CONNECTICUT HUMANE SOCIETY

Transcription

1 FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011

2 CONTENTS Independent Auditors Report 1-2 Statements of Financial Position - December 31, 2012 and Statements of Activities for the Years Ended December 31, 2012 and Statement of Functional Expenses for the Year Ended December 31, Statement of Functional Expenses for the Year Ended December 31, Statements of Cash Flows the Years Ended December 31, 2012 and Notes to Financial Statements 8-17

3 29 South Main Street P.O. Box West Hartford, CT Tel Fax blumshapiro.com 2 Enterprise Drive P.O. Box 2488 Shelton, CT Tel Fax blumshapiro.com Independent Auditors Report To the Board of Directors Connecticut Humane Society We have audited the accompanying financial statements of Connecticut Humane Society, which comprise the statements of financial position as of December 31, 2012 and 2011, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility 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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Blum, Shapiro & Company, P.C. -1- An Independent Member of Baker Tilly International

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Connecticut Humane Society as of December 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. West Hartford, Connecticut July 26,

5 STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2012 AND 2011 ASSETS Cash and cash equivalents $ 449,881 $ 674,989 Contributions receivable 100,280 68,519 Investments 46,744,528 43,641,762 Dividends and interest receivable 162, ,399 Land, buildings and equipment, net 7,505,345 7,777,508 Other assets 245, ,835 Investments held in trust by others 14,484,591 13,540,636 Total Assets $ 69,692,924 $ 66,082,648 LIABILITIES AND NET ASSETS Liabilities Accounts payable and other liabilities $ 181,163 $ 305,155 Accrued payroll and benefits 178, ,066 Total liabilities 359, ,221 Net Assets Unrestricted: Designated - land, buildings and equipment 7,505,345 7,777,508 Designated - funds functioning as endowment 46,713,761 43,651,430 Undesignated 629, ,853 Total unrestricted 54,848,444 52,053,791 Permanently restricted: Investments held in trust by others 14,484,591 13,540,636 Total permanently restricted 14,484,591 13,540,636 Total net assets 69,333,035 65,594,427 Total Liabilities and Net Assets $ 69,692,924 $ 66,082,648 The accompanying notes are an integral part of the financial statements -3-

6 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2012 AND Changes in Unrestricted Net Assets Operations: Revenues: Contributions, donations and support $ 1,544,715 $ 1,549,448 Legacies and bequests 1,093, ,275 Counter donations and fees 1,049, ,623 Program revenue 925, ,869 Other income 28,162 12,896 Total unrestricted revenues 4,640,738 4,140,111 Expenses: Program services: Animal rescue, protection and adoption 3,843,162 3,965,130 Low-fee veterinary care and services 1,175,468 1,008,400 Community outreach 195, ,399 Humane education 203, ,200 Total program services 5,417,817 5,497,129 Program support: Management and general 729, ,243 Fundraising 413, ,957 Total program support 1,142,879 1,015,200 Total expenses 6,560,696 6,512,329 Changes in unrestricted net assets from operations (1,919,958) (2,372,218) Other changes in unrestricted net assets: Investment income 1,583,344 1,544,509 Net realized and unrealized gains on investments 2,542,057 1,602,304 Income from investments held in trust by others 589, ,325 Total other changes in unrestricted net assets 4,714,611 3,792,138 Increase in unrestricted net assets 2,794,653 1,419,920 Changes in Permanently Restricted Net Assets Net realized and unrealized gains (losses) on investments held in trust by others 943,955 (852,589) Increase (decrease) in permanently restricted net assets 943,955 (852,589) Increase in Net Assets 3,738, ,331 Net Assets - Beginning of Year 65,594,427 65,027,096 Net Assets - End of Year $ 69,333,035 $ 65,594,427 The accompanying notes are an integral part of the financial statements -4-

7 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2012 Program Services Program Support Animal Low-Fee Rescue, Veterinary Total Protection Care Community Humane Management Expense and Adoption and Services Outreach Education Total and General Fundraising Total 2012 Salaries, training and benefits $ 2,363,949 $ 768,752 $ 96,686 $ 84,148 $ 3,313,535 $ 348,897 $ 193,118 $ 542,015 $ 3,855,550 Building/equipment repairs and maintenance 320,134 2,369 7,874 10, ,876 25,372 5,541 30, ,789 Telephone and computer 63,420 1,504 1,346 1,794 68,064 4,336 16,384 20,720 88,784 Auto supplies and repairs 16,874-2, ,923 1, ,108 22,031 Printing/publicity/promotion 39,101 1,402 9,813 9,195 59,511 3,985 28,933 32,918 92,429 Postage ,345 1,793 3,829 4, ,281 9,110 Office supplies and equipment 50,251 7,478 1,201 1,601 60,531 3,870 1,076 4,946 65,477 Professional fees 156,276 26,755 49,069 49, , , , , ,828 Occupancy insurance 13,825 3,980 2,997-20,802 41,474-41,474 62,276 Care of animals 140,159 2, , ,098 Pharmaceuticals and medical supplies 308, , , ,712 Outside veterinarians 35, , , ,440 Spay/neuter program 12, , ,260 Canine/feral cat rescue 57, , ,731 Volunteer services 2,806-9,904-12, ,710 Adopt-a-teacher/kind news ,400 10, ,400 Kindness club ,957 6, ,957 Pet food pantry - - 1,711-1, ,711 Dog training and animal behavior 5, ,611 28, ,290 Depreciation 213,501 51,112 5, ,545 74,057-74, ,602 Miscellaneous 41,686 22,844 5,025 4,340 73,895 7,205 9,411 16,616 90,511 Total Functional Expenses $ 3,843,162 $ 1,175,468 $ 195,236 $ 203,951 $ 5,417,817 $ 729,026 $ 413,853 $ 1,142,879 $ 6,560,696 The accompanying notes are an integral part of the financial statements -5-

8 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2011 Program Services Program Support Animal Low-Fee Rescue, Veterinary Total Protection Care Community Humane Management Expense and Adoption and Services Outreach Education Total and General Fundraising Total 2011 Salaries, training and benefits $ 2,362,950 $ 678,252 $ 104,725 $ 97,767 $ 3,243,694 $ 352,620 $ 73,359 $ 425,979 $ 3,669,673 Building/equipment repairs and maintenance 295,337 2,767 21,738 16, ,943 46,463 14,261 60, ,667 Telephone and computer 62, ,432 1,811 67,177 5,225 1,604 6,829 74,006 Auto supplies and repairs 19,481-3,870 1,062 24,413 3, ,006 28,419 Printing/publicity/promotion 110,966 1,705 28,707 28, ,448 5,361 1,645 7, ,454 Postage 427-2,344 1,746 4,517 5,037 1,546 6,583 11,100 Office supplies and equipment 40,289 13,347 2,949 2,196 58,781 6,338 1,945 8,283 67,064 Professional fees 161,102 45,926 72,826 70, , , , , ,863 Occupancy insurance 35,082 10,989 4,978 1,986 53,035 3,972 1,986 5,958 58,993 Care of animals 470,760-1, , ,993 Pharmaceuticals and medical supplies - 187, , ,200 Outside veterinarians 50,507 58, , ,587 Spay/neuter program 20, , ,906 Canine/feral cat rescue 32, , ,841 Volunteer services 1,332-6,853-8, ,185 Adopt-a-teacher/kind news ,840 8, ,840 Kindness club Catastrophic illness program - - 2,755-2, ,755 Dog training and animal behavior 4, ,325 29, ,902 Depreciation 258,205 1,960 11, ,154 42,710-42, ,864 Miscellaneous 37,629 7, ,608 11,066-11,066 56,674 Total Functional Expenses $ 3,965,130 $ 1,008,400 $ 267,399 $ 256,200 $ 5,497,129 $ 693,243 $ 321,957 $ 1,015,200 $ 6,512,329 The accompanying notes are an integral part of the financial statements -6-

9 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND Cash Flows from Operating Activities Increase in net assets $ 3,738,608 $ 567,331 Adjustments to reconcile increase in net assets to net cash provided by (used in) operating activities: Depreciation 344, ,864 Net realized and unrealized gains on investments (2,542,057) (1,602,304) Net realized and unrealized gains (losses) on investments held in trust by others (943,955) 852,589 (Increase) decrease in operating assets: Contributions receivable (31,761) (68,519) Dividends and interest receivable 14,993 20,826 Other assets (44,058) (51,799) Decrease in operating liabilities: Accounts payable and other liabilities (123,992) (184,337) Accrued payroll and benefits (4,340) (90,801) Net cash provided by (used in) operating activities 408,040 (242,150) Cash Flows from Investing Activities Outlays for land, buildings and equipment (72,439) (1,600,662) Purchases of investments (9,999,428) (7,933,386) Sales of investments 9,438,719 8,732,186 Net cash used in investing activities (633,148) (801,862) Net Decrease in Cash (225,108) (1,044,012) Cash and Cash Equivalents - Beginning of Year 674,989 1,719,001 Cash and Cash Equivalents - End of Year $ 449,881 $ 674,989 The accompanying notes are an integral part of the financial statements -7-

10 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Nature of Business - The Connecticut Humane Society (the Society) is one of Connecticut s oldest privately funded nonprofit organizations. The Society is the leading resource in the state for companion animal welfare, enriching the lives of families and communities through adoption services, medical care, education and prevention of cruelty. Founded in 1881 to promote humanity and kindness and to prevent cruelty to people and animals, for 84 years the Society was the only statewide organization offering protection to children, until a state agency was established. From that point forward, the Society devoted its efforts exclusively to animals. The Society operates three shelters where animals may be surrendered and adopted, a satellite adoption facility, and a reduced fee, full service animal hospital (Fox Memorial Clinic). Additional public services include vaccine clinics, spay/neuter clinics, humane education, dog obedience classes, a Pet Food Pantry, and assistance to law enforcement in cruelty investigations. The Society generates income from adoption and surrender fees, clinic fees, donations, program fees, trust income, income from funds functioning as endowment and grants. The Society also has an extensive volunteer program. Basis of Accounting and Presentation - The financial statements of the Society have been prepared in accordance with accounting principles generally accepted in the United States of America. Accordingly, the accounts of the Society are reported in the following net asset categories: Unrestricted Net Assets - Unrestricted net assets represent available resources other than donorrestricted contributions. These resources may be expended at the discretion of the Board of Directors. Undesignated net assets represent the portion of expendable funds that is available for support of operations. Designated net assets represent reserves or special designations established by the Board of Directors. The Board of Directors has established the following designations: funds functioning as endowment for the amounts accumulated as unrestricted endowment funds, and the Society s investment in land, buildings and equipment. Temporarily Restricted Net Assets - Temporarily restricted net assets represent contributions that are restricted by the donor as to purpose or time of expenditure. The Society does not have any temporarily restricted net assets as of December 31, 2012 and Permanently Restricted Net Assets - Permanently restricted net assets represent resources that have donor-imposed restrictions that require that the principal be maintained in perpetuity but permit the Society to expend the income earned thereon. These permanently restricted net assets include the Society s proportionate share of the principal amount of the irrevocable trusts with outside trustees for which the Society is an income beneficiary. Measure of Operations - The statements of activities present revenue from operations separately from nonoperating activities. For purposes of the statement of activities, operations are defined as revenue and expenses from animal rescue, protection and adoption, community outreach, humane education, administration and fundraising. All other revenue and expenses (primarily investment results) are classified as nonoperating activities. The basis of presentation reflects the Society s management operating philosophy. -8-

11 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 certain reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Cash and Cash Equivalents - Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less. The Society maintained deposits in financial institutions that exceeded federal depository insurance limits. However, management believes that the Society s deposits are not subject to significant credit risk. Investment Valuation and Income Recognition - Investments are reported at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. See Note 2 for a discussion of fair value measurements. Purchases and sales of securities are recorded on the trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Investment income includes the Society s gains and losses on investments bought and sold as well held during the year. These amounts are reported in the statements of activities as increases or decreases in unrestricted, temporarily restricted or permanently restricted net assets as appropriate based on any donor stipulations or law. Land, Buildings and Equipment - The Society capitalizes all fixed asset acquisitions over $1,000. Buildings and equipment are depreciated on a straight-line basis over their estimated useful lives, which are generally as follows: Buildings and improvements Equipment Furniture and fixtures years 5 years 10 years Expenditures for repairs and maintenance are charged to expense as incurred. Investments Held in Trust by Others - The Society retains a beneficial interest in various trusts established by donors and held by unrelated trustees. Under this arrangement, the Society receives investment income from the trusts in perpetuity but does not have access to the principal. The beneficial interests are carried at the present value of estimated future receipts from the trusts, which is measured by the fair market value of the assets in the trust. Changes in the carrying amount of the beneficial interest are recognized as increases or decreases in permanently restricted net assets. -9-

12 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contributions - Unconditional contributions are recognized when pledged or received, as applicable, and are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions receivable expected to be collected in more than one year are discounted to their present value. The Society reports nongovernmental contributions and grants of cash and other assets as temporarily restricted support if they are received with donor stipulations that limit their use. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Contributions received whose restrictions are met in the same period are presented with unrestricted net assets. Conditional promises to give are recognized when the conditions on which they depend are substantially met. The Society reports gifts of property and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions on how the assets are to be used and gifts of cash or other assets that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations about how long those assets must be maintained, the Society reports expirations of donor restrictions when the assets are placed in service. Contributed services are recognized in the financial statements if they enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. General volunteer services do not meet these criteria for recognition. However, many volunteers have donated significant amounts of time, estimated at approximately 17,800 hours in 2012, in supporting the Society s mission. Functional Allocation of Expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefitted. Income Taxes - The Society is exempt from federal and state corporate income taxes as a public charity under Section 501(c)(3) of the Internal Revenue Code. The Society s informational returns for the years ended December 31, 2009 through 2012 are subject to examination by the Internal Revenue Service and the State of Connecticut. Reclassifications - Certain amounts in the 2011 financial statements have been reclassified to conform to the current year s presentation. Subsequent Events - In preparing these financial statements, management has evaluated subsequent events through July 26, 2013, which represents the date the financial statements were available to be issued. -10-

13 NOTE 2 - FAIR VALUE MEASUREMENTS Generally accepted accounting principles establish a framework for measuring fair value. That 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 (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 in active markets that the Society has the ability to access. Level 2 - Inputs to the valuation methodology include: Quoted prices for similar assets in active markets; Quoted prices for identical or similar assets in inactive markets; Inputs other than quoted prices that are observable for the asset; 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. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset 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 need to maximize the use of observable inputs and minimize the use of unobservable inputs. When, as a practical expedient, an investment is measured at fair value on the basis of net asset value, its classification as Level 2 or 3 will be impacted by the ability to redeem the investment at net asset value at the measurement date. If there is uncertainty or the inability to redeem an investment at net asset value in the near term subsequent to the measurement date, the investment is categorized as Level 3. The following is a description of the valuation methodologies and strategies used for assets measured at fair value: Marketable Equity Securities - Common stocks are valued at the closing price reported in the active market in which the individual securities are traded. Corporate Bonds - Certain corporate bonds are valued at the closing price reported in the active market in which the individual securities are traded. Other corporate bonds are valued based on yields currently available on comparable securities of issuers with similar durations and credit ratings. Mutual Funds - Mutual funds are valued at the quoted net asset value of shares held by the Society at year end. -11-

14 NOTE 2 - FAIR VALUE MEASUREMENTS (Continued) Money Markets Funds - Money market funds are valued at the quoted net asset value of shares held by the Society at year end. This investment class is meant to provide safety when money managers are unable to find investments with appropriate returns consistent with their strategy. It tends to be very short term with a very low return. Real Estate Investment Trust - Real estate investment trusts are valued at the closing price reported in the active market in which the individual securities are traded. This investment class makes commitments to private real estate investment opportunities with the goal of outperforming market indices over the long term. Investments Held in Trust by Others - Fair value inputs used for investments held in trust by others are based on the estimated present value of the future payments to the Society, which is considered to be the fair value of the assets held in trust. There have been no changes in the methodologies used at December 31, 2012 and The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Society believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. -12-

15 NOTE 2 - FAIR VALUE MEASUREMENTS (Continued) The following is a summary of the source of fair value measurements for assets that are measured at fair value on as of December 31, 2012 and 2011: December 31, Fair Value Measurements Using Description 2012 Level 1 Level 2 Level 3 Marketable equity securities: U.S. large cap $ 23,665,066 $ 23,532,446 $ 132,620 $ - U.S. mid cap 1,824,980 1,824, U.S. small cap 206, , International developed 2,074,103 2,074, Corporate bonds: Investment grade taxable 15,329,321 3,820,079 11,509,242 - International developed bonds 675, ,263 - Global high yield taxable 124, ,670 - Mutual funds 193, , Money market funds 2,193,892 2,193, Real estate investment trust 457, , Total investments 46,744,528 34,302,733 12,441,795 - Investments held in trust by others 14,484, ,484,591 Total $ 61,229,119 $ 34,302,733 $ 12,441,795 $ 14,484,591 December 31, Fair Value Measurements Using Description 2011 Level 1 Level 2 Level 3 Marketable equity securities: U.S. large cap $ 22,033,818 $ 22,033,818 $ - $ - U.S. mid cap 2,315,280 2,315, U.S. small cap 212, , International developed 2,131,627 2,131, Corporate bonds: Investment grade taxable 14,139,438 1,210,416 12,929,022 - International developed bonds 816,025 58, ,906 - Global high yield taxable 145, ,814 - Mutual funds 166, , Money market funds 1,373,098 1,373, Real estate investment trust 307, , Total investments 43,641,762 29,809,020 13,832,742 - Investments held in trust by others 13,540, ,540,636 Total $ 57,182,398 $ 29,809,020 $ 13,832,742 $ 13,540,

16 NOTE 2 - FAIR VALUE MEASUREMENTS (Continued) The following is a summary of the changes in the balances of assets measured at fair value on a recurring basis using significant unobservable inputs for the years ended December 31, 2012 and 2011: Investments Held in Trust By Others Balance - December 31, 2010 $ 14,393,225 Net realized and unrealized losses included in the change in net assets (852,589) Balance - December 31, ,540,636 Net realized and unrealized gains included in the change in net assets 943,955 Balance - December 31, 2012 $ 14,484,591 NOTE 3 - LAND, BUILDINGS AND EQUIPMENT The following is a detailed list of property and equipment, cost, depreciation and accumulated depreciation for the years ended December 31, 2012 and 2011: Land $ 110,380 $ 110,380 Buildings and improvements 10,252,659 10,216,060 Equipment 1,501,718 1,507,222 Furniture and fixtures 202, ,413 Construction in progress 26,054 1,422 12,092,883 12,035,497 Less accumulated depreciation 4,587,538 4,257,989 Property and Equipment, Net $ 7,505,345 $ 7,777,508 Depreciation expense for the years ended December 31, 2012 and 2011, was $344,602 and $314,864, respectively. -14-

17 NOTE 4 - ENDOWMENT The Society s endowment includes funds designated by the Board of Directors to function as endowments. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law - The Board of Directors of the Society has interpreted the Connecticut Uniform Prudent Management of Institutional Funds Act (CTPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Society classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Society in a manner consistent with the standard of prudence prescribed by CTPMIFA. In accordance with CTPMIFA, the Society considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the various funds The purposes of the Society and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the Society The investment policies of the Society -15-

18 NOTE 4 - ENDOWMENT (Continued) Endowment Net Assets - Endowment net asset composition as of December 31, 2012 and 2011, is as follows: Unrestricted Endowment net assets - December 31, 2010 $ 42,873,305 Investment return: Investment income, net 1,534,441 Investment gains 1,598,903 Total investment return 3,133,344 Contributions 424,376 Appropriation of endowment assets for expenditure (2,593,214) Other changes: Management fees (186,381) Endowment net assets - December 31, ,651,430 Investment return: Investment income, net 1,571,331 Investment gains 2,515,464 Total investment return 4,086,795 Contributions 1,220,418 Appropriation of endowment assets for expenditure (2,048,727) Other changes: Management fees (196,155) Endowment Net Assets - December 31, 2012 $ 46,713,761 Return Objectives and Risk Parameters - The Society has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include board-designated funds. Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that is intended to maintain the inflation-adjusted value of the current asset base while recognizing the objective of real growth in principal within reasonable and prudent levels of risk. -16-

19 NOTE 4 - ENDOWMENT (Continued) Strategies Employed for Achieving Objectives - To satisfy its long-term rate-of-return objectives, the Society relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Society targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy - The Society has a policy of appropriating for distribution an amount not to exceed 5.0% for the year ended December 31, 2012 and 5.5% for the year ended December 31, 2011 of its endowment fund s average fair value over the prior three calendar years. This is consistent with the Society s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. NOTE 5 - RETIREMENT PLAN The Society has established a 401(k) retirement plan that covers all eligible employees. Participants can elect to have their compensation reduced, and the Society matches up to 6% of the participants contributions based on years of service. Additionally, the plan provides for a discretionary employer contribution. For the years ended December 31, 2012 and 2011, the employer contribution was 5% of eligible compensation. The Society s expense for the years ended December 31, 2012 and 2011, was $127,635 and $117,819, respectively. The Society has frozen the 403(b) plan maintained by Mutual of America, Inc. NOTE 6 - PERFORMANCE STOCK OPTION PLAN The Society has established a nonqualified Performance Stock Option Plan for the benefit of its employees. Total options granted to date allow a fifteen-year option to purchase shares of Vanguard 500 Index Fund. The plan is required to be funded at the time of purchase, and any assets set aside to fund future benefits remain subject to any claims of the Society s creditors. The market value of the fund as of December 31, 2012 and 2011, was $193,173 and $166,579, respectively, and is included in investments. NOTE 7 - RELATED PARTY TRANSACTIONS Certain board members and key employees are also owners or key employees of organizations providing the following services to the Society. There were no amounts due to related parties as of December 31, 2012 and Animal care services $ 97,884 $ 64,716 Advertising services 1,112 1,491 Total $ 98,996 $ 66,