Consolidated financial statements of: SECOND HARVEST HEARTLAND AND SUBSIDIARY. Years ended September 30, 2011 and 2010

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1 Consolidated financial statements of: SECOND HARVEST HEARTLAND AND SUBSIDIARY Years ended September 30, 2011 and 2010

2 SECOND HARVEST HEARTLAND CONTENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Page Independent auditor s report 1 Consolidated financial statements: Statements of financial position 2 Statements of activities and change in net assets 3 Statements of cash flows 4 Statements of functional expenses 5-6 Notes to consolidated financial statements 7-13 Independent auditor s report on accompanying information 14 Accompanying information to consolidated financial statements: Consolidating schedule 15

3 INDEPENDENT AUDITOR S REPORT Schechter Dokken Kanter Andrews & Selcer Ltd Suite Washington Avenue South Minneapolis, MN Board of Directors Second Harvest Heartland and Subsidiary 1140 Gervais Ave. Maplewood, MN We have audited the accompanying consolidated statements of financial position of Second Harvest Heartland and Subsidiary (the Organization) as of September 30, 2011 and 2010, and the related consolidated statements of activities and change in net assets, cash flows, and functional expenses for the years then ended. These consolidated financial statements are the responsibility of the Organization's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits Phone Fax We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. info@sdkcpa.com In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Organization as of September 30, 2011 and 2010, and the change in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. February 23, 2012

4 CONSOLIDATED STATEMENTS OF SECOND HARVEST HEARTLAND FINANCIAL POSITION AND SUBSIDIARY SEPTEMBER Assets: Current assets: Cash and cash equivalents $ 1,663,656 $ 1,642,252 Investments 1,131,084 2,196,149 Receivables: Trade, net of allowance of $32,288 and $26,218 in 2011 and 2010, respectively 897, ,059 Grants 590, ,587 Pledges, current portion, net of allowance of $200,000 and $0 in 2011 and 2010, respectively 1,832, ,326 Other 60,647 5,341 Inventory 4,664,084 4,713,907 Prepaid expenses 110,309 28,679 Total current assets 10,950,432 10,165,300 Property and equipment, net 4,909,448 5,338,921 Pledges receivable, net of current portion and of discount of $10, ,306 Other assets 5,214 10,309 Total assets $ 16,356,400 $ 15,514,530 Liabilities and net assets: Current liabilities: Accounts payable $ 501,257 $ 917,169 Current maturities of long-term debt 182, ,200 Fiscal agent payable 25,328 16,662 Accrued expenses 586, ,860 Total current liabilities 1,295,461 1,705,891 Long-term debt, net of current portion 1,152,434 1,334,893 Total liabilities 2,447,895 3,040,784 Net assets: Unrestricted: Operations 7,317,810 8,291,203 In-kind 4,106,516 4,100,760 11,424,326 12,391,963 Temporarily restricted 2,484,179 81,783 Total net assets 13,908,505 12,473,746 Total liabilities and net assets $ 16,356,400 $ 15,514,530 See notes to consolidated financial statements. 2

5 SECOND HARVEST HEARTLAND AND SUBSIDIARY 2011 Temporarily Unrestricted restricted Total Revenues: Program services $ 1,707,242 $ 1,707,242 Purchase program 5,435,530 5,435,530 Government contracts 1,952,934 1,952,934 Foundation and corporation grants and contributions 4,297,682 $ 2,336,028 6,633,710 General contributions 4,318,286 35,651 4,353,937 United Way 891, ,500 1,004,005 Special events 2,184,039 2,184,039 In-kind donations 99,682,261 99,682,261 Investments and miscellaneous 116, , ,585,907 2,484, ,070,086 Less: In-kind donations received as agent 17,049,460 17,049,460 Total revenues 103,536,447 2,484, ,020,626 Net assets released from restrictions 81,783 (81,783) Total support and revenues 103,618,230 2,402, ,020,626 Expenses: Programs 99,616,391 99,616,391 General, administrative and marketing 2,379,277 2,379,277 Fundraising 2,590,199 2,590,199 Total expenses 104,585, ,585,867 Change in net assets (967,637) 2,402,396 1,434,759 Change in net assets: (Decrease) increase from: Operations (973,393) 2,402,396 1,429,003 In-kind inventory change 5,756 5,756 Total change in net assets (967,637) 2,402,396 1,434,759 Net assets, beginning 12,391,963 81,783 12,473,746 Net assets, ending $ 11,424,326 $ 2,484,179 $ 13,908,505 See notes to consolidated financial statements.

6 CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGE IN NET ASSETS YEARS ENDED SEPTEMBER Temporarily Unrestricted restricted Total $ 1,528,620 $ 1,528,620 4,932,534 4,932,534 2,281,039 2,281,039 4,250,286 $ 81,783 4,332,069 4,696,417 4,696,417 1,041,655 1,041,655 2,169,604 2,169,604 86,057,044 86,057,044 60,610 60, ,017,809 81, ,099,592 14,783,805 14,783,805 92,234,004 81,783 92,315, ,657 (196,657) 92,430,661 (114,874) 92,315,787 87,114,014 87,114,014 2,277,020 2,277,020 3,234,952 3,234,952 92,625,986 92,625,986 (195,325) (114,874) (310,199) 754,035 (114,874) 639,161 (949,360) (949,360) (195,325) (114,874) (310,199) 12,587, ,657 12,783,945 $ 12,391,963 $ 81,783 $ 12,473,746 3

7 SECOND HARVEST HEARTLAND CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUBSIDIARY YEARS ENDED SEPTEMBER Cash flows from operating activities: Change in net assets $ 1,434,759 $ (310,199) Adjustments to reconcile increase in net assets to net cash (used in) provided by operating activities: Depreciation 1,002, ,009 Non-cash investment contribution (102,191) (104,858) Loss on disposal of equipment 22,791 6,207 Realized loss on sale of investments 2,692 4,438 Increase in allowance for doubtful accounts 206,070 2,500 Decrease (increase) in: Receivables (2,494,362) (832,364) Prepaid expenses (81,630) 42,178 Inventory 49, ,600 Other assets 5,095 Increase (decrease) in: Accounts payable (415,912) (72,389) Fiscal agent payable 8,666 (36,576) Accrued expenses (13,442) 239,655 Net cash (used in) provided by operating activities (374,939) 553,201 Cash flows from investing activities: Purchase of: Property and equipment (596,020) (1,231,195) Investments (1,129,834) (1,240,577) Proceeds from sale of investments 2,294,398 2,483,911 Net cash provided by investing activities 568,544 12,139 Cash flows used in financing activities, principal payments on long-term debt (172,201) (162,519) Net change in cash and cash equivalents 21, ,821 Cash and cash equivalents, beginning 1,642,252 1,239,431 Cash and cash equivalents, ending $ 1,663,656 $ 1,642,252 Supplementary disclosure of cash flow activity: Cash paid for interest $ 90,216 $ 93,971 See notes to consolidated financial statements. 4

8 SECOND HARVEST HEARTLAND AND SUBSIDIARY Programs Food Food Agency CSFP Bank Rescue Relations Wages and temporary services $ 315,530 $ 2,202,656 $ 533,201 $ 554,334 Fringe benefits and payroll taxes 89, , , ,805 Professional fees 1,426 15,019 1,198 5,442 Occupancy 47, ,870 15,377 22,191 Vehicles operation 21, , , Equipment expense 5,554 54,558 9,578 1,456 Supplies 78,796 98,840 9,939 5,124 Meeting, travel and staff development 5,943 38,090 9,451 39,575 Promotions and marketing 2, Direct mail expense Cluster/network fees 646,573 Agency assistance 2, ,841 In-kind distributed* 5,046,358 94,345,001 Cost of purchased product disbursed 6,640,706 Other expense 36,061 Depreciation 32, , ,615 24,539 Interest expense 9,508 65,438 1,169 1,264 5,654, ,698,445 1,048,193 1,008,631 Less: In-kind distributed as agent 16,769,513 Total expenses $ 5,654,223 $89,928,932 $ 1,048,193 $ 1,008,631 *Food Bank in-kind distributed includes Food Rescue product. See notes to consolidated financial statements.

9 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED SEPTEMBER 30, 2011 Support Services Community Programs G&A and Support Outreach total marketing Fundraising total Total $ 817,292 $ 4,423,013 $ 1,353,217 $ 967,600 $ 2,320,817 $ 6,743, ,081 1,203, , , ,027 1,720,091 98, , , , , ,819 40, ,950 38,380 25,594 63, ,924 1, ,249 1, , ,439 3,628 74,774 18,325 11,006 29, ,105 44, , , , , ,654 90, ,811 94,633 29, , , , ,130 53, , ,823 1,208, ,730 70,758 70, , , , , ,356 99,391,359 99,391,359 6,640,706 6,640, ,081 (14,154) 43,806 29,652 65,733 18, ,618 36,954 34,130 71,084 1,002,702 1,889 79,268 1,963 1,702 3,665 82,933 1,976, ,385,904 2,379,277 2,590,199 4,969, ,355,380 16,769,513 16,769,513 $ 1,976,412 $ 99,616,391 $ 2,379,277 $ 2,590,199 $ 4,969,476 $ 104,585,867 5

10 SECOND HARVEST HEARTLAND AND SUBSIDIARY Programs Food Food Agency CSFP Bank Rescue Relations Wages and temporary services $ 372,166 $ 1,903,465 $ 389,657 $ 531,423 Fringe benefits and payroll taxes 86, , , ,606 Professional fees 8,395 22,894 7,774 1,203 In-kind professional services Occupancy 48, ,990 11,894 29,571 Vehicles operation 21, , ,128 Equipment expense 7,517 77,432 1,043 2,350 Supplies 57,746 68,271 13,849 4,371 Meeting, travel and staff development 5,455 35,299 8,266 46,096 Promotions and marketing 4, Direct mail expense Cluster/network fees 599,396 Agency assistance 233,676 In-kind distributed* 4,959,070 82,991,340 Cost of purchased product disbursed 4,716,774 Other expense 352 2,500 Depreciation 47, , ,234 21,252 Interest expense 11,246 71,961 1,275 1,840 5,625,287 92,699, ,949 1,018,888 Less: In-kind distributed as agent 14,783,805 Total expenses $ 5,625,287 $77,915,281 $ 811,949 $ 1,018,888 *Food Bank in-kind distributed includes Food Rescue product. See notes to consolidated financial statements.

11 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED SEPTEMBER 30, 2010 Support Services Community Programs G&A and Support Outreach total marketing Fundraising total Total $ 405,167 $ 3,601,878 $ 1,220,869 $ 951,392 $ 2,172,261 $ 5,774,139 99,931 1,008, , , ,492 1,525, , , , , ,792 1,137, , , ,000 20, ,256 51,021 25,054 76, ,331 1, ,483 10,027 10, ,510 1,963 90,305 29,741 10,281 40, ,327 13, , , , , ,957 35, ,724 74,130 35, , ,939 46,415 51,340 65,890 1,037,360 1,103,250 1,154,590 52,370 52,370 52, , , , ,676 47,570 47, ,246 87,950,410 87,950,410 4,716,774 4,716, ,894 28,622 55,203 83,825 86,719 15, ,111 34,793 29,105 63, ,009 1,075 87,397 3,389 2,399 5,788 93,185 1,742, ,897,819 2,277,020 3,234,952 5,511, ,409,791 14,783,805 14,783,805 $ 1,742,609 $ 87,114,014 $ 2,277,020 $ 3,234,952 $ 5,511,972 $ 92,625,986 6

12 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Summary of significant accounting policies: Nature of activities: Second Harvest Heartland (the Organization) is a not-for-profit organization dedicated to ending hunger through community partnerships and increasing public awareness of hunger. The Organization obtains, stores and distributes donated and purchased food to member agencies and directly to low income individuals in Minnesota and Western Wisconsin. The Organization is a member of Feeding America. The Organization administers two government programs The Emergency Food Assistance Program (TEFAP) and the Commodity Supplemental Food Program (CSFP) and a food rescue program. It also provides food to member agencies (food bank program) and other programs that address hunger issues. Funding for the Organization comes financially from general contributions, grants, fees charged to member agencies and non-financially from donations and grants of food. During fiscal year 2011, Second Harvest Heartland created a single member LLC called Hunger-Free Minnesota, LLC. Hunger-Free Minnesota has a strategic, three-year action plan to close the gap of 100 million missing meals every year across the state of Minnesota. This is a collaborative partnership with the five other Feeding America food banks, state government agencies, United Ways and many other hunger relief organizations. It has the support of many corporate sponsors, nonprofit agencies, food banks, food shelves and others throughout the State of Minnesota. that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include in-kind donated food inventory, receipts and distributions. Contributions and grants: All contributions and grants are considered to be available for unrestricted use unless specifically restricted by the donor. 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. If a restriction expires in the same fiscal year in which the contribution was recognized, the contribution is reported as an increase in unrestricted net assets. Unrestricted net assets: The Organization presents its unrestricted net assets in two segments. The in-kind amount is the accumulated effect that in-kind activity has on ending inventory, while operations is the accumulated effect of change in net assets excluding in-kind activity. Functional allocation of expenses: The costs of providing various programs and other activities have been summarized on a functional basis in the statements of activities and change in net assets. Expenses that relate to more than one program or function have been allocated based on the best estimates of management. Principles of consolidation: The consolidated financial statements include the accounts of Second Harvest Heartland and its wholly owned subsidiary, Hunger-Free Minnesota, LLC. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Use of estimates: The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions 7

13 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Summary of significant accounting policies (continued): Donated foods: The Organization reports contributions of food over which it has control (i.e. variance power) as unrestricted in-kind donations. Public donations of food and food obtained through USDA commodity programs (TEFAP and CSFP) are valued based on a weighted average wholesale price per pound. This valuation is determined using a report provided annually by Feeding America based on an annual study. During fiscal years 2011 and 2010, the Organization reported inkind donations for donated food as follows: Distributed product: During fiscal years 2011 and 2010, the Organization received 71,852,000 and 62,228,000 pounds of food and distributed 71,161,000 and 59,626,000 pounds of food, respectively. The following reflects all of the Organization s distributions (included purchased product) during fiscal years 2011 and 2010: 2011 Pounds Dollars Donated product 45,384,000 $78,828,000 TEFAP 9,986,000 15,517,000 CSFP 3,358,000 5,046,000 Pounds 2011 Dollars In-kind distributions 58,728,000 99,391,000 Purchased 12,433,000 6,641,000 Donated product 45,925,000 $ 79,579,000 TEFAP 9,907,000 15,008,000 CSFP 3,337,000 5,090,000 Donated equipment 5,000 Total in-kind donations 59,169,000 $ 99,682,000 In-kind donations as agent 8,681,000 $ 17,049, Pounds Dollars Donated product 39,313,000 $ 63,336,000 TEFAP 9,775,000 17,906,000 CSFP 3,089,000 4,815,000 Total in-kind donations 52,177,000 $ 86,057,000 In-kind donations as agent 8,218,000 $ 14,784,000 Total distributions 71,161,000 $106,032,000 In-kind distributions as agent 8,617,000 $16,770, Pounds Dollars Donated product 37,104,000 $ 65,090,000 TEFAP 9,749,000 17,901,000 CSFP 3,024,000 4,959,000 In-kind distributions 49,877,000 87,950,000 Purchased 9,749,000 4,717,000 Total distributions 59,626,000 $ 92,667,000 In-kind distributions as agent 8,218,000 $ 14,784,000 The Organization acts as an agent for five other Feeding America entities with locations in Minnesota. Per contractual arrangements, the Organization redistributes certain products to these other Feeding America locations. 8

14 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Summary of significant accounting policies (continued): Contributed services: The Organization received donated in-kind professional business services in 2010 which were recorded as revenue and expense at the fair value as established by the donor of $592,000. Members of the Organization and volunteers have donated significant amounts of their time to enhancing the Organization's activities. However, the value of these donated services is generally not reflected in the accompanying financial statements since there is no objective basis available by which to measure the value of such services. Cash and cash equivalents: Cash and cash equivalents includes interest bearing money market accounts and any investments with an original maturity of three months or less. The Organization maintains its cash and cash equivalents with various financial institutions. At times, these balances may exceed federally insured limits. The Organization has not experienced a loss as a result of these deposits. Cash and cash equivalents also include $25,328 and $16,662 of amounts held under a fiscal agency agreement for 2011 and 2010, respectively. Investments: Investments in marketable securities with readily determinable fair value and all investments in debt securities are valued at their fair values in the statement of financial position. Unrealized gains and losses are included in the change in net assets. Certificates of deposit: Included in investments are non-negotiable certificates of deposit. Non-negotiable certificates of deposit are time deposits held at a local bank and are stated at amortized cost. Fair value measurements: The Organization s investments are reported using a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets, for which prices are available at the measurement date. Level 2 - Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset s or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs. 9

15 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Summary of significant accounting policies (continued): Inventory: Inventory is valued on a first-in, first-out basis. Public donations of food and food obtained through USDA commodity programs (TEFAP and CFSP) are valued based on a weighted average wholesale price per pound. This valuation is determined using a report provided annually by Feeding America based on an annual study. Purchased food is valued based on actual cost. Inventory is shown net of any inventory on-hand that is allocated to Feeding America entities for which the Organization is only acting as an agent. Property and equipment: Property and equipment are stated at cost. Contributed property and equipment are recorded at fair value at the date of donation. Depreciation is provided over the estimated useful lives of the assets by the straight-line method. The capitalization policy of the Organization is to capitalize all computers and network printers, equipment over $1,000 and vehicles, buildings and improvements over $5,000. Asset lives are as follows: Buildings Building improvements Equipment Autos and trucks 40 yrs yrs yrs yrs. Computer software: The Organization capitalizes the costs of obtaining or developing internal use software including directly related payroll costs and amortizes those costs over a period of three years, beginning when the software is ready for its intended use. Trade receivable and bad debt: Trade receivables are stated at original invoice amount less an estimate for doubtful receivables based on management s review of all outstanding amounts and historical experience. Accounts receivable are written-off when deemed uncollectible. Recoveries of accounts previously written-off are recorded when received. The Organization transacts with its member agencies on open credit and such accounts receivable are uncollateralized. The maximum loss that would be incurred if a member agency failed to pay amounts owed would be limited to the recorded amount due after any allowances provided. An account is considered past due if the balance is outstanding for more than 90 days. Grants receivable: Grants receivable are stated at the estimated net realizable value after provision for doubtful accounts. There was no allowance related to grants at September 30, 2011 and Grants receivable at September 30, 2011 and 2010 are due in less than one year. Pledges receivable: Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their future cash flows. The discounts on those amounts are computed using risk-adjusted interest rates applicable to the years in which the promises are received. Income taxes: The Organization is exempt, as a public charity, from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable state statutes. However, income from certain activities not directly related to the Organization s tax-exempt purpose could result in taxable income. The Organization has evaluated its tax positions for uncertainty and has no unrecognized tax matters that are required to be disclosed. The Organization is open to examination for tax years 2008 through The Organization had no income tax expense for 2011 or There were no cash payments for income taxes in 2011 or

16 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Summary of significant accounting policies (continued): Advertising costs: Advertising costs are expensed as incurred. Total advertising expense was $1,208,953 and $1,154,590 for the years ended September 30, 2011 and 2010, respectively. Reclassifications: Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 presentation. Subsequent events: The Organization evaluated for subsequent events through February 23, 2012, the date the financial statements were available for issuance. 2. Inventory: Ending inventory is comprised of the following: Donated $ 2,117,814 $ 1,589,894 TEFAP 782,324 1,347,953 CSFP 1,206,378 1,162,913 Purchased 557, ,147 $ 4,664,084 $ 4,713,907 Donated and governmental commodity inventory is valued using an average cost per pound methodology, suggested by Feeding America. Purchased inventory is valued based on actual cost. 3. Investments: Equity funds $ 1,250 $ 5,585 Certificates of deposit 1,129,834 2,190,564 $ 1,131,084 $ 2,196,149 Summary of investment return for the years ended is as follows: Interest and dividends** $ 35,620 $ 64,081 Realized loss (2,692) (4,438) $ 32,928 $ 59,643 **Includes interest on cash and cash equivalent accounts. Financial assets that are carried at estimated fair value are categorized based on the inputs to the valuation technique as follows for the years ended September 30, 2011 and 2010: 2011 Level 1 Level 2 Level 3 Total Equity fund investments $ 1,250 $ 1, Level 1 Level 2 Level 3 Total Equity fund investments $ 5,585 $ 5, Pledges receivable: Unconditional promises to give are recorded as pledges receivable and revenue of the appropriate net asset category. The discount rate used on pledges was 2% for Unconditional promises to give at September 30 are as follows: Unrestricted promises $ 373,242 $ 122,826 Restricted promises 2,160, ,500 2,533, ,326 Less pledge reserve (200,000) Less discounts to net present value (10,027) Contributions receivable $ 2,323,635 $ 235,326 Amounts due in: Less than one year $ 1,832,329 $ 235,326 One to five years $ 491,306 11

17 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Property and equipment: Building $ 1,235,416 $ 1,235,416 Building improvements 3,959,820 3,913,476 Office equipment 875, ,839 Warehouse equipment 1,570,108 1,484,108 Autos and trucks 2,577,232 2,284,554 Land 220, ,000 10,438,452 9,941,393 Less accumulated depreciation 5,529,004 4,602, Line of credit: $ 4,909,448 $ 5,338,921 The Organization has a bank line of credit, secured by certain assets, in the amount of $900,000. The line carries an interest rate of prime (3.25% at September 30, 2011 and 2010) plus.25%, with a floor of 4.50%. The line, which is scheduled to expire on March 6, 2012, is in the process of being renewed. No outstanding balance existed at September 30, 2011 and Long-term debt: Mortgage payable with interest at 5.8% payable in monthly installments of $21,253 and maturing in December Mortgage is collaterallized by building and accessories. $ 1,334,892 $ 1,507,093 Future maturities of long-term debt are as follows: Year ending September 30 Amount 2012 $ 182, , , , ,972 Thereafter 307,250 $ 1,334,892 Interest expense incurred was $82,933 and $93,185 in fiscal years 2011 and 2010, respectively. 8. Operating leases: The Organization leases vehicles and office and warehouse equipment expiring through Total rent expense for the years ended September 30, 2011 and 2010 was $69,084 and $65,089, respectively. The Organization also leases space to carry out organization objectives. This lease expires in March In addition to minimum base rental payments, the Organization is required to pay its proportional share of real estate taxes and operating expenses. Rental payments were $173,747 and $169,605 for the years ended September 30, 2011 and 2010, respectively. Subsequent to year end, the Organization entered into a new building lease that begins in March 2012 and expires in May Less current portion 182, ,200 $ 1,152,434 $ 1,334,893 12

18 SECOND HARVEST HEARTLAND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY YEARS ENDED SEPTEMBER 30, 2011 AND Operating leases (continued): Future minimum lease payments, including the lease beginning in March 2012, are as follows: Year ending September 30 Amount 2012 $ 135, , , , ,383 Thereafter 375, Temporarily restricted net assets: $ 1,392,841 Temporarily restricted net assets are available for the following purposes: Child Nutrition $ 77,678 Hunger-Free MN $ 2,083,571 School Pantry 163,108 Capital investment and organizational growth 237,500 4,105 $ 2,484,179 $ 81, Fiscal agent: During the years ending September 30, 2011 and 2010, the Organization received cash from other donors for which it is acting as a fiscal agent, which were not fully disbursed at September 30, 2011 and As such, these funds have been treated as current liabilities in the accompanying financial statements. The Organization has received food donations that are, by contract, allocated to other food banks. Amounts of inventory on-site that were so allocated were $692,037 and $410,816 for September 30, 2011 and 2010, respectively. These amounts were not included in the final inventory as presented on the statement of financial position. 12. Retirement plan: The Organization has a defined contribution 403(b) thrift plan, in which employees are eligible to participate on the first of the month following 30 days of employment. The Organization contributes 6% of the employees annual salaries to the plan regardless of whether the employees contribute any of their pre-tax wages to the plan. The employees vest at a rate of 25% per year and are fully vested after four years in the plan. The expense for the plan was $354,283 and $297,173 for the years ended September 30, 2011 and 2010, respectively. 10. Net assets released from restriction: Net assets were released from donor restrictions by incurring expenses satisfying the restricted purpose or by occurrence of other events specified by donors as follows: Capital investment and organizational growth $ 4,105 $ 84,530 Child Nutrition 77,678 1,041 Prepackaging Produce 3,353 SNAP Outreach 102,211 Feeding America 5,522 $ 81,783 $ 196,657 13

19 Schechter Dokken Kanter Andrews & Selcer Ltd Suite 1600 INDEPENDENT AUDITOR S REPORT ON ACCOMPANYING INFORMATION 100 Washington Avenue South Board of Directors Second Harvest Heartland and Subsidiary 1140 Gervais Ave. Maplewood, MN Minneapolis, MN Phone Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating schedule for the year ended September 30, 2011, on page 15 is presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position and results of operations of the individual organizations. The consolidating information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. Fax info@sdkcpa.com February 23,

20 SECOND HARVEST HEARTLAND CONSOLIDATING SCHEDULE AND SUBSIDIARY YEAR ENDING SEPTEMBER 30, 2011 Second Harvest Hunger-Free Heartland Minnesota Eliminations Total Total assets $ 14,784,015 $ 2,191,341 $ (618,956) $ 16,356,400 Total liabilities $ 2,447,895 $ 618,956 $ (618,956) $ 2,447,895 Net assets 12,336,120 1,572,385 13,908,505 Total liabilities and net assets $ 14,784,015 $ 2,191,341 $ (618,956) $ 16,356,400 Revenues: Contribution, program, special event and miscellaneous $ 21,057,004 $ 2,330,821 $ 23,387,825 In-kind donations 82,632,801 82,632, ,689,805 2,330, ,020,626 Expenses: Operating 21,205, ,436 21,964,021 In-kind 82,621,846 82,621, ,827, , ,585,867 Total change in net assets $ (137,626) $ 1,572,385 $ 1,434,759 15