MOUNT SAINT MARY COLLEGE Newburgh, New York FINANCIAL STATEMENTS. Years ended June 30, 2012 and 2011

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1 Newburgh, New York FINANCIAL STATEMENTS

2 FINANCIAL STATEMENTS CONTENTS REPORT OF INDEPENDENT AUDITORS... 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION... 2 STATEMENT OF ACTIVITIES (JUNE 30, 2012)... 3 STATEMENT OF ACTIVITIES (JUNE 30, 2011)... 4 STATEMENTS OF CASH FLOWS

3 REPORT OF INDEPENDENT AUDITORS To the Board of Trustees Mount Saint Mary College Newburgh, New York We have audited the accompanying statements of financial position of Mount Saint Mary College (the College ) as of June 30, 2012 and 2011, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the College s management. 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mount Saint Mary College as of June 30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. New York, New York October 25, 2012 Crowe Horwath LLP 1.

4 STATEMENTS OF FINANCIAL POSITION June 30, 2012 and 2011 Assets Cash and cash equivalents $ 8,814,394 $ 8,869,723 Restricted cash 806, ,228 Student accounts receivable, net of allowance for doubtful accounts of $737,561 and $777,361, as of June 30, 2012 and 2011, respectively 1,290,194 1,509,925 Government grants receivable 143, ,016 Contributions receivable, net (Note 8) 4,363,271 3,868,786 Inventory 206, ,830 Prepaid expenses and other assets 950, ,604 Loans to students, net of allowance for doubtful accounts of $458,280 and $409,917, as of June 30, 2012 and 2011, respectively 554, ,264 Deposits held with bond trustees (Notes 5 and 10) 5,236,716 5,237,866 Investments, at fair value (Notes 3 and 10) 49,857,531 49,710,530 Deferred financing costs, net of accumulated amortization of $1,372,132 and $1,212,449, as of June 30, 2012 and 2011, respectively 1,952,584 2,112,267 Property and equipment, net (Note 4) 108,782, ,114,360 Total assets $ 182,959,159 $ 178,998,399 Liabilities and net assets Liabilities Accounts payable and accrued liabilities $ 2,020,594 $ 2,564,096 Student deposits and deferred revenue 1,557,495 1,532,743 Note payable Dominican Center (Note 6) 1,660,123 - Capital lease obligations payable (Note 13) 1,496, ,042 Conditional asset retirement obligation 494, ,830 Interest rate swap liability (Notes 5 and 10) 5,598,172 2,484,097 Bonds payable (Note 5) 45,455,607 46,806,607 Government grants refundable 603, ,199 Total liabilities 58,886,714 54,877,614 Net assets (Note 9) Unrestricted 112,751, ,556,637 Temporarily restricted 6,878,001 6,202,808 Permanently restricted 4,442,497 4,361,340 Total net assets 124,072, ,120,785 Total liabilities and net assets $ 182,959,159 $ 178,998,399 The accompanying notes are an integral part of the financial statements. 2.

5 STATEMENT OF ACTIVITIES Year ended June 30, 2012, with comparative June 30, 2011 Totals Unrestricted Temporarily restricted Permanently restricted Total 2012 Total 2011 Operating revenues and other support Student tuition and fees $ 52,314,779 $ - $ - $ 52,314,779 $ 49,353,818 Less: Institutional aid (14,081,332) - - (14,081,332) (12,863,829) Net tuition and fees 38,233, ,233,447 36,489,989 Government grants 222, , ,654 1,175,023 Contributions 294,422 1,650,889 81,157 2,026,468 3,966,757 Auxiliary enterprises 13,435, ,435,852 12,179,233 Bishop Dunn Memorial School 2,131, ,131,883 2,293,911 Interest and dividends 679, , , ,974 Other sources 701,679 13, , ,442 Net assets released from restrictions 2,050,555 (2,050,555) Total operating revenues and other support 57,749, ,147 81,157 58,458,999 57,884,329 Operating expenses Education and general 38,911, ,911,322 36,436,680 Auxiliary enterprises 12,718, ,718,988 11,922,780 Bishop Dunn Memorial School 2,601, ,601,596 2,670,003 Total operating expenses 54,231, ,231,906 51,029,463 Net operating revenues less operating expenses 3,517, ,147 81,157 4,227,093 6,854,866 Nonoperating transactions Unrealized gain (loss) on interest rate swap (3,114,075) - - (3,114,075) 1,090,217 Realized and unrealized gain (loss) on investments (1,208,404) 47,046 - (1,161,358) 6,548,347 Change in net assets (804,690) 675,193 81,157 (48,340) 14,493,430 Net assets, beginning of year 113,556,637 6,202,808 4,361, ,120, ,627,355 Net assets, end of year $ 112,751,947 $ 6,878,001 $ 4,442,497 $ 124,072,445 $ 124,120,785 The accompanying notes are an integral part of the financial statements. 3.

6 STATEMENT OF ACTIVITIES Year ended June 30, 2011 Unrestricted Temporarily restricted Permanently restricted Total 2011 Operating revenues and other support Student tuition and fees $ 49,353,818 $ - $ - $ 49,353,818 Less: Institutional aid (12,863,829) - - (12,863,829) Net tuition and fees 36,489, ,489,989 Government grants 238, ,355-1,175,023 Contributions 3,409, , ,542 3,966,757 Auxiliary enterprises 12,179, ,179,233 Bishop Dunn Memorial School 2,293, ,293,911 Interest and dividends 758, , ,974 Other sources 898,903 13, ,442 Net assets released from restrictions 1,934,619 (1,934,619) - - Total operating revenues and other support 58,203,944 (507,157) 187,542 57,884,329 Operating expenses Education and general 36,436, ,436,680 Auxiliary enterprises 11,922, ,922,780 Bishop Dunn Memorial School 2,670, ,670,003 Total operating expenses 51,029, ,029,463 Net operating revenues less operating expenses 7,174,481 (507,157) 187,542 6,854,866 Nonoperating transactions Change in donor designation - (36,042) 36,042 Unrealized loss on interest rate swap 1,090, ,090,217 Realized and unrealized gains on investments 6,498,577 49,770-6,548,347 Change in net assets 14,763,275 (493,429) 223,584 14,493,430 Net assets, beginning of year 98,793,362 6,696,237 4,137, ,627,355 Net assets, end of year $ 113,556,637 $ 6,202,808 $ 4,361,340 $ 124,120,785 The accompanying notes are an integral part of the financial statements. 4.

7 STATEMENTS OF CASH FLOWS Cash flows from operating activities Change in net assets $ (48,340) $ 14,493,430 Adjustments to reconcile change in net assets to net cash provided by operating activities Bad debt expense 323, ,337 Depreciation and amortization 5,517,211 5,023,910 Loss on Disposal of Property and Equipment 124,382 - Net realized and unrealized (gain) loss on investments 1,161,358 (6,548,347) Restricted contributions (81,157) (187,542) Unrealized (gain) loss on interest rate swap 3,114,075 (1,090,217) Changes in assets and liabilities Restricted cash (127,268) (26,964) Student accounts receivable (58,758) (345,927) Government grants receivable (40,361) 28,254 Contributions receivable (539,539) 244,684 Inventory 11,054 (4,040) Prepaid expenses and other assets (91,142) 269,855 Accounts payable and accrued liabilities (543,502) (195,151) Conditional asset retirement obligation 297,625 (32,154) Student deposits and deferred revenue 24,752 (321,918) Net cash provided by operating activities 9,043,933 11,592,210 Cash flows from investing activities Purchases of property and equipment (7,841,283) (5,903,581) Deposits held with bond trustees 1,150 12,983 Proceeds from sales of investments 6,772,615 61,157,140 Purchases of investments (8,080,974) (60,892,208) Decrease in loans to students 160, ,630 Net cash used in investing activities (8,987,924) (5,509,036) Cash flows from financing activities Restricted contributions 81, ,542 Repayment of bond payable (1,365,000) (1,320,000) Capital lease payments (467,167) (228,862) Borrowing on Dominican Center payable 2,000,000 - Repayment of Dominican Center payable (339,877) - Decrease in government grants refundable (20,451) (31,856) Net cash used in financing activities (111,338) (1,393,176) Net increase (decrease) in cash and cash equivalents (55,329) 4,689,998 Cash and cash equivalents, beginning of the year 8,869,723 4,179,725 Cash and cash equivalents, end of the year $ 8,814,394 $ 8,869,723 Supplemental disclosure of cash flow information Cash paid during the year for interest $ 1,886,944 $ 1,869,680 Equipment acquired through capital lease obligations $ 1,294,645 $ 691,161 Fixed assets financed through accounts payable $ 462,012 $ 582,743 The accompanying notes are an integral part of the financial statements. 5.

8 NOTE 1 - DESCRIPTION OF THE COLLEGE AND NATURE OF ACTIVITIES Mount Saint Mary College (the "College") is an outgrowth of the Mount Saint Mary Normal School, begun by the Dominican Sisters for teacher training in Since opening its doors in 1960, it is the enduring vision of Mount Saint Mary College to better the world by graduating individuals who participate fully and responsibly in society and who cherish intellectual growth, the free exchange of ideas, strong personal values and the pursuit of truth. The mission of Mount Saint Mary College is to prepare students, within the environment of a small, independent institution, to assume by choice and preparation, their roles in an ever-changing cultural, economic and technological society. The College is dedicated to providing individual attention to its students within a total learning environment. Mount Saint Mary College Mission: As reflected in its motto "DOCE ME VERITATEM" (Teach me the Truth), Mount Saint Mary College, founded by the Dominican Sisters of Newburgh, is an independent coeducational institution committed to providing students with a liberal arts education to prepare them for lives of leadership and service. Through a variety of majors and professional programs, students are also prepared for career entry or graduate and professional studies. Consistent with Judeo-Christian values and the Dominican tradition of education that values the inherent worth of the individual, the mission of Mount Saint Mary College is to create an environment which fosters close student-faculty interaction that enables students to reach their full potential as lifelong learners. Mount Saint Mary College strives to provide a stimulating environment that promotes the intellectual and personal growth of undergraduate, graduate and continuing education students. Therefore, Mount Saint Mary College endeavors to graduate students who are inquisitive and value the free exchange of ideas are analytical in their approach to problem solving are motivated toward self-improvement have developed an aesthetic sense have developed effective communication skills have developed personal and professional ethical positions have embraced civic responsibility The financial statements of the College consist of the following operations: Mount Saint Mary College - an independent, coeducational, four-year institution of higher education. The College is the primary entity of the financial statements. Bishop Dunn Memorial School (the "School") The School is a division of the College and is located on the campus. The operations of the School (grades pre-kindergarten through eighth grade) are included in the accompanying financial statements. Most of the School's income is derived from tuition for the children. All significant intercompany transactions and accounts have been eliminated. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (US GAAP). 6.

9 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Asset Classification Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the College and changes therein are classified and reported as follows: Unrestricted net assets - net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets - net assets, which carry specific donor-imposed stipulations that can be fulfilled by actions of the College pursuant to those stipulated or that expire by the passage of time. Permanently restricted net assets - net assets, which have been restricted by donors to be maintained by the College in perpetuity. Generally, the donors of these assets permit the College to use all or part of the income earned on the related investments for scholarships and institutional support. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restrictions. Tuition revenue is reported on the accrual basis of accounting and is recognized as earned by the College. Tuition revenue that applies to an academic term that encompasses two fiscal years is recognized in the fiscal year for which the term is conducted. Amounts received that are not earned are reported as deferred revenue. Subsequent events The College has evaluated subsequent events through October 25, 2012, the date on which these financial statements were issued. The College has determined no subsequent events have occurred requiring disclosure in these financial statements. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities of three months or less when purchased. Restricted Cash Restricted cash represents cash held with donor-imposed restrictions or for use in the Federal Perkins Loan and Nursing Student Loan programs. Student Accounts Receivable Student accounts receivable consist of tuition and fee charges, and is recorded net of estimated uncollectible amounts. The College calculates the allowance for doubtful accounts by evaluating account balances over 151 days old and those accounts in collections, thereby reducing the accounts by the estimated amount deemed to be uncollectable. The estimated amount is calculated as a percentage based on historical recovery. No interest is charged on outstanding student accounts receivable balances. However, a flat rate fee is charged on overdue balances. 7.

10 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments Investments are reported at fair value. The College reflects money market funds and cash equivalents held in investment portfolios as investments. Realized and unrealized gains and losses are recognized in the accompanying statements of activities. Investment return, including realized and unrealized gains and losses, is included as a component of the change in net assets consistent with the purpose of the investment and donor-imposed restrictions. Inventory Inventory, consisting of bookstore products, is carried at the lower of cost or market and is recorded on the first-in, first-out basis. Contributions Contributions, including unconditional promises to give (pledges), are recognized as revenue in the period the pledge or contribution is 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 the date of donation. The College recognizes pledges at their estimated fair value. Fair value is determined by calculating the present value of the risk adjusted estimated future cash flows. When the College receives donor-restricted contributions whose restrictions are met in the same reporting period, the College reports the contributions as unrestricted. Donated assets, or assets acquired with gifts restricted to the purchase of long-lived assets, are reclassified to unrestricted net assets at the time of acquisition unless otherwise stipulated by the donor. Property and Equipment Property and equipment is stated at cost at the date of acquisition or estimated fair value at the date of donation in the case of gifts, less accumulated depreciation. The College capitalizes such assets provided their cost exceeds $1,500. Long-lived assets, such as building and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management believes that currently there is no impairment of the long-lived assets. Depreciation is computed using the straight-line method (one half year convention) over the estimated useful lives of the respective assets. Library books are expensed when purchased. Deferred Financing Costs Costs incurred in securing financing have been deferred and amortized using the effective interest method. Total amortization expense for deferred financing costs was $159,683 and $164,202 for the years ended June 30, 2012 and

11 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Institutional Aid Institutional aid represents discounts to student tuition and fees provided by the College. Such discounts primarily include College scholarships. Functional Expenses Operating expenses directly identified with a functional area are charged to that area and, where these expenses affect more than one area, they are allocated on the basis of predetermined ratios. Use of 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The College's significant estimates include allowances for doubtful accounts, the conditional asset retirement obligation and the valuation of investments and the interest rate swap. Actual results could differ from those estimates. Derivative Instruments and Hedging Activities The College accounts for derivative instruments in accordance with Accounting Standards Codification Topic 815 for Derivatives and Hedging. The College entered into an interest rate swap agreement as part of its interest rate risk management strategy, not for speculation. Although the College believes the interest rate swap serves as an economic hedge of its interest rate risk, it does not qualify as a hedge. As a result, gains and losses are recognized in the current change in unrestricted net assets. The fair value of the College s interest rate swap is recorded as a liability in the College s statement of financial position with a corresponding charge to unrealized gain or loss for the change in the fair value of the interest rate swap during the period. The College does not have any other derivative instruments. See Note 5 for more information regarding the interest rate swap. Income Taxes The College is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. US GAAP prescribes recognition thresholds and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Tax benefits will be recognized only if the tax position is considered more-likely-than-not to be sustained in a tax examination, with a tax examination being presumed to occur. For tax positions not meeting the morelikely-than-not test, no tax benefit will be recorded. Management believes the College does not have any tax benefits or liabilities to be recognized at June 30, 2012 and The College is no longer subject to examination by U.S. federal taxing authorities and for all state income taxes through The College does not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months. The College would recognize interest and penalties related to unrecognized tax benefits in interest and income tax expense, respectively. The College has no amounts accrued for interest or penalties as of June 30, 2012 and

12 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Asset Retirement Obligations The College accrues for asset retirement obligations in the period in which they are incurred if sufficient information is available to reasonably estimate the fair value of the obligation. Over time, the liability is accreted to its settlement value. Upon settlement of the liability, the College will recognize a gain or loss for any difference between the settlement amount and the liability recorded. Government Grants Refundable Funds provided by the United States Government under the Federal Perkins and Nursing Loan programs are loaned to qualified students and may be reloaned after collections. These funds are ultimately refundable to the government and are included as liabilities in the statements of financial position. Revenues from other government grants are recognized as they are earned in accordance with the agreement. Any funding received before it is earned is recorded as a refundable advance. Expenses incurred before cash is received are recorded as receivables. Concentration of Credit Risk The College maintains cash balances at several financial institutions in excess of the insurance limits provided by the Federal Deposit Insurance Corporation. NOTE 3 - INVESTMENTS The composition of investments at fair value, are as follows at June 30: Equities $ 3,037,296 $ 2,835,634 Mutual funds 25,163,984 25,385,544 Certificates of deposit, savings bonds and other money market instruments 1,151, ,979 Funds of Funds 6,196,539 6,176,231 Limited Partnerships 7,130,359 7,060,380 Hedge Fund 7,177,387 7,277,762 Total investments $ 49,857,531 $ 49,710,

13 NOTE 3 INVESTMENTS (Continued) Interest and dividends and realized and unrealized gains and losses on investments are comprised of the following for the years ended June 30: Net realized losses on deposits with bond trustees $ - $ (3,206) Net unrealized (loss) gain on deposits with bond trustees 407 (1,339) Interest and dividends on deposits with bond trustees 874 2,938 Interest and dividends on investments 947, ,036 Net realized gain on investments 363,744 6,060,311 Net unrealized gain (loss) on investments (1,525,509) 492,581 Total investment income (loss) $ (213,302) $ 7,415,321 Investment fees for custodial and management services for the years ended June 30, 2012 and 2011, were $127,757 and $114,626, respectively. NOTE 4 PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30: Estimated useful lives Land and improvements $ 6,410,680 $ 6,263, years Buildings and improvements 131,110, ,713, years Furniture, fixtures and equipment 5,207,353 6,356, years Equipment under capital lease 2,397,487 2,519, years Construction-in-progress 1,540,215 74, ,666, ,928,204 Less: Accumulated depreciation (37,883,737) (35,813,844) $ 108,782,378 $ 105,114,360 Depreciation and amortization expense for property and equipment for the years ended June 30, 2012 and 2011 was $5,343,528 and $4,845,288, respectively. 11.

14 NOTE 5 BONDS PAYABLE In 2003, the College entered into a loan agreement (the "2003 Agreement") with the Dormitory Authority of the State of New York (the "Authority"). The 2003 Agreement was for a $24,411,914 ($24,720,000, net of a $308,086 discount), 30-year revenue bond with interest ranging from 1.60% to 5.00%. The discount is being amortized using the effective interest method over the life of the bond. Amortization expense for the Series 2003 Bond Payable for the years ended June 30, 2012 and 2011 was $14,000, and $14,420, respectively. The bond proceeds from the 2003 Agreement were used to construct the Sakac Hall, the College's dormitory and the renovation of Guzman Hall. The bond is collateralized by the first mortgage lien on Sakac Hall. Under the 2003 Agreement, the College granted to the Authority a security interest in pledged revenues. The College is subject to a financial covenant that requires that the College earn tuition and fees in an amount equal in each bond year to the greatest amount required in any bond year to pay the principal and interest on the outstanding Series 2003 Bonds. The College is required to make principal payments plus accrued interest during each twelve month period until the bond is paid in full. The bond is subject to optional and mandatory redemption through June The Dormitory Authority of the State of New York requires the College to establish certain reserve funds. Reserve funds consist of cash and U.S. government securities. The reserves under the 2003 Agreement included in the caption "Deposits held with bond trustees" on the accompanying statement of financial position are reported at fair value and are as follows for June 30: Dormitory Authority of the State of New York: Debt Reserve Fund $ 1,190,884 $ 1,189,419 Debt Service Reserve Fund 1,649,581 1,665,010 Total $ 2,840,465 $ 2,854,429 Contractual principal payments for years subsequent to June 30, 2012, for the Series 2003 bonds are as follows: 2013 $ 710, , , , ,000 Thereafter through ,875,000 19,465,000 Less: Discount 164,393 Total $ 19,300,

15 NOTE 5 BONDS PAYABLE (Continued) In September 2005, the College entered into a loan agreement (the "2005 Agreement") with the Dormitory Authority of the State of New York (the "Authority"), The 2005 Agreement is for a $29,265,000, 30-year variable rate revenue bond with an initial rate of 2.42%, The bond proceeds of the 2005 Agreement were used to finance the renovation, modernization and expansion of the College Courts facility, a 10 building student housing complex. Under the 2005 Agreement, the College granted to the Authority a security interest in pledged revenues, subject to the prior pledges, The prior pledges are comprised of tuition and fees of the College in an amount equal in each bond year for the Authority's Mount Saint Mary College Insured Revenue Bonds, Series 2003, to the greatest amount required in any such bond year to pay the principal and interest on outstanding Series 2003 Bonds which is $1,639,325. The pledged revenues consist of, during any year, an aggregate amount of tuition and fees charged by the College to students for academic instruction, the right to receive the same and the proceeds thereof equal to the maximum annual debt service on the then outstanding Series 2005 Bonds. Under the 2005 Agreement, the College granted to the Authority a security interest in pledged revenues. The College is subject to a financial covenant that requires that the College earn tuition and fees in an amount equal in each bond year to the greatest amount required in any bond year to pay principal and interest on the outstanding Series 2005 Bonds. The College is required to make principal payments plus accrued interest during each twelve month period until the bond is paid in full. The bond is subject to optional and mandatory redemption through June The Dormitory Authority of the State of New York requires the College to establish certain reserve funds. Reserve funds consist of cash and U.S. government securities. The reserves under the 2005 Agreement included in the caption "Deposits held with bond trustees" on the accompanying statement of financial position are reported at fair value and are as follows for June 30: Dormitory Authority of the State of New York: Debt Reserve Fund $ 731,596 $ 710,851 Debt Service Reserve Fund 1,664,655 1,672,586 Total $ 2,396,251 $ 2,383,

16 NOTE 5 BONDS PAYABLE (Continued) Contractual principal payments for years subsequent to June 30, 2012, for the Series 2005 bond are as follows: 2013 $ 690, , , , ,000 Thereafter through ,425,000 Total $ 26,155,000 On August 25, 2005, the College entered into an interest rate swap agreement with Deutsche Bank, guaranteeing a fixed interest rate of 3.225% on a notional amount of $29,265,000 until the year ending The floating rate payable under the swap agreement by the swap provider will be equal to 67% of the one month LlBOR index payable monthly on the first day of each month commencing October 1, 2005 through July 1, The interest rate swap was entered into primarily to hedge the College's risk of interest rate changes with respect to the Series 2005 bonds. The swap is recorded at fair value on the statement of financial position date and changes in the fair value of the swap were recorded in changes in unrestricted net assets. The fair value of the interest rate swap, recorded as a liability on the statement of financial position, which was determined by the counterparty bank based on an assessment of the underlying notional amount and term was $5,598,172 and $2,484,097 at June 30, 2012 and 2011, respectively. Summary information about the interest-rate swap not designated as a hedge as of June 30 is as follows: Notional amounts $ 26,155,000 $ 26,825,000 Pay fixed x% 3.23% 3.23% 1 Mo. LIBOR x 67% 0.24% 0.19% Maturity 22 years 23 years The following table presents the net amounts recorded in the statements of activities relating to instruments not designated as hedges: Unrealized gain (loss) on interest rate swap $ (3,114,075) $ 1,090,217 Net settlements on the interest rate swap liabilities are included as interest expense and totaled $845,538 and $883,030 for the years ended June 30, 2012 and 2011, respectively. 14.

17 NOTE 5 BONDS PAYABLE (Continued) In conjunction with the Series 2005 Bonds, the College entered into a reimbursement agreement with JP Morgan Chase which includes a letter of credit in the approximate amount of $27,900,000. The reimbursement agreement contains several covenants. The more restrictive covenants relate to the College s ability to cover debt service and availability of cash and liquid investments on hand to fund indebtedness. The letter of credit expires (subject to earlier termination) on January 31, 2013, but may be extended or replaced. Because the above Series 2005 bonds are operating in a floating mode and are remarketed at par value weekly, their carrying values approximate fair value of the outstanding balances of the bonds. Should the agent not be able to remarket the bonds, they become demand notes under the letter of credit agreement. The letter of credit expires (subject to earlier termination) on January 31, The College intends to refinance this borrowing during fiscal 2013 with repayment terms similar to the maturity schedule for the Series 2005 Bonds shown previously. In the event the College is unable to refinance the Series 2005 Bonds or extend or replace the letter of credit the bonds would be due and payable upon expiration of the letter of credit. Interest expense amounted to $1,886,944 and $1,869,680 for the years ended June 30, 2012 and 2011, respectively. NOTE 6 NOTE PAYABLE DOMINICAN CENTER The College purchased buildings and land on July 13, 2011 from the Dominican Sisters for $5,000,000. In conjunction with the purchase the College entered into a $2,000,000 mortgage note payable at a fixed interest rate of 3.53%. The mortgage note requires monthly payments of approximately $36,000 through July 15, Outstanding borrowings under the mortgage note totaled $1,660,123 at June 30, Contractual principal payments for years subsequent to June 30, 2012, for the note are as follows: 2013 $ 385, , , , ,237 $ 1,660,123 NOTE 7 - RETIREMENT PLAN Employees of the College with at least one year of service are included, on a voluntary basis, in a contributory defined contribution pension plan administered by the Teachers Insurance and Annuity Association. Pension costs are funded currently. Contributions by the College amounted to $1,247,471 and $1,167,272 for the years ended June 30, 2012 and 2011, respectively. 15.

18 NOTE 8 CONTRIBUTIONS RECEIVABLE Contributions receivable at June 30 consist of the following: Gross amounts due Within one year $ 589,127 $ 535,610 Two to five years 1,908,082 1,336,894 More than five years 3,542,938 3,786,822 6,040,147 5,659,326 Less: Unamortized discount to present value (2-6%) (1,422,025) (1,576,321) 4,618,122 4,083,005 Less: Allowance for doubtful accounts (254,851) (214,219) Net contributions receivable $ 4,363,271 $ 3,868,786 The unamortized discount above will be recognized as a component of contribution revenue over the term of the respective pledge using the straight-line method, which does not differ materially from the effective interest method. All contributions receivable are unsecured. As of June 30, 2012 and 2011, $321,806 and $46,547, respectively, of contributions receivables were from related parties, such as trustees and employees. In 2005, the College received a $1,000,000 conditional promise. As of June 30, 2012, the College has a remaining balance of $600,000 on this promise, which will be recognized as income as the conditions are met. In 2012, the College received a $2,500,000 million conditional promise. As of June 30, 2012, the College has not satisfied any of the conditions and there is no financial statement impact of this promise at June 30, NOTE 9 NET ASSETS Temporarily restricted net assets at June 30 consist of the following: Desmond campus (see below) $ 1,416,932 $ 1,524,645 Temporarily restricted pledges 4,523,205 3,693,015 Scholarships and other programs 937, ,148 $ 6,878,001 $ 6,202,

19 NOTE 9 NET ASSETS (Continued) In 1991, the College was the recipient of a gift of certain real property, including land, buildings and improvements, to be used for College purposes. In connection with the property gift, the donor established and funded a perpetual trust on behalf of the College to provide a stream of revenue for the upkeep of the property. In July 2008, the external trustee transferred the assets from the perpetual trust to the College for the specific purpose of continuing to maintain the Desmond Campus. Net earnings of the trust assets are included in temporarily restricted investment income in the accompanying statements of activities. Net assets were released from donor-imposed temporary restrictions as follows for the years ended June 30: Expended for scholarships and other programs $ 1,307,488 $ 1,458,922 Current year collections of promises to give 743, ,697 $ 2,050,555 $ 1,934,619 Endowment The College's endowment consists of approximately 30 individual donor-restricted funds. The College's spending policy on these endowments is 5% of the fair value of the endowment at the end of each fiscal year. In establishing this policy, the Board considered the expected long term rate of return on its endowment. The College adopted standards regarding net asset classification of endowment funds and enhanced disclosures for all endowment funds as required by US GAAP. The information provided below regarding the College's interpretation of the relevant law and the composition of the endowment and similar funds has been included to comply with the disclosure requirements of the standard. During September 2010, New York State enacted the Prudent Management of Institutional Funds Act (NYPMIFA). The Board of Trustees of the College has interpreted NYPMIFA as allowing the College to spend amounts from its endowment funds as it deems prudent. This includes allowing the College to spend amounts from its endowment funds even when market values decline below the endowment fund s historic dollar value. Donors of endowments received by the College prior to September 17, 2010, were given the option to elect not to allow the College to spend below the historic dollar value of their gift. The College classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. Unspent appropriations related to the donor restricted endowment fund are classified as temporarily restricted net assets until the amounts are expended by the College in a manner consistent with the donor's intent. 17.

20 NOTE 9 NET ASSETS (Continued) Endowment net asset composition by type of fund as of June 30, 2012 and 2011, is as follows: June 30, 2012 Unrestricted Temporarily restricted Permanently restricted Total Total donor-restricted endowment funds $ - $ 328,632 $ 4,442,497 $ 4,771,129 June 30, 2011 Unrestricted Temporarily restricted Permanently restricted Total Total donor-restricted endowment funds $ - $ 330,333 $ 4,361,340 $ 4,691,673 Changes in endowment net assets for the fiscal years ended June 30, 2012 and 2011 are as follows: June 30, 2012 Unrestricted Temporarily restricted Permanently restricted Total Endowment net assets, beginning of year $ - $ 330,333 $ 4,361,340 $ 4,691,673 Total investment return - 281, ,732 Contributions ,157 81,157 Appropriation of endowment assets for expenditure - (283,433) - (283,433) Endowment net assets, end of year $ - $ 328,632 $ 4,442,497 $ 4,771,129 June 30, 2011 Unrestricted Temporarily restricted Permanently restricted Total Endowment net assets, beginning of year $ - $ 314,642 $ 4,137,756 $ 4,452,398 Total investment return - 114, ,685 Contributions , ,542 Change in donor designation ,042 36,042 Appropriation of endowment assets for expenditure - (98,994) - (98,994) Endowment net assets, end of year $ - $ 330,333 $ 4,361,340 $ 4,691,

21 NOTE 9 NET ASSETS (Continued) Description of amounts classified as permanently restricted net assets and temporarily restricted net assets (endowments only) is as follows: Permanently restricted net assets The portion of perpetual endowment funds that is required to be retained permanently by explicit donor stipulation Restricted for scholarship support $ 2,476,368 $ 2,404,005 Restricted for institutional support 1,966,129 1,957,335 $ 4,442,497 $ 4,361,340 Temporarily restricted net assets The portion of temporarily restricted endowment funds subject to a time restriction Restricted for institutional support $ 328,632 $ 330,333 Return Objectives and Risk Parameters The College has adopted endowment investment and spending policies that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of endowment assets. Under this policy, the return objective for the endowment assets, measured over a full market cycle, shall be to maximize the return against a blended index, based on the endowment's investment allocation. Strategies Employed for Achieving Investment Objectives To achieve its long-term rate of return objectives, the College relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized gains) and current yield (interest and dividends). The College targets a diversified asset allocation that places equal emphasis on equity-based and debt-based investments to achieve its long-term objectives within prudent risk constraints. NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurement accounting standards requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. 19.

22 NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) In that regard, the accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1: Based upon quoted prices in active markets that the College has the ability to access for identical assets and liabilities. Market price data is obtained from exchange or dealer markets. The College does not adjust the quoted price for such assets and liabilities. Level 2: Based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources including market participants, dealers, and brokers. Level 3: Based on valuation techniques that use significant inputs that are unobservable as they trade infrequently or not at all. Transfers of investments between different levels of the fair value hierarchy are recorded at the date of the event or change in circumstances that caused the transfer. For the years ended June 30, 2011 and 2012, there were no transfers between Level I and Level II. The following are descriptions of the valuation methods and assumptions used by the College to estimate the fair values of investments and other financial instruments: Equity Securities: The fair value of equity holdings that are readily marketable are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs). Mutual Funds: The fair value of investments in mutual funds that are readily marketable are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs). U.S. Government securities: The College s U.S. Government securities consist of investments in U.S. treasuries and government bonds. The fair values of these investments are readily marketable and are determined by obtaining quoted prices on a nationally recognized securities exchange (level 1 inputs). Certificate of deposits, savings bonds and other money market instruments: The value of the money market funds are based on quoted prices in active markets (Level 1 inputs).the fair value of certificate of deposits and savings bonds are generally classified within level 2 of the fair value hierarchy because they are estimated to approximate deposit account balances, payable on demand, as no discount for credit quality or liquidity were determined to be applicable. Deposits held with bond trustees: Consist of cash and cash equivalents and U.S. government securities. The fair values of cash and cash equivalents are readily marketable and are determined by obtaining quoted prices on a nationally recognized securities exchange (level 1 inputs). The fair value of U.S. government securities are determined by quoted prices of similar assets or liabilities; quoted prices in markets that are not active or other observable market data (level 2 inputs market approach). Interest Rate Swap Liability: The fair value of the interest rate swap is determined based on the relative values of the fixed and floating portions of the interest rate contracts. The valuation model utilized involves current interest rates, projected yield curves and volatility factors to determine the fair value of the instruments as of the date of measurement. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (level 2 inputs). 20.

23 NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) For other investments for which there is no active market, generally referred to as alternative investments, fair values are initially based on valuations determined by the investment managers using audited net asset values ( NAV ) as of their most recent audited financial statements, adjusted for cash receipts, cash disbursements, and other anticipated income or loss through June 30 th. The NAVs of the investment funds are determined on the accrual basis of accounting in conformity with US GAAP; in certain instances, secondary investments require reporting other than US GAAP such as International Financial Reporting Standards or Tax Basis accounting, in which case the investment managers adjust values to more accurately comply with US GAAP. The managers utilize standard valuation procedures and policies to assess the fair value of the underlying investment holdings to derive NAV. For holdings in marketable securities listed on national securities exchanges, the values represent the publicly traded values, and holdings in private securities are generally valued using the mark-to-market method, which attempts to apply a fair value standard by referring to meaningful third-party transactions, comparable public market valuations, or appraisals. The alternative investments held by the College may all be redeemed at NAV as long as notice is given between the timeframe of 10 to 65 days (level 2 inputs). The College s management has performed considerable independent reviews of valuations reported by investment managers and determined that NAV is a reasonable and prudent estimate of fair value. Alternative investments are not readily marketable and their estimated value is subject to uncertainty; therefore, there may be a material difference between their estimated and actual values. Description of assets held at NAV and liquidity: The College s alternative investments consist of hedge funds, funds of funds, and limited partnerships. Hedge funds Investment in hedge funds consists of two funds that focus on inflation protection. One of the funds invests in domestic and international real estate investment trusts. The other fund consists of liquid investments in commodities and inflation-protected core bonds. Funds of funds The College owns two investments in funds of funds; International and Domestic Equity Funds. The College s management has full transparency to the holdings of the funds it owns in its investment portfolio. The fair value of these investments has been determined by the fund of fund managers based upon market prices of the underlying holdings of the funds. Each fund of fund is subject to monthly redemption restrictions with advance notice of 10 days. There are no unfunded commitments at June 30, Limited Partnerships Investment in limited partnership consists of two partnerships primarily focused on investing in the international equity markets in order to gain exposure to high growth non-u.s. economies. 21.

24 NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The following tables presents the financial instruments carried at fair value as of June 30, 2012 and 2011, within the valuation hierarchy defined above: June 30, 2012 Level 1 Level 2 Level 3 Total fair value Assets Money market $ 1,074,504 $ - $ - $ 1,074,504 Certificates of Deposit - 77,462-77,462 US Equities Mid Cap 2,990, ,990,786 Foreign Equities Mid Cap 46, ,510 Mutual Funds Equity Funds 14,751, ,751,334 Fixed Income 10,412, ,412,650 Limited Partnerships International Investments - 7,130,359-7,130,359 Funds of Funds Domestic Equity Fund - 3,230,502-3,230,502 International Equity Fund - 2,966,037-2,966,037 Hedge Funds Inflation protection - 7,177,387-7,177,387 Deposits held with bond trustees 1,190,884 4,045,832-5,236,716 $ 30,466,668 $ 24,627,579 $ - $ 55,094,247 Liabilities Interest rate swap liability $ - $ 5,598,172 $ - $ 5,598,172 $ - $ 5,598,172 $ - $ 5,598,

25 NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) June 30, 2011 Level 1 Level 2 Level 3 Total fair value Assets Money market $ 467,662 $ - $ - $ 467,662 US government securities 284, ,604 Certificates of Deposit - 222, ,713 US Equities Large Cap 72, ,429 Mid Cap 2,763, ,763,205 Mutual Funds Equity Funds 15,281, ,281,163 Fixed Income 10,104, ,104,381 Limited Partnerships International Investments - 3,587,671 3,472,709 7,060,380 Funds of Funds Domestic Equity Fund - 3,154,222-3,154,222 International Equity Fund - 3,022,009-3,022,009 Hedge Funds Inflation protection - 7,277,762-7,277,762 Deposits held with bond trustees 1,189,419 4,048,447-5,237,866 $ 30,162,863 $ 21,312,824 $ 3,472,709 $ 54,948,396 Liabilities Interest rate swap liability $ - $ 2,484,097 $ - $ 2,484,097 $ - $ 2,484,097 $ - $ 2,484,097 The tables below present a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the years ended June 30, 2012 and 2011: Limited Partnership Beginning balance, July 1, 2010 $ - Purchases, issuances, and settlements 3,500,000 Total unrealized losses included in earnings (27,291) Ending balance, June 30, 2011 $ 3,472,