Goodwill Industries of Mid-Michigan, Inc. Financial Report with Additional Information December 31, 2008

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1 Financial Report with Additional Information December 31, 2008

2 Contents Report Letter 1 Financial Statements Statement of Financial Position 2 Statement of Activities and Changes in Net Assets 3 Statement of Functional Expenses 4-5 Statement of Cash Flows 6 Notes to Financial Statements 7-11 Additional Information 12 Report Letter 13 Combining Statement of Financial Position 14 Combining Statement of Activities and Changes in Net Assets 15

3 Independent Auditor's Report To the Board of Directors Goodwill Industries of Mid-Michigan, Inc. We have audited the accompanying statement of financial position of Goodwill Industries of Mid- Michigan, Inc. as of December 31, 2008 and 2007 and the related statements of activities and changes in net assets, functional expenses, and cash flows for the years then ended. These financial statements are the responsibility of the Organization's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 Goodwill Industries of Mid-Michigan, Inc. at December 31, 2008 and 2007 and the changes 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. January 30,

4 Statement of Financial Position December 31, 2008 December 31, 2007 Assets Current Assets Cash and cash equivalents $ 473,211 $ 405,548 Receivables 179, ,473 Investments (Note 2) 1,891,876 1,695,197 Inventory (Note 3) 277, ,121 Prepaid expenses and other current assets 202,982 96,188 Total current assets 3,025,195 2,751,527 Property and Equipment (Note 4) 1,097,340 1,102,652 Total assets $ 4,122,535 $ 3,854,179 Liabilities and Net Assets Current Liabilities Trade accounts payable $ 191,694 $ 209,867 Deferred revenue - 5,500 Accrued liabilities and other: Accrued compensation 283, ,116 Other accrued liabilities 113, ,180 Total current liabilities 588, ,663 Net Assets - Unrestricted Unrestricted and undesignated net assets 3,342,238 3,061,522 Unrestricted - Board designated net assets 191, ,994 Total net assets 3,533,922 3,245,516 Total liabilities and net assets $ 4,122,535 $ 3,854,179 See Notes to Financial Statements. 2

5 Statement of Activities and Changes in Net Assets December 31, 2008 Year Ended December 31, 2007 Changes in Unrestricted Net Assets Revenue and support: Contributions $ 25,418 $ 36,744 Program service earned revenue (Note 6) 8,763,903 8,324,389 Contracts 177, ,015 Training and evaluation fees 822, ,241 Interest income 67,595 65,013 Gain (loss) on sale of fixed assets (21,257) 1,592 Miscellaneous income 16,784 17,724 Total revenue and support 9,852,745 9,326,718 Expenses: Program services: Retail goods production 6,801,749 6,265,926 Contracts 377, ,085 Rehabilitation 960, ,951 Miscellaneous services 121, ,948 Total program services 8,260,929 7,455,910 Support services - Management and general 1,204,426 1,154,236 Total expenses 9,465,355 8,610,146 Increase in Unrestricted Net Assets - Before payments to national organization 387, ,572 Unallocated Payments to National Organization (98,984) (87,977) Increase in Net Assets 288, ,595 Net Assets - Beginning of year 3,245,516 2,616,921 Net Assets - End of year $ 3,533,922 $ 3,245,516 See Notes to Financial Statements. 3

6 Statement of Functional Expenses Year Ended December 31, 2008 Program Services Retail Goods Miscellaneous Production Contracts Rehabilitation Services Total Support Services Management and General Totals Salaries and wages $ 3,195,792 $ 238,698 $ 651,810 $ 38,904 $ 4,125,204 $ 670,848 $ 4,796,052 Employee benefits 103,496 16,691 25,235 2, ,321 55, ,051 Payroll taxes 424,183 44,350 65,801 4, ,254 79, ,425 Total salaries and related expenses 3,723, , ,846 46,723 4,812, ,749 5,618,528 Supplies 1,103,576 48, ,201 69,426 1,329,134 63,261 1,392,395 Transportation 197,591 3,683 14, ,538 12, ,115 Contract and professional fees 36,003 1,315 51,818-89,136 38, ,841 Telephone 28,680 1,555 5, ,730 7,329 44,059 Postage and shipping 55, ,758 2,867 59,625 Occupancy 1,219,539 4,167 8, ,232, ,926 1,393,178 Equipment rental and maintenance 78,190 5,455 2,540 1,383 87,568 18, ,687 Printing and advertising 131,833 1,100 1, ,497 5, ,028 Conferences and meetings 5,515 1,757 6, ,605 12,455 27,060 Memberships 1, ,204-9,516 1,300 10,816 Miscellaneous 103, , ,174 31, ,055 Depreciation 116,955 8,241 4,602 1, ,242 43, ,968 Total functional expenses $ 6,801,749 $ 377,631 $ 960,170 $ 121,379 $ 8,260,929 $ 1,204,426 $ 9,465,355 See Notes to Financial Statements. 4

7 Statement of Functional Expenses (Continued) Year Ended December 31, 2007 Program Services Retail Goods Miscellaneous Production Contracts Rehabilitation Services Total Support Services Management and General Totals Salaries and wages $ 2,856,639 $ 249,596 $ 445,104 $ 39,415 $ 3,590,754 $ 641,172 $ 4,231,926 Employee benefits 94,012 14,028 17,014 2, ,683 86, ,678 Payroll taxes 395,288 41,002 48,035 4, ,005 78, ,777 Total salaries and related expenses 3,345, , ,153 46,724 4,207, ,939 5,014,381 Supplies 1,071, ,758 6,709 59,105 1,259,956 42,904 1,302,860 Transportation 151,196 4,266 3, ,145 14, ,469 Contract and professional fees 26,595 7,131 56,703-90,429 24, ,009 Telephone 21,783 1,741 2, ,283 7,169 33,452 Postage and shipping 56,930 1, ,679 2,391 61,070 Occupancy 1,151,576 2, ,155, ,426 1,305,441 Equipment rental and maintenance 99,800 11, ,410 15, ,433 Printing and advertising 109,288 12, ,237 4, ,679 Conferences and meetings 14,284 1,246 6,859-22,389 14,382 36,771 Memberships 1, ,544-8, ,381 Miscellaneous 87, , ,111 17, ,278 Depreciation 127,939 8,997 4,385 1, ,443 54, ,922 Total functional expenses $ 6,265,926 $ 479,085 $ 602,951 $ 107,948 $ 7,455,910 $ 1,154,236 $ 8,610,146 See Notes to Financial Statements. 5

8 Statement of Cash Flows December 31, 2008 Year Ended December 31, 2007 Cash Flows from Operating Activities Increase in net assets $ 288,406 $ 628,595 Adjustments to reconcile increase (decrease) in net assets to net cash from operating activities: Depreciation 174, ,922 Loss (gain) on sale of property and equipment 21,257 (1,592) Changes in operating assets and liabilities which provided (used) cash: Accounts receivable 65,769 (63,467) Inventory 31,699 (32,412) Prepaid expenses and other (106,794) 40,825 Accounts payable (18,173) 12,341 Accrued compensation 61,652 28,773 Accrued liabilities and other (58,029) 77,642 Deferred revenue (5,500) (2,212) Net cash provided by operating activities 455, ,415 Cash Flows from Investing Activities Purchase of property and equipment (200,313) (141,991) Proceeds from disposition of property and equipment 9,400 13,950 Purchases of investments (3,899,465) (2,480,311) Proceeds from sales and maturities of investments 3,702,786 1,844,866 Net cash used in investing activities (387,592) (763,486) Net Increase in Cash and Cash Equivalents 67, ,929 Cash and Cash Equivalents - Beginning of year 405, ,619 Cash and Cash Equivalents - End of year $ 473,211 $ 405,548 See Notes to Financial Statements. 6

9 Notes to Financial Statements December 31, 2008 and 2007 Note 1 - Nature of Activities and Significant Accounting Policies Nature of Organization - Goodwill Industries of Mid-Michigan, Inc. (the "Organization") is a not-for-profit corporation whose purpose is to achieve the full participation in society of people with disabilities and other special needs. Major programs include retail goods production, contracts, rehabilitation, and other miscellaneous services. Specific activities include vocational evaluation and assessment; employee development; organizational employment; computer retail, food service, and janitorial skills training; workers on wheels and youth leadership training; and community employment with approximately 1,150 and 779 clients served during 2008 and 2007, respectively. The Organization serves a 10-county area from Flint to Oscoda and Owosso to Lapeer. Significant accounting policies are as follows: Cash and Cash Equivalents - The Organization considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Investments - Investments, which consist of money market funds and certificates of deposits, are recorded at fair market value. Accounts Receivable - Accounts receivable are stated at invoice amounts. An allowance for doubtful accounts is established based on a specific assessment of all invoices that remain unpaid following normal payment periods. In addition, a general valuation allowance is established for other accounts receivable based on historical loss experience. All amounts deemed uncollectible are charged against the allowance for doubtful accounts in the period that determination is made. As of December 31, 2008 and 2007, the allowance for doubtful accounts was estimated to be $14,580. Inventory - Inventory, which consists of contributed goods and parts, is stated at the lower of cost or market, by use of the first-in, first-out (FIFO) method of valuation. There is a significant amount of work in bringing contributed goods to salable value; therefore, the Organization records inventory only for contributed goods brought to the point of sale. Contributed goods that have not reached their point of sale have not been included in inventory. Property and Equipment - Property and equipment are recorded at cost when purchased or at fair value at the date of donation and are being depreciated on a straight-line basis over their estimated useful lives. Costs of maintenance and repairs are charged to expense when incurred. Board-designated Net Assets - Board-designated net assets are unrestricted net assets designated by the board primarily for capital improvements. These designations are based on board actions, which can be altered or revoked at a future time by the board. 7

10 Notes to Financial Statements December 31, 2008 and 2007 Note 1 - Nature of Activities and Significant Accounting Policies (Continued) Donated Services and Assets - Certain donated assets are recognized as support in the statement of activities and changes in net assets. The value of these assets is determined as stated in the above-referenced significant accounting policy for inventory. During the years ended December 31, 2008 and 2007, the Organization recognized donated goods with an estimated fair value of $3,350,000 and $3,100,000, respectively, in program service revenue. A number of volunteers have donated time to the Organization. The volunteer services were not reflected in the financial statements because the services are not recordable under accounting principles generally accepted in the United States of America. Functional Allocation of Expenses - The costs of providing the program and support services have been reported on a functional basis in the statement of activities and changes in net assets. Indirect costs have been allocated between the various programs and support services based on estimates, as determined by management. Although the methods of allocation used are considered reasonable, other methods could be used that would produce a different amount. Advertising Costs - Advertising costs are expensed as incurred. 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 revenue, expenses, and other changes in net assets during the reporting period. Actual results could differ from those estimates. Note 2 - Investments Investments consisted of the following at December 31: Money market funds $ 386,354 $ 524,352 Certificates of deposits 1,505,522 1,170,845 Total $ 1,891,876 $ 1,695,197 8

11 Notes to Financial Statements December 31, 2008 and 2007 Note 3 - Inventory Inventory consists of the following: Contributed goods $ 261,734 $ 287,782 Purchased goods 11,656 - Parts 4,032 21,339 Total inventory $ 277,422 $ 309,121 Note 4 - Property and Equipment Property and equipment are summarized as follows: Land $ 187,238 $ 187,238 Buildings and improvements 2,043,380 2,043,380 Machinery and equipment 1,575,464 1,577,572 Leasehold improvements 473, ,513 Total cost 4,279,752 4,255,703 Accumulated depreciation 3,182,412 3,153,051 Net property and equipment $ 1,097,340 $ 1,102,652 Depreciation expense was $174,968 for 2008 and $196,922 for At December 31, 2008, the Organization had a commitment of $282,316 for the purchase of a Point-of-Sale program for its retail stores. Note 5 - Line of Credit The Organization has a $500,000 line of credit available from a bank. There were no borrowings on this line of credit at December 31, 2008 and The note bears interest at a rate equal to the bank's prime rate and is secured by receivables, inventory, and equipment. 9

12 Notes to Financial Statements December 31, 2008 and 2007 Note 6 - Program Service Earned Revenue The following is the detail of program service earned revenue for the years ended December 31: Stores $ 7,603,726 $ 7,285,330 Salvage (net of commissions $30,929 & $33,790, respectively, for 2008 and 2007) 1,038, ,943 Auxiliary 72,374 61,977 Miscellaneous 49,299 35,139 Note 7 - Operating Leases Total program service earned revenue $ 8,763,903 $ 8,324,389 The Organization leases office space under operating lease agreements that expire through The following is a schedule of future minimum rental payments for the years ending December 31: 2009 $ 847, , , , , and thereafter 294,984 Total $ 3,147,501 Total rent expense on these leases for 2008 and 2007 was $688,403 and $636,690, respectively. 10

13 Notes to Financial Statements December 31, 2008 and 2007 Note 8 - Pension Plans The Organization previously participated in a non-contributory defined benefit pension plan through the United Way of Genesee and Lapeer Counties through On January 1, 1989, the Organization terminated its participation in the above-mentioned pension plan. Therefore, no contributions have been made to this plan since On June 17, 1992, the United Way of Genesee and Lapeer Counties adopted a motion, which terminated the pension plan as of September 1, At this date, all benefit accruals ceased to accrue and all participants became 100 percent vested in his or her accrued benefit. Plan assets will be distributed in accordance with the plan document and federal regulations. As of the issuance date of the audit report, the Organization had not received any assets which may revert to the Organization under the plan document. The position of the Organization relative to other contributors to the multiple-employer plan has not been determined with respect to plan assets and accumulated benefits. However, the plan, as a whole, is overfunded by $43,697 as of January 1, In the event of withdrawal from the plan and under certain other conditions, a contributor to a multi-employer plan may be liable to the plan for a portion of the underfunded status, if any. A comparison of the accumulated plan benefits and plan net assets, as of January 1, 2007, the most recent actuarial study date available for the plan as a whole, is as follows: Vested $ 1,832,967 Net assets available for benefits $ 1,876,664 The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 8 percent. The Organization has made available a 403(b) pension plan to all employees. There is no set employee contribution required and no employer contribution. Note 9 - Goodwill Auxiliary The accompanying statement of financial position as of December 31, 2008 and 2007 and the related statements of activities and changes in net assets, functional expenses, and cash flows for the years then ended include Goodwill Auxiliary, a committee of Goodwill Industries of Mid-Michigan, Inc. 11

14 Additional Information 12

15 To the Board of Directors Goodwill Industries of Mid-Michigan, Inc. We have audited the financial statements of Goodwill Industries of Mid-Michigan, Inc. as of December 31, 2008 and Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying combining statement of financial position and combining statement of activities and changes in net assets are presented for the purpose of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the procedures applied in the audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. January 30,

16 Combining Statement of Financial Position Assets Goodwill Industries of Mid-Michigan, Inc. Year Ended December 31, 2008 December 31, 2007 Goodwill Auxiliary Total Total Current Assets Cash and cash equivalents $ 412,582 $ 60,629 $ 473,211 $ 405,548 Receivables 179, , ,473 Investments 1,886,811 5,065 1,891,876 1,695,197 Inventory 277, , ,121 Prepaid expenses and other current assets 202, ,982 96,188 Total current assets 2,959,501 65,694 3,025,195 2,751,527 Property and Equipment 1,097, ,097,340 1,102,652 Total assets $ 4,056,741 $ 65,794 $ 4,122,535 $ 3,854,179 Liabilities and Net Assets Current Liabilities Trade accounts payable $ 191,694 $ - $ 191,694 $ 209,867 Deferred revenue ,500 Accrued liabilities and other: Accrued compensation 283, , ,116 Other accrued liabilities 113, , ,180 Total current liabilities 588, , ,663 Net Assets - Unrestricted Undesignated 3,276,444 65,794 3,342,238 3,061,522 Board-designated 191, , ,994 Total net assets 3,468,128 65,794 3,533,922 3,245,516 Total liabilities and net assets $ 4,056,741 $ 65,794 $ 4,122,535 $ 3,854,179 14

17 Combining Statement of Activities and Changes in Net Assets Goodwill Industries of Mid-Michigan, Inc. Year Ended December 31, 2008 December 31, 2007 Goodwill Auxiliary Total Total Changes in Unrestricted Net Assets Revenue and support: Contributions $ 25,418 $ - $ 25,418 $ 36,744 Program service earned revenue 8,691,529 72,374 8,763,903 8,324,389 Contracts 177, , ,015 Training and evaluation fees 822, , ,241 Interest income 67, ,595 65,013 Gain (loss) on sale of fixed assets (21,257) - (21,257) 1,592 Miscellaneous income 15,679 1,105 16,784 17,724 Total revenue and support 9,778,877 73,868 9,852,745 9,326,718 Expenses: Program services: Retail goods production 6,801,749-6,801,749 6,265,926 Contracts 377, , ,085 Rehabilitation 960, , ,951 Miscellaneous services 121, , ,948 Total program services 8,260,929-8,260,929 7,455,910 Support services - Management and general 1,195,160 9,266 1,204,426 1,154,236 Total expenses 9,456,089 9,266 9,465,355 8,610,146 Increase in Unrestricted Net Assets - Before transfers and payments to national organization 322,788 64, , ,572 Transfers 53,029 (53,029) - - Unallocated Payments to National Organization (98,984) - (98,984) (87,977) Increase in Net Assets 276,833 11, , ,595 Net Assets - Beginning of year 3,191,295 54,221 3,245,516 2,616,921 Net Assets - End of year $ 3,468,128 $ 65,794 $ 3,533,922 $ 3,245,516 15

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