FINANCIAL STATEMENTS June 30, 2013
CONTENTS INDEPENDENT AUDITOR'S REPORT 1 STATEMENTS OF FINANCIAL POSITION 2 STATEMENTS OF ACTIVITIES 3/4 STATEMENTS OF FUNCTIONAL EXPENSES 5/6 STATEMENTS OF CASH FLOWS 7 8/17
DECOSIMO CERTIFIED PUBLIC ACCOUNTANTS Joseph Decosimo and Company, PLLC 1000 Ridgeway Loop - Suite 402 Memphis, Tennessee 38120 www.decosimo.com INDEPENDENT AUDITOR S REPORT Board of Trustees Memphis Museums, Inc. Memphis, Tennessee Report on the Financial Statements We have audited the accompanying financial statements of Memphis Museums, Inc. (the Organization), which comprise the statements of financial position as of June 30, 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Memphis Museums, Inc. as of June 30, 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. Memphis, Tennessee January 2, 2014 1
STATEMENTS OF FINANCIAL POSITION June 30, 2013 and 2012 2013 2012 ASSETS Cash and cash equivalents $ 917,981 $ 877,327 Certificates of deposit 198,794 218,132 Investments, at fair value 3,101,390 2,800,856 Grants receivable 1,093,226 6,250 Accounts receivable 8,451 23,660 Promises to give 129,408 245,448 Prepaid expenses 166,686 161,272 Inventories 165,442 150,722 Land, buildings and equipment, net 175,972 183,634 TOTAL ASSETS $ 5,957,350 $ 4,667,301 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 307,015 $ 287,893 Deferred revenue 301,654 291,640 Total liabilities 608,669 579,533 NET ASSETS Unrestricted 1,031,211 1,114,371 Unrestricted - Board designated 100,000 100,000 Temporarily restricted 1,716,280 572,067 Permanently restricted 2,501,190 2,301,330 Total net assets 5,348,681 4,087,768 TOTAL LIABILITIES AND NET ASSETS $ 5,957,350 $ 4,667,301 The accompanying notes are an integral part of the financial statements. 2
STATEMENT OF ACTIVITIES Year Ended June 30, 2013 Unrestricted Temporarily Permanently Total SUPPORT AND REVENUE Gift shop sales $ 374,380 $ - $ - $ 374,380 IMAX concessions 32,510 - - 32,510 Crafts fair 249,200 - - 249,200 Program activities 142,739 - - 142,739 Contributions and grants 452,287 1,211,000-1,663,287 Memberships 197,869 - - 197,869 Facility rental 343,231 - - 343,231 Admissions 631,575 - - 631,575 In-kind contributions 268,744 - - 268,744 Miscellaneous income 60,153 133-60,286 Net investment return 40,039 96,959 199,860 336,858 Net assets released from restrictions 163,879 (163,879) - - Total support and revenue 2,956,606 1,144,213 199,860 4,300,679 EXPENSES Program services - Curatorial 1,128 - - 1,128 Exhibits 638,254 - - 638,254 Education 1,411,583 - - 1,411,583 2,050,965 - - 2,050,965 Supporting services - Management and general 427,537 - - 427,537 Fundraising 117,792 - - 117,792 545,329 - - 545,329 Operating costs - Gift shop 295,340 - - 295,340 Crafts fair 148,132 - - 148,132 443,472 - - 443,472 Total expenses 3,039,766 - - 3,039,766 CHANGE IN NET ASSETS (83,160) 1,144,213 199,860 1,260,913 NET ASSETS - beginning of year 1,214,371 572,067 2,301,330 4,087,768 NET ASSETS - end of year $ 1,131,211 $ 1,716,280 $ 2,501,190 $ 5,348,681 The accompanying notes are an integral part of the financial statements. 3
STATEMENT OF ACTIVITIES Year Ended June 30, 2012 Unrestricted Temporarily Permanently Total SUPPORT AND REVENUE Gift shop sales $ 347,130 $ - $ - $ 347,130 IMAX concessions 33,539 - - 33,539 Crafts fair 267,294 - - 267,294 Program activities 130,409 - - 130,409 Contributions and grants 652,833 4,573-657,406 Memberships 192,828 - - 192,828 Facility rental 351,854 - - 351,854 Admissions 611,800 - - 611,800 In-kind contributions 241,402 - - 241,402 Miscellaneous income 23,055 - - 23,055 Net investment return 26,762 21,516 (107,840) (59,562) Net assets released from restrictions 257,968 (254,033) (3,935) - Total support and revenue 3,136,874 (227,944) (111,775) 2,797,155 EXPENSES Program services - Curatorial 4,294 - - 4,294 Exhibits 582,108 - - 582,108 Education 1,371,917 - - 1,371,917 1,958,319 - - 1,958,319 Supporting services - Management and general 435,050 - - 435,050 Fundraising 106,965 - - 106,965 542,015 - - 542,015 Other expenses - Gift shop 256,857 - - 256,857 Crafts fair 169,743 - - 169,743 426,600 - - 426,600 Total expenses 2,926,934 - - 2,926,934 CHANGE IN NET ASSETS 209,940 (227,944) (111,775) (129,779) NET ASSETS - beginning of year 1,004,431 800,011 2,413,105 4,217,547 NET ASSETS - end of year $ 1,214,371 $ 572,067 $ 2,301,330 $ 4,087,768 The accompanying notes are an integral part of the financial statements. 4
STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2013 Program Services Supporting Services Operating Costs Management Curatorial Exhibits Education and General Fundraising Gift Shop Crafts Fair Total Advertising and publicity $ - $ 204,554 $ 262,002 $ - $ 445 $ 288 $ - $ 467,289 Cost of goods sold - gift shop - - - - - 190,393-190,393 Cost of sales and expenses of crafts fair - - - - - - 133,228 133,228 Depreciation - - - 7,662 - - - 7,662 Employee benefits - 11,789 26,383 14,318 6,980 2,477-61,947 Equipment and maintenance - - 78,968 - - 3,294-82,262 Insurance - 4,466 21,214 4,468-293 500 30,941 Other expenses - 1,481 25,907 34,997 489 8,278-71,152 Payroll taxes - 14,400 33,708 18,213 5,331 6,297-77,949 Postage and shipping 48 13,890 14,247 1,211 1,512 18-30,926 Printing and publications - 18,932 24,530 72 2,181 - - 45,715 Professional services 800 53,915 21,951 99,499 9,061 437-185,663 Program expenses - 127,424 353,413 - - - - 480,837 Salaries - 177,647 462,191 240,894 76,928 77,739 14,300 1,049,699 Security services - - 12,731-56 - - 12,787 Supplies 236 9,548 65,445 3,505 14,655 3,352 104 96,845 Telephone - - 629 311-497 - 1,437 Travel and training 44 208 5,132 2,387 154 1,977-9,902 Utilities - - 3,132 - - - - 3,132 $ 1,128 $ 638,254 $ 1,411,583 $ 427,537 $ 117,792 $ 295,340 $ 148,132 $ 3,039,766 The accompanying notes are an integral part of the financial statements. 5
STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2012 Program Services Supporting Services Operating Costs Management Curatorial Exhibits Education and General Fundraising Gift Shop Crafts Fair Total Advertising and publicity $ - $ 192,967 $ 237,611 $ - $ - $ 74 $ - $ 430,652 Cost of goods sold - gift shop - - - - - 148,541-148,541 Cost of sales and expenses of crafts fair - - - - - - 169,743 169,743 Depreciation - - - 8,843 - - - 8,843 Employee benefits - 13,794 30,384 10,597 7,084 2,530-64,389 Equipment and maintenance - 228 114,390 - - 3,246-117,864 Insurance - 3,953 23,095 4,287 - - - 31,335 Other expenses - 2,975 8,346 61,002 396 7,163-79,882 Payroll taxes - 21,769 35,091 8,848 5,380 6,112-77,200 Postage and shipping 42 29,445 13,368 966 6,273 2-50,096 Printing and publications - 29,581 24,127 2,813 1,583 - - 58,104 Professional services - 51,208 24,815 85,499 11,579 106-173,207 Program expenses 4,252 66,940 310,307 - - - - 381,499 Salaries - 160,386 463,083 244,928 73,869 83,759-1,026,025 Security services - - 13,664 - - - - 13,664 Supplies - 5,817 62,779 4,659 650 4,830-78,735 Telephone - - 623 - - 494-1,117 Travel and training - 3,045 8,193 2,608 151 - - 13,997 Utilities - - 2,041 - - - - 2,041 $ 4,294 $ 582,108 $ 1,371,917 $ 435,050 $ 106,965 $ 256,857 $ 169,743 $ 2,926,934 The accompanying notes are an integral part of the financial statements. 6
STATEMENTS OF CASH FLOWS Years Ended June 30, 2013 and 2012 2013 2012 OPERATING ACTIVITIES Change in net assets $ 1,260,913 $ (129,779) Adjustments to reconcile change in net assets to net cash flows from operating activities - Depreciation 7,662 8,843 Unrealized loss (gain) on investments (61,926) 129,936 Realized gain on sale of investments (137,934) (22,096) Reinvestment of income (19,668) (19,895) Change in cash surrender value of life insurance policy - 3,936 Changes in operating assets and liabilities - Accounts receivable 15,209 (1,484) Promises to give 116,040 214,816 Grants receivable (1,086,976) (6,250) Prepaid expenses (5,414) (88,246) Inventories (14,720) (31,960) Accounts payable and accrued expenses 19,122 36,488 Deferred revenue 10,014 6,917 Net cash flows from operating activities 102,322 101,226 INVESTING ACTIVITIES Proceeds from certificates of deposit 19,338 - Purchases of investments (3,087,949) (235,356) Proceeds from sales of investments 3,006,943 141,641 Proceeds from surrender of life insurance policy - 82,766 Net cash flows from investing activities (61,668) (10,949) NET CHANGE IN CASH AND CASH EQUIVALENTS 40,654 90,277 CASH AND CASH EQUIVALENTS - beginning of year 877,327 787,050 CASH AND CASH EQUIVALENTS - end of year $ 917,981 $ 877,327 The accompanying notes are an integral part of the financial statements. 7
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF ORGANIZATION - Memphis Museums, Inc. is a Tennessee not-for-profit corporation whose function is to operate and support the Memphis Pink Palace Museum, Lichterman Nature Center, Mallory Neely House, Magevney House, and Coon Creek Science Center (commonly referred to as the Memphis Museum System), under a joint-venture arrangement with the City of Memphis, Tennessee (the City). The City owns all of the above facilities with the exception of Coon Creek Science Center which is owned by the Organization. The Organization is responsible for the day-to-day programming, fundraising and operation of the facilities, while the City is responsible for upkeep, maintenance, landscape, etc. When the Organization makes capital improvements to the facilities owned by the City, they are expensed in the year made. In addition, the Organization and the City share admissions revenue to certain attractions located in these facilities along with certain payroll and administrative costs. BASIS OF ACCOUNTING - The accompanying financial statements have been prepared on the accrual basis of accounting. BASIS OF PRESENTATION - The Organization reports its net asset balances, revenues, expenses, gains and losses based on the absence or existence of donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations or the donor-imposed restrictions have expired. All gifts, contributions, grants and bequests are considered unrestricted unless specifically restricted by the donor. Temporarily restricted net assets - Net assets that are subject to donor-imposed restrictions either for use during a specified time period or for a particular purpose. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported on the statements of activities as net assets released from restrictions. Temporarily restricted net assets are restricted by the donors as to the specific year when funds can be utilized or received. Permanently restricted net assets - Net assets that are subject to donor-imposed restrictions that they be maintained permanently by the Organization. The donors of the assets allow the Organization to use all or part of the income earned on related investments for unrestricted or restricted purposes. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and investments with maturities of three month or less and include cash and cash equivalents held as part of the investment portfolio. The Organization considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. The Organization maintains cash accounts which may exceed federally insured amounts at times and which may at times significantly exceed statement of financial position amounts due to outstanding checks. As of June 30, 2013 and 2012, the Organization had deposits which exceeded federally insured limits by approximately $325,000 and $265,000, respectively. 8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued CERTIFICATES OF DEPOSIT - The certificates of deposit are stated at cost plus accrued interest, which approximates fair value. The certificates have stated interest rates ranging from.3% to.65% and mature at various dates through February 2014. INVESTMENTS - The Organization's investments consist of land that was donated to the Organization and available-for-sale securities and each is carried at fair value. The land is reported at an amount independently valued by an appraiser. Fair value is defined as the price 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. Generally accepted accounting principles establish a fair value hierarchy which gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1), the next highest priority to inputs from observable data other than quoted prices (Level 2) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. Realized gains or losses upon disposition of investments are computed based upon the difference between the proceeds and the carrying value determined using the specific identification method. All other changes in the valuation of investments are reported in net investment return on the statements of activities. Unrealized gains or losses on investments are computed based upon the difference between fair value and the carrying value of investments held during the year and are classified as a component of net investment return. The Organization's financial statements include investment securities traded on a national securities exchange, or reported on the NASDAQ national market, which are valued based on quoted market prices. These financial instruments are classified as Level 1 in the fair value hierarchy. ACCOUNTS RECEIVABLE - The Organization reports accounts receivable at their estimated net realizable value. An allowance for doubtful accounts is provided based upon management's estimate of uncollectible accounts determined by the analysis of specific balances and a general reserve based upon aging of outstanding balances. Past due balances and delinquent receivables are charged against the allowance when they are determined to be uncollectible by management. Management did not consider an allowance for uncollectible accounts necessary as of June 30, 2013 or 2012. PROMISES TO GIVE AND GRANTS RECEIVABLE - The Organization recognizes promises to give and grants receivable when written documentation is received and all conditions have been satisfied for the Organization to be eligible to receive the contributions and/or grants. The Organization provides an allowance for doubtful accounts, as needed, for contributions and grants deemed uncollectible. No provision for an allowance for doubtful accounts has been made since it is management's opinion that all promises to give and grants receivable are collectible. PREPAID EXPENSES - Prepaid expenses consist of payments made for future exhibits, insurance and other expenses and are recognized in the year that the Organization is benefited. INVENTORIES - Inventories consist of gift shop items which are stated at the lower of cost, determined by the average cost method, or market. Management has reserved $4,214 for inventory obsolescence for the years ended June 30, 2013 and 2012. 9
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued LAND, BUILDINGS AND EQUIPMENT - Land, buildings and equipment are carried at cost if purchased or the estimated fair value on the date received if donated, less accumulated depreciation. Expenditures for additions, major renewals or betterments are capitalized and those for maintenance and repairs are charged to expense as incurred. Depreciation of land, buildings and equipment is provided for over the estimated useful lives of the assets using the straight-line method. Upon the disposition of depreciable property, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of activities. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Organization follows the practice of capitalizing all expenditures for land, buildings and equipment over $1,000. EXHIBIT COLLECTION - Items purchased or donated for use in the permanent or teaching collections of the Organization are not included in the statements of financial position. The fair value of the collections that were deaccessioned during the years totaled $0 and $979 for the years ended June 30, 2013 and 2012, respectively. NET ASSETS RELEASED FROM RESTRICTIONS - The expiration of a donor-imposed restriction on a promise to give is recognized in the period in which the restriction expires. At that time, the related resources are reclassified to unrestricted net assets. A restriction expires when the stipulated time has elapsed or the stipulated purpose for which the resource was restricted has been fulfilled. REVENUE RECOGNITION AND CONTRIBUTED SUPPORT - Contributions received are recognized as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. The Organization has elected to show restricted contributions whose restrictions are met in the same reporting period as unrestricted support. Contributions that are subject to time or use restrictions are required to be reported as temporarily restricted support and are then reclassified to unrestricted net assets upon expiration of the time or use restrictions. Gift shop sales, program activities, crafts fair revenue, memberships, facility rentals and admissions are recognized as revenue when earned. DEFERRED REVENUE - Amounts collected in advance of the crafts fair, facility rental and membership are reported as deferred revenue and recognized as revenue in the year earned. IN-KIND CONTRIBUTIONS - Contributions of donated noncash assets are capitalized at their fair values in the period received. Contributions of donated services that create or enhance nonfinancial assets, or that require specialized skills and are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation, are recognized at their fair values in the period received as support and functional expense. Additionally, the Organization receives a significant amount of contributed time from general volunteers which does not meet the two recognition criteria described above. Accordingly, the value of this contributed time has not been determined and is not reflected in the financial statements. INCOME TAXES - The Organization is classified by the Internal Revenue Service as a public charity exempt from federal income taxes on related business income under the provision of Section 501(c)(3) of the Internal Revenue Code. The Organization is similarly exempt from Tennessee taxes under provisions of the Tennessee Tax Code. Consequently, no federal or state income taxes have been provided in these financial statements. The Organization does not have any unrelated business income for the years ended June 30, 2013 or 2012. 10
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The Organization's federal and state exempt organization returns for the years ended June 30, 2010, 2011 and 2012, are subject to examination by the Internal Revenue Service, generally for three years after they are filed. ADVERTISING AND PUBLICITY - Advertising and publicity costs are expensed as incurred and totaled $467,289 and $430,652 for the years ended June 30, 2013 and 2012, respectively. FUNCTIONAL ALLOCATION OF EXPENSES - Expenses that are directly identifiable are charged to program services, supporting services or operating costs as incurred. Expenses related to more than one function are charged to program services, supporting services or operating costs on the basis of management's estimates. Management and general expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of the Organization. ESTIMATES AND UNCERTAINTIES - The presentation 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. RECLASSIFICATIONS - Certain amounts in the prior year financial statements have been reclassified in order to conform with the current year classifications. SUBSEQUENT EVENTS - The Organization has evaluated subsequent events for potential recognition and disclosure through January 2, 2014, the date the financial statements were available to be issued. NOTE 2 - PROMISES TO GIVE Promises to give are expected to be collected as follows: 2013 2012 Due in less than one year $ 72,413 $ 121,363 Due in one to five years 57,200 124,600 129,613 245,963 Discount to net present value (205) (515) $ 129,408 $ 245,448 Promises to give are discounted at a rate of.36% based on the year the pledge was made. 11
NOTE 3 - GRANTS RECEIVABLE Grants receivable are expected to be collected as follows: 2013 2012 Due in less than one year $ 434,710 $ 6,250 Due in one to six years 678,571-1,113,281 6,250 Discount to net present value (20,055) - $ 1,093,226 $ 6,250 Grants receivable are discounted at rates ranging from.36% to 1.96% based on the year the grant was made. As of June 30, 2013, $1,050,000 of the gross grants receivable balance of $1,113,281 was restricted for use for capital projects as part of the Organization's master plan, as disclosed in Note 11. NOTE 4 - LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment consist of the following major classifications: 2013 2012 Land $ 111,000 $ 111,000 Buildings and improvements 460,055 460,055 Furniture and equipment 891,010 891,010 IMAX equipment 1,230,690 1,230,690 2,692,755 2,692,755 Accumulated depreciation (2,516,783) (2,509,121) $ 175,972 $ 183,634 NOTE 5 - INVESTMENTS Investments reported at fair value consist of the following: 2013 Fair Value Cost Level 1 Level 2 Level 3 Total Mutual funds $ 2,809,454 $ 2,871,390 $ - $ - $ 2,871,390 Land held for investment - - - 230,000 230,000 $ 2,809,454 $ 2,871,390 $ - $ 230,000 $ 3,101,390 12
NOTE 5 - INVESTMENTS - continued 2012 Fair Value Cost Level 1 Level 2 Level 3 Total Mutual funds $ 2,240,932 $ 2,570,856 $ - $ - $ 2,570,856 Land held for investment - - - 230,000 230,000 $ 2,240,932 $ 2,570,856 $ - $ 230,000 $ 2,800,856 The Organization received land held for investment as an unrestricted contribution. Significant unobservable inputs (Level 3) were used in determining the fair value of the land held for investment. The land was independently valued by an appraiser in January 2009. In management's opinion, there was no change in the value of the land held for investment during the year and the land continues to be valued at the appraisal value as independently determined in January 2009. Net investment return consists of the following: Unrestricted Temporarily 2013 Permanently Total Interest and dividends $ 40,039 $ 96,959 $ - $ 136,998 Unrealized gain on investments - - 61,926 61,926 Realized gain on sale of investments - - 137,934 137,934 $ 40,039 $ 96,959 $ 199,860 $ 336,858 Unrestricted Temporarily 2012 Permanently Total Interest and dividends $ 26,762 $ 21,516 $ - $ 48,278 Unrealized loss on investments - - (129,936) (129,936) Realized gain on sale of investments - - 22,096 22,096 $ 26,762 $ 21,516 $ (107,840) $ (59,562) NOTE 6 - LINE OF CREDIT The Organization has a $100,000 line of credit with a bank. As of June 30, 2013 and 2012, the Organization had no outstanding borrowings under this line of credit. The line bears interest at 5% and expires May 2014. The line is collateralized by all promises to give. 13
NOTE 7 - DEFERRED REVENUE Deferred revenue consists of the following: 2013 2012 Crafts fair $ 94,562 $ 110,732 Memberships 97,228 83,515 Facility rental 69,738 65,575 Program activities 40,126 31,818 $ 301,654 $ 291,640 NOTE 8 - NET ASSETS The Board of Directors has designated $100,000 to be used to support the Organization's strategic plan. As of June 30, 2013 and 2012, temporarily restricted net assets are available for the following purposes: 2013 2012 Capital projects $ 1,029,535 $ - Programs 686,745 572,067 $ 1,716,280 $ 572,067 Permanently restricted net assets consist of donor-designated endowment contributions. The Organization's net assets associated with endowment funds are classified and reported based on the existence or absence of donorimposed restrictions. Net assets released from restrictions for the years ended June 30, 2013 and 2012, respectively, are related to the following: 2013 2012 Donor restrictions $ 33,590 $ 5,362 Time restrictions 130,289 252,606 $ 163,879 $ 257,968 14
NOTE 9 - ENDOWMENT FUNDS Interpretation of Relevant Law The Board of Directors of the Organization 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. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Organization 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 Organization 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 Organization (7) The investment policies of the Organization Endowment net asset composition by type of fund as of June 30, 2013, is classified as follows: Unrestricted Temporarily Permanently Total Donor-restricted endowment funds $ - $ 351,903 $ 2,501,190 $ 2,853,093 Endowment net asset composition by type of fund as of June 30, 2012, is classified as follows: Unrestricted Temporarily Permanently Total Donor-restricted endowment funds $ - $ 289,914 $ 2,301,330 $ 2,591,244 15
NOTE 9 - ENDOWMENT FUNDS - continued Changes in endowment assets for the year ended June 30, 2013, are as follows: Unrestricted Temporarily Permanently Total Endowment assets - beginning of year $ - $ 289,914 $ 2,301,330 $ 2,591,244 Investment return - Interest and dividends - 91,989-91,989 Realized and unrealized gain - - 199,860 199,860 Total investment return - 91,989 199,860 291,849 Appropriation of endowment assets for expenditure - (30,000) - (30,000) Endowment assets - end of year $ - $ 351,903 $ 2,501,190 $ 2,853,093 Funds with Deficiencies From time to time, the fair value of assets associated with donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Organization to retain as a fund of perpetual duration. There were no such deficiencies as of June 30, 2013 or 2012. Return Objectives and Risk Parameters The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. To satisfy its long-term rate of return objectives, the Organization 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 Organization targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The Organization's appropriation for distribution is the total interest and dividends income. The spending policy is re-evaluated annually to reflect the Organization's current objectives and the long-term expected return on its endowment. As of June 30, 2013 and 2012, the Organization had $2,501,190 and $2,301,330, respectively, in permanently restricted net assets subject to restrictions requiring the principal and realized gains and losses to be invested in perpetuity. Interest and dividend income from these investments is restricted to programs and education initiatives. 16
NOTE 10 - COMMITMENTS AND CONTINGENCIES In 2005, the Organization renewed its lease with IMAX, committing to a ten-year operating lease, expiring in January 2015, related to the continued use of the IMAX equipment. In addition to the required payments under the lease obligation, the Organization is required to make additional payments to IMAX if certain attendance limits are reached and in the amount of the yearly percentage increase, if any, in the Consumer Price Index applicable to the Metropolitan Memphis, Tennessee area. Amounts of contingent rents are not included in future minimum lease payments. The future minimum lease payments are as follows: Year ending June 30, 2014 $ 93,516 June 30, 2015 7,793 $ 101,309 Lease expense for the years ended June 30, 2013 and 2012, totaled $111,864 and $109,303, respectively, including contingent rental expenses of $18,348 and $15,787, respectively. The lease expense is recognized as an educational program expense in the schedules of functional expenses. The Organization contracts with various organizations to display exhibits. Generally, the organizations require the Organization to make payments in advance of the exhibits showing. As of June 30, 2013, the Organization reported $114,045 as prepaid expenses and is committed to an additional $211,900 on completion of the exhibits. The future minimum commitments are as follows: Year ending June 30, 2014 $ 147,050 June 30, 2015 64,850 $ 211,900 NOTE 11 - PINK PALACE MASTER PLAN CAPITAL IMPROVEMENTS PROJECT The Organization created a master plan for a long-term series of capital projects to improve the Pink Palace. The total project budget is $25,000,000. On March 12, 2012, the City of Memphis, through its Division of Park Services, approved up to $10,000,000 as matching funds for the capital improvements. The City will match dollar for dollar up to $10,000,000 of funds that are raised by the Organization. The agreement is subject to the availability of funding on an annual basis by the Memphis City Council. In the event that funds are not available, the City reserves the right to terminate the agreement upon written notice to the Organization. The agreement may be terminated by either party with 30 days notice. In the event of termination, any unspent funding shall be returned to the respective party. As of June 30, 2013, the Organization received grants totaling $1,050,000 for the capital project. 17