Date: January 22, 2018

To: David M. Rubenstein, Chair, Board of Regents

John W. McCarter, Jr., Chair, Audit and Review Committee, Board of Regents

Dr. David J. Skorton, Secretary

Cc: Albert G. Horvath, Under Secretary for Finance and Administration 

 and Chief Financial Officer

John Benton, Deputy Under Secretary for Finance and Administration

Jean Garvin, Director, Office of Finance and Accounting

Greg Bettwy, Chief of Staff, Office of the Secretary

Porter Wilkinson, Chief of to the Board of Regents 

From: Cathy L. Helm, Inspector General

Subject: Independent Auditor’s Report on the Smithsonian Institution’s Fiscal Year 2017 

Financial Statements (OIG-A-18-04)

This memorandum transmits the second of three component reports of the fiscal 

year 2017 financial statement audits performed by the independent public 

accounting firm of KPMG LLP (KPMG). On January 22, 2018, KPMG issued its 

independent auditors’ report on the statement of the Smithsonian Institution’s 

financial position as of September 30, 2017, and the related statements of 

financial activity and cash flows. KPMG expressed an unmodified opinion that 

concluded the financial statements were presented fairly, in all material respects, 

in accordance with the applicable financial reporting standards.

As part of our oversight activities, we reviewed KPMG’s audit documentation and 

interviewed its representatives. Our review of KPMG’s fiscal year 2017 audit 

work disclosed no instances where KPMG did not comply, in all material 

respects, with applicable auditing Standards. 

Our oversight of KPMG’s audit was not intended to enable us to express, and we 

do not express, an opinion about the Smithsonian Institution’s financial 

statements, internal controls over financial reporting, or compliance with laws and 

regulations. KPMG is responsible for its audit reports and the conclusions 

therein.

If you have any questions, please do not hesitate to contact me or 

Joan T. Mockeridge, Assistant Inspector General for Audits, at (202) 633-7050.

Attachment
SMITHSONIAN INSTITUTION 

Financial Statements 

September 30, 2017 

(With Independent Auditors’ Report Thereon)
KPMG LLP is a Delaware limited liability partnership and the U.S. member

firm of the KPMG network of independent member firms affiliated with 

KPMG International Cooperative (“KPMG International”), a Swiss entity. 

KPMG LLP

Suite 12000

1801 K Street, NW

Washington, DC 20006

Independent Auditors’ Report

The Office of the Inspector General, Audit and Review Committee 

 of the Board of Regents, and Secretary Skorton 

Smithsonian Institution: 

Report on the Financial Statements

We have audited the accompanying financial statements of Smithsonian Institution (Smithsonian), which 

comprise the statement of financial position as of September 30, 2017, and the related statements of financial 

activities and cash flows for the year then ended, and the related notes to 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 U.S. generally accepted accounting principles; 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. 

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 

financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of 

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those 

risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation 

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but 

not for the purpose of expressing an opinion on the effectiveness of the Smithsonian’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 the Smithsonian Institution as of September 30, 2017, and the changes in its net assets and its cash 

flows for the year then ended, in accordance with U.S. generally accepted accounting principles. 

Other Matters 

Fund Detail 

Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The 

fund detail is presented for purposes of additional analysis and is not a required part of the 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 
2 

subjected to the auditing procedures applied in the audit of the 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 fund detail is fairly stated in all material respects in relation to the financial 

statements as a whole. 

Report on Summarized Comparative Information 

We have previously audited the Smithsonian’s 2016 financial statements, and we expressed an unmodified 

audit opinion on those audited financial statements in our report dated January 27, 2017. In our opinion, the 

summarized comparative information presented herein as of and for the year ended September 30, 2016 is 

consistent, in all material respects, with the audited financial statements from which it has been derived. 

Washington, District of Columbia 

January 22, 2018 
3

SMITHSONIAN INSTITUTION

Statement of Financial Position

September 30, 2017

(with summarized financial information as of September 30, 2016)

(Dollars in millions)

Total funds

Trust Federal 2017 2016

Assets:

Cash, cash equivalents, and U.S.

Treasury balances $ 89.6 350.6 440.2 407.6

Receivables and advances 279.8 2.3 282.1 337.5

Inventories 13.2 0.3 13.5 13.1

Deferred expenses and other assets 58.8 — 58.8 57.2

Investments 1,752.9 — 1,752.9 1,565.5

Property and equipment, net 772.6 1,569.7 2,342.3 2,332.0

Total assets $ 2,966.9 1,922.9 4,889.8 4,712.9

Liabilities:

Accounts payable and accrued expenses $ 133.3 162.8 296.1 286.3

Deferred revenue 59.1 — 59.1 59.4

Unexpended federal appropriations — 289.0 289.0 267.8

Deferred gain on sale of real estate 12.1 — 12.1 16.0

Environmental remediation obligation — 49.9 49.9 51.3

Long-term debt 199.6 — 199.6 201.3

Total liabilities 404.1 501.7 905.8 882.1

Net assets:

Unrestricted 1,345.3 1,421.2 2,766.5 2,650.9

Temporarily restricted 692.0 — 692.0 670.3

Permanently restricted 525.5 — 525.5 509.6

Total net assets 2,562.8 1,421.2 3,984.0 3,830.8

Commitments and contingencies 

Total liabilities and net assets $ 2,966.9 1,922.9 4,889.8 4,712.9

See accompanying notes to financial statements.

Fund detail
4

SMITHSONIAN INSTITUTION

Statement of Financial Activities

Year ended September 30, 2017

(with summarized financial information for year ended September 30, 2016)

(Dollars in millions)

Temporarily Permanently

Unrestricted fund detail restricted restricted Total funds

Trust Federal Total trust funds trust funds 2017 2016

Operating revenues and other additions:

Government revenue:

Federal appropriations $ — 841.0 841.0 — — 841.0 819.9

Government grants and contracts 113.7 — 113.7 — — 113.7 119.6

Total government revenue 113.7 841.0 954.7 — — 954.7 939.5

Contributions 49.4 — 49.4 123.6 14.1 187.1 266.4

Business activities and other:

Business activities 201.9 — 201.9 — — 201.9 180.7

Short-term investment income 2.5 — 2.5 — — 2.5 1.2

Endowment payout 43.2 — 43.2 32.3 — 75.5 72.0

Private grants 6.7 — 6.7 — — 6.7 6.9

Rentals, fees, commissions, and other 22.4 9.3 31.7 — — 31.7 25.9

Gain on sale of real estate 3.9 — 3.9 — — 3.9 3.9

Imputed benefit revenue — 50.7 50.7 — — 50.7 44.8

Total business activities and other 280.6 60.0 340.6 32.3 — 372.9 335.4

Total operating revenues 443.7 901.0 1,344.7 155.9 14.1 1,514.7 1,541.3

Net assets released from restrictions 190.1 — 190.1 (190.1) — — —

Total operating revenues and other 

additions 633.8 901.0 1,534.8 (34.2) 14.1 1,514.7 1,541.3

Expenses:

Program activities:

Research 137.8 160.9 298.7 — — 298.7 275.0

Collections management 27.5 212.1 239.6 — — 239.6 260.4

Education, public programs, and exhibitions 100.5 281.1 381.6 — — 381.6 324.8

Business activities 150.4 — 150.4 — — 150.4 136.9

Total program activities 416.2 654.1 1,070.3 — — 1,070.3 997.1

Supporting activities:

Administration:

Centrally managed 21.6 100.7 122.3 — — 122.3 116.8

Unit managed 60.0 136.8 196.8 — — 196.8 186.5

Advancement 56.0 8.0 64.0 — — 64.0 65.5

Total supporting activities 137.6 245.5 383.1 — — 383.1 368.8

Total expenses 553.8 899.6 1,453.4 — — 1,453.4 1,365.9

Change in net assets before 

nonoperating activities 80.0 1.4 81.4 (34.2) 14.1 61.3 175.4

Nonoperating activities:

Environmental remediation costs — 1.4 1.4 — — 1.4 (1.0)

Nonoperating investment gains 41.5 — 41.5 55.9 1.8 99.2 32.8

Change in net assets of related organizations 

and other 2.2 — 2.2 — — 2.2 2.5

Losses on disposition of assets — (0.5) (0.5) — — (0.5) —

Collection items not capitalized:

Proceeds from sales — — — — — — 0.3

Collection items purchased (7.6) (2.8) (10.4) — — (10.4) (17.7)

Change in net assets 116.1 (0.5) 115.6 21.7 15.9 153.2 192.3

Net assets, beginning of year 1,229.2 1,421.7 2,650.9 670.3 509.6 3,830.8 3,638.5

Net assets, end of year $ 1,345.3 1,421.2 2,766.5 692.0 525.5 3,984.0 3,830.8

See accompanying notes to financial statements.
5

SMITHSONIAN INSTITUTION

Statement of Cash Flows

Year ended September 30, 2017

(with summarized financial information for year ended September 30, 2016)

(Dollars in millions)

Fund detail Total funds

Trust Federal 2017 2016

Cash flows from operating activities:

Change in net assets $ 153.7 (0.5) 153.2 192.3

Adjustments to reconcile change in net assets to net cash 

provided by (used in) operating activities:

Proceeds from sales of collection items — — — (0.3)

Collection items purchased 7.6 2.8 10.4 17.7

Depreciation and amortization 53.3 100.3 153.6 136.1

Present value discount and accretion (0.2) 0.8 0.6 0.7

Contributions for permanent restricted purposes (14.1) — (14.1) (20.9)

Contributions for construction of facilities (13.3) — (13.3) (105.7)

Appropriations for repair, restoration, and construction — (121.5) (121.5) (119.9)

Net investment (gains) losses (161.0) — (161.0) (94.5)

Decrease (increase) in assets:

Receivables and advances 34.2 (0.8) 33.4 0.5

Inventories (0.5) 0.1 (0.4) (1.9)

Deferred expenses and other assets (3.8) 2.2 (1.6) (3.9)

Increase (decrease) in liabilities:

Accounts payable and accrued expenses (3.4) 32.7 29.3 (11.4)

Deferred revenue (0.3) — (0.3) 8.1

Unexpended federal appropriations — 9.4 9.4 (5.0)

Amortization of deferred gain on sale of real estate (3.9) — (3.9) (3.9)

Environmental remediation obligation — (2.2) (2.2) 0.3

Net cash provided by (used in) operating activities 48.3 23.3 71.6 (11.7)

Cash flows from investing activities:

Proceeds from sales of collection items — — — 0.3

Collection items purchased (7.6) (2.8) (10.4) (17.7)

Purchases of property and equipment (55.4) (128.0) (183.4) (248.9)

Purchases of investment securities (472.3) — (472.3) (249.6)

Proceeds from sales/maturities of investment securities 445.9 — 445.9 175.6

Net cash used in investing activities (89.4) (130.8) (220.2) (340.3)

Cash flows from financing activities:

Contributions for permanent restricted purposes 27.3 — 27.3 41.6

Contributions for construction 22.1 — 22.1 68.8

Appropriations for repair, restoration, and construction — 133.3 133.3 144.2

Principal payments on long-term debt (1.5) — (1.5) (1.4)

Net cash provided by financing activities 47.9 133.3 181.2 253.2

Net change in cash, cash equivalents, and 

U.S. Treasury balances 6.8 25.8 32.6 (98.8)

Cash, cash equivalents, and U.S. Treasury balances:

Beginning of year 82.8 324.8 407.6 506.4

End of year $ 89.6 350.6 440.2 407.6

Noncash investing activities:

Construction cost accruals $ 0.2 12.3 12.5 32.0

Cash paid for interest $ 3.8 — 3.8 3.5

See accompanying notes to financial statements.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

6 (Continued)

(1) Organization

The Smithsonian Institution (Smithsonian) was created by act of Congress in 1846 in accordance with the 

terms of the will of James Smithson of England, who, in 1826, bequeathed property to the United States of 

America “to found at Washington, under the name of the Smithsonian Institution, an establishment for the 

increase and diffusion of knowledge among men.” Congress established the Smithsonian as a trust of the 

United States of America and vested responsibility for its administration in the Smithsonian Board of 

Regents (Board).

The Smithsonian is a museum and an education and research complex consisting of 17 museums and the 

National Zoological Park in Washington, D.C., and two museums in New York City. Additional facilities and 

programs are operated in five states and Panama. Research is carried out in the museums and other 

facilities throughout the world. During fiscal year 2017, 30.1 million individuals visited Smithsonian 

museums and other facilities.

At September 30, 2017, the Smithsonian’s extensive collection contained approximately 154.8 million 

objects: 400,000 works of art, 8.8 million historical artifacts, and 145.6 million natural and physical science 

specimens (living and nonliving). The Smithsonian also maintains 157,000 cubic feet and 600,000 items of 

archival holdings and 2.1 million library volumes. During fiscal year 2017, approximately 11,100 natural 

and physical science specimens were disposed of.

A substantial portion of the Smithsonian’s operations is funded by annual federal appropriations. Federal 

appropriations are also received for the construction or repair and restoration of its facilities. Construction 

of certain facilities has been funded entirely by federal appropriations, while others have been funded by a 

combination of federal and private funds.

In addition to federal appropriations, the Smithsonian receives private support, government grants, and 

contracts, and earns income from the endowment payout and its various business activities. Business 

activities include Smithsonian magazines; other publications; online catalogs; and theaters, shops, and 

food services located in its museums and centers.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The financial statements present the financial position, financial activities, and cash flows of the 

Smithsonian on the accrual basis of accounting. Funds received from direct federal appropriations 

and related transactions are reported as federal funds. All other funds and related transactions are 

reported as trust funds.

These 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 Smithsonian’s financial statements for the year 

ended September 30, 2016, from which the summarized information was derived. 

These financial statements do not include the accounts of the National Gallery of Art, the John F. 

Kennedy Center for the Performing Arts, or the Woodrow Wilson International Center for Scholars, 

which were established by Congress within the Smithsonian, but are governed by independent 

boards of trustees and therefore not controlled by the Smithsonian.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

7 (Continued)

Expenses are presented on a functional basis in the statement of financial activities. Programs 

include research, collections management, education, public programs and exhibitions, and 

business activities. Supporting services include administration and advancement. Administration is 

reported as centrally managed, through the Office of Under Secretary for Finance and Administration,

or unit managed, as part of an individual museum or center. Depreciation, security, and other general 

operating costs that benefit more than one program are allocated across programs and services 

based on relative square feet.

(b) 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 

financial statements and the reported amounts of revenues and expenses during the reporting 

period. Actual results could differ from those estimates. The most significant estimates affecting the 

Smithsonian’s financial statements relate to the net asset value of nonmarketable investments,

environmental remediation obligation, and the allowance for contributions receivable.

(c) Federal Funds

Federal appropriations revenues are classified as unrestricted and recognized as exchange

transactions as expenses are incurred. The net assets of federal funds consist primarily of the 

Smithsonian’s net investment in property and equipment purchased with or constructed using federal 

funds less unfunded liabilities for environmental remediation obligation, annual leave, and estimated 

Federal Employee Compensation Act (FECA) liabilities for workers’ compensation claims.

For fiscal 2017, the Smithsonian was appropriated $729.4 for operations and $133.9 for construction 

or repair and restoration of facilities. Federal appropriations for operations are generally available for

obligation for two years. Federal appropriations for construction or repair and restoration of facilities 

are generally available for obligation until expended. Unexpended appropriations are recognized as 

liabilities in the statement of financial position.

In accordance with Public Law 110-161, appropriations for operations are maintained for five years 

following the year of appropriation, at which time the appropriation account is closed and any 

unexpended balance is returned to the U.S. Treasury. During fiscal year 2017, the unexpended 

balance of the fiscal 2011 appropriation, amounting to $1.1, was returned.

(d) Trust Funds

Trust net assets, revenues, expenses, and gains and losses are classified and reported based on 

the existence or absence of donor-imposed restrictions as follows:

 Unrestricted

Unrestricted net assets are not subject to donor-imposed or other legal stipulations on the use 

of the funds. Funds functioning as endowment (board-designated) in this category represent 

unrestricted net assets that have been designated by the Board for long-term investment.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

8 (Continued)

 Temporarily Restricted

Temporarily restricted net assets subject to donor-imposed stipulations that may be met by 

actions of the Smithsonian and/or the passage of time. Donor-restricted and board-designated

endowment funds in this category represent donor-restricted contributions and accumulated 

earnings from true endowments that have been designated for long-term investment, 

respectively. Once the temporary restriction has been met (i.e., the donor stipulation has been 

fulfilled, assets placed in service, and/or the stipulated time period has elapsed), net assets are 

reported as reclassifications from temporarily restricted net assets to unrestricted net assets.

 Permanently Restricted

Permanently restricted net assets are subject to donor-imposed stipulations requiring the 

principal be maintained permanently by the Smithsonian. Generally, the donors of these assets 

permit the use of all or part of the income earned on investment of the assets for either general 

or donor-specified purposes.

Trust fund revenues are reported as increases in unrestricted net assets unless the use of the related 

assets is limited by the donor. Expenses are reported as decreases in unrestricted net assets. Gains 

and losses on investments are reported as increases or decreases in unrestricted net assets unless 

their use is restricted by explicit donor stipulations or by law. Losses on investments that reduce the 

assets of donor-restricted endowment funds below the level required by donor stipulations or by law 

are generally classified as reductions of unrestricted net assets and reported as nonoperating losses 

in the statement of financial activities. Subsequent gains that restore the fair value of the assets of 

the endowment fund to the required level are classified as increases in unrestricted net assets and 

reported as nonoperating gains in the statement of financial activities.

(e) Cash Equivalents

The Smithsonian considers all highly liquid investments purchased with an average maturity of 

three months or less, including U.S. Treasury balances, to be cash equivalents. Cash equivalents 

for trust funds include funds held by the U.S. Treasury of $16.0 and $32.1 of institutional money 

market funds with maturity dates of three months or less. Cash and cash equivalents for federal 

funds consist entirely of U.S. Treasury balances of $350.6 restricted for federal appropriation capital 

and operating expenses.

(f) Working Capital

The Smithsonian has adopted a working capital policy to meet immediate and long-term cash needs 

of the organization using high-quality investments. The working capital investment policy requires

funds be invested in short-term instruments that will allow for required liquidity and provide a 

maximum interest return within defined risk constraints. At September 30, 2017, the fund, totaling 

$280.3, is comprised of $32.1 in cash equivalents with maturity dates of three months or less and 

short-term investments of $228.2, all of which are included in investments (note 5). 

(g) Trade Accounts Receivable

Trade accounts receivable generally consists of accounts receivables related to magazine 

advertising and certain concession agreements and are stated at invoice amount. Allowances are 

recognized for uncollectible amounts based on past collection experience.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

9 (Continued)

(h) Contributions

Contributions, including unconditional promises to give, are recognized as revenues in the 

appropriate category of net assets in the period received. Modifications to donor gift agreements or 

pledges are recognized in the period received. Conditional promises to give are not recognized until 

the conditions on which they depend are substantially met. Contributions of assets other than cash 

are recorded at estimated fair value at the date of gift, except items that are contributed and held as 

part of the Smithsonian’s collections are not capitalized. Contributions restricted to the acquisition of 

long-lived assets are recorded as temporarily restricted revenue in the period received. Generally, 

the donor’s restrictions are considered met and the net assets are released from restriction when the 

related long-lived asset is placed in service.

Contributions receivable are reported net of management’s estimate of uncollectible amounts, which 

is based on judgment and analyses of donors’ creditworthiness, past collection experience, and other 

relevant factors. Estimated collectible contributions scheduled to be received after one year are 

discounted using a risk-adjusted rate for the expected period of collection. Amortization of the 

discount is recorded as contribution revenue.

In-kind contributions of goods and services totaling $14.0 were received in fiscal year 2017 and 

recognized as program support, revenues and expenses in the statement of financial activities. 

In-kind contributions include donated space, equipment, and various other items.

A substantial number of volunteers also make significant contributions of time to the Smithsonian, 

enhancing its activities and programs. Approximately 6,900 volunteers contributed about 551,000

hours of service to the Smithsonian during fiscal year 2017. In accordance with applicable guidance, 

the value of these contributions is not recognized in the financial statements.

(i) Deferred Revenues and Expenses

Revenues from magazine subscriptions and long-term contracts are deferred and recognized ratably 

over the period of the underlying agreement.

Promotion production expenses are recognized when related advertising materials are released. 

Direct-response advertising relating to the magazines is deferred and amortized over one year. At 

September 30, 2017, deferred expenses and other assets include $7.3 of deferred promotion costs, 

related primarily to the magazines. Advertising expense, including direct response advertising of 

$8.2, totaled $13.0 in fiscal year 2017 and is included in business activities expenses in the statement 

of financial activities.

(j) Inventories

Inventories are reported at the lower of cost or market, and consist primarily of merchandise and 

books. Cost is determined using the first-in, first-out method.

(k) Investments

The Smithsonian employs an investment strategy that utilizes equities, marketable alternatives, fixed 

income, private equity and venture capital, natural resources and real estate, and cash and cash 

equivalents to fulfill its fiduciary responsibility to its donors and constituents.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

10 (Continued)

Investments in fixed income, certain global equities, publicly traded natural resources, and cash and 

cash equivalents, including gift annuity program investments, are reported at fair value, which are 

determined primarily based on quoted market prices. Investments in private equity and venture 

capital, certain real estate, natural resources, marketable alternatives, and public equities held 

through commingled funds (collectively, nonmarketable investments) are stated at estimated fair 

value based on the funds’ net asset values, or their equivalents (collectively, NAV) as a practical 

expedient, unless it is probable that all or a portion of the investment will be sold for an amount 

different from NAV. As of September 30, 2017, the Smithsonian had no plans or intentions to sell 

investments at amounts different from NAV. These estimated fair values may differ from the values 

that would have been used had a ready market existed for these investments, and the differences 

could be significant. 

Investments are exposed to various risks including business, interest rate, market, exchange rate, 

liquidity, and credit risks. Due to the level of risk associated with certain investments, it is at least 

reasonably possible that significant changes in the values of investments could occur in the near 

term.

Changes in fair value are recognized in the statement of financial activities. Purchases and sales of 

investments are recorded on the trade date using average cost. Investment income is recorded when 

earned.

(l) Split Interest Agreements and Perpetual Trusts

Split interest agreements with donors consist primarily of irrevocable charitable remainder trusts, 

charitable gift annuities, and perpetual trusts. The assets for the charitable trusts are included in 

receivables and advances. Contribution revenues from charitable remainder trusts are recognized at 

the dates the trusts are established based on the net present value of the estimated future payments 

to be made to the donors and/or other beneficiaries. For the charitable gift annuities, assets are 

recognized at fair value at the dates of the annuity agreements and included in investments. An 

annuity liability is recognized for the present value of future cash flows expected to be paid to the 

donor and contribution revenues are recognized equal to the difference between the assets and the 

annuity liability. Liabilities are adjusted during the terms of the annuities for payments to donors, 

accretion of discounts, and changes in the life expectancies of the donors.

The Smithsonian is also the beneficiary of certain perpetual trusts held and administered by others. 

The fair values of the trusts are recognized as assets and contribution revenues at the dates the 

trusts are established. Distributions from the trusts are recorded as investment income and the 

assets are adjusted for changes in the fair value of the trust assets.

(m) Property and Equipment

Property and equipment purchased with federal or trust funds are recorded at cost. Property and 

equipment acquired through transfers from government agencies are recorded at net book value or 

fair value at the date of transfer, whichever is more readily determinable. Property and equipment 

acquired through donation are recorded at estimated fair value at the date of the gift. 
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

11 (Continued)

Property and equipment assets are depreciated on a straight-line basis over their estimated useful 

lives as follows:

Buildings 30 years

Major renovations 15 years

Equipment and software 3–7 years

Exhibit costs 10 years

Leasehold improvements are amortized over the shorter of the lease term or their useful lives.

Rent expense under operating leases that provide for scheduled rent increases over their terms is 

recognized on a straight-line basis.

Certain lands occupied by Smithsonian buildings, located primarily in the District of Columbia, 

Maryland, and Virginia, were appropriated and reserved by Congress for the Smithsonian’s use. The 

Smithsonian serves as trustee of these lands for as long as they are used to carry out its mission. 

These lands are titled in the name of the U.S. government and are not included in the accompanying 

financial statements.

(n) Collections – Stewardship Assets

The Smithsonian acquires its collections by purchase (using federal or trust funds) or by donation. 

Collections are held for public exhibition, education, or research. The Smithsonian’s collections 

management policy includes guidance on the preservation, care, and maintenance of the collections 

and procedures relating to the accession/deaccession of collection items.

In conformity with the practice generally followed by museums, no value is assigned to the collections 

in the statement of financial position. Purchases of collection items are recognized as reductions in 

unrestricted net assets in the period of acquisition. Proceeds from deaccessions or insurance 

recoveries for lost or destroyed collection items are recognized as increases in the appropriate net 

asset class and are designated for future collection acquisitions.

Noncash deaccessions result from the exchange, donation, or destruction of collection items, and 

occur because objects deteriorate, are outside the scope of a museum’s mission, or are duplicative. 

During the fiscal year, noncash deaccessions included works of art, animals, historical objects, and 

natural specimens.

Items that are acquired with the intent to sell, exchange, or otherwise be used for financial gain are 

not considered collection items and are recorded as other assets at their fair value at the date of 

acquisition. Contributed items held for sale, amounting to $0.9, are included in other assets.

(o) Annual Leave

The Smithsonian’s federal and trust employees earn annual leave in accordance with federal laws 

and regulations and internal policies, respectively. Annual leave for all employees is recognized as 

an expense when earned. The liability for unused annual leave is included in accounts payable and 

accrued expenses in the statement of financial position aggregated to $28.7 for federal and $14.1 

for trust as of September 30, 2017.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

12 (Continued)

(p) Sponsored Projects

The Smithsonian receives grants and enters into contracts with U.S. federal, state, and local 

governments, which generally provide for reimbursement of costs. Revenues under these 

agreements are recognized as reimbursable expenditures are incurred as government grants and 

contracts. These revenues include recoveries of facilities and administrative costs that are generally 

based on a negotiated or agreed-upon percentage of direct costs, with certain exclusions.

(q) Advancement

The Smithsonian raises private financial support from individual donors, corporations, and 

foundations to fund programs and other initiatives. Financial support is also generated through 

numerous membership programs. Fund-raising costs are expensed as incurred and reported as 

advancement expenses in the statement of financial activities. 

(r) Nonoperating Activities

Nonoperating activities include environmental remediation costs, nonoperating investment income, 

loss on disposition of assets, changes in the net assets of related organizations, and changes in net 

assets related to collection items. 

Nonoperating investment income is calculated as the difference between the total return on the 

endowment (i.e., dividends, interest, and net gain or loss) and the annual payout of the endowment 

funds.

The Smithsonian recognizes its interest in the net assets of organizations that are financially 

interrelated and the changes in its interest using a method similar to the equity method of accounting. 

The principal financially interrelated organizations are the Smithsonian Network and Friends of the 

National Zoo.

(s) Income Taxes

The Smithsonian is recognized as exempt from income taxation under the provisions of Section 

501(c)(3) of the Internal Revenue Code. Organizations described in that Section are taxable only on 

their unrelated business income. Advertising sales are the principal source of unrelated business 

income for the Smithsonian. The provision for income taxes was not material for fiscal year 2017.

The Smithsonian recognizes the effect of income tax positions only if those positions are more likely 

than not of being sustained. The Smithsonian does not believe its financial statements include any 

uncertain tax positions.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

13 (Continued)

(3) Receivables and Advances

Receivables and advances consist of the following as of September 30, 2017:

Trust Federal Total

Contributions $ 221.0 — 221.0 

Grants and contracts 22.0 — 22.0 

Charitable trusts 19.1 — 19.1 

Trade accounts, net of $0.5 allowances 15.7 2.3 18.0 

Accrued interest and dividends 1.7 — 1.7 

Advances and other 0.3 — 0.3 

Total receivables and

advances $ 279.8 2.3 282.1 

Contributions receivable consist of the following:

Due within:

Less than 1 year $ 93.3 

1 to 5 years 134.0 

5 years or beyond 5.8 

233.1 

Less:

Allowance for uncollectible contributions (5.6) 

Unamortized discount (at rates ranging from 0.62% to 3.8%) (6.5) 

Contributions receivable, net $ 221.0 

(4) Federal Appropriations

The fiscal 2017 federal appropriation reconciles to federal appropriation revenue as follows:

Repair and

restoration

Salaries and and

expenses construction Total

Fiscal year 2017 federal appropriation $ 729.4 133.9 863.3 

Unexpended 2017 appropriation (108.1) (112.6) (220.7) 

Amounts expended from prior years’

appropriations 98.2 100.2 198.4 

Federal appropriation

revenue $ 719.5 121.5 841.0 
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

14 (Continued)

The fiscal year 2017 federal appropriation reconciles to federal appropriation expense as follows:

Repair and

restoration

Salaries and

and expenses construction Total

Fiscal year 2017 federal appropriation $ 729.4 133.9 863.3 

Unexpended 2017 appropriation (108.1) (112.6) (220.7) 

Depreciation 11.2 89.1 100.3 

Imputed benefit costs 50.7 — 50.7 

Collection items purchased (2.8) — (2.8) 

Amounts expended from prior years’

appropriations 98.2 100.2 198.4 

Capital expenditures (15.6) (112.4) (128.0) 

Loss on disposition of assets — 0.5 0.5 

Unfunded expenses – FECA, annual leave,

and actuarial adjustment 27.6 — 27.6 

Other funding 10.2 0.1 10.3 

Federal appropriation expense $ 800.8 98.8 899.6 

Unexpended appropriations for all fiscal years total $289.0 at September 30, 2017 and consist of $136.0

in unexpended operating funds and $153.0 in unexpended construction funds. Unexpended operating and 

construction funds represent amounts appropriated for Smithsonian’s operations and new facilities or 

renovations, respectively.

(5) Investments and Fair Value Measurements

The Smithsonian has adopted investment policies for its endowment, including board-designated funds, 

which attempt to provide a predictable stream of funding in support of the operating budget, while seeking 

to preserve the real value of the endowment assets over time. The Smithsonian 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), targeting a diversified asset allocation. The Board’s 

Investment Committee reviews the long-term asset allocation for the endowment.

The three levels of the fair value hierarchy for recurring fair value measurements are prioritized based on 

the inputs to valuation techniques used to measure fair value and are as follows:

 Level 1 – Quoted prices in active markets for identical assets or liabilities, as of the reporting date.

 Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or 

liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be 

corroborated by observable market data for substantially the full term of the assets or liabilities.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

15 (Continued)

 Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant 

to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments 

whose value is determined using pricing models, discounted cash flow methodologies, or similar 

techniques, as well as instruments for which the determination of fair value requires significant 

management judgment or estimation.

The following summarizes Smithsonian’s investments at fair value, which are determined primarily based 

on quoted market prices and NAV, as of September 30, 2017:

Total Level 1 Level 3 NAV (1)

Fixed income $ 228.2 228.2 — —

Endowment investments:

Global equities:

Global markets 47.1 47.1 — —

Emerging markets 34.3 34.3 — —

Real assets:

Energy and natural resources 30.7 30.7 — —

Fixed income 99.7 99.7 — —

Cash and equivalents 15.1 15.1 — —

 P ooled inves t ment s 226.9 226.9 — —

 Investments at NAV 1,272.2 — — 1,272.2

Total pooled investments 1,499.1 226.9 — 1,272.2

Nonpooled investments:

 U.S. Treasury deposits 1.0 1.0 — —

Total endowment 1,500.1 227.9 — 1,272.2

Gift annuities, primarily equities 24.6 24.6 — —

Total investments 1,752.9 480.7 — 1,272.2

Charitable trusts 19.1 — 19.1 —

$ 1,772.0 480.7 19.1 1,272.2

(1) Investments held through limited partnerships and comingled funds for which fair value is estimated 

using the NAV’s reported by the investment managers as a practical expedient have not been 

categorized within the fair value hierarchy; however, these investments are included in the table above 

to permit reconciliation with the statement of financial position.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

16 (Continued)

The following summarizes information relating to the investments, which are stated at NAV as practical 

expedient for fair value and includes information about the nature, strategies, and risks of these major 

classes of nonmarketable investments:

Redemption Days of Unfunded

NAV terms notices commitments

Global equity:

 Developed markets $ 295.9 Weekly to annually 6-91 $ — 

 Emerging markets 107.9 Daily to maturity 10–N/A — 

Marketable alternatives:

 Long/short equity 69.2 Monthly to annually 30–60 — 

 Credit and distressed 98.8 Annually to maturity 90-N/A 14.4 

 Multistrategy 50.9 Monthly to quarterly 60 — 

 Global macro 61.3 Monthly to semiannually 2–60 — 

Private equity:

 Private equity 123.8 Not applicable N/A 67.1 

 Venture capital 232.8 Not applicable N/A 71.4 

Real assets:

 Energy and natural resources 88.6 Not applicable N/A 42.7 

 Real estate funds 120.5 Quarterly to maturity 60–N/A 86.5 

Fixed income 22.5 Quarterly to maturity 90–N/A 10.0 

$ 1,272.2 $ 292.1 

The following describes the nature, strategies, and risks of the major classes of the investments that are 

stated at NAV for fair value.

(a) Global Equity

Global equity is comprised of investments in funds and strategies invested in publicly listed equity 

securities in the global developed and emerging markets. Some of the funds are subject to lock-ups.

(b) Marketable Alternatives

Marketable alternatives consist of investments in a broad array of securities and strategies aimed to 

reduce volatility and enhance returns. Smithsonian’s marketable alternatives are broadly defined as 

long/short equity, credit and distressed, multistrategy, and global macro funds. Long/short equity 

funds invest in long equity positions that are expected to increase in value and short equity positions 

in stocks that are expected to decrease in value. Credit and distressed funds generally invest in 

corporate fixed income and debt securities of companies that are experiencing financial or 

operational difficulties. Multistrategy funds invest across different strategies to diversify risks and 

reduce volatility. Global macro funds invest in strategies to profit from macroeconomic events that 

may include changes in interest rates, currency movements, and stock market performance. Some 

of the funds are subject to soft and hard lock-ups and other funds are not eligible for redemption.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

17 (Continued)

(c) Private Equity and Venture Capital

Private equity consists of limited partnerships that are organized to invest primarily in shares of 

operating companies that are not listed on a publicly traded stock exchange. Private equity strategies 

include investments in leveraged buyouts, growth capital, and distressed investments. Venture 

capital strategies invest in start-ups and small businesses with perceived long-term growth potential. 

Distributions to limited partners are made as soon as feasible and, in accordance with the limited 

partnership agreement, when realizations (sales of portfolio companies) are made or when interest 

payments, dividends, or recapitalizations are received.

(d) Real Assets

Real assets include real estate and energy and natural resources investments that are made mostly 

in private limited partnerships as well as publicly traded securities funds. Distributions to limited 

partners are made as soon as feasible and, in accordance with the limited partnership agreement, 

when realizations (sales of portfolio companies) are made or when interest payments, dividends, or 

recapitalizations are received.

(e) Fixed Income

Fixed income includes funds that invest in U.S. government, agency, and municipal bonds, and other 

interest-bearing products.

The Smithsonian is obligated under the terms of certain limited partnership agreements to remit 

additional funding periodically as capital calls are exercised. As of September 30, 2017, the 

Smithsonian had uncalled commitments totaling approximately $292.1. Such commitments are 

callable over the fund investment period, generally the first five years of the funds. The standard life 

of Smithsonian’s investments in these private partnerships are between 8 and 10 years with one or 

two possible one-year extension periods and/or other termination clauses.

Activity for charitable trusts measured at fair value on a recurring basis using significant unobservable 

inputs (Level 3) for fiscal year 2017 is as follows: beginning balance $18.0; distribution $0.3; net 

gains $1.4; and ending balance $19.1. There are no transfers and reclassifications of assets between 

levels during fiscal year 2017.

Investment return consisted of the following for fiscal year 2017:

Dividend and interest income $ 19.0 

Net investment gains 161.0 

Investment management fees (2.8) 

$ 177.2 
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

18 (Continued)

Investment return is classified in the statement of financial activities as follows for fiscal year 2017:

Short-term investment income $ 2.5 

Endowment payout 75.5 

Nonoperating investment gain 99.2 

Investment return $ 177.2 

(6) Endowment Funds

The Smithsonian endowment consists of approximately 600 individual funds established for a variety of 

purposes. The endowment includes both donor-restricted endowment funds and funds designated by the 

Board to function as endowments (board designated). Net assets associated with endowment funds are 

classified and reported based on the existence or absence of donor-imposed restrictions.

The Smithsonian’s management and investment of donor-restricted endowment funds follows the 

provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Based on the 

Smithsonian’s interpretation of the provisions of UPMIFA, the organization is required to act prudently when 

making decisions to spend or accumulate donor-restricted endowment assets and in doing so to consider 

a number of factors including the duration and preservation of its donor-restricted endowment funds. As a 

result of this interpretation, the Smithsonian classifies as permanently restricted net assets, the original 

value of gifts donated to the permanent endowment. The remaining portion of the endowment fund 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.

The Smithsonian manages and invests the individual endowment funds considering UPMIFA standards. 

Substantially all of the investments of the endowment are pooled, with individual funds buying or disposing 

of units on the basis of the market value at the beginning of the month in which the transaction takes place. 

As of September 30, 2017, the per-unit market value of the pool, in whole dollars, was $902.82.

Each fund participating in the investment pool receives an annual appropriation based on the number of 

units owned. The annual appropriation is determined in light of UPMIFA standards and the investment 

policy of the institution, which targets a long-term investment return assumption, an estimated inflation 

factor, and the investment policy of the institution that targets an appropriation to be 5% of the prior 

five years’ average value of the endowment. The per-unit payout for fiscal year 2017, in whole dollars, was 

$40.39 or 5% of the average per-unit market value of the endowment over the prior five years. An additional 

payout per eligible unit of $8.08 (in whole dollars) was authorized and made to support the fund-raising 

campaign.

From time to time, the fair value of assets associated with individual donor-restricted endowment funds 

may fall below the original value of gifts donated to the permanent endowment. Deficiencies of this nature 

are reported in unrestricted net assets. Such deficiencies are generally the result of unfavorable market 

fluctuations and continuing the appropriations for various programs is generally deemed prudent by the 

Board. There were no such deficiencies at September 30, 2017.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

19 (Continued)

Endowment net assets, excluding contributions receivable, consist of the following as of September 30, 

2017:

Temporarily Permanently

Unrestricted restricted restricted Total

Donor restricted $ — 347.0 485.2 832.2 

Board designated 657.9 12.0 — 669.9 

Total endowment net

assets $ 657.9 359.0 485.2 1,502.1 

Uninvested cash and receivables $ (3.0) 

Total endowment assets

under management $ 1,499.1 

Activity in endowment net assets for fiscal 2017 is as follows:

Temporarily Permanently

Unrestricted restricted restricted Total

Balance, September 30, 2016 $ 609.6 301.8 457.3 1,368.7 

Investment return:

Investment income 4.2 5.1 — 9.3 

Realized and unrealized gains, net 70.4 87.2 — 157.6 

Total investment

return 74.6 92.3 — 166.9 

Contributions, including board-designated

transfers 11.3 2.8 27.9 42.0 

Appropriated for expenditure (37.6) (37.9) — (75.5) 

Balance, September 30, 2017 $ 657.9 359.0 485.2 1,502.1 

(7) Property and Equipment

Property and equipment consists of the following as of September 30, 2017:

Trust Federal Total

Land $ 12.6 — 12.6 

Buildings and capital improvements 1,100.5 2,956.5 4,057.0 

Equipment and software 74.2 231.5 305.7 

Leasehold improvements 100.4 33.0 133.4 

1,287.7 3,221.0 4,508.7 

Accumulated depreciation (515.1) (1,651.3) (2,166.4) 

Total property and equipment $ 772.6 1,569.7 2,342.3 
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

20 (Continued)

Buildings and capital improvements include $55.0 and $337.1 of construction in progress within trust and 

federal funds, respectively. Depreciation expense totaled $53.3 in trust funds and $100.3 in federal funds.

The Smithsonian has an unfunded environmental remediation obligation that is estimated based on 

third-party studies, contractor bids, and internal estimates derived from recently completed remediation 

projects for similar Smithsonian facilities and other information for similar projects. The present value of the 

obligation is calculated using an inflation rate of 1.98% and a discount rate of 1.63%. Each period, the 

obligation is accreted to its present value. Because the related properties are fully depreciated, changes in 

the estimated obligation are expensed. Any difference between the estimated obligation and the actual 

cost of remediation is also expensed. Fiscal year 2017 activity in the unfunded environmental remediation 

obligation follows:

Beginning balance, September 30, 2016 $ 51.3

Accretion 0.8

Liabilities incurred 0.2

Liabilities settled (0.2)

Change in estimate (2.2)

Ending balance, September 30, 2017 $ 49.9

In fiscal year 2006, the Smithsonian sold an office building in Washington, D.C., and entered into short-term 

and long-term leases for approximately 32% of the building. As a result of the leaseback, the full gain of 

$62.9 was deferred at the date of sale and is being recognized over the term of the leases. In fiscal year 

2017, $3.9 of the deferred gain was recognized.

(8) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at September 30, 2017 consist of the following:

Trust Federal Total

Accounts payable $ 25.8 66.2 92.0 

Accrued salaries and benefits 42.5 96.6 139.1 

Deferred rent liability 20.8 — 20.8 

Gift annuity liabilities 14.7 — 14.7 

Other accrued liabilities 29.5 — 29.5 

Total accounts payable and

accrued expenses $ 133.3 162.8 296.1 

Accrued salaries and benefits include estimated FECA liabilities of $2.8 for trust employees and $44.3 for 

federal employees.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

21 (Continued)

(9) Long-term Debt

Long-term debt consists of unsecured obligations and is funded solely through unrestricted trust funds. 

Long-term debt is comprised of the following:

Series 2013 Taxable Bonds, Series A: $ 50.0

Interest rate 3.434%, due September 1, 2023

Series 2013 Taxable Bonds, Series B: 50.0

Variable interest rate, due September 1, 2018

Series 2010 Revenue Bonds, serial, principal amounts ranging from $1.5 to 6.4

$1.7, interest rates 3.00% to 5.25%, due February 1, 2018 through 2021

Series 2010 Revenue Bonds, term, principal amounts ranging from $1.8 to 14.6

$2.4, interest rate 5.25%, due February 1, 2022 through 2028

Series 2003 Revenue Bonds, Series A: 52.5

Variable interest rate, due December 1, 2033

Series 2003 Revenue Bonds, Series B: 25.0

Variable interest rate, due December 1, 2033

Subtotal 198.5

Less unamortized bond issue cost (0.2)

Plus unamortized bond premium 1.3

Total long-term debt $ 199.6

(a) Series 2013 A and B Taxable Bonds

The Series 2013 A and B taxable bonds were issued in November 2013 to finance capital and other 

projects. Interest on the Series A bonds is payable semiannually every March 1 and September 1

while interest on the Series B bonds is payable monthly at a variable interest rate determined in 

accordance with the Indenture (1.3% at September 30, 2017).

In connection with the Series B offering, the Smithsonian entered into a standby bond purchase 

agreement with Wells Fargo (Trustee) and Northern Trust Company (Liquidity Facility Provider), for 

the creation of the 2013 Liquidity Facility. The 2013 Liquidity Facility secures only the payment of the 

purchase price of the Series B bonds tendered for purchase and does not otherwise secure payment 

of the principal or interest on the Bonds. The 2013 Liquidity Facility expires September 4, 2018.

(b) Series 2010 Revenue Bonds

The tax-exempt Series 2010 Revenue Bonds were issued by the District of Columbia on behalf of 

the Smithsonian to finance capital and other projects. Interest is payable semiannually every 

August 1 and February 1. 

The serial bonds mature annually through February 1, 2021, with principal repayments ranging from 

$1.5 to $1.7 per year. The term bonds maturing on February 1, 2028 are subject to mandatory 

redemption by sinking fund installments, which begin on February 1, 2022 and range from $1.8 to 

$2.4 per year through the maturity date.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

22 (Continued)

(c) Series 2003 Revenue Bonds

The tax-exempt Series 2003 Revenue Bonds were issued by the Fairfax County Economic 

Development Authority (Virginia) on behalf of the Smithsonian to finance a portion of the Steven F. 

Udvar-Hazy Center, an extension of the National Air and Space Museum. The bonds are subject to 

early redemption at the option of the Smithsonian. Interest is payable monthly at a variable interest 

rate determined in accordance with the Indenture. Interest rates for Series A and Series B were 

0.98% and 0.92%, respectively, at September 30, 2017.

The bonds are supported by a standby bond purchase agreement for Series A and a standby 

purchase agreement for Series B (collectively, the 2003 Liquidity Facility) with Wells Fargo (Trustee) 

and Northern Trust Company (Liquidity Facility provider). The 2003 Liquidity Facility does not 

guarantee principal or interest on the bonds and does not provide liquidity support for the bonds 

except while bearing interest at a daily or weekly rate. The 2003 Liquidity Facility expires

September 11, 2018.

For fiscal 2017, interest expense totaled $3.6.

Future annual maturities of long-term debt are as follows:

2018 $ 51.5 

2019 1.6 

2020 1.6 

2021 1.7 

2022 1.8 

Thereafter 140.3 

$ 198.5 

(10) Net Assets

Unrestricted net assets include $657.9 of funds functioning as endowments as of September 30, 2017.

Temporarily restricted net assets are available for the following purposes as of September 30, 2017:

Museums and general support $ 192.4 

Education, public programs, and exhibitions 196.8 

Research 99.5 

Acquisitions and collections 76.4 

Facilities 126.9 

$ 692.0 
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

23 (Continued)

Net assets released from donor restrictions due to the passage of time, assets placed in service, or by 

incurring expenses satisfying the restricted purpose specified by the donors were as follows for fiscal 2017:

Museums and general support $ 32.6 

Education, public programs, and exhibitions 64.5 

Research 16.1 

Acquisitions and collections 9.4 

Facilities 67.5 

$ 190.1 

Permanently restricted net assets are restricted for the following purposes as of September 30, 2017:

Museums and general support $ 138.6 

Education, public programs, and exhibitions 248.8 

Research 86.6 

Acquisitions and collections 50.0 

Facilities 1.5 

$ 525.5 

(11) Employee Benefit Plans

Federal employees of the Smithsonian are covered by either the Civil Service Retirement System (CSRS) 

or the Federal Employee Retirement System (FERS). The terms of these plans are defined in federal 

regulations. Under both systems, a specified percentage is withheld from each federal employee’s salary. 

The Smithsonian also contributes specified percentages of employees’ salaries. The fiscal 2017 expense 

for these plans was $39.6. Additional imputed costs associated with these plans are borne by the U.S.

government. The Smithsonian recognizes its share of such costs ($50.7 for fiscal 2017) as imputed benefit 

revenue and expense in the financial statements. The Smithsonian is not responsible for and does not 

report CSRS or FERS assets, accumulated plan benefits, or liabilities applicable to its employees. The 

Office of Personnel Management (OPM) administers these plans and is responsible for the reporting of 

these amounts.

Employees covered by CSRS and FERS are eligible to contribute to the U.S. government’s Thrift Savings 

Plan (TSP), which is administered by the Federal Retirement Thrift Investment Board. A TSP account is 

automatically established for FERS-covered employees and the Smithsonian makes mandatory and 

matching contributions of specified percentages of the basic pay for FERS-covered employees, which 

aggregated to $12.1 for fiscal 2017. The Smithsonian makes no matching contributions for CSRS-covered 

employees.

Most federal employees are entitled to participate in the Federal Employees Group Life Insurance (FEGLI) 

Program. Participating employees can obtain basic term life insurance, with the employee paying two-thirds 

of the cost and the Smithsonian paying one-third. Additional coverage is optional, to be paid fully by the 

employee. The basic life coverage may be continued into retirement if certain requirements are met. OPM 

administers this program and is responsible for the reporting of liabilities.
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

24 (Continued)

Trust fund employees are covered by a separate defined-contribution retirement plan for trust fund

employees in which substantially all such employees are eligible to participate. Under the plan, the 

Smithsonian contributes specified percentages of employees’ salaries that are used to purchase individual 

annuities, the rights to which are immediately vested with the employees. Employees can make voluntary 

contributions, subject to certain limitations. The Smithsonian’s expense for this plan for fiscal year 2017

was $19.1.

In addition to the retirement plans, certain healthcare and life insurance benefits are made available to 

active and retired trust fund employees. The plan is contributory for retirees and requires payment of 

premiums and deductibles. Retiree contributions for premiums are established by an insurance carrier 

based on the average per-capita cost of benefit coverage for all participants. At September 30, 2017, the 

accrued benefit obligation under this plan was $15.8 and is included in accounts payable and accrued 

expenses in the statement of financial position.

Most federal employees are eligible to enroll in the Federal Employees Health Benefit (FEHB) Program, 

which provides postretirement health benefits if certain conditions are met. OPM administers this plan and 

the Smithsonian has no expense or obligations related to this program.

(12) Business Activities

A summary of business activities is as follows for fiscal 2017:

Revenues Expenses Net

Smithsonian business enterprises $ 178.9 (133.4) 45.5 

Unit auxiliary activities 23.0 (17.0) 6.0 

Total business activities $ 201.9 (150.4) 51.5 

(13) Commitments and Contingencies

(a) Leasing Activities

The Smithsonian leases office and warehouse space under long-term operating leases expiring at 

various dates to 2032. These leases generally provide for rent escalations based on increases in the 

Consumer Price Index or changes in property taxes or operating expenses attributable to the leased 

properties. The Smithsonian has the authority to enter into leases for up to 30 years using federal 

funds.

Annual minimum lease payments due under operating leases in effect at September 30, 2017 are 

as follows:

2018 $ 44.3 

2019 46.2 

2020 46.3 

2021 29.8 

2022 16.5 

Thereafter 22.8 

$ 205.9 
SMITHSONIAN INSTITUTION

Notes to Financial Statements

September 30, 2017

(Dollars in millions)

25

Rent expense under operating leases, including executory costs such as maintenance, insurance, 

and taxes, totaled $58.6 for fiscal year 2017, which includes $6.7 in office space received in-kind.

(b) Government Awards

The Smithsonian receives significant amounts of federal funding in the form of appropriations, grants, 

and contracts. These awards are subject to audit by federal agencies. Management is of the opinion 

that no material disallowances of costs or expenses are likely.

(c) Construction

At September 30, 2017, the Smithsonian has commitments approximating $103.5 related to 

construction in process at a number of its locations. The most significant of these relate to projects 

at the National Air and Space Museum ($46.2), the National Zoological Park ($14.2), and the National 

Museum of Natural History ($10.3).

(d) 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 not 

have a significant effect on the Smithsonian’s financial position or future results of operations.

From time to time, certain litigation settlements of the Smithsonian may be paid by the United States 

Judgment Fund, and the Smithsonian may or may not have an obligation to reimburse the Judgment 

Fund. For fiscal 2017, the Judgment Fund paid approximately $6.7 for a contractual settlement. The 

imputed revenue and expense is presented net within nonoperating activities.

(14) Subsequent Events

Subsequent to September 30, 2017, the Smithsonian committed capital of $64.7 to 10 funds. 

In November 2017, the Smithsonian sold a portion of its investment in the Smithsonian Channel to its 

partner for $24.6, recognizing a gain of $12.9 on the sale and reducing its ownership to 15%. The 

Smithsonian accounts for this investment under the equity method of accounting.

Management has evaluated subsequent events from September 30, 2017 through January 22, 2018, which 

is the date that the financial statements are available to be issued, and determined that there are no 

adjustments to or other items to disclose.