THE AMERICAN SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS. Financial Statements. December 31, 2013 and 2012

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1 Financial Statements (With Independent Auditors Report Thereon)

2 KPMG LLP 345 Park Avenue New York, NY Independent Auditors Report The Board of Directors The American Society for the Prevention of Cruelty to Animals: We have audited the accompanying financial statements of the American Society for the Prevention of Cruelty to Animals (the ASPCA), which comprise the balance sheets as of, 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 auditor considers internal control relevant to the organization 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 organization 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. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

3 Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of the American Society for the Prevention of Cruelty to Animals as of December 31, 2013 and 2012, 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. June 18,

4 Balance Sheets Assets Cash and cash equivalents $ 11,651,379 9,585,155 Bequests and contributions receivable 6,195,526 8,491,982 Other receivables, net of allowance of $247,000 in 2013 and $79,000 in ,038,771 4,512,569 Prepaid expenses and other assets 3,064,644 3,174,863 Investments (note 3) 131,608, ,976,480 Beneficial interest in trusts held by others (note 4) 20,662,160 17,697,985 Land, building, and equipment, net (note 5) 45,377,230 41,053,221 Total assets $ 224,598, ,492,255 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses $ 13,713,168 10,424,146 Grants payable 2,468,190 4,752,567 Deferred rent and other (note 7) 2,909,569 2,767,393 Annuity obligations 4,490,881 4,015,457 Unfunded pension obligation (note 6) 3,104,520 6,081,555 Total liabilities 26,686,328 28,041,118 Commitments and contingencies (note 7) Net assets (notes 10 and 11): Unrestricted 135,314, ,755,165 Temporarily restricted 36,925,063 34,604,344 Permanently restricted 25,671,894 23,091,628 Total net assets 197,911, ,451,137 Total liabilities and net assets $ 224,598, ,492,255 See accompanying notes to financial statements. 3

5 Statement of Activities Year ended December 31, 2013 Temporarily Permanently Unrestricted restricted restricted Total Operating support and revenues: Contributions and memberships $ 110,249,670 4,830, ,080,305 Animal health services fees 14,649,039 14,649,039 Bequests and trusts 6,665,510 12,630,293 19,295,803 Grants and sponsorships 8,082,042 8,082,042 Royalties, licenses and other 3,798,762 3,798,762 Investment income designated for operations (note 3) 5,143,000 5,143,000 Net assets released from restrictions (note 10) 16,648,149 (16,648,149) Total operating support and revenues 165,236, , ,048,951 Operating expenses: Program expenses: Animal health services 34,770,721 34,770,721 Public education and communications 33,009,627 33,009,627 Anticruelty programs 22,730,232 22,730,232 Community outreach 20,847,140 20,847,140 Grants (note 9) 18,112,859 18,112,859 Total program expenses 129,470, ,470,579 Supporting expenses: Membership development and fund-raising 33,548,939 33,548,939 Management and general 9,200,071 9,200,071 Total supporting expenses 42,749,010 42,749,010 Total operating expenses 172,219, ,219,589 Change in net assets from operating activities (6,983,417) 812,779 (6,170,638) Nonoperating activities: Investment return in excess of amounts designated for operations (note 3) 11,690,631 1,151,898 12,842,529 Unrealized gain on beneficial interests in perpetual trusts held by others (note 4) 1,790,018 1,790,018 Bequests and trust income restricted for endowment (note 4) 356, ,248 1,146,290 Pension-related charges other than net periodic pension cost (note 6) 2,852,384 2,852,384 Change in net assets 7,559,598 2,320,719 2,580,266 12,460,583 Net assets at beginning of year 127,755,165 34,604,344 23,091, ,451,137 Net assets at end of year $ 135,314,763 36,925,063 25,671, ,911,720 See accompanying notes to financial statements. 4

6 Statement of Activities Year ended December 31, 2012 Temporarily Permanently Unrestricted restricted restricted Total Operating support and revenues: Contributions and memberships $ 104,876,620 6,802, ,679,037 Animal health services fees 14,332,923 14,332,923 Bequests and trusts 6,465,617 7,284,097 13,749,714 Grants and sponsorships 10,557,146 10,557,146 Royalties, licenses and other 4,475,512 4,475,512 Investment income designated for operations (note 3) 4,700,000 4,700,000 Net assets released from restrictions (note 10) 15,276,980 (15,276,980) Total operating support and revenues 160,684,798 (1,190,466) 159,494,332 Operating expenses: Program expenses: Animal health services 32,069,340 32,069,340 Public education and communications 31,993,657 31,993,657 Anticruelty programs 27,112,159 27,112,159 Community outreach 20,554,329 20,554,329 Grants (note 9) 18,057,270 18,057,270 Total program expenses 129,786, ,786,755 Supporting expenses: Membership development and fund-raising 31,287,838 31,287,838 Management and general 6,922,121 6,922,121 Total supporting expenses 38,209,959 38,209,959 Total operating expenses 167,996, ,996,714 Change in net assets from operating activities (7,311,916) (1,190,466) (8,502,382) Nonoperating activities: Investment return in excess of amounts designated for operations (note 3) 9,902, ,064 10,715,994 Unrealized gain on beneficial interests in perpetual trusts held by others (note 4) 946, ,718 Bequests and trust income restricted for endowment (note 4) 314, , ,230 Other (415,875) (415,875) Pension-related charges other than net periodic pension cost (note 6) (1,192,127) (1,192,127) Change in net assets 1,398,887 (62,405) 1,203,076 2,539,558 Net assets at beginning of year 126,356,278 34,666,749 21,888, ,911,579 Net assets at end of year $ 127,755,165 34,604,344 23,091, ,451,137 See accompanying notes to financial statements. 5

7 Statement of Functional Expenses Year ended December 31, 2013 Program expenses Supporting expenses Public Membership Animal education Total development Management Total health and Anticruelty Community program and and supporting Total services communications programs outreach Grants expenses fund-raising general expenses expenses Compensation $ 19,088,978 3,518,141 8,809,051 10,539, ,045 42,557,842 4,569,241 4,256,429 8,825,670 51,383,512 Employee benefits 6,039, ,441 2,519,013 3,108, ,932 12,779,495 1,352,323 1,135,784 2,488,107 15,267,602 Supplies 620, , , ,716 10,464 2,345, ,273 79, ,429 2,590,216 Telephone 349,439 57, , ,868 7, ,594 56, , ,165 1,097,759 Postage and shipping 91,543 4,452, ,754 28,656 1,863 4,750,073 4,111,937 27,597 4,139,534 8,889,607 Rent 713, ,108 1,094, ,253 75,840 2,803, , ,047 1,206,499 4,010,384 Repairs and maintenance 392,343 13, , ,520 1, ,262 16,571 55,939 72, ,772 Data processing 404,073 3,623, , , ,784 5,033,067 4,794, ,315 5,363,939 10,397,006 Printing 17,302 2,986,379 93,198 2, ,100,586 2,474,950 8,982 2,483,932 5,584,518 Auto expenses 200, ,263 35, , ,127 1, ,234 Travel, conferences, and seminars 766, ,575 1,933,037 1,344,456 55,355 4,298, , , ,607 4,694,696 Insurance 256,725 37, , ,066 5, ,100 47,621 45,191 92, ,912 Utilities 242,724 46,206 98, ,727 6, ,748 55,178 66, , ,051 Veterinary and medical services 2,922,163 1,846, ,997 4,993,262 4,993,262 Media buys, promotion, and related costs 367,053 12,571, , ,691 13,797,474 11,330,421 41,955 11,372,376 25,169,850 Professional services 708,118 2,950,164 2,833,526 1,097,802 66,654 7,656,264 3,287,573 1,582,824 4,870,397 12,526,661 Grants 16,929,404 16,929,404 16,929,404 Other 350,780 28, , ,521 28, , , , , ,458 Total expenses before depreciation and amortization 33,531,357 32,142,061 22,012,343 19,427,884 18,049, ,163,021 33,351,383 8,840,500 42,191, ,354,904 Depreciation and amortization 1,239, , ,889 1,419,256 63,483 4,307, , , ,127 4,864,685 Total expenses $ 34,770,721 33,009,627 22,730,232 20,847,140 18,112, ,470,579 33,548,939 9,200,071 42,749, ,219,589 See accompanying notes to financial statements. 6

8 Statement of Functional Expenses Year ended December 31, 2012 Program expenses Supporting expenses Public Membership Animal education Total development Management Total health and Anticruelty Community program and and supporting Total services communications programs outreach Grants expenses fund-raising general expenses expenses Compensation $ 17,726,121 3,428,029 7,402,143 10,234, ,893 39,271,649 4,194,332 2,863,458 7,057,790 46,329,439 Employee benefits 5,735,105 1,042,713 2,135,314 3,085, ,919 12,125,449 1,245, ,656 1,969,520 14,094,969 Supplies 464, , ,968 1,137,893 6,367 2,759, ,476 36, ,843 2,908,706 Telephone 389,169 69, , ,744 8, ,187 77, , ,267 1,194,454 Postage and shipping 93,262 4,018, ,348 40,291 1,348 4,357,507 3,805,689 35,842 3,841,531 8,199,038 Rent 457, , , ,145 58,235 2,502, , ,433 1,326,189 3,828,516 Repairs and maintenance 304,855 10,439 74, , ,257 13,188 9,080 22, ,525 Data processing 303,621 3,937, , ,353 99,919 4,970,633 4,511, ,203 4,769,107 9,739,740 Printing 24,054 2,648, ,047 10,279 4,150 2,853,604 2,438,781 16,302 2,455,083 5,308,687 Auto expenses 309, ,084 20, , ,086 Travel, conferences, and seminars 549, ,341 1,973,221 1,536,848 63,754 4,302, ,134 74, ,444 4,721,925 Insurance 181,722 37, ,621 92,737 2, ,645 38,516 17,706 56, ,867 Utilities 171,638 45,447 65, ,179 3, ,176 56,887 26,230 83, ,293 Veterinary and medical services 2,764,949 1,840, ,847 4,796,271 4,796,271 Media buys, promotion, and related costs 456,133 11,253, , ,236 12,764,820 10,133,217 73,879 10,207,096 22,971,916 Professional services 773,618 2,962,947 9,031,239 1,278,739 78,429 14,124,972 2,958,578 1,781,557 4,740,135 18,865,107 Grants 17,018,180 17,018,180 17,018,180 Other 412,681 68, , ,151 39, , , , ,855 1,392,256 Total expenses before depreciation and amortization 31,117,610 30,612,649 26,601,407 19,573,512 17,993, ,898,858 31,087,748 6,755,369 37,843, ,741,975 Depreciation and amortization 951,730 1,381, , ,817 63,590 3,887, , , ,842 4,254,739 Total expenses $ 32,069,340 31,993,657 27,112,159 20,554,329 18,057, ,786,755 31,287,838 6,922,121 38,209, ,996,714 See accompanying notes to financial statements. 7

9 Statements of Cash Flows Years ended Cash flows from operating activities: Change in net assets $ 12,460,583 2,539,558 Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation 4,746,219 4,340,380 Net investment gains (16,612,905) (13,725,146) Beneficial interests in perpetual trusts held by others (774,654) (497,532) Unrealized gain on beneficial interests in trusts held by others (1,790,018) (946,718) Contributions restricted for endowments (15,594) (174,701) Loss on disposal of land, building, and equipment 204,106 Changes in assets and liabilities: Bequests and contributions receivable 2,296,456 (574,322) Other receivables, net 333,798 1,746,951 Prepaid expenses and other assets 110,219 (773,829) Beneficial interests in charitable remainder trusts held by others (399,503) 994,176 Accounts payable and accrued expenses 2,305,101 (2,379,678) Grants payable (2,284,377) (781,890) Unfunded pension obligation (2,977,035) 205,430 Other liabilities 617, ,723 Net cash used in operating activities (1,780,004) (9,824,598) Cash flows from investing activities: Additions to land, building, and equipment (9,274,334) (16,770,068) Purchases of investments (48,471,332) (48,270,054) Proceeds from sales of investments 62,452,379 66,419,217 Increase in other receivables related to investments (1,860,000) Increase in accounts payable related to construction 983,921 Net cash provided by investing activities 3,830,634 1,379,095 Cash flows from financing activity: Contributions restricted for endowments 15, ,701 Net change in cash and cash equivalents 2,066,224 (8,270,802) Cash and cash equivalents, beginning of year 9,585,155 17,855,957 Cash and cash equivalents, end of year $ 11,651,379 9,585,155 See accompanying notes to financial statements. 8

10 (1) Description of the Organization The American Society for the Prevention of Cruelty to Animals (the ASPCA) is North America s first humane organization. The ASPCA provides effective means for the prevention of cruelty to animals throughout the United States. It has been headquartered in New York City since its founding in 1866 where it maintains a strong local presence. The ASPCA s activities are focused on five primary program areas: animal health services, public education and communications, anticruelty programs, community outreach and grants and sponsorships to other animal welfare-related organizations. The ASPCA is a privately funded 501(c)(3) not-for-profit corporation. The ASPCA s vision is that all animals are to be treated with respect and kindness. (2) Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying financial statements have been prepared on the accrual basis in accordance with United States generally accepted accounting principles (US GAAP) applicable to not-for-profit entities. (b) Net Asset Classifications The ASPCA s net assets, revenues, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the ASPCA and changes therein are classified and reported as follows: Unrestricted resources that are available for the general support of the ASPCA s operations. The ASPCA s Board of Directors (the Board) has approved the establishment of a long-term investment policy for operating reserves (designated fund) to ensure the stability of the mission, programs, employment, and ongoing operations of the ASPCA and to provide a source of internal funds for organization priorities. Temporarily Restricted net assets of which the use has been restricted by donors to specific purposes and/or the passage of time. In addition, temporarily restricted net assets also include endowment gains which have not been appropriated for expenditure. When a donor-imposed restriction expires, that is, when a stipulated time restriction ends or a purpose is accomplished, or endowment funds are appropriated through an action of the Board, those temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statements of activities as net asset released from restrictions. Permanently Restricted net assets whereby donors have stipulated that the principal contributed be invested and retained in perpetuity, with investment return available for expenditure according to the restrictions, if any, imposed by those donors. Such resources also include the ASPCA s beneficial interests in perpetual trusts held by others. 9 (Continued)

11 (c) (d) Cash and Cash Equivalents Cash equivalents are defined as short-term highly liquid investments with original maturities of three months or less, except for those cash equivalents included in the ASPCA s investment portfolio that are held for long-term investment purposes. Fair Value Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. The ASPCA measures the fair value of its financial assets using a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. The hierarchy is categorized into three levels using the following guidelines: Level 1 Inputs are quoted prices in active markets for identical assets, which are directly observable at year-end. Level 2 Level 3 Inputs are other than quoted prices in active markets, which may be directly or indirectly observable at year-end. Also included in Level 2 are investments measured using a net asset value (NAV) per share, or its equivalent, that may be redeemed at that NAV at or near the balance sheet date generally within 90 days. Holdings that have little or no pricing observability at year-end. These are measured using management s best estimate of fair value, where inputs to determine fair value are not observable and require significant management judgment and estimation. Also included in Level 3 are investments measured using a NAV per share, or its equivalent, that cannot be redeemed at the NAV near the balance sheet date, or for which redemption at NAV is uncertain due to lockup periods or other investment restrictions. The carrying value of cash, cash equivalents, prepaid expenses and other assets, accounts payable and accrued expenses, and grants payable is a reasonable estimate of their fair value due to their short-term nature. The carrying amounts of the ASPCA s investments and beneficial interest in trusts held by others approximate fair value. The carrying value of bequests and contributions receivable is estimated based on the present value of expected future cash flows from these receivables, and thus approximates fair value. The fair value of prepaid expenses and other assets, accounts payable and accrued expenses, grants payable, and bequests and contributions receivable involve unobservable inputs considered to be Level 3 in the fair value hierarchy. 10 (Continued)

12 (e) Investments The ASPCA s investments in debt and equity securities are reported at fair value and are based upon quoted market prices. The alternative investments are reported at estimated fair value using the investee s NAV per share or its equivalent, as a practical expedient. These values are provided by the fund managers. The values are reviewed by the ASPCA for reasonableness. Due to the inherent uncertainty of these estimates, these values may differ significantly from values that would have been used had a readily available market for such investments existed, and such differences could be material. Investment transactions are accounted for on the dates the purchases or sales are executed (trade date). Dividend income is recorded on the ex-dividend date; interest income is recorded as earned on the accrual basis. (f) Split-Interest Agreements The ASPCA has recognized the following type of split-interest agreements: Beneficial Interests in Perpetual Trusts Held by Others Donors have established and funded trusts that are administered by third-party organizations. Under the terms of these trusts, the ASPCA has the irrevocable right to receive all or a portion of the income earned on the trust assets either in perpetuity or for the life of the trust. The ASPCA does not control the assets held by the respective third-party trustees. Accordingly, the ASPCA recognizes its interest in such trusts, based on the fair value of the assets contributed to the trusts and records them as permanently restricted contributions. Charitable Remainder Trusts Donors have established and funded trusts under which specified distributions are to be made to a designated beneficiary or beneficiaries over the trusts term. Upon termination of the trusts term, the ASPCA receives their interest in the assets remaining in those trusts. Trusts are recorded as increases to net assets at the fair value of trust assets, less the present value of the estimated future payments to be made under the specific terms of the trusts. Charitable Gift Annuities Donors have contributed assets to the ASPCA in exchange for a promise by the ASPCA to pay a fixed amount or percentage for a specified period of time to such donors or to individuals or organizations designated by those donors. Under the terms of such agreements, no trusts exist as the assets received are held by, and the annuity liability is an obligation of, the ASPCA. The discount rates used to measure the liabilities ranged from 1.0% to 2.4% at December 31, 2013 and 1.0% to 1.6% at December 31, 2012, respectively. Split-interest agreements are recognized as revenue when notification of an irrevocable split-interest agreement exists and when fair value can reasonably be determined. 11 (Continued)

13 (g) (h) Land, Building, and Equipment Land owned by the ASPCA is stated at cost. Buildings and equipment are stated at cost less accumulated depreciation that is calculated using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance that do not improve or extend the life of the respective asset are charged to expense as incurred. At the time fixed assets are retired or disposed of, the fixed asset and related accumulated depreciation accounts are relieved of the applicable amounts, and any gain or loss is credited or charged to operations. Accrued Vacation Employees accrue vacation based on tenure and salary band, which results in up to 200 hours of vacation per year. Employees are allowed to accumulate up to 300 hours of their yearly allotment, at which time accumulation ceases until vacation time is taken. Unused vacation balances carry over to future years. At, accrued vacation obligations were approximately $2,858,000 and $2,664,000, respectively. The ASPCA s obligation for accrued vacation is included as a liability in the accompanying balance sheet and represents the cost of unused employee vacation time payable in the event of employee terminations. (i) Revenue Recognition Contributions are considered to be available for unrestricted use, unless they are specifically restricted by the donor. Contributions are recognized as income, at their fair value, when they become unconditional promises to give. Contributions of securities and other tangible assets are recorded at fair value at the date of gift. Conditional contributions and promises to give are recorded as revenue when the conditions on which they depend have been substantially met. Bequests are recorded as income when notification of an irrevocable right to receive such assets exists and when a fair value can reasonably be determined. Bequests and contributions receivable are expected to be received within one year. Animal health service fee revenues, primarily from the animal hospital and animal poison control center, are recognized when services have been performed. The ASPCA enters into various grant and sponsorship agreements. Revenue relating to these agreements is recognized in accordance with the terms and conditions included therein. Grants are evaluated to determine if they represent an exchange transaction or contribution. If determined to be an exchange transaction, the grant is recognized as expenses are incurred. In addition, the ASPCA enters into various agreements that provide royalty and licensing revenues. Revenues relating to royalty contracts are recognized in accordance with the terms and conditions included therein. 12 (Continued)

14 Contributed services are reported at fair value in the financial statements only when those services (1) create or enhance nonfinancial assets, or (2) require specialized skills provided by individuals possessing those skills and are services, which would be typically purchased if not provided by donation. The ASPCA reported contributed services revenue and related expense for the years ended, of approximately $48,000 and $65,000, respectively. Donated materials are reported at fair value at the date of the donation. The ASPCA reported donated materials revenue and related expense for the years ended, of approximately $563,000, and $761,000, respectively, primarily in support of the ASPCA s response to Hurricane Sandy. (j) Functional Allocation of Expenses Expenses are presented according to the programs for which they were incurred and are summarized on a functional basis in the accompanying statements of activities. The various programs and supporting services of the ASPCA are as follows: Animal health services includes the ASPCA Animal Hospital, Spay/Neuter clinics in New York City and the Animal Poison Control Center, a 24-hour animal poison control telephone hotline in Urbana, Illinois. Public education and communications includes activities to create public awareness of animal-related issues. Anticruelty programs includes Humane Law Enforcement in New York and national, state, and local legislative initiatives, as well as animal behavior, animal field investigations and response, and animal forensic activities. Community outreach includes a state-of-the-art Adoptions center in New York City and extensive outreach, education, and training programs in communities throughout the United States. Grants represents programs designed to ensure the ASPCA s leadership in serving the animal welfare field. Membership development and fund-raising involves the direction of the overall fund-raising affairs of the ASPCA, which include development and related areas. Management and general includes the direction of the overall affairs of the ASPCA, such as portions of accounting, human resources, administration, and related areas. 13 (Continued)

15 (k) (l) (m) (n) Concentration of Market and Credit Risks Financial instruments that potentially subject the ASPCA to concentrations of credit risk consist principally of cash, cash equivalents, and investments. The ASPCA maintains its cash and cash equivalents in various bank deposit accounts that may exceed federally insured limits at times. To minimize risk, the ASPCA s cash accounts are placed with high-credit quality financial institutions, while the ASPCA s investment portfolio is diversified with several investment managers in a variety of asset classes. The ASPCA regularly evaluates its depository arrangements and investments, including performance thereof. Estimates The preparation of financial statements in conformity with U.S. 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. The more significant estimates relate to the valuation of the pension benefit obligation, alternative investments, annuity obligations, and the beneficial interest in third-party trusts, the useful lives of fixed assets, the functional allocation of expenses, and the collectability of receivables. Actual results could differ from those estimates. Measure of Operations The ASPCA uses the change in net assets from operating activities as the measure of net assets that are available to support current and future programs and services. Operating activities include all revenues and expenses related to carrying out the ASPCA s mission. Nonoperating activities include bequest and trust income restricted for endowment, changes in beneficial interests in perpetual trusts held by others, actuarial adjustments to the ASPCA s frozen pension plan, and other activities considered to be of a more unusual or nonrecurring nature. In addition, the ASPCA has a spending policy under which a predetermined amount of investment return is authorized to fund operations. The difference between the actual investment return and the amount authorized to fund operations is reported as nonoperating. Income Taxes The ASPCA qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (IRC), and is not subject to federal income taxes. Accordingly, donors are entitled to a charitable contribution deduction as defined in the IRC. Continued qualification of tax-exempt status is contingent upon compliance with the requirements of the IRC. The ASPCA recognizes the effects of income tax positions only if those positions are more likely than not of being sustained. No provision for income taxes was required for 2013 or (o) Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. 14 (Continued)

16 (3) Investments Investments as of consisted of the following: Short-term investments $ 2,548,776 2,288,679 Common stocks 24,085,509 22,760,140 Fixed-income securities 1,252,509 7,872,067 Mutual funds 59,203,067 58,882,088 Alternative investments 44,518,477 37,173,506 $ 131,608, ,976,480 Investment Return The return on investments and interest-bearing cash and cash equivalents for the years ended December 31, 2013 and 2012 consist of the following: Interest and dividends, net of expenses of $893,000 and $748,000, respectively $ 1,372,624 1,690,848 Unrealized gains 9,217,173 8,201,904 Realized gains 7,395,732 5,523,242 Net return on investments 17,985,529 15,415,994 Investment return designated for operations (5,143,000) (4,700,000) Investment return in excess of amounts designated for operations (including temporary restricted amounts of $1,151,898 and $813,064, respectively) $ 12,842,529 10,715,994 Spending Policy The objective of the ASPCA s spending policy is to allocate in a reasonable and balanced manner the total earnings from the investment portfolio between current spending and reinvestment for future earnings and expenditures in order that the purchasing power of the investment portfolio shall be maintained or enhanced. Such purchasing power is to provide a stable source of income to the operating fund of the organization and to meet certain working capital and/or capital expenditures needs. Budgeted annual spending shall be set at the lesser of 5% of the investment portfolio s average five-year portfolio value or 5% of the beginning year balance, and is subject to approval by the Finance Committee and the Board during the annual budget review and approval process. Any overage will reduce future spending by the amount of such overage (reduction implemented over subsequent one to three years). 15 (Continued)

17 For the years ended, the ASPCA s board-approved spending rate on investments was approximately 5% of the average historical investment balance, excluding certain restricted investment balances. The board-approved spending rate in 2013 and 2012 was $5,143,000 and $4,700,000, respectively. The following tables present the ASPCA s fair value hierarchy for those investments measured at fair value on a recurring basis at December 31: 2013 Level 1 Level 2 Level 3 Total Short-term investments: Cash and cash equivalents $ 2,548,776 2,548,776 Common stocks: Large cap equity 16,696,305 16,696,305 Small and mid cap equity 7,389,204 7,389,204 24,085,509 24,085,509 Fixed-income securities: Domestic corporate bonds 265, ,770 U.S. government bonds 634, ,609 Municipal bonds 352, , , ,900 1,252,509 Mutual funds: Total fixed income 16,406,392 16,406,392 Small and mid cap equity 3,840,715 3,840,715 Large cap equity 6,306,218 6,306,218 Other equity 1,139,615 1,139,615 International equity 8,958,625 8,958,625 Global asset allocation 16,427,917 6,123,585 22,551,502 53,079,482 6,123,585 59,203,067 Alternative investments: Equity long 9,743,644 9,743,644 Distressed debt 6,646,321 6,646,321 Funds of funds 5,804,266 5,804,266 Fund of funds private equity 2,753,258 2,753,258 Fund of funds capital appreciation 7,515,280 7,515,280 Private equity 5,857,541 5,857,541 Emerging markets 6,198,167 6,198,167 35,907,678 8,610,799 44,518,477 $ 80,348,376 42,649,163 8,610, ,608, (Continued)

18 2012 Level 1 Level 2 Level 3 Total Short-term investments: Cash and cash equivalents $ 2,288,679 2,288,679 Common stocks: Large cap equity 15,237,763 15,237,763 Small and mid cap equity 7,522,377 7,522,377 22,760,140 22,760,140 Fixed-income securities: Domestic corporate bonds 3,429,433 3,429,433 U.S. government bonds 2,471,868 2,471,868 Municipal bonds 1,970,766 1,970,766 2,471,868 5,400,199 7,872,067 Mutual funds: Total fixed income 9,017,523 9,017,523 Small and mid cap equity 3,686,672 3,686,672 Large cap equity 7,631,522 7,631,522 Other equity 924, ,913 International equity 9,302,851 9,302,851 Global asset allocation 28,318,607 28,318,607 58,882,088 58,882,088 Alternative investments: Equity long 8,329,931 8,329,931 Distressed debt 7,464,103 7,464,103 Funds of funds 5,135,725 5,135,725 Fund of funds private equity 2,267,507 2,267,507 Fund of funds capital appreciation 6,769,692 6,769,692 Private equity 5,132,619 5,132,619 Emerging markets 2,073,929 2,073,929 29,773,380 7,400,126 37,173,506 $ 86,402,775 35,173,579 7,400, ,976, (Continued)

19 The following tables present the ASPCA s activities for the years ended for assets classified in Level 3: Fund of funds Private equity Total Beginning balance at January 1, 2013 $ 2,267,507 5,132,619 7,400,126 Acquisitions 532, ,501 1,094,965 Dispositions (610,984) (917,266) (1,528,250) Net appreciation 564,271 1,079,687 1,643,958 Ending balance at December 31, 2013 $ 2,753,258 5,857,541 8,610,799 Fund of funds Private equity Total Beginning balance at January 1, 2012 $ 1,542,559 5,433,939 6,976,498 Acquisitions 833, ,000 1,163,274 Dispositions (409,038) (686,407) (1,095,445) Net appreciation 300,712 55, ,799 Ending balance at December 31, 2012 $ 2,267,507 5,132,619 7,400,126 Investments with a fair value of $8,551,417 and $6,937,014 and cash equivalents of $204,565 and $253,504 at, respectively, were held in investment accounts relating to charitable gift annuities, in compliance with the insurance laws of various states. The ASPCA maintains separate and distinct reserve funds adequate to meet the future payments of all outstanding charitable gift annuities administered by the ASPCA. Certain information regarding the liquidity and redemption features of the ASPCA s alternative investments (measured at NAV) is as follows: Unfunded Redemption Redemption Fair value Fair value commitments frequency notice period Equity long (a) $ 9,743,644 8,329,931 Monthly 30 days Distressed debt (b) 6,646,321 7,464,103 Quarterly 90 days Funds of funds (c) 5,804,266 5,135,725 Annual 60 days Fund of funds private equity (d) 2,753,258 2,267,507 1,307,087 None N/A Fund of funds capital appreciation (e) 7,515,280 6,769,692 Quarterly 90 days Private equity (f) 5,857,541 5,132,619 3,337,019 None N/A Emerging markets (g) 6,198,167 2,073,929 Daily 3 5 days $ 44,518,477 37,173,506 4,644, (Continued)

20 (a) (b) (c) (d) (e) (f) (g) This category includes investments in a limited partnership that invests primarily in international equity securities. This category includes investments in a hedge fund that invests indirectly in a diversified portfolio focused on the securities of distressed companies, special situations, and related capital structure opportunities. This category includes investments in a fund that invests in offshore and advisory accounts that are managed outside of the United States, and domestically managed hedge funds, which are available for subscription by tax-exempt organizations. This category includes investments in a fund that invests in a diversified portfolio of interests in private investment funds, principally established global buyout, mezzanine and venture capital funds primarily through secondary market transactions. This category includes several fund of funds that invests in private investment funds that utilize a variety of alternative investment strategies that seek to produce an attractive absolute return on invested capital. These strategies include arbitrage, distressed and long/short strategies. This category includes several private equity funds that invest in privately held corporations and domestic and international venture capital and private funds. Certain of these investments can never be redeemed, and in these instances, distributions are received through the liquidation of the underlying assets of the fund. This category includes investments in a fund that invests in a diversified portfolio of emerging market securities. 19 (Continued)

21 (4) Beneficial Interests in Trusts Held by Others Included as beneficial interests in trusts held by others in the accompanying balance sheets are remainder interests in several irrevocable trusts. The present value of the ASPCA s share of future interests in charitable remainder trusts amounted to approximately $1,780,000 and $1,380,000 at December 31, 2013 and 2012, respectively, and has been included in temporarily restricted net assets. The present values of the trusts are calculated using discount rates ranging from 4.0% to 10.6%, respectively at December 31, 2013 and Beneficial interests in perpetual third-party trusts of approximately $18,882,000 and $16,318,000, valued at the ASPCA s share of the fair value of the underlying trust assets, are included in permanently restricted net assets at, respectively. At, the ASPCA s beneficial interests in trusts held by third-party trustees were classified as Level 3 instruments within the fair value hierarchy. The following table summarizes the changes in the ASPCA s Level 3 beneficial interests in trusts held by third-party trustees for the years ended : Charitable remainder Perpetual trusts trusts Total Balance at January 1,2012 $ 2,374,459 14,873,452 17,247,911 Acquisitions 314, , ,529 Dispositions (1,149,542) (1,149,542) Net (depreciation) appreciation (159,631) 946, ,087 Balance at December 31, ,380,283 16,317,702 17,697,985 Acquisitions 356, ,654 1,130,696 Dispositions (17,728) (17,728) Net appreciation 61,189 1,790,018 1,851,207 Balance at December 31, 2013 $ 1,779,786 18,882,374 20,662, (Continued)

22 (5) Land, Building, and Equipment, Net Land, building, and equipment as of consisted of the following: Estimated useful lives Land $ 4,440,000 4,440,000 Building years 14,761,877 14,761,877 Building improvements years 31,402,999 15,229,481 Furniture, fixtures, and equipment 3 10 years 16,599,824 13,855,929 Transportation equipment 4 6 years 4,554,787 4,104,238 Construction in progress 1,233,700 12,464,339 Total cost 72,993,187 64,855,864 Accumulated depreciation and amortization (27,615,957) (23,802,643) Net book value $ 45,377,230 41,053,221 As of December 31, 2013, approximately $18,843,000 has been spent and put into service for the 92nd Street renovation and other projects. During 2013, the ASPCA disposed fixed assets with a net book value of $204,106 in connection with this renovation project. The ASPCA owns a building and land adjoining its headquarters facility in New York City, which was occupied by a commercial tenant under a ten-year lease. Total rental income recognized by the ASPCA in 2013 and 2012 was $280,542, and $279,968, respectively. Effective April 29, 2014, the ASPCA and its tenant, entered into an agreement to terminate the lease. Pursuant to the agreement, the lease was terminated as of May 12, 2014 and the ASPCA paid $537,500 to the tenant. This space be used by the ASPCA and will include a high-volume kitten nursery to provide life-saving care for kittens to survive on their own, as well as a specialized recovery ward to care for the increased number of canine cruelty victims rescued by the New York City Police Department. (6) Pension Plan The ASPCA has a defined benefit pension plan that was frozen effective June 30, All participants will receive benefits accrued through that date. Benefits under the plan are generally based on years of service and average compensation during the highest five years of employment. Annual contributions are determined by the ASPCA based upon calculations performed by the plan s actuary. 21 (Continued)

23 The actuarial present value of the benefit obligation recognized in the accompanying balance sheets at December 31 is as follows: Projected benefit obligation, beginning of year $ 18,397,277 16,500,387 Interest cost 672, ,475 Actuarial loss 127, ,458 Assumption change (1,914,698) 1,912,881 Benefits paid (777,129) (953,924) Projected and accumulated benefit obligation, end of year 16,505,360 18,397,277 Fair value of plan assets, beginning of year 12,315,722 10,624,262 Return on plan assets 1,285,391 1,317,862 Employer contributions 576,856 1,327,522 Benefits paid (777,129) (953,924) Fair value of plan assets, end of year 13,400,840 12,315,722 Funded status of plan, end of year $ (3,104,520) (6,081,555) Amounts included in the balance sheets: Unfunded pension obligation $ (3,104,520) (6,081,555) Net accumulated actuarial loss within unrestricted net assets 6,026,637 8,879,021 Components of net periodic pension cost in the statements of activities consist of the following: Interest cost $ 672, ,475 Expected return on plan assets (739,375) (809,514) Actuarial loss 518, ,864 Net periodic pension cost $ 452, , (Continued)

24 The weighted average rates used to determine net periodic pension cost and the year-end benefit obligation for the years ended were: Discount rate benefit obligation 4.56% 3.76% Discount rate net periodic benefit cost Expected long-term rate of return on plan assets Other changes in plan assets and benefit obligation recognized in unrestricted net assets were as follows: Net actuarial gain (loss) arising during measurement period $ 2,333,626 (1,635,991) Amortization of net actuarial gain 518, ,864 $ 2,852,384 (1,192,127) The net accumulated actuarial loss within unrestricted net assets expected to be recognized in net periodic benefit cost during 2014 is $317,339. The Finance Committee of the Board of Directors determines the allocation of plan assets and the external money managers based on recommendations of an independent investment advisor. The investment strategy for pension assets has a long-term horizon, with a preference for lower volatility, in keeping with the long-term nature of the benefit liabilities. The following tables categorize the inputs used to report the fair value of the plan s investments within the fair value hierarchy as of : 2013 Level 1 Level 2 Total Equity domestic common stock: Large cap equity $ 2,647,397 2,647,397 Fixed-income securities: Domestic corporate bonds 595, ,611 U.S. government bonds 1,780,824 1,780,824 Mutual funds: Small cap equity 2,391,002 2,391,002 International equity 2,338,164 2,338,164 Global asset allocation 3,366,351 3,366,351 Cash and cash equivalents 281, ,491 $ 12,805, ,611 13,400, (Continued)

25 2012 Level 1 Level 2 Total Equity domestic common stock: Large cap equity $ 2,183,682 2,183,682 Fixed-income securities: Domestic corporate bonds 2,202,325 2,202,325 U.S. government bonds 466, ,014 Mutual funds: Small cap equity 2,032,391 2,032,391 International equity 1,755,793 1,755,793 Global asset allocation 3,340,736 3,340,736 Cash and cash equivalents 334, ,781 $ 10,113,397 2,202,325 12,315,722 The plan s weighted average asset allocation at, by asset category, is as follows: Equities 55.0% 48.5% Fixed income Mutual funds Cash and cash equivalents % 100.0% Plan benefits are expected to be paid as follows: 2014 $ 947, , , , ,438, ,327,000 Projected contributions for 2014 are estimated to be $700, (Continued)

26 The ASPCA also sponsors a 401(k) defined contribution retirement plan. Substantially all full-time employees over age 21 are eligible to participate. The ASPCA matches 100% of pretax employee contributions up to 4% of eligible compensation in each pay period. Employee and matching employer contributions are immediately 100% vested. Additional employer contributions are also made as a percentage of compensation in each pay period. These additional contributions are fully vested for employees who have attained at least three years of eligible service. Employer contributions, representing matching employee contributions plus additional employer contributions, totaled approximately $3,218,000 and $2,815,000 in 2013 and 2012, respectively. (7) Commitments and Contingencies The ASPCA holds leases in Queens, New York, Washington DC and Urbana, Illinois. The aggregate commitment under these leases will be charged to expense on a straight-line basis over the terms of respective leases. The ASPCA s approximate aggregate annual minimum rental obligations at December 31, 2013, for facilities under operating leases expiring through 2026 are: 2014 $ 3,032, ,855, ,735, ,533, ,617,000 Thereafter 24,795,000 $ 38,567,000 The difference between rent expense incurred by the ASPCA on an accrual basis and the rent amounts paid in cash is reported as deferred rent payable in the accompanying statement of financial position. The ASPCA, along with at least three other entities, was a party to a pending civil litigation matter. The ASPCA entered into a settlement agreement in In addition, ASPCA is a defendant in several lawsuits arising in the normal course of operations. While outside counsel cannot predict the outcome of such litigation, management does not expect the outcome to have a material effect on the financial position, changes in net assets, and cash flows of the ASPCA. 25 (Continued)

27 (8) Allocation of Joint Costs Direct appeal program joint costs incurred in connection with mailing educational and informational materials are allocated to program and supporting services on the basis of the content of the respective materials. For the years ended, these costs were allocated as follows: Program $ 23,333,163 20,584,370 Membership development and fund-raising 24,346,771 22,701,230 Management and general 85, ,917 $ 47,765,008 43,429,517 (9) Grants Grants are recorded as an expense and a liability based on funds committed per the grant agreements once final approval by the grants department has occurred. No grant payments may be made prior to the final approval. ASPCA granted approximately $16,929,000 and $17,018,000 during 2013 and 2012, respectively. The grants were spent in furtherance of the mission in the following program areas: Animal health services $ 182,000 Anti cruelty: Anti cruelty response 3,706,176 1,835,408 Disaster/emergency 457, ,355 Equine 1,397,105 1,837,167 Farm animals 453,200 1,016,490 6,013,687 5,143,420 Community outreach: Intake reduction 837,578 1,183,749 Live release 4,867,034 4,498,953 Other 1,500 5,500 Relocation 1,517, ,641 Spay/Neuter 4,123,486 5,135,917 11,347,204 11,692,760 Grant refunds (431,487) Total amount granted 16,929,404 17,018,180 Other grant expenses 1,183,455 1,039,090 Total grants expense $ 18,112,859 18,057, (Continued)

28 (10) Net Assets Net assets available by fund designations are for the following purposes at : Unrestricted net assets Operating $ 89,166,403 85,866,005 Board-designated endowment funds 46,148,360 41,889,160 $ 135,314, ,755,165 Temporarily restricted net assets Temporarily restricted net assets were available for the following purposes at December 31, 2013 and 2012: Animal health services $ 25,330,031 25,560,334 Anticruelty programs 367, ,700 Grants and sponsorships 2,359,045 1,567,338 Restricted for use in future periods 7,452,364 5,861,861 Other 1,416,389 1,448,111 $ 36,925,062 34,604,344 During each year, net assets released from restriction resulted from the satisfying of the following donor restriction: Animal health services $ 891, ,468 Anticruelty programs 1,766, ,088 Grants and sponsorships 2,451,922 2,532,613 Time restrictions satisfied 10,020,400 9,592,834 Other 1,517,452 2,368,977 $ 16,648,149 15,276, (Continued)