Museum of Contemporary Art San Diego

Transcription

1 Museum of Contemporary Art San Diego Financial Statements as of and for the Year Ended June 30, 2010 (With Comparative Summarized Financial Information for the Year Ended June 30, 2009), Independent Auditors Report, and Supplemental Schedule for the Year Ended June 30, 2010

2 TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 3 FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 2010 (With Comparative Summarized Financial Information as of and for the Year Ended June 30, 2009): Statement of Financial Position 4 Statement of Activities 5 Statement of Cash Flows 6 Notes to Financial Statements 7 21 SUPPLEMENTAL SCHEDULE FOR THE YEAR ENDED JUNE 30, 2010: Schedule of Functional Expenses 23 Independent Auditors Report on Additional Information 24 Schedule of Budgeted and Actual Expenditures of City Funds Special Promotional Fund Award 25 Page - 2 -

3 INDEPENDENT AUDITORS REPORT To the Audit Committee of Museum of Contemporary Art San Diego We have audited the accompanying statement of financial position of the Museum of Contemporary Art San Diego (the Museum ) as of June 30, 2010, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Museum s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior-year comparative summarized financial information has been derived from the Museum s 2009 financial statements and in our report dated November 9, 2009, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Museum at June 30, 2010, and the changes in its net assets and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule of functional expenses for the year ended June 30, 2010, is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This schedule is the responsibility of the Museum s management. Such information has been subjected to the auditing procedures applied in the audit of the basic 2010 financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic 2010 financial statements taken as a whole. November 11, 2010

4 STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED JUNE 30, 2010 (With Comparative Summarized Financial Information for the Year Ended June 30, 2009) ASSETS Current Assets: Cash and cash equivalents $ 2,175,415 $ 1,077,159 Accounts receivable 72,621 61,640 Pledges and grants receivable 2,793,083 2,343,140 Inventory 398, ,848 Prepaid expenses and other assets 176, ,783 Total current assets 5,616,283 4,145,570 Non-Current Assets: Pledges and grants receivable - long-term portion 2,248,366 3,680,486 Notes receivable from officers 866, ,739 Property and equipment - net 36,576,279 37,557,940 Restricted cash and investments 30,819,967 29,038,737 Deferred financing costs - net 374, ,632 Other assets 120, ,657 LIABILITIES AND NET ASSETS $ 76,622,539 $ 75,889,761 Current Liabilities: Accounts payable and accrued expenses $ 711,878 $ 523,004 Deferred revenue 763, ,476 Deferred rent 27,437 23,336 Current portion of long-term debt 15,178 14,164 Total current liabilities 1,518,439 1,169,980 Non-Current Liabilities: Deferred compensation 239, ,732 Deferred revenue - long-term portion 801, ,904 Deferred rent - long-term portion 131, ,250 Long-term debt 10,214,859 11,005,037 Total liabilities 12,905,956 13,293,903 Net Assets: Unrestricted 14,301,016 12,425,499 Temporarily restricted 10,157,185 10,911,977 Permanently restricted 39,258,382 39,258,382 Total net assets 63,716,583 62,595,858 $ 76,622,539 $ 75,889,761 The accompanying notes are an integral part of these financial statements

5 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010 (With Comparative Summarized Financial Information for the Year Ended June 30, 2009) Temporarily Permanently Unrestricted Restricted Restricted SUPPORT AND REVENUES: SUPPORT: Contributions $ 1,178,513 $ 1,590,529 $ - $ 2,769,042 $ 3,168,576 City and County of San Diego grants 451, , ,006 State and federal grants 25,720 24,372-50, ,000 Net assets released from restrictions 2,536,940 (2,536,940) Total support 4,192,860 (922,039) - 3,270,821 3,748,582 REVENUES: Unrealized gain/(loss) on investments 2,633,181 91,471-2,724,652 (3,036,500) Special events 1,815, ,815, ,835 Dividend and interest income 686,821 42, , ,382 Realized gain/(loss) on investments 826,559 33, ,843 (3,785,477) Membership 564, , ,690 Auditorium/Museum space rental 458, , ,134 Museum beverage service 206, , ,851 Admission fees 184, , ,791 Museum store sales 180, , ,443 Touring exhibit fees 150, , ,678 Other income 122, , ,759 Publication sales 28, ,803 19,391 Educational programs and lectures 18, ,040 57,843 Total revenues 7,876, ,247-8,043,285 (2,752,180) Total support and revenues 12,068,898 (754,792) - 11,314, ,402 EXPENSES: Program services: Exhibitions 2,671, ,671,064 2,880,731 Permanent collection, circulation and accession 1,475, ,475,695 1,105,748 Auditorium 638, , ,661 Membership support 572, , ,649 Curatorial 458, , ,580 Education, performances and library 398, , ,883 Museum stores 230, , ,933 Publications 93, ,588 66,008 Total program services 6,537, ,537,669 6,911,193 Supporting services: General and administrative 1,657, ,657,243 1,856,855 Special events 1,177, ,177, ,342 Public relations and marketing 331, , ,132 Development 329, , ,738 Museum beverage service 159, , ,132 Total supporting services 3,655, ,655,712 3,511,199 Total expenses 10,193, ,193,381 10,422,392 CHANGE IN NET ASSETS 1,875,517 (754,792) - 1,120,725 (9,425,990) NET ASSETS - Beginning of year 12,425,499 10,911,977 39,258,382 62,595,858 72,021,848 NET ASSETS - End of year $ 14,301,016 $ 10,157,185 $ 39,258,382 $ 63,716,583 $ 62,595,858 The accompanying notes are an integral part of these financial statements

6 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (With Comparative Summarized Financial Information for the Year Ended June 30, 2009) Cash Flows From Operating Activities: Change in net assets $ 1,120,725 $ (9,425,990) Adjustments to reconcile change in net assets to net cash provided by/ (used in) operating activities: Net realized and unrealized (gain)/loss on investments (3,584,495) 6,821,977 Depreciation and amortization 1,148,660 1,160,729 Contributions of stock and securities (187,129) (204,992) Forgiveness of notes receivable from officers 85,185 80,948 Contributions restricted for long-term investments - (200,005) Uncollectible receivable - 117,064 Changes in assets and liabilities: Accounts receivable (10,981) 32,644 Pledges and grants receivable 982, ,953 Inventory 39,193 7,980 Prepaid expenses and other assets 35,524 (196,740) Accounts payable and accrued expenses 188,874 10,804 Deferred revenue 144,311 (47,816) Deferred rent (20,899) (22,765) Deferred compensation 88,931 79,632 Net cash provided by (used in) operating activities 30,076 (1,614,577) Cash Flows From Investing Activities: Proceeds from sales of investments 18,885,541 22,941,680 Purchases of investments (16,895,147) (20,863,605) Purchases of property and equipment (151,619) (426,199) Payments received on notes receivable from officers 18,569 18,569 Net cash provided by investing activities 1,857,344 1,670,445 Cash Flows From Financing Activities: Principal payments on long-term debt (789,164) (238,218) Contribution restricted for long-term investments - 200,005 Net cash used in financing activities (789,164) (38,213) Net Increase in Cash and Cash Equivalents 1,098,256 17,655 Cash and Cash Equivalents - Beginning of year 1,077,159 1,059,504 Cash and Cash Equivalents - End of year $ 2,175,415 $ 1,077,159 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 93,260 $ 209,233 The accompanying notes are an integral part of these financial statements

7 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities - The Museum of Contemporary Art San Diego (the Museum ) - one museum with three distinct, complementary locations in San Diego and La Jolla, California - is a visual arts institution with an international constituency. The Museum aims to culturally enrich the lives of residents and visitors from around the world with collections, exhibitions and programs that focus on the art and artists of our time. The general purposes of the Museum are to acquire, exhibit and preserve works of art created since 1950 for the benefit of future generations, to foster the work of living artists and to promote an awareness and appreciation of the value of emerging artistic creativity through an active education program for adults and young people, to present and interpret significant developments in contemporary art, and to offer the public broad, balanced perspectives on contemporary art. The Museum s programs are supported primarily by contributions and investment returns. Basis of Presentation - The financial statements are presented in accordance with the authoritative guidance related to not-for-profit entities. The authoritative guidance requires that net assets, revenue, gains, expenses, and losses be classified as unrestricted, temporarily restricted, and permanently restricted. The Museum distinguishes between contributions that are unrestricted and those that contain donorimposed restrictions. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Donor-restricted contributions whose restrictions are met in the same reporting period are reported as unrestricted contributions. Contributions of goods are recognized in the financial statements if the goods received (a) create or enhance non-financial assets, or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The Museum reports such contributions at their estimated fair value when received. Included in unrestricted contributions and related expenses for 2010, is approximately $839,000 of contributed goods and services. Contributions of long-lived assets with explicit restrictions that specify how the assets are to be used and other assets that must be used to acquire long-lived assets are reported as temporarily restricted contributions. Absent explicit donor stipulation about how long these long-lived assets must be maintained, the Museum reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Net assets and revenues, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Museum and changes therein are classified and reported as follows: Unrestricted Net Assets All net assets that are not subject to donor-imposed restrictions are reported as unrestricted net assets. Temporarily Restricted Net Assets Temporarily restricted net assets include gifts for which donorimposed restrictions have not been met and funds for which the ultimate purpose of the proceeds is not permanently restricted. Temporarily restricted net assets are restricted primarily for exhibitions, the acquisition of art works, capital expansion, and time

8 Permanently Restricted Net Assets Permanently restricted net assets include gifts which require by donorimposed restrictions that the corpus is invested in perpetuity and only the investment income be made available for the Museum s operations in accordance with donor restrictions, if any. Grants - City and County of San Diego grants and other grants are recognized as permanently restricted, temporarily restricted, or unrestricted revenue, depending on the stipulations of the grant agreements. When a grant restriction expires, stipulated time restrictions end or purpose restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Grants whose restrictions are met in the same reporting period are reported as unrestricted support. The Museum was awarded a $500,000 grant from the National Endowment for the Humanities in The grant is not available for direct subsidies for general operations, but restricted in use for support of the Museum s education programs where the support is long-term. The grant is conditional and the Museum is required to raise, in different phases, matching contributions totaling $2 million by July 31, The Museum recognizes contribution revenues as the matching contributions required by the grant agreement are satisfied. The Museum did not recognize revenue related to this grant in Pledges and Grants Receivable - Unconditional promises to give are recorded as pledges, receivables, and revenues in the period received. Pledges receivable consist of unconditional promises to give. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. Discounts to present value are computed using risk adjusted rates applicable in the years in which those promises are received. Risk adjusted interest rates ranged from approximately 0.71% to 5% per annum. Amortizations of the discounts are included in contributions. Conditional promises to give are not recorded as contributed income until the conditions are substantially met. Cash Equivalents - For financial statement purposes, the Museum considers all highly liquid unrestricted investments with a maturity of three months or less when purchased to be cash equivalents. Investments - Investments are accounted for in accordance with the authoritative guidance. Under the provisions of the authoritative guidance, investments in equity securities with readily determinable fair market values and all debt securities should be reported at fair market value with gains and losses included in the statement of activities. Realized gains or losses recognized on the sale of securities are based upon the original cost of the security, as determined by the specific identification method. Unrealized gains and losses represent the change in the fair market value of the individual investments for the year or since the acquisition date if acquired during the year and are recorded in the statement of activities as part of currentyear operations. Investments consisted of U.S. government securities and other debt and equity securities and are recorded at fair market value. The fair value of investments in securities traded on national security exchanges are valued at the closing price on the last business day of the fiscal year. Securities are generally held in custodial investment accounts administered by certain financial institutions

9 Investments are made according to the Investment Policy Statement adopted by the Museum s Board of Trustees. These guidelines provide for investments in equities, fixed income, and other securities with performance measured against appropriate indices. Outside parties are contracted by the Museum for the purpose of providing investment management and consulting. Property and Equipment - Property and equipment is stated at cost or, in the case of donated property and equipment, at fair value at the date of gift, less accumulated depreciation. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets, which is 50 years for buildings, the lesser of the useful life or the lease term for leasehold improvements, and 3 to 10 years for furniture and equipment. The Museum capitalizes acquisitions of property and equipment meeting specified criteria, in excess of $1,000 and with a minimum useful life of three years. Collections - The permanent collection of the Museum consists of paintings, sculpture, installations, works on paper (including photography), video and other media. The cornerstone of any museum is its collection. It is the responsibility of the Museum to acquire objects for its collection, to maintain them for use in exhibitions, education and research, and to preserve the collection in perpetuity. Acquisition and preservation of objects are primary responsibilities of the Board of Trustees, the executive director and the curatorial staff. The collections, which were 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. Contributed collection items are not reflected on the financial statements. Proceeds from deaccessions or insurance recoveries are reflected as increases in the appropriate net asset classes. Charitable Remainder Trusts The Museum is a beneficiary of certain trust funds held by others and has recorded an asset for the net present value of the estimated future amount to be received from such trusts. Charitable remainder trusts are trusts established in connection with a split-interest agreement, in which the donor or a third-party beneficiary receives specified distributions during the agreement s term. Upon termination of the trust, the Museum receives the assets remaining in the trust. The present values are calculated by using recent life expectancy tables and risk adjusted discount rates of between 2.71% and 4.32% as of June 30, The Museum did not receive any new charitable trusts during During 2010, the present value of the expected future benefit to the Museum of these assets increased by approximately $50,000. At June 30, 2010, these assets were valued at approximately $512,000 and are included in pledges and grants receivable on the statements of financial position. During 2010 one of the Museum s charitable remainder trusts terminated and is included in pledges receivable as of June 30, 2010 for approximately $701,000. Inventory - Inventory, consisting primarily of merchandise held for sale in the Museum s stores, is carried at the lower of cost, determined principally on a first-in, first-out basis, or market

10 Other Assets - In December 2008, the Museum purchased a Type 47 Liquor License and established a DBA called Museum Beverage Services. Total costs related to the purchase equaled approximately $102,000 and consisted of legal, escrow fees and miscellaneous other costs. These costs were capitalized in accordance with the authoritative guidance, and are included in long term other assets. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the owner. As Management has determined that the license has an indefinite life, the Museum has not amortized the license. The Museum will perform an impairment analysis as well as evaluate the useful life on an annual basis to determine whether events and circumstances continue to support an indefinite useful life and the carrying amount. Deferred Revenue - Deferred revenue represents amounts collected in advance for exhibitions, membership fees, special events, and rental income. Such amounts are recognized as revenue in the period in which they are earned. Deferred Rent - Rent expense is recorded on a straight-line basis over the term of the lease. The difference between rent expense and the amounts paid under the lease agreements is recorded as deferred rent and is included as a liability in the accompanying statements of financial position. Income Taxes - The Museum is a not-for-profit organization and is exempt from federal and California income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable state statutes. The Museum, however, may be subject to tax on income which is not related to its exempt purpose. The Museum had no unrelated business income tax for the year ended June 30, At June 30, 2010, the federal statute of limitation remains open for the 2007 through 2010 years. The statute of limitations for the state income tax returns remains open for the 2006 through 2010 years. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 statements of financial position and the reported amounts of revenues and expenses during years presented. Actual results could differ from those estimates. Significant estimates used in preparing these financial statements include those assumed in computing the estimated future cash flow of charitable remainder trusts, pledges and grants receivables, and deferred liability calculations. Credit Risk - The Museum invests in various types of marketable securities and money market funds, and has established guidelines relative to diversification and maturities that target certain safety and liquidity risk levels. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Museum invests in various investment securities, including U.S. government securities, corporate debt instruments and corporate stocks. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the financial statements

11 The Museum maintains cash balances at banks located in San Diego. Accounts at these institutions are secured up to the Federal Deposit Insurance Corporation limits. At times, balances may exceed federally insured limits. The Museum has not experienced any losses in such accounts. Management believes that the Museum is not exposed to any significant credit risk with respect to its cash and cash equivalents. Fair Value Measurements Authoritative guidance establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework of measuring fair value, and expands disclosures about such fair value measurements. Fair value is defined as the hypothetical price (excluding transaction costs) that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value shall be determined based on the assumptions that market participants would use in pricing the asset or liability. Endowment Net Assets Authoritative guidance provides direction on the net asset classification of donorrestricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 ( UPMIFA ). The state of California approved a version of UPMIFA in September 2008 with an effective date of January 1, Prior Year Information - The 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 U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Museum s audited financial statements for the year ended June 30, 2009, from which the summarized information was derived. Recently Issued Accounting Standards - As of January 1, 2009, the Museum adopted authoritative guidance related to uncertain tax positions, the adoption of this guidance did not result in an adjustment to the financial statements. In June 2009, the FASB issued authoritative guidance related to the hierarchy of Generally Accepted Accounting Principles ( GAAP ), which established the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The authoritative guidance is effective for interim and annual periods ending after September 15, 2009 and did not have a material impact on the financial statements

12 2. INVESTMENTS Investments are carried at fair value based on quoted market prices and at June 30, 2010, consisted of the following: Equity securities $ 23,803,905 Fixed income securities 6,881,076 Cash and cash equivalents $ 134,986 30,819,967 The Museum s investment activities for 2010 resulted in dividend and interest income of approximately $729,000, net realized and unrealized gains on investments of approximately $3,584,000 and total fees of approximately $188, PLEDGES AND GRANTS RECEIVABLE As of June 30, 2010, the Museum has unconditional pledges and grants receivable which are due as follows: Within one year $ 2,793,083 One to five years 1,763,000 Greater than five years 2,287,296 6,843,379 Less unamortized discount (1,801,930) $ 5,041,449 Based on its history of collections and an assessment of existing receivables, management of the Museum believes that no allowance for doubtful pledges, grants, and other receivables is necessary at June 30, Pledges receivable from related parties totaled approximately $2,966,000 at June 30,

13 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30, 2010: Buildings and leasehold improvements $ 35,359,925 Furniture and equipment 4,661,336 40,021,261 Less accumulated depreciation (10,911,534) 29,109,727 Land 7,466,552 Property and equipment - net $ 36,576,279 Depreciation expense was approximately $1,133,000 for In July 2004, an unrelated party transferred title for land and a building for a third location to the Museum, the fair value of which was estimated to be $6,771,000. In connection with the transfer, the Museum granted the City of San Diego an option to acquire the land and building on or after July 31, 2091, or prior to that date if the Museum commits a default under the related transfer agreement. Default includes failure to perform any substantive covenant, condition, or obligation of the Museum under the transfer agreement, including continuous operation of the property as a contemporary art museum. 5. NOTES RECEIVABLE FROM OFFICERS At June 30, 2010, the Museum had a promissory note receivable from its CEO/executive director that had a balance of approximately $489,000. The note provides for monthly payments of interest at a rate of 4.22% per annum with the principal due on the earlier of one year after the CEO/executive director s separation, the expiration of his current term of employment or in August The note is collateralized by a first trust deed on real property located in La Jolla, California. The Museum forgave approximately $80,000 of the amount due under the note agreement in 2010 of which approximately $57,000 related to principal and approximately $23,000 to interest. Approximately $19,000 in payments were received in The amounts forgiven have been included in general and administrative expenses. Additionally, the Museum has a promissory note receivable from its CFO/deputy director with a balance of approximately $378,000 at June 30, The note provides for monthly payments of principal and interest at a rate of 4.22% per annum, with final payment due in October The note is collateralized by a first trust deed on real property located in La Jolla, California. The Museum forgave approximately $45,000 of the amount due under this note agreement in 2010, of which approximately $28,000 related to principal and approximately $17,000 to interest and has included this amount in general and administrative expenses

14 6. DEBT Line of Credit - The Museum has a line of credit agreement with a bank expiring in May 2011 that provides for borrowings up to $1,000,000 at an interest rate of 5% per annum at June 30, The line of credit agreement is uncollateralized. At June 30, 2010, there was no outstanding balance under this agreement. There were draws and repayments of $270,000 on the line during the fiscal year. Long-Term Debt - In February 2007, the Museum refinanced a $524,000 note with interest at 6.84% per annum. The note payable is due in monthly installments of principal and interest of $4,000 through February 2012, followed by a balloon payment of approximately $457,000 in February The note is collateralized by the note receivable from the CEO/executive director as well as the first trust deed on real property located in La Jolla, California, which serves as collateral for that note. The loan agreement includes certain covenants, including a restriction on the Museum incurring additional indebtedness. The Museum was in compliance with these requirements as of June 30, At June 30, 2010, the outstanding principal balance was approximately $480,000. In December 2004, the Museum borrowed $13,000,000 through the issuance of tax-exempt variable rate demand certificates of participation (the Bonds ) issued by the County of San Diego. The Bonds bear interest at a weekly interest rate determined by Banc of America Securities (the Remarketing Agent ), which was 3.20% per annum at June 30, A payment of $775,000 was made in May, The next scheduled payment is November 1, The Bonds mature on November 1, 2034, subject to prior redemption, and are secured by a $13,000,000 (the Stated Amount ) irrevocable, direct-pay letter of credit (the LC ) issued by Allied Irish Bank (the Bank ) for the Museum, in the favor of the bondholders, which expires on December 16, 2010, unless extended. The Museum is required to have a letter of credit related to the Bonds through the maturity date. The Museum pays to the Bank a LC fee equal to 1.25% per annum of the stated amount of the LC from April 1, 2009, through expiration. LC fees are paid quarterly in advance which commenced on April 1, Furthermore, according to the terms of the LC the Museum has provided the Bank with a perfected first priority lien and security interest in the gross revenues of the Museum and each account in which the gross revenues are deposited. The Museum must satisfy certain contractual covenants related to the Bonds that include, among others, meeting an annual liquidity requirement, maintaining its tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, limiting capital expenditures and additional debt, and meeting annual financial reporting and audit requirements. The Museum was in compliance with these requirements as of June 30, The proceeds of the Bonds were applied to the financing of the acquisition, construction, installation, improvement, renovation, furnishing, and equipping of new Museum galleries and other related facilities associated with the expansion project (collectively, the Project ) in San Diego. The Project included renovating the historic Santa Fe Depot baggage building and constructing a new three-story contemporary structure

15 In connection with the issuance of the Bonds, the Museum incurred approximately $460,000 of certain directly related issuance expenses, which have been capitalized as debt issuance costs. These deferred financing costs are being amortized to interest cost over the life of the Bonds. Amortization of approximately $15,000 was recognized in Future minimum principal payments related to the bank loan and to the bonds are as follows: Year Ending June 30, 2011 $ 15, , Thereafter 9,750,000 10,230,037 Less current portion (15,178) $ 10,214, FAIR VALUE MEASUREMENTS Authoritative guidance establishes a hierarchy for ranking the quality and reliability of the input information used to determine fair values, requiring that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities. Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, 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 by correlation or other means. Level 3: Significant unobservable inputs for the asset or liability

16 The following disclosures provide the fair value of financial instruments at June 30, 2010: (Level 1) (Level 2) (Level 3) Total Money market funds $ 790,694 $ - $ - $ 790,694 Charitable Remainder Trusts , ,556 Equity Securities: Domestic Securities 17,858, ,858,975 International Securities 3,909, ,909,389 Private Securities 1,611,369 2,170,526-3,781,895 Fixed Income Securities 5,269, ,269,708 $ 29,440,135 $ 2,170,526 $ 511,556 $ 32,122,217 Equity securities classified as Level 2 consist of investments in mutual funds for which no quoted market prices are published. These investments are stated at fair value based on the net asset value of units held by the Museum at the respective year-end. Net asset value of these funds is determined using the unadjusted quoted market prices for the underlying securities held by funds, which are traded in active markets. See policy note 1 for a discussion of the fair value measurements of these assets. For assets and liabilities measured at fair value on a recurring basis using Level 3 inputs during the year, authoritative guidance requires a reconciliation of the beginning and ending balances for each major category as follows: Charitable Remainder Trusts Balance July 1, 2009 $ 885,815 Total gains/(losses) 49,906 Decrease due to settlement (424,165) Balance June 30, 2010 $ 511,

17 8. ENDOWMENT NET ASSETS In August 2008, the Financial Accounting Standards Board ( FASB ) issued authoritative guidance for endowments which provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 ( UPMIFA ). The State of California approved a version of UPMIFA in September 2008, effective January 1, Authoritative guidance requires the Museum to classify a portion of a donor-restricted endowment fund of perpetual duration as permanently restricted net assets. Specifically, the portion classified as permanently restricted shall be (a) the amount of the fund that must be retained permanently per explicit donor stipulations or (b) in the absence of such stipulations, the amount which the Museum s governing board determines must be retained (preserved) permanently consistent with UPMIFA. Authoritative guidance requires affirmation that the amount that is classified as permanently restricted net assets is not reduced by losses on investments of the fund or by the Museum s appropriations from the fund unless required by the donor. Furthermore, the portion of the fund that is not classified as permanently restricted net assets must be classified as temporarily restricted net assets until appropriated for expenditure by the Museum. Such appropriation is deemed to occur upon the Museum s governing board s approval of expenditures in the current period. Once the appropriation for expenditure has occurred, the appropriated amount is reclassified to unrestricted net assets. UPMIFA states that, absent explicit donor instructions to the contrary, assets in an endowment fund are donor-restricted assets until appropriated by the Museum. The Museum interprets this to mean that all earnings on a donor-restricted endowment gift are restricted assets. As such, in accordance with the authoritative guidance, such earnings are classified as temporarily restricted net assets (time restricted) until appropriated by the Museum. UPMIFA became effective in California for endowment funds existing on or established after January 1, The law defines an endowment fund to mean an institutional fund (excluding assets that an institution designates as an endowment fund for its own use) that, under the terms of a gift instrument, is not wholly expendable by the institution on a current basis. The law establishes various factors for the Museum to consider in the management and investment of endowment funds, as well as various factors for the Museum to consider in its determination as to whether to appropriate or accumulate the endowment funds. Upon adoption of UPMIFA the Museum interpreted the corpus of permanently restricted funds to be approximately $39,058,000. The Museum considers the value of an endowment gift to be considered for appropriation under UPMIFA to be equal to the sum of the original gift (and any subsequent donations) plus accumulated investment earnings, less accumulated investment losses and appropriations for expenditure by the Museum at any point in time. Previous California law restricted spending on donor-restricted endowment funds where the value of the fund fell below the historic dollar value. The historic dollar value represented the aggregate value of all contributions to an endowment fund at the time they were made. Absent explicit donor instructions to the

18 contrary, the Museum interprets UPMIFA to have eliminated the historic dollar value limitation when considering endowment spending, instead providing guidelines for such spending (referred to as appropriation in UPMIFA). 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 purposes 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 policy of the Museum The Board adopted a spending policy for permanently restricted endowment funds based on a rolling average of historical market values. In fiscal 2009 the Board approved the annual use of approximately 5% of the endowment funds calculated fair market value for the Museum s operations. The Board appropriated approximately $1,812,000 from permanently restricted endowment funds in 2010 for operations. The Museum s endowment investment policy and strategy is to emphasize total return; that is, the aggregate return from capital appreciation and dividend and interest income. Within this framework specific investment objectives for endowment investments include liquidity, preservation of capital, preservation of purchasing power and long-term growth of capital. Occasionally, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Museum to retain as a fund of perpetual duration. In accordance with the authoritative guidance, deficiencies of this nature are reported in unrestricted net assets in the year in which they occur. Deficiencies of this nature that are reported in unrestricted net assets were approximately $11,394,000 as of June 30, Gains and income in subsequent years will be netted against this deficiency until the fair value is once again above the initial level. During 2010 approximately $3,213,000 in gains and income on the endowments were netted against the loss classified in unrestricted net assets as of June 30, The following is a composition of the Museum s endowment by net asset class in total and by type of endowment fund as of June 30, 2010: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted Funds $ (11,393,575) $ 12,482 $ 39,058,378 $ 27,677,

19 Changes in endowment net assets for the year ended June 30, 2010 are as follows: Unrestricted Temporarily Restricted Permanently Restricted Total Endowment assets, June 30, 2009 $ (13,232,227) $ 4,607 $ 39,058,378 $ 25,830,758 Interest and dividends, net 416,874 17, ,736 Net appreciation (realized) 783,779 8, ,500 Net appreciation (unrealized) 2,429, ,429,011 Appropriations (1,791,012) (18,708) - (1,809,720) Endowment assets, June 30, 2010 $ (11,393,575) $ 12,482 $ 39,058,378 $ 27,677,285 Note that the difference between the permanently restricted net assets presented in the Statement of Activities and the amount included in the table above relates to outstanding pledge receivables not invested as an endowment. 9. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: General operations and programs $ 6,104,007 21st Century building campaign 2,632,889 Accessions and exhibitions 1,420,289 Total $ 10,157, PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets are comprised of investments in perpetuity, the income from which is expendable for support of: General operations and programs $ 38,384,977 Accessions and exhibitions 873,405 Total $ 39,258,

20 11. NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from donor restriction by board appropriation satisfying the restricted purposes specified by donors as follows: 21st Century building campaign $ 1,504,904 General operations and programs 886,849 Accessions and exhibitions 145,187 Total $ 2,536, OPERATING LEASES In July 1992, the Museum entered into a ground lease agreement for property the Museum occupies in downtown San Diego. The term of the lease is 99 years, and the annual lease payment is $1.00. The Museum has agreed to comply with certain use and operating restrictions as defined in the lease agreement. The estimated fair value of the lease for 2010 is approximately $181,000 per year based on rent for similar property in the area, and is reflected as unrestricted contributions support and expense in the accompanying statements of activities. The Museum leases storage space and equipment under non-cancelable operating leases. Certain of these leases include renewal and purchase options. Rent expense under these leases was approximately $220,000, of which approximately $89,000 was donated in 2010 and included in unrestricted contributions support. Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows: Year Ending June 30, 2011 $ 137, , , , ,872 Thereafter 50,234 Total $ 657,

21 On February 1, 2006 ( Effective Date ), the Museum entered into an agreement with the National Rail Passenger Corporation ( Amtrak ) that allows Amtrak to occupy a portion of the David C. Copley Building ( Copley Building ). Although the agreement states that the $850,000 payment received from Amtrak is a reimbursement for Amtrak s agreed share of the costs of construction of the Copley Building, the Museum applied the applicable authoritative guidance to account for the payment as a lease. The term of the lease commenced on March 1, 2007 and expires on July 31, Rental income was approximately $10,000 for Deferred rent revenue at June 30, 2010 is approximately $812,000 and is included in deferred revenue on the statement of financial position. 13. EMPLOYEE RETIREMENT PLAN The Museum has an employee retirement plan that is a defined contribution plan under which the Museum matches a percentage of the participants contributions after one year of employment. The contributions are made in accordance with Section 403(b) of the Internal Revenue Code. Total employer contributions were approximately $103,000 for In 2008 the Museum set up qualified 457(b) plans and a 457(f) plan for two top executives. Employer contributions to these plans totaled approximately $96,000 in The plans require the Museum to deposit employer contributions in a separate bank account each year. Assets contributed to the plans remain the sole property of the Museum until a covered employee is eligible to receive distributions. 14. LITIGATION In the normal course of business, the Museum is occasionally named in various claims and litigations. It is the opinion of management that the outcome of any pending items will not materially affect the operations or the financial position of the Museum. Management is not aware of any lawsuits where the Museum is currently named. 15. SUBSEQUENT EVENTS The Museum has evaluated subsequent events through November 11, 2010, which is the date the financial statements were available to be issued

22 SUPPLEMENTAL SCHEDULES FOR THE YEAR ENDED JUNE 30, 2010

23 Museum of Contemporary Art San Diego Statement of Functional Expenses For the Year Ended June 30, 2010 Program Services Support Services Permanent Collections, Circulation Events and Education Museum and Visitor Performances Museum Membership Beverage PR and Special General and Exhibitions Publications Curatorial Accessions Services Library Stores Support Service Marketing Development Events Administrative Building Total Salaries and employee benefits $ 446,326 $ 5,287 $ 395,274 $ 253,245 $ 337,080 $ 161,665 $ 84,973 $ 385,094 $ 4,999 $ 151,804 $ 206,021 $ 8,774 $ 979,724 $ 222,140 $ 3,642,406 Accessions of art, net of deaccessions , ,180 Advertising and marketing , , ,763 Bank service fees/interest expense ,664 4, ,524 12,458 1, , , ,814 Amortization of Bond issuance fees ,380-15,380 Contract/Consulting services 136,783 9,258 2,022 44,289 11,884 19, ,481 94,100 23,962 29, ,548 33, , ,053 Computer materials/service , ,930 47,378 Cost of sales - 48, ,845-36, ,603 Depreciation ,132,007 1,132,007 Food and entertainment 8, , , , ,083 73,691 37, ,260 Graphic design and printing 39, ,424-24,351-27,277 6,518 21, ,857 Honoraria/artist fees 30, ,080-2, , ,895 Insurance , , ,858 42, ,751 Investment fee 2, , , ,454 In-kind contributions 28, ,500-17, , ,716 Legal and accounting ,912-62,297 Loss on disposal of assets Membership, dues and subscriptions , ,929 2, , ,642 Miscellaneous ,604 2, ,323 2 (204) 1,164 1,023 9, ,588 Newsletter , ,187 New employee search/staff training , , ,040-1,183-66,929 Participation fees 50, ,000 Photography 8, , , , ,893 Postage 7,634 2,911 1, , ,277 4,298 2, ,159 Rentals 155,979 7, ,437-8, ,411 11, ,683 19,847 63, ,878 Repairs and maintenance , ,589 97,882 Restoration 7, , , ,533 Shipping and crating 137, , , , ,380 Supplies and equipment 76, ,897 19,377 10,983 9, ,813 10,000 1,490 6,820 8,301 9,101 38, ,317 Taxes , ,484 36,885 53,804 Telephone ,538 84,087 Travel and accomodations 52, ,055 4, , (201) 7 1,071 2, ,356 4, ,796 Utilities , , ,496 Total: 1,189,468 93, ,460 1,113, , , , , , , ,858 1,177,163 1,624,562 2,363,272 10,193,381 Allocation of building expenses $ 1,481,596 $ - $ 23,221 $ 362,343 $ 251,510 $ 148,272 $ 31,044 $ 8,622 $ - $ 8,261 $ 15,722 $ - $ 32,681 $ (2,363,272) $ - $ 2,671,064 $ 93,588 $ 458,681 $ 1,475,695 $ 638,294 $ 398,013 $ 230,100 $ 572,234 $ 159,832 $ 331,894 $ 329,580 $ 1,177,163 $ 1,657,243 $ (0) $ 10,193,

24 INDEPENDENT AUDITORS REPORT ON ADDITIONAL INFORMATION To the Audit Committee of Museum of Contemporary Art San Diego We have audited the financial statements of Museum of Contemporary Art San Diego (the Museum ) for the year ended June 30, 2010, and have issued our report thereon dated November 11, Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information on page 25 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in our audit of the basic 2010 financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic 2010 financial statements taken as a whole. November 11, 2010