text:
 25.9.2008
 EL
 Επίσημη Εφημερίδα της Ευρωπαϊκής Ένωσης
 L 257/21
 ΑΠΌΦΑΣΗ ΤΗΣ ΜΕΙΚΤΉΣ ΕΠΙΤΡΟΠΉΣ ΤΟΥ ΕΟΧ
 αριθ. 61/2008
 της 6ης Ιουνίου 2008
 για τροποποίηση του παραρτήματος II (Τεχνικοί κανόνες, πρότυπα, έλεγχος και πιστοποίηση) της συμφωνίας για τον ΕΟΧ
 Η ΜΕΙΚΤΗ ΕΠΙΤΡΟΠΗ ΤΟΥ ΕΟΧ,
 Έχοντας υπόψη τη συμφωνία για τον Ευρωπαϊκό Οικονομικό Χώρο, όπως τροποποιήθηκε με το πρωτόκολλο προσαρμογής της συμφωνίας για τον Ευρωπαϊκό Οικονομικό Χώρο, εφεξής «η συμφωνία», και ιδίως το άρθρο 98,
 Εκτιμώντας τα ακόλουθα:
 (1)
 Το παράρτημα II της συμφωνίας τροποποιήθηκε με την απόφαση της Μεικτής Επιτροπής του ΕΟΧ αριθ. 46/2008 της 25ης Απριλίου 2008 (1).
 (2)
 Η οδηγία 2007/62/ΕΚ της Επιτροπής, της 4ης Οκτωβρίου 2007, για την τροποποίηση ορισμένων παραρτημάτων των οδηγιών 86/362/ΕΟΚ και 90/642/ΕΟΚ του Συμβουλίου σχετικά με τα ανώτατα όρια υπολειμμάτων για τις ουσίες bifenazate, pethoxamid, pyrimethanil και rimsulfuron (2) πρέπει να ενσωματωθεί στη συμφωνία.
 (3)
 Η οδηγία 2007/73/ΕΚ της Επιτροπής, της 13ης Δεκεμβρίου 2007, για την τροποποίηση ορισμένων παραρτημάτων των οδηγιών του Συμβουλίου 86/362/EOK και 90/642/EOK όσον αφορά τα ανώτατα όρια υπολειμμάτων για τις ουσίες acetamiprid, atrazine, deltamethrin, imazalil, indoxacarb, pendimethalin, pymetrozine, pyraclostrobin, thiacloprid και trifloxystrobin (3) πρέπει να ενσωματωθεί στη συμφωνία.
 (4)
 Η παρούσα απόφαση δεν εφαρμόζεται στο Λιχτενστάιν,
 ΑΠΟΦΑΣΙΖΕΙ:
 Άρθρο 1
 Στα σημεία 38 (οδηγία 86/362/ΕΟΚ του Συμβουλίου) και 54 (οδηγία 90/642/ΕΟΚ του Συμβουλίου) του κεφαλαίου XII του παραρτήματος II της συμφωνίας προστίθενται οι ακόλουθες περιπτώσεις:
 «—
 32007 L 0062: οδηγία 2007/62/ΕΚ της Επιτροπής, της 4ης Οκτωβρίου 2007 (ΕΕ L 260 της 5.10.2007, σ. 4),
 —
 32007 L 0073: οδηγία 2007/73/ΕΚ της Επιτροπής της 13ης Δεκεμβρίου 2007 (ΕΕ L 329 της 14.12.2007, σ. 40)».
 Άρθρο 2
 Τα κείμενα της οδηγίας 2007/62/ΕΚ και της οδηγίας 2007/73/ΕΚ στην ισλανδική και τη νορβηγική γλώσσα, τα οποία δημοσιεύονται στο συμπλήρωμα για τον ΕΟΧ της Επίσημης Εφημερίδας της Ευρωπαϊκής Ένωσης, είναι αυθεντικά.
 Άρθρο 3
 Η παρούσα απόφαση αρχίζει να ισχύει την 7η Ιουνίου 2008, υπό την προϋπόθεση ότι έχουν πραγματοποιηθεί προς τη Μεικτή Επιτροπή του ΕΟΧ όλες οι κοινοποιήσεις που προβλέπονται στο άρθρο 103 παράγραφος 1 της συμφωνίας (4).
 Άρθρο 4
 Η παρούσα απόφαση δημοσιεύεται στο τμήμα για τον ΕΟΧ και στο συμπλήρωμα για τον ΕΟΧ της Επίσημης Εφημερίδας της Ευρωπαϊκής Ένωσης.
 Βρυξέλλες, 6 Ιουνίου 2008.
 Για τη Μεικτή Επιτροπή του ΕΟΧ
 Ο Πρόεδρος
 Alan SEATTER
 (1) ΕΕ L 223 της 21.8.2008, σ. 40.
 (2) ΕΕ L 260 της 5.10.2007, σ. 4.
 (3) ΕΕ L 329 της 14.12.2007, σ. 40.
 (4) Δεν έχουν αναφερθεί συνταγματικές απαιτήσεις.


type: caselaw

jurisdiction: EU

text:
 28.7.2014
 LV
 Eiropas Savienības Oficiālais Vēstnesis
 C 245/19
 Prasība, kas celta 2014. gada 28. aprīlī – Argus Security Projects/Komisija
 (Lieta T-266/14)
 2014/C 245/26
 Tiesvedības valoda – franču
 Lietas dalībnieki
 Prasītāja: Argus Security Projects Ltd (Limassol, Kipra) (pārstāvji – T. Bontinck un E. van Nuffel d’Heynsbroeck, advokāti)
 Atbildētāja: Eiropas Komisija
 Prasītājas prasījumi:
 —
 atcelt ES Robežsardzes atbalsta misijas (EUBAM) Lībijā lēmumu neizvēlēties sabiedrības Argus iesniegto piedāvājumu publiskajā iepirkumā par drošības pakalpojumu sniegšanu Eiropas Savienības palīdzības misijā integrētai Lībijas robežu pārvaldībai (līgums EUBAM-13-020) un piešķirt publiskā iepirkuma līguma slēgšanas tiesības [sabiedrībai] Garda;
 —
 piespriest atbildētājai atlīdzināt tiesāšanās izdevumus.
 Pamati un galvenie argumenti
 Prasības pamatošanai prasītāja izvirza trīs pamatus.
 1.
 Ar pirmo pamatu tiek apgalvots Finanšu regulas (1) 110. panta, publiskā iepirkuma līguma slēgšanas tiesību dokumentācijā noteikto normu, it īpaši pretendentu instrukcijas 4.1. un 12.1. punkta, vienlīdzīgas attieksmes pret pretendentiem un to nediskriminācijas principu pārkāpums, jo EUBAM neesot pārbaudījusi līguma slēgšanas tiesību saņēmējas spēju pildīt līgumu atbilstīgi publiskā iepirkuma prasībām vai neesot izmantojusi savu novērtējuma brīvību attiecībā uz tehniskajām prasībām, kas tiek sagaidītas no veiksmīgā piedāvājuma, ar minimālo rūpību, kas varētu tikt saprātīgi sagaidīta.
 Prasītāja apgalvo, ka veiksmīgās pretendentes būtiskie trūkumi līguma izpildē un tās nespēja izpildīt tai piešķirto publiskā iepirkuma līgumu parāda, ka piedāvājums bija nereāls, kāds līgumslēdzējai iestādei nebūtu bijis jāizvēlas.
 2.
 Ar otro pamatu tiek apgalvots būtisks grozījums sākotnējos publiskā iepirkuma nosacījumos, kas varētu izkropļot publiskā iepirkuma rezultātu.
 Prasītāja norāda, ka saistībai starp punktiem, kas tika piešķirti veiksmīgajai pretendentei un prasītājai, attiecībā uz visiem novērtēšanas kritērijiem esot bijis jābūt tieši pretējai, ja veiksmīgais piedāvājums būtu ticis izvērtēts, ņemot vērā apstākļus, kādos iepirkuma līgumu saņēmusī sabiedrība īsteno līgumu.
 3.
 Ar trešo pamatu tiek apgalvots pienākuma norādīt pamatojumu pārkāpums, jo līgumslēdzēja iestāde neesot ievērojusi Finanšu regulas 113. pantu un deleģētās regulas (2) 161. panta 2. punktu, jo veiksmīgā piedāvājuma raksturlielumi un salīdzinošais izdevīgums netika paziņoti piecpadsmit kalendāra dienu laikā pēc prasītājas lūguma.
 (1) Eiropas Parlamenta un Padomes 2012. gada 25. jūlija Regula (ES, Euratom) Nr. 996/2012 par finanšu noteikumiem, ko piemēro Savienības vispārējam budžetam, un par Padomes Regulas (EK, Euratom) Nr. 1605/2002 atcelšanu (OV L 298, 1. lpp.).
 (2) Komisijas 2012. gada 29. oktobris Deleģētā regula (ES) Nr. 1268/2012 par Eiropas Parlamenta un Padomes Regulas (ES, Euratom) Nr. 966/2012 par finanšu noteikumiem, ko piemēro Savienības vispārējam budžetam, piemērošanas noteikumiem (OV L 362, 1. lpp.).


type: other

jurisdiction: US

text: b" AUDIT OF THE FEDERAL PRISON \n\n INDUSTRIES, INC. \n\nANNUAL FINANCIAL STATEMENTS \n\n FISCAL YEAR 2013 \n\n\n U.S. Department of Justice \n\n Office of the Inspector General \n\n Audit Division \n\n\n Audit Report 14-06 \n\n January 2014 \n\n\x0c\x0c FEDERAL PRISON INDUSTRIES, INC.\n\n ANNUAL FINANCIAL STATEMENTS\n\n FISCAL YEAR 2013\n\n\n OFFICE OF THE INSPECTOR GENERAL\n\n COMMENTARY AND SUMMARY\n\n\n This audit report contains the Annual Financial Statements of the\nFederal Prison Industries, Inc. (FPI) for the fiscal years (FY) ended\nSeptember 30, 2013, and September 30, 2012. In accordance with the\nGovernment Corporation Control Act, as amended (31 U.S.C. \xc2\xa79105), and\nunder the direction of the Office of the Inspector General (OIG), KPMG LLP\nperformed the FPI\xe2\x80\x99s audit in accordance with auditing standards generally\naccepted in the United States of America. Effective for FY 2013, auditing\nstandards generally accepted in the United States of America use the term\n\xe2\x80\x9cunmodified\xe2\x80\x9d opinion instead of \xe2\x80\x9cunqualified\xe2\x80\x9d opinion. The definition of the\ntwo terms is substantially the same. An unmodified opinion means that the\nfinancial statements are presented fairly, in all material respects, in\naccordance with U.S. generally accepted accounting principles. The FY 2013\naudit resulted in an unmodified opinion on the FY 2013 financial statements.\nThe FY 2012 financial statements audit was performed by Cotton & Company\nLLP and resulted in an unqualified opinion (OIG Audit Report No. 13-03).\n\n KPMG LLP also issued reports on internal control over financial\nreporting and on compliance and other matters. The auditors did not\nidentify any material weaknesses, nor did they report any significant\ndeficiencies in the FY 2013 Independent Auditors\xe2\x80\x99 Report on Internal Control\nover Financial Reporting Based on an Audit of Financial Statements\nPerformed in Accordance with Government Auditing Standards. No\ninstances of non-compliance or other matters that are required to be\nreported under Government Auditing Standards were identified during the\naudit in the FY 2013 Independent Auditors\xe2\x80\x99 Report on Compliance and Other\nMatters Based on an Audit of Financial Statements Performed in Accordance\nwith Government Auditing Standards. Additionally, KPMG LLP\xe2\x80\x99s tests\ndisclosed no instances in which the FPI\xe2\x80\x99s financial management systems did\nnot substantially comply with the Federal Financial Management\nImprovement Act of 1996.\n\n The OIG reviewed KPMG LLP\xe2\x80\x99s reports and related documentation and\nmade necessary inquiries of its representatives. Our review, as\ndifferentiated from an audit in accordance with Government Auditing\nStandards, was not intended to enable us to express, and we do not\nexpress, an opinion on the FPI\xe2\x80\x99s financial statements, conclusions about the\n\n\n\n -i-\n\x0ceffectiveness of internal control, conclusions on whether the FPI\xe2\x80\x99s financial\nmanagement systems substantially complied with the Federal Financial\nManagement Improvement Act of 1996, or conclusions on compliance with\nlaws and regulations and other matters. KPMG LLP is responsible for the\nattached auditors\xe2\x80\x99 reports dated December 3, 2013, and the conclusions\nexpressed in the reports. However, our review disclosed no instances where\nKPMG LLP did not comply, in all material respects, with auditing standards\ngenerally accepted in the United States of America.\n\n\n\n\n -ii-\n\x0c FEDERAL PRISON INDUSTRIES, INC.\n\n ANNUAL FINANCIAL STATEMENTS\n\n FISCAL YEAR 2013\n\n\n TABLE OF CONTENTS\n\n\n PAGE\n\nMESSAGE FROM THE CHIEF EXECUTIVE OFFICER AND THE\n CHIEF OPERATING OFFICER ........................................................................ 1\n\n\nMANAGEMENT'S DISCUSSION AND ANALYSIS ................................................... 5\n\n\nINDEPENDENT AUDITORS\xe2\x80\x99 REPORTS\n\n\n REPORT ON FINANCIAL STATEMENTS ......................................................... 15\n\n\n REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED \n\n ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN\n\n ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS .......................... 17\n\n\n REPORT ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT\n\n OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH\n\n GOVERNMENT AUDITING STANDARDS........................................................ 19\n\n\nPRINCIPAL FINANCIAL STATEMENTS AND RELATED NOTES\n\n\n BALANCE SHEETS .................................................................................... 23\n\n\n STATEMENTS OF OPERATIONS AND CUMULATIVE RESULTS OF OPERATIONS .. 24\n\n\n STATEMENTS OF CASH FLOWS .................................................................. 25\n\n\n NOTES TO FINANCIAL STATEMENTS ........................................................... 26\n\n\x0cThis page intentionally left blank.\n\x0cWe are pleased to present the Federal Prison Industries, Inc.'s\n (FPI) Fiscal Year 2013 Annual Management Report to the Congress\nof the United states. This report includes the FPI's financial\nstatements, Management's Discussion and Analysis, Office of the\nInspector General Commentary and Summary, and the independent\nauditors' reports on the Corporation's financial statements,\ninternal controls over financial reporting and compliance and\nother matters. FPI's financial statements received an\nunmodified audit opinion and no significant deficiencies or\nmaterial weaknesses were reported.\n\nFPI was established by statute and Executive Order 6917 in 1934,\nsigned by President Roosevelt to provide opportunities for\neducational and work-related experiences to federal offenders.\nAlthough a great deal of time has passed and technology is\nchanging rapidly, FPI's mission throughout the past 79 years\nremains the same -- to protect society and reduce crime by\npreparing inmates for successful reentry through job training.\n\nAs the Bureau of Prisons' (BOP's) most important inmate reentry\nprogram, approximately 13,000 federal inmates were working in\nFPI factories at fiscal year-end. The need to address inmate\nidleness was a contributing factor in the creation of FPI in\n1934. This program continues to directly support the BOP's\nmission by keeping inmates productively occupied which lowers\nthe likelihood that they will engage in disruptive behavior and\ncontributes significantly to the safe and secure management of\nprisons. Additionally, inmates participating in the FPI program\nhave an increased likelihood of successful reentry into society\nand are significantly less likely to return to a life of crime,\nwhich reduces future costs of enforcement and incarceration.\n\nFPI is a program with proven lasting benefits, including reduced\nrecidivism; a positive impact on the U.S. economy through the\nraw materials purchased from suppliers around the country, and\nthe staff salaries spent in the community, all without an\nadditional tax burden to society.\n\nAs a federal government corporation, FPI is a program that also\nfunctions as a business to remain self-sustaining, and continues\nto face a dynamic set of external and internal constraints.\nDue to the nature of the changes affecting purchases from FPI by\nthe government sector, emphasis has been placed on exploring\nmore opportunities with commercial customers. New market\nauthorities, contained in the Consolidated and Further\nContinuing Appropriations Act of 2012 (P.L. 112-55) are now\navailable for FPI to obtain commercial customers through\n\n\n\n -1-\n\x0crepatriation and bringing sales otherwise sent to foreign\ncountries back into the United States. Many new opportunities\nare being pursued and a number of pilot programs have already\nbeen implemented which allowed several hundred inmates to\nparticipate in repatriated work projects during this fiscal\nyear. Additionally, FPI is now authorized to participate in the\nPrison Industries Enhancement Certification Program (PIECP).\nFPI obtained approval of its PIECP application from the Bureau\nof Justice Assistance on May 31, 2013. FPI has pursued this\nopportunity in fiscal year 2013 through research and discussions\nwith successful state agencies, and plans to move forward with\nimplementation of the program in fiscal year 2014.\n\n\nFPI is thankful for the support from all of the Department of\nJustice agencies in assisting with the development of work\nopportunities to support our mission. Thanks to the outstanding\ncontributions and dedication of FPI staff as well as the\nexceptional leadership provided by the Board of Directors, FPI\nwill continue to fulfill its missi on and continue to concentrate\nits efforts on opportunities that will allow it to succeed in\nthe years ahead.\n\n\n\nM~aj~\nCharl~s E. Samuels, Jr.\n ~~itchell\n Mary\nChief Executive Officer Chief Operating Officer\n\n\n\n\n -2-\n\x0cU.S. DEPARTMENT OF JUSTICE\n\n\nFEDERAL PRISON INDUSTRIES, INC.\n\n MANAGEMENT\xe2\x80\x99S\n DISCUSSION & ANALYSIS\n (UNAUDITED)\n\n\n\n\n -3-\n\x0cThis page intentionally left blank.\n\n\n\n\n -4-\n\x0c U.S. Department of Justice\n\n Federal Prison Industries, Inc.\n\n Management\xe2\x80\x99s Discussion and Analysis\n\n (Unaudited)\n\n\n\nMission\n\nIt is the mission of Federal Prison Industries, Inc. (FPI) to protect society and reduce crime by\npreparing inmates for successful reentry through job training.\n\nOrganizational Structure of Federal Prison Industries, Inc.\n\nFPI is a wholly-owned government corporation created by Congress in 1934. FPI is authorized to\noperate industries in federal penal and correctional institutions and disciplinary barracks (18 U.S.C. \xc2\xa7\n4121 to \xc2\xa7 4129). The Director of the Federal Bureau of Prisons (BOP), who has jurisdictioQ over all\nfederal correctional institutions, is the Chief Executive Officer. General management of FPI is\nprovided by the Chief Operating Officer who also serves as an Assistant Director for the BOP.\n\nIn fiscal year 2013, FPI operated in five business segments: Clothing and Textiles, Electronics,\nOffice Furniture, Recycling, and Services. FPI has industrial and service operations at 78 factories\nlocated at 62 prison facilities as of September 30, 2013. Factories are operated by FPI supervisors\nand managers, who train and oversee the work of inmates. The factories utilize raw material and\ncomponent parts purchased from the private sector to produce finished goods. Orders for goods and\nservices are obtained through marketing and sales efforts managed by FPI staff. Some products and\nall services are provided on a non-mandatory, preferred source basis.\n\nFPI processes primarily all customer orders and billings along with vendor payments through a\ncentralized service center at Lexington, Kentucky.\n\nFinancial Structure\n\nFPI operates as a revolving fund and does not receive an annual appropriation. The majority of\nrevenues are derived from the sale of products and services to other federal departments, agencies,\nand bureaus. Operating expenses such as the cost of raw materials and supplies, inmate wages, staff\nsalaries, and capital expenditures are applied against these revenues resulting in operating income or\nloss, which is reapplied toward operating costs for future production. In this regard, FPI makes\ncapital investments in buildings and improvements, machinery, and equipment as necessary in the\nconduct of its industrial operation.\n\nFPI sells products and services to the majority of federal departments, agencies and bureaus. FPI\xe2\x80\x99s\nlargest federal government customers include the Department of Defense (DOD), the Department of\nHomeland Security (DHS), the Department of Justice (DOJ), the General Services Administration\n(GSA), and the Social Security Administration (SSA).\n\n\n\n\n -5-\n\x0cDue to the nature of the changes effecting Federal Prison Industries with the government sector,\nemphasis has been placed on exploring more opportunities with commercial customers.\nOpportunities in this arena have become available as part of the approval for FPI to obtain\ncommercial customers through repatriation and bringing sales otherwise sent to foreign countries\nback into the United States of America. Many new opportunities are already being pursued through\na collaboration of FPI\xe2\x80\x99s business groups sections and the New Business Development Group.\nAdditionally, the Consolidated and Further Continuing Appropriations Act of 2012 (P.L. 112-55)\nauthorized FPI to participate in the Prison Industries Enhancement Certification Program (PIECP).\nFPI has invested significant time and effort into pursuing this goal in fiscal year 2013 through\nresearch and discussion within our organization and other agencies. FPI obtained approval of its\nPIECP application from the Bureau of Justice Assistance in May 2013. FPI will continue to\naggressively pursue the implementation of the PIECP program in fiscal year 2014.\n\nCritical Accounting Policies\n\nThe following discussion and analysis of FPI\xe2\x80\x99s financial condition, results of operations, liquidity\nand capital resources are based upon FPI\xe2\x80\x99s financial statements, which have been prepared in\naccordance with U.S. generally accepted accounting principles based on accounting standards issued\nby the Financial Accounting Standards Board (FASB), the private sector standards-setting body.\nThese generally accepted accounting principles require FPI management to make estimates and\njudgments that affect the reported amount of assets, liabilities, revenues and expenses. In this regard,\nFPI management evaluates the estimates on an on-going basis, including those related to product\nreturns, bad debt, inventories, long-lived assets, and contingencies and litigation. FPI bases its\nestimates upon historical experience and various other assumptions that FPI believes are reasonable\nunder the circumstances. The actual results may differ from these estimates when assumptions or\nconditions change.\n\nFPI believes that some of its accounting policies involve complex or higher degrees of judgment than\nits other accounting policies. The following accounting policies have been identified by FPI\nmanagement as being critical and therefore require more significant estimates or reliance on a higher\ndegree of judgment on the part of FPI management.\n\nRevenue recognition: Revenue is generally recognized when 1) delivery has occurred or services\nhave been rendered, 2) persuasive evidence of an arrangement exists, 3) there is a fixed or\ndeterminable price, and 4) collectability is reasonably assured. Revenue from contracts that specify a\ncustomer acceptance criteria is not recognized until either customer acceptance is obtained or upon\ncompletion of the contract. Sales returns are primarily replaced with like items and are recorded as\nthey occur.\n\nRevenue is recognized on multiple element (numerous stages of product delivery, set up, and\ninstallation) agreements as a single unit of accounting for manufactured items when the product has\nbeen accepted by the customer. Revenue for services provided on behalf of FPI is recognized when\nthe service provider presents a valid invoice including a customer acceptance or completion notice.\n\nAllowance for doubtful accounts receivable: The allowance for doubtful accounts is based upon\n\n\n\n -6-\n\x0can analysis of several factors including payment trends, historical write off experience, credit quality\nfor non-governmental accounts, and specific analysis of collectability of an account. During the\ncourse of time, these factors may change which will cause the allowance level to adjust accordingly.\nAs part of their analysis, customer accounts determined to be unlikely to be paid are recorded as a\ncharge to bad debt expense in the income statement and the allowance account is increased. When it\nbecomes certain that a customer account will not be paid, the receivable is written off by removing\nthe balance from accounts receivable.\n\nAs of September 30, 2013 and September 30, 2012, FPI had established an allowance for bad debt in\nthe amount of $.41 million and $.52 million on accounts receivable balances of $39.49 million and\n$26.66 million, respectively.\n\nInventory valuation: FPI maintains its inventory primarily for the manufacture of goods for sale to\nits customers. FPI\xe2\x80\x99s inventory is composed of three categories: Raw Materials, Work-in-Process,\nand Finished Goods. These categories are generally defined by FPI as follows: Raw Materials\nconsist of materials that have been acquired and are available for the production cycle, Work-in-\nProcess is composed of materials that have moved into the production process and have some\nmeasurable amount of labor and overhead added by FPI, Finished Goods are materials with FPI\nadded labor and overhead that have completed the production cycle and are awaiting sale to\ncustomers.\n\nRaw material inventory value is based upon moving average cost. Inventories are valued at the\nlower of average cost or market value (LCM) and include materials, labor and manufacturing\noverhead. Market value is calculated on the basis of the contractual or anticipated selling price, less\nallowance for administrative expenses. FPI values its finished goods and sub-assembly items at a\nstandard cost that is periodically adjusted to approximate actual cost. FPI has established inventory\nallowances to account for LCM adjustments and obsolete items that may not be utilized in future\nperiods.\n\nProgram Values\n\nIt is FPI\xe2\x80\x99s vision to protect society, reduce crime, aid in the security of the nation\xe2\x80\x99s prisons and\ndecrease taxpayer burden, by assisting inmates with developing vital skills necessary for successful\nre-entry into society. Through the production of market-priced quality goods and services, FPI\nprovides job training and work opportunities to inmates, while minimizing impact on private\nindustry and labor.\n\nThe goal of FPI is to reduce undesirable inmate idleness by providing a full-time work program for\ninmate populations. Many of the inmates do not have marketable employment skills. FPI provides a\nprogram of constructive industrial work and services wherein job skills can be developed and work\nhabits acquired.\n\nFPI has existed as an effective correctional program for 79 years. Over the course of these years, FPI\nhas positively impacted countless staff and inmate lives. In the face of an escalating inmate\npopulation and an increasing percentage of inmates with histories of violence, FPI\xe2\x80\x99s programs have\n\n\n\n -7-\n\x0chelped ease tension and avert dangerous situations, thereby protecting lives and federal property. FPI\nwork programs provide meaningful activities for inmates, thereby playing an essential role in the\noperation of safe, secure and less costly prisons.\n\nAt the same time, FPI provides opportunities for inmates who want to take the personal\nresponsibility for rehabilitating themselves. More than 95 percent of inmates eventually will be\nreturned to society; industrial programs can help them to steer clear of criminal activity after release.\nParticipation in FPI programs improves the likelihood that inmates will remain crime-free upon their\nrelease from BOP custody. A comprehensive study conducted by the BOP demonstrated that FPI\nprovides inmates with an opportunity to develop work ethics and skills, contributes substantially to\nlower recidivism and increases job-related success of inmates upon release. This study indicates that\ninmates involved in FPI work programs are substantially less likely to return to prison. The impact\non the lives of people who live in the communities in which these inmates will return is\nimmeasurable. Countless lives are spared the devastating impact of continued criminal activity.\n\nAnalysis of Financial Statements\n\nCash and Investments\n\nCash and Cash Equivalents decreased $18.4 million during the year. An increase in Accounts\nReceivable of $12.9 million contributed to a reduction of FPI (non-advance) cash of $11.6 million\nduring fiscal year 2013. Cash Advances decreased by $6.9 million. FPI\xe2\x80\x99s cash advances are\nprimarily for the purchase of inventory in support of the Fleet Management and Vehicular\nComponents vehicle retrofitting operation. The primary customer for these operations is the\nDepartment of Homeland Security; advances fluctuate throughout the year as they receive\nappropriations.\n\nAccounts Receivable\n\nThe Accounts Receivable balance increased $12.9 million during fiscal year 2013. The Accounts\nReceivable balance of $39.1 million as of September 30, 2013, represents 78.6 percent of\nSeptember\xe2\x80\x99s total revenues. FPI\xe2\x80\x99s average days to collect for fiscal year 2013 was approximately 24.\nThe Accounts Receivable balance over sixty days old represented 7.8 percent of the total balance as\nof September 30, 2013.\n\nInventory\n\nInventory decreased by $33.8 million during fiscal year 2013. FPI continued to place emphasis on\ninventory reduction during fiscal year 2013. The Electronics business segment was the primary\ncontributor to the reduction with a decrease of $33.1 million. The Electronics segment decrease can\nbe attributed to the decrease in fleet vehicle, solar panel and cable product line inventories totaling\n$24.8 million, $5.8 million and $3.0 million respectively.\n\n\n\n\n -8-\n\x0cLiabilities\n\nTotal Liabilities decreased by $42.4 million during fiscal year 2013. The primary contributors to the\ndecrease were a $35.8 million reduction in Advances Payable and a $3.5 million reduction in\nAccounts Payable. This decrease is attributable to a change in customer advances payable on hand\nprimarily for the retrofitting of vehicles for the Department of Homeland Security (DHS) as a result\nof a decrease in customer contracts. The decrease in Accounts Payable is relative to a corresponding\nreduction in inventory as a result of an overall decrease in sales orders.\n\nRevenue, Cost of Revenue and Net Loss\n\nTotal Revenue decreased by $88.4 million while total cost of revenue decreased by $94.1 million.\nThe decrease in revenue resulted primarily from the decrease in sales revenue of $72.8 million and a\nreduction in corresponding freight collections of $7.3 million. The largest business segments showing a\ndecrease in sales were Electronics $49.3 million, Office Furniture with $42.3 million, and Services with\n$4.6 million. The Textiles and Recycling business segments had offsetting increases of $21.2 million and\n$2.3 million in sales respectively. The Net Loss decreased $24.0 million in fiscal year 2013 compared to\nfiscal year 2012. Factory Earnings were $14.5 million higher in fiscal year 2013 than the previous fiscal\nyear primarily due to a reduction in factory overhead of $11.0 million.\n\nBusiness Segments\n\nIn fiscal year 2013, FPI\xe2\x80\x99s businesses were organized, managed and internally reported as five\noperating segments based on products and services. These segments are Clothing and Textiles,\nElectronics, Office Furniture, Recycling, and Services. FPI is not dependent on any single product as\na primary revenue source; however, it is currently primarily dependent on the federal government\nmarket for the sale of its products. FPI\xe2\x80\x99s net industrial income (earnings) at the business segment\nlevel consists of sales offset by cost of goods sold and under /over applied overhead. FPI redefined\nits business segments from six categories to five in fiscal year 2013. The Fleet and Industrial\nProducts business segment was consolidated into the Electronics, Office Furniture, and Services\nbusiness segments. As a result, net sales and earnings for fiscal year 2012 for Electronics, Office\nFurniture, and Services have been reclassified for comparative purposes.\n\n\n\n\n -9-\n\x0cBusiness Segment Fiscal Year\nClothing and Textiles 2013 2012\nSales $235,691 $214,522\nEarnings $36,663 $20,642\nElectronics\nSales $128,120 $177,462\nEarnings ($3,969) ($8,964)\nOffice Furniture\nSales $118,533 $160,850\nEarnings $3,904 $12,350\nRecycling\nSales $17,900 $15,563\nEarnings $6,566 $4,764\nServices\nSales $33,093 $37,717\nEarnings $3,051 $2,921\nCorporate Total\nSales $533,337 $606,114\nEarnings $46,215 $31,713\n\nPossible Future Effects of Existing Events and Conditions\n\nDuring fiscal year 2013, FPI encountered a decline in sales for the fourth consecutive year and\nexperienced a net loss for the fifth consecutive year. Although sales revenue continued to decline by\n$72.8 million during fiscal year 2013, the net loss of $4.3 million was a considerable improvement\nwhen compared to the fiscal year 2012 loss of $28 million. The $4.3 million loss is not as substantial\nas would be expected considering the rate of decline in sales. This variation can be attributed to on\xc2\xad\ngoing cost containment initiatives by FPI. Included in this net loss is approximately $3.9 million in\nwrite down of solar panel inventory.\n\nIn fiscal years 2014 and beyond, FPI faces the additional challenge of the shrinking federal budget,\nthe resulting decline in discretionary spending and the ultimate impact of decline in FPI sales. FPI\ncontinues to make every effort to mitigate the impact of these challenges through aggressively\npursuing new customers and new products, employment of part time inmates, staffing and other cost\nreductions, new opportunities for revenue, and stringent measures to control cash. Additionally, FPI\nhas been active in communicating with our federal customers to determine if our current product\nofferings meet their current needs and to make them aware of new repatriated product offerings.\nFurther emphasis has been placed on DOJ agencies through meetings with component heads and\ntracking of their respective incoming orders. Due to the collective impact of these efforts, FPI\xe2\x80\x99s\noperating plan for fiscal year 2014 projects a $38 thousand net income.\n\n\n -10-\n\x0cPrison Industries Enhancement Certification Program\n\nThe Consolidated and Further Continuing Appropriations Act of 2012 (P.L. 112-55) authorized FPI\nto participate in the Prison Industries Enhancement Certification Program (PIECP) and to\nmanufacture products that would otherwise be produced outside of the United States, as approved by\nFPI's Board of Directors. FPI has invested significant time and effort into pursuing this goal in fiscal\nyear 2013 through research and discussion within our organization and other agencies. FPI obtained\napproval of its PIECP application from the Bureau of Justice Assistance in May 2013. FPI will\ncontinue to aggressively pursue the implementation of the PIECP program in fiscal year 2014.\n\nRepatriation\n\nDue to the nature of the changes effecting Federal Prison Industries with the government sector,\nemphasis has been placed on exploring more opportunities with commercial customers.\nOpportunities in this arena have become available as part of the approval for FPI to obtain\ncommercial customers through repatriation and bringing sales otherwise sent to foreign countries\nback into the United States of America. Many new opportunities are already being pursued through\na collaboration of FPI\xe2\x80\x99s business group sections and the New Business Development Group.\n\nPart Time Inmates\n\nFPI\xe2\x80\x99s continued emphasis on the use of part time and half time inmate workers resulted in a 41\npercent increase during fiscal year 2013, adding 728 inmates to the classification, which contributed\nsignificantly to FPI meeting its goal to employ 13,000 inmates during 2013. Continued emphasis in\n2014 and beyond will allow for an increase in the number of inmates participating in the FPI\nprogram while reducing the per inmate cost of employment. Concentration on this goal will increase\nthe impact on the number of inmates released with FPI experience.\n\nLong Term Investment\n\nDuring fiscal year 2013, FPI began investing in long-term market bonds through the Treasury\nDepartment. Past research revealed that it was not advantageous. Due to changed rates and market\nconditions, the prospect of investing in long term bonds was re-evaluated and was determined to be\nbeneficial to pursue. The initial investment into the bonds occurred in January 2013 and an\nadditional amount was invested later in the fiscal year. Due to the long-term nature of the bonds, FPI\nreceives a higher rate of return on their investment of cash in these bonds. As a result, fiscal year\n2013 investment earnings are approximately twice what they would have been had the long-term\noption not been pursued.\n\nPayment Card\n\nDuring fiscal year 2013, FPI evaluated the benefit that may be derived from implementing the J.P.\nMorgan bank card as a payment card. It was determined that the potential exists for substantial\nincome to be generated through rebates. FPI is in the process of implementing this program with the\nfirst significant benefits to be received in January 2014. The operating plan for 2014 includes an\nestimate of $3 million dollars additional income to be generated from this program.\n\n\n -11-\n\x0cPending Investigations\n\nIn December 2009, the Department of Justice, Office of the Inspector General, initiated an\ninvestigation regarding the manufacturing and quality procedures for some of the military helmets\nproduced by FPI. This investigation is still ongoing. FPI\xe2\x80\x99s management is committed to ensuring\nFPI produces a quality product that meets the requirements of our customers.\n\n\n\n\n -12-\n\x0cU.S. DEPARTMENT OF JUSTICE\n\n\nFEDERAL PRISON INDUSTRIES, INC.\n\n INDEPENDENT AUDITORS\xe2\x80\x99 REPORTS\n\n\n\n\n -13-\n\x0cThis page intentionally left blank.\n\n\n\n\n -14-\n\x0c KPMG LLP\n Suite 12000\n 1801 K Street, NW\n Washington, DC 20006\n\n\n\n\n Independent Auditors\xe2\x80\x99 Report on the Financial Statements\n\n\nInspector General\nU.S. Department of Justice\n\n\nChief Executive Officer\nBoard of Directors\nFederal Prison Industries, Inc.\nU.S. Department of Justice\n\n\nWe have audited the accompanying financial statements of the U.S. Department of Justice Federal Prison\nIndustries, Inc. (FPI) which comprise the balance sheet as of September 30, 2013, and the related\nstatements of operations and cumulative results of operations, and cash flows (hereinafter referred to as\n\xe2\x80\x9cfinancial statements\xe2\x80\x9d) for the year then ended, and the related notes to the financial statements.\n\nManagement\xe2\x80\x99s Responsibility for the Financial Statements\n\nManagement is responsible for the preparation and fair presentation of these financial statements in\naccordance with U.S. generally accepted accounting principles; this includes the design, implementation,\nand maintenance of internal control relevant to the preparation and fair presentation of the financial\nstatements that are free from material misstatement, whether due to fraud or error.\n\nAuditors\xe2\x80\x99 Responsibility\n\nOur responsibility is to express an opinion on these financial statements based on our audit. We conducted\nour audit in accordance with auditing standards generally accepted in the United States of America; the\nstandards applicable to financial audits contained in Government Auditing Standards issued by the\nComptroller General of the United States; and Office of Management and Budget (OMB) Bulletin\nNo. 14-02, Audit Requirements for Federal Financial Statements. Those standards and OMB Bulletin\nNo. 14-02 require that we plan and perform the audit to obtain reasonable assurance about whether the\nfinancial statements are free from material misstatement.\nAn audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the\nfinancial statements. The procedures selected depend on the auditors\xe2\x80\x99 judgment, including the assessment\nof the risks of material misstatement of the financial statements, whether due to fraud or error. In making\nthose risk assessments, the auditors consider internal control relevant to the entity\xe2\x80\x99s preparation and fair\npresentation of the financial statements in order to design audit procedures that are appropriate in the\ncircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity\xe2\x80\x99s internal\ncontrol. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of\naccounting policies used and the reasonableness of significant accounting estimates made by management,\nas well as evaluating the overall presentation of the financial statements.\nWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our\naudit opinion.\n\n KPMG LLP is a Delaware limited liability partnership,\n the U.S. member firm of KPMG International Cooperative\n (\xe2\x80\x9cKPMG International\xe2\x80\x9d), a Swiss entity.\n\n\n -15-\n\x0cOpinion on the Financial Statements\n\nIn our opinion, the financial statements referred to above present fairly, in all material respects, the\nfinancial position of the U.S. Department of Justice Federal Prison Industries, Inc. as of September 30,\n2013, and its net loss, cumulative results of operations, and cash flows for the year then ended in\naccordance with U.S. generally accepted accounting principles.\n\nOther Matters\n\nPrior Period Financial Statements Audited by a Predecessor Auditor\n\nThe accompanying financial statements of the FPI as of September 30, 2012 and for the year then ended\nwere audited by other auditors whose report thereon dated November 5, 2012, expressed an unmodified\nopinion on those financial statements.\n\nOther Information\n\nOur audit was conducted for the purpose of forming an opinion on the basic financial statements as a\nwhole. The Management Discussion and Analysis is presented for purposes of additional analysis and is\nnot a required part of the basic financial statements. Such information has not been subjected to the\nauditing procedures applied in the audit of the basic financial statements, and accordingly, we do not\nexpress an opinion or provide any assurance on it.\n\nOther Reporting Required by Government Auditing Standards\n\nIn accordance with Government Auditing Standards, we have also issued our fiscal year 2013 report dated\nDecember 3, 2013 on our consideration of the FPI\xe2\x80\x99s internal control over financial reporting, and our fiscal\nyear 2013 report dated December 3, 2013 on our tests of its compliance with certain provisions of laws,\nregulations, contracts, and other matters. The purpose of those reports is to describe the scope of our testing\nof internal control over financial reporting and compliance and the results of that testing, and not to provide\nan opinion on the internal control over financial reporting or on compliance. Those reports are an integral\npart of an audit performed in accordance with Government Auditing Standards in considering the FPI\xe2\x80\x99s\ninternal control over financial reporting and compliance.\n\n\n\n\nDecember 3, 2013\n\n\n\n\n -16-\n\x0c KPMG LLP\n Suite 12000\n 1801 K Street, NW\n Washington, DC 20006\n\n\n\n\n Independent Auditors\xe2\x80\x99 Report on Internal Control over Financial Reporting Based on an Audit of\n Financial Statements Performed in Accordance with Government Auditing Standards\n\n\nInspector General\nU.S. Department of Justice\n\n\nChief Executive Officer\nBoard of Directors\nFederal Prison Industries, Inc.\nU.S. Department of Justice\n\n\nWe have audited, in accordance with auditing standards generally accepted in the United States of\nAmerica; the standards applicable to financial audits contained in Government Auditing Standards issued\nby the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin\nNo. 14-02, Audit Requirements for Federal Financial Statements, the financial statements of the U.S.\nDepartment of Justice Federal Prison Industries, Inc. (FPI), which comprise the balance sheet as of\nSeptember 30, 2013, and the related statements of operations and cumulative results of operations, and\ncash flows (hereinafter referred to as \xe2\x80\x9cfinancial statements\xe2\x80\x9d) for the year then ended, and the related notes\nto the financial statements, and have issued our report thereon dated December 3, 2013.\n\nInternal Control over Financial Reporting\n\nIn planning and performing our audit of the financial statements as of and for the year ended September 30,\n2013, we considered the FPI\xe2\x80\x99s internal control over financial reporting (internal control) to determine the\naudit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the\nfinancial statements, but not for the purpose of expressing an opinion on the effectiveness of the FPI\xe2\x80\x99s\ninternal control. Accordingly, we do not express an opinion on the effectiveness of the FPI\xe2\x80\x99s internal\ncontrol. We did not test all internal controls relevant to operating objectives as broadly defined by the\nFederal Managers\xe2\x80\x99 Financial Integrity Act of 1982.\n\nA deficiency in internal control exists when the design or operation of a control does not allow\nmanagement or employees, in the normal course of performing their assigned functions, to prevent, or\ndetect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination\nof deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of\nthe entity\xe2\x80\x99s financial statements will not be prevented, or detected and corrected on a timely basis. A\nsignificant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe\nthan a material weakness, yet important enough to merit attention by those charged with governance.\n\nOur consideration of internal control was for the limited purpose described in the first paragraph of this\nsection and was not designed to identify all deficiencies in internal control that might be material\nweaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any\ndeficiencies in internal control that we consider to be material weaknesses. However, material weaknesses\nmay exist that have not been identified.\n\n KPMG LLP is a Delaware limited liability partnership,\n the U.S. member firm of KPMG International Cooperative\n (\xe2\x80\x9cKPMG International\xe2\x80\x9d), a Swiss entity.\n\n\n -17-\n\x0cPurpose of this Report\n\nThe purpose of this report is solely to describe the scope of our testing of internal control and the results of\nthat testing, and not to provide an opinion on the effectiveness of the FPI\xe2\x80\x99s internal control. This report is\nan integral part of an audit performed in accordance with Government Auditing Standards in considering\nthe FPI\xe2\x80\x99s internal control. Accordingly, this communication is not suitable for any other purpose.\n\n\n\n\nDecember 3, 2013\n\n\n\n\n -18-\n\x0c KPMG LLP\n Suite 12000\n 1801 K Street, NW\n Washington, DC 20006\n\n\n\n\n Independent Auditors\xe2\x80\x99 Report on Compliance and Other Matters Based on an Audit of Financial\n Statements Performed in Accordance with Government Auditing Standards\n\n\nInspector General\nU.S. Department of Justice\n\n\nChief Executive Officer\nBoard of Directors\nFederal Prison Industries, Inc.\nU.S. Department of Justice\n\n\nWe have audited, in accordance with auditing standards generally accepted in the United States of\nAmerica; the standards applicable to financial audits contained in Government Auditing Standards issued\nby the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin\nNo. 14-02, Audit Requirements for Federal Financial Statements, the financial statements of the U.S.\nDepartment of Justice Federal Prison Industries, Inc. (FPI), which comprise the balance sheet as of\nSeptember 30, 2013, and the related statements of operations and cumulative results of operations, and\ncash flows (hereinafter referred to as \xe2\x80\x9cfinancial statements\xe2\x80\x9d) for the year then ended and the related notes\nto the financial statements, and have issued our report thereon dated December 3, 2013.\n\nCompliance and Other Matters\n\nAs part of obtaining reasonable assurance about whether the FPI\xe2\x80\x99s financial statements are free from\nmaterial misstatement, we performed tests of its compliance with certain provisions of laws, regulations,\nand contracts, noncompliance with which could have a direct and material effect on the determination of\nfinancial statement amounts, and certain provisions of other laws and regulations specified in OMB\nBulletin No. 14-02. However, providing an opinion on compliance with those provisions was not an\nobjective of our audit, and accordingly, we do not express such an opinion. The results of our tests of\ncompliance disclosed no instances of noncompliance or other matters that are required to be reported\nherein under Government Auditing Standards or OMB Bulletin No. 14-02.\n\nWe also performed tests of its compliance with certain provisions referred to in Section 803(a) of the\nFederal Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on compliance\nwith FFMIA was not an objective of our audit, and accordingly, we do not express such an opinion. The\nresults of our tests of FFMIA disclosed no instances in which the FPI\xe2\x80\x99s financial management systems did\nnot substantially comply with the (1) federal financial management system requirements, (2) applicable\nfederal accounting standards, and (3) application of the United States Government Standard General\nLedger at the transaction level.\n\n\n\n\n KPMG LLP is a Delaware limited liability partnership,\n the U.S. member firm of KPMG International Cooperative\n (\xe2\x80\x9cKPMG International\xe2\x80\x9d), a Swiss entity.\n\n\n -19-\n\x0cPurpose of this Report\n\nThe purpose of this report is solely to describe the scope of our testing of compliance and the results of that\ntesting, and not to provide an opinion on the FPI\xe2\x80\x99s compliance. This report is an integral part of an audit\nperformed in accordance with Government Auditing Standards in considering the FPI\xe2\x80\x99s compliance.\nAccordingly, this communication is not suitable for any other purpose.\n\n\n\n\nDecember 3, 2013\n\n\n\n\n -20-\n\x0cU.S. DEPARTMENT OF JUSTICE\n\n\nFEDERAL PRISON INDUSTRIES, INC.\n\n PRINCIPAL FINANCIAL STATEMENTS\n\n AND RELATED NOTES\n\n\n\n\n\n -21-\n\x0cThis page intentionally left blank.\n\n\n\n\n -22-\n\x0c Federal Prison Industries, Inc.\n Balance Sheets\n\nAs of September 30,\n(DOLLARS IN THOUSANDS) 2013 2012\n\nAssets\n\nCurrent:\n Cash and cash equivalents $ 282,165 $ 300,544\n Accounts receivable, net 39,074 26,141\n Inventories, net 95,411 129,254\n Other assets 325 828\n Total current assets 416,975 456,767\n\nProperty, plant and equipment, net 80,748 87,631\n Total Assets $ 497,723 $ 544,398\n\nLiabilities and United States Government Equity\n\nCurrent:\n Accounts payable $ 38,295 $ 43,595\n Deferred revenue 59,098 94,892\n Accrued salaries and wages 4,563 9,610\n Accrued annual leave 7,337 8,133\n Other accrued expenses 9,193 7,474\n Total current liabilities 118,486 163,704\n\nFECA actuarial liability 21,715 18,920\n Total Liabilities 140,201 182,624\n\nUnited States Government Equity\n Initial capital 4,176 4,176\n Cumulative results of operations 353,346 357,598\n\n Total United States Government Equity 357,522 361,774\n Total Liabilities and United States Government Equity $ 497,723 $ 544,398\n\n The accompanying notes are an integral part of these financial statements.\n\n\n\n\n -23-\n\x0c Federal Prison Industries, Inc.\n Statements of Operations and Cumulative Results of Operations\n\nFor the fiscal years ended September 30,\n(DOLLARS IN THOUSANDS) 2013 2012\n\nRevenue:\n\n Net sales $ 533,337 $ 606,114\n\n Other revenue 76,391 92,043\n\n Total revenue 609,728 698,157\n\nCost of revenue:\n\n Cost of sales 486,494 566,410\n\n Cost of other revenue 74,561 88,756\n\n Total cost of revenue 561,055 655,166\n\nGross profit 48,673 42,991\n\nOperating expenses:\n\n Sales and marketing 4,257 5,916\n\n General and administrative 82,210 101,938\n\n\n Total operating expenses 86,467 107,854\n\n\nLoss from operations (37,794) (64,863)\n\nInterest income 238 138\n\nInterest expense (2) (1)\n\nOther income, net 33,306 36,476\n\n\nNet loss (4,252) (28,250)\n\nCumulative results of operations, beginning of fiscal year 357,598 385,848\n\n\nCumulative results of operations, end of fiscal year $ 353,346 $ 357,598\n\n\n The accompanying notes are an integral part of these financial statements.\n\n\n\n\n -24-\n\x0c Federal Prison Industries, Inc.\n Statements of Cash Flows\n\nFor the fiscal years ended September 30,\n(DOLLARS IN THOUSANDS) 2013 2012\n\nCASH FLOWS FROM OPERATING ACTIVITIES\n\nNet loss $ (4,252) $ (28,250)\nAdjustments to reconcile net income to net cash\n provided by operating activities:\n\n Depreciation and amortization 8,650 10,067\n Loss on disposal of property, plant and equipment 291 7,549\n Changes in:\n Accounts receivable (12,933) 20,539\n Inventories 33,843 4,680\n Other assets 503 1,755\n Accounts payable and accrued expenses (6,629) (56)\n Deferred revenue (35,794) (4,777)\n\nNet cash provided by (used in) operating activities (16,321) 11,507\n\n\nCASH FLOWS FROM INVESTING ACTIVITIES\n\n Purchases of property, plant and equipment (2,058) (2,384)\n\n Construction-in-progress of plant facilities - (89)\n\n\nNet cash used in investing activities (2,058) (2,473)\n\n\nNet increase (decrease) in cash and cash equivalents (18,379) 9,034\nCash and cash equivalents, beginning of fiscal year 300,544 291,510\nCash and cash equivalents, end of fiscal year $ 282,165 $ 300,544\n\n\n\n\n The accompanying notes are an integral part of these financial statements.\n\n\n\n\n -25-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nNote 1. Organization and Mission\n\nFederal Prison Industries, Inc. (FPI) was established in 1934 by an act of the United States Congress.\nFPI operates under the trade name UNICOR, as a wholly-owned federal government corporation\nwithin the Department of Justice, and functions under the direction and control of a Board of\nDirectors, (the \xe2\x80\x9cBoard\xe2\x80\x9d). Members of the Board are appointed by the President of the United States\nof America and represent retailers and consumers, agriculture, industry, labor, the Attorney General,\nand the Secretary of Defense. FPI\xe2\x80\x99s statutory mandate is to provide employment and training for\ninmates in the Federal Prison System while remaining self-sufficient through the sale of its products\nand services.\n\nFPI\xe2\x80\x99s federal government customers include departments (percent of Revenue shown in parenthesis),\nagencies and bureaus such as the Department of Defense (59%), the Department of Homeland\nSecurity (12%), the Department of Justice (10%), the General Services Administration (6%), and the\nSocial Security Administration (2%). These and other federal organizations are generally required to\npurchase products from FPI, if its products meet the customer\xe2\x80\x99s price, quality, and delivery\nstandards, under a mandatory source preference specified in FPI\xe2\x80\x99s enabling statute and the Federal\nAcquisition Regulation.\n\nFPI has industrial and service operations at 78 and 81 factories located at 62 and 63 prison facilities\nthat employed 13,001 and 13,369 inmates representing approximately 7% and 8% of the work\neligible inmate population as of September 30, 2013 and September 30, 2012, respectively.\n\n\nNote 2. Summary of Significant Accounting Policies\n\nBasis of Accounting\n\nFPI transactions are recorded on the accrual basis of accounting. Under the accrual basis, revenues\nare recorded when earned and expenses are recorded when incurred, regardless of when the cash is\nexchanged.\n\nBasis of Presentation\n\nFPI has historically prepared its external financial statements in conformity with U.S. generally\naccepted accounting principles based on accounting standards issued by the Financial Accounting\nStandards Board (FASB), the private sector standards-setting body. The Federal Accounting\nStandards Advisory Board (FASAB) has been designated as the standards-setting body for federal\nfinancial reporting entities with respect to the establishment of US GAAP. FASAB allows certain\ngovernment agencies to utilize FASB standards for Financial Statement presentations.\n\n\n\n\n -26-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nUse of Estimates\n\nThe preparation of financial statements in conformity with US GAAP requires management to make\nestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of\ncontingent assets and contingent liabilities at the date of the financial statements and reported\namounts of revenues and expenses during the reporting period. Actual results may differ from those\nestimates.\n\nCash and Cash Equivalents\n\nFPI considers all highly liquid investments purchased with an original maturity of three months or\nless to be cash equivalents. FPI\xe2\x80\x99s investment activities and cash equivalents include both overnight\nrepurchase agreements and one-year market bonds with the Bureau of Public Debt of the United\nStates Treasury. FPI\xe2\x80\x99s investment in market bonds is redeemable at any time without penalty at the\noriginal market interest rate and is therefore not subject to interest rate risk. As a result, these market\nbonds are classified as cash equivalents on the accompanying balance sheets. The market value of\novernight purchase agreements is equivalent to cost. The discount on the market bonds is amortized\nmonthly and recorded as investment income.\n\nAccounts Receivable / Concentration of Credit Risk\n\nFinancial instruments that potentially subject FPI to concentrations of credit risk consist primarily of\naccounts receivable. FPI sells products and services to various federal government departments,\nagencies and bureaus, as well as certain private sector companies, without requiring collateral.\nAccounts receivable consists of amounts due from those entities and is stated net of an allowance for\ndoubtful accounts.\n\nFPI routinely assesses the payment histories of its federal customers and the financial strength of its\nprivate sector customers and maintains allowances for anticipated losses as they become evident. In\nthis regard, an insignificant amount of accounts receivable remained past due at September 30, 2013\nand September 30, 2012. A significant portion of these past due items relate to billings to various\nentities within Department of Defense (DOD) who rely on the Defense Finance and Accounting\nService (DFAS) to process vendor payments. Historically, customer payments processed through\nDFAS have generally taken longer to receive than payments from other federal and private sector\ncustomers. FPI believes that ultimately, a majority of its past-due accounts receivable are fully\ncollectable. The amount due FPI, net of allowances, from DOD for the fiscal years ended September\n30, 2013 and 2012 was $23,238 and $14,525, respectively.\n\nWhile federal accounts receivable are normally fully collectible in accordance with federal law, FPI\nhas established an allowance for future losses against its federal accounts receivable to account for\npotential billing errors related to pricing and customer discounts, as well as instances of expired or\ncancelled funding from its federally appropriated customers. At September 30, 2013 and 2012, FPI\xe2\x80\x99s\nallowance for doubtful accounts is stated at approximately $412 and $519, respectively, of which\napproximately $206 and $98, respectively, represents the amounts allocated against federal accounts\n -27-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nreceivable.\n\nInventories\n\nFPI maintains its inventory primarily for the manufacture of goods for sale to its customers. FPI\xe2\x80\x99s\ninventory is composed of three categories: Raw Materials, Work-in-Process, and Finished Goods.\nThese categories are generally defined by FPI as follows: Raw Materials consist of materials that\nhave been acquired and are available for the production cycle, Work-in-Process is composed of\nmaterials that have moved into the production process and have some measurable amount of labor\nand overhead added by FPI, Finished Goods are materials with FPI added labor and overhead that\nhave completed the production cycle and are awaiting sale to customers.\n\nRaw material inventory value is based upon moving average cost. Inventories are valued at the\nlower of average cost or market value (LCM) and include materials, labor and manufacturing\noverhead. Market value is calculated on the basis of the contractual or anticipated selling price, less\nallowance for administrative expenses. FPI values its finished goods and sub-assembly items at a\nstandard cost that is periodically adjusted to approximate actual cost. FPI has established inventory\nallowances to account for LCM adjustments and obsolete items that may not be utilized in future\nperiods.\n\nAdvances to Vendors\n\nFPI generally does not offer advances to the public; however, where warranted, FPI will on occasion\nmake an advance to a vendor. Historically, these advances have been insignificant and made\nprimarily to the Industries for the Blind. Prior to issuing advances to a vendor, the Centralized\nAccounts Receivable section performs a review as though they were a public customer, to include\nperforming a due diligence review to assess risk and a review of applicant financial statements. A\nletter of credit is obtained as needed based on the results of this review. The FPI Controller approves\nadvances prior to their disbursement. Advances are reduced by offset to the vendor invoice as goods\nare delivered.\n\nRevenue Recognition\n\nFPI sells a wide range of products and services to a diversified base of customers, primarily\ngovernmental departments, agencies and bureaus. Revenue is generally recognized when delivery\nhas occurred or services have been rendered, persuasive evidence of an arrangement exists, there is a\nfixed or determinable price, and collectability is reasonably assured. Revenue from contracts that\nrequire customer acceptance are not recognized until either customer acceptance is obtained, or upon\ncompletion of the contract. Sales returns are primarily replaced with like items and are recorded as\nthey occur.\n\nRevenue is recognized on multiple element agreements as a single unit of accounting for\nmanufactured items when the product has been accepted by the customer. Revenue for services\n\n -28-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nprovided on behalf of FPI through an outside company is recognized when the service provider\npresents a valid invoice including a customer acceptance or completion notice.\n\nFPI records as other revenue the shipping and handling costs that have been billed to customers,\ninstallation costs for FPI products, and items procured for its customers as part of procurement\nservices provided by the Marketing, Activation, Research, and Corporate Support Branch. The cost\nof providing this service is recorded as a cost of other revenue.\n\nDeferred revenue is comprised of customer cash advances, which have been paid to FPI prior to the\nmanufacturing of goods, delivery of goods, or performance of services.\n\nOther income includes imputed financing for retirement, health benefits and life insurance (Note 8).\n\nProperty, Plant and Equipment\n\nProperty, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is\ncomputed using the straight-line method over the following estimated useful lives:\n\n Years\nMachinery & Equipment 2 - 25\nComputer Hardware 2 - 10\nComputer Software 2-5\nBuilding & Improvements 24 - 40\n\nUpon retirement or disposition of property and equipment, the related gain or loss is reflected in the\nstatements of operations. Repairs and maintenance costs are expensed as incurred.\n\nTaxes\n\nAs a wholly-owned corporation of the federal government, FPI is exempt from federal and state\nincome taxes, gross receipts tax, and property taxes.\n\nReclassifications\n\nCertain fiscal year 2012 financial statement line items have been reclassified to conform with the\ncurrent year presentation. The reclassifications had no material effect on total assets, liabilities,\nequity, cumulative results of operations, or cash flows as previously reported.\n\n\n\n\n -29-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nNote 3. Accounts Receivable, Net\n\nAccounts receivable, net consists of the following:\n\nAs of September 30, 2013 2012\n\nIntragovernmental billed receivables $ 35,468 $ 21,676\nPrivate sector billed receivables 4,018 4,984\n 39,486 26,660\nLess allowance for doubtful accounts 412 519\n\nAccounts receivable, net $ 39,074 $ 26,141\n\nFPI incurred bad debt expense of $(37) and $564, respectively, for the fiscal years ended September\n30, 2013 and 2012.\n\n\nNote 4. Inventories, Net\n\nInventories, net consist of the following:\n\nAs of September 30, 2013 2012\nRaw materials $ 47,462 $ 37,956\nRaw materials \xe2\x80\x93 vehicles 4,759 27,871\nWork-in-process 19,830 21,740\nFinished sub-assemblies 5,681 5,503\nFinished goods 27,209 42,955\nFinished goods \xe2\x80\x93 acceptance contracts 17,084 19,645\n 122,025 155,670\nLess inventory allowance 26,614 26,416\n\nInventories, net $ 95,411 $ 129,254\n\n\n$4,759 of FPI\xe2\x80\x99s fiscal year 2013 and $27,871 of FPI\xe2\x80\x99s fiscal year 2012 raw materials balance\nrepresents vehicles and component parts for use in the fleet management retrofit product line. A\nmajority of that inventory balance has been contracted on behalf of the Customs and Border\nProtection and Bureau of Immigration and Customs Enforcement of the Department of Homeland\nSecurity (DHS) for retrofit services that are performed by FPI. As part of an interagency agreement,\nDHS provides advance funding to FPI to procure these vehicles. Revenue is recognized by FPI at the\ntime of shipment of retrofitted vehicles to DHS.\n\n\n\n -30-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\n$17,084 of FPI\xe2\x80\x99s fiscal year 2013 and $19,645 of its fiscal year 2012 finished goods balance\nrepresents goods shipped to customers or their agents for unrecognized revenue due to acceptance\ncriteria within the customer contract. The balances as of September 30, 2013 and September 30,\n2012 are primarily systems furniture installations and destination acceptance contracts shipped after\nthe cutoff date for revenue recognition.\n\n\nNote 5. Property, Plant and Equipment, Net\n\nProperty, plant and equipment, net consist of the following:\n\nAs of September 30, 2013 2012\n\nBuildings and improvements $ 172,093 $ 177,613\nMachinery and equipment 99,297 100,098\nComputer hardware 2,732 2,713\nComputer software 7,139 6,519\n 281,261 286,943\nLess accumulated depreciation 200,513 199,312\nProperty, plant and equipment, net $ 80,748 $ 87,631\n\n\nDepreciation and amortization expense totaled $8,650 and $10,067 for the fiscal years ended\nSeptember 30, 2013 and 2012, respectively. During fiscal year 2013, FPI invested $2,058 for the\npurchase and construction of property, plant and equipment. During fiscal years 2013 and 2012, FPI\ndeactivated factories in an effort to reduce excess factory capacity. As a result of these deactivations,\nFPI incurred losses on property plant and equipment of $120 in fiscal year 2013, and $7,293 in fiscal\nyear 2012.\n\n\n\n\n -31-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nNote 6. Other Accrued Expenses\n\nOther accrued expenses consist of the following:\n\nAs of September 30, 2013 2012\n\nMaterials in transit $ 1,753 $ 81\nRelocation travel expense 966 1,268\nFECA liabilities \xe2\x80\x93 current portion 2,135 1,981\nFinancial audit expense 492 573\nTelecommunication expense 1,048 1,226\nUtilities 804 779\nWarranty expense 388 418\nOther expense 1,607 1,148\n\nOther accrued expenses $ 9,193 $ 7,474\n\n\nIncluded in other expense as of September 30, 2013 and September 30, 2012 are accruals for Intra-\nDepartmental agreements of $701 and $774 and accruals for vendor invoices of $311 and $180,\nrespectively.\n\n\nNote 7. Business Segments\n\nFPI\xe2\x80\x99s businesses are organized, managed and internally reported as five operating segments based on\nproducts and services. These segments are Clothing and Textiles, Electronics, Office Furniture,\nRecycling, and Services. FPI is not dependent on any single product as a primary revenue source;\nhowever, it is currently predominately dependent on the federal government market for the sale of its\nproducts and services. FPI\xe2\x80\x99s net sales for the fiscal years ended September 30, 2013 and 2012 for\neach of its business segments is presented for comparative purposes:\n\n\n\n\n -32-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nNet Sales\nFor the years ended September 30, 2013 2012\n\nBusiness Segment\n\nClothing and Textiles $ 235,691 $ 214,522\nElectronics 128,120 177,462\nOffice Furniture 118,533 160,850\nRecycling 17,900 15,564\nServices 33,093 37,716\n\n\nNet sales $ 533,337 $ 606,114\n\n\n\nFPI redefined its business segments from six categories to five in fiscal year 2013. The Fleet and\nIndustrial Products business segment was consolidated into the Electronics, Office Furniture, and\nServices business segments. As a result, net sales for fiscal year 2012 for Electronics, Office\nFurniture, and Services have been reclassified for comparative purposes.\n\nRegulatory Compliance\n\nFPI\xe2\x80\x99s ability to add or to expand production of a specified mandatory product is regulated by the\nFederal Prison Industries Reform Act (\xe2\x80\x9cthe Act\xe2\x80\x9d). The Act provides specific guidelines to FPI\nregarding its methodology for evaluating and reporting new or expanded products. FPI also has\nprocedures for competitive and non-mandatory items it produces. Finally, publication of annual\ndecisions of the FPI Board of Directors and semi-annual sales disclosures are mandated under the\nAct.\n\n\nNote 8. Intra-Department of Justice (DOJ) / Intragovernmental Financial Activities\n\nFPI\xe2\x80\x99s financial activities interact with and are dependent upon those of DOJ and the federal\ngovernment as a whole. The following is a discussion of certain intra-DOJ and intragovernmental\nactivities and their relationship with FPI:\n\nRelationship with the Federal Bureau of Prisons\n\nFPI and the Federal Bureau of Prisons (BOP) have a unique relationship in that the nature of their\ncombined missions requires the sharing of facilities and responsibilities relative to the custody,\ntraining and employment of federal inmates. The Director of the BOP, who has jurisdiction over all\nfederal penal correctional institutions, is the Chief Executive Officer (CEO). General management of\nFPI is provided by the Chief Operating Officer who also serves as an Assistant Director of the BOP.\n -33-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nThe BOP provides land to FPI for the construction of its manufacturing facilities and both FPI and\nBOP share certain facilities, generally at no cost to FPI. In accordance with Managerial Cost\nAccounting Concepts a reasonable estimate of these costs as provided by the BOP is included in\ngeneral expense and other income of FPI for the fiscal years ended September 30, 2013 and 2012,\nrespectively.\n\nSelf Insurance\n\nIn accordance with federal government policy, FPI is uninsured with respect to property damage,\nproduct liability, and other customary business loss exposures. Losses incurred are absorbed as a\ncurrent operating expense of FPI or, if they are induced by factors related to FPI\xe2\x80\x99s relationship with\nthe Federal Prison System, may be reimbursed by BOP. Certain other costs, principally relating to\npersonal injury claims, are paid directly by the federal government.\n\nFederal Employees Compensation Act\n\nThe Federal Employees Compensation Act (FECA) provides income and medical cost protection to\ncover federal civilian employees injured on the job, employees who have incurred a work-related\noccupational disease, and beneficiaries of employees whose death is attributable to a job related\ninjury or occupational disease. The United States Department of Labor (DOL), which administers\nFECA, annually charges each federal agency and department for its applicable portion of claims and\nbenefits paid in the preceding year. As of September 30, 2013 and September 30, 2012, the accrued\nFECA liabilities as charged to FPI, approximated $2,135 and $1,981, respectively.\n\nDOL also calculates the liability of the federal government for future claims and benefits, which\nincludes the estimated liability of death, disability, medical, and other approved costs. Future claims\nand benefits are determined from an actuarial extrapolation, utilizing historical benefit payment\npatterns and calculations of projected future benefit payments discounted to current value over a 23.5\nyear period. FPI\xe2\x80\x99s estimated future liability approximated $21,715 and $18,920 at September 30,\n2013 and 2012, respectively.\n\nRetirement\n\nSubstantially all of FPI\xe2\x80\x99s civilian employees are covered under either the Civil Service Retirement\nSystem (CSRS), the Federal Employee Retirement System (FERS) or the Federal Employee\nRetirement System-Revised Annuity Employees (FERS-RAE) System. For employees covered by\nthe CSRS, (those employees hired prior to January 1, 1984), for fiscal years ended September 30,\n2013 and September 30, 2012, FPI contributed approximately 7 percent (for normal retirement) or\n7.5 percent (for hazardous duty retirement) of each employee\xe2\x80\x99s salary, respectively. CSRS covered\nemployees do not have Federal Insurance Contribution Act (FICA) withholdings and, thus, are not\nfully eligible to receive Social Security benefits. For employees covered by the FERS, (generally\nthose employees hired on or after January 1, 1984), FPI contributed (for normal retirement) 11.9\npercent and 11.7 percent for fiscal years ended September 30, 2013 and September 30, 2012. FPI\ncontributed (for hazardous retirement) 26.3 percent and 25.7 percent for fiscal years ended\n -34-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nSeptember 30, 2013 and September 30, 2012. For employees covered by the FERS-RAE, (generally\nthose employees hired on or after January 1, 2013), FPI contributed (for normal retirement) 9.6\npercent and 24.0 percent (for hazardous duty retirement) for the fiscal year ended September 30,\n2013.\n\nUnder FERS and FERS-RAE, employees also receive retirement benefits from Social Security and,\nif applicable, benefits from a defined contribution plan (thrift). Under the thrift plan, an employee\nmay contribute (tax deferred) to an investment fund, up to $17,500 of salary for the fiscal year ended\nSeptember 30, 2013 and $17,000 of salary for the fiscal year ended September 30, 2012. FPI then\nmatches this amount up to 4 percent in addition to an automatic 1 percent that is contributed for all\nFERS and FERS-RAE employees. Those employees that elected to remain under CSRS after\nJanuary 1, 1984 continue to receive benefits in place, and may also contribute (tax deferred) up to\n$17,500 of their salary to the thrift plan for the fiscal year ended September 30, 2013 and up to\n$17,000 of salary for the fiscal year ended September 30, 2012, but with no automatic or matching\namount contributed by FPI.\n\nCSRS, FERS, and FERS-RAE are multi-employer plans. Although FPI funds a portion of pension\nbenefits relating to its employees, and provides for the necessary payroll withholdings, it does not\nmaintain or report information with respect to the assets of the plans, nor does it report actuarial data\nwith respect to accumulated plan benefits or the pension liability relative to its employees. The\nreporting of such amounts is the responsibility of the United States Office of Personnel Management\n(OPM).\n\nFPI\xe2\x80\x99s contribution to both plans was approximately $25,253 and $26,855 for the fiscal years ended\nSeptember 30, 2013 and September 30, 2012, respectively.\n\nFPI must recognize its share of the cost of providing pension benefits to eligible employees utilizing\ncost factors determined by the OPM. Included in general and administrative expense is\napproximately $2,362 and $2,423 in the fiscal years ended September 30, 2013 and 2012,\nrespectively, with an offsetting credit to other income on the Statements of Operations and\nCumulative Results of Operations.\n\nHealth Benefits and Life Insurance\n\nFPI, through the OPM, offers health and life insurance plans under which premium costs for health\ncare are shared between FPI and the employees. A substantial portion of life insurance premiums are\npaid for by employees. Amounts paid by FPI for health benefits and life insurance approximated\n$9,407 and $9,717 for the fiscal years ended September 30, 2013 and 2012, respectively.\n\nOPM also provides health care and life insurance benefits for FPI\xe2\x80\x99s retired employees. FPI must\nrecognize an expense related to its share of the cost of such post-retirement health benefits and life\ninsurance on a current basis (while its employees are still working), with an offsetting credit to other\nincome. Costs in this regard, which approximated $5,127 and $6,420 during the fiscal years ended\nSeptember 30, 2013 and 2012, respectively, were determined by OPM utilizing cost factors to\n -35-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nestimate the cost of providing post-retirement benefits to current employees. However, because of\nthe offsetting credit, which is reflected as other income on the Statements of Operations and\nCumulative Results of Operations, the recording of these costs has no impact on reported net income\nor cash flows.\n\nFuture post-retirement health care and life insurance benefit costs are not reflected as a liability on\nFPI\xe2\x80\x99s financial statements, as such costs are expected to be funded in future periods by OPM.\n\n\nNote 9. Sales and Marketing, General and Administrative Expenses\n\nSales and marketing, general and administrative expenses consist of the following:\n\nFiscal years ended September 30, 2013 2012\n\nSalaries, wages and benefits $ 39,494 $ 42,986\nPermanent change of station expense 743 1,657\nPurchases of minor equipment 495 172\nContract services 7,625 9,270\nBad debt expense (37) 564\nCredit card service fees 716 970\nTravel 1,063 1,487\nPersonal computer expense 1,315 1,458\nAccident compensation 4,881 4,660\nFinancial audit 1,131 1,257\nMarketing 1,261 1,550\nDepreciation 1,496 2,122\nLoss on disposition of assets 291 7,549\nGain on disposition of assets (29) (33)\nTelecommunication expense 2,451 2,914\nOther expense (4,987) (4,290)\nImputed pension costs (Note 8) 2,362 2,423\nImputed post-retirement health\n care and life insurance cost (Note 8) 5,127 6,420\nImputed operating costs 21,069 24,718\n\nSales and marketing, general\n and administrative expenses $ 86,467 $ 107,854\n\n\nOther expense is comprised primarily of inmate wages, maintenance agreements, and distributions to\nfactory operations. FPI distributes certain General and Administrative expenses that benefit all\nlocations to the individual factory levels. These charges include computer licenses and fees, civilian\nand inmate accident compensation, and check charges. These charges totaled $7.4 million for fiscal\n -36-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\nyear 2013 and $7.7 million for fiscal year 2012. Contract services consist primarily of consulting\nand sales and marketing fees. Salaries, wages and benefits are shown net of the imputed financing\noffsetting credit (Note 8). Included in accident compensation for fiscal year 2013 is a $2.8 million\nincrease in the actuarial FECA estimated liability.\n\n\nNote 10. Commitments and Contingencies\n\nLegal Contingencies\n\nFPI is party to various administrative proceedings, legal actions, and claims. The balance sheet\nincludes an estimated liability for those legal actions where management and the FPI General\nCounsel consider adverse decisions \xe2\x80\x9cprobable\xe2\x80\x9d and amounts are reasonably estimable. Legal actions\nwhere management and the FPI General Counsel consider adverse decisions reasonably possible and\nthe amounts are reasonably estimable, should not result in judgments which would have a material,\nadverse effect on the organization\xe2\x80\x99s financial statements. Furthermore, there are cases where\namounts have not been accrued or disclosed because the amounts of the potential loss cannot be\nestimated or the likelihood of an unfavorable outcome is considered remote.\n\nLease Commitments\n\nFPI leases certain facilities, machinery, vehicles and office equipment under noncancelable capital\nand operating lease agreements that expire over future periods. Many of these lease agreements\nprovide FPI with the option (after initial lease term) to either purchase the leased item at the then fair\nvalue or to renew the lease for additional periods of time. As of September 30, 2013, future capital\nlease payments due and future operating lease commitments total $75 and $209, respectively.\n\nProduct Warranty\n\nFPI offers its customers a promise of an \xe2\x80\x9cEscape Proof Guarantee\xe2\x80\x9d on the products it manufactures.\nFPI has analyzed the historical pattern of warranty returns and the adequacy of the warranty returns\nand allowances. In this regard, FPI has established an estimate of future warranty returns related to\ncurrent period product revenue.\n\nChanges in aggregate product warranty liability\nFiscal years ended September 30, 2013 2012\n\nBalance at the beginning of the period $ 418 $ 444\nAccruals for warranties issued during the period 253 349\nSettlements made (in cash or in kind) during the period (283) (375)\n\nBalance at the end of the period $ 388 $ 418\n\n\n -37-\n\x0c Fiscal Years 2013 and 2012\n Notes to Financial Statements\n (Dollars in Thousands)\n\n\nCongressional Limitation on Administrative Expenses\n\nCongress has imposed an annual spending limit on certain administrative expenses relating to FPI\xe2\x80\x99s\ncentral office management. These costs include salaries for management personnel, travel expenses\nand supplies. The following is a comparison of actual expenses to the limitation imposed:\n\nFiscal years ended September 30, 2013 2012\n\nCongressional limitation on expenses $ 2,700 $ 2,700\n\nExpenses incurred subject to Congressional limitation $ 2,170 $ 1,760\n\n\n\n\n -38-\n\x0c"