Report of Independent Auditors and Financial Statements for. Georgia O Keeffe Museum, Inc.

Transcription

1 Report of Independent Auditors and Financial Statements for Georgia O Keeffe Museum, Inc. December 31, 2015 and 2014

2 CONTENTS REPORT OF INDEPENDENT AUDITORS 1 2 PAGE FINANCIAL STATEMENTS Statements of financial position 3 Statements of activities and changes in net assets 4 5 Statements of cash flows 6 Notes to financial statements 7 20

3 REPORT OF INDEPENDENT AUDITORS To the Board of Trustees of Georgia O Keeffe Museum, Inc. Santa Fe, New Mexico We have audited the accompanying financial statements of Georgia O Keeffe Museum, Inc. (Museum), a New Mexico nonprofit organization, which comprise the statement of financial position as of December 31, 2015 and 2014 and the related statements of activities and changes in net assets and cash flows for the year 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 controls 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 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 controls. 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. 1

4 To the Board of Trustees of Georgia O Keeffe Museum, Inc. Santa Fe, New Mexico We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Georgia O Keeffe Museum, Inc. as of December 31, 2015 and 2014 and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Albuquerque, New Mexico March 29,

5 STATEMENTS OF FINANCIAL POSITION ASSETS December 31, CURRENT ASSETS Cash and cash equivalents $ 1,306,353 $ 1,498,780 Investment securities 96,179,497 97,909,188 Inventory, net 210, ,099 Accounts receivable 60,221 57,960 Unconditional promises to give, net 3,602,305 3,415,970 Other assets 58,586 76,882 Total current assets 101,417, ,081,879 Property and equipment, net 9,113,270 9,415,242 Note receivable related party 290,387 Unconditional promises to give, long term, net 2,249,922 2,140,283 Collections Total assets $ 113,071,535 $ 114,637,404 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and other liabilities $ 599,202 $ 464,730 Total liabilities 599, ,730 NET ASSETS Unrestricted 28,484,509 29,236,649 Unrestricted board designated 47,835,064 49,005,395 Total unrestricted 76,319,573 78,242,044 Temporarily restricted 4,877,369 5,614,239 Permanently restricted 31,275,391 30,316,391 Total net assets 112,472, ,172,674 Total liabilities and net assets $ 113,071,535 $ 114,637,404 3 See accompanying notes.

6 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS December 31, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND PUBLIC SUPPORT Contributions, donations and grants, net $ 1,245,941 $ 3,434,603 $ 959,000 $ 5,639,544 Admissions 1,323,894 1,323,894 Retail, net of cost of sales of $530, , ,835 Tours 413, ,100 Memberships 188, ,075 Program fees 12,029 12,029 Other 119, ,217 Total revenues, gains and public support before investment (loss) 4,126,091 3,434, ,000 8,519,694 INVESTMENT (LOSS), net Net realized and unrealized (loss) (4,050,869) (313,941) (4,364,810) Re invested dividends and interest 2,224, ,400 2,396,923 Interest income 4,696 4,696 Total investment (loss), net (1,821,650) (141,541) (1,963,191) Total revenues and support, net 2,304,441 3,293, ,000 6,556,503 Net assets released from restrictions 4,029,932 (4,029,932) Total revenues, support and net assets released from restrictions 6,334,373 (736,870) 959,000 6,556,503 EXPENSES Program expense 5,804,477 5,804,477 Fundraising 1,426,847 1,426,847 Management and general 1,082,360 1,082,360 Total expenses 8,313,684 8,313,684 Change in net assets before changes related to collection items not capitalized (1,979,311) (736,870) 959,000 (1,757,181) Change in net assets related to collection items not capitalized Proceeds from sale of collections items 56,840 56,840 Change in net assets related to collection items not capitalized 56,840 56,840 Net assets, beginning of year 78,242,044 5,614,239 30,316, ,172,674 Net assets, end of year $ 76,319,573 $ 4,877,369 $ 31,275,391 $ 112,472,333 4 See accompanying notes.

7 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS (CONTINUED) December 31, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND PUBLIC SUPPORT Contributions, donations and grants, net $ 710,469 $ 3,299,587 $ 3,319,648 $ 7,329,704 Admissions 1,284,867 1,284,867 Retail, net of cost of sales of $481, , ,305 Tours 325, ,073 Memberships 164, ,468 Program fees 32,493 32,493 Other 135, ,547 Total revenues, gains and public support before investment income 3,396,222 3,299,587 3,319,648 10,015,457 INVESTMENT INCOME, net Net realized and unrealized gain 852, ,396 1,128,549 Re invested dividends and interest 1,087, ,800 1,440,512 Interest income 2,558 2,558 Total investment income, net 1,942, ,196 2,571,619 Total revenues and support, net 5,338,645 3,928,783 3,319,648 12,587,076 Net assets released from restrictions 4,077,507 (4,077,507) Total revenues, support and net assets released from restrictions 9,416,152 (148,724) 3,319,648 12,587,076 EXPENSES Program expense 5,536,508 5,536,508 Fundraising 1,515,019 1,515,019 Management and general 573, ,382 Total expenses 7,624,909 7,624,909 Change in net assets before changes related to collection items not capitalized 1,791,243 (148,724) 3,319,648 4,962,167 Change in net assets related to collection items not capitalized Proceeds from sale of collections items 47,565,380 47,565,380 Change in net assets related to collection items not capitalized 47,565,380 47,565,380 Net assets, beginning of year 28,885,421 5,762,963 26,996,743 61,645,127 Net assets, end of year $ 78,242,044 $ 5,614,239 $ 30,316,391 $ 114,172,674 See accompanying notes. 5

8 STATEMENTS OF CASH FLOWS Years Ended December 31, CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets before changes related to collection items not capitalized $ (1,757,181) $ 4,962,167 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 459, ,690 Net realized and unrealized gain 4,364,810 (1,128,549) Reinvested dividends and interest (2,396,923) (1,440,512) Changes in assets and liabilities Inventory, net (87,895) 35,374 Accounts receivable (2,261) (17,413) Note receivable related party (290,387) Unconditional promises to give, net (295,974) (1,976,387) Other assets 18,296 (8,810) Accounts payable and other liabilities 134,472 (123,850) Net cash provided by operating activities 146, ,710 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (157,962) (348,750) Purchases of investment securities (5,469,010) (49,083,000) Sales of collections items 56,840 47,565,380 Proceeds from sales of investment securities 5,230,816 1,225,051 Net cash used by investing activities (339,316) (641,319) Net (decrease) increase in cash and cash equivalents (192,427) 103,391 Cash and cash equivalents, beginning of year 1,498,780 1,395,389 Cash and cash equivalents, end of year $ 1,306,353 $ 1,498,780 6 See accompanying notes.

9 Note 1 Nature of Activities and Significant Accounting Policies GEORGIA O KEEFFE MUSEUM, INC. Nature of activities To inspire all current and future generations, the Georgia O Keeffe Museum (Museum) preserves, presents, and advances the artistic legacy of Georgia O Keeffe and Modernism through innovative public engagement, education and research. The Museum accomplishes this by presenting exhibitions nationally and internationally, caring for the permanent collection, providing excellent public programs, cutting edge conservation techniques, access to the library and archives, research by outside scholars about Modernism and serving as stewards for two of O Keeffe s historic homes and studios. The Museum is located in Santa Fe, New Mexico. It was incorporated on November 29, 1995 and opened to the public on December 17, Use of estimates in preparing financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting policies The Museum maintains its accounts in accordance with the principles and practices of fund accounting. Fund accounting is the procedure by which resources for various purposes are classified for accounting purposes in accordance with activities or objectives specified by donors. These financial statements, which are presented on the accrual basis of accounting, have been prepared to focus on the Museum as a whole and to present balances and transactions according to the existence or absence of donor imposed restrictions. This has been accomplished by classification of fund balances and transactions into three classes of net assets permanently restricted, temporarily restricted, or unrestricted, as follows: Unrestricted net assets Unrestricted net assets are net assets that are not subject to donor imposed stipulations. The Museum had the following unrestricted net asset categories: Unrestricted Revenues and expenses associated with the principal mission of the Museum. Board designated The board designated net assets have been established by the Museum s Board of Trustees for art acquisition and operating purposes. Accumulated funds are subject to conditions and policies established by the Museum s Board of Trustees. Temporarily restricted net assets Temporarily restricted net assets are subject to donor imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Museum pursuant to those stipulations. Temporarily restricted net assets include the following: Gifts and grants These net assets may only be utilized in accordance with the purposes established by the source of such funds. 7

10 Note 1 Nature of Activities and Significant Accounting Policies (continued) Reporting as temporarily restricted revenues Contributions received with donor imposed restrictions that are met in the same year as received are reported as revenues of the temporarily restricted net asset class, and a reclassification to unrestricted net assets is made to reflect the expiration of such restrictions. Release of restrictions on net assets for acquisition of land, buildings, and equipment Contributions of land, buildings, and equipment are reported as revenues of the unrestricted net asset class. Contributions of cash or other assets used to acquire land, buildings, and equipment are reported as revenues of the temporarily restricted net asset class; the restrictions are considered to be released at the time such long lived assets are placed in service. Permanently restricted net assets Permanently restricted net assets are contributions received which require, by donor restriction, that the corpus be invested in perpetuity and the income be made available for program operations in accordance with donor restrictions. Cash and cash equivalents For purposes of the statements of cash flows, the Museum considers cash on hand and in banks and highly liquid instruments with original maturities of three months or less to be cash equivalents. The Museum maintains its cash and cash equivalents in accounts at various banks and institutions. The balances in these institutions may, at times, exceed federally insured limits. The Museum believes it is not exposed to any significant credit risk on cash and cash equivalents. Investment securities Investment securities are carried by the Museum at fair value in accordance with accounting principles generally accepted in the United States. The fair value of investment securities is determined based on quoted market prices and estimates of value for non traded securities. Investment securities are comprised of a diversified portfolio of equity, fixed income and other securities and include permanently restricted net assets (see Note 8). Investment income, as well as unrealized gains and losses, is included in the change of unrestricted and restricted net assets in the accompanying financial statements based on restrictions on earnings. Inventory Inventory consists of retail store merchandise for resale and is stated at the lower of average cost or market on a first in first out basis. Management believes that the cost of inventory held at December 31, 2015 and 2014, exceeded the estimated market value by $32,234 and $44,908, respectively, which had been recorded by Management as an allowance for obsolescence. Accounts receivable Accounts receivable consist of contracted reimbursements and other amounts owed to the Museum. Management believes all accounts receivable balances are 100 percent collectible and, therefore, has not established an allowance for doubtful accounts. At December 31, 2015 and 2014, there were no amounts greater than 90 days in accounts receivable. Note receivable related party Note receivable consists of a single related party note owed to the Museum. (See Note 13). 8

11 Note 1 Nature of Activities and Significant Accounting Policies (continued) Unconditional promises to give Pledges receivable consist of unconditional promises to give over the expected term of the donor s promise to give, which can vary from one year to greater than five years. The present value of pledges, using a discount rate equivalent to the five year U.S. Treasury note rate at the date of the promise to give, for one to five years, is recognized as temporarily restricted net assets in the accompanying financial statements. Contributions receivable are those with original promise dates of less than one year. Pledges and contributions receivable (unconditional promises to give) are stated at the outstanding unpaid balance, less an allowance for doubtful accounts, if any. The Museum provides for losses on receivables using the allowance method. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is the Museum s policy to charge off uncollectible receivables when management determines the receivables will not be collected. Unconditional promises to give are recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Property and equipment Property and equipment are stated at cost or if donated, at the estimated fair market value at date of donation. Depreciation is recorded over the estimated useful lives of depreciable assets using the straight line method. The estimated useful lives range from 5 to 7 years for equipment and furniture and 39 years for buildings. Maintenance and repair costs that do not extend the lives of the related assets are expensed as incurred. The Museum has a $15,000 capitalization threshold. Impairment of long lived assets and long lived assets to be disposed of The Museum reviews its long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Artwork and research collection Collection items, which have been acquired through purchases and contributions since the Museum s inception, are not recognized as assets on the statement of financial position. Purchases of collection items are recorded as decreases in unrestricted net assets in the year in which the items are acquired or as temporarily or permanently restricted net assets if the assets used to purchase the items are restricted by donors. Donated services Contributions of services are recognized in the financial statements if the services received enhance or create non financial assets, require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. In addition, other services are provided by volunteers who perform a variety of tasks that benefit the Museum s programs. The Museum receives significant volunteer hours annually. Advertising The Museum expenses advertising costs as they are incurred. The Museum incurred advertising costs of approximately $166,470 and $156,000 during 2015 and 2014, respectively. 9

12 Note 1 Nature of Activities and Significant Accounting Policies (continued) Expense allocation The costs of providing various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income taxes The Museum is a not for profit organization and qualifies as a tax exempt organization under Section 501(c)(3) of the Internal Revenue Code. The Financial Accounting Standards Board (FASB) issued authoritative guidance relating to the accounting for the uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with GAAP. The guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Museum's information returns to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely thannot threshold would be recorded as a tax benefit or expense in the current year. In addition, guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition was also provided. As of December 31, 2014, the Museum performed a comprehensive review of its material tax positions in accordance with recognition and measurement standards established by GAAP. As a result of this review, the Museum qualified as a tax exempt organization under Section 501(c)(3) of the IRC and had no unreported income derived from unrelated business activities and did not identify any entity level tax positions that would not meet the more likely than not threshold. Recent Accounting Pronouncements ASU In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendment removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient (NAV practical expedient). ASU has been adopted for the December 31, 2015 year end, however, the retrospective approach requires that an investment for which fair value is measured using a NAV practical expedient be removed from the fair value hierarchy in all periods presented in the financial statements. Accordingly, the investment disclosures in Note 2 have been modified as of December 31, 2014, as well. Subsequent events Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued. The Museum recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Museum s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued. The Museum has evaluated subsequent events through March 29, 2016, which is the date the financial statements were available to be issued. 10

13 Note 2 Fair Value Measurements In determining fair value, the Museum uses various valuation approaches within the fair value measurement framework of accounting standards. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Accounting standards establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The standards define levels within the hierarchy based on the reliability of inputs as follows: Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data. Level 3 Inputs are unobservable for the asset or liability. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets measured at fair value. Mutual funds are classified as Level 1 as they are traded in an active market for which closing prices are readily available. Money market funds are primarily invested in direct obligations of the US Treasury, US Government agencies, repurchase agreements, and money markets with maturities of 13 months or less which have observable Level 1 pricing inputs, including quoted prices for similar assets in active or non active markets. Real estate and hedge funds are valued based on the fund's net asset value per share at the fund's reporting date using Level 2 pricing inputs, including audited financial statements of the funds and overthe counter transactions near year end. The estimated share of mutual funds, real estate funds, and hedge funds are based on fund net asset value. The use of net asset value as fair value is deemed appropriate as the investments do not have finite lives, unfunded commitments, or significant restrictions on redemptions. 11

14 Note 2 Fair Value Measurements (continued) The following table sets forth by level, within the fair value hierarchy, the Museum s assets at fair value as of December 31, 2015: Fair Value Measurements Using Level 1 Level 2 Level 3 Total Mutual funds Real Return $ 2,292,070 $ $ $ 2,292,070 Emerging Markets 4,711,916 4,711,916 International Small Cap 5,858,150 5,858,150 Small Mid Cap 9,579,609 9,579,609 Domestic Fixed Income 11,740,172 11,740,172 International Large Cap 13,458,944 13,458,944 Domestic Large Cap 26,427,105 26,427,105 Conservative Allocation 10,104,818 10,104,818 Real Estate 5,452,356 5,452,356 Money markets 748, ,209 Total assets in the fair value hierarchy $ 90,373,349 $ $ $ 90,373,349 Investments measured at NAV practical expedient 5,806,148 Investments at fair value $ 96,179,497 The following table sets forth by level, within the fair value hierarchy, the Museum s assets at fair value as of December 31, 2014: Fair Value Measurements Using Level 1 Level 2 Level 3 Total Mutual funds Domestic Large Cap $ 22,479,796 $ $ $ 22,479,796 International Large Cap 13,701,392 13,701,392 Domestic Fixed Income 11,721,652 11,721,652 Small Mid Cap 9,834,987 9,834,987 International Small Cap 5,858,748 5,858,748 Emerging Markets 5,901,419 5,901,419 Real Return 4,900,845 4,900,845 Real Estate 3,071,072 3,071,072 Conservative Allocation 10,371,222 10,371,222 Money markets 4,068,982 4,068,982 Total assets in the fair value hierarchy $ 91,910,115 $ $ $ 91,910,115 Investments measured at NAV practical expedient 5,999,073 Investments at fair value $ 97,909,188 12

15 Note 2 Fair Value Measurements (continued) The following summarizes information related to the investment whose fair value is determined based upon NAV practical expedient and has redemption restrictions: Estimated Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Hedge Funds (a) $ 4,174,088 None Quarterly 95 days (a) This class represents an investment in a fund incorporated in the Cayman Islands and registered with the Cayman Islands Monetary Authority. The fair value of the investment in this class has been estimated using the net asset value per share of the fund, and applying that to the number of shares held by the Museum. The fund invests in both U.S. and non U.S. private investment funds. Note 3 Unconditional Promises to Give Unconditional promises to give at December 31 consisted of the following: Temporarily restricted for time (related party) (see Note 13) $ 2,600,000 $ 2,600,000 Permanently restricted for endowment 3,238,000 3,488,800 Temporarily restricted for purpose 636,985 62,750 Unrestricted 2,320 4,420 Reserve on permanently restricted for endowment (307,466) (218,654) 6,169,839 5,937,316 Less estimated discount to present value (317,612) (381,063) Unconditional promises to give $ 5,852,227 $ 5,556,253 Amounts due in Less than one year $ 3,602,305 $ 3,415,970 One to five years 1,733,142 1,510,501 Greater than five years 516, ,782 Total $ 5,852,227 $ 5,556,253 Management reviews all pledges for collectability annually and provides, if necessary, an allowance for potentially uncollectible pledges. As of December 31, 2015 and 2014, the reserve was $307,466 and $218,654, respectively. 13

16 Note 4 Property and Equipment Property and equipment consisted of the following at December 31: Building and building improvements $ 9,010,073 $ 8,907,556 Leasehold improvements 4,470,396 4,414,951 Furniture, fixtures and equipment 435, ,328 13,916,114 13,797,835 Less accumulated depreciation and amortization (6,207,644) (5,787,393) Total depreciable assets, net 7,708,470 8,010,442 Land 1,404,800 1,404,800 Net property, plant and equipment $ 9,113,270 $ 9,415,242 Depreciation expense for the years ended December 31, 2015 and 2014 was $459,932 and $442,690, respectively. Note 5 Collections The Museum s collections are made up of artwork and research collections that are held for public exhibition, educational, and research in furtherance of public service rather than financial gain. The value of the art objects in the permanent collection is excluded from the accompanying statements of financial position. All works of art and collections are protected, kept unencumbered, cared for, and preserved; and are subject to strict organizational policies governing their use. All collection objects were insured with blanket insurance coverage during the year. The collection is subject to a Museum policy established by the Museum s Board of Trustees. The policy currently requires any proceeds for the sale of deaccessioned items from the collection be designated to acquire other items for the collection. An addition of a work of art to the permanent collection is made either by donation from a benefactor or through a purchase funded by the Museum s art acquisition fund. The art acquisition fund is an unrestricted board designated fund for acquisitions, where both the principal and earned income may be used for art acquisitions. Proceeds from deaccessions of collection items are reflected as increases to the board designated art acquisitions fund. During 2015 and 2014, the Museum deaccessioned artwork which was subsequently sold for approximately $57,000 and $47,565,000, respectively. 14

17 Note 6 Accounts Payable and Other Liabilities Accounts payable and other liabilities consisted of the following at December 31: Accounts payable $ 264,953 $ 197,003 Payroll liabilities 334, ,727 Total $ 599,202 $ 464,730 Note 7 Endowments and Designated Funds Interpretation of relevant law The Board of the Museum has interpreted the UNIFORM Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor restricted endowment funds absent explicit donor stipulations to the contrary. Consequently, the Museum classifies permanently restricted net assets as: The original value of gifts donated to the permanent endowment, and The original value of subsequent gifts to the permanent endowment. The remaining portion of the donor restricted endowment fund not classified as permanently restricted is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Museum s Board. In accordance with UPMIFA, the Museum considers the following factors in making a determination to appropriate or accumulate donor restricted endowment funds: 1. The duration and preservation of the fund 2. The purpose of the Museum and the donor restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the Museum 7. The investment policies of the Museum The Museum s endowment consists of several funds established for a variety of purposes. Donor designated endowment funds consisted of those with the existence of donor imposed restrictions. Net assets associated funds designated by the governing board as endowments are reported as Boarddesignated funds include an art acquisition fund that is restricted for the acquisition of art. Return objectives and risk parameters The Museum has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of income and growth. Endowment assets include those assets of donor restricted funds that the Museum must hold in perpetuity or the donor specified period(s) as well as board designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that meet or exceed specific performance objectives. Actual returns in any year may vary from stated objectives. 15

18 Note 7 Endowments and Designated Funds (continued) Strategies employed for achieving objective To satisfy its long term rate of return objectives, the Museum relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Museum s investment objective is to diversify investments to maximize long term growth of assets within prudent risk constraints. Spending appropriations The Museum appropriates for distribution each year as follows: The Operations endowment allocated for general operations, upon board approval. Historic Properties and Research Center endowment is allocated based on 5% of the prior three year average fair value of endowment assets. Scholarship and Book Award endowments are allocated as these awards are given. Awards may not be given every year. In establishing this appropriation, the Museum considered long term expected return on the endowment assets and the accumulated earnings in the endowment accounts. This is consistent with the Museum s objective to maintain purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide real growth through new gifts and investment return. Endowments and designated funds net assets composition by type of fund consists of the following as of December 31, 2015: Unrestricted Board Temporarily Permanently Designated Restricted Restricted Totals Donor designated endowment funds $ $ 1,291,469 $ 31,275,391 $ 32,566,860 Board designated funds Art acquisition 47,157,787 47,157,787 Operating 677, ,277 Total $ 47,835,064 $ 1,291,469 $ 31,275,391 $ 80,401,924 Endowments and designated funds net assets composition by type of fund consists of the following as of December 31, 2014: Unrestricted Board Temporarily Permanently Designated Restricted Restricted Totals Donor designated endowment funds $ $ 2,020,750 $ 30,316,391 $ 32,337,141 Board designated funds Art acquisition 48,328,118 48,328,118 Operating 677, ,277 Total $ 49,005,395 $ 2,020,750 $ 30,316,391 $ 81,342,536 16

19 Note 7 Endowments and Designated Funds (continued) GEORGIA O KEEFFE MUSEUM, INC. During 2015, the Museum s Board of Trustees designated the $56,840 of proceeds from the sale of deaccessioned artwork to fund the Museum s art acquisition fund (See Note 5 Collections). Its use by the Museum would require Board approval. Changes in endowment and designated fund net assets for the year ended December 31, 2015 are as follows: Unrestricted Board Temporarily Permanently Designated Restricted Restricted Totals Endowment and designated fund net assets at December 31, 2014 $ 49,005,395 $ 2,020,750 $ 30,316,391 $ 81,342,536 Contributions 959, ,000 Investment (loss) (1,227,171) (141,541) (1,368,712) Proceed from sale of collection items 56,840 56,840 Appropriation of endowment assets for expenditure/release from restriction (587,740) (587,740) Endowment and designated fund net assets at December 31, 2015 $ 47,835,064 $ 1,291,469 $ 31,275,391 $ 80,401,924 Changes in endowment and designated fund net assets for the year ended December 31, 2014 are as follows: Unrestricted Board Temporarily Permanently Designated Restricted Restricted Totals Endowment and designated fund net assets at December 31, 2013 $ 1,440,015 $ 2,144,006 $ 26,996,743 $ 30,580,764 Contributions 3,319,648 3,319,648 Investment income 629, ,196 Proceed from sale of collection items 47,565,380 47,565,380 Appropriation of endowment assets for expenditure/release from restriction (752,452) (752,452) Endowment and designated fund net assets at December 31, 2014 $ 49,005,395 $ 2,020,750 $ 30,316,391 $ 81,342,536 Fund deficiencies From time to time, the fair value of assets associated with individual donorrestricted endowment funds may fall below the level that the donor or UPMIFA requires the Museum to retain as a fund of perpetual duration. There were no deficiencies of this nature as of December 31, 2015 or Such deficiencies can result from unfavorable market fluctuations and continued appropriation for certain programs that was deemed prudent by the governing board. 17

20 Note 8 Net Assets A portion of the Museum s net assets were temporarily restricted for the following projects and future programs as of December 31: Operating Grants $ 2,663,776 $ 2,687,386 Endowment 1,291,469 2,020,750 Other Programs 910, ,705 Collection Management 11,398 21,398 Total $ 4,877,369 $ 5,614,239 Permanently restricted net assets consisted of the following components as of December 31: Operations $ 22,204,137 $ 21,745,137 Research Center 1,500,500 1,500,500 Historic Properties 5,947,009 5,947,009 Scholarships 23,745 23,745 Book Award 100, ,000 Exhibitions 1,500,000 1,000,000 Total $ 31,275,391 $ 30,316,391 Note 9 Challenge Grant and Remainder Trust During 1997, the Museum received a $5,000,000 challenge grant for the endowment campaign. The terms of the grant require the Museum to raise matching funds of two to one to receive the grant. During 2000, the Museum received an additional $5,000,000 challenge grant for support of the same purpose and conditions. The Museum may receive partial awards as the funds are raised. Due to the conditional nature of this award, a promise to give is recognized only as the matching funds are raised. During the years ended December 31, 2015 and 2014, the Museum recognized $378,000 and $453,800 of matching contributions to the permanently restricted fund from this challenge grant. At December 31, 2015, $2,079,527 remained available to the Museum as conditions are subsequently met. 18

21 Note 10 Lease Commitments The Museum leases copiers under operating leases that expired on January 21, 2016 and were renewed on January 21, 2016 with the leases expiring in December Future minimum lease payments for the leases recognized are as follows: 2016 $ 20, , , ,620 Total $ 79,207 Note 11 Retirement Plan The Museum has established a 403(b) retirement plan, covering full time employees who have completed one full year of service. Employees may elect to defer a portion of their wages and the Museum contributes up to four percent of the employee s salary to the plan. During 2015 and 2014, the Museum made $93,289 and $75,528 respectively, in contributions to the 403(b) plan. Note 12 Donated Services, Materials and Facilities The Museum receives donated services from a variety of unpaid volunteers assisting the Museum. No amounts have been recognized in the accompanying statement of activities because the criteria for recognition of such volunteer effort have not been satisfied. The Museum occupied and utilized portions of buildings located in Santa Fe, New Mexico, under various lease agreements. These lease agreements allow the Museum to occupy the buildings rent free (see Note 13). The Museum recognized approximately $424,330 and $405,510 of donated facilities revenue and expense in 2015 and 2014, respectively. Note 13 Related Party Transactions Members of the Board of Trustees make contributions to the Museum. Two Trustees of the Museum are Trustees of a private foundation that contributed approximately 33.3 percent and 34.5 percent of the Museum s total revenue and public support before investment income during 2015 and 2014, respectively. As of December 31, 2015 and 2014, $2,600,000 of outstanding unconditional promises to give were pledged by this donor. The Museum also occupies buildings rent free under various lease agreements with this donor (see Note 12). 19

22 Note 13 Related Party Transactions (continued) The Museum Board of Trustees approved funding up to a maximum of $600,000 for the research and development of a commercial product which is being developed by a related corporation, GOKM Innovations Inc. (Innovations). The Museum and Innovations entered into a promissory note on December 31, The note matures on December 31, The note bears an interest rate of 5 percent. The amount due at December 31, 2015 including interest totaled $290,387. Note 14 Subsequent Events On January 5, 2016, the Museum incorporated The Supporting Organization for the Georgia O Keeffe Museum, under the Nonprofit Corporations Act of the State of New Mexico. The Supporting Organization s nonprofit status is pending with the Internal Revenue Service. Once approved, the Supporting Organization will provide the real estate utilized by the Museum as well as other operating support. On January 28, 2016, the Museum transferred its 100% ownership of GOKM Innovations Inc., a wholly owned for profit subsidiary, to the Supporting Organization. The note receivable referenced in Note 13 continues to be held by the Museum. 20