SPEED ART MUSEUM€¦ · Accounts receivable primarily consist of amounts due from museums for traveling exhibitions and from the parking garage operator. The Museum considers accounts

SPEED ART MUSEUM

FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

SPEED ART MUSEUM

TABLE OF CONTENTS SEPTEMBER 30, 2012 AND 2011

Page Report of Independent Auditors .................................................................................. 1 Financial Statements:

Statements of Financial Position ................................................................................ 2 Statement of Activities 2012 ...................................................................................... 3 Statement of Activities 2011 ...................................................................................... 4 Statements of Cash Flows ......................................................................................... 5 Notes to Financial Statements ................................................................................... 6

Blue & Co., LLC / 2650 Eastpoint Parkway, Suite 300 / Louisville, KY 40223main 502.992.3500 fax 502.992.3509 email [email protected]

blueandco.com

�

1

REPORT OF INDEPENDENT AUDITORS To the Board of Directors Speed Art Museum Louisville, Kentucky We have audited the accompanying statements of financial position for Speed Art Museum (a not-for-profit corporation) as of September 30, 2012 and 2011, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of Speed Art Museum’s management. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 audits provide 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 Speed Art Museum as of September 30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Unites States of America.

January 14, 2013

SPEED ART MUSEUM

STATEMENTS OF FINANCIAL POSITION SEPTEMBER 30, 2012 AND 2011

See accompanying notes to financial statements. 2

ASSETS

2012 2011

Cash and cash equivalents 1,890,900$ 729,664$ Accounts receivable 348,870 289,631 Grants receivable 72,904 35,089 Pledges receivable, net 26,587,952 23,789,475 Accrued income receivable 429 432 Investments 73,439,153 69,735,366 Inventories 0 34,294 Prepaid expenses 83,939 197,761 Property and equipment, net 18,229,555 15,842,649

Total assets 120,653,702$ 110,654,361$

LIABILITIES AND NET ASSETS

Accounts payable and other accrued liabilities 1,173,433$ 259,562$

Net assets: Unrestricted: Operating (229,130) 132,337 Board designated - unappropriated 40,910,972 38,330,248 Board designated - accessions 15,881,375 15,185,953 Investment in property and equipment 18,229,555 15,842,649 Total unrestricted 74,792,772 69,491,187

Temporarily restricted: Future Operations 755,328 473,522 Accessions 1,974,363 863,936 Capital improvements 36,006,758 33,616,106 Total temporarily restricted 38,736,449 34,953,564

Permanently restricted: Endowment 5,951,048 5,950,048 Total net assets 119,480,269 110,394,799

Total liabilities and net assets 120,653,702$ 110,654,361$

SPEED ART MUSEUM

STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2012

(WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2011)


Temporarily Permanently 2011Unrestricted Restricted Restricted Total Total

Revenue, gains and support: Annual fund and individual donations 625,252$ 10,376$ 0$ 635,628$ 841,558$ Endowment donations 0 0 1,000 1,000 2,000 General Admissions 90,650 0 0 90,650 41,106 Program sponsorships 0 19,454 0 19,454 133,988 Exhibition sponsorships 0 464,019 0 464,019 560,440 Exhibition ticket sales 156,605 0 0 156,605 121,010 Corporate memberships 118,969 0 0 118,969 47,250 Donations and deaccessions-artwork 0 1,480,501 0 1,480,501 278,411 Donations to Capital Campaign 0 5,984,764 0 5,984,764 7,737,931 Government grants 79,004 0 0 79,004 100,620 Shop sales 119,968 0 0 119,968 109,560 pARTnership and museum ball 228,504 0 0 228,504 259,476 Programming and events 119,910 0 0 119,910 99,958 Parking garage 414,221 0 0 414,221 438,436 Investment income 648,536 10,270 0 658,806 797,928 Net realized and unrealized investment gain (loss) 5,971,755 0 0 5,971,755 (3,385,513)

Total revenue, gains and support 8,573,374 7,969,384 1,000 16,543,758 8,184,159

Net assets released from restrictions 4,186,499 (4,186,499) 0 0 0

12,759,873 3,782,885 1,000 16,543,758 8,184,159

Expenses: Physical plant and security 2,279,470 0 0 2,279,470 2,308,577 Administration 1,248,257 0 0 1,248,257 1,180,470 Curatorial and conservation 601,000 0 0 601,000 632,124 Education and outreach 346,556 0 0 346,556 460,429 Accessions 1,284,686 0 0 1,284,686 2,146,077 Development 262,400 0 0 262,400 338,354 External communications 388,038 0 0 388,038 417,662 Exhibitions 381,411 0 0 381,411 284,629 Shop expense 128,348 0 0 128,348 113,599 pARTnership and museum ball 181,833 0 0 181,833 126,563 Parking garage 169,911 0 0 169,911 157,521 Capital Campaign expenditures 186,378 0 0 186,378 320,583

Total expenses 7,458,288 0 0 7,458,288 8,486,588

Change in net assets 5,301,585 3,782,885 1,000 9,085,470 (302,429)

Net assets, beginning of year 69,491,187 34,953,564 5,950,048 110,394,799 110,697,228

Net assets, end of year 74,792,772$ 38,736,449$ 5,951,048$ 119,480,269$ 110,394,799$

2012

SPEED ART MUSEUM

STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2011


Temporarily PermanentlyUnrestricted Restricted Restricted Total

Revenue, gains and support: Annual fund and individual donations 841,558$ 0$ 0$ 841,558$ Endowment donations 0 0 2,000 2,000 General Admissions 41,106 0 0 41,106 Program sponsorships 0 133,988 0 133,988 Exhibition sponsorships 0 560,440 0 560,440 Exhibition ticket sales 121,010 0 0 121,010 Corporate memberships 47,250 0 0 47,250 Donations and deaccessions-artwork 0 278,411 0 278,411 Donations to Capital Campaign 0 7,637,931 100,000 7,737,931 Government grants 100,620 0 0 100,620 Shop sales 109,560 0 0 109,560 pARTnership and museum ball 259,476 0 0 259,476 Programming and events 99,958 0 0 99,958 Parking garage 438,436 0 0 438,436 Investment income 788,698 9,230 0 797,928 Net realized and unrealized investment loss (3,385,513) 0 0 (3,385,513)

Total revenue, gains and support (537,841) 8,620,000 102,000 8,184,159

Net assets released from restrictions 1,891,916 (1,891,916) 0 0 1,354,075 6,728,084 102,000 8,184,159

Expenses: Physical plant and security 2,308,577 0 0 2,308,577 Administration 1,180,470 0 0 1,180,470 Curatorial and conservation 632,124 0 0 632,124 Education and outreach 460,429 0 0 460,429 Accessions 2,146,077 0 0 2,146,077 Development 338,354 0 0 338,354 External communications 417,662 0 0 417,662 Exhibitions 284,629 0 0 284,629 Shop expense 113,599 0 0 113,599 pARTnership and museum ball 126,563 0 0 126,563 Parking garage 157,521 0 0 157,521 Capital Campaign expenditures 320,583 0 0 320,583

Total expenses 8,486,588 0 0 8,486,588

Change in net assets (7,132,513) 6,728,084 102,000 (302,429)

Net assets, beginning of year 76,623,700 28,225,480 5,848,048 110,697,228

Net assets, end of year 69,491,187$ 34,953,564$ 5,950,048$ 110,394,799$

2011

SPEED ART MUSEUM

STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2012 AND 2011


2012 2011Operating activities: Change in net assets 9,085,470$ (302,429)$ Adjustments to reconcile change in net assets to net cash flows from operating activities: Depreciation 1,029,398 1,064,260 Net realized and unrealized investment loss (gain) (5,971,755) 3,385,513 Collection items purchased but not capitalized 754,367 1,936,508 Contributions restricted for permanent investments (1,000) (102,000) Donations to Capital Campaign (5,984,764) (7,637,931) Change in discount on pledges receivable (309,705) 343,545 Changes in operating assets and liabilities: Accounts, grants and bequests receivable (97,054) (117,022) Pledges receivable, net (2,488,772) (5,961,452) Accrued income receivable 3 (68) Inventories 34,294 (4,304) Prepaid expenses 113,822 (23,569) Accounts payable and other accrued liabilities 913,871 (68,535) Net cash flows from operating activities (2,921,825) (7,487,484)

Investing activities: Proceeds from sale of investments 79,093,699 39,120,379 Purchase of investments (76,825,731) (36,711,696) Acquisition of property and equipment (3,416,304) (761,956) Collection items purchased but not capitalized (754,367) (1,936,508) Net cash flows from investing activities (1,902,703) (289,781)

Financing activities: Contributions restricted for permanent investments 1,000 102,000 Contributions for capital expenditure 5,984,764 7,637,931 Net cash flows from financing activities 5,985,764 7,739,931

Net change in cash and cash equivalents 1,161,236 (37,334)

Cash and cash equivalents, beginning of year 729,664 766,998

Cash and cash equivalents, end of year 1,890,900$ 729,664$

SPEED ART MUSEUM

NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012 AND 2011

6

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization The Speed Art Museum (the Museum), a not-for-profit corporation established under the laws of the Commonwealth of Kentucky, operates with a purpose of collecting, researching, conserving, exhibiting and interpreting art of the highest quality for the enjoyment and enlightenment of the general public. The Museum is supported primarily through contributions and endowments. The Museum is currently closed for expansion. Basis of Financial Statement Presentation The accompanying financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and 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. Unrestricted net assets represent those net assets that the Museum may use at its discretion. Temporarily restricted net assets result from bequests, contributions, and other inflows of assets whose use by the Museum is limited by 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. Permanently restricted net assets result from bequests, contributions, and other inflows of assets whose use by the Museum is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Museum. Cash and Cash Equivalents Cash and cash equivalents consist of bank deposits in accounts that are federally insured up to $250,000 per financial institution. Additionally, for purposes of the statement of cash flows, the Museum considers all highly liquid investments purchased with an original maturity of three months or less, which are not restricted by donor arrangement, or held by brokerage firms, to be cash equivalents. Accounts Receivable Accounts receivable primarily consist of amounts due from museums for traveling exhibitions and from the parking garage operator. The Museum considers accounts

SPEED ART MUSEUM


7

receivable to be fully collectible; accordingly, no allowance for doubtful accounts is reported. Investments Investments in debt securities and equity securities having readily determinable fair values are stated at fair value based on quoted market prices or dealer quotes. Short-term investments consist of cash and cash equivalents held by brokerage firms. Alternative equity securities are valued at estimated fair value at their net asset value per share as determined by the fund managers. Fair value of investments may be subject to significant fluctuations due to market changes. The Museum believes that the carrying amount of its alternative and private equity securities is a reasonable estimate of fair value as of September 30, 2012 and 2011. Because alternative investments are not readily marketable, the estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for the investments existed and such differences could be material. Inventories Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories are related to the Museum Shop and consist of museum collection related items purchased for resale. Property and Equipment Property and equipment are stated at cost or, if donated to the Museum, at fair market value on the date of acquisition. Additions and improvements are capitalized; expenditures for routine maintenance are charged to operations. Depreciation is provided on the straight-line basis over estimated useful lives ranging from 3 to 30 years. Contributions Contributions received and unconditional promises to give are recorded as unrestricted, temporarily restricted, or permanently restricted revenue depending on the existence of donor restrictions and the nature of such restrictions, if they exist. 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 in the statement of activities as net assets released from restrictions.

SPEED ART MUSEUM


8

Donor restricted gifts that are received for which their restricted purpose is met during the same year are initially recorded as temporarily restricted net assets and then reported as net assets released from restrictions and reclassified as unrestricted net assets. Investments in perpetuity are permanently restricted by the donor as a principal. Investment earnings available for operations are recorded in unrestricted net assets. Donated Services The value of donated services is not reflected in the accompanying financial statements since there are no objective bases available by which to measure the value of such services. However, a substantial number of volunteers have donated significant amounts of their time to the Museum. Functional Allocation of Expenses The costs of providing Museum programs and supporting services are shown in Note 10. Programs include curatorial, conservation, and exhibition activities; education and outreach; and auxiliary services. Curatorial costs include gallery maintenance and renovation, collections care and maintenance, scholarly research and publications, and special exhibitions. Supporting services include development; fundraising; and administrative costs. Development and fundraising costs include expenses associated with individual and corporate memberships, annual appeals, benefit events, capital campaign, and other fundraising efforts. Administrative costs include expenses for executive management, financial administration, information systems, human resources and investment management fees. Depreciation, utilities, building maintenance, security, and other operating costs are allocated to the above program areas and supporting services based on functionality. Marketing and Public Relations The Museum expenses all marketing and public relations expenses when incurred.

Use of Estimates in the Preparation of 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.

SPEED ART MUSEUM


9

2. INCOME TAXES

The Museum is organized as a not-for-profit corporation under Section 501(c)(3) of the United States Internal Revenue Code. Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Museum and recognize a tax liability if the Museum has taken an uncertain position that more likely than not would not be sustained upon examination by various federal and state taxing authorities. Management has analyzed the tax positions taken by the Museum, and has concluded that as of September 30, 2012 and 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the accompanying financial statements. The Museum is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. As such, the Museum is generally exempt from income taxes. However, the Museum is required to file Federal Form 990 – Return of Organization Exempt from Income Tax which is an informational return only.

3. PLEDGES RECEIVABLE

At September 30, 2012 and 2011, the Museum had pledges receivable recorded on its statement of financial position of $26,587,952 and $23,789,475, respectively, net of present value discount of $342,554 and $652,260 respectively. The Museum has pledges receivable supporting the accessions, building restoration, programs and exhibits over the next five years. Receipts are expected as follows:

2012 2011

Amounts receivable in:Less than one year 5,474,697$ 5,931,333$ One to five years 21,455,809 18,510,402

Total 26,930,506 24,441,735

Less present value discount (.84%) 342,554 652,260

Net pledges receivable 26,587,952$ 23,789,475$

SPEED ART MUSEUM


10

Year ended September 30:2013 5,474,697$ 2014 3,304,140 2015 16,530,667 2016 1,572,500 2017 48,502

Less present value discount (.84%) (342,554)

Net pledges receivable 26,587,952$

The Museum receives pledges from foundations, businesses and individuals primarily located in Jefferson and adjoining counties in Kentucky and southern Indiana. The Museum considers all pledges receivable to be collectible.

4. TEMPORARILY RESTRICTED AND PERMANENTLY RESTRICTED NET ASSETS AND NET ASSETS RELEASED FROM RESTRICTIONS

Temporarily restricted net assets were committed primarily for artwork, donations to the capital campaign, and grants and sponsorships of programs and special exhibitions. Net assets of $4,186,499 and $1,891,916 for the years ended September 30, 2012 and 2011, respectively, have been released from temporarily restricted net assets in satisfaction of the purposes specified by donors. Permanently restricted net assets of $5,951,048 and $5,950,048 at September 30, 2012 and 2011, respectively, are invested in perpetuity, the income from which is expendable to support activities of the Museum.

5. FAIR VALUE MEASUREMENTS FASB ASC 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs consist of unadjusted quoted prices in active markets for

identical assets and have the highest priority. Level 2 inputs consist of observable inputs other than quoted prices for

identical assets. Level 3 are unobservable inputs for the asset or liability. The Museum’s investments are reported at fair value in the accompanying statements of financial position.

SPEED ART MUSEUM


11

Quoted Prices in Active

Markets for Identical Assets

Significant Other

Observable Inputs

Significant Unobservable

InputsFair Value (Level 1) (Level 2) (Level 3)

Committee investments:Money funds 26,114,906$ 10,367,629$ 15,747,277$ 0$

EquitiesLarge cap equity 6,063,672 0 6,063,672 0 All cap equity 5,736,438 0 5,736,438 0 International equity 3,352,357 0 3,352,357 0 Emerging markets equity 4,495,862 0 4,495,862 0 Commodities 2,741,971 0 2,741,971 0 Directional strategies 8,056,056 0 8,056,056 0 Private capital 353,702 0 353,702 0 Natural resources 3,355,620 0 3,355,620 0

Total equities 34,155,678 0 34,155,678 0

Fixed incomeCore bonds 4,357,680 0 4,357,680 0 Treasury securities 1,148,889 0 1,148,889 0 Global bonds 2,364,917 0 2,364,917 0 Credit 0 0 0 0 Opportunistic 0 0 0 0 Distressed debt 0 0 0 0 Relative value 5,297,083 0 5,297,083 0

Total fixed income 13,168,569 0 13,168,569 0

Total 73,439,153$ 10,367,629$ 63,071,524$ 0$

Fair Value Measurements atSeptember 30, 2012 Using:

SPEED ART MUSEUM


12

Quoted Prices in Active

Markets for Identical Assets

Significant Other

Observable Inputs

Significant Unobservable

InputsFair Value (Level 1) (Level 2) (Level 3)

Committee investments:Money funds 11,813,384$ 10,221,532$ 1,591,852$ 0$

EquitiesLarge cap equity 9,346,533 0 9,346,533 0 All cap equity 4,898,450 0 4,898,450 0 International equity 4,377,797 0 4,377,797 0 Emerging markets equity 5,802,546 0 5,802,546 0 Commodities 3,369,177 0 3,369,177 0 Directional strategies 9,744,289 0 9,744,289 0 Private capital 129,231 0 129,231 0 Natural resources 3,034,102 0 3,034,102 0

Total equities 40,702,125 0 40,702,125 0

Fixed incomeCore bonds 6,829,940 0 6,829,940 0 Treasury securities 1,499,388 0 1,499,388 0 Global bonds 2,281,687 0 2,281,687 0 Credit 7,937 0 7,937 0 Opportunistic 129,564 0 129,564 0 Distressed debt 119,721 0 119,721 0 Relative value 6,351,620 0 6,351,620 0

Total fixed income 17,219,857 0 17,219,857 0

Total 69,735,366$ 10,221,532$ 59,513,834$ 0$

Fair Value Measurements atSeptember 30, 2011 Using:

6. ENDOWMENT FUNDS

The Museum’s endowment consists of both donor-restricted endowment funds and funds designated by the Board to function as endowments. As required by accounting principles generally accepted In the United States of America, net assets associated with endowment funds, including funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. FASB ASC 958-205, Not-for-Profit Organizations Financial Statement Presentation provides guidance on the net asset classification of donor-restricted endowment funds for a nonprofit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). FASB ASC 958-205 also requires additional disclosures about an organization’s endowment funds (both donor-restricted endowment funds and board-designated endowment funds). The Museum has adopted the net asset classification provisions of FASB ASC 958-205 for the years ending September 30, 2012 and 2011.

SPEED ART MUSEUM


13

The Commonwealth of Kentucky enacted UPMIFA effective July 15, 2010, the provisions of which apply to endowment funds existing on or established after that date. The Board of Trustees of the Museum has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds unless there are explicit donor stipulations to the contrary. As a result of this interpretation, the Museum 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 Museum in a manner consistent with the standard of prudence prescribed by 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 policies of the Museum

SPEED ART MUSEUM


14

Endowment net asset composition by type of fund as of September 30, 2012:

UnrestrictedTemporarily Restricted

Permanently Restricted Total

Donor-restricted endowments 0$ 0$ 5,951,048$ 5,951,048$ Board designated 57,116,055 0 0 57,116,055

Total fund 57,116,055$ 0$ 5,951,048$ 63,067,103$

Changes in endowment net assets for the year ended September 30, 2012:



Endowment net assets,beginning of year 53,555,195$ 0$ 5,950,048$ 59,505,243$

Investment return:Investment income 636,347 0 0 636,347 Net losses (realized and unrealized) 5,971,755 0 0 5,971,755

Total investment return 6,608,102 0 0 6,608,102

Contributions 0 0 1,000 1,000

Appropriation of assets for expenditure (3,047,242) 0 0 (3,047,242)

3,560,860 0 1,000 3,561,860

Endowment net assets,end of year 57,116,055$ 0$ 5,951,048$ 63,067,103$

Endowment net asset composition by type of fund as of September 30, 2011:



Donor-restricted endowments 0$ 0$ 5,950,048$ 5,950,048$ Board designated 53,555,195 0 0 53,555,195

Total fund 53,555,195$ 0$ 5,950,048$ 59,505,243$

SPEED ART MUSEUM


15

Changes in endowment net assets for the year ended September 30, 2011:



Endowment net assets,beginning of year 60,307,517$ 0$ 5,848,048$ 66,155,565$

Investment return:Investment income 782,277 0 0 782,277 Net losses (realized and unrealized) (3,385,513) 0 0 (3,385,513)

Total investment return (2,603,236) 0 0 (2,603,236)

Contributions 0 0 102,000 102,000

Appropriation of assets for expenditure (4,149,086) 0 0 (4,149,086)

(6,752,322) 0 102,000 (6,650,322)

Endowment net assets,end of year 53,555,195$ 0$ 5,950,048$ 59,505,243$

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 Museum to retain as a fund of perpetual duration. In accordance with accounting principles generally accepted in the United States of America, deficiencies of this nature that are reported in unrestricted net assets were $2,470,908 and $2,817,686 as of September 30, 2012 and 2011, respectively. These deficiencies resulted from declining markets. Return objectives and risk parameters: The Museum 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. Endowment assets include those assets of donor-restricted funds that the Museum must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board, the endowment assets are invested in a manner that is intended to produce results that exceed the spending rate, aggregate costs of portfolio management, the long-term inflation rate and any growth factor that the Board may, from time to time, determine appropriate while assuming a moderate level of investment risk. The Museum expects its endowment funds, over time, to provide an average rate of return that exceeds the distribution rate plus inflation as measured by the CPI. Strategies employed for achieving objectives: 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

SPEED ART MUSEUM


16

yield (interest and dividends). The Museum targets a diversified asset allocation that places a greater emphasis on equity investments to achieve its long-term objectives within prudent risk constraints. Spending policies and how the investment objectives relate to spending policy: The Museum has a policy of appropriating for distribution each year 5.00 percent of the operating endowment and 5.00 percent of the accession endowment fund’s average fair value over the prior 12 quarters through the calendar year end preceding the fiscal year in which the distribution is planned. In establishing this policy, the Museum considered the long-term expected return on its endowment. Accordingly, over the long-term, the Museum expects the current spending policy to allow its endowment to grow at an average of 6 percent annually. This is consistent with the Museum’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return.

7. PROPERTY AND EQUIPMENT

The Museum’s property and equipment, and the related accumulated depreciation, at September 30, 2012 and 2011, are as follows:

2012 2011

Land improvements 1,400$ 1,400$ Grounds, roadways and parking facilities 8,485,112 8,485,112 Buildings 22,653,698 22,653,698 Furniture, fixtures, and equipment 2,586,301 2,583,153 Construction in progress 5,469,626 2,056,470

39,196,137 35,779,833 Less accumulated depreciation 20,966,582 19,937,184

18,229,555$ 15,842,649$ Depreciation expense was $1,029,398 and $1,064,260 in 2012 and 2011, respectively. The Museum has an accounting policy requiring capitalization of all property and equipment purchases that are at least $1,000. The Museum’s building and parking garage are erected on land furnished by the University of Louisville. If the University abandons the Museum building site, it must erect a comparable facility on its new grounds, or retain the Museum as if the University had not moved, or convey the land on which the Museum is situated to the Museum so long as it is used for Museum purposes.

SPEED ART MUSEUM


17

8. ART COLLECTION In conformity with the practice followed by most museums, art objects are not included in the accompanying statements of financial position. Accordingly, the fair values of the objects acquired by gift are not included in the statement of activities. The costs of objects purchased are included as expense in the statement of activities. For the years ended September 30, 2012 and 2011, the Museum received gifts of artwork in the amount of $603,797 and $493,903, and purchased artwork for $754,367 and $1,936,508, respectively. Deaccessions were not significant for the years ended September 30, 2012 and 2011, respectively. The Speed Art Museum has a significant collection of art including approximately 13,000 pieces. The collection spans 6,000 years, and ranges from ancient Egyptian to contemporary art. The Museum has distinguished collections of 17th century Dutch and Flemish paintings; 18th century French art; Renaissance and Baroque tapestries; and significant holdings of contemporary paintings and sculptures. Works by Kentucky artists, including furniture, paintings, and decorative arts are represented in the Museum’s collection. African and Native American works are also represented.

9. RETIREMENT BENEFITS

The Museum has established a non-contributory defined contribution money purchase pension plan for substantially all employees. The plan requires contributions to be made based on a percentage of the employees’ covered salaries. The contributions are used to purchase annuities. Total pension expense recorded for this retirement plan amounted to $108,492 and $95,734 for the years ended September 30, 2012 and 2011, respectively. The Museum has also established a contributory tax-deferred annuity plan (403)(b), which covers substantially all employees. The Museum makes no contributions under this plan.

SPEED ART MUSEUM


18

10. FUNCTIONAL CLASSIFICATION OF EXPENSES

Expenses by functional classification for fiscal years 2012 and 2011 are shown below:

2012 2011Total operating expense for the Statement

of Activities 7,458,288$ 8,486,588$

Investment fees included in net investmentincome 157,362 196,292

7,615,650$ 8,682,880$

Program and auxiliary services:Curatorial, conservation, and exhibition activities 4,546,567$ 5,371,407$ Education and outreach 346,556 460,429 Auxiliary services 480,092 397,683

Supporting services:Development 650,438 756,016 Fundraising 186,378 320,583 Administrative 1,405,619 1,376,762

Total operating expenses 7,615,650$ 8,682,880$

11. COMMITMENTS AND CONTINGENCIES

The Museum receives grants that require the fulfillment of certain conditions as set forth in the instrument of the grant. Failure to fulfill the conditions could result in the return of funds to grantors. Although that is a possibility, the Board deems the contingency remote, since by accepting the grants and their terms, it has accommodated the objectives of the organization to the provisions of the grants. Such grants are subject to financial and compliance audits by the grantor or their representatives, the purpose of which is to ensure compliance with conditions precedent to the granting of funds. Any liability for reimbursement which may arise as the result of these audits is not believed to be material. The Museum has made commitments to invest additional money in certain partnerships pursuant to provisions in the various limited partnership agreements. These commitments totaled $3,608,800 and $5,917,615 at September 30, 2012 and 2011, respectively. Capital campaign construction commitments at September 30, 2012 totaled $977,391. The total expansion will cost approximately $50,000,000 and will be completed within three years. The expansion will be financed internally.

SPEED ART MUSEUM


19

12. DATE OF MANAGEMENT’S REVIEW

Management has evaluated the subsequent events through January 14, 2013, which is the date the financial statements were available to be issued.

Documents

SPEED ART MUSEUM€¦ · Accounts receivable primarily consist of amounts due from museums for traveling exhibitions and from the parking garage operator. The Museum considers accounts