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AFBAmerican Foundation®
for the Blind

Expanding possibilities for people with vision loss

Notes to the Consolidated Financial Statements

June 30, 2011
(Amount Expressed In Thousands)

Notes to Consolidated Financial Statements
Notes to the Schedule of Expenditures of Federal Awards
Report on Internal Control Over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
Independent Auditors' Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133
Independent Auditors' Report

NOTE 1—NATURE OF BUSINESS

American Foundation for the Blind, Inc. ("AFB") is a not-for-profit-corporation founded in 1921 and is exempt from Federal taxes under Sections 501(c)(3) and 509(a)(1) of the Internal Revenue Code. AFB serves people who are blind or visually impaired, other Foundations and professionals in the blindness field and the general public.

The program service functions, which constitute the principal activities of AFB, are:

  1. Knowledge Building and Information Dissemination,
  2. Technology Solutions,
  3. Advocacy and Public Policy,
  4. Production, Sale and Distribution of Audio Materials (Note 16).

AFB's primary sources of revenue are contributions and public support, investment income and sales, primarily Text Book and other publications.

AFB Special Fund, Inc. ("AFB Special Fund") is a not-for-profit corporation founded in 1989 and is exempt from federal taxes under Section 501(c)(3) of the Internal Revenue Code. AFB Special Fund is a supporting organization and under the direct operational and management control of the AFB.



NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:
The consolidated financial statements include the accounts of AFB and the AFB Special Fund. All significant intercompany balances and transactions are eliminated in consolidation. Collectively, these entities are referred to as the "Foundation."

Basis of Accounting:
The Foundation's consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

Use of Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptons that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Net Asset Classifications:
The Foundation reports information regarding its financial position and activities according to three net asset classifications: unrestricted, temporarily restricted and permanently restricted.

Unrestricted net assets are not restricted by donors, or the donor imposed restrictions have expired. The unrestricted net assets include all funds over which the Board of Trustees (the "Board") has full discretion as to use. The Board has designated a portion of the unrestricted net assets for investment in land, property and equipment. This net asset grouping includes the Helen Keller Fund, which was established by the Board in 1924 to ensure that the work of the Foundation would be protected from fluctuating economic conditions.

Temporarily restricted net assets include funds that are subject to time or purpose restrictions designated by the donor or grantor which cannot be changed by the Board. When the time or purpose restriction is satisfied, the temporarily restricted net assets are reclassified as unrestricted net assets and reported in the accompanying consolidated statement of activities as net assets released from restrictions.

Permanently restricted net assets include endowment funds established by donors. The permanently restricted net assets balance reflects the principal amounts of these endowments. Income generated by the endowment funds may be subject to time or purpose restrictions designated by the donor or by operation by law. Such income is reflected in the accompanying consolidated statement of activities as either temporarily restricted or unrestricted income.

The Foundation's investment and spending policy over endowment funds included permanently restricted net assets attempts to provide a predictable stream of funding to programs supported by its endowments while seeking to maintain the purchasing power of the endowment assets.

Cash and Cash Equivalents:
The Foundation considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents, except for those short-term investments managed by the Foundation's investment managers as part of their long-term investment strategies.

Investments:
Investments are recorded at fair value based on published market values or net asset values as determined by the investment manager or general partner. Interest and dividends are recorded on the accrual basis. Investment transactions are recorded at the trade date using the weighted average cost method. Realized gains or losses from investment transactions are recorded upon the sale or maturity of the related securities and are reflected in the consolidated statement of activities and changes in net assets. Interest, dividends and gains and losses on investments are reflected in the consolidated statement of activities and changes in net assets as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law.

Inventories:
Inventories consist of publications, and are stated at the lower of cost or market. Cost is determined on the average cost basis.

Property and Equipment:
Property and equipment is capitalized by the Foundation provided their cost is $1,000 or more and their useful life is more than three years. Property and equipment are recorded at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the various assets, which range from three to forty years. Leasehold improvements are amortized over the shorter of the life of the lease or the useful life of the improvements. Expenditures which significantly improve or extend the life of an asset are capitalized. Repairs and maintenance costs which do not extend the useful lives of the assets are expensed as incurred. Upon retirement or disposal, the asset cost and related accumulated depreciation and amortization are eliminated from the respective accounts, and the resulting gain or loss is included in the changes in net assets for the period.

Contributions, Legacies and Bequests:
Contributions, legacies and bequests are recognized as revenue at the date received and are considered to be available for unrestricted use unless specifically restricted by the contributor. Noncash legacies and bequests are recorded at fair value at the date of beneficial ownership. Long-term unconditional promises to give are recorded as contributions at the net present value of the amounts expected to be collected. The discounts on these amounts are computed using risk-free interest rates applied to expected cash flows after any allowance for doubtful accounts applicable to the years in which the promises are received.

Conditional contributions and promises to give are not recognized until they become unconditional, that is when the future and uncertain event on which they depend has occurred.

Contributions of assets other than cash are recorded at their estimated fair value at the date of the gift. Many volunteers have made significant contributions of time in furtherance of the Foundation's policies and programs. The value of this contributed time does not meet the criteria of recognition and therefore is not reflected in the accompanying consolidated financial statements.

Allowance for Uncollectible Accounts and Pledges Receivable:
The Foundation uses the allowance method to determine uncollectible accounts and pledges receivables. The Foundation's allowance for doubtful accounts is based on management's estimates of the creditworthiness of its customers, current economic conditions and historical information. As of June 30, 2011 and 2010, the Foundation determined an allowance of $0 and $85, respectively, was necessary for acounts receivable.

The Foundation's allowance for uncollectible pledges is based on prior years' experience and management's analysis of specific pledges made. As of June 30, 2011 and 2010, the Foundation determined an allowance of $265 and $150, respectively was necessary.

Split-Interest Agreements:
The Foundation's split-interest agreements with donors consist of assets held in a pooled income fund and charitable gift annuities, the assets of which are held by third parties. Under the terms of the pooled income fund agreements, the donor's designated beneficiary receives the income earned on the pooled income fund until death, at which time the value of the related pooled income fund reverts to the Foundation to be used as designated by the donor. The Foundation has entered into charitable gift annuity agreements whereby the donors contributed assets to the Foundation and the Foundation promised to pay a fixed amount during the lifetime of the donor.

The Foundation recognizes assets and temporarily restricted contribution revenue for its split-interest agreements at the date the agreements are established, net of the liability recorded for the present value of the estimated future payments to be made to the donors and other beneficiaries based upon their life expectancies using IRS mortality tables and the appropriate discount rates. The carrying value of the split- interest agreement assets is adjusted to fair value at the end of the year. The adjustment to fair value of the split-interest agreements is reflected as contribution revenue in the accompanying consolidated statement of activities and changes in net assets.

Grants from Government Agencies:
Grants from government agencies are conditioned upon the Foundation incurring certain qualifying costs and are recognized as revenue as those costs are incurred.

Sales:
Sales of Talking Books and publications are recognized at the time materials are shipped to the customer and when the risk of loss and title transfers to the customer. Returns of publications are accepted for three months after a sale. A reserve for returns of $6 has been recognized as of June 30, 2011 and 2010.

Collection Items:
Collection items, acquired through contributions from the Estate of Helen Keller, consisting of memorabilia and personal writings, are not capitalized on the consolidated statement of financial position.

Functional Allocation of Expenses:
The costs of providing the various program and supporting services has been summarized on a functional basis in the consolidated statement of activities and changes in net assets. Accordingly, certain costs have been allocated among the program and supporting services benefited. Overhead expenses including occupancy, telephone and insurance are allocated to functional areas based upon space used or actual usage if specifically identifiable. The allocations of salary and related expenses for management and supervision of program service functions are made by management based on the estimated time spent by executives on the various program service functions.

Advertising Costs:
All costs relating to the marketing and advertising of the Foundation's services are expensed as incurred. Total advertising expenses for the years ended June 30, 2011 and 2010 were approximately $31 and $24, and are included in selling expenses in the accompanying consolidated statement of functional expenses.

Impairment of Long-Lived Assets:
Long-lived assets, consisting of property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Impairment loss on assets to be sold, if any, is based on the estimated proceeds to be received, less estimated costs to sell. No impairment losses were recognized for the years ended June 30, 2011 and 2010.

Risks and Uncertainties:
The Foundation attempts to diversify its investment portfolio. Investment securities are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in value of investment securities, it is at least possible that changes in risks in the near term could materially affect investment balances.

Continuing financial market volatility may significantly impact the subsequent valuation of the Foundation's investments. Accordingly, the valuation of investments at June 30, 2011 may not necessarily be indicative of amounts that could be realized in current market exchange.

Fair Value Measurements:
The Foundation has adopted FASB Accounting Standards Codification No. 820-10, "Fair Value Measurements and Disclosures." ("ASC 820-10") which defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America and enhances disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to dispose of a liability in an orderly transaction between market participants at the measurement date.

Income Taxes:
The Foundation adopted the provisions of FASB Accounting Standards Codification No. 740-10, "Accounting for Uncertainty in Income Taxes" on July 1, 2009. With few exceptions, neither entity is subject to U.S. federal or state income tax examinations by tax authorities for years before 2007. Management is of the opinion that neither entity has any material uncertain tax positions, and accordingly recognizes no liability for unrecognized benefits

Endowments:
Endowments: The Foundation adopted ASC 958-205, "Endowments of Not-for-Profit Organizations: 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" during fiscal year 2009. ASC 958-205 requires an organization subject to an enacted version of the 2006 Uniform Prudent Management of Institutional funds Act (UPMIFA) to classify a portion of a perpetual donor-restricted endowment fund as permanently restricted net assets. ASC 958-205 also requires all not-for-profit organizations with donor-restricted or board-restricted endowment funds to make extensive new disclosures about such funds regardless of whether an organization is subject to an enacted version of UPMIFA. (Note 9).

Summarized Comparative Information:
The consolidated financial statements include certain prior year summarized comparative information in total, but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Foundation's consolidated financial statements for the year ended June 30, 2010, from which the summarized information was derived.

Reclassification:
Certain amounts in the 2010 financial statements have been reclassified to conform to the 2011 presentation. These reclassifications had no effect on the net assets for either period.

Subsequent Events:
The Foundation did not have any recognized or nonrecognized subsequent events occur after June 30, 2011. Subsequent events have been evaluated through the date of the auditors' report, which is the date the financial statements were available to be issued.



NOTE 3—INVESTMENTS

Investments consist of the following as of June 30, 2011 and 2010:

 

2011

2010


 

Cost

Fair Value

Cost

Fair Value


Equity securities

$ 184

$ 115

$ 184

$ 156

Government and municipal bonds

54

55

54

55

Investment in REITS

491

827

491

827

limited partnerships

2,704

3,288

2,704

3,034

Mutal Funds

30,001

33,056

29,589

28,088

Pooled income fund and charitable gift annuities

147

162

199

202


Total

$ 33,581

$ 37,503

$ 33,221

$ 32,362


The classification of investment activity in the consolidated statements of activities and changes in net assets for the years ended June 30, 2011 and 2010 is as follows:

 

2011


 

Unrestricted

Temporarily
Restricted

Total


Interest and dividends

$ 836

$ 509

$ 1,345

Realized gains

49

49

Unrealized gains

3,511

1,257

4,768


 

$ 4,396

$ 1,766

$ 6,162




 

2010


 

Unrestricted

Temporarily
restricted

Total


Interest and dividends

$ 757

$ 369

$ 1,126

Realized losses

(307)

(304)

(611)

Unrealized losses

3,353

1,059

4,412


 

$ 3,803

$ 1,124

$ 4,927


The Foundation has adopted the methods of fair value as described in ASC 820-10 to value its financial assets and liabilities. As defined in ASC 820-10, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820- 10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

  • Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
  • Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.
  • Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Foundation utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Financial assets and liabilities carried at fair value at June 30, 2011 and 2010 are classified in the table below in one of the three categories described above:

 

2011

 

Level 1

Level 2

Level 3

Total


Equity securities

$ 115

 

 

$ 115

Government and municipal bonds

 

$ 55

 

55

Investment in REITS

 

 

$ 827

827

Limited partnerships

 

 

3,288

3,288

Mutual Funds

33,056

 

 

33,056

Pooled income fund and charitable gift annuities

 

 

162

162


Total

$ 33,171

$ 55

$ 4,277

$ 37,503




 

2010

 

Level 1

Level 2

Level 3

Total


Equity securities

$ 156

 

 

$ 156

Government and municipal bonds

 

$ 55

 

55

Investment in REITS

 

 

$ 827

827

Limited partnerships

 

 

3,034

3,034

Mutual Funds

28,088

 

 

28,088

Pooled income fund and charitable gift annuities

 

 

202

202


Total

$28,244

$ 55

$4,063

$32,362


Investments in equity securities and mutual funds are valued using market prices on active markets (Level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets.

Investments in government and municipal bonds are designated as Level 2 instruments and valuations are obtained from readily-available pricing sources for comparable instruments.

Investments in the limited partnerships, the pooled income fund and charitable gift annuities are valued based on the net asset value ("NAV") of each investment position, as provided by the respective fund manager. Investments in the REITs are based on management estimates as there are no available quoted market values. Fair value of these financial instruments is not necessarily representative of the amount that could be realized or settled. The Foundation has designated such alternative investments as Level 3 instruments since independent market quotes are not available.

Changes in assets measured at fair value using Level 3 inputs for the years ended June 30, 2011 and 2010 are as follows:

 

Balance,
June 30,
2010

Net Realized
and Unrealized
Gains (Losses)

Purchases
and Sales (Net)

Balance,
June 30,
2011


Investment in REITS

$ 827

 

 

$ 827

Limited partnership

3,034

$ 254

 

3,288

Pooled income fund and charitable gift annuities

202

(40)

 

162


Total

$ 4,063

$ 214

$  

$ 4,277




 

Balance,
June 30,
2009

Net Realized
and Unrealized
Gains (Losses)

Purchases
and Sales (Net)

Balance,
June 30,
2010


Investment in REITS

$ 491

$ 336

 

$ 827

Limited partnership

2,837

197

 

3,034

Pooled income fund and charitable gift annuities

216

(24)

10

202


Total

$ 3,544

$ 509

$ 10

$ 4,063


Investment expense of $70,421 and $67,372 are included in other expenses on the statement of activities and changes in net assets for the years ended 2011 and 2010.



NOTE 4—ACCOUNTS RECEIVABLE:

Accounts receivable as of June 30, 2011 and 2010 are as follows:

 

2011

2010


Gross accounts receivable

$ 383

$ 404

Less: Allowance for doubtful accounts

 

(85)

Reserve for returns

(6)

(6)

 

Accounts receivable, net

$ 377

$ 313




NOTE 5—PLEDGES AND GRANTS RECEIVABLE:

Pledges and grants receivable are scheduled to be collected as follows as of June 30, 2011 and 2010:

 

2011

2010


Less than one year

$ 2,385

$ 3,453

One to five years

1,175

379


 

3,560

3,832

Less: Discount to net present value

(44)

(21)


Reserve for uncollectible pledges

(266)

(150)


Pledges receivable, net

$ 3,250

$ 3,661


Pledges receivable due after one year are discounted to net present value using the current risk-free interest rate of return, which approximates the net present value which would be obtained if using the risk-free interest rate in effect on the date of the gift. Interest rates used to discount the unconditional promises range from .03% to 5.16% as of June 30, 2011 and 2010.



NOTE 6—OTHER RECEIVABLES:

In October 2005, a loan agreement was entered into with Talking Book Publishers, Inc. ("TBPI"). The term of the loan was five years with principal payments commencing on January 1, 2006 and terminating on December 1, 2011. Interest payments are charged on the average unpaid principal balance on a quarterly basis using the published prime rate. This note was amended and extended on July 1, 2010 to include weekly installments of principal and interest until paid in full. As of June 30, 2011 and 2010, the principal and accrued interest on the loan amounted to $152 and $0, and $112 and $50. Such amounts are included in other receivables in the accompanying consolidated statement of financial position.

In February 2010, the Foundation received a $2,218 legal settlement allocation related to a class action lawsuit involving royalty payments on gas leases held by various entities, including a landholding company in which AFB Special Fund previously held a majority interest. Under the terms of the settlement, the Foundation received $1,996 in 2010 and the balance in 2011.

Other receivables as of June 30, 2011 and 2010 are as follows:

 

2011

2010


Talking Books Publishers, Inc.

$ 152

$ 162

Settlement award receivable

 

221

Other

47

168


Total

$ 199

$ 551




NOTE 7—INVENTORIES

Inventories consist of the following as of June 30, 2011 and 2010:

 

2011

2010


Finished goods

$ 495

$ 429

Work-in-progress

4

75


 

499

504

Less: Reserve for obsolescence

(155)

(151)


Inventories, net

344

353




NOTE 8—PROPERTY AND EQUIPMENT:

Property and equipment consists of the following as of June 30, 2011 and 2010:

 

2011

2010

Estimated
Useful Lives


Website development costs

$ 1,605

$ 1,641

3 years

Building and improvements

1,088

1,088

40 years

Equipment

1,354

1,467

5 years

Leasehold improvements

711

507

Shorter of lease

Leased equipment under capital leases

195

195

or useful life


Total cost

4,953

4,898

 

Less: accumulated depreciation and amortization

3,034

2,846

 


Property and equipment, net

1,919

2,052

 


Amortization expense of the leased equipment under capital leases amounted to $39 for the years ended June 30, 2011 and 2010 and accumulated amortization on the leased equipment was $159 and $120 for the years ended June 30, 2011 and 2010.

The leased equipment collateralizes the related lease obligation (see Note 11).



NOTE 9—ENDOWMENTS

As stated in Note 2, the Foundation has adopted the guidance of ASC 958-205 to classify its net assets of donor restricted endowment funds. The Foundation 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. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by applicable laws and regulations.

Endowment investment and spending policies:
The Foundation has adopted investment and spending policies, approved by the investment committee, for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of these endowment assets over the long-term. The Foundation's spending and investment policies work together to achieve this objective. The investment policy establishes an achievable return objective through diversification of asset classes. The current long-term return objective is to return the Consumer Price Index plus 4%, net of investment fees. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation to achieve its long-term return objectives within prudent risk parameters.

The spending policy calculates the amount of money annually distributed from the Foundation's various endowed funds for grant making and administration. The current spending policy is to distribute all the investment earnings.

Changes in endowment net assets are as follows:

 

Unrestricted

Temporarily
Restricted

Permanently
Restricted

Total


Endowment of net assets, June 30, 2009

$ (330)

$ 228

$3,562

$3,460

Investment income, net

251

59

 

310

Contributons

 

77

217

294

Appropriated for expenditure

 

(258)

 

(258)


Endowment net assets, June 30, 2010

(79)

106

3,779

3,806

Investment income, net

323

107

 

430

Contributions

 

238

111

349

Appropriated for expenditure

 

(289)

 

(289)


Endowment net assets, June 30, 2011

$ 244

$ 162

$ 3,890

$ 4,296


From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Foundation to retain as a fund of perpetual duration. In accordance with ASC 958-20, deficiencies of this nature are reported in unrestricted net assets and were $0 and $79 as of June 30, 2011 and 2010. These deficiencies resulted from unfavorable market fluctuations.



NOTE 10—SPLIT-INTEREST AGREEMENTS

Pooled Income Fund:
The present value of the Foundation's future interest in its pooled income fund agreements is summarized as follows as of June 30, 2011 and 2010:

 

2011

2010


Fair market value of assets

$ 24

$ 22

Less Estimated future liability

(21)

(19)


Present value of future interest

$ 3

$ 3


The present value of the estimated future interest is calculated using discount rates ranging from 7.6% to 8.0% for June 30, 2011 and 2010, and applicable life expectancy tables. During the year ended June 30, 2011 and 2010, the Foundation received no additional pooled income fund contributions. The fair value of the pooled income fund assets is included in investments in the accompanying consolidated statement of financial position. The estimated future liability of the pooled income fund contributions is recognized as deferred revenue in the accompanying consolidated statements of financial position.

Charitable Gift Annuities:
The present value of the Foundation's future interest in its charitable gift annuities is summarized as follows as of June 30, 2011 and 2010:

 

2011

2010


Fair market value of assets

$ 138

$ 180

Less Estimated future liability

(52)

(77)


Present value of future interest

$ 86

$ 103


The present value of the estimated future interest is calculated using discount rates ranging from 3.8% to 7.4% for June 30, 2011 and 2010, and applicable life expectancy tables. The fair value of the charitable gift annuity assets is included in investments in the accompanying consolidated statement of financial position. The estimated future liability of the charitable gift annuity contributions is recognized as deferred revenue in the accompanying consolidated statements of financial position.



NOTE 11—COMMITMENTS AND CONTINGENCIES:

The Foundation executed an operating lease agreement in 2010 for new office premises at 2 Penn Plaza, New York, New York and at 1000 Fifth Avenue, Huntington, West Virginia. These lease agreements include scheduled rent increases over the term of the lease, which will be recognized on a straight-line basis over the term of the lease. The Foundation also rents office facilities in Atlanta, Georgia and in the District of Columbia under noncancellable operating leases. These leases expire on various dates through 2021. Rental expenses under operating leases were approximately $891 and $873 for the years ended June 30, 2011 and 2010, and are included in occupancy costs in the accompanying consolidated statements of functional expenses.

In addition, the Foundation maintains capital leases for equipment ranging from three to five years.

Future minimum payments under noncancellable operating and capital leases are as follows at June 30, 2011:

 

Operating
Leases

Capital
Leases


2012

$ 884

$ 39

2013

864

 

2014

858

 

2015

862

 

2016

869

 

Thereafter

4,337

 


Minimum lease payments

$ 8,674

39

Less: Amount representing imputed interest

 

1


Present value of minimum payments under capital leases

 

$ 38


Interest expense related to the Foundation's capital lease obligations amounted to approximately $2 and $3 for the years ended June 30, 2011 and 2010, and is included in other expenses in the accompanying consolidated statement of functional expenses.

The Foundation received rental income from its sublet premises at 11 Penn Plaza, New York, New York. The lease at 11 Penn Plaza terminated in October of 2009, therefore, the Foundation has no expected future receipts.

Rental income (including real estate taxes and utilities charges) derived from the sublease amounted to approximately $0 and $42 for the years ended June 30, 2011 and 2010, and is included in miscellaneous revenue in the accompanying consolidated statements of activities and changes in net assets.

Government supported programs are subject to audit by the granting agency. Management expects that any changes that could result from the audits would not have a material impact on the consolidated financial statements.

The Foundation's operating lease agreement for its corporate office at 2 Penn Plaza, New York, New York contains provisions for future rent increases and periods in which rent payments are abated. In accordance with generally accepted accounting principles, the Foundation records monthly rent expense equal to the total of the payments due over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to "Deferred rent obligation," which is reflected as a separate line item in the accompanying consolidated statements of financial position.



NOTE 12—SPECIAL EVENTS REVENUE

Special events revenue, net of costs of direct benefits to donors (example: meals, facilities rental, etc.), is included in contributions in the accompanying consolidated statements of activities and changes in net assets. There were no special events during the year ended June 30, 2011. As of June 30, 2010, proceeds and cost of direct benefit to donors amounted to $435 and $378 for a net revenue from special events of $57.



NOTE 13—PENSION AND POSTRETIREMENT BENEFIT PLANS:

Defined Contribution Pension Plan:
The Foundation is the sponsor and administrator of a defined contribution pension plan (the "Plan"). All employees of the Foundation are eligible to participate in the Plan on the Plan entry date immediately following the completion of one year of service. Contributions to the Plan range from 2.5% to 10% and 2.5% to 5% for the Foundation and the participants, respectively, based upon the participant's age. Contributions are invested in one or more of the funding vehicles available to the participants from Teachers Insurance and Annuity Association or College Retirement Equities Fund. The participants are fully vested in all contributions made to the Plan. Contributions by the Foundation to the Plan for the year ended June 30, 2011 and 2010 amounted to approximately $313 and $341, and are included in salaries and related benefits in the accompanying consolidated statements of functional expenses.

Postretirement Benefits Other Than Pension:
The Foundation sponsors defined benefit postretirement health and prescription drug benefit plans for certain employees. The plans cover a percentage of costs of continued health insurance coverage for employees who were hired prior to July 1, 1993 and retire on or after age 65 with at least 15 years of service. Effective January 1, 2006, the Foundation eliminated prescription drug coverage.

The funded status of the Plan as of June 30, 2011 and 2010 is as follows:

 

2011

2010


Change in benefit obligation:

   

Benefit obligation at beginning of year

$ 212

$ 268

Service cost

3

5

Interest cost

11

16

Actuarial gain

(60)

(61)

Benefits paid

(13)

(16)


Benefit obligation at end of year

153

212


Change in plain assets:

   

Fair value of plan assets at beginning of year

-

-

Employer contributions

13

16

Benefits paid

(13)

(16)


Fair value of plan assets at end of year

-

-


Funded status

$ (153)

$ (212)


Accrued postretirement benefit liability

$ (153)

$ (212)


The components of the unfunded liability as of June 30, 2011 and 2010, but not yet reflected in net periodic benefit cost, consists of the following:

Beginning of year, net unrecognized gain included in unrestricted net assets

$ (410)

$ (402)

Amortization of net gain

62

50

Amortization of prior service cost

3

3

Net gain

(60)

(61)


End of year, net unrecognized gain included in unrestricted net assets

$(405)

$(410)


The components of net periodic benefit cost for the year ended June 30, 2011 and 2010 are as follows:

 

2011

2010


Service cost

$ 3

$ 5

Interest cost

11

16

Amortization of prior service cost

(3)

(3)

Amortization of net gain

(62)

(50)


Net benefit of cost (credit)

$ (51)

$ (32)


Other changes in plan assets and benefit obligations recognized in the change in unrestricted net assets for the year ended June 30, 2011 and 2010 are as follows:

 

2011

2010


Increase in net gain

$ (60)

$ (61)

Less: Amortization of prior service cost

3

3

Less: Amortization of net gain

62

50


Total recognized in change in unrestricted net assets

$ 5

$ (8)


Total recognized in net periodic pension cost and change in unrestricted net assets

$ (46)

$ (40)


The estimated net gain and prior service cost for the plan that will be amortized from the unrestricted net asset balance into net periodic benefit cost over the next fiscal year is $59 and $66.

The weighted-average assumptions to determine the benefit obligation and net periodic benefit cost as of and for the year ended June 30, 2011 and 2010 are as follows:

 

2011

2010


Discount rate

5.67%

5.45%


These assumptions are based upon the presumption that the Plan will continue. Were the Plan to terminate, different assumptions and other factors might be applicable.

The following schedule of benefit payments, which reflects expected future services and makes provision for payments to retired participants and their spouses under the Plan based on the actuarial assumptions that entered the valuation, are expected to be paid in each of the next five years and in the aggregate for the five years thereafter as follows:

2012

$ 19

2013

17

2014

17

2015

15

2016

14

2017-2021

63



NOTE 14—TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS:

Temporarily restricted net assets as of June 30, 2011 and 2010 are available for the following purposes:

 

2011

2010


West Virginia Activities

$ 10,756

$ 9,479

Information and research

1,103

1,445

Training and development

1,460

1,593

Public education

191

201

Pooled income fund

3

3

Various programs (including time-restricted pledges)

1,366

3,275


Totals

14,879

15,996


Permanently restricted net assets as of June 30, 2011 and 2010 are restricted to investments in perpetuity and consist of the following:

 

2011

2010


Information and research

$ 1,736

$ 1,825

Training and development

468

556

Migel medal program

25 25

Other activities

1,661

1,373


Totals

$ 3,890

$ 3,779


Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by the occurrence of other events specified by donors during the years ended June 30, 2011 and 2010 are as follows:

 

2011

2010


Information development, collection and dissemination

$ 1,536

$ 1,476

Issue identification, analysis and problem solving

3,147

2,967

Public education and advocacy

162 64

Production, sale and distribution of audio material

16

29


Total

$ 4,861

$ 4,536




NOTE 15—CONCENTRATIONS:

The Foundation maintains its cash and cash equivalent balances in financial institutions located in the United States of America. Cash accounts that potentially subject the Foundation to a concentration of credit risk included cash accounts with banks in excess of FDIC insurance limits by approximately $1,705 as of June 30, 2011. The Foundation has cash and cash equivalents held in money market funds that were not insured which amounted to approximately $1,593 as of June 30, 2011.

A substantial portion of the Foundation's accounts receivable as of June 30, 2010, represents an amount due from one customer. The receivable from this customer amounted to approximately $170, or, approximately 71% of gross accounts receivable. For the year ended June 30, 2011, this customer executed a note agreement with the Foundation (see Note 6).



NOTE 16—DISCONTINUED OPERATIONS:

In February 2008, the Foundation's Board of Trustees authorized the discontinuation of the Talking Book operation at the end of the NY headquarters lease in October 2009, primarily due to financial considerations, including decreasing net margins and the potential investment that would be required to continue the operation in a new location, subject to any significant changes in circumstances that might occur prior to the lease expiration. The Board authorized management to begin exploring alternative approaches and possible timelines for the discontinuation of the operations and disposal of the related assets. After exploring various alternatives and providing progress reports to the Board in 2008 and 2009, the Talking Book labeling operation was shut down in August 2009 and the equipment was sold to a subcontractor. The studio recording operation was shut down in October 2009 and the remaining equipment was sold at auction. The Foundation received approximately $42 for the aforementioned equipment.

Following the shutdown of the Talking Book studio recording and labeling operations, the Foundation remained responsible for duplication of recordings produced under contract with the Library of Congress, which was accomplished through the use of subcontractor arrangements. All work required under contract with the Library of Congress was completed in May 2010.

Following is summary financial information for the Foundation's reported discontinued operations in 2011 and 2010:

 

2011

2010


Revenues

$ 24

$ 835

Expenses

(5)

1,189


Net (loss) gain

29

(354)


Proceeds from sale of property and equipment

 

42

Less related net book value of assets disposed

 

13

(Loss) gain of disposed assets

 

29

(Loss) gain on discontinued operations

29

(325)




NOTE 17—CHANGE IN ACCOUNTING ESTIMATE:

Effective July 1, 2009, Foundation management determined that its estimated valuation allowance for the investment in Isse Koch, & Co., Inc. was no longer necessary due to changing conditions and experience with the investment. The Foundation made these changes to better reflect the fair market value of the investment. This change had the effect of increasing 2010 net assets by $336.



Notes to the Schedule of Expenditures of Federal Awards for the Year Ended June 30, 2011

Note 1—Basis of Presentation

The accompanying schedule of expenditures of federal awards (the "Schedule") includes the federal grant activity of the Foundation under programs of the federal government for the year ended June 30, 2011. The information in this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of the Foundation, it is not intended to and does not present the financial position, changes in net assets or cash flows of the Foundation.

Note 2—Summary of Significant Accounting Policies

Expenditures reported on the Schedule are reported on the cash basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through entity identifying numbers are presented where available.



Report on Internal Control Over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

To the Board of Trustees of the American Foundation for the Blind, Inc. and AFB Special Fund, Inc.

We have audited the consolidated financial statements of American Foundation for the Blind, Inc. and AFB Special Fund, Inc. (collectively, the "Foundation") (a nonprofit organization) as of and for the year ended June 30, 2011, and have issued our report thereon dated September XX, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the Foundation's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Foundation's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Foundation's internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Foundation's consolidated financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts.

However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We noted certain matters that we reported to management of the Foundation in a separate letter dated October 13, 2011.

This report is intended solely for the information and use of management, others within the entity, the Board of Trustees, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

HAYFLICH & STEINBERG, CPAS, PLLC
Huntington, West Virginia
October 13, 2011



Independent Auditors' Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133

To the Board of Trustees of the American Foundation for the Blind, Inc. and AFB Special Fund, Inc.

Compliance

We have audited the American Foundation for the Blind, Inc. and AFB Special Fund, Inc. (collectively, the "Foundation")'s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each the Foundation's major federal programs for the year ended June 30, 2011. The Foundation's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the Foundation's management. Our responsibility is to express an opinion on the Foundation's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Foundation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Foundation's compliance with those requirements.

In our opinion, the Foundation complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2011.

Internal Control Over Compliance

Management of the Foundation is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Foundation's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Foundation's internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.

This report is intended solely for the information and use of management, others within the entity, the Board of Trustees, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Huntington, West Virginia
October 13, 2011



Independent Auditors' Report

The Board of Trustees of the American Foundation for the Blind, Inc. and AFB Special Fund, Inc.

We have audited the accompanying consolidated statement of financial position of American Foundation for the Blind, Inc. and AFB Special Fund, Inc. (collectively, the "Foundation") (a nonprofit organization) as of June 30, 2011, and the related consolidated statements of activities and changes in net assets, functional expenses, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior year summarized comparative information has been derived from the Foundation's 2010 financial statements and, in our report dated October 7, 2010, we expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of June 30, 2011, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated October 13, 2011, on our consideration of the Foundation's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

October 13, 2011

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