DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE FINANCIAL STATEMENTS AS OF JUNE 30,2014 TOGETHER WITH AUDITOR'S REPORT

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1 DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE FINANCIAL STATEMENTS AS OF JUNE 30,2014 TOGETHER WITH AUDITOR'S REPORT

2 DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE FINANCIAL STATEMENTS AS OF JUNE 30, 2014 INDEX Independent Auditor's Report Consolidating Statements of Financial Position Consolidating Statements of Activities and Changes in Net Assets Consolidating Statements of Cash Flows Notes to Consolidating Financial Statements Comparative Statements of Activities and Changes in Net Assets: Bishop McGann-Mercy Diocesan High School Holy Trinity Diocesan High School St. John the Baptist Diocesan High School

3 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT To Most Reverend William Murphy, Bishop of the Diocese of Rockville Centre: We have audited the accompanying consolidating financial statements of the Diocesan High Schools of the Diocese of Rockville Centre (the "High Schools"), which compromise the consolidating statements of financial position as of June 30, 2014, and the related consolidating statements of activities and changes in net assets and cash flows for the year then ended, and the related notes to the consolidating financial statements. Management's Responsibility for the Consolidating Financial Statements Management is responsible for the preparation and fair presentation of these consolidating financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidating financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidating 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 consolidating financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidating financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidating 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 consolidating financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidating financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -1-

4 NawrockiSmith Opinion In our opinion, the consolidating financial statements referred to above present fairly, in all material respects, the financial position of the Diocesan High Schools of the Diocese of Rockville Centre as of June 30, 2014, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter Our audit was conducted for the purpose of forming an opinion on the consolidating financial statements as a whole. The accompanying comparative statements of activities and changes in net assets on pages are presented for purposes of additional analysis and are not a required part of the consolidating 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 consolidating financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidating financial statements for the years ended June 30, 2014 and 2013 and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidating financial statements or to the consolidating financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidating financial statements taken as a whole. Melville, New York August 1,

5 DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE CONSOLIDATING STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, 2014 Bishop Holy St. John ASSETS McGann-Mercy Trinity The Baptist Cash $ $ 3,666,596 $ 1,358,769 Cash - restricted 491, , ,181 Cash investments 3,722,827 9,700,740 Cash and cash equivalents 491,329 7,679,508 11,592,690 Cash surrender value of life insurance 2,683 Accounts receivable - students 115,480 61, ,540 Pledges receivable 36,455 11,250 44,794 Other accounts receivable 35,076 22,470 Inventories of fuel, books and food 61,412 45, ,924 Prepaid expenses and other assets 48,621 43, ,061 Property and equipment, net of accumulated depreciation and amortization 4,638,471 2,305,466 3,553,306 Total assets $ 5,426,844 $ 10,168,809 $ 15,559,998 Total $ 5,025,365 1,314,595 13,423,567 19,763,527 2, ,194 92,499 57, , ,700 10,497,243 $ 31,155,651 LIABILITIES AND NET ASSETS Liabilities: Loans payable $ 639,272 $ 193,502 $ Accounts payable and accrued expenses 1,258, , ,885 Accrued salaries and benefits 580,111 1,597,292 1,688,023 Accrued sick pay 510,297 1,742,828 1,437,711 Deferred revenue - advance tuition and student fees 304, ,185 1,399,681 Total liabilities 3,292,659 4,026,551 4,640,300 Net assets: Unrestricted: Plant 4,180,499 2,111,964 3,553,306 Designated 650,385 Undesignated {2,365,454} 3,740,209 6,182,826 Total unrestricted net assets 1,815,045 5,852,173 10,386,517 Temporarily restricted 319, , ,181 Permanently restricted 10,000 Total net assets 2,134,185 6,142,258 10,919,698 Total liabilities and net assets $ 5,426,844 $ 10,168,809 $ 15,559,998 $ 832,774 1,513,651 3,865,426 3,690,836 2,056,823 11,959,510 9,845, ,385 7,557,581 18,053,735 1,132,406 10,000 19,196,141 $ 31,155,651 The accompanying notes to consolidating financial statements are an integral part of these statements. -3-

6 DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE CONSOLIDATING STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2014 Bishop Holy McGann-Mercy Trinity CHANGE IN UNRESTRICTED NET ASSETS: Revenues: Tuition $ 4,270,435 $ 11,214,610 Less: financial grants and scholarships {308,090) {233,528) Net tuition 3,962,345 10,981,082 Bookstore and cafeteria sales 261, ,335 State Aid - Mandated Services - Operating 211, ,759 State Aid - Mandated Services CAP 244, ,470 Donations, events, gifts and grants 734, ,235 Athletic activities 92, ,008 Co-curricular activities 138, ,363 Contributed services 22,375 Rental income 58, ,602 Fee income 420, ,730 Investment income 1,889 35,312 Miscellaneous 11, ,801 Net assets released from restrictions 576, Total operating revenues 6,713,913 16,382,386 Expenses: Instructional expenses 3,109,116 6,362,929 Employee benefits 1,370,852 2,813,450 Administrative expenses 843,760 1,264,555 Development costs 304, ,377 Bookstore, cafeteria and other 246, ,760 Athletic activities 542,343 1,153,837 Co-curricular activities 181, ,150 Depreciation and amortization expense 460, ,690 Operation and maintenance of plant 838,518 1,575,416 Interest expense and bad debts- operations 95,438 81,007 Bad debts - development Total operating expenses 8, , Excess (deficiency) of revenues over (under) expenses {1,332,537) 1 213,215 Subsidies from Diocese of Rockville Centre: Operating subsidy 760,000 40,000 Mortgage subsidy 262,222 Education Department 100,000 Total subsidies 1,122, Other item: Inter-Diocesan High School support 200,000 Increase in unrestricted net assets (10,315) 1, CHANGE IN TEMPORARILY RESTRICTED NET ASSETS: Revenues 592, ,977 Net assets released from restrictions {576,975) (267,314) Increase (decrease) in temporarily restricted net assets 15,802 (35,337) CHANGE IN PERMANENTLY RESTRICTED NET ASSETS CHANGE IN NET ASSETS 5,487 1,217,878 NET ASSETS, BEGINNING OF YEAR 2,128, ,380 NET ASSETS, END OF YEAR $ 2,134,185 $ 6,142,258 St. John The Baptist $ 14,730,121 (702,980) 14,027, , ,155 1,037, , ,724 1,084, , ,556 1,384,903 15,117 74,925 74,168 20,444,520 7,572,944 2,970,072 1,252, , ,135 1,660, , ,930 2,132, , ,901,454 2,543,066 {200,000) 2,343, ,181 (74, 168) 98,013 2,441,079 8,478,619 $ 10,919,698 Total $ 30,215,166 {1,244,598) 28,970,568 1,313,104 1,697,118 2,232,056 2,160, ,168 1,692, ,555 1,066,654 2,625,680 52, , ,457 43,540,819 17,044,989 7,154,374 3,360,460 1,092,989 1 '124,381 3,356,685 1,575,375 1,465,680 4,545, , , ,423, , , ,000 1,162,222 3,585, ,935 (918,457) 78,478 3,664,444 15,531,697 $ 19,196,141 The accompanying notes to consolidating financial statements are an integral part of these statements. -4-

7 DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2014 Bishop McGann-Mercy Holy Trinity St. John The Baptist Total CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 5,487 $ 1,217,878 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization expense 460, ,690 (Increase) decrease in accounts receivable - students, net 8,460 (9,315) (Increase) decrease in pledges receivable 31,650 (11,250) (Increase) decrease in other accounts receivable 462,425 (22,470) Increase in inventories of fuel, books and food (30,953) (21,424) (Increase) decrease in prepaid expenses and other assets (5,022) 3,477 Increase (decrease) in accounts payable and accrued expenses (16,034) 35,198 Increase (decrease) in accrued salaries and benefits 60,378 (114,597) Increase (decrease) in accrued sick pay 50,392 (4,795) Increase (decrease) in deferred revenueadvance tuition and student fees 25,468 {114,735} Net cash provided by operating activities 1,052,311 1,358,657 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net {675,355} {384,171} Net cash used by investing activities {675,355} {384,171} CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in loans payable {406,293} 16,085 Net cash provided (used) by financing activities {406,293} 16,085 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29,337) 990,571 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 520,666 6,688,937 CASH AND CASH EQUIVALENTS, END OF YEAR $ 491,329 $ 7,679,508 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for interest $ 45,438 $ 18,202 $ 2,441,079 $ 3,664, ,930 1,465,680 (15,232) (16,087) (4,284) 16,116 2, ,945 (28,319) (80,696) (16,008) (17,553) 53,496 72,660 70,180 15,961 12,590 58, , ,876 3,561,565 5,972,533 {546,803} {1,606,329} {546,803} {1,606,329} {390,208} {390,208} 3,014,762 3,975,996 8,577,928 15,787,531 $ 11,592,690 $ 19,763,527 $ $ 63,640 The accompanying notes to consolidating financial statements are an integral part of these statements. -5-

8 DIOCESAN HIGH SCHOOLS OF THE DIOCESE OF ROCKVILLE CENTRE NOTES TO CONSOLIDATING FINANCIAL STATEMENTS JUNE 30, 2014 (1) Nature of operations The Diocesan High Schools of the Diocese of Rockville Centre consist of Bishop McGann-Mercy Diocesan High School, Holy Trinity Diocesan High School and St. John the Baptist Diocesan High School (collectively, the "High Schools"), which were organized for the purpose of providing Catholic education at the secondary level. Bishop McGann-Mercy Diocesan High School also provides education at the middle school level. The High Schools receive subsidies from the Current Operating Funds of the Administrative Offices of the Diocese of Rockville Centre (the "Administrative Offices"). Diocesan officials have informed the High Schools that their operations will continue to be subsidized by the Diocese of Rockville Centre at least through June 30, (2) Summary of significant accounting policies The accompanying financial statements include the assets, liabilities, revenues and expenses of the High Schools which are presented under the accrual basis of accounting. The following is a summary of significant accounting policies followed by the High Schools: Financial statement presentation - The High Schools present their financial statements in accordance with U.S. generally accepted accounting principles which require that the High Schools' financial statements distinguish between unrestricted, temporarily restricted, and permanently restricted net assets and changes in net assets, depending on the existence and/or nature of any donor restrictions. The High Schools' net assets consist of the following: Unrestricted - net assets of the High Schools that are not subject to donor imposed restrictions. Temporarily restricted - net assets of the High Schools which have been limited by donor-imposed stipulations that either expire with the passage of time or can be fulfilled and removed by the actions of the High Schools pursuant to those stipulations. Temporarily restricted revenue, whereby the restriction is satisfied within the same fiscal year as the receipt of funds, is recorded as unrestricted. Permanently restricted - net assets of the High Schools which have been restricted by donors to be maintained in perpetuity by the High Schools. As required by U.S. generally accepted accounting principles, the High Schools have also presented statements of cash flows for the year ended June 30, Cash and cash equivalents - All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents and include money market funds held in banks or funds invested in certificates of deposit with a brokerage house. -6-

9 Restricted cash - Restricted cash relates to temporarily restricted net assets and permanently restricted net assets. In addition, Bishop McGann-Mercy Diocesan High School restricted cash includes the loan payable relating to a special grant. (see Note 5). Fair value measurement - The Financial Accounting Standards Board ("FASB") Fair Value Measurement standard clarifies the definition of fair value for financial reporting, establishes framework for measuring fair value, and requires additional disclosure about the use of fair value measurements in an effort to make the measurement of fair value more consistent and comparable. The High Schools have adopted the standard for their financial assets and liabilities measured on a recurring and nonrecurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reported entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement. The classification of an asset or liability in the fair value hierarchy is not necessarily an indication of the risks, liquidity, or degree of difficulty in estimating fair value of the asset or liability. Cash and cash equivalents The carrying amounts reported on the consolidating statements of financial position for cash and cash equivalents approximate those assets' fair values. Accounts payable and accrued expenses The carrying amounts of accounts payable and accrued expenses approximate their fair value due to their short-term nature. Cash investments Holy Trinity Diocesan High School has money market and certificate of deposit investments for their scholarship, sick-pay and operating funds. At June 30, 2014, these investments amounted to $3,722,827. The investments in money market and certificate of deposits are Level 1 inputs within the fair value hierarchy. St. John the Baptist Diocesan High School has investments in The Unitas Money Market Fund (the investment venue of the Diocese) for their sick-pay and operating funds. At June 30, 2014, these investments amounted to $9,700,

10 The investments in The Unitas Money Market Fund are redeemable daily and are invested in short-term debt securities and money market investments. The investments in Unitas are Level 2 inputs within the fair value hierarchy. Inventory- Inventory is stated at the lower of cost or market and consists of fuel, books and food. Cost is determined by the first-in, first-out method. Materials and supplies used in normal operations are charged to expense as purchased. Property and equipment - Property and equipment are capitalized at cost or, if donated, at fair market value as of the date of receipt. Depreciation and amortization are computed by using the straightline method over the estimated useful lives of the assets. The Diocese of Rockville Centre has title to certain property utilized by other entities within the Diocese, including the Diocesan High Schools. The assets and related depreciation and amortization are recorded by the entities using such assets. The following represents the major classes of fixed assets as of June 30, 2014: Life Bishop Holy St. John (in years) McGann-Mercy Trinity the Baptist Total Land N/A $ 887,102 $ 320,000 $ 197,000 $ 1,404,102 Land improvements 15 2,047,169 1,037,329 3,258,814 6,343,312 Buildings ,171,871 4,958,704 5,161 '156 12,291,731 Building improvements ,191,553 4,790,214 3,905,096 10,886,863 Construction-in-progress 104, ,152 Library books 10 78,077 78,077 Furniture and equipment ,746 2,254,560 1,543,687 4,640,993 Motor vehicles 5 65, , ,738 8,206,022 13,503,780 14,335,166 36,044,968 Less: accumulated depreciation and amortization 3,567, ,314 10,781,860 25,547,725 Conditional asset retirement obligations - $ 4, $ $ 3.553,306 $10.497,243 The High Schools follow the provisions of the FASB Accounting Standards Codification on asset retirement and environmental obligations. Such principles require entities to recognize a liability for the fair value of a legal obligation to perform an asset retirement activity, even though uncertainty exists about the timing and/or method of settlement, if and when the fair value of the liability can be reasonably estimated. The Diocese of Rockville Centre is accepting financial responsibility for any such asset retirement obligations pertaining to the High Schools. Accounting for the impairment of long-lived assets - The FASB Accounting Standards Codification on accounting for the impairment or disposal of long-lived assets requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances -8-

11 indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The provisions of this Standard did not have a material impact on the High Schools' financial position, results of activities or liquidity during the year ended June 30, Accrued salaries and benefits - Accrued salaries and benefits represent the instructional faculty's summer pay for those instructors who opted to receive their salary over 24 pay periods for services rendered prior to June 30, Stipends for religious employees who perform instructional services are also included. Since the High Schools' administrators are required to work over the summer months, no accrual is made for administrators' summer pay. Accrued sick pay - Under a contractual agreement, the High Schools are obligated to pay one half of the accumulated sick pay (maximum accumulation of 135 days) at the then current salary level upon termination or resignation of teachers. Teachers who have accrued the maximum number of sick days are entitled to be paid for half of the unused sick days earned in the current year. Historically, lay administrators have received the same sick pay benefits as teachers. Revenues are generally recognized when earned and expenses are generally recognized when incurred. Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at date of contribution. Revenue recognition- Tuition- Accounts receivable-students consist primarily of receivables for student tuition for the June 30, 2013/2014 school year. Accounts receivable-students and tuition income are shown net of tuition income reductions such as employee discounts, financial grants and scholarships in the accompanying financial statements. Allowance for uncollectible receivables- The High Schools determine whether an allowance for uncollectible receivables should be provided for tuition, pledges and other receivables. Such estimates are based on management's assessment of the aged basis of the receivables, current economic conditions, subsequent cash receipts and historical information. Receivables are written off against the allowance for doubtful accounts when all reasonable collection efforts have been exhausted. -9-

12 Pledges receivable - Unconditional promises to give appear as pledges receivable and revenue of the appropriate net asset category. Pledges are recorded after recognizing a discount to reflect the net present value based on projected cash flows. The balance of pledges receivable as of June 30, 2014 is as follows: Bishop Holy St. John McGann-Merc~ Trinit~ the BaQtist Total Less than one year $ 36,455 $ 5,000 $ 16,424 $ 57,879 One to five years 6,250 29,230 35,480 Total pledges receivable 36,455 11,250 45,654 93,359 Less: discount (860) (860) Present value $ 36,455 a! 11,250 a! 44,794 a! 92,499 New pledges recorded in the 2013/2014 school year were discounted at a rate of 1.62%. Pledges receivable of $72,289 are included in unrestricted net assets. Pledges receivable of $20,210 are included in temporarily restricted net assets. State aid - Mandated Services - Mandated Services revenue represents reimbursement to the High Schools from the State of New York for the costs of meeting state testing and recordkeeping requirements. The amount earned by the High Schools for the year ended June 30, 2014, represented claims filed in the 2013/2014 school year based on costs incurred in the 2012/2013 school year, as well as additional funds received related to prior periods. For the 2013/2014 school year, each of the High Schools received additional payments from the State of New York totaling $2,232,056 for the costs of maintaining period-byperiod attendance records as required by the State. Included in the 2013/2014 receipts are $1,024,346 which were expected to be received by the high schools in July The receipts of these additional funds are recorded on the cash basis. These additional funds are not guaranteed in future years by the State. Contributed services - Contributed services of religious employees have been recognized in the accompanying financial statements. The computation of these services represents the difference between the compensation paid to religious employees and the comparable compensation which would be paid to lay persons if lay persons were to occupy these positions. Tax-exempt status - The High Schools are nonprofit religious institutions exempt from Federal income tax under Section 501 (c)(3) of the U.S. Internal Revenue Code and a similar provision of the New York State income tax law. Uncertainty in income taxes - The High Schools have determined that there are no material uncertain tax positions that require recognition or disclosure in the financial statements. Periods ending June 30, 2010 and subsequent remain subject to examination by the applicable taxing authorities. -10-

13 The use of estimates in the preparation of financial statements - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the period. Actual results may differ from those estimates. (3) Purchase of land and building In January 2006, Bishop McGann-Mercy Diocesan High School acquired land and the building in which it operates from the Sisters of Mercy for a purchase price of $3,760,000. The purchase price was satisfied by a down payment of $500,000 and a loan payable to the Sisters of Mercy in the amount of $3,260,000. The loan is noninterest bearing and payable over a period of nine years. Accordingly, the loan was discounted to a present value of $2,437,140, based on an incremental borrowing rate of 6.25%. The resulting cost of the land and building was determined to be $3,058,973, based on the down payment, present value of the loan payable and closing costs of $121,834. Of the total cost, $887,102 was allocated to land and $2,171,871 was allocated to the building. (4) Loans payable Bishop McGann-Mercy Diocesan High School In connection with the acquisition of its land and building, Bishop McGann-Mercy Diocesan High School incurred a loan obligation to the Sisters of Mercy with an original principal amount of $3,260,000. The loan is non-interest bearing and payable over a period of nine years. Maturity of this loan payable, net of discount (at a rate of 6.25%) is as follows: Year ending June 30, 2015 Less: discount Present value $ 362, $ 340,915 During 2011, Bishop McGann-Mercy Diocesan High School received short-term loans totaling $390,000 from three large donors for the purpose of facilitating construction payments relating to the Middle Road Pollution Abatement Project (i.e. the Pond Project). The High School is the recipient of a reimbursement grant for this project. These loans are non-interest bearing and are to be paid back to the donors within one year of the project completion. Due to the short-term nature of this arrangement, the loans were not discounted. All remaining funds are due back to the donors upon receipt of grant reimbursements and completion of this project. During 2012, one of these large donors converted $125,000 to a temporarily restricted donation to the High School for pond and related science expenses. During 2014, this donor changed part of the designation to include the fitness center. During 2014, the other two large donors converted $46,200 to donations to cover expenses for scholarships, athletics and special programs for the school year. At June 30, 2014, these funds in the amount of $218,800 were held in a certificate of deposit at a local banking institution. -11-

14 In connection with a lighting retrofit project, Bishop McGann-Mercy Diocesan High School incurred a loan obligation in March 2012 to a corporation with an original principal amount of $36,288. The loan was interest free and payable over a period of twenty-four months. This loan was satisfied in full during fiscal year ended June 30, In connection with an upgrade to its computer systems, Bishop McGann-Mercy Diocesan High School incurred a loan obligation in March 2012 to a corporation with an original principal amount of $78,849. The loan is payable over a period of six years and bears interest at a rate of 3. 75% per annum. Maturities of this loan payable are as follows: Year ending June 30, $ 12,992 13,488 14, $ In connection with an upgrade to its computer systems, Bishop McGann-Mercy Diocesan High School incurred a loan obligation in September 2012 to a bank with an original principal amount of $50,000. The loan is payable over a period of four years and bears interest at a rate of 4.75% per annum. Maturities of this loan payable balance are as follows: Year ending June 30, $ 12,631 13, $ Holy Trinity Diocesan High School In connection with the renovation of its athletic field, Holy Trinity Diocesan High School incurred a loan obligation on November 1, 2008 to the Knights of Columbus with an original principal amount of $235,000. The loan was payable over a period of five years and incurred interest at a rate of 4.55% per annum. This loan was satisfied in full during the fiscal year ended June 30, Interest has not been imputed on interest-free borrowings of two years or less as such amounts would not be material. (5) Capital lease obligations Holy Trinity Diocesan High School In August 2009, Holy Trinity Diocesan High School entered into a loan obligation for computers with a principal amount of $59,604. The loan was payable over a period of four years and incurred interest at a rate of 9.18%. This loan was satisfied in full during the fiscal year ended June 30,

15 In September 2010, Holy Trinity Diocesan High School entered into a loan obligation for computers with a principal amount of $53,005. The loan was payable over a period of four years and incurred interest at a rate of 11.44%. This loan was satisfied in full during the fiscal year ended June 30, In August 2012, Holy Trinity Diocesan High School entered into a loan obligation for a wireless installation with a principal amount of $83,128. The loan is payable over a period of five years and bears interest at a rate of 7.987%. Maturities of this loan payable are as follows: Year ending June 30, $ 16,521 17, $ 53,782 In August 2012, Holy Trinity Diocesan High School entered into a loan obligation for computers with a principal amount of $84,924. The loan is payable over a period of four years and bears interest at a rate of 8.490%. Maturities of this loan payable are as follows: Year ending June 30, $ 21,741 23, $ 49,543 In August 2013, Holy Trinity Diocesan High School entered into a loan obligation for computers with a principal amount of $110,365. The loan is payable over a period of four years and bears interest at a rate of 7.99%. Maturities of this loan payable are as follows: Year ending June 30, $ 26,061 28,221 30, $ (6) Classification of net assets In accordance with U.S. generally accepted accounting principles, the High Schools have presented net assets in the accompanying financial statements according to the type of donor restriction or absence thereof. Temporarily restricted net assets as of June 30, 2014 are invested in cash and cash equivalents. St. John the Baptist Diocesan High School has $10,000 in permanently restricted net assets that generate a source of income to provide scholarships to certain students. -13-

16 The Schools have temporarily restricted net assets for the following purposes and amounts: Bishop Holy St. John McGann-Merc~ Trinit~ the BaQtist Total Scholarships $ 96,771 $ 266,509 $ 463,554 $ 826,834 Capital projects 157,491 49, ,284 Various programs , ,288 $ 319,140 $ 290,085 $ 523,181 $ 1,132,406 During the year ended June 30, 2014, $269,954 in scholarships, $124,763 in various programs and $523,7 40 in capital projects were released from temporarily restricted net assets collectively from the three Diocesan High Schools. (7) Unrestricted net assets- designated The High Schools have designated net assets for the following purposes and amounts: Bishop McGann-Merc~ Holy Trinit~ St. John the BaQtist Total Athletics and co-curricular $ $ 650,385 $ 650,385 (8) Incentive retirement expense Under a contractual agreement, teachers meeting certain eligibility requirements were granted the option to retire at the end of the school year, receiving one year annual base salary (up to $75,000) payable over a three year period beginning January following the year of retirement. One teacher elected to take the retirement incentive effective June 30, During the fiscal year ended June 30, 2014, $206,326 was paid in retirement incentives. (9) Lease agreement with Catholic Charities In August 1992, Holy Trinity Diocesan High School ("Holy Trinity") entered into an agreement with Catholic Charities of the Diocese of Rockville Centre ("Catholic Charities") to lease a portion of its facilities to Catholic Charities for a five-year period which commenced in September 1992 and terminated in August At the option of Catholic Charities, the lease had a provision to extend beyond the original term for up to fifteen years, in five-year increments, subject to various other conditions to be met by each party. This agreement expired on August 31, In December 2007, this agreement was renegotiated and extended for a five-year term retroactive to September 2007 and ending in August At the option of Catholic Charities, the lease has a provision for an additional five-year extension through August Catholic Charities exercised this extension option through August 2017 and added an additional five-year extension option ending in August Rental income was $273,450 for the year ended June 30, (10) Pension plans The Diocesan High Schools of the Diocese of Rockville Centre are participants in certain pension plans that have been characterized for financial accounting purposes as multiemployer pension plans (the Diocesan Plans). The Diocese of Rockville Centre Pension -14-

17 Plan (the Lay Pension Plan) and the Diocese of Rockville Centre Qualified Retirement Plan for Diocesan Priests (the Priests' Pension Plan) are noncontributory defined benefit plans established by the Diocese. The risks of participating in multi-employer plans are different from single-employer plans in the following aspects: Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating entity stops contributing to the multi-employer plan, the unfunded obligations of the plan may be borne by the remaining participating entities. If an entity petitions to stop participating in the multi-employer plan, the entity may be required to pay the plan a withdrawal liability based on the funded status of the plan. These aspects of multi-employer plan participation are consistent with the manner of administration of the Diocesan Plans. These aspects are not required by law but are part of the Diocesan Plans' administrative practices. Neither the financial accounting treatment of the Diocesan Plans, nor their administrative practices, nor this footnote shall be deemed a representation that the Diocesan Plans are subject to any laws that require the multi-employer plan attributes that are set forth above. The Lay Pension Plan is designed to provide retirement benefits for eligible lay employees of participating Diocesan entities. An employee becomes eligible for participation in the Lay Pension Plan upon completion of one year of continuous eligibility service and becomes fully vested upon completion of five years of vesting service. Employees who terminate employment with five or more years of vesting service are entitled to annual pension benefits equal to specified percentages of compensation as defined in the Lay Pension Plan. The Priests' Pension Plan is designed to assist eligible Diocesan priests with security at retirement by providing regular retirement income and housing allowances based on periods of active Diocesan ministry. With certain exceptions (e.g., members of a religious community), a priest who is either incardinated into the Diocese, or is on an official Diocesan assignment within the Diocese, is eligible to participate in the Priests' Pension Plan. Upon attaining age 72 (age 70 prior to January 1, 2013) with ten aggregate years of Diocesan service, a participant is eligible to receive a benefit from the plan provided his retirement from active ministry is approved by the Diocesan Bishop. The Diocesan High Schools of the Dioceses of Rockville Centre's retirement plan expense is equal to the required annual contributions to the Diocesan Plans, which is calculated based on actuarially determined methods. Amounts charged to pension costs for the years ended June 30, 2014 and 2013 totaled $1,829,775 and $1,805,673, respectively, and are included in the accompanying statements of activities. Required annual contributions represent less than five percent of total contributions to the Diocesan Plans. The following tables disclose the funded status of the Lay Pension Plan, Number 001 (EIN ) and Priests' Pension Plan, Number 002 (EIN ) as of January 1, 2014 and 2013 (the date of the latest actuarial valuations), inclusive of the fair value of plan assets as of December 31, 2013 and 2012, respectively: -15-

18 Lay Pension Plan: Actuarial present value of - accumulated plan Fair value of Total net Valuation Date benefits plan assets Contributions Funded status Greater than January 1, 2014 $ 1 '107,409,443 1 '170,529,399 76,528,149 80% Greater than January 1, 2013 $ 1,027,475, ,916,414 77,695,620 80% Priests' Pension Plan Actuarial present value of accumulated plan Fair value of Total net Funded Valuation Date benefits plan assets Contributions status Greater than January 1, 2014 $ 30,781,231 30,806,884 2,125,377 80% Greater than January 1, 2013 $ 30,041,443 26,602,273 1,823,178 80% On January 1, 2015, the Lay Pension Plan will freeze retirement benefit accruals to all Non-Hospital Plan participants with less than 30 years of service. Eligible vesting service will continue to accrue beyond the freeze date for all Lay Pension Plan participants hired on or before March 1, Non-Hospital employees hired after March 1, 2014 will not be eligible to participate in the Lay Pension Plan. The Diocese reserves the right to discontinue contributions at any time and terminate the Diocesan Plans. In the event of termination and discontinuance, the assets of the Diocesan Plans remaining after paying all administrative expenses of the Diocesan Plans will be allocated in accordance with the terms of the Plan for the purpose of paying benefits provided under the Diocesan Plans. The accumulated benefit obligation and plan assets of the Diocesan Plans are not reflected in the accompanying statements of financial position of the Diocesan High Schools of the Diocese of Rockville Centre. (11) Postretirement benefit plans The Diocesan High Schools of the Diocese of Rockville Centre are participants in a postretirement benefit plan that has been characterized for financial accounting purposes as a multi-employer postretirement benefit plan (the Diocesan Postretirement Plan), a noncontributory health and welfare plan established by the Diocese. The Diocesan Postretirement Plan is designed to provide welfare benefits for eligible retired and disabled priests and to provide them with care and assistance. The benefits available consists of medical, dental, life insurance, automobile insurance, disability coverage and an allowance for annual retreats and certain eligible education. The following table discloses the employer contribution rate, the number of employees covered by the Diocesan High Schools of the Diocese of Rockville Centre and total employer contributions for the years ended June 30, 2014 and 2013: -16-

19 Employer contribution rate $11,600 annually per priest $11,600 annually per priest Number of participants covered 3 3 Total employer contributions $34,800 $33,600 (12) Commitments and contingencies The High Schools are obligated under various operating leases for equipment. Future minimum lease payments for all non-cancellable operating leases at June 30, 2014 are as follows: Year ending Bishop Holy June 30 McGann-Mercy Trinity St. John the Baptist Total 2015 $ 29,398 $ 70, ,358 62, ,437 16, , ,689 $ 36,226 $ 26,588 5, , ,194 24,807 11, $ $ $ 68,098 ~$ =d:2~80~,5~5~7 (13) Cash surrender value of life insurance St. John the Baptist Diocesan High School received planned giving donations of wholelife insurance policies. At June 30, 2014, the cash surrender value of these life insurance policies was $2,683. (14) Concentration of credit risk During the fiscal year ended June 30, 2014, the Diocesan High Schools of the Diocese of Rockville Centre have maintained cash balances in excess of $250,000 in their respective banking institutions. Management believes that the High Schools have no significant risk of loss on these accounts relating to the failure of the banking institutions and believe they mitigate their risk by investing in or through major financial institutions. (15) Functional classification The following table presents expenses on a functional basis: Bishop Holy St. John McGann-Mercy Trinity the Baptist Total Instructional $4,940,588 $9,862,778 $ 11,945,162 $26,748,528 Athletic 751,732 1,486,766 2,105,676 4,344,174 Co-curricular 223, , ,311 1,870,976 Ancillary 307, , ,788 1,312,259 Total programs 6,223,033 12,733,967 15,318,937 34,275,937 General and administrative 1,381 '721 1,945,937 2,075,448 5,403,106 Development 441, , ,069 1,438,032 Total expenses ~ 8,046,450 ~15, 169,171 ~ 17,901,454 ~41,117,

20 (16) Scholarship endowment During the fiscal year ended June 30, 2009, Bishop McGann-Mercy Diocesan High School was informed that it was the beneficiary of an estate whereby a permanently restricted scholarship fund was to be set up for the benefit of graduating seniors. Upon receipt of the official documentation, legal counsel advised management that the funds were required to be held and administered by the Diocese of Rockville Centre. Under the terms of the will, funds for this scholarship have been deposited in a local bank in Riverhead, New York in the name of the Diocese of Rockville Centre for the benefit of Bishop McGann-Mercy Diocesan High School graduates. The principal of this bequest is to remain restricted for a period of twenty years from the date of death of the donor, September 14, Interest is to be distributed on an annual basis as a scholarship to a graduating senior who will be attending college. The principal will be released from restriction and made available for general school operations effective on September 14, In June 2014, $1,144 was received from the Diocese and was paid out as a scholarship to a graduating senior as per the terms of the bequest. (17) Special grant On April 22, 2011, the New York State Environmental Facilities Corporation, as part of their Green Innovation Grant Program (GIGP) notified Bishop McGann-Mercy Diocesan High School that it was awarded a grant for the Middle Road Pollution Abatement Project. GIGP funds were to support the restoration of a wetland by the High School's property. In connection therewith, the High School developed 1.7 acres of wetland and restored an additional 2.3 acres of poorly functional wetland with the goal of improving the water quality that feeds into the Peconic Estuary. This storm water project will also serve as a demonstration project and educational program to students from both private and public schools throughout Suffolk County. During year ended June 2013, the grant contracts were approved by the Diocese of Rockville Centre and revitalization project work commenced. The final grant awarded was $750,000 of which reimbursements of $452,790 were applied for and accrued as of June 30, These accrued funds were received in July During year ended June 30, 2014, the project was completed and reimbursements of $297,210 were applied for and received. Grant awards were made on a reimbursement basis. (18) Subsequent events The High Schools have evaluated subsequent events through August 1, 2014, which is the date these financial statements were available to be issued, noting no matters requiring further consideration. -18-

21 BISHOP MCGANN-MERCY DIOCESAN HIGH SCHOOL OF THE DIOCESE OF ROCKVILLE CENTRE COMPARATIVE STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED JUNE 30, 2014 AND CHANGE IN UNRESTRICTED NET ASSETS: Revenues: Tuition $ 4,270,435 $ 4,117,811 Less: financial grants and scholarships {308,090} {288,452} Net tuition 3,962,345 3,829,359 Bookstore and cafeteria sales 261, ,136 State Aid - Mandated Services - operating 211, ,894 State Aid - Mandated Services - CAP 244,132 83,260 Donations, events, gifts and grants 734, ,057 Athletic activities 92, ,251 Co-curricular activities 138, ,381 Rental income 58,496 56,052 Fee income 420, ,776 Investment income 1,889 2,762 Miscellaneous 11,207 67,674 Net assets released from restrictions 576, ,061 Total operating revenues 6,713,913 6,162,663 Expenses: Instructional expenses 3,109,116 2,730,840 Employee benefits 1,370,852 1,241,935 Administrative expenses 843, ,974 Development costs 304, ,645 Bookstore, cafeteria and other 246, ,726 Athletic activities 542, ,418 Co-curricular activities 181, ,863 Depreciation and amortization expense 460, ,547 Opera!ion and maintenance of plant 838, ,215 Interest expense and bad debts - operating 95, ,548 Bad debts - development 53,380 1,605 Total operating expenses 8,046,450 7,213,316 Deficiency of revenues under expenses {1,332,537} {1,050,653} Subsidies from Diocese of Rockville Centre: Operating subsidy 760, ,124 Mortgage subsidy 262, ,222 Education Department 100,000 Total subsidies 1,122,222 1,193,346 Other item: Inter-Diocesan High School support 200, ,000 Increase (decrease) in unrestricted net assets (10,315} 242,693 CHANGE IN TEMPORARILY RESTRICTED NET ASSETS: Revenues 592, ,141 Net assets released from restrictions {576,975} {693,061} Increase in temporarily restricted net assets 15,802 25,080 CHANGE IN NET ASSETS 5, ,773 NET ASSETS, BEGINNING OF YEAR 2,128,698 1,860,925 NET ASSETS, END OF YEAR $ 2,134,185 $ 2,128,698 The accompanying notes to consolidating financial statements should be read in conjunction with these statements. -19-

22 HOLY TRINITY DIOCESAN HIGH SCHOOL OF THE DIOCESE OF ROCKVILLE CENTRE COMPARATIVE STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED JUNE 30,2014 AND CHANGE IN UNRESTRICTED NET ASSETS: Revenues: Tuition $ 11,214,610 $ 11,363,698 Less: financial grants and scholarships {233,528} {201,165} Net tuition 10,981, '162,533 Bookstore and cafeteria sales 667, ,288 State Aid - Mandated Services - operating 725, ,645 State Aid - Mandated Services - CAP 950, ,211 Donations, events, gifts and grants 764, ,728 Athletic activities 129, ,949 Co-curricular activities 469, ,502 Contributed services 22,375 24,415 Rental income 433, ,648 Fee income 820, ,988 Investment income 35,312 29,684 Miscellaneous 115, ,964 Net assets released from restrictions 267, ,515 Total operating revenues 16,382,386 15,674,070 Expenses: Instructional expenses 6,362,929 6,385,601 Employee benefits 2,813,450 2,878,961 Administrative expenses 1,264,555 1,316,655 Development costs 383, ,316 Bookstore, cafeteria and other 602, ,208 Athletic activities 1,153,837 1,146,141 Co-curricular activities 531 ' ,846 Depreciation and amortization expense 400, ,718 Operation and maintenance of plant 1,575,416 1,426,327 Interest expense and bad debts - operating 81,007 59,856 Total operating expenses 15,169,171 15,111,629 Excess of revenues over expenses 1,213, ,441 Subsidies from Diocese of Rockville Centre: Operating subsidy 40, ,000 Other item: Inter-Diocesan High School support 75,000 Increase in unrestricted net assets 1,253, ,441 CHANGE IN TEMPORARILY RESTRICTED NET ASSETS: Revenues 231, ,016 Net assets released from restrictions {267,314} {161,515} Increase (decrease) in temporarily restricted net assets {35,337} 64,501 CHANGE IN NET ASSETS 1,217, ,942 NET ASSETS, BEGINNING OF YEAR 4,924,380 4,122,438 NET ASSETS, END OF YEAR $ 6,142,258 $ 4,924,380 The accompanying notes to consolidating financial statements should be read in conjunction with these statements. -20-