Quincy Catholic Academy of Quincy, Massachusetts, Inc.

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2 Quincy Catholic Academy of Quincy, Massachusetts, Inc. Audited Financial Statements June 30, 2016 INDEPENDENT AUDITORS' REPORT 1 AUDITED FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION 2 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS 3 STATEMENTS OF CASH FLOWS 4 NOTES TO FINANCIAL STATEMENTS 5

3 424 Adams Street, Milton MA T / F Independent Auditors' Report Board of Directors Quincy Catholic Academy of Quincy, Massachusetts, Inc. We have audited the accompanying financial statements of Quincy Catholic Academy of Quincy, Massachusetts, Inc. which comprise the statements of financial position as of June 30, 2016 and 2015, and the related statements of activities and changes in net assets, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Academy 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 Academy 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 Quincy Catholic Academy of Quincy, Massachusetts, Inc. as of June 30, 2016 and 2015, and the changes in its net assets and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. G.T. Reilly & Company Milton, Massachusetts November 22, 2016

4 Quincy Catholic Academy of Quincy Massachusetts, Inc. Statements of Financial Position June 30 Assets CURRENT ASSETS Cash and cash equivalents (Note 2) $ 2,573,998 $ 2,403,501 Accounts receivable (Note 2) 38, ,344 Prepaid expenses and other assets TOTAL CURRENT ASSETS 2,612,384 2,505,974 PROPERTY AND EQUIPMENT, NET (Notes 2 & 3) 935, ,711 TOTAL ASSETS $ 3,548,359 $ 3,273,685 Liabilities and Net Assets LIABILITIES Accounts payable $ 28,053 $ 59,641 Accrued compensation and other expenses 203, ,504 Deferred revenue (Note 2) 155, ,891 TOTAL LIABILITIES 387, ,036 NET ASSETS Unrestricted (Notes 2 & 4) 3,137,906 2,877,461 Temporarily restricted (Notes 2 & 4) 22,882 31,188 3,160,788 2,908,649 TOTAL LIABILITIES AND NET ASSETS $ 3,548,359 $ 3,273,685 2 The accompanying notes are an integral part of these financial statements.

5 Quincy Catholic Academy of Quincy Massachusetts, Inc. Statements of Activities and Changes in Net Assets For the Years Ended June 30 Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total REVENUE AND SUPPORT Tuition and fees $ 2,191,272 $ - $ 2,191,272 $ 2,180,910 $ - $ 2,180,910 Less financial aid (102,985) - (102,985) (103,780) - (103,780) Tuition and fees, net 2,088,287-2,088,287 2,077,130-2,077,130 Contributed facilities (Notes 2 & 5) 450, , , ,000 Gifts and donations 230,378 30, , ,945 57, ,890 Catholic Schools Foundation grant - 47,500 47,500-44,500 44,500 Interest and dividend income 5,845-5,845 6,196-6,196 Auxiliary activities 129, , , ,610 Other program income 275, , , ,724 Proceeds from insurance claim (Note 9) 86,375-86, Net assets released from restrictions (Note 4) 85,956 (85,956) - 72,752 (72,752) - Total revenues and support 3,351,716 (8,306) 3,343,410 3,215,357 29,693 3,245,050 EXPENSES Program Services: Instruction and student activities 1,501,809-1,501,809 1,422,001-1,422,001 Auxiliary activities 154, , , ,964 Other programs 117, ,146 96,750-96,750 Total program services 1,773,026-1,773,026 1,645,715-1,645,715 Supporting Services: General and administrative 560, , , ,608 Operation and maintenance of plant 669, , , ,980 Development 30,917-30,917 46,682-46,682 Depreciation 57,919-57,919 54,128-54,128 Total supporting services 1,318,245-1,318,245 1,277,398-1,277,398 Total expenses 3,091,271-3,091,271 2,923,113-2,923,113 INCREASE (DECREASE) IN NET ASSETS 260,445 (8,306) 252, ,244 29, ,937 NET ASSETS AT BEGINNING OF YEAR 2,877,461 31,188 2,908,649 2,585,217 1,495 2,586,712 NET ASSETS AT END OF YEAR $ 3,137,906 $ 22,882 $ 3,160,788 $ 2,877,461 $ 31,188 $ 2,908,649 3 The accompanying notes are an integral part of these financial statements.

6 Quincy Catholic Academy of Quincy Massachusetts, Inc. Statements of Cash Flows For the Years Ended June 30 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 252,139 $ 321,937 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 57,919 54,128 Changes in operating assets and liabilities: Accounts receivable 64,149 (46,952) Prepaid expenses and other assets (62) 1,202 Accounts payable (31,588) (40,424) Accrued expenses 8, Deferred revenue 45,853 (8,834) NET CASH PROVIDED BY OPERATING ACTIVITIES 396, ,352 CASH FLOWS APPLIED TO INVESTING ACTIVITIES Additions to property and equipment (226,183) (177,738) NET INCREASE IN CASH AND CASH EQUIVALENTS 170, ,614 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,403,501 2,299,887 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,573,998 $ 2,403,501 4 The accompanying notes are an integral part of these financial statements.

7 Quincy Catholic Academy of Quincy, Massachusetts, Inc. Notes to Financial Statements June 30, 2016 Note 1 Nature of Organization Quincy Catholic Academy of Quincy, Massachusetts, Inc. (the "Academy") is a diverse learning community of students from preschool to grade eight located in Quincy, Massachusetts. The Academy is dedicated to faith and values formation, academic excellence and service to others. The Academy is guided by the teachings of Jesus for preparation of life in the twenty-first century. The Academy was established in March of 2010, after a Memorandum of Understanding ("MOU") was executed by the Roman Catholic Archdiocese of Boston ("RCAB") to close three Catholic elementary schools located in Quincy, Massachusetts and establish a single Catholic elementary school to serve the Quincy, Massachusetts area. Under the MOU, the Academy is housed at Sacred Heart Parish, and the two other participating parishes are required to contribute at least fifty-percent of the proceeds from the sale or lease of the parish schools to support the Academy. The Academy received approximately $800,000 from the net sale proceeds of one of the two participating parish schools in July of Each of the elementary schools transferred its usable classroom furniture and equipment to the Academy. It was determined that the historical net book value of the furniture and equipment was nominal, and consequently, no value has been recognized in the accompanying financial statements. Additionally, under the MOU (and as noted in Note 5), the Academy's facilities are leased from Sacred Heart Parish, under the authority of the RCAB. In September of 2011, the RCAB also purchased land adjacent to the Academy's leased building for the purpose of the Academy constructing a playground. The playground was completed in October of 2012 and is reflected in the Academy's site improvements (see Note 3). The land purchased by the RCAB is also leased by the Academy from Sacred Heart Parish. Note 2 Significant Accounting Policies Basis of Presentation The accompanying financial statements of the Academy are prepared under the accrual method of accounting. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Financial Statement Presentation The Academy presents a statement of financial position and a statement of activities segregated into three classes of net assets determined by donor-imposed restrictions as follows: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets (see Note 4 regarding restrictions on net assets). Contributions and Donor Restrictions Use-restricted contributions are reported as increases to temporarily or permanently restricted net assets when received. When a donor restriction expires either by use of the funds for the specified purpose or by the expiration of a time restriction, restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions (see Note 4). Contributed Facilities The Academy operates free of rent in facilities located in Quincy, Massachusetts, which are owned by Sacred Heart Parish, under the authority of the Roman Catholic Archdiocese of Boston. The estimated rental value of the facilities is reported as rent expense and a corresponding amount is reported as support in the statement of activities (see Note 5). 5

8 Note 2 - Summary of Significant Accounting Policies (Cont.) Cash and Cash Equivalents The Academy considers highly liquid investments with maturities of three months or less at purchase to be cash equivalents. Accounts Receivable Accounts receivable represent unpaid tuition and program billings and are stated net of an allowance for doubtful accounts, when considered necessary by management, which would be reported on the face of the Academy's statement of financial position. The allowance is established via a provision for bad debts charged to operations. On a periodic basis, management evaluates its accounts receivable and establishes or adjusts its allowance to an amount that it believes will be adequate to absorb possible losses on accounts that may become uncollectible, based on evaluations of the collectability of individual accounts, the Academy's history of prior loss experience and on current economic conditions. Accounts are written off and charged against the allowance when management believes that the collectability of the specific account is unlikely. The accompanying statements of financial position do not include an allowance for doubtful accounts at June 30, 2016 or 2015 as one was not considered necessary by management. Property and Equipment Property and equipment are stated at cost. Donated equipment is reported at the estimated value at the time of donation. Maintenance and repairs are expensed as incurred, whereas major purchases are capitalized. Expenditures for renewals and improvements that significantly extend the useful life of an asset are capitalized. Depreciation is provided over the estimated useful lives of the assets by using straight-line methods. The estimated useful lives used in the computation are as follows: Asset Estimated Useful Lives in Years Leasehold improvements 39 Site improvements 20 Furniture, fixtures and equipment 3 7 Construction in Progress At June 30, 2016 and 2015, construction in progress represents costs incurred to date for renovations at the School which have not yet been completed; therefore the Academy has not yet commenced depreciating the costs. Deferred Revenue Deferred revenue consists of tuition, summer program, and seat deposits received in the current fiscal year that are applicable to future fiscal years. Tuition Revenue Gross tuition and fees reflect the Academy's normal tuition rates for all students. Scholarships given on the basis of financial need and/or achievement are presented as a reduction to gross tuition and fees. Auxiliary Services Revenue Auxiliary activities revenue includes activities related to the Academy s operations, such as the cafeteria and various school events. Auxiliary services revenue is recognized in the period to which it relates. Income Tax Status The Academy is recognized as an organization exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, whereby only unrelated business income, as defined by Section 512(a)(1) of the Code, is subject to income taxation. Advertising Costs Advertising costs are expensed as incurred and approximated $5,200 for the year ended June 30, 2016 ($12,400 for the year ended June 30, 2015). Evaluation of Subsequent Events Management evaluates subsequent events involving the Academy for potential recognition or disclosure in the accompanying financial statements. Subsequent events are events or transactions that occurred after June 30, 2016 through November 22, 2016, the date these financial statements were available to be issued. 6

9 Note 3 - Property and Equipment The Academy s property and equipment consist of the following at June 30: Site improvements $ 204,474 $ 204,474 Leasehold improvements 698, ,079 Furniture and equipment 175, ,905 Construction in progress 56,600 57,550 1,135, ,008 Accumulated depreciation (199,216) (141,297) $ 935,975 $ 767,711 Depreciation expense was $57,919 and $54,128 for the years ended June 30, 2016 and 2015, respectively. Note 4 Net Assets There were no permanently restricted net assets at June 30, 2016 or Temporarily restricted net assets consist of the following at June 30: Educational programs and materials $ 485 $ 3,480 Scholarships 15,200 25,000 Field Day 197 2,708 School Health office 7,000 - $ 22,882 $ 31,188 Temporarily restricted net assets were released for the following purposes during the year ended June 30: Catholic Schools Foundation grant $ 47,500 $ 44,500 Early childhood classroom 15,850 10,000 Scholarships 11,100 1,300 Teacher stipends 1,000 7,000 School nurse 6,500 6,560 Educational programs and materials 1,495 1,100 Field Day 2,511 2,292 $ 85,956 $ 72,752 Note 5 Related Party Transactions Expense During the years ended June 30, 2016 and 2015, the Academy was charged approximately $245,000 and $227,000, respectively, for health, life, disability, workers compensation and property insurance administered by the RCAB (an entity related by common board members). 7

10 Note 5 Related Party Transactions (Cont.) Lease Commitment The Academy leases two parcels of land and a building from Sacred Heart Parish, operating under the authority of the RCAB. Effective September 1, 2010, the Academy entered into a lease agreement requiring annual lease payments of $1.00 for a ten year period through August 31, The Academy is obligated under the lease agreement to pay utilities, maintenance and insurance on the premises, subject to certain limitations and cost-sharing guidelines. The Academy and the Parish share many of the same integrated utilities and maintenance costs, therefore formulas for allocation have been set under the terms of the lease agreement regarding these normal and recurring expenses. As discussed in Note 2, "Contributed Facilities", the estimated rental value of the facilities ($450,000 for each of the years ended June 30, 2016 and 2015) is reflected as an expense of the Academy via an offsetting amount recorded as support. If the Academy were to lease the facility from unrelated parties, operating results and financial position of the Academy would be adversely affected. Note 6 Employee Benefits Plan The Academy participates with other organizations affiliated with the Archdiocese of Boston in a multiemployer noncontributory, defined-benefit pension plan covering substantially all lay employees. Benefits are provided through the Roman Catholic Archdiocese of Boston Pension Plan (the Plan). The amount of the Academy s annual contribution is actuarially determined and is accrued and funded annually. The relative position of the Academy with regard to the plan's net assets and actuarial present value of accumulated plan benefits has not been distinguished from those of other groups participating in the retirement income plan. At June 30, 2015 and 2014, the financial statements of the plan reflected approximately $216.0 million and $224.8 million, respectively, in net assets available for benefits and $241.6 million and $247.0 million, respectively, in accumulated plan benefits. Effective December 31, 2011, the Archdiocese of Boston amended the plan in order to curtail benefit accruals for plan participants. In addition, no additional participants are allowed into the plan. The Plan is not subject to the Employee Retirement Income Security Act of 1974 (ERISA). Pension expense approximated $40,000 for each of the years ended June 30, 2016 and 2015, respectively, and represents contributions assessed to the Academy for the year. Due to the fact the School s share of Plan assets and benefit liabilities are pooled together with other nonprofit organizations, the Plan is considered a multiemployer pension plan. Therefore, the accrual provisions under generally accepted accounting principles do not apply, and the School is not required to accrue for any unfunded status of the Plan. To replace the curtailed defined benefit pension plan, the RCAB established a 401(k) defined contribution plan on January 1, The Academy makes a matching contribution subject to formulas defined in the plan document. Each eligible employee may defer up to 100% of compensation subject to limits on the maximum amount allowed by law. The Academy s matching contribution under this plan was approximately $30,000 and $23,000, respectively, for the years ended June 30, 2016 and Note 7 Other Lease Commitments The Academy has lease agreements for office equipment and accounts for them as operating leases. Total lease expense was approximately $44,000 and $37,000 for the years ended June 30, 2016 and 2015, respectively. The future minimum lease payments for the equipment leases are as follows: Year Ending 2017 $ 34, , ,877 $ 79,071 8

11 Note 8 Concentrations and Credit Risk The Academy's financial instruments that potentially subject it to concentrations of credit risk consist of cash and accounts receivable. The Academy maintains its cash and cash equivalents in high-quality financial institutions. At times, the amounts on deposit at any institution are in excess of insured limits. At June 30, 2016, there was approximately $1.5 million of deposits in excess of FDIC insured limits based on bank balances. The Academy has approximately $838,000 on deposit with the RCAB at June 30, These funds are uninsured and pooled together with other related organizations' funds in the RCAB's revolving loan fund. Interest income on these funds was $5,500 and $6,200 for the years ending June 30, 2016 and 2015, respectively. The Academy's accounts receivable reflect amounts due from its students for tuition and student programs. Note 9 Insurance Claim In September of 2015, the Academy received $86,375 related to an insurance claim filed by the Roman Catholic Archdiocese of Boston (RCAB). In prior years, the Academy held regular bingo programs in which the net proceeds were used to support operations, and the revenues related to this program were recorded as auxiliary activities by the Academy. The bingo program was cancelled in November of 2013 due to fraudulent activity that occurred by an individual involved in the program. As a result, in September of 2015, the Academy received $86,375 from the insurance claim filed by RCAB, which has been reflected in the accompanying statements of activities and changes in net assets for the year ended June 30,