 Deferred compensation liability 189,965 Net cash provided by operating activities 1,729,326 Cash flows from investing activities: Purchases of property and equipment (504,426) Proceeds from sale of property and equipment 10,900 Proceeds from sale of investment securities Purchases of investment securities 153,996 (123,213) Net cash used in investing activities (462,743) Cash flows from financing activities: Payment of obligations under long-term debt (883,300) Net increase in cash and cash equivalents 383,283 Cash and cash equivalents at beginning of year 432,362 Cash and cash equivalents at end of year $ 815,645 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 531,262 See accompanying notes to consolidated financial statements. 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (1) Summary of Significant Accounting Policies (a) Organization and Basis of Presentation Goodwill Industries, Inc. (Goodwill Industries) was incorporated on November 17, 1933 as a nonprofit corporation with the primary purpose of providing education, employment, training, rehabilitation, and opportunities for personal growth to people with vocational disadvantages. On February 16, 2000, Goodwill Specialty Services, Inc. (GSSI) was organized, under Section 501(c)(3) of the Internal Revenue Code of 1986, for the primary purpose of providing employment and training services previously provided by Goodwill Industries. Goodwill Industries and GSSI operate under common management and control and share operating and economic resources. Consequently, the accompanying consolidated financial statements include the consolidated financial position, changes in net assets, and cash flows of Goodwill Industries and GSSI (collectively and hereafter, Goodwill). All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Goodwill s primary activities include the following programs: Ability One Contracts Under the auspices of Ability One, Goodwill provides custodial services for the Edward Zorinsky Federal Building in Omaha; Offutt Air Force Base and the StratCom Headquarters Building near Bellevue; and the Robert Denney Federal Building in Lincoln. Goodwill also provides mail scanning and delivery and base locator services at Offutt Air Force Base, grounds maintenance at the Department of Veterans Affairs Omaha and Grand Island campuses, and laundry services for Veterans Affairs Omaha and Des Moines campuses. The Javits-Wagner-O Day Act requires that, agency wide, 75% of direct labor be performed by persons with severe disabilities. These workers are paid a percentage of the prevailing community wage for their services commensurate with their measured productivity. GSSI is the provider of services delivered under the auspices of Ability One. Employment and Training Traditional Career Development services include Situational Assessment and Work Experience, which serve students in special education programs in the public school systems. Through a combination of work and classroom activities, students are prepared for the transition from school to work. The Adult Career Services program is funded by a Workforce Investment grant and assists those unemployed and underemployed in obtaining self-supporting employment. This is accomplished by offering personalized services that address educational and employment goals that will lead to a job and increased retention at that job. Partnership for Youth Development is funded by a Workforce Investment grant and provides employment services to low-income youth aged Participants in this program receive job training, support, and career exploration, eventually leading to full-time employment. 7

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 Retail Operations (Stores and Salvage) Goodwill operates 17 retail stores open to the public 10 in Omaha and one each in Council Bluffs, Iowa, and Fremont, Blair, Bellevue, and Gretna, Nebraska. There are also two stores in Papillion. There were no new stores opened in The general public donates clothing, furniture, and household goods to Goodwill, and Goodwill employees sort, price, and distribute this merchandise for sale in the retail stores. Merchandise that does not sell within a reasonable time in the stores, other than the Goodwill WearHouse, is transferred to the Goodwill WearHouse store where it is offered for sale at a specified price per pound. Whenever possible, goods determined not to be saleable in the Goodwill stores are salvaged and sold to third parties, who either ship and sell the goods to third-world or other markets or recycle them for their component textile, metal, or other recyclable materials. Profits generated from the sale of donated goods are used to help cover expenses associated with Goodwill s various employment and training programs. (b) (c) Basis of Presentation The accompanying consolidated financial statements of Goodwill, which are presented on the accrual basis of accounting, have been prepared to focus on Goodwill as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions. This has been accomplished by classification of net assets and transactions into three classes of net assets: permanently restricted, temporarily restricted, and unrestricted. Net Asset Classifications Net assets and revenue, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and the changes therein are classified as follows: Unrestricted Net Assets Net assets and contributions not subject to donor-imposed stipulations. Temporarily Restricted Net Assets Net assets and contributions subject to donor-imposed stipulations that may or will be met by actions of Goodwill and/or the passage of time. After the donor-imposed time or purpose restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. Permanently Restricted Net Assets Net assets and contributions subject to donor-imposed stipulations that they be maintained permanently by Goodwill. Generally, the donors of these assets permit Goodwill to use all or part of the income earned on related investments for general or specific purposes. Revenue is reported as an increase in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by donor stipulation or by law. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (d) (e) (f) (g) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and in banks, certificates of deposit, and all highly liquid investment securities with a maturity date of three months or less at their time of purchase. Inventory Inventory consists of donated items and goods purchased for resale. Management estimates the fair value of donated items using a gross margin method. Goods purchased for resale are reported at the lower of cost, using the first in, first out method, or net realizable value. Debt Issue Costs Debt issue costs are recognized on a straight-line basis over the life of the related debt, which does not differ materially from the effective-interest method. Investments Investments are carried at fair value. The fair values of investments are measured using market prices at the reporting date multiplied by the quantity held. Investment income or loss (including realized and unrealized gains and losses on investments, interest, and dividends) is included as an increase or decrease to unrestricted net assets unless the income or loss is restricted by donor or law. If income is designated by a donor, it is recognized in the appropriate net asset classification. Goodwill invests in securities exposed to interest rate, market and credit risks. Accordingly, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the statement of net assets. (h) (i) Property and Equipment Property and equipment are recorded at cost at the date of acquisition or at fair value at date of donation. Depreciation is based on the estimated useful lives of the assets (ranging from 3 to 39 years) and is computed using the straight-line method. Contributions Contributions, including unconditional promises to give due in future periods, are recognized as revenue in the reporting period received. Contributions received with donor-imposed restrictions that are met in the same year as the contribution is received are reported initially as revenue of the temporarily restricted net asset class, and a reclassification to unrestricted net assets is made to reflect the expiration of such restrictions. Contributions of property and equipment without donor stipulations concerning the use of such long-lived assets are reported as revenue of the unrestricted net asset class. Contributions of assets other than cash are recorded at their estimated fair value at the date received. Contributions of cash or other assets to be used to acquire property and equipment are reported as revenue of the temporarily restricted net asset class; the restrictions are considered to be released at the time of acquisition of such long-lived assets. Goodwill has estimated the fair value of goods and materials contributed for resale and recognized contribution revenue of $10,801,689 during Revenue from the sale of these items is reported in the unrestricted net asset class at the time of sale. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (j) (k) (l) (m) Contract Service Fee Revenue Contract service fee revenue and receivables are recognized as services are performed and are considered fully collectible by Goodwill management. Federal Grant Revenue Federal grant revenue and receivables are recognized when eligibility requirements have been met, which is primarily when expenditures are incurred and are considered fully collectible by Goodwill management. Functional Expense Allocation The costs of providing the various programs and other activities of Goodwill have been summarized on a functional basis in the consolidated statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Federal Income Tax Status Goodwill Industries, Inc. and GSSI are recognized as not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Code and are exempt from federal income taxes pursuant to Section 501(a) of the Internal Revenue Code. Goodwill accounts for uncertainties in accounting for income tax assets and liabilities using the guidance included in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes. There are no uncertainties that are reflected in the consolidated financial statements. (n) Use of Estimates The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. (2) Investments The composition of investments at December 31, 2015 is as follows: Corporate debt securities $ 194,292 Mutual funds 3,101,172 Total investments $ 3,295,464 Investment income or loss is comprised of the following for the year ended December 31, 2015: Interest and dividends $ 50,975 Net realized and unrealized losses (38,289) Net investment income $ 12,686 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (3) Property and Equipment A summary of property and equipment at December 31, 2015 is shown below: Land $ 8,071,673 Buildings and improvements 36,714,530 Office furniture, fixtures, and equipment 6,401,223 Store fixtures and equipment 1,973,683 Transportation equipment 1,137,950 Total property and equipment 54,299,059 Less accumulated depreciation 14,325,738 Net property and equipment $ 39,973,321 (4) Lease Commitments Goodwill occupies certain facilities under long-term operating leases, which expire at various dates through Rent expense, which includes common area maintenance, taxes and other charges in accordance with the leases, approximated $1,107,000 in Future minimum rental payments under non-cancelable operating leases at December 31, 2015 are as follows: Year ending December 31: 2016 $ 805, , , , ,255 Thereafter 420,769 (5) Long-Term Debt A summary of long-term debt at December 31, 2015 is shown below: City of Crescent, Iowa Revenue Bonds Series 2004 due in monthly installments of $9,564 including interest (2.75% at December 31, 2015) through January Interest is adjusted annually per the agreement. $ 921,519 Tax exempt note payable due in monthly installments of principal and interest of $108,455 at a fixed interest rate of 2.51% through October 2024 at which time the interest rate will reset as stated in the agreement and remain fixed through maturity in September ,455,265 Long-term debt 20,376,784 Less current maturities (905,036) Long-term debt, excluding current maturities $ 19,471,748 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 Goodwill s notes payable are secured by real property. Following is a schedule of debt maturity requirements following December 31, 2015: 2016 $ 905, , , , ,003,079 Thereafter 15,605,926 $ 20,376,784 Goodwill renewed a one-year promissory note for a $1,000,000 line of credit, which expires July 1, The note is secured by inventory, accounts receivable, and equipment and bears interest at the base rate minus 0.50%. As of December 31, 2015, the interest rate is 3.75% and the unpaid balance is $0. There is $1,000,000 available for additional borrowings as of December 31, 2015 The debt agreements contain financial covenants, which Goodwill was in compliance with, or had obtained a waiver of the restriction, at December 31, (6) Fair Value Measurements Goodwill uses the fair value measurement to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Additionally, from time to time, Goodwill may be required to record other assets at fair value on a nonrecurring basis. In accordance with FASB ASC Topic 820, Fair Value Measurement and Disclosures, fair value should be measured at the exit price, which is the price to sell an asset or transfer a liability. The exit price may or may not equal the transaction price and the exit price objective applies regardless of the intent or ability to sell the asset or transfer the liability at the measurement date. Nonperformance risk, including an issuer s credit standing, is considered when measuring liabilities at fair value. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1 Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. This level primarily consists of financial instruments such as exchange-traded securities and listed derivatives. Level 2 Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs reflect management s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability. 12

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 The following table illustrates Goodwill s fair value measurements as of December 31, 2015: Level 1 Level 2 Level 3 Total Investments: Money market investments $ 10,177 10,177 Corporate debt securities 194, ,292 Fixed income mutual funds: Vanguard Inter-term Bond Index 765, ,561 Vanguard Short-term Bond Index 382, ,458 Other 61,707 61,707 Equity mutual funds: Vanguard Total International Stock 167, ,265 Vanguard Total Stock Market Index 1,764,004 1,764,004 Total $ 3,151, ,292 3,345,464 Transfers between Level 1 and Level 2 of the Fair Value Hierarchy Goodwill did not have any transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, Valuation Technique for Level 2 Investments Corporate debt securities were valued using prices obtained from independent quotation bureaus that use computerized valuation formulas. (7) Retirement Plans and Deferred Compensation Goodwill sponsors a defined contribution benefit plan established under Section 403(b)(7) of the Internal Revenue Code, which covers all employees of Goodwill. Total contributions amounted to $111,592 for the year ended December 31, Goodwill also sponsors a government savings plan established under Section 401(a) of the Internal Revenue Code, which covers federal contract employees only. Total contributions amounted to $447,191 for the year ended December 31, Goodwill maintains two deferred compensation plans established under Sections 457(b) and 457(f) of the Internal Revenue Code, which covers ten key employees. Total discretionary Goodwill contributions amounted to $96,144 for the year ended December 31, The balance of deferred compensation under the plans was $1,152,752 as of December 31, To assist in funding benefits under these plans, Goodwill has purchased certain other assets including company owned life insurance policies on covered employees. As of December 31, 2015, the net cash surrender values on the company owned life insurance policies were $920,240. The assets and related liability are included in the accompanying consolidated statement of financial position in other assets and deferred compensation liability. 13

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (8) Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following as of December 31, 2015: Purpose YouthBuild $ 296,900 Outreach manager 45,000 Other 3,607 Endowment 143,699 $ 489,206 (9) Endowment The Nebraska Uniform Prudent Management of Institutional Funds Act (NUPMIFA). NUPMIFA sets guidelines to be considered when managing and investing donor-restricted endowment funds. Goodwill s endowment fund consists of donor-restricted endowment funds. The restriction requires that the resources be maintained permanently, but permit the use of income derived from the assets. Goodwill does not maintain any board-designated endowment funds. As required by U.S. generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the board of trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. NUPMIFA requires the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, Goodwill classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by Goodwill in a manner consistent with the standard of prudence prescribed by NUPMIFA. In accordance with NUPMIFA, Goodwill considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of Goodwill and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of Goodwill (7) The investment policies of Goodwill The following sets forth Goodwill s endowment by type of fund as of December 31, 2015: 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 Temporarily Permanently restricted restricted Total Donor-restricted endowment funds $ 143,699 92, ,568 Total funds $ 143,699 92, ,568 Changes in Endowment Net Assets Year ended December 31, 2015 Temporarily Permanently restricted restricted Total Endowment net assets, beginning of year $ 162,641 92, ,510 Appropriations (13,351) (13,351) Investment loss (5,591) (5,591) Endowment net assets, end of year $ 143,699 92, ,568 (a) (b) (c) Return Objectives and Risk Parameters Goodwill has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that Goodwill must hold in perpetuity or for donor-specified periods. Endowment assets are invested in a manner that is intended to produce results that exceed the price and yield result of the S&P 500 index while assuming a moderate level of investment risk. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, Goodwill relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Goodwill targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Appropriation Policy and How the Investment Objectives Relate to Appropriation Policy The spending policy for endowed funds is determined by the board of trustees and the amount of appropriation is set on an annual basis. In establishing this policy, Goodwill considers the long-term expected return on its endowment. Accordingly, over the long term, Goodwill is generally focusing on finding securities that demonstrate the ability for above-average price appreciation and earnings momentum. This is consistent with Goodwill s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. 15

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (10) Reconciliation of Functional Expenses Goodwill has presented cost of goods sold immediately after the related retail sales in revenue and support on the Consolidated Statement of Activities as permitted in FASB ASC The following schedule reconciles functional expenses per the Consolidated Statement of Activities and the Consolidated Statement of Program Revenues and Functional Expenses to actual total retail sales and salvage program expenses. Retail Sales and Salvage As presented on Statements $ 16,190,770 Adjustment for presentation of cost of goods sold 11,296,160 Total Functional Expenses $ 27,486,930 (11) Commitments and Contingencies (a) Federal Programs Goodwill participates in federal programs that are subject to review and audit by the grantor agency. Entitlement to these resources is generally conditional upon compliance with the terms and conditions of grant agreements and applicable federal regulations, including the expenditure of resources for allowable purposes. Any disallowance resulting from a federal audit may become a liability of Goodwill. Management of Goodwill is currently unaware of a circumstance by which it would be subject to a liability. (b) (c) Claims and Legal Actions Goodwill is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these maters will not have a material adverse effect on Goodwill s consolidated financial position, results of operations, or liquidity. Health Insurance Beginning January 1, 2015, Goodwill moved its medical and prescription drug insurance plan to a fully self-insured plan. Per employee claims up to $40,000 are fully self-insured. Claims above that amount are covered by a stop loss reinsurance policy. Goodwill s aggregate exposure for all claims in 2015 is capped at $1,244,000 of which $1,027,000 was recognized as of December 31, The plan is funded by employee and employer contributions. Losses from asserted claims and losses attributable to incident that may have occurred, but have not yet been identified, are accrued based on estimates that incorporate past experience and other considerations, including the nature of each claim or incident. At December 31, 2015 the estimated liability was $225,000 and is included in accrued liabilities. (12) Concentrations Goodwill regularly maintains cash balances in excess of FDIC limits. Approximately 59% of accounts receivable - contracts are from three customers and substantially all of federal grants receivable are from two grantors at December 31,

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 (13) Prior Period Adjustment During 2015, Goodwill management determined they had not properly measured or reported the fair value of goods and materials contributed for resale and accordingly changed their methodology for calculating contributed inventory. The 2014 financial statements have not been restated. An adjustment was made to beginning net assets of $772,209 to reflect the corrected balance of contributed inventory and unrestricted net assets from the prior period. (14) Subsequent Events Goodwill performed an evaluation of subsequent events through May 12, 2016, the date on which the consolidated financial statements were available to be issued. In January 2016, Goodwill was informed their Federal Workforce Investment Act contract was not renewed. Expense reimbursements during 2015 attributable to this contract were $2,198,253. No additional material events requiring disclosure were noted. 17

20 Supplemental Schedule of Expenditures of Federal Awards Year ended December 31, 2015 FEDERAL GRANTOR Pass-through Expenditures Pass-through Grantor CFDA Entity Federal to Program or cluster title number Identifying # expenditures Subrecipients U.S. DEPARTMENT OF LABOR: Youthbuild Not applicable $ 274,037 Heartland Workforce Solutions: Workforce Investment Act (WIA) Cluster: WIA Adult Program ,168, WIA Youth Activities , WIA Dislocated Worker Formula Grant ,861 Total WIA Cluster 2,198,253 Total U.S. Department of Labor 2,472,290 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE: ServeNebraska - the Nebraska Volunteer Service Commission Americorps * 13AFHNE ,598 DEPARTMENT OF HEALTH AND HUMAN SERVICES State of Nebraska Temporary Assistance for Needy Families (Hire NE Program) , ,568 Total expenditures of federal awards $ 3,093,009 $ 163,568 * American Recovery and Reinvestment Act Notes to Schedule of Federal Awards The above Schedule of Federal Awards includes the Federal grant activity of Goodwill and is presented on the accrual basis of accounting. This information is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Goodwill did not elect to use the 10% de minimis indirect cost rate. Expenses are subject to audit by the U.S. Government and in the opinion of management, disallowed costs, if any, will not have a material effect on the consoldiated financial position of Goodwill or its federal programs. 18

21 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Board of Trustees Goodwill Industries, Inc.: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Goodwill Industries, Inc. and affiliate (Goodwill), which comprise the consolidated statement of financial position as of December 31, 2015, and the related statements of activities, program revenues and functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated May 12, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Goodwill s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Goodwill s internal control. Accordingly, we do not express an opinion on the effectiveness of Goodwill s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs as that we consider to be a significant deficiency.

22 Compliance and Other Matters As part of obtaining reasonable assurance about whether Goodwill s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Goodwill s Response to Findings Goodwill s response to findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Goodwill s response was not subject to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Omaha, Nebraska May 12,

23 Independent Auditor s Report on Compliance for Each Major Program and Report on Internal Control over Compliance Required by the Uniform Guidance The Board of Trustees Goodwill Industries, Inc.: Report on Compliance for Each Major Federal Program We have audited Goodwill Industries, Inc. and affiliate s (Goodwill) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on Goodwill s major federal program for the year ended December 31, Goodwill s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for Goodwill s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Goodwill s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of Goodwill's compliance.

24 Opinion on Each Major Federal Program In our opinion, Goodwill complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, Report on Internal Control Over Compliance Management of Goodwill is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Goodwill s internal control over compliance with the types of requirements that could have a direct and material effect on its major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Goodwill s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Omaha, Nebraska May 12,