Financial Report 



335 



status. No provision for income taxes was required for fis- 

 cal year 1999. 



It is the opinion of the Smithsonian's management that 

 the Smithsonian is also exempt from taxation as an instru- 

 mentality of the United States as defined in 

 Section 501(c)(1) of the Code. Organizations described in 

 that section are exempt from all income taxation. The 

 Smithsonian has not yet formally sought such dual status. 



(15) Business Activities 



A summary of business activities reported in the statement 

 of activities for the year ended September 30, 1999 follows: 





Revenue 



Expenses 

 57,942 



Net 



Magazines 



72,556 



14,614 



The Switlisonian Associates 



32,438 



33,533 



(1,095) 



Museum shops and mail order 



71,268 



65,332 



5,936 



Smithsonian Institution Press 



8,930 



8,633 



297 



Concessions, licensing and other 



32,104 



26,390 



5,714 





217,296 



191,830 



25,466 



(16) Commitments and Contingencies 

 (a) Leasing Activities 



Leases for Smithsonian warehouse and office spaces pro- 

 vide for rent escalations to coincide with increases in prop- 

 erty taxes, operating expenses attributable to the leased 

 property and the Consumer Price Index. The Smithsonian 

 has the authority to enter into leases for up to 30 years 

 using federal funds. 



The Smithsonian's operating leases for the warehouse 

 and office spaces require future minimum lease payments 

 as follows: 



2000 



13,348 



2001 



7,878 



2002 



7,748 



2003 



6,774 



2004 



5,127 



Thereafter 



17,287 





58,162 



Rental expense 

 fiscal year 1999 



for operating leases totaled $16,518 for 



(b) Government Grants and Contracts 



The Smithsonian receives funding or reimbursement from 

 governmental agencies for various activities which are sub- 

 ject to audit. Audits of these activities have been completed 

 through fiscal year 1998, however, fiscal year 1998 has not 

 been closed with the cognizant federal audit agency. Man- 

 agement believes that any adjustments which may result 

 from this audit and the audit for fiscal year 1999 will have 

 no materially adverse effect on the Smithsonian's financial 

 position. 



(c) Litigation 



The Smithsonian is a party to various litigation arising out 

 of the normal conduct of its operations. In the opinion of 

 the Smithsonian's General Counsel, the ultimate resolution 

 of these matters will have no materially adverse effect on 

 the Smithsonian's financial position. 



(d) National Museum of the American Indian 



The Smithsonian broke ground in September 1999 for the 

 construction of the National Museum of the American 

 Indian. Federal appropriations of $73,300 are budgeted for 

 this project. Restricted contributions collected or pledged 

 of $23,800 are included in temporarily restricted net assets. 

 Additional fund-raising will provide the remainder of the 

 funds needed. The museum is projected to open in 2003. 



(e) National Air and Space Museum Extension 



The Smithsonian is planning to build a major extension of 

 the National Air and Space Museum at Dulles International 

 Airport in Northern Virginia. A long-term lease has been 

 signed for a 176.5 acre site with the Washington Area Air- 

 port Authority. Subject to Smithsonian Board of Regents' 

 approval, access and infrastructure work will begin in 

 Spring 2000. 



The project is expected to be financed through a combi- 

 nation of donations, net revenues from business activities 

 of the facility, and external borrowing. Donations and 

 business activities revenues are projected to fully service 

 any debt. Restricted contributions collected or pledged of 

 $80,000 are included in temporarily restricted net assets. 

 The Commonwealth of Virginia is committed to expend an 

 estimated $34,000 on access and infrastructure improve- 

 ments on the site. 



(f) Victor Building 



The Smithsonian entered into an agreement on June 24, 

 1999 to purchase a building known as the Victor Building, 

 a 330,000 square foot commercial office structure in North- 

 west Washington, DC. The core and shell of the building 

 has since been renovated, and the transaction for its pur- 

 chase for approximately $86,000 is expected to close in 

 March 2000. 



The building will be used to house museum support staff 

 and central administrative staff currently in leased space. 

 The total cost of the project (including the build out of the 

 interior space) is estimated at $106,000. The project will be 

 funded through external borrowing which will be primar- 

 ily serviced by fundraising and savings on currently bud- 

 geted lease costs. 



(g) Year 2000 



The Smithsonian has addressed anticipated operational 

 issues resulting from the year 2000. Management has final- 

 ized contingency plans and is prepared to address any mat- 

 ters that may arise that could create potential for business 

 interruption. 



