Year Ended January 29, 2012 (with comparative financial information for the year ended January 30, 2011)

Transcription

1 Financial Statements and Report of Independent Certified Public Accountants PetSmart Charities, Inc. (with comparative financial information for the year ended January 30, 2011)

2 Contents Page Report of Independent Certified Public Accountants 3 FINANCIAL STATEMENTS Statement of Financial Position 4 Statement of Activities 5 Statement of Functional Expenses 6 Statement of Cash Flows 7 Notes to Financial Statements 8

3 Report of Independent Certified Public Accountants Grant Thornton LLP 2398 E Camelback Road, Suite 600 Phoenix, AZ 85016)9004 T F To the Board of Directors of PetSmart Charities, Inc. We have audited the accompanying statement of financial position of PetSmart Charities, Inc. (a nonprofit organization) as of January 29, 2012, and the related statements of activities, functional expenses and cash flows for the year then ended. These financial statements are the responsibility of PetSmart Charities, Inc. s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior:year summarized comparative information has been derived from PetSmart Charities, Inc. s 2011 financial statements; and in our report dated May 11, 2011, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America established by the American Institute of Certified Public Accountants. 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 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 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 PetSmart Charities, Inc. as of January 29, 2012, 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. Phoenix, Arizona June 26, 2012 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd. 3

4 STATEMENT OF FINANCIAL POSITION January 29, 2012 (with comparative totals at January 30, 2011) A S S E T S CURRENT ASSETS Cash and cash equivalents $ 915,387 $ 4,253,399 Investments 34,228,958 34,365,059 Receivable from PetSmart, Inc. 2,724,430 2,578,788 Receivable from PetSmart Charities of Canada, Inc. 24,954 20,107 Other receivables 98, ,420 Prepaid expenses 146, ,702 TOTAL CURRENT ASSETS 38,138,358 41,573,475 PROPERTY AND EQUIPMENT, net 2,685,175 1,406,085 TOTAL ASSETS $ 40,823,533 $ 42,979,560 L I A B I L I T I E S A N D N E T A S S E T S CURRENT LIABILITIES Accounts payable and accrued expenses $ 2,075,039 $ 3,127,815 Due to PetSmart, Inc. 688, ,475 Due to PetSmart Charities of Canada, Inc. 1,044 7,890 Deferred revenue 127, ,774 TOTAL CURRENT LIABILITIES 2,891,987 3,719,954 NET ASSETS Unrestricted 37,867,383 39,157,943 Temporarily restricted 64, ,663 TOTAL NET ASSETS 37,931,546 39,259,606 TOTAL LIABILITIES AND NET ASSETS $ 40,823,533 $ 42,979,560 The accompanying notes are an integral part of these financial statements. 4

5 STATEMENT OF ACTIVITIES Temporarily Totals Unrestricted Restricted REVENUE, PUBLIC SUPPORT AND GAINS: Individual contributions $ 37,686,502 $ 9 $ 37,686,502 $ 34,555,747 PetSmart, Inc. contributions including contributed rent, goods and services 14,867, ,867,824 12,839,489 Corporate, foundations and vendor contributions 2,013, ,013,251 1,093,525 Investment income 877, ,981 1,754,062 Total revenue, public support and gains 55,445, ,445,558 50,242,823 Special events: Special events revenue 1,658, ,658,524 1,597,218 Less costs of direct donor benefits (438,321) 9 (438,321) (298,769) Gross profit on special events 1,220, ,220,203 1,298,449 Net assets released from restrictions 37,500 (37,500) 9 9 TOTAL REVENUE, PUBLIC SUPPORT AND GAINS 56,703,261 (37,500) 56,665,761 51,541,272 EXPENSES: Program services: Adoptions and transport 24,490, ,490,407 23,440,383 Spay/neuter and field initiatives 17,601, ,601,362 11,603,507 Emergency relief 4,295, ,295,695 1,534,867 Education and awareness 4,465, ,465,396 1,495,433 Total program services 50,852, ,852,860 38,074,190 Supporting services: Fundraising 3,927, ,927,038 2,977,304 Management and general 3,213, ,213,923 1,979,007 Total supporting services 7,140, ,140,961 4,956,311 TOTAL EXPENSES 57,993, ,993,821 43,030,501 CHANGE IN NET ASSETS (1,290,560) (37,500) (1,328,060) 8,510,771 NET ASSETS, BEGINNING OF YEAR 39,157, ,663 39,259,606 30,748,835 NET ASSETS, END OF YEAR $ 37,867,383 $ 64,163 $ 37,931,546 $ 39,259,606 The accompanying notes are an integral part of these financial statements. 5

6 STATEMENT OF FUNCTIONAL EXPENSES Program Services Supporting Services Adoptions Spay/Neuter Education and and Field Emergency and Management Transport Initiatives Relief Awareness Total Fundraising and General Total Grants and allocations $ 8,830,559 $ 15,960,391 $ 1,061,006 $ 311,210 $ 26,163,166 $ 9 $ 9 $ 9 $ 26,163,166 $ 19,431,714 Supplies* 3,233,613 7,178 2,600, ,841,193 3,416 6,822 10,238 5,851,431 3,414,378 Other salaries and wages* 4,783,841 45,676 22, ,852, , ,267 5,028,622 4,874,140 Management services 903, ,464 70, ,998 2,375, ,774 1,466,423 2,117,197 4,492,807 3,684,717 Occupancy* 3,869, , ,985, , ,522 4,089,466 3,808,854 Advertising 438,224 78,204 8,984 2,305,189 2,830,601 28, , ,869 3,174,470 1,846,329 Consulting 219, ,210 16, ,236 1,155, , , ,554 1,978,070 1,005,052 Other professional services 1,743, , ,895, ,895,798 1,555,557 Printing and publications 1, ,942 26, ,905 30,833 1,020,601 1,047, ,794 Professional fundraising fees , , , ,907 Bank fees ,428 54, , , ,131 Postage and shipping 3,617 5, , , ,199 5, , , ,048 Depreciation 379, , , ,636 91, , ,078 Information technology 9 45, , ,276 49,509 66, , , ,906 Special events indirect costs , , , ,577 Travel 46,172 84,651 34,457 8, ,771 30,456 51,358 81, , ,122 Conferences, conventions, and meetings 3,448 7,356 1, , ,378 1,493 45,842 47, , ,471 Research , , ,903 9 Equipment rental and maintenance 28, , ,245 10, , ,133 66,694 Legal fees , , ,517 48,277 Miscellaneous 5,676 36,737 9, ,437 14,600 14,857 29,457 80, ,965 Telephone 9 10, ,941 43,668 1,000 10,250 11,250 54,918 48,695 Fundraising merchandise ,649 39,649 39,649 15,073 Accounting fees ,700 27,700 27,700 30,050 Dues and subscriptions ,696 15,696 15,696 14,298 License/registration fees ,405 6,405 6,405 3,674 Total $ 24,490,407 $ 17,601,362 $ 4,295,695 $ 4,465,396 $ 50,852,860 $ 3,927,038 $ 3,213,923 $ 7,140,961 $ 57,993,821 $ 43,030,501 Total *Includes contributed rent, goods and services (see Note 5) The accompanying notes are an integral part of these financial statements. 6

7 STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (1,328,060) $ 8,510,771 Adjustments to reconcile change in net assets to net cash (used in) provided by operating activities: Stock donation (508,148) (105,239) Realized gain on investments (795,548) (332,789) Unrealized (gains) losses on investments 472,793 (853,734) Depreciation 501, ,078 Changes in operating assets and liabilities: Decrease (increase) in: Receivable from PetSmart, Inc. (145,642) (181,029) Receivable from PetSmart Charities of Canada, Inc. (4,847) 12,126 Other receivables 43, ,061 Prepaid expenses 68,245 (9,782) Increase (decrease) in: Accounts payable and accrued expenses (1,052,776) (2,118,245) Due to PetSmart, Inc. 308,867 (209,829) Due to PetSmart Charities of Canada, Inc. (6,846) 7,640 Deferred revenue (77,212) (101,578) Net cash (used in) provided by operating activities (2,524,282) 5,046,451 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments 35,872,656 6,265,371 Purchase of investments (34,905,652) (13,835,741) Purchase of property and equipment (1,780,734) (1,335,555) Net cash used in investing activities (813,730) (8,905,925) NET DECREASE IN CASH (3,338,012) (3,859,474) CASH, BEGINNING OF YEAR 4,253,399 8,112,873 CASH, END OF YEAR $ 915,387 $ 4,253,399 Non cash transactions Contributed rent, goods and services $ 15,469,345 $ 11,986,000 The accompanying note are an integral part of these financial statements. 7

8 NOTES TO FINANCIAL STATEMENTS NOTE 1 - NATURE OF OPERATIONS PetSmart Charities, Inc. (the Organization ) was founded in 1994 with the mission of improving the quality of life for all companion animals. The Organization creates and supports programs that help save the lives of homeless pets and promotes healthy relationships between people and pets. The Organization s vision is a lifelong, loving home for every pet. The Organization grants funding to nonprofit animal welfare organizations to save the lives of homeless pets through an in:store adoption program (the PetSmart stores are owned and operated by PetSmart, Inc. ( PetSmart ), a retailer of pet food, pet supplies, accessories and professional pet services throughout North America), spay/neuter programs to prevent the birth of unwanted kittens and puppies, and retention programs to keep pets in their adopted homes. During times of natural or man:made disasters, the Organization provides funding to treat injured pets and purchase food and supplies. In 2004, the Rescue Waggin program was created by the Organization to help save the lives of homeless dogs and puppies through partnership and collaboration with local animal welfare agencies. The program also works to proactively reduce pet overpopulation in those areas of the country that need the most help. An innovative animal welfare program, the Rescue Waggin is comprised of three parts: 1. A pet transport program that transports dogs from areas of high pet overpopulation (where they face almost certain euthanasia) to shelters in areas where adoptable dogs are in demand. This program operates under professionally developed industry standards for source and receiving shelters, spay/neuter and animal health practices, and humane transport. 2. Funding to expand spay/neuter services for cats and dogs in source areas. 3. Funding and professional consultation to improve shelter facilities and operations for participating animal welfare agencies. The Rescue Waggin' has helped save the lives of more than 53,000 dogs since it began operations in The program currently operates vehicles in the Midwest, East Coast, Great Plains, and South Central regions of the United States. Humane Strategies, an independent non:profit organization, operates the pet transport and professional consultation components of the Rescue Waggin program. Additionally, in the aftermath of Hurricane Katrina, the Organization established the Emergency Relief Waggin program in 2006 as a way to prepare for future disasters involving companion animals. The program consists of six pre:loaded semi:trailers that are strategically stationed at PetSmart distribution centers throughout the U.S. Each pre:loaded trailer will carry crates, bowls, leashes, collars, litter, food, tents, fans, a generator, and various other items. When dispatched, each Emergency Relief Waggin trailer, will deliver its supplies within 48:72 hours to the designated lead animal welfare agency responding to the disaster. 8

9 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Financial Accounting Standards Board (the FASB ) sets generally accepted accounting principles ( GAAP ) to ensure consistent reporting. References to GAAP issued by the FASB in the accompanying footnotes are to the FASB Accounting Standards Codification (the ASC ). Basis of presentation The accompanying financial statements are presented in accordance with FASB ASC 958, NotForProfit Organizations. Under FASB ASC 958:205, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Temporarily restricted net assets are those whose use by the Organization has been limited by donors to a specific time period or purpose. Permanently restricted net assets are restricted by donors to be maintained by the Organization in perpetuity. There were no permanently restricted net assets at January 29, 2012, and January 30, Prior-year summarized information The accompanying financial statements include certain prior: year summarized comparative information in total, but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with GAAP. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended January 30, 2011, from which the summarized information was derived. Fiscal year The Organization s fiscal year ends on the Sunday nearest January 31st. The fiscal years ended in 2012 and 2011 both comprise 52 weeks. Management s use of estimates The preparation of financial statements in conformity with GAAP 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. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and cash equivalents Cash includes cash deposits in banks. The Organization considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Deposits at each institution are insured in limited amounts by the Federal Deposit Insurance Corporation ( FDIC ). There was approximately $2,400,000 of uninsured deposits as of January 29, The Organization s cash accounts were placed with high:credit quality financial institutions, and accordingly, the Organization does not expect to experience non:performance. Other receivables Other receivables consist primarily of vendor incentive program. Other receivables are stated at the amount management expects to collect. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on their assessment of the current status of individual balances. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to other receivables. Management considers other receivables to be fully collectible and accordingly, an allowance for doubtful accounts is not considered necessary at January 29, 2012, and January 30,

10 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment and related depreciation Purchased property and equipment is recorded at cost. Donated property and equipment is valued at fair value at the date of contribution to the Organization. Maintenance and repairs are charged to operations when incurred. Betterments or renewals in excess of $3,000 and which have a useful life greater than one year are capitalized. When property and equipment is sold or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved, and any gain or loss is included in operations. Depreciation is computed using the straight:line method over the following estimated useful lives: Store fixtures Software Computers Leasehold improvements Estimated Useful Lives 3 7 years 3 years 3 years 3 14 years Impairment of long-lived assets The Organization accounts for long:lived assets in accordance with the provisions of FASB ASC 360, Property, Plant and Equipment. FASB ASC 360 requires that long:lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment charges were recorded for 2012 and Fair value measurements FASB ASC 820, Fair Value Measurements and Disclosures, establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosures about such fair value measurements. It also establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values by requiring that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Level 2: Level 3: Unadjusted quoted market prices in active markets for identical assets or liabilities. Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Unobservable inputs for the asset or liability. 10

11 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contributions The Organization accounts for contributions in accordance with FASB ASC 958:605, NotforProfit Entities Revenue Recognition. In accordance with FASB ASC 958:605, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions with temporary restrictions that are received and used within the year are included in unrestricted activities. 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 accompanying statement of activities as net assets released from restrictions. The Organization also accepts assets from a donor where it agrees to use those assets on behalf of another specified beneficiary. These transactions do not impact the Organization s recognition of revenues or expenses unless it has variance power or is financially interrelated to the specified beneficiary and therefore, are not recognized as a contribution but as a liability until remitted to the specified beneficiary. For the years ended January 29, 2012 and January 30, 2011, the Organization remitted $278,758 and $357,942, respectively, to other specified beneficiaries for which it did not recognize a contribution or expense in its financial statements. Contributed program rent, goods and services Contributed materials and store space that would otherwise have to be purchased is recognized in accordance with FASB ASC 958:605 as revenue and corresponding expense. Contributed services are recognized as contributions in accordance with FASB ASC 958:605, if the services (a) create or enhance nonfinancial assets, or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased. For the years ended January 29, 2012, and January 30, 2011, the Organization recorded $15,469,345, of which $14,130,995 represents from PetSmart, Inc., and $11,986,000 of which $11,952,148 represents from PetSmart, Inc., respectively, of contributed program rent and services. Special events revenue The Organization conducts special events in which a portion of the gross proceeds paid by the participant represents payment for the direct cost of the benefits received by the participant at the event. Unless a verifiable, objective means exists to demonstrate otherwise, the fair value of meals and entertainment provided at special events is measured at the actual cost to the Organization. The direct costs of the special events, which ultimately benefit the donor rather than the Organization, are recorded as costs of direct donor benefits in the accompanying statement of activities. At January 29, 2012, and January 30, 2011, the Organization had received various sponsorship monies for special events which were scheduled to occur in future fiscal years. The amounts of these sponsorships have been recorded as deferred revenue in the accompanying statement of financial position. Functional expenses The costs of providing the various programs and other activities of the Organization have been summarized on a functional basis in the accompanying statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited based on personnel activity and other appropriate allocation methods. Advertising Advertising costs are charged to operations when incurred. Advertising expense charged to operations was $3,174,471 for 2012 and $1,846,329 for

12 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income tax status The Organization has been recognized by the Internal Revenue Services as a not: for:profit corporation as described in Section 501(c)(3) of the Internal Revenue Code (the Code ) and is exempt from federal and state income taxes. In addition, the Organization qualifies for the charitable contribution deduction under Section 170 of the Code and has been recognized by the Internal Revenue Service as an organization that is not a private foundation. Income determined to be unrelated business taxable income ( UBTI ) would be taxable. The Organization evaluates its uncertain tax positions, if any, on a continual basis through review of its policies and procedures, review of its regular tax filings, and discussions with outside experts. The open tax years for the Organization include the tax years ended February 3, 2008 through the tax year ended January 29, Management must also assess whether uncertain tax positions could result in the recognition of a liability for possible interest and penalties if any. The Organization s policy is to include interest and penalties related to uncertain tax positions in management and general expense. As of January 29, 2012, and January 30, 2011, there were no uncertain tax positions and the Organization does not anticipate a change in its tax position in the 12 months following January 29, Significant accounting pronouncements : The Organization adopted the amended guidance in Receivables ( ASC 310 ), including the guidance in Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses ( ASU 2010:20 ), in the Organization s January 29, 2012, financial statements. The new guidance is designed to provide more information to financial statement users about the credit quality of a creditor s financing receivables and the adequacy of its allowance for credit losses. This guidance amended the Organization s disclosure requirements. 12

13 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 3 - INVESTMENTS The Organization accounts for its investments in accordance with FASB ASC 958:320, NotforProfit Entities Investments Debt and Equity Securities. Under FASB ASC 958:320, the Organization reports investments in equity securities that have readily determinable fair values, and all investments in debt securities, at fair value. The fair values are based on quoted market prices. Investments consist of: January 29, 2012 January 30, 2011 Equities: Large cap $7,383,061 $ 4,262,751 Small/Mid : 1,273,553 Dividend value 3,309, ,600 Mutual funds 9,402,490 3,851,079 Corporate bonds 3,107, ,427 US Treasuries 4,432,326 1,764,758 US agency mortgage pass through 5,298,948 1,225,136 Certificates of Deposit : 894,351 Cash and equivalents* 1,294,989 19,762,404 Total investments $ 34,228,958 $ 34,365,059 * Included in cash and cash equivalents is $ 0 and $18,382,664 of money market mutual funds as of January 29, 2012 and January 30, 2011 Investment income consists of: January 29, 2012 January 30, 2011 Unrealized (loss) gains on investments $ (472,793) $ 853,734 Realized gains on investments 795, ,789 Interest and dividend income 796, ,273 Investment fees (241,046) (75,735) Total investment income, net $ 877,981 $ 1,754,062 13

14 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 3 INVESTMENTS (continued) Investments are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in risk in the near term could materially affect account balances and the amounts in the accompanying financial statements. The following table summarizes the valuation of the Organization's financial instruments by the categories described in Note 2, as of January 29, 2012 and January 30, 2011: January 29, 2012 Unadjusted Quoted Market Prices (Level 1) January 30, 2011 Unadjusted Quoted Market Prices (Level 1) Equities: Large cap $7,383,061 $ 4,262,751 Small/Mid : 1,273,553 Dividend Value 3,309, ,600 Mutual funds 9,402,490 3,851,079 Corporate bonds 3,107, ,427 US Treasuries 4,432,326 1,764,758 US agency mortgage pass through 5,298,948 1,225,136 Certificates of deposit : 894,351 The financial instruments above were valued utilizing quoted market prices. The Organization currently has no other financial instruments subject to fair value measurement on a recurring basis. NOTE 4 PROPERTY AND EQUIPMENT Property and equipment consists of: January 29, 2012 January 30, 2011 Cost or donated value: Store fixtures $ 393,995 $ 390,284 Software 588, ,062 Computers 17,901 11,742 Leasehold improvements 2,514, ,118 Total cost or donated value 3,514,940 1,734,206 Less accumulated depreciation (829,765) (328,121) Property and equipment, net $ 2,685,175 $ 1,406,085 Significant increase in leasehold improvements are attributed to the build:out of enhanced adoption centers within certain PetSmart stores. Depreciation expense charged to operations was $501,644 for the year ended January 29, 2012 and $165,078 for the year ended January 30,

15 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 5 TRANSACTIONS WITH PETSMART, INC. AND PETSMART CHARITIES OF CANADA, INC. The following amounts have been contributed by PetSmart. The revenue amounts are included in revenue, public support and gains in the accompanying statement of activities. Contributed rent, goods and services are included in functional expenses under the categories of occupancy, supplies and other salaries and wages. Fiscal Year 2012 Fiscal Year 2011 Contributed rent, goods and services for adoption center $ 11,774,881 $ 11,134,602 Contributed supplies, office space and services 2,356, ,546 Cash donations 736, ,341 Total contributions $ 14,867,824 $ 12,839,489 The Organization is highly dependent upon the viability of PetSmart as this is the primary source of donated revenue received in the stores from customers and from PetSmart employees. Receivables from PetSmart of $2,724,430 and $2,578,788 at January 29, 2012, and January 30, 2011, respectively, represent cash contributions received from PetSmart customers and PetSmart employees not yet remitted in cash to the Organization as of the fiscal year end dates. Receivables from PetSmart Charities of Canada, Inc. ( PCCI ) of $24,954 at January 29, 2012 and $20,107 at January 30, 2011, respectively, represent management fees billed quarterly and miscellaneous reimbursable costs. Management provides for probable uncollectible receivables through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual balances. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to receivables. Management considers the PetSmart, Inc. and the PetSmart Charities of Canada, Inc. receivables to be fully collectible as of January 29, 2012, and January 30, 2011, and accordingly, an allowance for doubtful accounts is not considered necessary. In addition to providing space, supplies and labor in the adoption centers in the stores, PetSmart provides products and supplies to the Organization, at cost, for disaster relief situations. Due to cost efficiencies, PetSmart also supplies the Organization with items such as office supplies, postage and travel services, which are reimbursed by the Organization on a monthly basis. In 2009, the Organization entered into a management services agreement with PetSmart to cost: effectively outsource certain business and administrative management services. The fees paid to PetSmart are capped annually and the value of contributed rent, services, products and supplies received by the Organization under the agreement overwhelmingly exceeds the payments made to PetSmart. The Organization incurred approximately $4,500,000 and $3,600,000 of expenses under the management services agreement for the years ended January 29, 2012, and January 30, 2011, respectively. At January 29, 2012, and January 30, 2011, the Organization had $688,342 and $379,475, respectively, due to PetSmart for the reimbursable expenses and the management services. Additionally, at January 29, 2012, and January 30, 2011, the Organization had $1,044 and $7,890, respectively, due to PCCI for reimbursable revenue. 15

16 NOTES TO FINANCIAL STATEMENTS (continued) NOTE 6 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consist of purpose:restricted contributions from donors as follows: January 29, 2012 January 30, 2011 Spay/Neuter Los Angeles $ 64,163 $ 101,663 Total temporarily restricted net assets $ 64,163 $ 101,663 These amounts are included within cash in the accompanying statement of financial position. NOTE 7 COMMITMENTS AND CONTINGENCIES The Organization makes commitments to certain charitable organizations for future grants, which are contingent future installments of a current grant. The grants are contingent upon the continued fulfillment of the original conditions in the grant request. As of January 29, 2012, the Organization has approximately $6,786,470 in commitments for future contingent grants. NOTE 8 SUBSEQUENT EVENTS The Organization has evaluated subsequent events through June 26, 2012, which is the date the financial statements were available to be issued. Management is not aware of any events that have occurred subsequent to the statement of financial position date that would require adjustment to, or disclosure in, the accompanying financial statements. 16