HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 AND INDEPENDENT AUDITORS REPORT

Transcription

1 HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 AND INDEPENDENT AUDITORS REPORT

2 INDEPENDENT AUDITORS REPORT To the Board of Directors of Heartland Habitat for Humanity, Inc. Kansas City, Kansas We have audited the accompanying statement of financial position of Heartland Habitat for Humanity, Inc. (the Organization ) as of June 30, 2011, and the related statements of activities and changes in net assets, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of Heartland Habitat for Humanity, Inc. s management. 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of June 30, 2011, and the changes in its net assets and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Overland Park, Kansas December 8, 2011

3 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Financial Position June 30, 2011 ASSETS CURRENT ASSETS: Cash and cash equivalents: Unrestricted 68,983 Restricted 399,523 Total cash and cash equivalents 468,506 Certificate of deposit 115,000 Grants and contributions receivable 43,938 Contracts and other receivables 122,752 Inventory 204,633 Prepaid expenses and other 16,083 Construction in progress and property available for sale, at net realizable value 699,896 Mortgage loans receivable, current portion 424,237 Total current assets 2,095,045 MORTGAGE LOANS RECEIVABLE, NET, NON-CURRENT PORTION 3,425,200 PROPERTY AND EQUIPMENT, NET 252,817 LEASE DEPOSITS AND OTHER ASSETS 22,801 TOTAL ASSETS 5,795,863 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Line of credit 63,657 Notes payable, current portion 19,480 Accounts payable 174,994 Accrued expenses 70,560 Mortgage escrow deposits held in trust 122,874 Total current liabilities 451,565 NOTES PAYABLE, NON-CURRENT PORTION 52,712 TOTAL LIABILITIES 504,277 COMMITMENTS AND CONTINGENCIES NET ASSETS: Unrestricted 4,983,415 Temporarily restricted 308,171 Total net assets 5,291,586 TOTAL LIABILITIES AND NET ASSETS 5,795,863 See notes to financial statements. 2

4 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Activities and Changes in Net Assets Year Ended June 30, 2011 Temporarily Unrestricted Restricted Total PUBLIC SUPPORT AND REVENUE: REVENUE: Home sales 531, ,586 Less: Cost of home sales, net (476,417) (476,417) Net home sales 55,169 55,169 ReStore retail sales 612, ,312 Less: Cost of retail sales (612,312) (612,312) Net ReStore sales - - Accretion of mortgage loan discount 268, ,659 Late fees 10,650 10,650 Rental income 6,670 6,670 Interest income 4,058 4,058 Other income, net 9,245 9,245 PUBLIC SUPPORT: Contributions and grants: Foundations 65, , ,301 Religious organizations 13, , ,017 Corporations 50, , ,423 Individuals 185,804 4, ,738 Federated campaigns 9,551 9,551 Other 1,447 1,447 In-kind contributions 785, ,629 Federal government grants and contracts 244, ,660 Net assets released from restrictions 585,876 (585,876) Total public support and revenue 2,296,641 (73,424) 2,223,217 EXPENSES: PROGRAM SERVICES: Construction 1,016,960 1,016,960 Family support 86,775 86,775 ReStore 555, ,027 Total program services 1,658,762 1,658,762 SUPPORTING SERVICES: Management and general 193, ,764 Fundraising 238, ,388 Total supporting services 432, ,152 Total expenses 2,090,914 2,090,914 CHANGE IN NET ASSETS 205,727 (73,424) 132,303 NET ASSETS, BEGINNING OF YEAR 4,777, ,595 5,159,283 NET ASSETS, END OF YEAR 4,983, ,171 5,291,586 See notes to financial statements. 3

5 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Functional Expenses Year Ended June 30, 2011 Family Program Management Construction Support ReStore Total and General Fundraising Total Salaries and wages 252,424 60, , , , , ,437 Payroll taxes 17,930 4,635 19,142 41,707 7,256 9,377 58,340 Employee benefits 10,539 2,698 8,209 21,446 4,804 3,869 30,119 Contracted services 30,000 6,535 16,996 53,531 12,646 6,950 73,127 Occupancy 15, , , , ,831 Office expense 12,611 4,664 15,599 32,874 6,482 29,631 68,987 Travel and vehicle expenses 25,651 1,279 25,934 52,864 3,172 4,214 60,250 Forgiveness of second mortgages 179, , ,770 Program supplies and other program expenses 4,800 2, ,149 7,149 Mortgage loan discount expense 315, , ,388 Property management and development expenses 23, ,796 23,796 Construction supplies and small tools 9,187 6,264 15,451 15,451 Property taxes 7,221 7,221 7,221 Insurance 46,147 1,092 12,865 60,104 3,154 2,259 65,517 Advertising and promotion ,912 9, ,352 11,980 Professional fees 3, ,501 37,058 33,038 75,597 Interest expense 4,631 4,631 3,581 8,212 Contribution to Habitat for Humanity International 5,000 5,000 Depreciation and amortization 55,388 55,388 55,388 Other expenses 2, ,559 14,927 5,306 4,121 24,354 1,016,960 86, ,027 1,658, , ,388 2,090,914 Cost of home sales, net 476, , ,417 TOTAL FUNCTIONAL EXPENSES 1,493,377 86, ,027 2,135, , ,388 2,567,331 PERCENTAGE OF COSTS 58% 3% 22% 83% 8% 9% 100% See notes to financial statements. 4

6 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Cash Flows Year Ended June 30, 2011 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets 132,303 Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 55,388 Mortgage loan discount activity, net 46,730 Sale of homes for mortgage loans receivable and issuance of forgivable mortgage loans receivable (534,704) Forgiveness of mortgage loans receivable 179,770 Foreclosure of mortgage loans receivable 132,900 Changes in operating assets and liabilities: Grants and contributions receivable 108,377 Contracts and other receivables (101,063) Inventory (88,061) Prepaid expenses and other (1,882) Construction in progress and property available for sale (169,004) Lease deposits and other assets (4,255) Accounts payable (9,253) Accrued expenses 2,351 Mortgage escrow deposits held in trust 3,033 Net cash used in operating activities (247,370) CASH FLOWS FROM INVESTING ACTIVITIES Payments received on mortgage loans receivable 319,652 Purchase of property and equipment (55,957) Proceeds from sale of investments 397 Net cash provided by investing activities 264,092 CASH FLOWS FROM FINANCING ACTIVITIES Change in line of credit (2,183) Payments on notes payable (40,954) Net cash used in financing activities (43,137) NET DECREASE IN CASH (26,415) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 494,921 CASH AND CASH EQUIVALENTS, END OF YEAR 468,506 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest 8,212 Cash paid during the year for income taxes - See notes to financial statements. 5

7 HEARTLAND HABITAT FOR HUMANITY, INC. Notes to Financial Statements Year Ended June 30, NATURE OF ACTIVITIES AND PROGRAM DESCRIPTIONS Nature of Activities Heartland Habitat for Humanity s mission is to build simple, decent homes and communities in partnership with God s people in need, while following biblical principles. Established in 2006, Heartland Habitat (the Organization ) was formed by the merger of Kaw Valley Habitat for Humanity and Northland Habitat for Humanity. Since 1987, the two Habitat affiliates have built or rehabilitated over 245 homes in Wyandotte, Leavenworth and Johnson counties in Kansas, and Clay and Platte counties in Missouri. The following program and supporting services are included in the accompanying financial statements: Construction Homes are built using volunteer labor, donated materials and funding from individuals, churches, corporations and foundations. The homes are sold to qualifying partner families with no profit and affordable 0% interest mortgages. Homeowners are required to invest 350 hours of sweat equity through on-site volunteering, partnering with other families and completing homeowner education classes. During the year ended June 30, 2011, the Organization completed 4 new homes to sell to low-income families. Since inception, the Organization has enabled more than 245 families to reach their dream of owning a home, and in doing so has revitalized neighborhoods. Neighborhood Revitalization Initiative In the current fiscal year, the Organization became a participating affiliate of Habitat for Humanity International s Neighborhood Revitalization Initiative ( NRI ). This effort focuses on improving housing conditions while partnering with other community organizations to provide services that enhance the overall quality of life across struggling neighborhoods. In addition to home construction, NRI includes weatherization, minor home repair and related projects. The NRI program is currently included as part of the Construction program in the Statement of Functional Expenses. Family Support This program accepts homeowner applications, selects families for program participation, provides ongoing homeowner education and orientation, and works with participants to obtain homebuyer grant assistance. ReStore The Organization operates two retail stores that are open to the public. Both ReStore locations accept donations of new and used building materials, fixtures and appliances and resell these items at discounted prices. The purpose of ReStore is to divert materials from landfills, encourage homeowners to improve their properties, and provide an additional funding source to support the Organization. The Organization opened the first ReStore in Kansas City, Kansas, in December The second ReStore location opened in Overland Park, Kansas, in January Management and General, and Fundraising Provides oversight of programs, volunteer coordination, business management, record keeping, and budgeting, financing and other administrative and fundraising activities for the entire Organization. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Presentation 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. 6

8 The Organization is required to report information regarding its financial position and activities according to the three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Cash and Cash Equivalents For the purposes of the Statement of Cash Flows, the Organization considers highly liquid investments with an initial maturity of three months or less to be cash equivalents. There were no cash equivalents held at June 30, Restricted Cash Restricted cash represents cash on-hand that is not available for unrestricted operating purposes. The restrictions relate to mortgage escrow deposits and cash received for temporarily restricted contributions that have not yet been expended, as follows: Mortgage related escrow deposits 122,874 Temporarily restricted contributions 276, ,523 Certificate of Deposit A 115,000 certificate of deposit is included in the accompanying financial statements. The certificate bears interest at 1.15% and matures on July 5, 2011, with penalties for early withdrawal. Subsequent to June 30, 2011, the certificate was renewed at 0.7% for an additional one year term. Any penalties for early withdrawal would not have a material effect on the financial statements. The certificate of deposit is pledged as collateral on the line of credit. Contracts and Other Receivables Contracts and other receivables are stated at outstanding balances, less an allowance for doubtful accounts. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Inventory Inventory is stated at the lower of cost or, for donated items, estimated fair value, and consists of building supplies used for home construction, and donated items held for sale at the two ReStore locations. Inventory consists of the following at June 30: Building supplies 59,534 ReStore inventory 145, ,633 Property and Equipment Property and equipment is carried at cost or, if donated, at the approximate fair value at the date of donation. Major additions and improvements are capitalized, and maintenance and repairs that do not improve or extend the life of the respective assets are charged against net assets in the current period. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 20 years. Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. When a 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 Statement of Activities as net assets released from restrictions. 7

9 A significant amount of in-kind contributions are received by the Organization. In-kind contributions, which are recognized at estimated fair value on the date of donation, consist of the following for the year ended June 30: ReStore inventory 700,106 Building materials and supplies 29,345 Rent 30,000 Vehicle 10,000 Land and other 16, ,629 Promises to Give Unconditional promises to give are recorded as revenues or gains in the period received and as assets, decrease of liabilities, or expenses depending on the form of the benefits received. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Conditional promises to give are recognized when the conditions on which they depend are substantially met. As of June 30, 2011, the Organization had received conditional promises to give totaling 1,250. Donated Assets Donated marketable securities, if any, and other noncash donations are recorded as contributions at their estimated fair values at the date of donation. Donations of property and equipment are recorded as support at their estimated fair value at the date of donation. Such donations are reported as unrestricted support unless the donor has restricted the donated assets to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Organization reclassifies temporarily restricted net assets to unrestricted net assets at that time. Contract Revenues The Organization receives a significant amount of revenue in the form of government grants and contracts. The Organization recognizes contract funds received or receivable as revenue to the extent that related program expenses have been incurred. Contract funds received in excess of expenses incurred are recognized as refundable advances in the Statement of Financial Position. Contributed Services Contributed services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills which are performed by individuals possessing those skills, and (c) would otherwise be purchased by the Organization if not donated. During the year ended June 30, 2011, no such services have been received. A substantial number of volunteers have made significant contributions of their time to support the Organization s programs. The Organization received approximately 32,800 volunteer hours during the year ended June 30, These hours were critical to the construction of homes during the year. Expense Allocation The costs of providing various programs and other activities have been summarized on a functional basis in the Statement of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income Taxes Heartland Habitat for Humanity, Inc. is a not-for-profit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization that is not a private foundation under Section 509(a)(1). As a result, no provision for income taxes has been recorded. The Organization accounts for uncertain tax 8

10 positions in accordance with the provisions of Financial Accounting Standards Board ( FASB ) Codification topic 740 Income Taxes. Income Taxes clarifies the accounting for uncertainty in income taxes and requires the Organization to recognize in their financial statements the impact of a tax position taken or expected to be taken in a tax return, if that position is more likely than not to be sustained under audit, based on the technical merits of the position. Management has assessed the tax positions of the Organizations and determined that no positions exist that require adjustment or disclosure in the financial statements. The Organization is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Organization believes it is no longer subject to income tax examinations for fiscal years prior to Use of Estimates 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Date of Management s Review Subsequent events have been evaluated through December 8, 2011, the date that these financial statements were available to be issued, and there were no material events requiring recognition or disclosure. New Accounting Pronouncements In January 2010, the FASB issued guidance which expanded the required disclosures about fair value measurements. This guidance requires purchases, sales, issuances and settlements to be presented separately in the reconciliation for Level 3 fair value measurements. This guidance is effective for annual reporting periods beginning after December 15, The Organization does not expect this guidance will have a significant effect on the Organization s financial statement disclosures. 3. GRANTS AND CONTRIBUTIONS RECEIVABLE Grants and contributions receivable consist of the following, all of which are due within the next year. No allowance is considered necessary. Foundations 31,224 Corporations 12,365 Individuals , CONTRACTS AND OTHER RECEIVABLES Contracts and other receivables consist of the following, all of which are due within the next year. No allowance is considered necessary. Government contracts 75,264 Other 47,488 Total receivables 122,752 9

11 5. CONSTRUCTION IN PROGRESS AND PROPERTY AVAILABLE FOR SALE Construction in progress consists of 5 homes that were in process of construction and/or rehabilitation at June 30, Property available for sale includes 6 homes and 1 duplex that have been completed and are available for sale. In addition, the Organization held 16 plots of land located in the Kansas City metropolitan area for potential future construction projects. Construction in progress and property available for sale have been adjusted to the lower of cost or management s estimate of net realizable value of each respective property based on county appraisals and, if available, estimates of future sales price. During the current fiscal year, the Organization sold 6 homes. As of June 30, 2011, construction in progress and property available for sale consist of the following: Construction in progress 313,350 Property available for sale 344,534 Land available for sale/development 42, MORTGAGE LOANS RECEIVABLE 699,896 Mortgage loans receivable consist of non-interest bearing mortgages, which are secured by real estate and are payable in monthly installments over the life of the mortgage, typically 30 years. At inception, the mortgages are discounted based upon prevailing market rates as determined by Habitat for Humanity International, Inc., which approximated 7.69% for the year ended June 30, The mortgage discount is recognized as income over the term of the mortgage using the effective interest method. Mortgage discount included in income was 268,659 for the year ended June 30, As of June 30, 2011, the Organization held 136 mortgage notes. Upon meeting certain eligibility requirements, a homeowner can acquire a forgivable second mortgage. These mortgages are forgiven on a straight-line basis over a 10 year period, provided certain requirements and restrictions are met by the homeowner. During the year ended June 30, 2011, the Organization provided 25,000 in forgivable second mortgages and recognized 179,770 in expense for forgiveness. Historically, the Organization has not experienced any material losses with respect to uncollectible mortgages. Homes that are repossessed through the foreclosure process are rehabilitated and resold to families participating in the program. Management believes that the value of the collateral on the respective mortgages is sufficient to cover any potential losses on future foreclosures. Accordingly, no reserve has been recognized for uncollectible mortgages. First mortgage loans receivable 7,629,003 Less: unamortized discount (4,290,722) First mortgage loans receivable, net of discount 3,338,281 Forgivable second mortgages 511,156 Total mortgage loans receivable, net 3,849,437 Less: Current portion (424,237) 3,425,200 10

12 7. PROPERTY AND EQUIPMENT Property and equipment consist of the following at June 30: Land 1,626 Buildings and improvements 374,583 Leasehold improvements 45,504 Construction and warehouse equipment 95,691 Vehicles 105,466 Furniture 10,365 Computers and office equipment 38,163 Website 15, ,398 Less accumulated depreciation and amortization (433,581) 252,817 During the year ended June 30, 2011, depreciation and amortization expense of 55,388 is included in the Statement of Activities. 8. NOTES PAYABLE Notes payable consist of the following at June 30, 2011: Non-interest bearing note, payable to a charitable foundation in quarterly installments of 1,937, due September 15, Original note of 155,000 was discounted at 8%. Unamortized discount of 33,666 at June 30, Note is unsecured 55,459 Note payable to Habitat for Humanity International, Inc.; 3.63%; quarterly installments of 5,896, including interest; due December 2011; collateralized by certain mortgage notes 11,633 Non-interest bearing note with Habitat for Humanity International, Inc. with respect to its SHOP grant program; monthly installments of 195; due July 2012; unsecured 2,355 Non-interest bearing note with Habitat for Humanity International, Inc. with respect to its SHOP grant program; monthly installments of 130; due July 2012; unsecured 1,570 Non-interest bearing note with Habitat for Humanity International, Inc. with respect to its SHOP grant program; monthly installments of 65; due July 2013; unsecured 1,175 72,192 Less: current maturities (19,480) 52,712 11

13 Aggregate maturities of notes payable over the next five years is as follows: , , , , ,274 Thereafter 37,029 72, LINE OF CREDIT During the year ended June 30, 2011, the Organization had a 110,000 revolving line of credit with a bank dated June 6, 2010 and bearing interest at 4.15%. Interest is payable monthly and principal is due upon maturity. On July 6, 2011, the line of credit was renewed for an additional year, and the terms of the line were changed to increase the borrowing limit to 115,000 and the interest rate was changed to 3.70%. As of June 30, 2011, outstanding borrowings against the line totaled 63,657. The credit line is secured by the certificate of deposit. 10. COMMITMENTS AND CONTINGENCIES The Organization leases space for the administrative offices, each of the ReStore locations, and certain office equipment under non-cancellable operating leases. The lease for the administrative offices expired in September 2010 and is currently month to month. The lease for the Overland Park, Kansas, ReStore expires December The lease for the Kansas City, Kansas, ReStore expires December 31, Subsequent to June 30, 2011, this lease was extended for 3 months through March 31, Future minimum lease payments under the operating leases in effect as of June 30, 2011, are as follows: Year Ending June 30, , , , ,184 Thereafter 560,847 Rent expense for the year ended June 30, 2011, was 142,717. During 2005, the Organization sold certain mortgage notes receivable to an unrelated third party. As part of the sale, the Organization agreed that if an individual becomes delinquent on their mortgage, the Organization may be required to repurchase the mortgage note or, if available, assign a performing mortgage note to replace the delinquent mortgage. Total mortgage notes outstanding under this arrangement as of June 30, 2010, approximated 800,000, of which approximately 230,000 had become delinquent as of June 30, Although the Organization has requested updated detail from the third party on these outstanding loan balances and any related delinquencies, the third party has not provided this information. The third party has not required the Organization to repurchase any nonperforming mortgage notes or to assign performing notes to replace delinquent mortgages. As each mortgage holds a first position on the underlying property and management 12

14 estimates the properties have a fair value in excess of the outstanding mortgage notes, management does not believe there is a risk for material financial loss. 11. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes or periods as of June 30, 2011: Construction 307,135 Vehicle purchase 1, ,171 Net assets of 585,876 were released from donor restrictions by incurring expenses satisfying the restricted purposes specified by the donors, or by the passage of time. Construction 471,761 Financial literacy education 5,000 Johnson County ReStore start up 103,213 Other 5, , RETIREMENT PLAN The Organization sponsors a defined contribution retirement plan under which eligible employees may choose to defer a percent of their salary on a pre-tax basis, subject to certain Internal Revenue Code (IRC) limits. The plan covers employees who meet the eligibility requirements as stated in the plan document. Employees may contribute any amount of their respective wages as long as they do not exceed the IRC limitation. The Organization matches an amount equal to 100% of each participant s contribution up to 3% of the participant s respective wages. The Organization contributed 10,421 for the year ended June 30, MAJOR CONCENTRATIONS Revenues The Organization received approximately 244,000 direct and pass-through funds from the Department of Housing and Urban Development for the year ended June 30, This funding represented approximately 11% of the Organization s revenues for the year ended June 30, Federal Awards The Organization has received financial assistance from the U.S. Department of Housing and Urban Development, in the form of contracts, grants and awards to fund its activities. These activities are subject to audit by agents of the granting authority, and by independent public accountants, under the Single Audit Act, the purpose of which is to ensure compliance with the terms and conditions specified in these agreements. Such audits could result in claims against the Organization for disallowed costs or noncompliance with grantor restrictions. No provision has been made for any liabilities that may arise from such audits since the amounts, if any, cannot be determined at this date. ********* 13