I have attached two charities financial statements. From the statement of financial position of each charity, assess the following a) liquidity-current ratio b) going concern- Revenues divided by expenses c) % of unrestricted net asset- unrestricted net assets to the total net asset From the statement of activities, assess the following: a) fund raising efficiency- public support divided by fundraising expenses b) Program effectiveness- percentage of program expenses to the total expenses c) % of fundraising expenses-percentage of fundraising expenses to total expenses d) % of management expenses- percentage of management expenses to total expenses After assessing the financial statement position and statement of activities turn in a schedule showing the numbers used to calculate your ratio and write one page describing the charities and your recommendation of which charity your new business should support. Hint: % of program expenses plus % of fundraising expenses plus % of management expenses should equal 100%

FARM SANCTUARY, INC. Watkins Glen, New York FINANCIAL REPORT December 31, 2013 and 2012 FARM SANCTUARY, INC. TABLE OF CONTENTS DECEMBER 31, 2013 AND 2012 Independent Auditor's Report ............................................................................................................................... 1-2 Statements of Financial Position .......................................................................................................................... 3 Statements of Activities ......................................................................................................................................... 4 Statement of Functional Expenses - Year ended December 31, 2013 ............................................................... 5-5a Statement of Functional Expenses - Year ended December 31, 2012 ............................................................... 6-6a Statements of Cash Flows .................................................................................................................................... 7 Notes to Financial Statements .............................................................................................................................. 8-14 John H. Dietershagen, C.P.A. Jerry E. Mickelson, C.P.A. Thomas K. Van Derzee, C.P.A. Debbie Conley Jordan, C.P.A. Patrick S. Jordan, C.P.A. Duane R. Shoen, C.P.A. Lesley L. Horner, C.P.A. D. Leslie Spurgin, C.P.A. Ciaschi Dietershagen Little Mickelson & Company, LLP Certified Public Accountants and Consultants Frederick J. Ciaschi, C.P.A. INDEPENDENT AUDITOR'S REPORT Board of Directors Farm Sanctuary, Inc. Watkins Glen, New York We have audited the accompanying financial statements of Farm Sanctuary, Inc. (Farm Sanctuary), a nonprofit organization, which comprise the Statements of Financial Position as of December 31, 2013 and 2012, 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. Auditor's 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 auditor's 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 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. -1CORTLAND ITHACA WATKINS GLEN 39 Church Street Cortland, New York 13045 607-753-7439 fax 607-753-7874 401 East State Street ~ Suite 500 Ithaca, New York 14850 607-272-4444 fax 607-273-8372 www.cdlm.com 108 West Fourth Street Watkins Glen, New York 14891 607-535-4443 fax 607-535-6220 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Farm Sanctuary, Inc., 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. August 27, 2014 Ithaca, New York -2- FARM SANCTUARY, INC. STATEMENTS OF FINANCIAL POSITION DECEMBER 31, ASSETS Current Assets: Cash and cash equivalents Investments Inventory Prepaid expenses Accounts receivable Accrued interest receivable Contributions receivable Unconditional promises to give Total Current Assets $ Land, buildings, and equipment, less accumulated depreciation of $2,645,076 and $2,349,366, respectively Total Assets 2013 3,058,867 3,716,205 79,204 33,983 3,963 13,052 412,812 168,423 7,486,509 $ 7,808,849 2012 3,576,103 3,496,608 59,928 182,472 7,991 39,384 403,968 225,008 7,991,462 4,602,057 $ 15,295,358 $ 12,593,519 $ 325,317 137,452 3,300 2,404,672 $ 320,132 139,455 4,349 -0- LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable Accrued liabilities Deposits Loan management account Total Liabilities 2,870,741 463,936 12,164,697 -012,164,697 10,300,686 1,375,459 11,676,145 Temporarily Restricted 259,920 453,438 Total Net Assets 12,424,617 12,129,583 Net Assets: Unrestricted - Undesignated - Board Designated Total Unrestricted Total Liabilities and Net Assets $ 15,295,358 See Independent Auditor's Report and Notes to Financial Statements -3- $ 12,593,519 FARM SANCTUARY, INC. STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2013 Changes in Unrestricted Net Assets: Support: Contributions Grants Total Support $ Revenues: Merchandise sales, net Special events and visitor programs Interest and dividends Other Gain on sale of investments Unrealized (loss) gain on investments Gain on disposal of assets Net assets released from restrictions Total Revenues 8,340,019 423,591 8,763,610 2012 $ 8,428,310 326,558 8,754,868 93,005 672,692 105,933 43,703 259,016 (171,864) 758 232,218 1,235,461 9,999,071 Increase in Unrestricted Net Assets Changes in Temporarily Restricted Net Assets: Contributions Grants Net assets released from restrictions 6,795,658 662,395 1,228,474 8,686,527 488,552 Expenses: Program services Supporting services Fundraising Total Expenses 10,306,169 7,374,917 733,852 1,401,750 9,510,519 Total Unrestricted Support and Revenues 31,439 696,740 131,766 32,064 60,022 221,657 300 377,313 1,551,301 1,619,642 33,200 5,500 (232,218) (193,518) (Decrease) in Temporarily Restricted Net Assets Increase in Net Assets 147,877 146,642 (377,313) (82,794) 295,034 12,129,583 Net Assets, as Restated, December 31, Net Assets, as Restated, December 31, $ 1,536,848 10,592,735 12,424,617 See Independent Auditor's Report and Notes to Financial Statements -4- $ 12,129,583 FARM SANCTUARY, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2013 Program Services Rescue, Education Shelter and Legislative Advocacy and Adoption Outreach Action and Action $ 1,978,346 $ 1,243,195 $ 39,088 $ 312,823 $ 5,679 95,511 222 1,712 26,661 25,394 400 3,858 Payroll Supplies Telephone Postage Printing Travel Total Program Services 3,573,452 103,124 56,313 7,959 13,498 71,433 158,850 184,889 68,415 10,040 8,461 4,495 46,825 38,181 16,334 223,674 245,029 160,677 108,179 37,580 1,006,495 37,634 61,275 118 1,249 1,246 31,655 147,177 131,759 1,006,495 Events and campaigns Lobbying Insurance 10,706 403,963 1,517 12,109 106,130 49,321 43,751 522,316 12,109 101,202 Miscellaneous other Banking, investing, and card fees Mailing and processing 89,640 161,879 1,344 22,701 105,160 3,645 11,319 275,564 -0120,124 Property taxes Accounting Legal fees Repairs and maintenance 27,756 13,878 16,141 157,977 11,498 34,296 89,675 746 41,634 -0117,314 193,127 3,607,371 214,892 2,649,588 125,353 82,796 691,335 3,582 7,031,090 343,827 3,822,263 $ 2,774,941 $ 82,796 $ 694,917 $ 7,374,917 Utilities Technology Animal care and rehabilitation Total Expenses Before Depreciation Depreciation Total Expenses $ 8,130 108 See Independent Auditor's Report and Notes to Financial Statements -5- Supporting Services Fundraising $ 372,406 $ 509,559 $ 2,510 1,076 5,193 9,781 Total 4,455,417 106,710 71,287 9,755 8,446 15,779 189,423 166,805 36,720 422,852 420,280 213,176 3,920 38,876 1,601 43,138 152,698 213,773 1,006,495 291 126,884 8,458 1,053 649,491 12,109 110,713 21,173 139,689 18,914 219,610 58,298 15,072 4,327 8,931 2,646 41,634 58,298 141,317 200,100 723,107 10,745 $ 80,941 516,347 139,689 219,979 1,398,168 3,582 9,152,365 358,154 733,852 $ 1,401,750 $ 9,510,519 - 5a - FARM SANCTUARY, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2012 Program Services Rescue, Education Shelter and Legislative Advocacy and Adoption Outreach Action and Action $ 1,663,962 $ 1,077,950 $ 113,647 $ 535,259 $ 41,418 87,370 1,284 12,807 21,497 25,360 199 5,050 Payroll Supplies Telephone Postage Printing Travel 3,181 (258) 113,804 Utilities Animal care and rehabilitation Events and campaigns Total Program Services 3,390,818 142,879 52,106 199,875 229,257 114,517 2,944 2,721 3,961 53,446 24,011 23,709 259,446 255,731 255,991 97,577 1,050,721 86,736 22,314 649 2,068 274,437 4,172 72,104 122,608 1,050,721 437,449 40,437 44,263 37,999 103,923 3,094 9,297 22,751 5,459 87,733 174,031 Mailing and processing Property taxes Accounting 730 20,312 22,356 118,656 11,178 Legal fees Repairs and maintenance 910 65,522 20,197 103 689 910 86,511 3,252,126 183,179 2,323,033 110,538 138,963 781,503 6,316 6,495,625 300,033 3,435,305 $ 2,433,571 $ 138,963 $ 787,819 $ 6,795,658 Lobbying Insurance Miscellaneous other 5,459 Total Expenses Before Depreciation Depreciation Total Expenses $ See Independent Auditor's Report and Notes to Financial Statements -6- 139,698 33,534 -0- Supporting Services Fundraising $ 268,507 $ 379,218 $ 10,035 34,688 4,866 12,472 Total 4,038,543 187,602 69,444 9,568 11,526 41,443 197,622 173,883 43,117 466,636 441,140 340,551 9,009 2,458 1,520 64,707 134,075 1,050,721 503,676 8,367 233,048 930 153,237 5,459 97,030 560,316 158,467 36,878 16,729 1,424 1,359 17,639 89,294 652,920 9,475 $ 298,165 33,534 36,878 1,222,158 6,316 8,370,703 315,824 662,395 $ 1,228,474 $ 8,686,527 - 6a - FARM SANCTUARY, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 Cash Flows from Operating Activities: Increase in net assets Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation (Gain) on sale of investments Donated stock Loss (gain) on disposal of equipment Unrealized loss (gain) on investments Changes in operating assets and liabilities: Inventory Prepaid expenses Accounts receivable Contributions receivable Promises to give Accrued interest receivable Accounts payable Accrued liabilities Deposits $ 295,034 2012 $ 1,536,848 358,154 (259,016) (83,332) 541 171,864 (19,276) 148,489 4,028 (8,844) 56,585 26,332 5,185 (2,003) (1,049) Net Cash Provided by Operating Activities 315,824 (60,022) (47,613) (300) (221,657) 14,611 (138,031) 179,266 (107,933) (7,808) (2,419) 129,128 25,436 1,199 692,692 Cash Flows from Investing Activities: Purchase of investments Proceeds from sale of investments Proceeds from insurance on destroyed fixed assets Purchase of land, buildings, and equipment 1,616,529 (4,329,666) 4,280,553 -0(3,565,487) (3,614,600) Net Cash (Used) by Investing Activities Cash Flows from Financing Activities: Proceeds from local management account (1,670,157) 1,510,779 16,961 (884,141) (1,026,558) 2,404,672 2,404,672 Net Cash Provided by Financing Activities Net (Decrease) Increase in Cash and Cash Equivalents -0- (517,236) Cash and Cash Equivalents - Beginning of Period, as Restated Cash and Cash Equivalents - End of Period -0- 589,971 3,576,103 2,986,132 $ $ 3,576,103 $ Donation of stock received 3,058,867 83,332 $ 47,613 See Independent Auditor's Report and Notes to Financial Statements -7- FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Note 1 - Summary of Significant Accounting Policies Nature of Activities Farm Sanctuary, Inc. (Farm Sanctuary) was organized in Delaware in 1986 as a not-for-profit, nonstock corporation. Farm Sanctuary provides rescue and care for abused and neglected farm animals and provides adoption service and information on farm animal care, educates and disseminates information on farm animal issues, conducts cruelty investigations and assists authorities in farm animal cruelty cases, and monitors legislative action, working with legislators on federal and state bills. Farm Sanctuary is supported primarily through donor contributions and grants. In 2011, Farm Sanctuary, LLC (Limited Liability Corporation) was formed for the purpose of holding title to property that was transferred to Farm Sanctuary. Farm Sanctuary, LLC is a single member LLC with Farm Sanctuary being its single member. For tax and financial reporting purposes the LLC is considered a \"disregarded entity\" and all tax and financial information of the LLC is reported by Farm Sanctuary. Basis of Accounting The financial statements have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. Financial Statement Presentation Farm Sanctuary complies with the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958 \"Not-for-Profit Entities.\" Under FASB ASC 958, Farm Sanctuary Inc. 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles includes the use of estimates that affect the financial statements. Accordingly, actual results could differ from those estimates. Contributions Farm Sanctuary accounts for contributions in accordance with the recommendations of the FASB ASC 958 \"Not-for-Profit Entities.\" Under FASB ASC 958, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. Contributions restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the reporting period in which the support is recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restriction. 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 Statement of Activities as net assets released from restrictions. Property and Equipment All acquisitions of property and equipment and all expenditures for repairs, maintenance, and betterments costing $2,000 or more that materially prolong (one year or greater) the useful lives of assets are capitalized. Property and equipment are carried at cost or, if donated, at the approximate fair value at the date of donation. Depreciation is computed using the straight-line method over three to 39 years. -8- FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2013 AND 2012 Cash and Cash Equivalents For purposes of the Statement of Cash Flows, Farm Sanctuary considers all unrestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents. Investments Investments consist of U.S. Savings Bonds, U.S. Treasury Notes, corporate bonds, equities, mutual funds, and certificates of deposit with original maturities greater than three months and are carried at fair value. Unrealized gains and losses are included in the change in net assets in the accompanying Statements of Activities. Inventory Valuation Inventory is stated at cost of quantity on hand. Donated Services A substantial number of volunteers have donated significant amounts of time, services, and materials on Farm Sanctuary's behalf. The value of this contributed time and services has not been reflected in the financial statements, inasmuch as they do not meet the criteria for recognition under FASB ASC 958. Donated services are recognized as contributions in accordance with FASB ASC 958 \"Not-for-Profit Entities,\" if the services (a) create or enhance non-financial assets or (b) required specialized skills, are performed by people with those skills, and would otherwise be purchased by the organization. In 2013, $83,055 in donated legal services were reported; no donated services were reported in prior years. Income Tax Status Farm Sanctuary is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. In addition, Farm Sanctuary qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization other than a private foundation under Section 590(a)(2). Farm Sanctuary's Forms 990, Return of Organization Exempt from Income Tax, for the periods ending September 30, 2011, and December 31, 2011, 2012 and 2013 are subject to examination by the IRS, generally for three years after they were filed. Donated Assets Donated marketable securities and other noncash donations are recorded as contributions at estimated fair value at the date of donation. Functional Allocation of Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the Statements of Activities and in the Statements of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Certain categories of expenses, such as banking, investment, and card fee, technology, and legal, have been allocated differently in 2013; the 2012 presentation was not updated. Designation of Unrestricted Net Assets Board designated net assets in 2012 included a shelter reserve created by the Board of Directors. This specific portion of the Organization's broader reserve was eliminated in 2013. Evaluation of Subsequent Events Farm Sanctuary has evaluated event transactions occurring between December 31, 2013 and August 27, 2014, which is the date the financial statements were available to be issued, for possible disclosure and recognition in the financial statements. -9- FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2013 AND 2012 Note 2 - Concentration of Credit Risk Farm Sanctuary maintains cash balances at several financial institutions. From time to time, Farm Sanctuary may have bank deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. Note 3 - Investments Investments consisted of the following at December 31,: Cost Stocks on hand Corporate bonds U.S. Savings Bonds Equity mutual funds Equities Gov't and agency securities $ 616 1,084,780 13,648 907,298 2,197 1,698,479 $ $ 3,707,018 $ Cost Stocks on hand Corporate bonds U.S. Savings Bonds Equity mutual funds Certificates of deposit $ 616 2,422,289 13,648 703,436 175,568 $ $ 3,315,557 $ 2013 Fair Value 814 1,080,907 17,272 935,703 2,197 1,679,312 Unrealized Gain (Loss) $ 198 (3,873) 3,624 28,405 -0(19,167) 3,716,205 $ 2012 Fair Value 671 2,483,576 17,152 809,396 185,813 Unrealized Gain (Loss) $ 55 61,287 3,504 105,960 10,245 3,496,608 $ 9,187 181,051 The fair value of certificates of deposit is estimated by the investment broker/dealer using a matrix based on interest rates and penalties for early withdrawal. The estimated fair value may not reflect the actual price that would be received if the certificates of deposit were to be sold prior to maturity. Market Risk Future changes in market prices may make a financial instrument less valuable. Ownership interest is subject to the risk of loss from a decrease in value due to interest rate fluctuations which may result in a decline that is other than temporary. Note 4 - Fair Value Measurements FASB ASC 820, \"Fair Value Measurements and Disclosures,\" establishes a framework for measuring fair value. That framework establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 Measurements) and the lowest priority to unobservable inputs (Level 3 Measurements). The three levels of the fair value hierarchy under FASB ASC 820 are as follows: Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Farm Sanctuary has the ability to access. - 10 - FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2013 AND 2012 Level 2 - Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs derived principally from or corroborated observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following table sets forth by level, within the fair value hierarchy, Farm Sanctuary's cash equivalents and investments from its investment portfolio, at fair value at December 31,: 2013 Level 1 Investments: Gov't and agency securities Corporate bonds and notes U.S. Savings Bonds Equities Equity mutual funds Total Investments Total Fair Value Level 2 Level 3 $ 1,679,312 $ 1,080,907 $ Total $ 17,272 -0- 1,679,312 1,080,907 17,272 3,011 935,703 3,716,205 17,272 $ -0- $ 3,716,205 17,272 3,011 935,703 3,698,933 $ 3,698,933 $ 2012 Level 1 Investments: Corporate bonds and notes U.S. Savings Bonds Equities Equity mutual funds Total Investments at Fair Value Total Fair Value Level 2 $ 2,483,576 $ Level 3 $ Total $ 17,152 -0- 2,483,576 17,152 671 809,396 3,310,795 17,152 $ -0- $ 3,310,795 17,152 671 809,396 3,293,643 $ 3,293,643 $ Certificates of deposit 185,813 Total Investments $ - 11 - 3,496,608 FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2013 AND 2012 Note 5 - Accounts Receivable Accounts receivable consisted of the following at December 31,: Insurance reimbursement Employee receivables Other receivables $ Total Accounts Receivable 2013 3,963 -0-0- $ 3,963 2012 $ -01,898 6,093 $ 7,991 No allowance for doubtful accounts has been recorded, as management believes receivables are fully collectible. Note 6 - Promises to Give Unconditional promises to give consist of funds committed by various donors during the year. These funds are expected to be received as follows: December 31, 2013 $ 168,423 Receivable in less than one year December 31, 2012 $ 225,008 Unconditional promises to give are deemed 100% collectible by Farm Sanctuary and therefore, no allowance for uncollectible accounts has been recorded. Note 7 - Land, Buildings, and Equipment Land, buildings, and equipment consisted of the following at: Assets Land Buildings and improvements Equipment Software Totals $ $ Assets Land Buildings and improvements Equipment Software Totals $ $ Cost 3,025,774 5,942,220 1,346,953 138,977 10,453,924 December 31, 2013 Accumulated Depreciation $ -0- $ 1,711,340 803,757 129,979 Book Value 3,025,774 4,230,880 543,196 8,999 $ 7,808,849 2,645,076 $ Cost 285,283 5,355,249 1,171,914 138,977 December 31, 2012 Accumulated Depreciation $ -0$ 1,517,843 711,997 119,526 Book Value 285,283 3,837,406 459,917 19,451 6,951,423 $ 4,602,057 - 12 - 2,349,366 $ FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2013 AND 2012 Depreciation expense for the periods ended December 31, 2013 and 2012 amounted to $358,154 and $315,824, respectively. Note 8 - Program and Supporting Services The following program and supporting services are included in the accompanying financial statements: Rescue, Shelter, and Adoption Providing rescue, rehabilitation, and care for abused and neglected farm animals, as well as offering services involving adoptions, animal placement assistance, and animal care information. Education and Outreach Providing programs and disseminating literature and information to educate the public about farm animal issues. Programs include farm tours, education centers, conferences, speaking events, free literature distribution, volunteer and internship programs for hands-on experience, and community outreach events. Legislative Action Monitoring federal and state legislation, informing the public on legislation involving farm animals, and working with legislators on federal and state bills. Advocacy and Action Encouraging communities to increase legal protection for farm animals, and encouraging consumers and businesses to consider farm animal issues in their decision-making processes. Supporting Services Providing general support services for Farm Sanctuary's program services including mail processing, mailing list maintenance, accounting, charity registrations, and personnel matters. Fundraising Promoting Farm Sanctuary and developing membership programs to maintain and increase membership donations, grant applications, and general fundraising projects. Note 9 - Joint Costs of Activities which Include a Fundraising Appeal Farm Sanctuary achieves some of its programmatic and general goals via direct mail campaigns which include requests for contributions. Costs that were not directly attributable to either the program or the fundraising component of these activities were $737,687 and $770,525 for the years ended December 31, 2013 and 2012, respectively. Education and outreach Legislative action Advocacy and action Fundraising $ Total $ - 13 - 2013 263,385 21,733 58,237 394,332 737,687 $ $ 2012 259,923 -059,736 450,866 770,525 FARM SANCTUARY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2013 AND 2012 Note 10 - Board Designated Net Assets Board designated net assets are available for the following purposes at December 31,: 2013 Restricted Shelter Fund $ -0- $ 2012 1,375,459 This specific portion of the Organization's broader reserve was eliminated in 2013. Note 11 - Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes at December 31,: Melrose Small Animal Hospital Duck and Goose Pond Legislative Fund Run-in Cattle Shed Rescue Transport Vehicle Compassionate Communities-General Compassionate Communities-Ad Campaign Someone, Not Something Project-General Someone, Not Something Project-Researcher Total $ $ 2013 87,672 10,852 22,296 -0-0-0-099,100 40,000 259,920 $ $ 2012 77,276 10,852 70,791 25,000 3,907 16,377 102,735 106,500 40,000 453,438 Note 12 - Loan Management Account During 2013, Farm Sanctuary opened a Loan Management Account with Bank of America in the amount of $2.5 million with interest rates at LIBOR plus 2.25%, collateralized by certain eligible assets held at an affiliate of the lender. Bank advances on the credit line are payable on demand; however, if no demand is made, interest only payments are required monthly. At December 31, 2013, the outstanding balance was $2,404,672, of which $4,672 is attributable to interest. Note 13 - Related Parties During 2013, Farm Sanctuary contracted with a company owned by the Chief Financial Officer's spouse to conduct an assessment of the organization's Information Technology capabilities. Total expense for the year ended December 31, 2013 amounted to $9,230. - 14 - The Humane Society Of The United States And Affiliates Consolidated Financial Statements December 31, 2013 Contents Independent Auditor's Report On The Financial Statements 1-2 Financial Statements Consolidated Balance Sheet Consolidated Statement Of Activities And Changes In Net Assets Consolidated Statement Of Functional Expenses Consolidated Statement Of Cash Flows 3 4 5 6 Notes To Consolidated Financial Statements 7 - 23 Independent Auditor's Report On The Supplementary Information 24 Supplementary Information Consolidating Balance Sheet Consolidating Statement Of Activities 25 26 Independent Auditor's Report To the Board of Directors The Humane Society of the United States Washington, D.C. Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of The Humane Society of the United States and Affiliates (the Society) which comprise the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of activities and changes in net assets, functional expenses and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Humane Society of the United States and Affiliates as of December 31, 2013, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited The Humane Society of the United States and Affiliates' (the Society) 2012 consolidated financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated August 15, 2013. In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2012, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Gaithersburg, Maryland October 14, 2014 2 The Humane Society Of The United States And Affiliates Consolidated Balance Sheet December 31, 2013 (With Comparative Totals For 2012) Assets 2012 2013 Cash And Cash Equivalents Investments Investments To Fund Deferred Compensation Liability Accrued Interest Receivable Prepaid Expenses And Other Assets Contributions, Bequests And Other Receivables, net Property And Equipment, net $ 21,311,912 201,443,505 262,771 267,569 6,711,087 16,546,104 25,937,575 $ 27,706,707 178,187,342 476,294 225,722 1,982,953 18,969,203 21,653,358 $ 272,480,523 Liabilities And Net Assets Liabilities Accounts payable and accrued expenses Annuities and unitrusts Accrued severance obligation Deferred compensation liability Accrued retirement benefit obligation Total liabilities $ 249,201,579 $ Total assets $ 23,871,402 8,250,574 1,384,738 262,771 6,832,915 40,602,400 13,294,010 8,364,693 1,631,741 476,294 10,111,358 33,878,096 Commitments And Contingencies (Notes 9, 10 and 14) Net Assets Unrestricted Board designated Undesignated 84,224,339 73,440,990 157,665,329 35,623,410 38,589,384 231,878,123 $ 272,480,523 Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets See Notes To Consolidated Financial Statements. 3 75,279,365 63,423,628 138,702,993 38,447,039 38,173,451 215,323,483 $ 249,201,579 The Humane Society Of The United States And Affiliates Consolidated Statement Of Activities And Changes In Net Assets Year Ended December 31, 2013 (With Comparative Totals For 2012) 2013 Temporarily Restricted Unrestricted Support and revenue: Contributions Bequests Interest and dividends Royalty income Grants and trust contributions Event income Other income Net assets released from restrictions Total support and revenue Expenses: Program services Management and general Fundraising Total expenses Change in net assets from operations Realized and unrealized gain on investments, net Change in net assets before retirement benefits adjustment Pension benefits adjustment Change in net assets Net assets: Beginning Ending $ 98,072,051 27,470,447 1,981,367 823,128 2,261,624 1,797,498 2,287,302 37,929,159 172,622,576 $ 25,457,163 5,758,462 607,213 105,025 2,462,769 216,325 183,986 (37,929,159) (3,138,216) 140,890,119 5,635,577 24,960,396 171,486,092 - 1,136,484 (3,138,216) 15,061,454 314,587 16,197,938 (2,823,629) 2,764,398 - Permanently Restricted $ 6,746 409,187 415,933 - Total 2012 Total $ 123,529,214 33,235,655 2,997,767 928,153 4,724,393 2,013,823 2,471,288 169,900,293 $ 139,725,194 23,982,764 3,085,434 2,563,892 6,537,760 2,242,407 1,885,593 180,023,044 140,890,119 5,635,577 24,960,396 171,486,092 142,118,050 5,225,819 29,479,645 176,823,514 (1,585,799) 3,199,530 15,376,041 10,777,274 13,790,242 13,976,804 2,764,398 864,080 415,933 16,554,640 14,840,884 415,933 - 415,933 - 18,962,336 (2,823,629) 138,702,993 38,447,039 38,173,451 215,323,483 200,482,599 $ 157,665,329 $ 35,623,410 $ 38,589,384 $ 231,878,123 $ 215,323,483 See Notes To Consolidated Financial Statements. 4 The Humane Society Of The United States And Affiliates Consolidated Statement Of Functional Expenses Year Ended December 31, 2013 (With Comparative Totals For 2012) 2013 Program Services Cruelty Prevention Programs Research And Education Compensation Education material, publications and campaigns Mailing costs Consultant and contracted services Professional fees and settlements Contributions and grants Travel, meals, and lodging Supplies and field expenses Bank, trustee, and lockbox fees Occupancy and building expense Depreciation and amortization Postage and shipping Telephone Insurance and bonds Real estate and other taxes Total $ 7,121,510 $ 2,834,082 3,034,793 3,507,247 390,456 141,270 343,095 526,660 417,456 80,044 979,045 96,693 114,978 51,068 $ 19,638,397 9,489,342 $ 1,836,068 4,853,093 6,083,784 526,662 2,633,166 1,578,614 733,473 414,743 96,992 126,899 197,859 148,239 26,873 $ 28,745,807 Advocacy And Public Policy Direct Care And Service 9,112,848 $ 6,498,800 4,692,033 4,133,607 433,198 278,667 1,476,134 2,220,877 1,082,541 893,047 54,131 192,223 188,450 53,756 $ 31,310,312 13,593,743 Total Program Services $ 20,428,384 5,835,776 4,483,520 10,456,590 3,486,916 1,248,107 610,129 299,237 94,217 62,633 304,670 205,592 86,089 $ 61,195,603 See Notes To Consolidated Financial Statements. 5 39,317,443 Management And General $ 140,890,119 $ 29,721 893,593 517,432 331,420 18,386 146,406 1,913,403 181,735 383,270 8,570 34,986 93,237 34,649 31,597,334 18,415,695 18,208,158 11,806,906 6,540,019 4,645,950 4,091,139 2,213,977 1,164,300 1,222,708 791,445 657,259 217,786 $ 1,048,769 Fundraising $ 5,635,577 4,864,831 $ 2,240,977 11,735,080 3,177,479 416,197 283,664 258,406 1,443,193 168,299 67,959 66,080 76,533 123,514 38,184 $ 24,960,396 2012 Total Total 45,231,043 $ 46,879,729 34,057,110 21,611,393 5,840,336 3,700,186 4,937,165 4,051,225 3,843,080 2,297,238 1,556,939 1,230,556 937,264 823,369 524,277 33,868,032 31,044,368 21,903,069 12,554,523 6,540,019 4,948,000 4,495,951 3,356,596 2,564,011 1,615,529 1,297,358 902,964 874,010 290,619 $ 171,486,092 44,533,647 $ 176,823,514 The Humane Society Of The United States And Affiliates Consolidated Statement Of Cash Flows Year Ended December 31, 2013 (With Comparative Totals For 2012) 2012 2013 Cash Flows From Operating Activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Contributions and interest received for endowment Decrease in allowance for uncollectible contributions and bequests Change in discount on multi-year contributions and bequests Depreciation and amortization Loss on sale of property and equipment Net realized and unrealized gain on investments Donated stock Donated land Changes in assets and liabilities: (Increase) decrease in: Accrued interest receivable Prepaid expenses and other assets Contributions, bequests, and other receivables, gross Increase (decrease) in: Accounts payable and accrued expenses Annuities and unitrusts Accrued severance obligation Accrued postretirement benefit obligation Net cash provided by operating activities $ 16,554,640 $ 14,840,884 (415,933) (1,362) 12,536 1,615,529 319,298 (15,376,041) (1,097,809) (2,500,000) (41,847) (4,728,134) 2,411,925 3,323,947 442,946 110,600 (1,447,969) 1,608,184 108,337,555 (115,119,868) (3,719,044) (10,501,357) Cash Flows From Financing Activities Contributions and interest received for endowment Net cash provided by financing activities (33,631) (633,431) (318,516) 10,577,392 (114,119) (247,003) (3,278,443) 3,690,629 Cash Flows From Investing Activities Proceeds from sale of investments Purchase of investments Purchases of property and equipment Net cash used in investing activities (3,479,729) (353,511) (17,161) 1,556,939 46,113 (10,777,274) (1,652,023) - 110,383,065 (110,690,471) (2,286,213) (2,593,619) 3,479,729 3,479,729 415,933 415,933 (6,394,795) Cash And Cash Equivalents Beginning Ending 2,494,294 27,706,707 Net (decrease) increase in cash and cash equivalents 25,212,413 $ Donated land See Notes To Consolidated Financial Statements. 6 $ 27,706,707 $ 1,097,809 $ 1,652,023 $ Supplemental Schedules Of Noncash Investing And Financing Activities Donated stock 21,311,912 2,500,000 $ - The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 1. Nature Of Activities And Significant Accounting Policies Nature of activities: The Humane Society of the United States and Affiliates (collectively, the Society) is a not-for-profit organization whose primary purpose is the worldwide advancement of humane treatment of animals through public education, awareness, and direct animal care programs. The accompanying consolidated financial statements include the activities of the following entities: The Humane Society of the United States (HSUS) Doris Day Animal League (DDAL) The Fund for Animals (FFA) Humane Society International, Inc. (HSI) Humane Society University (HSU) Humane Society Veterinarians Medical Association (HSVMA) South Florida Wildlife Center, Inc. (SFWC) Humane Society Wildlife Land Trust (WLT) A summary of the Society's significant accounting policies follows: Basis of accounting: The accompanying consolidated financial statements are prepared using the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when incurred. Principles of consolidation: All significant intercompany transactions have been eliminated in the consolidation. Basis of presentation: The financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (the Codification). As required by the Non-Profit Entities Topic of the Codification, the Society 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. Cash and cash equivalents: Cash and cash equivalents include all short-term, highly liquid instruments purchased with an original maturity of three months or less. At December 31, 2013, cash and cash equivalents consisted of checking accounts and money market accounts. Investments: Investments with readily determinable fair values are reflected at fair market value. To adjust the carrying value of investments, unrealized gains and losses are reported in the consolidated statement of activities and changes in net assets as other changes in net assets. Financial risk: The Society maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Society has not experienced any losses in such accounts. The Society believes it is not exposed to any significant financial risk on cash. The Society invests in a professionally managed portfolio that contains mutual funds, corporate bonds, government securities, hedge funds, partnerships, equity securities, private equity funds and other investments. Such investments are exposed to various risks, such as market and credit. Due to the level of risk associated with such investments and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risks in the near term could materially affect investment balances and the amounts reported in the consolidated financial statements. 7 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 1. Nature Of Activities And Significant Accounting Policies (Continued) Contributions and bequests receivable: Contributions and bequests receivable are carried at original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using the historical experience applied to an aging of accounts. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. The provision for doubtful accounts was $297,927 at December 31, 2013. Property and equipment: Property and equipment with a cost of $5,000 or more are capitalized. Donated property is recorded at fair value or donor's basis at the time of donation, if fair value cannot be reasonably estimated. Donated land conservation easements are recorded at $1. Improvements to property and equipment that extend the useful lives of the assets are also capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Valuation of long-lived assets: The Society accounts for the valuation of long-lived assets by reviewing such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the 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 estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount or fair value, less costs to sell. There were no impairments of long-lived assets during the year ended December 31, 2013. Support and revenue: Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. 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 consolidated statement of activities and changes in net assets as net assets released from restrictions. Bequests: Individual unrestricted bequests in excess of $25,000 are recognized as revenue in the undesignated net assets at the rate of 20% and in the board designated investment fund net assets at the rate of 80% in the year of receipt. The 80% reported as revenue in the board designated net assets is transferred to the undesignated net assets equally over the following four years. The effect of this policy is to apportion individual bequests to the undesignated net assets over a five-year period. This policy applies only to The Humane Society of the United States entity. In-kind contributions: The Society produces and distributes public service television, radio, and newspaper announcements that focus attention on Companion Animal and Wildlife issues. These public service announcements are distributed to radio stations and newspapers nationwide and run free of charge. The Society has contracted with an independent outside agency to track the date and time that each public service announcement runs, and the value of the announcements is based on the date, time, and market. For the year ended December 31, 2013, the Society recorded $22,943,791 of contributed public service announcements. The Society also receives donations of in-kind services, as well as donations of equipment and supplies in the daily operations of its programs. For the year ended December 31, 2013, the Society received $3,408,804 in donated services and $278,476 in donated equipment and supplies. Use of estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 8 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 1. Nature Of Activities And Significant Accounting Policies (Continued) Tax status: HSUS, FFA, HSI, HSU, HSVMA, SFWC, and WLT qualify under Section 501(c)(3) of the Internal Revenue Code (IRC) and are classified as organizations that are not private foundations. DDAL qualifies under Section 501(c)(4) of the IRC. Therefore, the Society is generally not subject to tax under present income tax laws; however, any unrelated business income may be subject to federal and state income taxes. The Society had no net unrelated business income for the year ended December 31, 2013. Management evaluated the Society's tax positions and concluded that the Society has taken no uncertain tax positions that require adjustment to the consolidated financial statements to comply with the provisions of this guidance. Generally, the Society is no longer subject to income tax examinations by the U.S. federal, state, or local tax authorities for years before 2010. Hedge funds, fund of funds and private equity funds: Investments in hedge funds, fund of funds, partnerships, and private equity funds are valued at net asset value, which estimates fair value. The funds value securities and other financial instruments on a fair value basis of accounting. The estimated fair values of certain investments of the funds, which may include private placements and other securities for which prices are not readily available, are determined by the management of the respective fund and may not reflect amounts that could be realized upon immediate sale nor amounts that could be ultimately realized. Accordingly, the estimated fair values may differ significantly from the values that would have been used had a ready market existed for these investments. The fair value of the Society's investments in hedge funds, fund of funds, partnerships, and private equity funds generally represents the amount the Society would expect to receive if it were to liquidate its investments in the funds and notes, excluding any redemption charges that may apply. Functional allocation of expenses: Program and supporting services have been presented on a functional basis in the consolidated statement of activities and changes in net assets and the consolidated statement of functional expenses. Certain overhead costs have been allocated among program services, management and general, and fundraising. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, contributions, bequests and other receivables, and accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. Investments are stated at fair value. Prior year information: The consolidated 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 accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Society's financial statements for the year ended December 31, 2012, from which the summarized information was derived. Reclassifications: Certain items in the December 31, 2012, summarized comparative information have been reclassified to conform to the December 31, 2013, consolidated financial statement presentation. The reclassifications had no effect on the previously reported change in net assets or net assets. Humane Society University: In December 2013, the Society made the determination that it was no longer practical to continue to operate Humane Society University (HSU) due to increase regulations related to online learning opportunities, shortfalls in growth expectation and shortfalls in revenue. The Society has outlined a plan for individuals currently enrolled in classes at HSU to complete their degree programs. HSU is expected remain open in a limited capacity through 2017. No expenses were qualified to be recognized in 2013 for the discontinued operations. 9 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 1. Nature Of Activities And Significant Accounting Policies (Continued) Subsequent events: The Society evaluated subsequent events through October 14, 2014, which is the date the consolidated financial statements were available to be issued. In May 2014, the Society and the Fund for Animals settled an animal protection lawsuit and a related defensive action involving a consortium of animal charities for $5.675 million, net of all proceeds received from parties involved in the litigation and related settlements. As this suit relates to actions taken in 2013 and prior years, the corresponding damages have been recorded in these financial statements. The Society expects that all or a portion of net damages will be recovered from insurance proceeds. Such insurance proceeds will be recognized in the year received. Note 2. Contributions, Bequests And Other Receivables Contributions, bequests, and other receivables (excluding note receivable) consist of the following at December 31, 2013: Bequests Contributions and other receivables Capital campaign Grants $ 9,033,602 6,895,564 138,333 798,852 16,866,351 Less allowance for uncollectible contributions and bequests (5%) Less discount on multi-year contributions and bequests (2.75%) Total contributions, bequests, and other receivables, net (297,927) (22,320) $ 16,546,104 Contributions, bequests and other receivables are expected to be collected in: Less than one year One to five years Note 3. $ 13,666,595 3,199,756 $ 16,866,351 Property And Equipment Property and equipment and accumulated depreciation at December 31, 2013, and depreciation expense for the year ended December 31, 2013, consist of the following: Accumulated Useful Life Land Buildings and improvements - Cost $ 12,869,858 Depreciation $ - Net $ 12,869,858 Depreciation $ - 10 to 40 years 21,734,023 10,650,168 11,083,855 1,123,107 5 years 3,594,591 2,785,769 808,822 307,728 Office furniture and equipment Construction in progress Automobiles - 800,977 5 years - 2,241,912 $ 41,241,361 10 800,977 1,867,849 $ 15,303,786 - 374,063 $ 25,937,575 184,694 $ 1,615,529 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 4. Accounts Payable And Accrued Expenses Accounts payable and accrued expenses consist of the following at December 31, 2013: Accounts payable Accrued vacation Accrued wages Other accrued expenses Note 5. $ 14,774,519 2,005,255 991,350 6,100,278 $ 23,871,402 Annuities And Unitrusts The annuities and unitrusts liability represents the future annuity payments due under charitable gift annuities and charitable remainder unitrusts determined by an actuary. Under the charitable gift annuities, donors make contributions to the Society, for which they receive an annuity from the Society. Contributions revenue is recognized as the excess of the fair value of assets received over the net present value of the future annuity payments due. The liability was determined using the Annuity Table of Mortality 90CM and assumed interest rates of 1.0% to 10.2% by an actuary. A portion of the monies received from these split-interest agreements is required by law to be reserved for making the annuity payments. The amount required to be reserved as calculated by the actuary was $7,546,438. Under the charitable remainder unitrusts, donors make contributions to the Society that remain in trust until a stipulated event, at which time, the remaining trust balance conveys to the Society for unrestricted use. The gifts are valued at their fair market value at the time of the gift. In consideration of the gifts, donors receive an annuity from the trust based on the lesser of (a) the trust principal multiplied by a stated interest rate or (b) the actual earnings of the trust. The future liability was calculated using assumed interest rates of 5.0% to 11.6%. At December 31, 2013, the amount of assets held in charitable unitrusts, which is restricted for the payment of related annuities, was $704,134. The net assets of the trusts of $719,591 are included in temporarily restricted net assets in the accompanying consolidated balance sheet. Note 6. Severance Plan (Employment Longevity Retirement Enhancement Benefit) The Society established The Humane Society of the United States Severance Pay Plan on September 13, 1997, to grant severance benefits to eligible employees. These benefits and related expenses are paid from the general assets of the Society. Only employees hired in full- or part-time positions before January 1, 1998, who have completed a minimum of 15 years of continuous full-time employment with HSUS, are eligible to become participants in this plan. Upon termination of employment (for reasons other than gross misconduct), a participant receives a lump sum equal to 2% of the average of his or her annual base salary for the three calendar years before cessation of employment, multiplied by the number of years of continuous full-time employment accrued by the employee, subject to a maximum benefit of two years base salary. The benefit obligation as of December 31, 2013, was calculated by an actuary, based on a census provided by the Society, using an assumed discount rate of 4.11% and an assumed compensation increase of 4%. The amount of the liability for future severance was $1,384,738. 11 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 7. Deferred Compensation Plan In 1983, the Society established The Humane Society of the United States Deferred Compensation Plan for certain executive employees. The Society and the participants may elect to defer a portion of the compensation that the participants would otherwise be entitled to receive in cash, and those deferrals are invested in various mutual funds. The mutual funds are owned by the Society, subject to the claims of its general creditors. The obligation of the Society under this plan is purely contractual and is not secured. All income earned by the mutual funds is added to the deferred compensation liability. The amounts deferred by participants during the year ended December 31, 2013, which were included in the amounts reported in the accompanying consolidated financial statements as salaries, totaled $18,966. The deferred compensation plan assets and the related liability totaled $262,771 at December 31, 2013. Note 8. Retirement Plan The Humane Society of the United States Pension Plan (the Plan) is a qualified participating defined benefit plan that provides regular employees of the Society benefits equal to 2% of earnings for each year of credited service, up to a maximum of 25 years. Participants accrue benefits over the years of their employment, although normal pension benefits are not payable until age 65. Participants choosing earlier payment receive substantially reduced benefits. Effective December 31, 2007, any employees hired on or after January 1, 2008, are not eligible to participate in the Plan. The following table summarizes the accumulated pension benefit obligation, the fair value of Plan assets, and the funded status of the Plan at December 31, 2013: Change in benefit obligation: Benefit obligation, beginning of fiscal year Service cost Interest cost Participant contributions Benefit payments Administrative expenses Actuarial loss Benefit obligation, end of fiscal year $ 38,311,718 1,018,928 1,462,411 213,409 (2,269,640) (13,184) (313,905) $ 38,409,737 Change in Plan assets: Fair value of Plan assets, beginning of fiscal year Employer contributions Participant contributions Benefit payments Administrative expenses Actual return on Plan assets Fair value of Plan assets, end of fiscal year $ 28,200,360 2,400,000 213,409 (2,269,640) (13,184) 3,045,877 $ 31,576,822 Funded status, end of fiscal year $ (6,832,915) The Plan had an accumulated benefit obligation of $34,441,303 as of December 31, 2013. The accumulated benefit obligation is identical to the postretirement benefit obligation, with the exception that the accumulated benefit obligation does not consider the effects of future compensation levels. 12 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 8. Retirement Plan (Continued) Amounts recognized in Plan assets at December 31, 2013, not yet reported as net periodic benefit cost (expense), are $11,056,677. The Society expects to amortize $901,963 of the net loss into net periodic benefit cost in 2014. The following assumptions were used by the actuary in determining the Society's pension benefit obligation as of December 31, 2013: Weighted-average discount rate Weighted-average rate of compensation increase Expected long-term rate of return on Plan assets 4.40% 3.50% 6.75% The basis for the expected long-term rate of return on Plan assets for the year is based on a five-year rolling average of actual investment returns realized, further adjusted for anticipated future rates of return. Expected cash flow information for the years after the current fiscal year is as follows: Expected employer contributions $ Year 1 expected benefit payments Year 2 expected benefit payments Year 3 expected benefit payments Year 4 expected benefit payments Year 5 expected benefit payments Years 6 - 10 expected benefit payments 2,400,000 5,403,697 3,306,122 3,663,055 3,292,897 2,953,395 14,150,087 See Note 17 for information on the fair value of the Plan assets. Note 9. Line Of Credit The Society has a $20 million line of credit with Bank of New York Mellon. The line of credit accrues interest at the LIBOR Market Index Rate for one-month U.S. dollars plus 65 basis points. The line of credit is secured by certain investments of the Society. There was no outstanding balance at December 31, 2013, and no advances or payments made during 2013. Note 10. Contingencies The Society is a party to a number of lawsuits. Liability, if any, associated with these matters is not presently determinable. In the opinion of management, resolution of these matters should not have a material effect on the Society's financial position. 13 The Humane Society Of The United States And Affiliates Notes To Consolidated Financial Statements Note 11. Unrestricted Net Assets Unrestricted net assets are available to finance the general operations of the Society. The only limits on the use of unrestricted net assets are the broad limits resulting from the nature of the Society, the environment in which it operates, and the purposes specified in its articles of incorporation. Voluntary resolutions by the Society's directors to designate a portion of its unrestricted net assets for specified purposes do not result in restricted funds. Since designations are voluntary and may be reversed by the governing board at any time, designated net assets are included with unrestricted net assets. Unrestricted net assets are held by the following funds at December 31, 2013: Board designated: Investment fund Endowment fund Black Beauty Ranch Total board designated Undesignated Total unrestricted net assets Note 12. $ 83,173,381 274,892 776,066 84,224,339 73,440,990 $ 157,665,329 Temporarily Restricted Net Assets Temporarily restricted net assets result from gifts of cash and other assets with donor-imposed restrictions as to (a) support of particular operating activities, (b) investment for a specified term, (c) use in a specified future period, or (d) acquisition of long-lived assets. Changes in temporarily restricted net by restriction purpose during 2013 were as follows: Balance December 31, 2012 Unitrusts Animal welfare programs Scholarships Support of other humane organizations Endangered Species Doris Day Animal League Fund for Animals Humane Society International Humane Society University Humane Society Veterinarians Medical Association South Florida Wildlife Center Wildlife Land Trust $ $ 987,680 13,889,907 15,245 511,578 2,282,825 4,535,939 9,202,088 1,668,701 850 55,713 307,653 4,988,860 38,447,039 14 Released From Restriction Additions $ $ 84,060 10,284,118 2,278 188,028 2,374,980 8,693,217 2,089,501 31,133 27,531 3,696,480 7,634,204 35,105,530 $ $ 12,404,669 3