COMBINED FINANCIAL STATEMENTS TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THE BRIDGEPORT ROMAN CATHOLIC DIOCESAN CORPORATION

Transcription

1 COMBINED FINANCIAL STATEMENTS TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THE BRIDGEPORT ROMAN CATHOLIC DIOCESAN CORPORATION JUNE 30, 2008 and 2007

2 C O N T E N T S Page Combined Financial Statements: Independent Auditors' Report 1 Combined Statements of Financial Position as of 2 Combined Statements of Activities for the years ended 3 Combined Statement of Functional Expenses by Natural Classification for the year ended June 30, Combined Statement of Functional Expenses by Natural Classification for the year ended June 30, Combined Statements of Cash Flows for the years ended 6 Notes to Combined Financial Statements 7-29

3 INDEPENDENT AUDITORS' REPORT To the Most Reverend William E. Lori, S.T.D. The Bridgeport Roman Catholic Diocesan Corporation Bridgeport, Connecticut We have audited the accompanying combined statement of financial position of The Bridgeport Roman Catholic Diocesan Corporation (the "Diocese") as of June 30, 2008, and the related combined statements of activities, functional expenses by natural classification and cash flows for the year then ended. These combined financial statements are the responsibility of the Diocese s management. Our responsibility is to express an opinion on these combined financial statements based on our audit. The Diocese s combined financial statements as of and for the year ended June 30, 2007, included herein, were audited by other auditors whose report dated January 11, 2008 expressed an unqualified opinion on those statements. EISNER We conducted our audit in accordance with auditing standards generally accepted in the United LLP States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements enumerated above present fairly, in all material respects, the financial position of The Bridgeport Roman Catholic Diocesan Corporation as of June 30, 2008, and the changes in its net assets and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. New York, New York November 21, 2008atho

4 COMBINED STATEMENTS OF FINANCIAL POSITION As of ASSETS Cash and cash equivalents $ 4,350 $ 3,565 Accounts and advances receivable from other Diocesan entities, net 6,346 4,592 Cemeteries and other accounts receivable 1,739 1,869 Pledges receivable, net 2,977 3,576 Notes receivable 3,141 3,087 Investments held for long-term purposes 39,755 45,365 Property and equipment, net 49,192 47,504 Total assets $ 107,500 $ 109,558 LIABILITIES AND NET ASSETS Liabilities: Accounts payable to other Diocesan entities $ 1,943 $ 1,760 Other accounts payable and accrued expenses 2,668 3,056 Special collections payable Self-insurance claims and deductible amounts payable 4,140 4,866 Cemeteries refundable advances 1,750 1,410 Notes payable to financial institutions 6,902 3,671 Conditional asset retirement obligations 3,720 4,376 Pension and other retirement obligations 29,731 29,714 Total liabilities 51,171 49,204 Commitments and contingencies Net assets: Unrestricted 31,438 34,997 Temporarily restricted 4,169 4,688 Permanently restricted 20,722 20,669 Total net assets 56,329 60,354 Total liabilities and net assets $ 107,500 $ 109,558 The accompanying notes are an integral part of these combined statements. -2-

5 COMBINED STATEMENTS OF ACTIVITIES For the years ended Changes in Unrestricted Net Assets: Revenues and gains: Annual Bishop s Appeal and other contributions and bequests $ 9,126 $ 8,845 Cathedraticum from parishes 2,795 2,281 Employee benefit and insurance programs revenues from other Diocesan entities 16,130 15,873 Insurance recoveries related to prior years claims Cemeteries and other operating revenues 10,324 9,909 Investment income 631 3,095 Total revenues and gains 39,207 40,792 Net assets released from restrictions 2,708 5,864 Total revenues, gains and other support 41,915 46,656 Expenses: Services and contributions to other Diocesan entities and other parties 13,245 15,972 Operations 6,758 6,399 Employee benefit and insurance programs 18,760 21,151 Administration and general 7,411 8,001 Fundraising 1,429 1,194 Total expenses 47,603 52,717 Decrease in unrestricted net assets before recognition of pension and priests' post-retirement healthcare obligations. (5,688) (6,061) Adjustment to recognize funded status of pension and priests' post-retirement healthcare plans 2,128 4,912 Decrease in unrestricted net assets (3,560) (1,149) Changes in Temporarily Restricted Net Assets: Annual Bishop s Appeal and other contributions and bequests 2,042 1,614 Investment income 147 2,444 Net assets released from restrictions (2,708) (5,864) Decrease in temporarily restricted net assets (519) (1,806) Changes in Permanently Restricted Net Assets: Contributions 51 - Investment income 3 9 Increase in permanently restricted net assets 54 9 Decrease in net assets (4,025) (2,946) Net assets at beginning of year: 60,354 63,300 Net assets at end of year $ 56,329 $ 60,354 The accompanying notes are an integral part of these combined statements. -3-

6 COMBINED STATEMENT OF FUNCTIONAL EXPENSES BY NATURAL CLASSIFICATION For the year ended June 30, 2008 Compensation and Benefits Contributions Professional services and Insurance Office, Occupancy, Supplies, Travel and other Claim Settlements Depreciation and Accretion Interest Total Services and contributions to other Diocesan entities and other parties: Pastoral services of the Bishop, Vicars General and the Chancellor $ 634 $ - $ 5 $ 189 $ - $ - $ - $ 828 Clergy and religious personnel services, including Queen of Clergy 1, ,931 Education administration and curriculum services ,437 Ministries for pastoral outreach including hospital and correctional center chaplains, priests and religious assigned to special ministries and Safe Environments 1, ,507 Vocations and St. John Fisher Seminary services ,251 Parish Life and Ministries including Christian formation, religious education services and the Newman Center ,104 Parish Finance Services Tribunal Contributions to Diocesan schools and after school programs - 2, ,261 Contributions to Catholic Charities of Fairfield County, Inc. - 1, ,015 Contributions to other Diocesan entities and other parties ,736 4,136 1,240 1, ,245 Operations: Cemeteries 2, , ,622 Fairfield County Catholic ,352 St. Catherine Academy , , ,758 Employee benefit and insurance programs 15,118-3, ,760 Administration and general 3,153-2,582 1, ,411 Fundraising ,429 TOTAL $ 28,568 $ 4,136 $ 7,586 $ 5,798 $ 151 $ 1,073 $ 291 $ 47,603 The accompanying notes are an integral part of this combined statement. -4-

7 COMBINED STATEMENT OF FUNCTIONAL EXPENSES BY NATURAL CLASSIFICATION For the year ended June 30, 2007 Compensation and Benefits Contributions Professional services and Insurance Office, Occupancy, Supplies, Travel and other Claim Settlements Depreciation and Accretion Interest Total Services and contributions to other Diocesan entities and other parties: Pastoral services of the Bishop, Vicars General and the Chancellor $ 644 $ - $ 31 $ 239 $ - $ - $ - $ 914 Clergy and religious personnel services, including Queen of Clergy ,657 Education administration and curriculum services ,509 Ministries for pastoral outreach including hospital and correctional center chaplains, priests and religious assigned to special ministries and Safe Environments ,260 Vocations and St. John Fisher Seminary services ,066 Parish Life and Ministries including Christian formation, religious education services and the Newman Center Parish Finance Services Tribunal Contributions to Diocesan schools and after school programs - 6, ,030 Contributions to Catholic Charities of Fairfield County, Inc Contributions to other Diocesan entities and other parties - 1, ,024 4,807 7,953 1,056 1, ,972 Operations: Cemeteries 2, , ,536 Fairfield County Catholic ,263 St. Catherine Academy , , ,399 Employee benefit and insurance programs 16,508-3, ,151 Administration and general 3,080-2,390 1,379-1, ,001 Fundraising ,194 TOTAL $ 28,429 $ 7,953 $ 7,444 $ 5,964 $ 966 $ 1,702 $ 259 $ 52,717 The accompanying notes are an integral part of this combined statement. -5-

8 COMBINED STATEMENTS OF CASH FLOWS For the years ended Cash flows from operating activities: Decrease in net assets $ (4,025) $ (2,946) Adjustments to reconcile decrease in net assets to net cash used in operating activities: Contributions of marketable securities (633) (655) Net depreciation (appreciation) in fair value of investments and amortization of note receivable discount 45 (4,200) Contribution of land and buildings to Cardinal Shehan Center - 1,156 Depreciation and accretion of property, equipment and conditional asset retirement obligations 888 1,608 Endowment contributions (51) (59) Changes in assets and liabilities: (Increase) decrease in accounts and advances receivable from other Diocesan entities (1,754) 10,225 Decrease in cemeteries and other accounts receivable Decrease in pledges receivable Increase (decrease) in accounts payable due to other Diocesan entities 183 (818) (Decrease) in other accounts payable and accrued expenses (547) (288) (Decrease) increase in special collections payable (34) 209 (Decrease) in self-insurance claims and deductible amounts payable (726) (417) Increase (decrease) in cemeteries refundable advances 340 (998) Increase (decrease) in pension and other retirement obligations 17 (6,655) Net cash used in operating activities (5,568) (2,750) Cash flows from investing activities: Purchase of property and equipment (3,074) (2,363) Proceeds from sale of investments 33,265 52,307 Purchase of investments (29,014) (50,716) Net change in money market funds and certificate of deposit 1,894 3,466 Net cash provided by investing activities 3,071 2,694 Cash flows from financing activities: Principal payments on notes payable (19) (505) Proceeds from notes payable 3,250 - Proceeds from endowment contributions Net cash provided by (used in) financing activities 3,282 (446) Net increase (decrease) in cash and cash equivalents 785 (502) Cash and cash equivalents, beginning of year 3,565 4,067 Cash and cash equivalents, end of year $ 4,350 $ 3,565 Interest payments during the year $ 291 $ 257 The accompanying notes are an integral part of these combined statements. -6-

9 NOTES TO COMBINED FINANCIAL STATEMENTS NOTE A - ORGANIZATION The Bridgeport Roman Catholic Diocesan Corporation (the Diocese ) is a not-for-profit, religious nonstock corporation formed under the laws of the State of Connecticut in The members of the corporation are the Bishop, the three Vicars General and the Chancellor of the Diocese of Bridgeport, and two priests appointed by the Bishop. The Diocese provides pastoral, clergy and religious personnel, Christian formation and religious education, vocations, educational administration and curriculum, parish finance and tribunal services to other Diocesan entities and other parties. These services include the St. John Fisher Seminary, The Catherine Dennis Keefe Queen of Clergy retirement home for Diocesan Priests and the Newman Center at Western Connecticut State University. The Diocese also makes financial contributions to other Diocesan entities and other parties. The Diocese directly operates St. Catherine Academy, a school for children with disabilities; twelve Catholic cemeteries; and publishes the Fairfield County Catholic, a semi-monthly publication available to all Catholics in the Diocese. The Diocese relies principally on contributions received through the Annual Bishop s Appeal to support the services the Diocese provides, the contributions made to other Diocesan entities and third parties, fundraising efforts and Fairfield County Catholic operations not covered by advertising revenues. Cathedraticum from parishes together with residual Catholic cemeteries revenues support the administration and general activities of the Diocese. St. Catherine Academy uses tuition revenues to support its operating activities. In addition, the Diocese sponsors primarily self-insured medical and dental care and workers compensation programs, property, casualty, liability and other insurance programs, and pension plans for the Diocese and other Diocesan entities and their employees. The other Diocesan entities are responsible for their portions of the cost of these programs and pension plans. The other Diocesan entities throughout Fairfield County, Connecticut include: 87 parishes 32 elementary, one middle and five high schools Cardinal Shehan Center and the McGivney Community Center, after school programs for children Catholic Charities of Fairfield County, Inc. Nine government-subsidized Bishop Curtis Homes, Teresian Towers and Carmel Ridge Estates, homes for the elderly - 7 -

10 NOTE A (continued) St. Joseph s Manor, Inc., Pope John Paul II Center for Health Care, Inc. and St. Camillus Home, Inc., provide pastoral care at the nursing home facilities formerly owned by these entities. Faith in the Future Fund, Inc., an endowment fund, with common and individual donor endowments principally for the benefit of Diocesan high schools, elementary schools, St. John Fisher Seminary, vocations and religious education. Inner-City Foundation for Charity and Education, Inc. The Diocese is exempt from federal income taxes under Section 501(a) of the Internal Revenue Code as an organization described under Section 501(c)(3). NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Presentation The Diocese s combined financial statements are presented in conformity with accounting principles generally accepted in the United States of America ( GAAP ). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The combined financial statements include the accounts of the Diocese, reflecting its activities and direct operations, and the accounts of the Faith in the Future Fund, Inc. that is managed by the Diocese. All significant inter-entity transactions and balances have been eliminated. The remaining other Diocesan entities identified in Note A are separately incorporated and/or managed on a dayto-day basis and their accounts are not included in the combined financial statements. Net assets are classified as unrestricted, temporarily restricted or permanently restricted based upon the existence or absence of donor-imposed restrictions limiting the use of the contributed assets as follows: Unrestricted net assets - Net assets that are not subject to donor-imposed restrictions. Temporarily restricted net assets - Net assets subject to donor-imposed restrictions that either expire by the passage of time or can be fulfilled or otherwise removed by actions of the Diocese

11 NOTE B (continued) Permanently restricted net assets - Net assets subject to donor-imposed restrictions that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Diocese. Donor contributions are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed temporary or permanent restrictions. When temporary restrictions either expire by the passage of time or are fulfilled or otherwise removed by actions of the Diocese, the related net assets are reclassified to unrestricted net assets and any related expenses are reported as a decrease in unrestricted net assets. When contribution restrictions are fulfilled in the fiscal year in which the contribution is received, the contribution is reported as an increase in unrestricted net assets. Certain amounts reported in 2007 have been reclassified to conform with classifications reflected in these combined financial statements. None of the reclassifications affected previously reported financial position, changes in net assets or cash flows. 2. Cash and Cash Equivalents Cash and cash equivalents include cash and money market funds held in banks as well as temporary cash investments with original maturities of 90 days or less. Cash and cash equivalents exclude such amounts held by financial institutions as part of the Diocese s investment portfolio. 3. Donor Contributions Gifts and pledges that represent unconditional promises to give are recorded when received or made, respectively. Pledges are recorded net of an allowance for uncollectible amounts based on prior experience and related trends. Pledges that will be met over periods in excess of a year are discounted to present value using a risk-free interest rate. Amortization of the discount is reported in subsequent periods as additional contributions. Pledges receivable are written off when uncollectibility is highly probable. Contributions of non-monetary assets are recorded at the estimated fair value of the assets contributed. Unpaid volunteers make significant contributions of time to various activities of the Diocese. The value of this contributed time is not reflected in the combined financial statements because the services did not require specialized skills or enhance assets and thus did not meet the criteria for recognition under GAAP

12 NOTE B (continued) 4. Cemeteries Revenues The Catholic cemeteries sell rights to interment and entombment on retail installment contracts generally of not more than one year s duration, without interest. The amounts received are normally refundable to the buyer, subject to a processing fee, until amounts due have been received in full. Such sales are deferred and recorded as refundable advances until the amounts receivable have been collected in full and the sale is then recognized as revenue. A portion of revenue from sales is invested and the investment income is available for perpetual care and maintenance of cemetery property. In addition, owners of private property improvements (private mausoleums, estate walls) at the cemeteries provide revenue that is held in trust by the Diocese and invested in perpetuity with the investment income available for care and maintenance of the property improvements. 5. Investments and Investment Income Investments in debt and equity marketable securities are reported at fair value based on quoted market prices. Money market funds and other highly liquid investments with maturities of 90 days or less are reported at cost, which approximates fair value because of short maturities. Securities transactions are recorded on a trade-date basis. Interest is recorded as earned and dividends are recorded as of the ex-dividend date. Investment income reported in the combined statements of activities includes interest, dividends and realized and unrealized appreciation and depreciation, and is reduced by investment management and transaction fees. Hedge and futures funds and the real estate investment trust, are reported at fair values, as determined by the related investment manager or advisor. The Diocese reviews and evaluates the values provided by the investment managers or advisors and believes the carrying amount of the investments in non-publicly traded securities is a reasonable estimate of fair value. Estimated values may differ significantly from the values that would have been had a ready market for these securities existed

13 NOTE B (continued) 6. Property and Equipment Property and equipment are reported at cost. Depreciation is determined using the straight-line method over the estimated service lives of the related assets as follows: Furniture and fixtures Vehicles, computers and other equipment Buildings and improvements Land improvements 7. Conditional Asset Retirement Obligations 10 years 5-12 years years 30 years The Diocese has conditional asset retirement obligations for asbestos materials and underground storage tanks associated with buildings it owns. Those obligations are defined as legal obligations associated with the retirement of tangible long-lived assets in which the timing and/or the method of settlement is conditional on a future event that may or may not be within the control of the Diocese. The present value of those obligations and the resulting accretion expense, together with the related asset retirement cost capitalized, accumulated depreciation and depreciation expense, are recognized in the combined financial statements. 8. Special Collections Parishes throughout the Diocese conduct special offertory collections on designated days for the benefit of other non-diocesan Catholic entities at the direction of the U.S. Conference of Catholic Bishops. In addition, the parishes conduct a special Loaves and Fishes collection during Lent for the benefit of Catholic Charities of Fairfield County, Inc. The amounts collected by the parishes are remitted to the Diocese and then transferred to the entities for whom the collections were conducted. The parishes and the Diocese act as agents for the collections and the amounts collected are not revenues to the parishes or the Diocese and are recorded as liabilities. 9. New Accounting Standards In September of 2006, a new financial accounting standard, addressing fair value measurements, was issued and is applicable to the Diocese. The standard defines fair value, establishes a framework for the measurement of the fair value of an enterprise s assets and liabilities in various circumstances, and enhances disclosures about fair value measurements. The Diocese is required to adopt the standard for the fiscal year 2009 but adoption of the new standard is not expected to have a material effect on its combined financial statements

14 NOTE B (continued) In August 2008, additional accounting guidance was issued for endowments of not-for-profit organizations including net asset classification of funds subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act and enhanced disclosures for all endowment funds. The guidance requires expanded disclosures about the annual changes in an organization s endowment funds (both donor-restricted and board-designated) and is effective for the Diocese in fiscal-year NOTE C - ACCOUNTS AND ADVANCES RECEIVABLE FROM OTHER DIOCESAN ENTITIES Accounts and advances receivable from other Diocesan entities, net, consist of the following at June 30: Parishes $ 7,123 $ 6,644 Elementary, middle and high schools 10,381 6,104 Other 1,133 1,243 18,637 13,991 Less: Allowance for uncollectible amounts (12,291) (9,399) $ 6,346 $ 4,592 Accounts and advances receivable arise principally from amounts due for employee benefit and insurance programs (Note N), cathedraticum from parishes and advances made to parishes for renovation and repair projects. During fiscal year 2008, $1,500 was advanced to the Diocesan middle school for major renovation of the middle school facilities. The advance was funded with proceeds from a term loan (Note H) and will be repaid with proceeds from a fundraising campaign undertaken by the middle school. In addition, there is an advance to St. Augustine Cathedral parish related to Cathedral renovation in the amount of $343 and $471, at, respectively, that is being collected from pledges to St. Augustine Cathedral parish that are currently due. The allowance for uncollectible amounts is based on the individual entity s financial condition and ability to pay the amounts due and amounts are written off when uncollectibility is highly probable

15 NOTE D - PLEDGES RECEIVABLE Pledges receivable, primarily from the Annual Bishops Appeal, at June 30 are shown below. The discount rates used to determine present values for pledges due in more than one year after the pledge is made range from 2.875% to 4.875%. Less than One to one year five years Total Total Pledges receivable $ 2,937 $ 581 $ 3,518 $ 4,254 Allowance for uncollectible amounts (484) - (484) (582) Discount to present value - (57) (57) (96) Pledges receivable, net $ 2,453 $ 524 $ 2,977 $ 3,576 Pledges receivable, net, includes $723 and $1,720 at, respectively, that are designated by donors for other Diocesan entities and are included in accounts payable due to other Diocesan entities

16 NOTE E - NOTES RECEIVABLE The Diocese has a note receivable in the face amount of $3,225 from the sale of property in February The note is secured by a mortgage on the property and interest payments at 3% began in March 2005 and increased to 7% by March Principal payments begin in March 2009 with a $500 payment and continue with monthly payments thereafter on a 25-year amortization basis, with the unpaid balance due in full in March The note is recorded at the present value of future payments discounted at 7%. Amortization of the discount was $54 and $66 for the years ended, respectively, and, together with interest received, is included in investment income. Future payments for the years ended June 30, the amounts attributable to interest at 7% and the note receivable balance at June 30, 2008 are as follows: Year Amount 2009 $ ,640 4,292 Less interest at 7% (1,151) Note receivable balance $ 3,

17 NOTE F - INVESTMENTS Investments, including those held in trust by a third party, consist of the following at June 30: Diocese Faith in the Future Fund, Inc. Total 2008 Marketable securities: Equity securities and mutual funds: Domestic $ 6,467 $ 10,604 $ 17,071 International 1,572 2,321 3,893 Emerging markets ,067 Total equity securities and mutual funds 8,419 13,612 22,031 Corporate and government debt securities and mutual funds 3,901 5,112 9,013 Total marketable securities 12,320 18,724 31,044 Hedge funds 798 1,412 2,210 Futures fund Real estate investment trust Money market funds and certificates of deposit 3, ,512 Other Total investments $ 18,127 $ 21,628 $ 39, Marketable securities: Equity securities and mutual funds: Domestic $ 8,061 $ 11,833 $ 19,894 International 1,965 2,566 4,531 Total equity securities and mutual funds 10,026 14,399 24,425 Corporate and government debt securities and mutual funds 6,471 7,102 13,573 Total marketable securities 16,497 21,501 37,998 Money market funds and certificates of deposit 5, ,404 Other Total investments $ 23,231 $ 22,133 $ 45,

18 NOTE F (continued) These investments at June 30 are attributable to: Diocese Faith in the Future Fund, Inc. Total 2008 Permanently restricted assets $ 263 $ 20,293 $ 20,556 Temporarily restricted assets 357 1,337 1,694 Unrestricted assets 17,505-17,505 Total investments $ 18,125 $ 21,630 $ 39, Permanently restricted assets $ 263 $ 20,238 $ 20,501 Temporarily restricted assets 438 1,896 2,334 Unrestricted assets 22,530-22,530 Total investments $ 23,231 $ 22,134 $ 45,365 Investment income related to the above investments consists of the following for the fiscal-years ended June 30: Diocese Faith in the Future Fund, Inc. Total 2008 Net (depreciation) appreciation in fair value of investments $ (213) $ 114 $ (99) Dividends and interest , Less investment fees (116) (170) (286) Net investment income $ 471 $ 239 $ Net appreciation in fair value of investments $ 1,622 $ 2,512 $ 4,134 Dividends and interest 1, ,591 2,720 3,005 5,725 Less investment fees (130) (183) (313) Net investment income $ 2,590 $ 2,822 $ 5,412 The substantial decline in net investment income in fiscal-year 2008 from fiscal-year 2007 reflects the broad based decline in market values of equity securities that began in November

19 NOTE G - PROPERTY AND EQUIPMENT Property and equipment consist of the following at : Furniture and fixtures $ 1,141 $ 1,053 Vehicles, computers and other equipment 2,941 2,680 Buildings and improvements 56,867 54,121 Land improvements Land 17,294 17,302 78,720 75,573 Accumulated depreciation (29,528) (28,069) Property and equipment, net $ 49,192 $ 47,504 Land and buildings owned by the Diocese with a net book value of $12,880 are provided to Diocesan high schools, elementary schools and the middle school for their use rent free. In fiscal-year 2006 and prior years, land and buildings used by the Cardinal Shehan Center were included in the combined financial statements. In fiscal-year 2007, it was recognized that title to these properties was transferred from the Diocese to the Cardinal Shehan Center in 1984 and, accordingly, the net book values of these properties at July 1, 2006, $1,250, has been recorded as a contribution to the Cardinal Shehan Center in fiscal-year In addition, land and buildings owned by the Diocese with a net book value of $1,853 are leased to Sacred Heart University (the University ) through April 30, 2080 with the University paying for all utilities, maintenance and repairs, and insurance, in exchange for tuition credits currently in the amount of $180 per year. The tuition credits are utilized by teachers in Diocesan schools seeking advanced degrees and by Diocesan seminarians seeking undergraduate degrees or individual courses

20 NOTE H - NOTES PAYABLE TO FINANCIAL INSTITUTIONS The Diocese had the following notes payable to financial institutions at : Notes payable under $5,000 line of credit, fixed interest at approximately 3.53% and 6.2% and maturity dates of March 30, 2009 and March 30, 2008, respectively $ 4,961 $ 3,661 Term loan note payable, interest at prime, 5% at June 30, 2008, with monthly principal payments of $12.5 commencing October 2008 through August 2013 and balance due at maturity on September 30, ,491 - Term loan note payable, interest at prime, 5% as of June 30, 2008, with monthly principal payments of $3.75 commencing October, 2008 through March 2010 and balance due at maturity April 30, Term loan note payable, interest at prime, 8.25%, with monthly principal payments of $10 through maturity at July 31, $ 6,902 $ 3,671 While the line of credit with a financial institution for $5,000 has a maturity date of March 30, 2009, the Diocese expects to renew the line of credit arrangement to meet the need for periodic financing. The term loan agreements, maturity September 30, 2013 and August 30, 2010, are with another financial institution and the borrowings were used to renovate the middle school facility owned by the Diocese (Notes C and G) and to renovate facilities used by St. Catherine Academy (Note A) at Holy Cross Parish in Fairfield, respectively. The term loan agreement, maturity July 31, 2007, was with that same financial institution and the borrowing was used in fiscal-year 2002 for repairs to the roof of St. Augustine Cathedral in Bridgeport and reported as a contribution to St. Augustine Cathedral parish

21 NOTE I - CONDITIONAL ASSET RETIREMENT OBLIGATIONS Conditional asset retirement obligations for asbestos material and underground storage tanks associated with buildings owned by the Diocese were as follows for the fiscal-years ended June 30: Balance beginning of the year $ 4,376 $ 4,255 Obligations recognized 28 - Obligations settled (185) (94) Accretion Adjustment of obligations (715) - Balance end of the year $ 3,720 $ 4,376 The obligation recognized in fiscal-year 2008 related to a building transferred to the Diocese from Catholic Charities. The obligation settled in fiscal-year 2008 related to one high school building owned by the Diocese and the obligation settled in fiscal-year 2007 related to the buildings contributed to the Cardinal Shehan Center (Note G). The adjustment of the obligations in 2008 represented the correction of the initial recognition of conditional asset retirement obligations in fiscal-year 2006 and is reported as a reduction of depreciation and accretion expense. NOTE J - PENSION PLANS AND RETIRED PRIESTS HEALTHCARE PLAN Current Pension Plans The Diocese has two non-contributory defined benefit pension plans, the Bridgeport Diocesan Pension Plan ( BDPP ) covering lay employees of the Diocese and other Diocesan entities and the Diocese of Bridgeport Retirement Plan for Priests ( RPP ) covering Diocesan priests. Both plans are qualified under Internal Revenue Service regulations and plan assets are held in trust by a third party trustee. The pension benefits provided by the BDPP are based on years of service and average compensation over a five-year period during the last ten years of employment. Effective July 2, 2008, there will be no new participants in the Bridgeport Diocesan Pension Plan. Existing participants are not affected by this change. The pension benefit provided by the RPP is a uniform monthly amount that has been increased from time to time, most recently effective January

22 NOTE J (continued) Benefit obligations (measurement date June 30), funded status and other information for the plans are as follows: June 30, BDPP RPP BDPP RPP Projected benefit obligation $ (124,860) $ (16,858) $ (126,363) $ (17,100) Plan assets at fair value 102,489 15, ,801 15,470 Funded status $ (22,371) $ (1,673) $ (22,562) $ (1,630) Amounts not recognized in net periodic pension expense reported as a reduction of unrestricted net assets in the combined statements of activities: Transition (obligations) assets $ (7,978) $ 40 $ (9,501) $ 43 Prior service expense (15) (694) (17) (739) Net loss (658) (1,048) (973) (1,089) $ (8,651) $ (1,702) $ (10,491) $ (1,785) Year Ended June 30, BDPP RPP BDPP RPP Net periodic pension expense (measurement date July 1, 2007 and 2006, respectively) $ 5,319 $ 375 $ 6,265 $ 279 Amortization included in net periodic pension expense: Transition obligation (asset) $ 1,523 (3) $ 1,564 $ (3) Prior service expense $ 1,525 $ 41 $ 1,566 $ 19 Amounts arising: Net (gain) loss $ (316) $ (41) $ (3,863) $ 749 Reduction (adjustment of reduction) of unrestricted net assets to recognize funded status of pension plans $ (1,839) $ (82) $ (5,428) $ 730 Diocesan contributions $ 3,671 $ 250 $ 8,371 $ 97 Benefits paid $ 6,097 $ 963 $ 5,692 $

23 NOTE J - (continued) Estimated amounts for the fiscal-year ended June 30, 2009 BDPP RPP Estimated amortization to be included in net periodic pension expense: Transition obligation (asset) $ 1,523 $ (3) Prior service expense 2 44 $ 1,525 $ 41 Estimated diocesan contributions $ 5,890 $ 250 Estimated benefit payments for the fiscal-years ended June 30: Plan asset allocations at June 30: BDPP RPP 2009 $ 7,059 $ 1, $ 7,287 $ 1, $ 7,528 $ 1, $ 7,710 $ 1, $ 8,278 $ 1, through 2018 $ 50,916 $ 7,175 BDPP RPP BDPP RPP Actual Target Actual Target Actual Target Actual Target Marketable securities: Equity securities and mutual funds: Domestic 47.0% 47.0% 39.4% 40.0% 47.9% 50.0% 41.6% 40.0% International 11.0% 12.0% 9.7% 10.0% 10.8% 10.0% 10.6% 10.0% Emerging markets 3.0% 3.0% Total equity securities and mutual funds 61.0% 62.0% 49.1% 50.0% 58.7% 60.0% 52.2% 50.0% Corporate and government debt securities and mutual funds 24.1% 25.0% 49.1% 50.0% 36.7% 40.0% 44.5% 50.0% Total marketable securities 85.1% 87.0% 98.2% 100.0% 95.4% 100.0% 96.7% 100.0% Hedge funds 6.7% 8.0% Futures funds 1.7% 2.0% Real estate investment trust 2.0% 3.0% Money market funds 4.5% - 1.8% - 4.6% - 3.3% - Total investments 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

24 NOTE J - (continued) The investment policies of the plans were determined by the Diocese in consultation with professional investment advisors and the BDPP Committee and the RPP Board, the latter groups consisting of both clergy and lay people. The Diocese seeks investment returns that meet or exceed the assumed long-term rate of return on plan assets used to determine net periodic pension expense. Assumptions: BDPP RPP BDPP RPP Assumed annual rates used to determine: Benefit obligations at June 30: Discount 6.75% 6.75% 6.25% 6.25% Compensation increase 3.00% N/A 3.00% N/A Net periodic pension expense for the year ended June 30: Discount 6.25% 6.25% 6.25% 6.25% Long-term return on plan assets 7.50% 7.00% 7.50% 7.00% Compensation increase 3.00% N/A 3.00% N/A The changes in the discount rates used to determine benefit obligations resulted from using forward rates for high quality fixed income corporate securities whose maturities specifically correspond to future expected benefit payments at June 30, 2008 rather than a more general rate for long-term, high quality fixed income corporate securities at June 30, The assumed annual rates of long-term return on plan assets are based on historical rates of return over the last fifty years on similarly constructed portfolios provided by the plans professional investment advisors. If accumulated benefit obligations (determined based on current compensation levels without regard to future compensation increases for BDPP participants) were determined using the assumed long-term rates of return on plan assets as the discount rates, the fair value of plan assets would represent 93.9% and 92.1% of those accumulated benefit obligations at June 30, 2008 for the BDPP and RPP, respectively

25 NOTE J - (continued) Former Pension Plan for Priests The Diocese also provides pensions under a plan that was superseded by the RPP to seven priests who were retired before adoption of the RPP and were not eligible for the RPP by reason of their advanced age when the RPP was adopted. The present value of the estimated obligation to these priests was $555 and $595 determined using a discount rate of 6.75% and 6.25% at, respectively, and is included in pension and other retirement obligations. Pension payments were $143 and $139 for the years ended June 30, 2008 and 2007, respectively. The Diocese has designated investments in the amount of $108 and $245 at, respectively, to be used to meet obligations under the former plan as no amounts have been contributed to a separate trust. Interest on the obligations together with net actuarial losses offset by income from the investments is included in other pension expense for priests and amounted to $97 and $87 for the fiscal-years 2008 and 2007, respectively. Retired Priests Healthcare Plan The Diocese provides health and dental care for retired priests on an unfunded basis through insurance purchased annually from a third party. The plan provides a prescription drug benefit that is actuarially equivalent to the federal Medicare Part D and the Diocese receives the resulting federal subsidy that is reflected in the accumulated benefit obligation and net healthcare expense. Accumulated benefit obligations (measurement date June 30), funded status and other information for the plan are as follows: June 30, Accumulated benefit obligation, representing funded status, discount rate 6.75% and 6.25%, respectively* $ 5,153 $ 4,927 Amounts not recognized in net periodic healthcare expense: Transition obligation $ 3,120 $ 3,315 Prior service expense Net gain (242) (266) $ 3,451 $ 3,658 *See comment on change in discount rates under Current Pension Plans above

26 NOTE J - (continued) Year ended June 30, Net periodic healthcare expense (measurement date July 1, 2007 and 2006, respectively, and discount rate 6.25%) $ 693 $ 646 Amortization included in net periodic healthcare expense: Transition obligation, 20 years through June 30, 2024 $ 195 $ 195 Prior service expense, 19 years through June 30, $ 231 $ 231 Amounts arising: Net loss $ 24 $ 17 Adjustment of reduction of unrestricted net assets to recognize unfunded status $ (207) $ (214) Premiums paid, net of federal subsidies $ 260 $ 220 Annual insurance premiums are assumed to increase 8% in fiscal-year 2009, with increases trending to 6% in fiscal-year Estimated premium payments, net of federal subsidies, for the years ending June 30 are as follows: Year Amount 2009 $ through ,892 Estimated amortization to be included in net periodic healthcare expense for fiscal-year 2009 is the same as the amortization for fiscal-year 2008 above

27 NOTE K - TEMPORARILY RESTRICTED NET ASSETS The Diocese had temporarily restricted net assets available for the following purposes at June 30: Faith in the Future Fund, Inc. investment income and contributions: Diocesan schools, St. John Fisher Seminary, vocations and religious education programs $ 1,188 $ 1,743 Diocesan high school scholarships ,667 2,262 Diocese: St. Catherine Academy facilities St. Catherine Academy scholarships 85 - St. John Fisher Seminary facilities St. John Fisher Seminary financial assistance to seminarians The Newman Center ,099 Total purpose restrictions 2,401 3,361 Pledges receivable representing time restrictions 1,768 1,327 Total temporarily restricted net assets $ 4,169 $ 4,688 Net assets were released from restrictions during the years ended June 30 as follows: Satisfaction of purpose restrictions $ 1,381 $ 4,119 Expiration of time restrictions 1,327 1,745 Total net assets released from restriction $ 2,708 $ 5,864 Faith in the Future has a policy of making annual distributions (reported as contribution expense) from its common donor endowment at a rate of 4.5% of the trailing, from December 31, twelve quarters average fair value of endowment investments. This rate was established to preserve the earning power of the endowment investments and the ability to make distributions in years when investment losses are incurred. Distributions from its individual donor endowments and individual donor (non-endowment) scholarship fund are made in accordance with the donors stipulations. If the market value of endowment investments is less than the original endowment contribution, no distributions are made

28 NOTE L - PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets at June 30 were as follows: Faith in the Future Fund, Inc.: Endowment gifts received $ 20,291 $ 20,238 Endowment pledges receivable ,408 20,355 Diocese: St. Catherine Academy endowment gift received St. John Fisher Seminary interest in perpetual trust Total permanently restricted net assets $ 20,722 $ 20,669 Net assets were permanently restricted at June 30 for the benefit of the following: Faith in the Future, Fund, Inc., common and individual donor endowments: Diocesan schools, St. John Fisher Seminary, vocations and religious education programs $ 18,814 $ 18,764 Diocesan high school scholarships 1,594 1,591 20,408 20,355 Diocese: St. Catherine Academy scholarships St. John Fisher Seminary financial assistance to seminarians Total permanently restricted net assets $ 20,722 $ 20,

29 NOTE M - ANNUAL BISHOP S APPEAL AND OTHER CONTRIBUTIONS AND BEQUESTS The results of the Diocesan Annual Bishop s Appeal and other contributions and bequests for the fiscal years 2008 and 2007 are as follows: Annual Bishop s Appeal (ABA) - gross $ 12,083 $ 11,081 Other contributions and bequests 913 1,111 Less - Returns to parishes as incentive for exceeding parish 2008 ABA goals (282) - ABA amounts designated by donors for: Diocesan schools and after school programs (826) (766) Catholic Charities (435) (651) Allowance for uncollectable amounts (285) (316) Annual Bishop s Appeal and other contributions and bequests - net $ 11,168 $ 10,459 Reported as changes in: Unrestricted net assets $9,126 $8,845 Temporarily restricted net assets 2,042 1,614 $ 11,168 $ 10,459 NOTE N - EMPLOYEE BENEFIT AND INSURANCE PROGRAMS Employee benefit and insurance program revenues from other Diocesan entities were as follows for fiscalyears 2008 and 2007: Medical and dental self-insurance $ 9,798 $ 9,264 Liability, property, casualty and other insurance 2,119 2,043 Workers compensation self-insurance Lay pensions 3,488 3,897 Priests pensions Total employee benefit and insurance program revenues from other Diocesan entities $ 16,130 $ 15,

30 NOTE N (continued) Expenses related to the employee benefit and insurance programs were as follows for the fiscal-years 2008 and 2007: Medical and dental claims, excess claims insurance premiums and third party administrative fees $ 12,634 $ 11,948 Liability, property, casualty and other insurance premiums and charges for deductible amounts 3,179 4,412 Workers compensation claims, excess claims insurance premiums and third party administrative fees 432 1,056 Bridgeport Diocesan Pension Plan net periodic pension expense (Note J) 5,319 6,265 Diocese of Bridgeport Retirement Plan for Priests net periodic pension expense (Note J) Other pension expense for priests Total employee benefit and insurance program expenses 22,053 24,067 Less amounts included in services, operations, administration and general, and fundraising expenses of the Diocese (3,293) (2,916) Net employee benefit and insurance program expenses $ 18,760 $ 21,151 The employee benefit and insurance program revenues are determined at the beginning of the fiscal year and not adjusted for actual expenses incurred and included in employee benefit and insurance programs expenses in the combined statements of activities. Actual expenses are considered in determining the revenues for the following year. The liability for incurred but not reported claims related to self-insurance and deductible amounts was $3,025 and $2,988 at, respectively, and is included in self-insurance claims and deductible amounts payable

31 NOTE O CONCENTRATION OF CREDIT-RISK The Diocese has cash accounts with a bank and the balances in those accounts generally exceed the federally insured maximum amount of $100. At June 30, 2008, the excess was $3,970. While the Diocese has not experienced any losses on the accounts, there can be no assurance in the current environment that losses will not occur. NOTE P - CONTINGENCIES The Diocese is a defendant in various lawsuits relating to abuse and other claims where plaintiffs are seeking to recover damages, some of which would be covered by insurance. The outcome of these lawsuits is uncertain but the Diocese does not believe the outcomes will materially impact net assets. The Diocese has unconditionally guaranteed in the event of default, loans from banks to other Diocesan entities principally related to the construction of facilities. The fair value of the guarantee obligations to stand ready to perform on Diocesan entity loans from banks has not been determined or recorded. At June 30, 2008 the aggregate balances outstanding on these loans was $12,848 and the related weighted average interest rate was 5.77% and the weighted average maturity was 6.13 years. NOTE Q SUBSEQUENT EVENTS Marketable equity securities have experienced significant declines in value since June 30, The Diocese s investments (Note F) and those of the BDPP and RPP (Note J) have experienced decreases in value approximating 25% from July 1, 2008 through mid-november Unless the market value of the investments recovers, the decreases will impact Faith in the Future, Inc. s future distributions to its beneficiaries because the market value of its investments is less than the original endowment contributions ( Note K). The decrease in the market value of the BDPP and RPP investments has no near-term impact on pension payments to retirees as those payments can be funded with current contributions to the plans from Diocesan entities and remaining investments. However, unless the market value of the investment recovers, future years net periodic pension expense will increase significantly to make up for the decreases experienced since June 30,