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Notes to Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The American Printing House for the Blind, Inc. (the "Organization") is a manufacturer and distributor of products and services for the blind. The Organization's primary products include braille and large type printed materials, recorded books on cassette, specialized electronic equipment and educational aids. These products are distributed to schools and agencies that educate blind students, individuals and the National Library Service.

The Organization is a tax-exempt, non-profit corporation under Section 501(c)(3) of the Internal Revenue Code. Accordingly, the financial statements include no provision for income taxes.

Basis of Accounting

The accounts are maintained on the accrual basis.

Accounting standards for external financial reporting by not-for-profit organizations require that resources be classified for accounting and reporting purposes into three net asset categories according to externally (donor) imposed restrictions. A description of the three net asset categories follows:

• Unrestricted net assets include the portion of expendable funds that are not subject to donor-imposed stipulations.
  
• Temporarily restricted net assets include gifts for which donor imposed restrictions have not been met.
  
• Permanently restricted net assets include amounts for which the donor has stipulated that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions. It is the policy of the Organization that any gains on restricted investments accrue to the corpus of the investment unless otherwise stipulated in the trust agreement.

The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Organization treats temporarily donor restricted contributions whose restrictions are met in the same reporting period as unrestricted support.

Cash Equivalents

For purposes of the statement of cash flows, cash equivalents include all highly liquid investments with an original maturity of three months or less. Cash balances may exceed insured limits for federal deposit insurance. Management considers it very unlikely that any loss will ever result from the cash balance in excess of federal insurance limits.

Inventories

Inventories are stated at the lower of cost or market on the first-in, first-out (FIFO) identification method. Labor and overhead included in work-in-process and finished goods inventories are valued at standard hourly cost rates.

Investments

Investment securities are carried at fair value, generally determined by quoted market prices. Receipt of donated investments is recorded at the quoted market value of the investment at the time of the donation.

The Organization invests in fixed income securities, including government and corporate bonds and in publicly-traded stocks and mutual funds. These investment securities are subject to the risks common to financial markets, including interest rate risks, credit risks and overall market risks, all of which could affect the value of the investments in the future.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed on the straight-line basis over reasonably estimated useful lives of the various classes of assets.

Management's Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

NOTE 2. PERMANENTLY RESTRICTED NET ASSETS

The following table summarizes the permanently restricted net asset values at September 30, 2001 and 2000, as reflected in the financial statements:

NOTE 3. ACCOUNTS RECEIVABLE, TRADE

This account is composed of the following receivables at September 30, 2001 and 2000:

NOTE 4. GOVERNMENT PROGRAMS RECEIVABLE

The Organization receives federal government subsidies each year designated for providing materials, research and development and other services to schools and institutions for the blind. The subsidies amounted to $12,000,000 and $10,100,000 for the years 2001 and 2000, respectively. The balance of this account at September 30, 2001 and 2000 includes, in part, amounts drawn in excess of the available subsidies provided for the year to the schools and agencies but collectible from them from subsequent subsidies.

NOTE 5. INVENTORY

Inventories consist of the following:

NOTE 6. INVESTMENTS AND INVESTMENT ACTIVITY

Investments are carried at fair value, and realized and unrealized gains and losses are reported in the statement of activities. Most long-term investments are held in three investment pools. Pool A is for amounts designated by the Board of Directors for long-term investment, gifts creating annuity trusts and also for permanent endowments and the net appreciation on those endowments. Pool B is for amounts designated by the Board of Directors for long-term investment. Pool C is for permanent endowments and the net appreciation of those endowments and funding research and development. Pool D is for other investments.

Long-term investment activity for the years ended September 30, 2001 and 2000 is summarized in the table below:

The participation in the pools and ownership of the other investments at September 30, 2001 is shown in the table below:

Unless explicit donor stipulations specify how net appreciation must be used, the Board of Directors has interpreted state law as allowing them to allocate as much of the net appreciation, realized and unrealized, of the permanent endowment funds as is prudent to meet the long and short-term needs of the Organization.

Investments consist principally of cash equivalents, common and preferred stocks, corporate bonds and U.S. Government obligations as follows:

NOTE 7. FIXED ASSETS

The following is a summary of property and equipment, at cost, less accumulated depreciation:

Depreciation expense charged to operations was $882,261 and $1,005,347 in 2001 and 2000, respectively.

NOTE 8. RETIREMENT PLAN

The Organization has a qualified non-contributory pension plan for eligible employees. Employees are eligible to participate in the Plan upon the attainment of age 21. To remain eligible, an employee must work at least 1,000 hours each year after completion of one year of service.

See Note 13 for information regarding Plan termination.

NOTE 9. POST-RETIREMENT HEALTH CARE BENEFITS

Certain employees of the Organization were offered an early retirement option during previous years. In addition to pension benefits, eligible employees who retired between April 1 and July 1, 1993 received a one-time opportunity to continue medical and insurance coverage under the current plan. The Organization will continue to pay medical premiums up to the percentage that the Organization paid for each employee's coverage immediately prior to retirement.

Life insurance equal to the amount in force prior to retirement will also be available for each retiree. The Organization will continue to pay the premiums for life insurance coverage. Both types of coverage expire upon the retiree's attainment of age 65.

During the fiscal year ended September 30, 1999, the Organization again offered the same benefits to certain employees who retired between July 1 and October 1, 1999.

The Organization does not currently offer any type of post-retirement health care benefits for retirees older than 65.

A total of $24,123 and $29,583 in benefits were paid to early retirees during the years ended September 30, 2001 and 2000, respectively. The accrued benefit cost for the early retirement group was $65,969 and $90,092 at September 30, 2001 and 2000, respectively.

NOTE 10. CHARITABLE GIFT ANNUITIES

During 1993, the Organization, by action of its Board of Directors, adopted a plan that allows the acceptance of charitable gifts from individual contributors through either single or two-lives gift annuities.

A charitable gift annuity is a plan by which a gift of cash or property is made to a qualified organization in exchange for the Organization's agreement to pay a life annuity to the donor. The present value portion of each annuity is recognized as a donor-restricted contribution and the balance is recorded as a payable. Income earned on this principal is unrestricted.

The Organization received $135,000 and $63,000 for the charitable annuities during the years ended September 30, 2001 and 2000, respectively.

A total of $95,575 and $92,227 of interest was paid on these contracts and principal payments were $169,401 and $167,251 during the years ended September 30, 2001 and 2000, respectively.

NOTE 11. BENEFICIAL INTEREST UNDER SPLIT-INTEREST AGREEMENTS

The Organization has an unrestricted beneficial interest in various split-interest agreements from irrevocable trusts created by donors. The fair values of the contributions from these agreements have been estimated and recorded based on the fair value of the assets contributed by the donor, adjusted for the present value of the payments expected to be made first to other beneficiaries.

The adjusted payout rates to the beneficiaries range from 5.0% to 10.0% and the expected growth rate utilized is 7.2%. Actuarial assumptions are based on a single life expectancy.

The beneficial interest under these agreements amounted to $231,164 and $210,854 at September 30, 2001 and 2000, respectively. These amounts will be adjusted annually to reflect the amortization of discount and changes in actuarial assumptions.

The Organization has adopted Statement of Financial Accounting Standards (SFAS) No. 136, "Transfers Of Assets To A Not-For-Profit Organization Or Charitable Trust That Raises Or Holds Contributions For Others," under which the classification of such transfers result in either receivables or beneficial interest in assets held by others.

This statement has been applied retroactively to October 1, 1999, and the assets previously classified as permanently restricted pledges receivable have been reclassified as temporarily restricted beneficial interest under split-interest agreements. This change had no impact on net assets at the beginning or end of the period.

NOTE 12. CONTINGENCY

At September 30, 2000, the Organization was contingently liable for an amount claimed by a former vendor for computer hardware, software and maintenance, which the Company no longer utilizes. The liability was settled for $164,362 during the year ended September 30, 2001, and the amount accrued in excess of the settlement, $285,638, was credited to miscellaneous income.

NOTE 13. PLAN TERMINATION

On April 29, 1999, the Board of Trustees elected to terminate the existing Retirement Plan (see Note 8) effective as of July 1, 1999 or such later date as the Pension Benefit Guaranty Corporation ("PBGC") or the Internal Revenue Service ("IRS") may require. The Plan is subject to the rules of the PBGC and the IRS and is terminating in a standard termination under the PBGC rules. As of September 30, 2001, approval for Plan termination had not been received from the Internal Revenue Service.

Effective July 1, 1999, the Plan was split into two plans in a transaction known as a "spin-off/termination." Under the terms of the spin-off/termination, members, beneficiaries and alternate payees whose benefits are being paid or have become payable as of July 1, 1999 will be retained in the existing Plan and their benefits will be increased by 5%. As a result of an amendment to this Plan, no additional benefits will accrue under this existing Plan after June 30, 1999. Once governmental approvals are obtained on the termination of the Plan, these members, beneficiaries and alternate payees will be offered the choice of a cash lump sum of remaining benefits or an annuity from an insurance company which will continue to pay monthly benefits as they become due.

The retirement benefits of members who are still working at American Printing House, Inc. ("APH") and members and beneficiaries who are entitled to begin receiving benefits after July 1, 1999 are being "spun off" into the APH New Retirement Plan.

Also as a result of the spin-off/termination of the Retirement Plan, excess assets in the Retirement Plan will be allocated between the existing Plan and the new Plan. A portion of excess assets will revert to the employer. The excess assets which revert to the employer will be used, among other things, to fund matching contributions to the new 401(k) Plan. However, at September 30, 2001, the amount of the excess assets had not been determined.

Under the newly established 401(k) Plan, all employees as of July 1, 1999 are eligible to participate. Employees hired after that date must complete a year of service and attain age 21 to be eligible to participate in the 401(k) Plan. Participants in the Plan may make voluntary contributions by payroll deduction. The Organization will make matching contributions each year of up to 4% of pay. Discretionary contributions may also be made by the Organization each year for allocation to all eligible employees. Organization contributions to the Plan were $255,053 and $299,128 for the years ended September 30, 2001 and 2000, respectively.

NOTE 14. EQUIPMENT LEASE OBLIGATIONS

The Organization is obligated under leases for copiers used in the production process. The leases expire over various terms ending during 2001 and 2002. The leases are accounted for as operating leases.

Minimum future lease payments at September 30, 2001 under long-term equipment leases are:

NOTE 15. ALLOCATION OF JOINT COSTS

During the year ended September 30, 2000, the Organization adopted the provisions of SOP 98-2, which requires the allocation of joint costs including personnel, supplies and facilities to fundraising expenses. The new standards have been applied in the 2001 and 2000 financial statements.

In 2001 and 2000, the Organization incurred joint costs of $148,588 and $144,405, respectively, for general expenses that included or supported fundraising appeals. Of these costs, $14,859 and $14,441, respectively, was allocated to fundraising expense, $133,729 and $129,964, respectively, was allocated to administrative expense.