2004 United States Air Force

Annual Financial Statement

United States Air Force 2004

Annual Financial Statements

Financing the Fight

Message from the Secretary of the Air Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii

Message from the Assistant Secretary of the Air Force, Financial Management and Comptroller . . . . . .iii

Management Discussion and Analysis

General Fund 

Air Force in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Air Force Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Major Commands, Direct Reporting Units and Field Operating Agencies . . . . . . . . . . . . . . . . .2

Fiscal Year 2004 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Budget by Appropriation Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Education and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Rated Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Operational Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Financing the Fight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Working Capital Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Sustained Exceptional Logistics Support to the Warfighter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Supply Management Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Depot Maintenance Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Information Services Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Financial Statements

General Fund

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Footnotes to the Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Consolidating and Combining Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Required Supplementary Stewardship Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93

Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

Working Capital Fund

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113

Footnotes to the Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121

Consolidating and Combining Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167

Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .171

Table of Contents

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United States Air Force • 2004 Annual Financial Statement

SECRETARY OF THE AIR FORCE

WASHINGTON

November 2004

Message from the Secretary of the Air Force

Fiscal Year 2004 saw the Airmen of the United States Air Force consistently rise to ever-greater 

challenges. Whether conducting operations in Afghanistan, Iraq, over the Homeland or elsewhere,

they continued to prove America is home to the greatest air and space force in history.

The dedication shown by our Airmen is rooted in the fact that the Air Force is a team—a team of

professionals. Every Airman is part of a cohesive whole. Financial managers are certainly important

contributors and enable the efforts of the entire force. If strategic planning is the brain of any 

successful organization, and a talented workforce the heart, then superb financial management is the

lifeblood of a dynamic, world-class enterprise.

I am proud of the Air Force’s responsible stewardship of resources. In the past year we launched

our Financial Management Strategic Plan, providing a unifying vision for better service, performance,

oversight and visibility. Air Force financial management professionals have embraced our continuing

adaptation of processes, improving support to all Airmen. 

These financial statements illustrate both the success of the Air Force over the past year and our specific

financial management success. They comply with the requirements of the Chief Financial Officer Act.

The financial information addresses both our General Fund and Working Capital Fund activities.

The Airmen responsible for financial management—Active, Reserve, Guard, and Civilian—are models

of leadership and accountability. They are, indeed, “Financing the Fight” and providing the best 

capabilities for the Air Force and for our country.
DEPARTMENT OF THE AIR FORCE

WASHINGTON DC

OFFICE OF THE ASSISTANT SECRETARY

November 2004

Message from the

Assistant Secretary of the Air Force,

Financial Management and Comptroller

I am pleased to report that during Fiscal Year 2004, the Air Force Financial Management professionals

continued their outstanding support to ongoing military operations and made great strides in improving our

financial management processes and systems throughout the world. Even as the Air Force as a whole

responded to the tremendous demands of operations IRAQI FREEDOM and ENDURING FREEDOM,

along with other global commitments, our financial managers provided improved support to our

warfighters and home stations alike.

One crucial key to this success was the continued implementation of our Strategic Plan, unveiled last

October. It effectively links our financial management vision, mission, goals and objectives with those of

the Air Force so that we are fully aligned as an enterprise. Further, it focuses our attention on our

three most important strategic elements: the warfighter, strategic resourcing and cost management, and

information reliability, and integration. The plan has been the foundation of our relentless drive to continually improve our financial services delivery based on performance-based principles.

We have also continued our steady progress in our Transformation imperative across the Air Force. These

efforts have matured into a broad program of continuous improvement that is now firmly rooted in the 

culture of Air Force financial management. I am extremely proud of the way our professionals have

embraced the concept of using the best ideas to achieve greater efficiencies and improve our support.

The Fiscal Year 2004 Financial Statements likewise reflects this evolution and efficiency. You will notice it

contains a more concise Management Discussion and Analysis section that more effectively summarizes the

great achievements of the Air Force over the past year. It also fulfills the requirements of the Chief

Financial Officer Act, documents the expenditures devoted to our General Fund and Working Capital

Fund (addressed in the accounting statements) and reviews selected performance measures established

as part of the Government Performance and Results Act.

America can be proud of the good stewardship of our resources provided by Air Force financial management professionals. They are indeed supporting our nation by “financing the fight” with integrity,

selfless service, and excellence.

Financing the Fight

iii

General Fund

Air Force in Action

Global vigilance, reach, and power—This is the vision of

America’s Air Force: A vision that continued to be realized

during fiscal year 2004. The Air Force proved its ability to

produce unprecedented success across the spectrum of

conflict, around the world and in space. Continued dominance in this new era requires new thinking and new flexibility. Our Airmen responded with astonishing effectiveness in the Global War on Terrorism, during Operation

IRAQI FREEDOM and Operation ENDURING FREEDOM.

From a combat controller in the desert to a B-2 crew, our

Airmen respond to the challenges of a new era using their

skill and innovative technology to respond to insidious and

asymmetric threats from terrorists and rogue states.

America’s Airmen have adapted leadership, training, and

technology to meet today’s threat and prepare for tomorrow’s. As you will read in this report, we recognize the 

talents of our Airmen as our greatest resource. We have,

therefore, invested in leadership development, training, and

education to foster the skills required of a 21st century

force. Going a step beyond, we also invested in quality of

life for our Airmen and their families to help them cope

with the separations and sacrifices we demand of them

every day. We have invested in the key technologies that

will create an integrated force of intelligence capabilities.

We have invested in manned, unmanned, and space technology. But most importantly, we have invested in the

training required for our highly-skilled personnel to achieve

their fullest potential.

In line with these investments, we have worked to enhance

the systems that enable our Airmen to meet the threat

now and into the future. While America’s adversaries 

pursue capabilities to compete with our dominance, we are

seeking to enhance and expand our capabilities with 

aircraft, space systems, and technology using transformational advances in air and space systems, and technology to

allow us continued dominance. 

While our Airmen ensure our quality force, our legacy 

systems cannot always ensure air and space dominance in

future fights. Our systems and platforms must keep pace

with our people. We owe it to our dedicated Airmen

today, and in the future, to continue these investments.

We owe it to them to continue Financing the Fight.

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“Our United States Air Force reflects the visions of the founders of airpower. We foster ingenuity in the

development of the world’s most professional Airmen. We thrive on transitioning new technologies into

joint warfighting systems and drive relentlessly toward integration to realize the potential of our air and

space capabilities. We are America’s Airmen—confident in our capability to provide our Nation with dominance in air and space.”

General John Jumper, USAF 

Chief of Staff

Management Discussion and Analysis
2

Air Force Organizations

In FY 2004, Air Force active duty members, Air National

Guardsmen, Reservists, and civilians responded to unprecedented challenges with unprecedented performance.

Calling upon the Air Force Core Values of “Integrity First –

Service Before Self – Excellence In All That We Do,” Air Force

people proved time and time again that they comprise the

preeminent air and space power on the planet.

The integrated components of our Air and Space

Expeditionary Force were involved in operations including

major theater war, homeland security, and humanitarian

relief. Air Force people and organizations operated with

unprecedented effectiveness and efficiency, all while constantly preparing to face the challenges of the future.

Major Commands, Direct Reporting Units,

Field Operating Agencies

The Air Force is organizationally aligned into 9 Major

Commands (MAJCOMs, including the Air Force Reserve

and Air National Guard), with 13 Field Operating Agencies

(FOAs), and four Direct Reporting Units (DRUs).

Major Command (MAJCOM)

MAJCOM is a major subdivision of the Air Force, directly

subordinate to Headquarters US Air Force. MAJCOM

headquarters are management headquarters and thus have

the full range of functional staff. Examples of MAJCOMs

are Air Combat Command (ACC), Air Education and

Training Command (AETC), and Air Force Materiel

Command (AFMC).

Direct Reporting Unit (DRU)

DRU is a subdivision of the Air Force, directly subordinate

to the Chief of Staff, US Air Force. A DRU performs a mission that does not fit into any of the MAJCOMs. A DRU

has many of the same administrative and organizational

responsibilities as a MAJCOM. Examples of DRUs are the

Air Force Academy (USAFA), the Air Force Studies and

Analysis Agency (AFSAA), and the Air Force Operational

Test and Evaluation Center (AFOTEC).

Field Operating Agency (FOA)

FOA is a subdivision of the Air Force, directly subordinate

to a Headquarters US Air Force functional manager. An

FOA performs field activities beyond the scope of any of

the major commands. The activities are specialized or

associated with an Air Force-wide mission and do not

include functions performed in management headquarters,

unless specifically directed by a Department of Defense

(DoD) authority. Examples of FOAs are the Air Force

Intelligence Analysis Agency (AFIAA), the Air Reserve

Personnel Center (ARPC), and the Air Force Services

Agency (AFSA).

Fiscal Year 2004 Results

Budget by Appropriation Categories

Six major appropriation categories comprised the Air Force

FY 2004 budget, as follows:

• Operations and Maintenance (O&M): Pays the salaries

and benefits of civilian employees and other day-to-day

operating costs (e.g., fuel, spare parts).

• Military Personnel (MILPERS): Finances the salaries

and benefits of uniformed personnel.

• Procurement (PROC): Funds Air Force investment in

major systems.

• Research, Development Test and Evaluation (RDT&E):

Funds system development.

• Military Contruction (MILCON): Pays for facilities

construction.

United States Air Force • 2004 Annual Financial Statement
• Military Family Housing (MFH): Provides for the operation, maintenance, and construction of housing units.

Performance Measures: Quality People

Education and Training

Training is a vital part of the Air Force mission, instructing

new Airmen and retraining Airmen on the fundamentals of

their career areas and the detailed tasks they will face. For

example, the 65-day Security Force Apprentice course and

the 79-day Security Force Officer course teach Airmen all

aspects of their multi-faceted career field missions—

missions they will perform around the globe. 

This year saw the worldwide connection of Air Force

Education Centers through a web-based system called Air

Force Virtual Education Center (AFVEC). AFVEC is available through the Air Force Portal and offers a wide array of

on-line capabilities to empower the students to actively

participate in all aspects of their education—view their 

education record, apply for Tuition Assistance, schedule a

counseling or testing appointment, and view their

Community College of the Air Force degree progress.

Each Education Center uses the Air Force Automated

Education Management System (AFAEMS) to manage military members’ complete education record, now the official

system of record for Air Force Voluntary Education data. 

The Community College of the Air Force offers numerous

courses leading to an associate degree and at the close of

FY 2004 had awarded a total of 254,900 degrees.

The newest Joint Professional Military Education (JPME)

course, the Joint Advanced Warfighting School, or JAWS for

short, began August 2004 at Norfolk Navy Base for eight

select Air Force officers. JAWS was designed to produce

graduates from all the Services able to create campaignquality concepts, employ all elements of national power,

accelerate transformation and succeed as joint force operational and strategic planners and commanders. JAWS will

educate six Majors and two Lt Colonels this year.

Graduates will receive single phase Joint PME credit 

(phase I & II) upon program completion. 

In a move to explore alternative methods for completing

in-residence enlisted PME, active duty technical sergeants

enrolled in the unique Air National Guard Satellite NonCommissioned Officer (ANG SatNCO) Academy at

Andrews AFB, Maryland. This hybrid approach to the 

traditional in-residence course allows students to attend

NCO PME two evenings a week for fifteen weeks, completing the final two weeks at the McGhee-Tyson ANG

NCO Academy, Knoxville, Tennessee. NCOs with unique

duty or personal circumstances benefit as they remain at

home station while meeting their PME requirement.

Nearly a decade old, the ANG SatNCOA Program has

been validated by the College for Enlisted PME and

Community College of the Air Force as equivalent to the

Air Force NCO Academy in-residence school. The

SatNCOA program leverages satellite broadcast technologies to present interactive lessons through two-way audio

and one-way video live feeds, moderated by in-classroom

instructors. Students are joined by others participating

from geographically-separated sites. Working on the job

while concurrently enrolled in the course, both Air

National Guard and active duty NCOs agree on the 

practicality of immediately putting into practice lessons

learned from leadership, management, and communications

discussions. 

Rated Retention

A special subset of the retention challenge is maintaining

the health of the rated force in order to preserve the

warfighting capability of the Air Force. The Air Force

boasts the world’s most efficient and talented support

force, combined with technologically superior, integrated

air and space systems. However, retention of skilled pilots,

3
4

navigators, and Air Battle Managers (ABMs) remains crucial

to accomplishing operational missions.

Further, at a cost of several million dollars to train and 

season, a veteran pilot is the Air Force’s most expensive

personnel asset. Prior to September 11, 2001, a strong

economy coupled with unprecedented airline hiring contributed to a shortage of 1,239 pilots—9% below the

requirement by the end of FY 2001. In FY 2002 the pilot

shortfall dropped to 690 pilots, 5% below the requirement.

By the end of FY 2003, the pilot shortfall was 323 pilots,

2% below the requirement. This trend has continued

through FY 2004 with a predicted surplus of approximately

300 pilots by the end of the year. This inventory increase is

attributable to the decline in airline pilot hiring, combined

with the positive retention effects of Air Force initiatives

such as Aviator Continuation Pay (ACP), in addition to the

Permanent Rated Recall and Retired Rated Recall programs.

However, pilots with the right skills and experience will still

be in short supply due to low production in the mid-1990s.

In FY 2004, the pilot long-term bonus “take rate” (our best

indicator of pilot retention trends) is approximately 65%.

This is a substantial increase from a 47% “take rate” in FY

2002 and only a 30% “take rate” in FY 2001. While airline

hiring by the major airlines has shrunk following September

11th (from nearly 4,000 new hires in FY 2001 to 518 in FY

2003), two important points need to be considered: 1) that

during lean economic times, the airlines tend to hire a

greater percentage of former military pilots (up to 75%),

and 2) that the long-range forecast of airline hiring shows

increases in the coming years due to an increase in airline

pilot retirements beginning in 2005. Even so, as FY 2004

draws to a close, there are still 8,936 major airline pilots on

furlough. As such, the outlook on pilot retention is improving, but will continue to be a significant issue for the longterm health of Air Force warfighting capability.

Until the bonus was offered to navigators in FY 2003, 30%

of the navigator force was retirement eligible in the following two years and nearly half could have retired within four

years. Now, as a result of the FY 2003 and FY 2004 navigator ACP program, over half of those navigators accepted

bonus agreements, cutting the retirement eligible pool by

50%. The bonus influenced navigators to stay in the service longer and provided relief for HQ staff pilot shortfalls

(HQ level staff manning raised overall to 90%, while pilotrated staff positions were manned at 79%). ABM shortfalls

were no less acute as ABM inventory was estimated to be

approximately 11% short of requirements. ABMs are a

resource critical to Air Force warfighting capabilities as they

United States Air Force • 2004 Annual Financial Statement
operate in low-density/high-demand missions and aircraft

(AWACS, JSTARS, and GTACS). The ABM bonus has been

a great success with an aggressive “take rate” of approximately 73% for FY 2004. As a result, the ABM ACP has

accelerated ABM inventory wellness by three full years. 

Overall, the Air Force’s integrated focus on retention initiatives will continue to emphasize long-term health of the

rated force. Initiative options include: increasing active

duty service commitments, increasing compensation, 

managing operations tempo, and enhancing quality of 

life programs.

Operational Performance

Air Force Flying Hour Program

The Air Force Flying Hour Program was developed to 

provide training opportunities to prepare units to support

their mission to the warfighting commanders. The execution of the President’s Budget (PB) Flying Hour Program is

impacted by contingency operations support, maintenance

issues, fact-of-life impacts, aircraft flight operations suspensions, aircraft delivery delays, weapons system retirements,

and approved program changes. Though the execution of

the Flying Hour Program does not define unit readiness, it

can be a forward indicator of possible readiness issues.

The MAJCOMs determine the reasons for execution deviation and required course of action. These evaluations 

provide insight to possible future-year requirements.

As of 30 June 2004, the Air Force executed 77.4% of the

PB Flying Hour Program and is projected to exceed the PB

for the full year. Flying Hour Program execution hours

include active Air Force, Congressional-funded O&M hours.

They do not include incrementally funded contingency 

support hours, Transportation Working Capital Fund hours,

foreign national reimbursable training hours, Special

Operations hours or RDT&E. 

Weapon System Performance Metrics

The Air Force uses a variety of metrics to gauge the 

performance of its weapon systems and organizations.

Metrics are barometers for measuring the effectiveness of

our organizational structures, our training, manpower and

equipment levels, quality of spare parts, maintenance

actions, and a variety of other indicators of our ability to

provide mission-ready weapon systems to the warfighter.

Chief among these performance metrics are Mission

Capable rates, Not-Mission Capable rates, Cannibalization

rates, and engine and supply measures.

5

Mission Capable Rates

76.1%

73.3%

69.8%

76.5% 75.9% 75.6%

72%

70.1%

76.1% 75.3%

66

68

70

72

74

76

78

Aggregate Bomber Strategic Other Fighter

Percent

FY 03

FY 04

Rates as of 30 Jun 04
6

Mission Capable Rates

Mission Capable rates are perhaps the best-known yardstick for measuring the readiness of Air Force aircraft.

Mission Capable rates reflect the percentage of aircraft, by

fleet, capable of performing at least one of its assigned 

missions. As of 30 June 2004, the aggregate Mission

Capable rate was 75.3%, a slight decrease from the FY

2003 rate of 75.9%. This rate is based on a combined

Mission Capable rate of A/O-10, B-1, B-2, B-52, C-141, C130, RC-135, C-5, C-17, E-3, F-15, F-15E, F-16, F-117,

HC-130, KC-10, KC-135, HH-60, RQ-1, and U-2 aircraft,

categorized into Fighter, Bomber, Strategic, and Other.

The C-130 and RC-135 were added to the aggregate fleet

for FY 2004, which accounts for some of the rate change

from FY 2003. 

Non-Mission Capable Rates

Total Non-Mission Capable for Maintenance (TNMCM) is a

measure of a maintenance organization’s ability to fix aircraft quickly and accurately and Total Non-Mission Capable

for Supply (TNMCS) measures spare parts availability. The

FY 2004 aggregate fleet TNMCM rate, as of 30 June 04,

rose slightly from 19.3% to 20.1%. The 30 June 04

TNMCS rate was 10.4%, representing the fifth consecutive

year of improving supply rates, and the lowest TNMCS

rate since FY 1994.

Other Key Metrics

Air Force weapon system performance measures for FY

2004 provide a snapshot of the tremendous efforts of the

logistics community to support and provide combat-capable forces that are organized, trained, and equipped to 

provide efficient and effective combat and combat support

efforts across the full spectrum of military operations. 

Cannibalization (CANN) rates reflect the number of cannibalization actions that occur per 100 sorties for a particular

weapon system. The FY 2004 aggregate CANN rate, as of

30 June 04, dropped 19% from the FY 2003 rate. The FY

2004 rate of 6.5 CANNs per 100 sorties represents the

lowest CANN rate since FY 1994.

Engine Not Mission Capable-Supply (ENMCS), the key

measure of engine and aircraft readiness rates for Air Force

engines, dropped from 10.1% to 8.5%, the second consecutive year of improvement, and the lowest rate in the past

six years. Major improvements in ENMCS were seen in

engines powering fighter, bomber, and strategic airlift 

aircraft. Engine-time-on-wing (ETOW) rates, a key measure 

United States Air Force • 2004 Annual Financial Statement
of durability of the aircraft fleet, improved for the fighter and

bomber groups, while declining 10% for engines powering

strategic airlift aircraft. ETOW rates for engines powering

the F-15E, B-1, and A-10 reached their highest levels

recorded since FY 1998. The number of War-Ready

Engines returned to pre-war levels as of June 2004.

Investments in engine modifications, spare parts, and 

reliability-centered maintenance continued to pay “quality”

dividends for our engine fleet throughout FY 2004. 

Aircraft Mission Capable rates are but one indicator of

enhanced weapon system readiness. Programmed depot

maintenance and fleet modernization activities are also 

critical to maintaining mission-ready aircraft. The Air Force

strives to make continual improvements in business 

practices designed to increase the efficiency and 

effectiveness of our depot maintenance programs. 

Financing the Fight

Financial Management Transformation

Air Force Financial Management (FM) envisions an Air

Force operating at peak effectiveness and efficiency with

every dollar striking the correct balance among supporting

the mission, maintaining the infrastructure, and taking care

of our people. We will achieve that vision by providing Air

Force leaders with accurate, relevant, and timely information to make the right strategic choices while making 

existing operations more effective and efficient. In addition,

we see Airmen resolving pay issues without a trip to

Finance, with access to face-to-face support when needed. 

In October 2003, we created a roadmap that translates the

vision into concrete, actionable, and measurable steps. It

integrates ongoing transformation initiatives into the 

strategy and communicates priorities, focuses efforts, and

serves as a filter to help determine where to invest time,

people, and resources. 

The strategic goals outlined in the plan are:

1. Become a partner in strategic Air Force decisions.

2. Recruit, prepare, and retain a well-trained and highly

educated professional team for today and tomorrow.

3. Make processes efficient and effective to produce

accurate and relevant financial information complemented by sophisticated decision support.

4. Reduce our cost structure by employing leading-edge

technologies that continuously streamline financial

management processes and increase capabilities.

5. Provide our customers with world-class financial services.

Translating these goals into strategy led to three distinct

strategic themes: 

Warfighter Support: We will remain an expeditionaryfocused workforce trained and prepared to support

deployed forces. 

Strategic Resourcing and Cost Management: We will

link strategy to measurable improvements in effectiveness

and efficiency. 

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8

Information Reliability and Integration: We will provide relevant, timely, accurate, and reliable information to

support decision-making.

FM Transformation is our catalyst to achieving the FM

vision. In 2004, FM Transformation Initiatives resulted in: 

Increasing funds available at base level by implementing new systems such has Wide Area Workflow and transforming processing of financial documents and oversight of

transactions.

Improving customer services by increasing capabilities

in MyPay and LeaveWeb systems. We also provided easier

access to those systems by strategically deploying kiosks

closer to where our customers work, eliminating wasted

transient time between duty locations, and finance offices.

Supporting the deployed environment and delivering

tools to the Combat Comptroller. Transformation 

initiatives in this arena reduced cycle time of financial transactions from days to hours by establishing a central 

processing site for deployed financial transactions.

Transformation eliminated shipping and document storage

while achieving near-real-time system input. In addition,

we expanded the ATM system so our deployed forces have

better access to manage banking needs. Finally, military

paper check conversion processing and the eCASHTOOL

Web site provide deployed financial managers with better

financial tools to get their jobs done quickly and accurately

and significantly reduced loss of funds due to non-sufficient

fund checks or closed accounts.

Strengthening partnerships among our community, 

personnel, logisticians, planners, programmers, and accounting services is a critical element of FM transformation.

Effective collaboration among these groups is necessary as

our processes, systems, and policies are integrated.

Integrated transformation initiatives resulted in crossfunctional re-engineering of processes, partnerships on pay

and service delivery, and collaboration on a number of 

E-Gov initiatives. 

Improving communications and learning within the

FM Workforce continues to be a key transformational 

initiative of Air Force Financial Management. The FM

Knowledge Management leverages web tools to share

information, train the workforce, and share best practices—a key enabler to transforming our workforce into

the next century. 

Our transformation efforts don’t stop there. We are

focused on moving forward by prioritizing key initiatives

and providing high-quality, less costly, customer-focused

service delivery through use of the web and call center

technology. We also want to continue providing relevant

and reliable information, supporting decision making, and

achieving unqualified audit opinions. We are working to

promote cost and performance management, a government-wide goal of the President’s Management Agenda, by

incorporating activity costs into our business management

systems, beginning with functional feeder systems and 

ultimately in an Air Force-wide cost accounting system.

Finally, through performance-based budgeting we want to

integrate strategy, performance, and metrics into the programming, budgeting, and execution process, targeting

decisions that allow us to evaluate outcomes against established targets. Transforming financial management leads the

way for the financial management community to continue

to Finance the Fight!

Air Force Working Capital Fund

Air Force Materiel Command (AFMC) supports Air Force

warfighters and operations via four major business areas

that operate as revolving funds, i.e., providers charge users

for the goods and services provided. AFMC accounts for

United States Air Force • 2004 Annual Financial Statement
more than 95 percent of Working Capital Fund (WCF) revenue and expense activity (excluding the Transportation

Working Capital Fund, which is managed by the United

States Transportation Command). The WCF consists of

three functions: Supply Management, Depot Maintenance,

and Information Services. These functions, referred to as

activity groups, supply singular goods and services to Air

Force and DoD customers. Supply Management provides

managers expedited repair, replenishment, and inventory

control for spare parts and associated logistics support

services to fulfill Air Force needs during war and peacetime. Depot Maintenance provides economical and

responsive repair, overhaul, and modification of aircraft,

missiles, engines, other major end items, and their 

associated components. The Information Services business

area provides for the maintenance and development of 

automated information systems for information-related

activities of the Air Force and DoD, along with certain

other Government agencies.

WCFs allow the Air Force to accomplish the following:

• Ensure readiness through reduced support costs, 

stabilized rates, and customer service

• Provide flexibility to adjust customer support needs in

response to real-world situtations

• Focus management attention on net results, including

costs and performance

• Identify the total cost of providing support products

and services

• Establish strong customer/provider relationships

Sustained Exceptional Logistics Support to

the Warfighter

AFMC personnel consistently step forward showing their

dedication toward a common goal—supporting the

warfighter. Year after year, AFMC men and women 

diligently strive to ensure America’s warfighters have the

capabilities required to carry out the mission. Warfighter

sustainment experts work around the clock to get missioncritical parts to our deployed people around the globe.

The mindset is that there is nothing more important than

those flying the mission, including those who keep the 

aircraft flying.

For the fourth straight year, the Air Force has shown

improvement across major readiness indicators. The 

right application of management involvement was needed

to produce these results, including direct shipments from

vendors to warfighters and finding the fastest transportation routes. Aggressive work and coordination among

AFMC, Air Mobility Command, and commercial carriers 

led to this success. 

Supply Chain Managers (SCMs) continued to provide outstanding spares support to the warfighters across the

board. Collaboration with upstream suppliers and the

Defense Logistics Agency (DLA) drove significant reductions in Customer Wait Time (CWT), improving aircraft

availability. Implementation of the Customer Oriented

Leveling Technique (COLT) drove significant reductions in

customer wait time for consumable spares to depot 

maintenance. COLT uses DLA data to optimally set 

consumable stock levels. Now deployed at all three AFMC

depots, COLT is directly responsible for reducing CWT

from a high of eight days in 2001 down to three days in

2004. Similar efforts for reparable items continued to reap

improvements in other areas. In FY 2004, aircraft awaiting

parts hit an all-time low of 1.7M hours, down from the FY

2000 level of 6.0M hours. 

Improving mission capable rates for aircraft and engines

was not the only way AFMC enhanced Air Force combat

power. Since the end of FY 2000, Depot Maintenance has

9
10

increased the number of aircraft in the hands of the

warfighter by reducing flowdays and improving on-time

performance. Currently, on-time performance is at an all

time high, meeting or exceeding schedule commitments

more than 90 percent of the time, while maintaining high

quality standards. More than 99 percent of our engines are

produced defect-free and components average only three

defects for every hundred produced. FY 2004 

aircraft production was on target (445 produced of 445

scheduled). War Readiness Engine status is the best it’s

ever been. Most engine levels are at or above 100 percent.

Depot Maintenance, in concert with the Supply Chain

Managers, has worked to provide each of the operating

commands with the required materiel so that mission

accomplishment is guaranteed. 

AFMC continues to be the premier Air Force Information

Technology (IT) center that provides market-leading IT

solutions that support our warfighters. During FY 2004,

AFMC was able to upgrade a system to operate as a webbased asset visibility tool in a five-week period. This

request revolutionized the way the Air Force and other

military and civilian groups use the vast repository of supply

and transformation data. To support our Security Forces, a

mobile computing solution was developed which uses

Personal Computing Assistants. Also, a Web-based Mission

Capable Asset Sourcing System (WebMASS) was developed

for our warfighters. This project was specifically designed

to help deployed users work Mission Capable support in

low bandwidth environments. It also allows the elimination

of the requirement to deploy a specialist to establish

Standard Base Supply System (SBSS) connectivity in the

deployment environment. 

AFMC people have risen to the challenges of supporting

ongoing Global War on Terrorism operations as they continue to do for Operation Noble Eagle. Simply by doing

the critical work of supply, maintenance, and logistics better and faster, AFMC dramatically improved support to Air

Force warfighters. 

Supply Management Activity Group 

The Supply Management Activity Group (SMAG) provides

policy, guidance, and resources to meet Air Force needs for

spare parts. SMAG manages approximately two million

items including weapon systems spare parts, medical/dental 

supplies and equipment, and items used for non-weapon

systems applications. Materiel procured from vendors held

in inventory is for sale to authorized customers.

SMAG consists of four divisions: the Materiel Support

Division (MSD), General Support Division (GSD),

Medical/Dental Division, and the United States Air Force

Academy Cadet Issue Division. AFMC manages MSD and

GSD. Headquarters United States Air Force manages the

Medical/Dental Division and Air Force Academy Cadet

Issue Division. Since the onset of FY 2002, Headquarters

Defense Logistics Agency/Defense Energy Service Center

assumed management of the Fuels Division.

MSD is responsible for Air Force-managed, depot-level

reparable spare parts, and some consumable spares. The

principal products of MSD are serviceable spare parts and 

assemblies unique to Air Force weapon systems. 

The Retail Operations of the WCF are comprised of the

General Support, Medical Dental, and United States Air

Force Academy Divisions. Although each division operates

independently, all purchase large quantities of commodities

in order to sell small quantities directly to the ultimate consumer (supporting the warfighter). Large bulk buys allow

the Air Force to take advantage of the economies of scale

and achieve significant cost savings. Additionally, each division concentrates its efforts in a specific area of expertise. 

The GSD items support installation maintenance and

administrative functions, field and depot maintenance of 

aircraft and other systems. GSD supports more than 150

Air Force installations throughout the world.

The Surgeon General of the Air Force is responsible for the

overall management of the Medical/Dental Division. This

peacetime operating authority provides the effective support necessary to maintain established norms in the health

United States Air Force • 2004 Annual Financial Statement
care of USAF active military, retirees, and family members.

The war reserve materiel (WRM) requirement of this division is to provide medical supplies and equipment vital to

support forces in combat and contingency operations. 

The United States Air Force Academy Cadet Issue Division

finances the purchase of uniforms, uniform accessories, 

and computers for sale to cadets. The division’s customer

base includes more than 4,000 cadets who receive distinctive uniforms procured from a number of domestic manufacturing contractors.

Customers, Products, and Services

In addition to the management of various inventories, the

SMAG provides a wide range of logistics support services,

including requirements forecasting, item introduction, cataloging, provisioning, procurement, repair, technical support,

data management, item disposal, distribution management,

and transportation. SMAG provides this support to a variety of customers. The supply business also provides initial

provisioning support to the Air Force Acquisition Executive. 

SMAG Transformation Initiatives

The SMAG is implementing a major redesign of the spares

supply process through a set of initiatives designed to

improve support to the warfighter. These initiatives will

result in a fundamental reshaping of the internal management processes and data systems used on a daily basis to

buy, repair, and distribute the thousands of different items

needed to maintain weapon systems in a Mission Capable

status. Five primary initiatives address key areas of opportunity within the spares process.

• Purchasing and Supply Chain Management (PSCM)—

When implemented, PSCM will integrate purchasing

and supply processes into a single end-to-end process

that spans the Air Force supply system, reducing supply chain operating costs and improving warfighter

readiness. 

• Weapon System Supply Chain Management (WS SCM)

—WS SCM utilizes the private sector and sister services best practice of creating a supply chain manager

position that reports directly to the “CEO” or the Air

Force equivalent, System Program Director (SPD). It

integrates the weapon system supply chain to maximize spares support to achieve weapon system 

availability. 

• Logistics Enterprise Architecture (LOGEA)—LOGEA is

an initiative to develop a single authoritative strategic

map of future Logistics business practices, systems,

and organizations. It is a single authoritative source

that defines operating and systems models, aligns business and IT initiatives, and provides a vehicle to ensure

transformation coordination across the Air Force and

outside the Air Force.

• Advanced Planning System (APS)—APS aims to

improve the process of translating warfighter needs

into executable logistics system support plans and

schedules. By emphasizing collaboration with customers and suppliers, it seeks to optimize activities

and resources across the Air Force supply chain. 

• FY 2004 Metrics Way Ahead—HQ AFMC/LG recognizes Aircraft Availability (AA) as the organizational

focus and is implementing a new approach to the FY

2004 Supply Performance Metrics. Metrics that show

a high correlation to AA, known as Performance

Measures, will be formally reported. These measures

include Mission Capable hours and CWT. 

Customer Support Performance

Measures

Mission Capable hours and CWT allow managers to assess

quality of spares support provided and plan corrective

action when needed. Mission Capable hours are accrued in

a given month for items affecting mission capability that are

on backorder. For every day during the month the requisition is unfilled, 24 hours are assigned to the requisition.

CWT measures the average time elapsed between issuance

of a customer order and satisfaction of that order, including

the wait time between the retail supply issue and delivery

to the base customer—expressed in days. 

11
12

Financial performance measures

SMAG measures financial performance based on the Net

Operating Result (NOR) for MSD and GSD. The NOR is

the difference between revenue and expenses, i.e., a bottom-line profit and loss indicator. The NOR objective of an

activity group is to break even over a two-year budget

cycle. Setting rates that effectively offset the prior year net

profit or loss accomplishes this objective. Revenues are

amounts earned as a result of normal operations and usually result from sale of, or reimbursements for, goods and

services provided to DoD activities, other federal government agencies, and the public. Expenses are the use of

resources during an accounting period in carrying out the

DoD’s mission. They occur from rendering services, delivering or producing goods, or carrying out other mission

related activities and relate to normal operating activities.

Also used is Unit Cost Target (UCT), a limitation imposed

by the Office of the Under Secretary of Defense

(Comptroller) on the annual operating budget (AOB),

restricting obligations to a percentage of gross sales. The

AOB is the funding document providing the authority to

incur costs. The UCT is determined by dividing costs by

sales. A definition for costs is an obligation (excluding initial

and capital expenses) and credit returns.

Depot Maintenance Activity Group

The Depot Maintenance Activity Group (DMAG) repairs systems and spare parts which support the warfighter in peacetime and provide sustainment to combat forces in wartime.

In peacetime, DMAG enhances readiness by efficiently and

economically repairing, overhauling, and modifying aircraft,

engines, missiles, components, and software to meet the

warfighter demands. During wartime or contingencies, the

group shifts to surge repair operations and realigns capacity

to support the warfighter’s immediate needs.

Customers, Products, and Services

DMAG provides major overhaul and repair of systems and

spare parts while striving to meet or exceed required standards for quality, timeliness, and cost. Both the AFMC

depots and contract operations accomplish these goals.

Depot maintenance supports a variety of customers including the Air Force Major Commands, Air National Guard

(ANG), Air Force Reserve Command (AFRC), SMAG, and

other customers. In addition to supporting the warfighter

with depot level repair of weapon systems, DMAG provides storage, reclamation, and regeneration for equipment

not currently used by the active forces of all military services. This work is done at the Aerospace Maintenance and

Regeneration Center at Davis-Monthan AFB, Arizona.

Contract depot maintenance is transitioning to be financed

directly by the using commands, the Supply Management

Activity Group, and other customers. 

The DMAG has two principal objectives. The first objective is to provide organic depot repair capability for fielded

and emerging weapon systems, so that warfighters have the

mission-essential equipment. Secondly, DMAG’s intent is to

ensure the ability to rapidly respond to those warfighter

requirements driven by contingency operations. To accomplish this, short and long term strategies must be used.

The depot maintenance strategic plan guides the DMAG to

have the right workload capacity and capability to meet

depot maintenance: (a) peacetime support, (b) surge, and

(c) core requirements. 

To better support the services that DMAG provides to its

customers, an integrated suite of systems, Depot

Maintenance Accounting and Production Systems (DMAPS),

provides improved financial, production and material functionality in support of the warfighter’s needs for quality

organic depot maintenance. This includes improved financial management and reporting for organic depot maintenance activities, including substantial compliance with legislative requirements, such as the Chief Financial Officers

(CFO) Act. The DMAPS suite of systems became fully

functional in FY 2004.

United States Air Force • 2004 Annual Financial Statement
Transformation Initiatives

The future financials framework being developed through

the Air Force logistics transformation effort will be a centrally-managed approach for both provider (AFMC) and

customer (MAJCOMs) funds, utilizing the WCF financing

mechanism to enhance cost awareness and provide flexibility. On the provider side, the MSD and DMAG financial

management operations will be merged focusing on cost

and output. In this simplified structure, MSD and DMAG

will no longer recursively pass costs between each other

through sales prior to establishing a price to the ultimate

customer. 

The Depot Maintenance Reengineering and Transformation

(DMRT) initiatives include improvements to the budgeting

process. This is to be accomplished in part by using predictive modeling and statistical techniques to develop portions

of the budgets. The model will also consider a reduction of

manual effort currently required to prepare the workload

baseline for the budgets.

Customer Support Performance

Measures

Customer Support Performance Measures for DMAG consist primarily of Production Performance Measures which

are used to assess cost, schedule, and quality of the DMAG

output. These are designed to achieve accountability at the

appropriate depot maintenance level, the Depot

Maintenance Manager. Customer Support Performance

Measures monitor progress toward DMAG goals. 

DMAG produced aircraft in a more time-responsive manner and at a cost below the targeted amount. The Due

Date Performance (ability of the depot to produce aircraft

according to schedule) improved significantly compared to

a year ago and reached a command high of 93% (3%

above goal) in May of 2004. The depot performance of Air

Logistics Centers (ALCs) continues to have a direct impact

on the warfighter’s ability to meet worldwide missions.

Financial Performance Measures

Financial Performance Indicators assess the financial performance of the DMAG. These indicators are designed to

achieve accountability at the appropriate level and also

measure compliance with DMAG budget objectives. An

aggressive cost management focus has improved DMAG’s

ability to achieve a target Net Operating Result (NOR)—a

key budget objective. This will help to minimize growth in

future sales rates.

Information Services Activity Group

Information Services Activity Group (ISAG) provides 

technological support for 250 information systems, from

development of leading-edge technologies to the maintenance and modification of older legacy systems. ISAG

offers comprehensive support to its customers, including

the development, maintenance, integration, and 

sustainment of combat support information systems.

ISAG was established to develop and maintain automated

information systems for the Air Force, DoD, and other

Government agencies. Two Air Force entities act as one

information technology provider activity under the command of the Air Force Materiel Command, Electronic

Systems Center (ESC), at Hanscom Air Force Base (AFB),

Massachusetts. The two entities are the Materiel Systems

Group (MSG), located at Wright-Patterson AFB, Ohio, and

the Standard Systems Group (SSG) located at Maxwell

AFB-Gunter Annex, Alabama.

Customers, Products, and Services

ISAG provides information products and services via two

business lines—the IT solutions line (rate based) and the

commercial information technology (surcharge) line.

The IT solutions business line develops, acquires, and sustains automated information systems in two target markets:

1) AFMC-level supply management and depot maintenance

information systems, and 2) Air Force-wide, standardized

support systems. This includes a 24-hour, seven-day help

desk for customers to call for hardware and software support. The ISAG provides service based on service-level

agreements (SLAs) with known customers which specify

how many direct billable hours of service per year will be

sold to the customer and at what cost per billable hour.

The commercial information technology business line provides computer hardware, software, peripheral equipment,

and related services to the Department of the Air Force,

13
14

other agencies including DoD, and private parties (as

authorized by law) through its web-based “Virtual

Superstore” called “AFWay.” A small surcharge is embedded into the price of the items, on equipment, and services

sold. Thousands of customers across the Air Force and

DoD enjoy one-stop shopping from the on-line catalog of

computer and computer-related products and services. 

ISAG Transformation Initiatives

In response to changes in Air Force structure and operations,

technology, and customer needs, and to take better advantage of industry core competencies, the ISAG is reshaping

itself to meet future information technology requirements for

the warfighter. The end result is an organization that is more

net-centric, building an object-oriented skills base, and concentrating on architecture, integration, and independent testing to assure top performance and interoperability in the systems deployed to our warfighters. One key in this reshaping

involves releasing military positions to be used in other

warfighting roles as well as partnering with industry providers

for the development of systems while leveraging our 

unparalleled acquisition and engineering expertise. 

Customer Support Performance

Measures

The current method of measuring ISAG financial performance is by the NOR, the difference between revenue and

expenses. Revenue is earned through the sale of direct billable labor hours at the ISAG composite rate, direct reimbursements for pass-through contract efforts and extraordinary expenses (e.g., mission-unique travel, equipment,

and supplies), and the collection of commercial information

technology surcharges. Expenses (costs of operations)

measure the resources consumed in filling customer

orders. These costs include labor and non-labor expenses,

both direct and overhead. 

Cash Management

DoD cash management policy recommends maintaining the

minimum cash balance necessary to meet both operational

requirements and disbursements in support of the capital

program. Cash generated from operations is the primary

means of maintaining adequate cash levels. 

Effective cash management is directly dependent on the

availability of accurate and timely data on cash levels and

operational results. Cash levels should be maintained to

cover at least 7 to 10 days of operational costs as well as

cash adequate to meet six months of capital disbursements. 

Cash management efforts continue to focus on analyzing

data and developing tools to identify changes in cash and

forecast future needs for cash. Monthly, AFMC prepares a

statement of sources and uses of cash, which is used to

identify areas of cash increases and drains and to monitor

performance to the recommended policy. Our continued

focus on cash management has led to improved balances 

in FY 2004.

United States Air Force • 2004 Annual Financial Statement
Fiscal Year 2004

Annual Financial Statements

15

United States Air Force
16

Limitations of the Financial Statements

The financial statements have been prepared to report the financial position and results of operations for the entity, pursuant

to the requirements of the Title 31, United States Code, Section 3515(b). 

While the statements have been prepared from the books and records of the entity, in accordance with the formats prescribed by the Office of Management and Budget, the statements are in addition to the financial reports used to monitor and

control budgetary resources which are prepared from the same books and records.

To the extent possible, the financial statements have been prepared in accordance with federal accounting standards. At

times, the Department is unable to implement all elements of the standards due to financial management systems limitations.

The Department continues to implement system improvements to address these limitations. There are other instances

when the Department’s application of the accounting standards is different from the auditor’s application of the standards.

In those situations, the Department has reviewed the intent of the standard and applied it in a manner that management

believes fulfills that intent. 

The statements should be read with the realization that they are for a component of the United States Government, a sovereign entity. One implication of this is that the liabilities cannot be liquidated without legislation that provides resources to do so.

The Federal Accounting Standards Advisory Board (FASAB) amended the Statement of Federal Financial Accounting Standard

No. 6 to require the capitalization and depreciation of military equipment (formerly known as National Defense Property, Plant

and Equipment) for fiscal years (FY) 2004 and beyond, and encouraged early implementation. Accordingly, the Department

began the process of developing and reporting values for these assets in notes to the Balance Sheet, beginning in FY 2003.

United States Air Force • 2004 Annual Financial Statement
General Fund

Principal Statements

17

United States Air Force
18

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United States Air Force • 2004 Annual Financial Statement
Consolidated Balance Sheet—General Fund

As of September 30, 2004 and 2003 ($ in Thousands)

19

2004 Consolidated 2003 

Consolidated

1. ASSETS (Note 2)

A. Intra-governmental:

1. Fund Balance with Treasury (Note 3)

a. Entity $ 60,547,709 $ 59,714,038

b. Non-Entity Seized Iraqi Cash 0 0

c. Non-Entity-Other 53,290 52,503

2. Investments (Note 4) 711 712

3. Accounts Receivable (Note 5) 689,871 541,429

4. Other Assets (Note 6) 443,939 339,093

5. Total Intra-governmental Assets $ 61,735,520 $ 60,647,775

B. Cash and Other Monetary Assets (Note 7) $ 311,323 $ 147,926

C. Accounts Receivable (Note 5) 978,883 772,500

D. Loans Receivable (Note 8) 0 772,500

E. Inventory and Related Property (Note 9) 51,340,248 51,815,831

F. General Property, Plant and Equipment (Note 10) 117,954,430 112,786,130

G. Investments (Note 4) 0 0

H. Other Assets (Note 6) 10,809,588 9,912,151

2. TOTAL ASSETS $ 243,129,992 $ 236,082,313

3. LIABILITIES (Note 11)

A. Intra-governmental:

1. Accounts Payable (Note 12) $ 1,900,411 $ 1,413,940

2. Debt (Note 13) 0 0

3. Environmental Liabilities (Note 14) 0 0

4. Other Liabilities (Note 15 and Note 16) 1,726,480 1,623,905

5. Total Intra-governmental Liabilities $ 3,626,891 $ 3,037,845

B. Accounts Payable (Note 12) $ 7,707,163 $ 7,080,909

C. Military Retirement Benefits and Other Employment-Related 1,163,442 1,262,267

 Actuarial Liabilities (Note 17)

D. Environmental Liabilities (Note 14) 7,387,187 8,110,403

E. Loan Guarantee Liability (Note 8) 0 0

F. Other Liabilities (Note 15 and Note 16) 4,602,505 4,520,888

G. Debt Held by Public 0 0

4. TOTAL LIABILITIES $ 24,487,188 $ 24,012,312

5. NET POSITION

A. Unexpended Appropriations (Note 18) $ 49,660,670 $ 50,742,317

B. Cumulative Results of Operations 168,982,134 161,327,684

6. TOTAL NET POSITION $ 218,642,804 $ 212,070,001

7. TOTAL LIABILITIES AND NET POSITION $ 243,129,992 $ 236,082,313

The accompanying notes are an integral part of the financial statements.
20

Consolidated Statement of Net Cost—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

United States Air Force • 2004 Annual Financial Statement

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.

2004 

Consolidated

2003 

Consolidated

1. Program Costs

A. Intra-governmental Gross Costs 28,909,864 26,846,664

B. (Less: Intra-governmental Earned Revenue) -5,002,246 -3,986,411

C. Intra-governmental Net Costs $ 23,907,618 $ 22,860,253

D. Gross Costs With the Public 96,505,988 99,803,267

E. (Less: Earned Revenue From the Public) -1,724,336 -836,158

F. Net Costs With the Public $ 94,781,652 $ 98,967,109

G. Total Net Cost $ 118,689,270 $ 121,827,362

2. Cost Not Assigned to Programs 0 0

3. (Less: Earned Revenue Not Attributable to Programs) 0 0

4. Net Cost of Operations $ 118,689,270 $ 121,827,362
Consolidated Statement of Changes in Net Position—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

21

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.

2004 

Consolidated

2003 

Consolidated

CUMULATIVE RESULTS OF OPERATIONS

1. Beginning Balances $ 161,327,684 $ 47,443,218

2. Prior Period Adjustments (+/-)

2.A. Prior Period Adjustments - Restated (+/-) 0 0

2.B. Beginning Balance, Restated 161,327,684 47,443,218

2.C. Prior Period Adjustments - Not Restated (+/-) 0 122,475,076

3. Beginning Balances, as adjusted 161,327,684 169,918,294

4. Budgetary Financing Sources:

4.A. Appropriations received 0 0

4.B. Appropriations transferred-in/out (+/-) 0 0

4.C. Other adjustments (rescissions, etc) (+/-) 0 0

4.D. Appropriations used 124,686,986 113,384,126

4.E. Nonexchange revenue 8,827 0

4.F. Donations and forfeitures of cash and cash equivalents 2,171 9,096

4.G. Transfers-in/out without reimbursement (+/-) 671,000 0

4.H. Other budgetary financing sources (+/-) 0 -678,772

5. Other Financing Sources:

5.A. Donations and forfeitures of property 0 0

5.B. Transfers-in/out without reimbursement (+/-) 311,130 -110,688

5.C. Imputed financing from costs absorbed by others 663,607 632,992

5.D. Other (+/-) 0 0

6. Total Financing Sources 126,343,721 113,236,754

7. Net Cost of Operations (+/-) 118,689,270 121,827,362

8. Ending Balances $ 168,982,135 $ 161,327,686

UNEXPENDED APPROPRIATIONS

1. Beginning Balances $ 50,742,317 $ 39,543,850

2. Prior Period Adjustments (+/-)

2.A. Prior Period Adjustments - Restated (+/-) 0 0

2.B. Beginning Balance, Restated 50,742,317 39,543,850

2.C. Prior Period Adjustments - Not Restated (+/-) 0 0

3. Beginning Balances, as adjusted 50,742,317 39,543,850

4. Budgetary Financing Sources:

4.A. Appropriations received 125,480,665 124,225,931

4.B. Appropriations transferred-in/out (+/-) -454,456 2,179,806

4.C. Other adjustments (rescissions, etc) (+/-) -1,420,870 -1,823,145

4.D. Appropriations used -124,686,986 -113,384,126

4.E. Nonexchange revenue 0 0

4.F. Donations and forfeitures of cash and cash equivalents 0 0

4.G. Transfers-in/out without reimbursement (+/-) 0 0

4.H. Other budgetary financing sources (+/-) 0 0

5. Other Financing Sources:

5.A. Donations and forfeitures of property 0 0

5.B. Transfers-in/out without reimbursement (+/-) 0 0

5.C. Imputed financing from costs absorbed by others 0 0

5.D. Other (+/-) 0 0

6. Total Financing Sources -1,081,647 11,198,466

7. Net Cost of Operations (+/-)

8. Ending Balances $ 49,660,670 $ 50,742,316
22

Combined Statement of Bugetary Resources—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

United States Air Force • 2004 Annual Financial Statement

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

2004 Combined 2003 Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES

1. Budget Authority:

1a. Appropriations received $ 125,483,786 $ 124,235,723

1b. Borrowing authority 0 0

1c. Contract authority 0 0

1d. Net transfers (+/-) -29,394 1,888,215

1e. Other 0 0

2. Unobligated balance:

2a. Beginning of period 9,189,946 6,066,510

2b. Net transfers, actual (+/-) 245,938 291,591

2c. Anticipated Transfers Balances 0 0

3. Spending authority from offsetting collections:

3a. Earned 0 0

1. Collected 8,117,605 7,802,547

2. Receivable from Federal sources 317,565 -322,918

3b. Change in unfilled customer orders 0 0

1. Advance received 188,072 213,465

2. Without advance from Federal sources -109,981 472,167

3c. Anticipated for the rest of year, without advances 0 0

3d. Transfers from trust funds 0 0

3e. Subtotal 8,513,261 8,165,261

4. Recoveries of prior year obligations 1,431,079 1,955,959

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -1,437,653 -1,806,362

7. Total Budgetary Resources $ 143,396,963 $ 140,796,897

STATUS OF BUDGETARY RESOURCES

8. Obligations incurred:

8a. Direct $ 129,913,273 $ 123,375,566

8b. Reimbursable 4,447,386 8,231,386

8c. Subtotal 134,360,659 131,606,952

9. Unobligated balance:

9a. Apportioned 8,072,566 8,320,595

9b. Exempt from apportionment 2,709 2,573

9c. Other available -1 -1

10. Unobligated Balances Not Available 961,030 866,778

11. Total, Status of Budgetary Resources $ 143,396,963 $ 140,796,897

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS:

12. Obligated Balance, Net - beginning of period $ 50,541,583 $ 41,822,195

13. Obligated Balance transferred, net (+/-) 0 0

14. Obligated Balance, Net - end of period:

14a. Accounts receivable -1,476,612 -1,159,047

14b. Unfilled customer order from Federal sources -827,393 -937,374

14c. Undelivered orders 42,309,792 42,168,646

14d. Accounts payable 11,505,411 10,469,360

15. Outlays:

15a. Disbursements 131,752,381 120,782,356

15b. Collections -8,305,678 -8,016,013

15c. Subtotal 123,446,703 112,766,343

16. Less: Offsetting receipts -115,376 -156,704

17. Net Outlays $ 123,331,327 $ 112,609,639
23

Combined Statement of Financing—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.

2004 

Combined

2003 

Combined

Resources Used to Finance Activities:

Budgetary Resources Obligated

1. Obligations incurred $ 134,360,658 $ 131,606,952

2. Less: Spending authority from offsetting collections -9,944,341 -10,121,221

 and recoveries (-)

3. Obligations net of offsetting collections and recoveries 124,416,317 121,485,731

4. Less: Offsetting receipts (-) -115,376 -156,704

5. Net obligations 124,300,941 121,329,027

Other Resources

6. Donations and forfeitures of property 0 0

7. Transfers in/out without reimbursement (+/-) 311,130 -110,688

8. Imputed financing from costs absorbed by others 663,607 632,992

9. Other (+/-) 0 0

10. Net other resources used to finance activities 974,737 522,304

11. Total resources used to finance activities 125,275,678 121,851,331

 Resources Used to Finance Items not Part

 of the Net Cost of Operations

12. Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

12a. Undelivered Orders (-) 201,266 -8,331,143

12b. Unfilled Customer Orders 78,091 685,633

13. Resources that fund expenses recognized in prior periods -896,088 0

14. Budgetary offsetting collections and receipts that 115,376 9,106

 do not affect net cost of operations

15. Resources that finance the acquisition of assets -16,068,394 -19,120,713

16. Other resources or adjustments to net obligated resources

 that do not affect net cost of operations

16a. Less: Trust or Special Fund Receipts Related to Exchange in the 

 Entity's Budget (-) 0 0

16b. Other (+/-) -311,130 110,688

17. Total resources used to finance items not -16,880,879 -26,646,429

 part of the net cost of operations

18. Total resources used to finance the net cost of operations 108,394,799 95,204,902

Components of the Net Cost of Operations that will

not Require or Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future Period:

19. Increase in annual leave liability 137,700 478,344

20. Increase in environmental and disposal liability 0 -344,161

21. Upward/Downward reestimates of credit subsidy expense (+/-) 0 0

22. Increase in exchange revenue receivable from the the public (-) 0 0

23. Other (+/-) 53,205 14,770

24. Total components of Net Cost of Operations that 190,905 148,953

 will require or generate resources in future periods

Components not Requiring or Generating Resources:

25. Depreciation and amortization 9,847,705 13,282,864

26. Revaluation of assets or liabilities (+/-) -938,081 1,641,043

27. Other (+/-)

27a. Trust Fund Exchange Revenue 0 0

27b. Cost of Goods Sold 0 0

27c. Operating Material & Supplies Used 3,919,002 0

27d. Other -2,725,063 11,549,603

28. Total components of Net Cost of Operations that 10,103,563 26,473,510

 will not require or generate resources

29. Total components of net cost of operations that 10,294,468 26,622,463

 will not require or generate resources in the current period

30. Net Cost of Operations 118,689,267 121,827,365
24

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United States Air Force • 2004 Annual Financial Statement
General Fund

Footnotes to the 

Principal Statements

25

United States Air Force
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United States Air Force • 2004 Annual Financial Statement
Note 1. Significant Accounting Policies

1.A. Basis of Presentation

These financial statements have been prepared to report the financial position and results of operations of the Department

of the Air Force, as required by the “Chief Financial Officers (CFO) Act of 1990,” expanded by the “Government

Management Reform Act (GMRA) of 1994,” and other appropriate legislation. The financial statements have been prepared

from the books and records of the Air Force in accordance with the “Department of Defense (DoD) Financial Management

Regulation,” the Office of Management and Budget (OMB) Bulletin No. 01-09, “Form and Content of Agency Financial

Statements,” and, to the extent possible, Federal generally accepted accounting principles (Federal GAAP). The accompanying financial statements account for all resources for which the Air Force is responsible, although information relative to classified assets, programs, and operations has been either excluded from the statements or otherwise aggregated and reported

in such a manner that it is no longer classified. The Air Force’s financial statements are in addition to the financial reports

prepared by the Air Force pursuant to OMB directives that are used to monitor and control the Air Force’s use of budgetary

resources.

The Air Force is unable to implement fully all elements of Federal GAAP and OMB Bulletin No. 01-09 due to limitations in

its financial and nonfinancial processes and feeder systems. Reported values and information for the Air Force’s major asset

and liability categories are derived largely from nonfinancial feeder systems, such as inventory and logistics systems. These

systems were designed to support reporting requirements that focussed on maintaining accountability over assets and on

reporting the status of federal appropriations rather than on preparing financial statements in accordance with Federal GAAP.

As a result, the Air Force currently cannot implement every aspect of Federal GAAP and OMB Bulletin No. 01-09. The Air

Force continues to implement process and system improvements that address the limitations of its financial and nonfinancial

feeder systems.

In addition, the Air Force needs to improve documentation, user access, separation of duty, and oversight controls over the

travel pay process. Also, the Air Force continues to enter a material number of unsupported accounting entries because

financial and non-financial feeder systems continue to lack sufficient customer-identification information to accurately process

eliminations. This issue was disclosed in the DoD Agency-wide Note 1 and is addressed in the Air Force’s plan to obtain a

favorable opinion by FY 2007.

A more detailed explanation of these financial statement elements is provided in the applicable note. 

1.B. Mission of the Reporting Entity

The United States Air Force was created on September 18, 1947, by the National Security Act of 1947. The National

Security Act Amendments of 1949 established the DoD and made the Air Force a department within the DoD. The overall

mission of the Air Force is to defend the United States through control and exploitation of air and space.

The Air Force incorporates internal controls, reconciliations, management by exception reports, and other managementcontrol information into its accounting systems. When possible, the financial statements are presented on the accrual basis

of accounting, as required by federal accounting standards.

The accounts used to prepare the financial statements are categorized as either entity or non-entity. Entity accounts consist

of resources that are available for use in the operations of the entity. The Air Force is authorized to decide how to use

resources in entity accounts or may be legally obligated to use these resources to meet entity obligations. Non-entity

accounts, on the other hand, consist of assets that are held by an entity but that are not available for use in the operations of

the entity.

27
28

United States Air Force • 2004 Annual Financial Statement

Following is a list of Air Force account numbers and titles (all accounts are entity accounts unless otherwise noted):

Air Force Account Number Title

57 * 0704 Military Family Housing (O&M and Construction), Air Force

57 * 0740 Military Family Housing (Construction), Air Force

57 * 0745 Military Family Housing (O&M), Air Force

57 * 0810 Environmental Restoration, Air Force

57 * 1999 Unclassified Receipts and Expenditures, Air Force

57 * 3010 Aircraft Procurement, Air Force

57 * 3011 Procurement of Ammunition, Air Force

57 * 3020 Missile Procurement, Air Force

57 * 3080 Other Procurement, Air Force

57 * 3300 Military Construction, Air Force

57 * 3400 Operation and Maintenance (O&M), Air Force

57 * 3500 Military Personnel, Air Force

57 * 3600 Research, Development, Testing, and Evaluation (RDT&E), AF

57 * 3700 Personnel, Air Force Reserve

57 * 3730 Military Construction, Air Force Reserve

57 * 3740 Operation and Maintenance (O&M), Air Force Reserve

57 * 3830 Military Construction, Air National Guard

57 * 3840 Operation and Maintenance (O&M), Air National Guard

57 * 3850 Personnel, Air National Guard

57 X 5095 Wildlife Conservation, etc., Military Reservations, Air Force

57 X 8418 Air Force Cadet Fund

57 X 8928 Air Force General Gift Fund

57 * 3XXX Budget Clearing Accounts

57 * 6XXX (Non-entity) Deposit Fund Accounts

1.C. Appropriations and Funds

The Air Force’s appropriations and funds are used to fund and to report how resources have been used in the course of

executing the Air Force’s missions. The Air Force’s appropriations and funds are divided into the following categories:

• General funds are used for financial transactions arising under congressional appropriations and include personnel, oper

ation and maintenance, research and development, procurement, and construction accounts.

• Working Capital Fund (revolving fund) activities are reported in a separate set of audited financial statements and related

footnotes.

• Trust funds represent the receipt and expenditure of funds held in trust by the Air Force for use in carrying out specific 

purposes or programs in accordance with the terms of the donor, trust agreement, or statute.

• Special funds account for Air Force receipts earmarked for specific purposes.
• Deposit funds are generally used to (1) account for unidentified remittances, or (2) hold assets for which the Air Force 

is acting as an agent or a custodian or whose distribution is awaiting legal determination.

1.D. Basis of Accounting

The Air Force generally records transactions on a budgetary basis and not an accrual accounting basis as is required by

Federal GAAP. For FY 2004, the Air Force’s financial management systems are unable to meet all of the requirements for full

accrual accounting. Many of the Air Force’s financial and nonfinancial feeder systems and processes were designed and

implemented prior to the issuance of Federal GAAP for federal agencies and, therefore, were not designed to collect and

record financial information on the full accrual accounting basis as required by Federal GAAP. 

The Air Force has undertaken efforts to determine the actions required to bring its financial and nonfinancial feeder systems

and processes into compliance with all elements of Federal GAAP. One such action is the current revision of the Air Force’s

accounting systems to record transactions based on the United States Government Standard General Ledger (USSGL). 

Until all of the Air Force’s financial and nonfinancial feeder systems and processes are updated to collect and report financial

information as required by Federal GAAP, some of Air Force’s financial data will be based on budgetary transactions (obligations, disbursements, and collections) and nonfinancial feeder systems and then be adjusted for known accruals of major

items such as payroll expenses, accounts payable, and environmental liabilities. For example, much of the data on the

Statement of Net Cost (SoNC) is based on obligations and disbursements and may not represent all accrued costs.

However, when possible, the Air Force’s financial statements are presented on the accrual basis of accounting as required.

In addition, the Air Force identifies programs based upon the major appropriation groups provided by Congress. The Air

Force is reviewing available data and attempting to develop a cost-reporting methodology that balances the need for cost

information as required by the Statement of Federal Financial Accounting Standard (SFFAS) No. 4, “Managerial Cost

Accounting Concepts and Standards for the Federal Government,” with the need to keep the financial statements from being

overly voluminous.

1.E. Revenues and Other Financing Sources

Financing sources for general funds are primarily provided through congressional appropriations received on both an annual

and a multi-year basis. When authorized, these appropriations are supplemented by revenues generated by sales of goods

or services through a reimbursable order process. The Air Force recognizes revenue as a result of costs incurred or services

performed on behalf of other federal agencies and the public. Revenue is recognized when earned under the reimbursable

order process.

The Air Force does not include non-monetary support provided by U.S. Allies for common defense and mutual security in its

list of other financing sources that appears in the Statement of Financing. Agreements between the U.S. and some foreign

countries include both direct and indirect sharing of the costs that each country incurs in support of the same general purpose. Examples of such countries include those that have a mutual or reciprocal defense agreement with the U.S. and those

where U.S. troops are stationed or the U.S. fleet is serviced. The DoD is reviewing this type of financing and cost reduction

in order to establish accounting policies and procedures to identify which, if any, of these costs are appropriate for disclosure

in the DoD and Air Force financial statements in accordance with Federal GAAP. Recognition of support provided by host

nations would affect both financing sources and recognition of expenses.

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30

1.F. Recognition of Expenses

For financial reporting purposes, the DoD policy requires the recognition of operating expenses during the period in which

they were incurred. However, because the Air Force’s financial and nonfinancial feeder systems were not designed to collect and record financial information on the full accrual accounting basis, accrual adjustments are made for major items such

as payroll expenses, accounts payable, and environmental liabilities. Expenditures for capital and other long-term assets are

not recognized as expenses in the Air Force’s operations until depreciated, in the case of Property, Plant, and Equipment

(PP&E), or consumed, in the case of Operating Materials and Supplies (OM&S). Net increases or decreases in unexpended

appropriations are recognized as constituting a change in the net position. Certain expenses, such as annual and military

leave earned but not taken, are financed in the period in which payment is made.

Operating expenses were adjusted as a result of the elimination of balances between DoD Components. See Note 19.I,

Intra-governmental Expenses and Revenue, for disclosure of adjustment amounts.

1.G. Accounting for Intra-governmental Activities

The Air Force, as an agency of the federal government, interacts with and is dependent upon the financial activities of the

federal government as a whole. Therefore, these financial statements do not reflect the results of all financial transactions

applicable to the Air Force as though the agency were a stand-alone entity.

The Air Force’s proportionate share of public debt and related expenses of the federal government are not included in the

financial statements. Debt issued by the federal government and the related costs are not apportioned to federal agencies.

The Air Force’s financial statements, therefore, do not report any portion of the public debt or interest thereon, nor do the

statements report the source of public financing, whether from issuance of debt or tax revenues.

Financing for the construction of DoD facilities is obtained through budget appropriations. To the extent this financing ultimately may have been obtained through the issuance of public debt, interest costs have not been capitalized since the

Department of the Treasury does not allocate such interest costs to the benefiting agencies.

The Air Force’s civilian employees participate in the Civil Service Retirement System (CSRS) and the Federal Employees

Retirement System (FERS), while military personnel are covered by the Military Retirement System (MRS). The Air Force

funds a portion of the civilian and military pensions. Additionally, employees and personnel covered by FERS and MRS also

have varying coverage under Social Security. Reporting civilian pensions under CSRS and FERS retirement systems is the

responsibility of the Office of Personnel Management (OPM). The Air Force recognizes an imputed expense for the portion

of civilian employee pensions and other retirement benefits funded by the OPM in the SoNC and recognizes corresponding

imputed revenue from the civilian employee pensions and other retirement benefits in the Statement of Changes in Net

Position. 

To prepare reliable financial statements, transactions occurring between components or activities within the Air Force must

be eliminated. However, the Air Force, as well as the rest of the federal government, cannot accurately identify all intra-governmental transactions by customer. The Defense Finance and Accounting Service (DFAS) is responsible for eliminating

transactions between components or activities of the Air Force. Since FY 1999, seller entities within the DoD have provided

summary seller-side balances for revenue, accounts receivable, and unearned revenue to the buyer-side internal DoD

accounting offices. In most cases, the buyer-side records have been adjusted to recognize unrecorded costs and accounts

payable. Intra-Air Force balances were then eliminated. 

United States Air Force • 2004 Annual Financial Statement
The Department of the Treasury Financial Management Service (FMS) is responsible for eliminating transactions between the

DoD and other federal agencies. In September 2000, the FMS issued the “Federal Intra-governmental Transactions

Accounting Policies and Procedures Guide.” The DoD was not able to fully implement the policies and procedures in this

guide related to reconciling intra-governmental assets, liabilities, revenues, and expenses for nonfiduciary transactions. The

Air Force, however, was able to implement the policies and procedures contained in the “Intra-governmental Fiduciary

Transactions Accounting Guide,” as updated by the “Federal Intra-governmental Transactions Accounting Policies and

Procedures Guide” (October 2002) for reconciling intra-governmental transactions. These transactions include or pertain to

investments in federal securities, borrowings from the U.S. Treasury and the Federal Financing Bank, Federal Employees’

Compensation Act transactions with the Department of Labor, and benefit program transactions with the OPM.

1.H. Transactions with Foreign Governments and International Organizations

Each year, the DoD Components sell defense articles and services to foreign governments and international organizations,

primarily under the provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, the DoD has

authority to sell defense articles and services to foreign countries and international organizations, generally at no profit to the

U.S. Government. Customers may be required to make payments in advance.

1.I. Funds with the U.S. Treasury 

The Air Force’s financial resources are maintained in U.S. Treasury accounts. The majority of cash collections, disbursements, and adjustments are processed worldwide at the DFAS, Military Services, and the United States Army Corps of

Engineers (USACE) disbursing stations, as well as at the Department of State financial service centers. Each disbursing station prepares monthly reports that provide information to the U.S. Treasury on check issues, electronic fund transfers, interagency transfers, and deposits.

In addition, the DFAS sites and USACE Finance Center submit reports to the Department of the Treasury, providing information at the appropriation level on interagency transfers, collections received, and disbursements issued. The Department of

the Treasury then records this information to the applicable Fund Balance with Treasury (FBWT) account maintained in the

Treasury’s system. Differences between the Air Force’s recorded balance in the FBWT accounts and Treasury’s FBWT

accounts sometimes result and are subsequently reconciled. Material disclosures are provided at Note 3. Also disclosed at

Note 3 are differences between accounting offices’ detail-level records and Treasury’s FBWT accounts - specifically, differences caused by in-transit disbursements and unmatched disbursements (where the specific disbursement has not been

recorded in the appropriate accounting offices’ detail-level records).

1.J. Foreign Currency

The Air Force conducts a significant portion of its operations overseas. The Congress established a special account to handle gains and losses from foreign currency transactions for the following five general fund appropriations: O&M, military personnel, military construction, family housing operation and maintenance, and family housing construction. Gains and losses

are computed as the variance between the exchange rate current at the date of payment and a budget rate established at

the beginning of each fiscal year. Foreign currency fluctuations related to other appropriations require adjustment to the

original obligation amount at the time of payment. These currency fluctuations are not identified separately. See Note 7

for material disclosures.

1.K. Accounts Receivable

As presented in the balance sheet statement, accounts receivable include accounts, claims, and refunds receivable from

other federal entities or from the public. Allowances for uncollectible accounts due from the public are based upon analysis of collection experience by fund type. The DoD does not recognize an allowance for estimated uncollectible amounts

from other federal agencies. Claims against other federal agencies are to be resolved between the agencies. See Note 5

for material disclosures.

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32

1.L. Loans Receivable. As Applicable

Not applicable.

1.M. Inventories and Related Property

Effective October 1, 2002, Statement of Federal Financial Accounting Standards No. 23, “Eliminating the Category National

Defense Property, Plant, and Equipment,” revises accounting principles for military equipment (previously referred to as

National Defense Property, Plant, and Equipment). This standard renames National Defense PP&E to military equipment,

classifies military equipment as general property, plant, and equipment, and requires the capitalization and depreciation of

the cost of military equipment, including the cost of modifications and upgrades. Likewise, military equipment (previously

referred to as National PP&E) also includes items which are now classified as Operating Materials and Supplies (OM&S). 

Implementation of the new accounting principles requires the adjustment of the October 1, 2002, OM&S balance to recognize the investment, accumulated depreciation, and net book value of military equipment that previously had been expensed.

This adjustment is discussed further in Note 9.

The related property portion of the amount reported on the Inventory and Related Property line includes OM&S. The

OM&S are reported at approximate historical cost using Standard Price (SP). The Air Force uses the SP method because its

OM&S systems were designed for material management rather than for accounting. The systems provide accountability and

visibility over inventory items. They do not maintain the historical cost data necessary to comply with SFFAS No. 3,

“Accounting for Inventory and Related Property.” Neither can they directly produce financial transactions using the USSGL,

as required by the Federal Financial Management Improvement Act of 1996 (P.L. 104-208). The DoD is transitioning to a

Moving Average Cost methodology for valuing inventory that, when fully implemented, will allow the Air Force to comply

with SFFAS No. 3.

SFFAS No. 3 distinguishes between “inventory held for use” and “inventory held in reserve for future use.” There is no

management or valuation difference between the two USSGL accounts. Further, the DoD manages only military or government-specific material under normal conditions. Items commonly used in and available from the commercial sector are not

managed in DoD material-management activities. Operational cycles are irregular, and the military risks associated with

stock-out positions have no commercial parallel. The DoD holds material based on military need and support for

contingencies. Therefore, the Air Force does not attempt to account separately for items held for current or future use.

Related property includes OM&S and stockpile materials. The OM&S, including munitions not held for use, are valued at SP.

Ammunition and munitions are treated as OM&S. In general, the Air Force uses the consumption method of accounting for

OM&S, expensing material when it is issued to the end user. 

In FY 2002, the DoD implemented a new policy to account for condemned material (only) as Excess, Obsolete, and

Unserviceable. The net value of condemned material is zero because the costs of disposal are greater than the potential

scrap value. Material that can be potentially redistributed (presented in previous years as Excess, Obsolete, and

Unserviceable) is included in the Held for Use or Held for Repair categories, according to its condition.

In addition, past audit results identified uncertainties about the completeness and existence of quantities used to produce the

reported values. Material disclosures related to inventory and related property are provided at Note 9.

1.N. Investments in U.S. Treasury Securities

Investments in U.S. Treasury securities are reported at cost, determined as the net of unamortized premiums or discounts.

Premiums or discounts are amortized into interest income over the term of the investment, using the effective interest rate

method or other method if similar results are obtained. The Air Force’s intent is to hold investments to maturity, unless

they are needed to finance claims or otherwise sustain operations. Consequently, provision is not made for unrealized gains

or losses on these securities. Related earnings are allocated to appropriate Air Force activities to be used in accordance with

the directions of the donor. See Note 4 for material disclosures.

United States Air Force • 2004 Annual Financial Statement
The Air Force invests in both marketable and nonmarketable securities. Marketable securities are investments trading on a

public market. The two types of nonmarketable securities are par value and market-based intra-governmental securities.

The Bureau of Public Debt issues nonmarketable, par value intra-governmental securities. Nonmarketable, market-based

intra-governmental securities mimic marketable securities but are not traded publicly. See Note 4 for material disclosures.

1.O. General Property, Plant, and Equipment

Effective October 1, 2002, Statement of Federal Financial Accounting Standards No. 23, Eliminating the Category National

Defense Property, Plant, and Equipment, revises accounting principles for military equipment (previously referred to as

National Defense Property, Plant, and Equipment). This standard renames National Defense Property, Plant, and Equipment

to military equipment, classifies military equipment as general property, plant, and equipment, and requires the capitalization

and depreciation of the cost of military equipment, including the cost of modifications and upgrades.

Before this change in accounting principles, the acquisition costs for military equipment were classified as National Defense

PP&E and were expensed in the period incurred. Implementation of this new accounting principle required the DoD to

adjust the October 1, 2002, General PP&E balance to recognize the investment, accumulated depreciation, and net book

value of military equipment that previously had been expensed. As discussed further in Note 10, General PP&E, the adjustment was based on data provided by the Bureau of Economic Analysis at the Department of Commerce.

General PP&E assets are capitalized at historical acquisition cost plus capitalized improvements when an asset has a useful life

of two or more years and when the acquisition cost equals or exceeds the DoD capitalization threshold of $100,000. Also,

improvement costs over the DoD capitalization threshold of $100,000 for General PP&E are required to be capitalized. All

General PP&E assets, other than land, are depreciated on a straight-line basis. Land is not depreciated. 

When it is in the best interest of the government, the Air Force provides contractors with government property necessary

to complete contract work. The Air Force owns or leases this property, or the contractor purchases the property directly

for the government under the terms of the contract. When the value of contractor-procured General PP&E exceeds the

DoD capitalization threshold, such PP&E must be included in the value of General PP&E reported on the Air Force’s balance

sheet. The DoD is developing new policies and a contractor-reporting process that will provide appropriate General PP&E

information for future financial statement purposes. Accordingly, the Air Force currently reports only government property

in the possession of contractors maintained in the Air Force real property systems.

To bring the Air Force into fuller compliance with federal accounting standards, the DoD has issued new property accountability and reporting regulations that require DoD Component property systems information on all property furnished to contractors. This and other DoD-proposed actions are structured to capture and report the information necessary for compliance with federal accounting standards.

See Note 10 for material disclosures.

1.P. Advances and Prepayments

Payments in advance of the receipt of goods and services are recorded as advances or prepayments and reported as an asset

on the balance sheet. Advances and prepayments are recognized as expenditures and expenses when the related goods and

services are received.

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34

1.Q. Leases

Generally, lease payments are for the rental of equipment vehicles and operating facilities and are classified as either capital

or operating leases. When a lease essentially is equivalent to an installment purchase of property (a capital lease), the Air

Force records the applicable asset and liability if the value equals or exceeds the current DoD capitalization threshold. The

Air Force records the amounts as the lesser of the following two values: (1) the present value of the rental and other lease

payments during the lease term (excluding portions representing executory costs paid to the lessor), or (2) the asset’s fair

value. The Air Force deems the use of estimates for these costs as adequate and appropriate due to the relatively low dollar

value of capital leases. Imputed interest is necessary to reduce net minimum lease payments to present value calculated at

the incremental borrowing rate at the inception of the leases. Leases that do not transfer substantially all of the benefits or

risks of ownership are classified as operating leases and are expensed over the period of the lease.

1.R. Other Assets 

The Air Force conducts business with commercial contractors under two primary types of contracts: fixed price and cost

reimbursable. To alleviate the potential financial burden on the contractor that long-term contracts can cause, the Air Force

provides financing payments. One type of financing payment for real property is based on the percentage of completion. In

accordance with the SFFAS No. 1, “Accounting for Selected Assets and Liabilities,” such payments are treated as construction-in-progress and reported on the General PP&E line and in Note 10, General PP&E, Net. In addition, based on the

Federal Acquisition Regulation, the Air Force makes financing payments under fixed price contracts not based on percentage

of completion. The Air Force reports these financing payments as advances or prepayments in the Other Assets line item.

The Air Force treats these payments as advances or prepayments because the Air Force becomes liable only after the contractor delivers the goods. If the contractor does not deliver a satisfactory product, the Air Force is not obligated to reimburse the contractor, and the contractor is liable to repay the Air Force for the full amount of the advance. 

The DoD has completed a review of the applicable federal accounting standards; public laws on contract financing; Federal

Acquisition Regulation Parts 32, 49, and 52; and the OMB guidance in 5 Code of Federal Regulations Part 1315, “Prompt

Payment.” The DoD has concluded that SFFAS No. 1 does not address fully or adequately the subject of progress payment

accounting and is considering what action is appropriate. 

1.S. Contingencies and Other Liabilities 

The SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” defines a contingency as an existing condition,

situation, or set of circumstances that involves an uncertainty as to possible gain or loss to the Air Force. The uncertainty

will be resolved when one or more future events occur or fail to occur. A contingency is recognized as a liability when a past

event or exchange transaction has occurred, a future loss is probable, and the amount of loss can be reasonably estimated.

Financial statement reporting is limited to disclosure when conditions for liability recognition do not exist but where there is

at least a reasonable possibility that a loss or additional loss will be incurred. Examples of loss contingencies include the collectibility of receivables, pending or threatened litigation, and possible claims and assessments. The Air Force’s loss contingencies arising as a result of pending or threatened litigation or claims and assessments occur due to events such as aircraft

and vehicle accidents, medical malpractice, property or environmental damages, and contract disputes.

Other liabilities arise as a result of anticipated disposal costs for the Air Force’s assets and are classified as either environmental or nonenvironmental. The recognition of an anticipated environmental disposal liability commences when the asset is

placed into service, consistent with SFFAS No. 6, “Accounting for Property, Plant, and Equipment.” Based upon the Air

Force’s policies and consistent with SFFAS No. 5, “Accounting for Liabilities of Federal Government,” a nonenvironmental

disposal liability is recognized for an asset when management makes a decision to dispose of the asset. The DoD has agreed

to the recognition of the nonenvironmental disposal liability for nuclear-powered assets when the asset is placed in service.

Such amounts are developed in conjunction with and are not easily identifiable separately from environmental disposal costs.

Material disclosures are provided at Notes 14 and 15.

United States Air Force • 2004 Annual Financial Statement
1.T. Accrued Leave

Civilian annual leave and military leave balances that have been accrued and not used prior to the balance sheet date are

reported as liabilities. The liability reported at the end of the fiscal year reflects current pay rates.

1.U. Net Position

Net Position consists of unexpended appropriations and cumulative results of operations. Unexpended appropriations represent (1) amounts of authority that are not obligated and that have not been rescinded or withdrawn, and (2) amounts that

are obligated but for which legal liabilities for payments have not been incurred.

Cumulative results of operations represent the difference between expenses and losses and financing sources (including

appropriations, revenue, and gains) since the inception of an activity. Beginning with FY 1998, the results have included the

cumulative amount of donations and transfers of assets in and out without reimbursement.

1.V. Treaties for Use of Foreign Bases 

The DoD Components have the use of land, buildings, and other facilities that are located overseas and that have been

obtained through various international treaties and agreements negotiated by the Department of State. The DoD purchases

overseas capital assets with appropriated funds, but the host country retains title to land and improvements. Generally,

treaty terms allow the DoD Components continued use of these properties until the treaties expire. These fixed assets are

subject to loss in the event treaties are not renewed or other agreements are not reached that allow for the continued use

by the DoD Components. Therefore, if the U.S. can no longer use foreign bases because treaties or other agreements have

been terminated, losses will be recorded for the value of any nonretrievable capital assets after negotiations between the

U.S. and the host country determine the amount to be paid the U.S. for such capital investments.

1.W. Comparative Data 

The Financial Statements and accompanying Notes to the Financial Statements report the financial position and results of

operations for FY 2004. Financial statement fluctuations greater than 2 percent of total assets on the Balance Sheet and/or

greater than 10 percent between FY 2003 and FY 2004 are explained within the Notes to the Financial Statements.

1.X. Unexpended Obligations 

The Air Force obligates funds to provide goods and services for outstanding orders not yet delivered. The financial statements do not reflect this liability for payment for goods or services not yet delivered.

1.Y. Problem Disbursements 

Problem disbursements represents disbursements of Air Force funds reported by a disbursing station to the Department of

Treasury but have not yet been precisely matched against the specific source obligation. The problem disbursement arises

when the various contracting, disbursing, and accounting systems fail to match the data necessary to properly account for the

transaction in all the applicable accounting systems.

35

(Amounts in dollars and cents)

1. Total Problem Disbursements, Absolute Value 

 Unmatched Disbursements (UMDs) 11,685,153.31 7,812,773.99 161,630,191.14 153,817,417.15

 Negative Unliquidated Obligations (NULOs) 10,232,414.81 12,436,285.89 9,791,889.12 -2,644,396.77

2. Total In-transit Disbursements, Net $ 1,320,627,184.94 $ 1,111,273,999.65 $ 1,065,326,018.79 $ -45,947,980.86

Sept 2003 Sept 2004 Decrease/Increase

from FY03 to FY04

As of August 31, 2004 Sept 2002
36

United States Air Force • 2004 Annual Financial Statement

The Air Force had a $151,173 thousand increase in problem disbursements and a $45,948 thousand decrease in in-transit

disbursements. The Defense Finance and Accounting Service has efforts underway to address system shortcomings, to

resolve all previous problem disbursements, and to process all in-transit disbursements. The amount of unmatched disbursements (UMD) over 180 days old is $1,867 thousand, negative unliquidated disbursements (NULOs) is $0.00, and in-transit

disbursements is $26,363 thousand. The amount over 120 days old for UMDs is $2,028 thousand, NULOs is $0.00 and for

in-transit disbursements is $24,342 thousand. The current absolute value of in-transit disbursements is $1,738,773 thousand. 

Note 2. Non-entity Assets

Other Information

Relevant Information for Comprehension

Non-entity Assets are assets that are held by an entity but that are not available for use in the operations of the entity. NonFederal Other Assets classes are advances to contractors and outstanding travel advances. The Non-entity Fund Balance

with Treasury asset class represents amounts in Air Force deposit and suspense accounts that are not available for Air Force

use. Non-entity Accounts Receivables, both when collected, go to the Department of the Treasury as miscellaneous

receipts. The Non-entity Non-Federal Accounts Receivable amount also includes interest receivables on aged debt. Nonentity Cash and Other Monetary Assets represent disbursing officers’ cash and undeposited collections as reported on the

Statement of Accountability. These assets are held by the Air Force disbursing officers as agents of the Treasury.

Fluctuations

The fluctuations on lines 2A and 2G are due to the FY 2004 reporting of advances to contractors as reflected on the SF

1219, Statement of Accountability, as Cash and Other Monetary Assets instead of Advances in accordance with revised OSD

guidance.

As of September 30

(Amounts in thousands)

1. Intra-governmental Assets

A. Fund Balance with Treasury $ 53,290 $ 52,503

B. Investments 0 0

C. Accounts Receivable 48,685 -2,580

D. Other Assets 0 0

E. Total Intra-governmental Assets $ 101,975 $ 49,923

2. Non-Federal Assets

A. Cash and Other Monetary Assets $ 311,323 $ 147,926

B. Accounts Receivable 238,158 289,787

C. Loans Receivable 0 0

D. Inventory & Related Property 0 0

E. General PP&E 0 0

F. Investments 0 0

G. Other Assets 559 125,940

H. Total Non-Federal Assets $ 550,040 $ 563,653

3. Total Non-Entity Assets $ 652,015 $ 613,576

4. Total Entity Assets $ 242,477,977 $ 235,468,737

5. Total Assets $ 243,129,992 $ 236,082,313

2004 2003
The decrease of $51,628 thousand in Non-Federal Accounts Receivable, line 2B, can be attributed to a decrease in Air

Force Active Duty Accounts Receivable. 

Sep 2004 Sep 2003 $ Change

A/R Government before Eliminations <$10,383> $2,580 <$7,803>

Less Intra AF Eliminations $48,388 $5,161 $43,227 

Total $38,005 $2,581 $35,424

Intra-governmental Receivables fluctuations on line 1.C is due to eliminations activity and the actual increase since September

2003 was for $7,803 thousand. It is caused by an increase in Air Force eliminations. There was a change in procedure this

quarter in which unidentified trading partners are no longer allocated to other government agencies but instead are identified

as solely Air Force, pending further research.

Note 3.A. Fund Balance with Treasury

Other Information Related to Fund Balance with Treasury

Fluctuations

The increase of $5,270 thousand in the Trust Fund balance was mainly attributable to Cadet Fund increases. Cadet Fund

Accounts Payable increases of $4,431 thousand were due to recent contracts for computers and uniforms. The Cadet Fund

other services performed resulted in a net increase of $1,178 thousand due mainly to delays in reimbursement to the 34th

Training Wing for Laundry and other services performed. The delays in reimbursement were due to the Fiscal Services

Office relocation.

The Other Fund Types decrease of $3,643 thousand is related to a decrease of $3,642 thousand in the Military Airlift

Command receipt account. These accounts hold proceeds from revenue traffic, except special mission flights, and other

revenue traffic collections which are reimbursable to appropriations, tax payments due to the United States or Foreign

Governments, unearned transportation or taxes refunded, and transportation charges due other carriers in connection with

traffic revenue collected by MAC. 

The reconciling amount is the preclosing of Miscellaneous Receipt Accounts and Cancelling Account balances on the entity

records and not on the Treasury Trial Balance.

As of September 30

(Amounts in thousands)

1. Fund Balances

A. Appropriated Funds $ 60,559,736 $ 59,726,905

B. Revolving Funds 0 0

C. Trust Funds 9,212 3,942

D. Other Fund Types 32,051 35,694

E. Total Fund Balances $ 60,600,999 $ 59,766,541

2. Fund Balances Per Treasury Versus Agency:

A. Fund Balance per Treasury $ 61,497,801 $ 59,766,541

B. Fund Balance per Air Force 60,600,999 59,766,541

3. Reconciling Amount $ 896,802 $ 0

2004 2003

37
38

Air Force Cadet Fund—The Cadet Fund is a revolving trust fund account maintained for the benefit of the U.S. Air Force

Academy cadets. The appropriation was funded at its inception. From that point forward, the fund was to be self-sufficient.

Collections are received at least equal to any disbursements, and the account revolves funds through the disbursement and

collection process with no requirement for additional appropriated funding. The Cadet Fund is an X-year account, meaning

there is no time limit on obligations. 

Check Issue Discrepancy—DFAS is in the process of collecting information for all check-issue data that are unsupportable

because (1) records have been lost during deactivation of disbursing offices, (2) the Treasury may not assist in research

efforts for transactions older than 1 year, or (3) corrections were processed for transactions that Treasury removed from the

check-comparison report. Transactions that have no supporting documentation due to one of the preceding situations shall

be provided to the Department of the Treasury with a request to remove them from the Treasury Check Comparison

Report. The vast majority of the remaining check issue discrepancies result from timing differences between the Air Force

and the Department of the Treasury for processing checks. The DoD does not require that Treasury remove any amounts

from the check-issue comparison report since the check-issue report balance was $0. Further, no empirical evidence has

been presented that demonstrates that check issue discrepancies adversely affect the FBWT.

Note Reference

See Note Disclosure 1.I., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing funds with the U.S. Treasury.

Note 3.B. Disclosures Related to Suspense/Budget Clearing Accounts

The Air Force continues to make a concerted effort to reduce balances in the suspense and budget clearing accounts and to

establish an accurate and consistent use of these accounts. The information presented indicates the reductions (with the

exceptions noted below) that the Air Force has achieved in the various suspense/budget clearing accounts.

The increase in account F3875 from September 2003 to September 2004 is due to many variables. They are all placed in

various suspense accounts such as Agricultural/Grazing Leases and Withheld FICA/FITW Medicare Taxes for Military that are

collected in and released at various times.

The decrease in account F3880 from September 2003 to September 2004 is due to Recertified Check Payments which are

credits from the Treasury for cancelled checks not yet being put back into the original appropriations and 1081 completion.

Suspense account F3882 was first utilized in the 1st Quarter of FY 2003 to accommodate the Military Thrift Saving Plan that

came into existence in October 2002. The ($4,429) thousand variance is a result of a timing difference. The National

Finance Center posts amounts into each member’s account, and they are consolidated and posted to the Treasury before

the Air Force can post the amounts in the military accounting system in the following month.

(Amounts in thousands)

 Account

 F3875 $ -391,552 $ -364,737 $ 7,032

 F3880 -1,327 -2,343 -1,460

 F3882 -12,555 -16,526 -4,430

 F3885 254,516 8,785 6,204

 F3886 0 0 0

 Total $ -150,918 $ -374,821 $ 7,346

2003

As of September 30

2002

Decrease/

Increase from FY

2003 - 2004

2004

$ -357,705

-3,803

-20,956

$ -367,475

14,989

0

United States Air Force • 2004 Annual Financial Statement
The increase in account F3885 from September FY 2003 to September FY 2004 is due to IPAC transactions received during

the last business day of the month. The funds are placed in a suspense account until they can be researched and assigned a

valid appropriation, which will fluctuate from one reporting period to another depending upon the amount processed to the

Treasury at that time.

Under the authority of Section 1009 of Public Law 107-314, “Clearance of Certain Transactions Recorded in Treasury

Suspense Accounts and Resolution of Certain Check Issue Discrepancies,” the Suspense Budget Clearing Account wrote-off

$408 thousand net and $9,142 thousand absolute from the suspense accounts. The impact on the financial statements of

writing this off was that this net amount was no longer in suspense.

Note 4. Investments

Other Information

Fluctuations

Air Force Gift Fund cash donations that are not going to be used in the immediate future to fund donor-designated projects

are invested in marketable securities with the Department of the Treasury. Increases and decreases in the investment cost

amount reflect the changes in those investments.

Relevant Information for Comprehension

The Air Force Gift Fund was established to control and account for the disbursement and use of monies donated to the Air

Force along with the interest received from the investment of such donations. The related earnings are allocated to appropriate Air Force activities to be used in accordance with the directions of the donor. These funds are recorded as NonMarketable Market Based U.S. Treasury Securities, which are not traded on any security exchange but which mirror the

prices of marketable securities with similar terms.

Note Reference

See Note Disclosure 1.N., Investments in U.S. Treasury, for additional Air Force policies governing investments in U.S.

Treasury securities.

39

As of September 30

(Amounts in thousands)

1. Intra-governmental Securities:

A. Marketable $ 0 $ $ $ 0

B. Non-Marketable, Par Value

C. Non-Marketable, Market-Based 712 712

D. Subtotal $ 712 $ $ $ 712

E. Accrued Interest $ 0 $ $ 0

712

2. Other Investments: $ 0 $ 0 0

Cost

Amortized 

(Premium/ 

Discount)

Amortization 

Method

2004 2003

Investments, 

Net

Investments, 

Net

Market Value 

Disclosure

0 0$ 0

0 0 0

-1 711 719

0 0

-1 711 $ 719

0$ 0

F. Total Intragovernmental Securities $ $ -1 $ 711 $ 719 $ 712

N/A $
40

Note 5. Accounts Receivable

The total allowance method is determined at the Air Force departmental level. These department-level amounts are

derived as follows: For closed-years receivables and deferred debts in litigation, an allowance rate of 50 percent results in an

estimated allowance of $62,999 thousand. Interest allowance of 

$2,160 thousand is calculated using an average percent of write-offs to outstanding public accounts receivable over a fiveyear period starting with FY 2000 data. For Air Force entity receivables, the allowance is computed each year based on the

average percent of write-offs to outstanding public accounts receivable for the last five years resulting in an estimated

allowance of $57,619 thousand. 

Other information

Relevant Information for Comprehension

As presented on the Consolidated Balance Sheet, accounts receivable include reimbursements receivable and refunds receivable such as out-of-service debts (amounts owed by former service members), contractor debt, and unused travel tickets. It

also includes net interest receivables per Department of Defense (DoD) Financial Management Regulation (FMR) Vol. 6B

guidance. Canceled accounts receivable is reported as non-entity receivables because these amounts are deposited into a

Treasury Department miscellaneous receipt account when collected. Reconciliation between Report on Receivables Due

from the Public and the balance sheet was accomplished. The differences between the balance sheet (line 1C) and Treasury

Report on Receivables (TROR) Due from the Public (line 7) include the allowance for estimated receivables that will be

uncollected of $122,778 thousand and undistributed collections of $379,869 thousand. Undistributed collections are

prorated between public and intra-governmental receivables on the balance sheet based on the percentages of distributed

receivables. This reconciliation is performed to ensure that the financial statements are in agreement with the public

receivables reported to the Department of the Treasury. 

Accounting systems do not capture trading partner data at the transaction level in a manner that facilitates trading partner

aggregations. Therefore, the Air Force was unable to reconcile intra-governmental accounts receivable balances with its

trading partners. Through the ongoing Business Management Modernization Program, the Department intends to develop

long-term systems improvements that will capture the data necessary to perform reconciliation.

Allocation of Undistributed Collections

The DoD policy is to allocate supported undistributed collections between federal and non-federal categories based on the

percentage of Federal and Non-federal Accounts Receivable. Unsupported undistributed collections should be recorded in

the United States Standard General Ledger (USSGL) account 2400, Liability for Deposit Funds, Clearing Accounts and

Undeposited Collections. The Air Force follows this allocation procedure.

As of September 30

(Amounts in thousands)

1. Intra-governmental Receivables: $

2. Non-Federal Receivables (From the Public): $ 1,101,661 $ -122,778 $ 978,883 $ 772,500

3. Total Accounts Receivable: $ 1,791,532 $ -122,778 $ 1,668,754 $ 1,313,929

2004 2003

Accounts 

Receivable, Net Uncollectibles

Gross Amount Due Estimated Accounts 

Receivable, Net

Allowance For

$ 689,871 N/A 689,871 $ 541,429

United States Air Force • 2004 Annual Financial Statement
Fluctuations

Intra-governmental accounts receivable before eliminations increased by $318,523 thousand from September 2003.

The increase on the financial statement of $148,444 thousand is after intra-governmental Air Force eliminations.

Sep 2004 Sep 2003 $ Change

A/R Government before Eliminations $1,251,491 $ 932,969 $ 318,523

Less Intra AF Eliminations $ 561,620 $ 391,541 $ 170,079 

Total $ 689,872 $ 541,428 $ 148,444

(Both columns reflect data in thousands)

Intra-governmental accounts receivable increased $148,444 thousand since September 2003. increase due larger spending

authority earned in the O&M and RDT&E appropriations. The O&M increase was due to a concerted effort, in August and

September 2004, at the Major Command level to properly code the reimbursable transactions in the accounting system to

better reflect the total amount of goods and services provided to other DoD organizations. The RDT&E increase was a

product of an OMB $2 Billion increase to spending authority (Reimbursable Budget Authority) resulting in a larger amount of

goods and services provided to other DoD agencies. Also, intra-governmental accounts receivables due from the U.S.

Transportation Command increased $159,190 thousand from September 2003. 

Public accounts receivable increased $206,383 thousand from September 30, 2003. 

Allowance of estimated uncollectibles (decrease) <$155,405>

MOCAS debts (decrease) <$215,311>

MDMR debts (increase) $351,273

Base-level reporting (increase) $225,826

Total increase $206,383

The breakout above is as follows:

Decreases: (a) A decrease of $155,405 thousand was the result of more emphasis on writing off uncollectible debts; (b) The

remaining decrease of $215,311 thousand was a result of increased emphasis of debts collected in Mechanization of

Contract Administration Services (MOCAS).

Increases: (a) An increase of $351,273 thousand was a result of accounts receivable reported by the Monthly Debt

Management Report (MDMR), off-line contract debts; (b) The remaining $225,826 thousand increase results from public

accounts receivables reported on the Air Force field sites base-level accounting systems and off-line receivables consolidated

at the Denver center. 

Note Reference

See Note Disclosure 1.K., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing Accounts Receivable. 

41
42

Note 6. Other Assets

Other Information Related to Other Assets: 

Fluctuations 

Advances and Prepayments on line 1.A. increased $104,846 thousand from September 2003. Amounts are recorded based

on elimination data as provided by Air Force trading partners. The increase is primarily attributable to recording government advances from either seller side actuals or an estimation technique for level 1 partners. Prior to FY 2004, level 1

government advances were not included.

The comparison of FY 2004 to FY 2003 for Advances and Prepayments (in thousands):

FY 2004 FY 2003

Government advances before accrual 56 56

Accruals to match seller data 491,860 721,477

491,916 721,533

Less intra Air Force eliminations 47,977 382,440

Reported advances and prepayments 443,939 339,093

Outstanding Contract Financing Payments increased $1,060,421 thousand, or 11 percent, when compared with FY 2003.

The increase is attributed to additional progress payments made for the F-22 as it experiences increased production and an

increase in the allowable percentage of progress payments for new fixed price contracts.

Relevant Information for Comprehension

Other Assets

The $103,868 thousand on line 2.B. is composed of $94,590 thousand in travel advances and $9,278 thousand in other

advances to contractors.

Advances to the contractor as reported on the SF 1219, Statement of Accountability, are payments as part of an advancepayment pool agreement with Massachusetts Institute of Technology or other nonprofit institutions. Advance-payment pool

agreements are used for the financing of cost-type contracts with nonprofit educational or research institutions for experimental or research and development work when several contracts or a series of contracts require financing by advance payments. These amounts for 2003 and prior were reported as other assets. In accordance with revised guidance, these

advances are now reported on line 1.B on the balance sheet.

As of September 30

(Amounts in thousands)

1. Intra-governmental Other Assets:

A. Advances and Prepayments $ 443,939 $ 339,093

B. Other Assets 0 0

C. Total Intra-governmental Other Assets $ 443,939 $ 339,093

2. Non-Federal Other Assets:

A. Outstanding Contract Financing Payments $ 10,705,720 $ 9,645,299

B. Other Assets (With the Public) 103,868 266,852

C. Total Non-Federal Other Assets $ 10,809,588 $ 9,912,151

3. Total Other Assets: $ 11,253,527 $ 10,251,244

2004 2003

United States Air Force • 2004 Annual Financial Statement
Outstanding Contract Financing Payments

The Air Force reports as advances and prepayment all outstanding financing payments for fixed-price contracts that are not

based on percentage or stage of completion. Under the contract terms, the Air Force becomes liable only after the contractor delivers the goods in conformance with the contract terms. If the contractor does not deliver a satisfactory product, the

Air Force is not obligated to reimburse the contractor for its cost, and the contractor is liable to repay the Air Force for the

full amount of the outstanding contract finance payments. 

Note Reference

See Note Disclosure 1.R., Significant Accounting Policies, for additional discussion on financial reporting requirements and

Department of Defense policies governing other assets.

Note 7. Cash and Other Monetary Assets

• Cash—includes the total of cash resources under the control of the Air Force, including coin, paper currency, 

negotiable instruments, and amounts on deposit in banks and other financial institutions. Cash available for agency use 

should include petty cash funds and cash held in revolving funds that will not be transferred into the U.S. Government 

General Fund.

• Foreign Currency—consists of the total U.S. dollar equivalent of nonpurchased foreign currencies held in foreign 

currency fund accounts.

• Other Monetary Assets—includes gold, special drawing rights, and U.S. Reserves in the International Monetary Fund. 

This category is principally for use by the Department of the Treasury. 

Other Information Pertaining to Entity Cash & Other Monetary Assets:

Fluctuations 

Advances to Contractors under the University Pool Agreements of $147,780 thousand, as reported on the SF 1219,

Statement of Accountability, are now reflected as a component of Total Cash, Foreign Currency and Other Monetary Assets.

This allows Total Accountability as reflected on the SF 1219 to mirror line 1.B of the Balance Sheet in accordance with OSD

guidance. Advance-payment pool agreements are used for the financing of cost-type contracts with nonprofit educational or

research institutions for experimental or research and development work when several contracts or a series of contracts

require financing by advance payments. These amounts for 2003 and prior were reported as other assets. In accordance

with revised guidance, these advances are now reported on line 1.B on the balance sheet. In accordance with revised guidance these advances are now reported on line 1.B on the balance sheet. The remaining variance can be attributed to changing requirements of the disbursing officers to carry out their paying, collecting and foreign currency exchange functions. In

reviewing the Cash and Foreign Currency asset classes for the past 9 quarters (March 2003 and June 2003 were excluded

since they were anomalies due to unique requirements in support of Operation Iraqi Freedom), the average level for both

has been $171,000 thousand (excluding the Advances to Contractors as state above). 

As of September 30

(Amounts in thousands)

1. Cash $ 303,142 $ 136,195

2. Foreign Currency (non-purchased) 8,181 11,731

3. Other Monetary Assets 0 0

4. Total Cash, Foreign Currency, & Other Monetary Assets $ 311,323 $ 147,926

2004 2003

43
44

Relevant Information for Comprehension

The amounts reported for the Cash and Foreign Currency asset classes consist primarily of cash held by disbursing officers

to carry out their paying, collecting, and foreign-currency accommodation exchange mission. The primary source of the

amounts reported is the Standard Form 1219, Statements of Accountability, reported by the Department of Defense (DoD)

disbursing officers. 

The amount reported for the Foreign Currency asset class is valued using the Department of Treasury Prevailing Rate of

Exchange, the most favorable rate available to the U.S. Government when acquiring foreign currency to make official

disbursements and to provide currency for exchange of U.S. dollars for troops.

Note Reference 

See Note Disclosure 1.J., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing foreign currency.

Note 8. Direct Loan and/or Loan Guarantee Programs

Direct Loan and/or Loan Guarantee Programs: 

The entity operates the following direct loan and/or Loan guarantee program(s):

• Military Housing Privatization Initiative

• Armament Retooling & Manufacturing Support Initiative

Other Information: 

Not applicable.

Note 9. Inventory and Related Property

Note 9.A. Inventory, Net

Not applicable.

$ 0$ 0

51,340,248 51,815,831

0 0

$ 51,340,248 $ 51,815,831

2. Operating Materials & Supplies, Net (Note 9.B.) 

3. Stockpile Materials, Net (Note 9.C.) 

4. Total 

(Amounts in thousands)

1. Inventory, Net (Note 9.A.) 

As of September 30 2004 2003

United States Air Force • 2004 Annual Financial Statement
Note 9.B. Operating Materials and Supplies (OM&S), Net

Fluctuations

In FY 2004, condition codes were built into the ICBM logistics management system which made it possible to break out by

condition code those assets that were considered to be held for repair from assets considered to be excess, obsolete and

unserviceable. In FY 2003, uninstalled motors were reported at Latest Acquisition Cost while in FY 2004 they are being

reported at Moving Average Cost. Also, many of the old uninstalled missile motors reported in FY 2003 as excess have been

refurbished and are now being reported as “held for use” and some motors have been destroyed. The effect has been a

reduction of $1,102,268 thousand in missile motors. A $92,539 thousand reduction in munitions (CAS) is the result of of

excess and obsolete assets being destroyed by the Army, or being eliminated through the DRMO process. An additional

$60,279 thousand reduction in FIABS munitions was caused by duplicate data reflected in the 4th Quarter FY 2003 numbers

that was subsequently corrected in FY 2004.

Information related to OM&S

General Composition of OM&S

OM&S include spare and repair parts, ammunition, tactical missiles, aircraft configuration pods, and centrally managed

aircraft engines. 

Balances

In addition to the account balances shown in Table 9.B., the federal accounting standard requires disclosure of the amount of

OM&S held for future use. Except for an immaterial amount of munitions, the Air Force is not holding any items for future use.

Decision Criteria for Identifying the Category to Which OM&S Items Are Assigned 

Managers determine which items are more costly to repair than to replace. Items retained for management purposes are

coded “condemned.” The net value of these items is zero and is shown as Excess, Obsolete, and Unserviceable.

The category Held for Use includes all issuable materials and is coded within each supply or inventory system as condition 

codes A – D.

The category Excess, Obsolete, and Unserviceable includes all material assigned condition codes H, P, and S.

The Category Held for Repair relates to impaired assets and includes all other condition codes as defined by the Military

Standard Transaction Reporting and Accounting Procedures Manual (DoD 4000.25-2-M).

$ 39,347,759 $ 0 $ 39,347,759 $ 38,860,094

11,992,489 0 11,992,489 12,955,737

$ 52,295,908 $ -955,660 $ 51,340,248 $ 51,815,831

AC = Actual Cost

Adjusted LAC = Latest Acquisition Cost adjusted for holding gains and losses

SP = Standard Price O = Other

NRV = Net Realizable Value

D. Total 

-955,660

C. Excess, Obsolete, and Unserviceable

Legend for Valuation Methods:

955,660 0 0

A. Held for Use 

B. Held for Repair

1. OM&S Categories:

(Amounts in thousands)

OM&S, Net OM&S, Net

As of September 30 2004

Valuation 

Method

Revaluation 

Allowance OM&S Gross Value

2003

45
46

Changes in the Criteria for Identifying the Category to Which OM&S Items Are

Assigned

As stated above, the category Held for Use includes all issuable material, and the category Held for Repair includes all economically reparable material. Before FY 2002, the Department of Defense (DoD) categorized potentially redistributable

material, regardless of condition, as Excess, Obsolete, and Unserviceable. 

To date, the Air Force has only implemented one system to report “moving average cost,” the DoD-approved methodology

for reporting historical cost within any of the supply or inventory accounting systems for OM&S. Consequently, most OM&S

assets are valued at standard price, with an allowance for Excess, Obsolete, and Unserviceable. Under current DoD policy,

no allowance is made for serviceable ready-to-issue items (category Held for Use). An allowance equal to 100 percent of

standard price, however, is made for the category Excess, Obsolete, and Unserviceable. This allowance results in a net book

value of zero, which is considered appropriate because the items are coded condemned and, therefore, have no intrinsic

value to the Air Force. The category Held for Repair represents suspended, unserviceable (but reparable) items which have

a value to the Air Force but whose value is less than that of the Held for Use items and greater than that of the Excess,

Obsolete and Unserviceable items. To date, the Office of the Secretary of Defense has not provided sufficient guidance to

the Air Force on the methodology for computing an allowance for the Held for Repair category; therefore, Held for Repair is

reported at full standard price.

Government-Furnished Material (GFM) and Contractor-Acquired Material (CAM)

Generally, the value of the Air Force’s GFM and CAM in the hands of contractors is not included in the OM&S values reported

above. The DoD is presently reviewing its process for reporting these amounts in an effort to determine the appropriate

accounting treatment and the best method to collect and report required information quarterly without duplicating information already in other logistics systems. 

Operating Materials and Supplies Value

The OM&S data reported on the financial statements are derived from logistics systems designed for material management

purposes. These systems do not maintain the historical cost data necessary to comply with the valuation requirements of

the Statement of Federal Financial Accounting Standards (SFFAS) No. 3, “Accounting for Inventory and Related Property.”

In addition, while these logistics systems provide management information on the accountability and visibility over OM&S

items, they do not directly support the categorization of OM&S as Held for Use, Held in Reserve for Future Use, Held for

Repair, or Excess, Obsolete, and Unserviceable. The DoD manages only military or government-specific material under normal circumstances. Material includes material held due to operational economies. Similarly, material held for use includes

material held due to a managerial determination that it should be retained to support departmental contingencies. All OM&S

assets are valued at standard price, with an allowance for Excess, Obsolete, and Unserviceable.

Items commonly used in and available from the commercial sector are not managed in the DoD material management activities. Further, unlike the commercial sector, the DoD operational cycles based on national need are irregular. In addition, the

military risks associated with stock-out positions (e.g., weapon systems that are not mission capable due to lack of supplies)

are totally different from a commercial activity’s risk of losing sales. Therefore, the Department does not attempt to

account separately for items held for current or future use.

In general, the Air Force is using the consumption method of accounting for OM&S, since OM&S is defined in the SFFAS No.

3 as material that has not yet been issued to the end user. Once issued, the material is expensed. As stated above, current

financial and logistics systems cannot fully support the consumption method. According to federal accounting standards, the

consumption method of accounting should be used to account for OM&S unless (1) the amount of OM&S is not significant,

United States Air Force • 2004 Annual Financial Statement
(2) OM&S are in the hands of the end-user for use in normal operations, or (3) it is cost-beneficial to expense OM&S when

purchased (purchase method).

Note Reference

See Note Disclosure 1.M., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing inventory and related property.

For a regulatory discussion of OM&S, see DoD Financial Management Regulation, Volume 6B, Chapter 10, paragraph

101107.

Other Air Force Disclosures

The Air Force provided only minimal OM&S accounting data that can be used to prepare the financial statements. In most

cases, the data provided consisted of only beginning and ending balances for each of the asset accounts Held for Use; Excess,

Obsolete, Unserviceable; and Held for Repair. In other cases, the data provided consisted of only beginning balances and

serviceable and unserviceable ending balances. Without the required additional data (acquisitions, transfers in, amounts consumed, transfers out, trading partner data, etc), the Defense Finance and Accounting Service (DFAS) could only report the

net change between prior-period ending balances and the values reported as current-period ending balances. Although the

required additional data are available in some Air Force supply systems, the DFAS General Fund accounting system was not

developed to receive and translate the transaction codes to report the data. To correct this problem, DFAS is making

changes to some accounting systems and implementing standard interfaces between the Air Force feeder systems and the

accounting systems.

Although the Air Force OM&S systems, in most cases, capture some trading partner data at the transaction level, no electronic interfaces exist between the Air Force OM&S feeder systems and the DFAS accounting systems for reporting the data

for all items transferred to and from other DoD and federal agencies. Consequently, intra-governmental transactions (trading partner data) could not be reconciled. The Air Force and DFAS are currently developing processes, methodologies and

standard electronic interfaces that will allow intra-governmental transactions to be reported monthly to the General

Accounting and Finance System - Rehost.

Note 9.C. Stockpile Materials, Net

Not applicable.

47
48

Note 10. General Property, Plants, and Equipment (PP&E), Net

Other Information

Fluctuations

The Federal Accounting Standards Advisory Board issued Statement of Federal Financial Accounting Standards No. 23,

“Eliminating the Category National Defense Property, Plant and Equipment,” in May 2003. This standard, which became

effective for accounting periods after September 30, 2002, establishes Generally Accepted Accounting Principles (GAAP) for

valuing and reporting military equipment (e.g., aircraft, satellites, and intercontinental ballistic missiles) in federal financial

statements. The standard requires the capitalization and depreciation of the cost of military equipment, including the cost of

modifications and upgrades.

The Department of Defense has determined that it is not practicable at this time to accumulate sufficient information from

internal records to value military equipment in accordance with GAAP. The Department is currently working to revise its

accounting processes and systems to support the informational needs of management and compliance with GAAP. In the

interim, the Department will base the value of military equipment for financial statement presentation purposes on data provided by the Bureau of Economic Analysis (BEA) at the Department of Commerce.

The AF, during FY 04, in the category of general PP&E (support equipment), had an increase of approximately $1.3 billion

over FY 03. This was due in part to an increase of approximately $533 million that did not pass the edit checks (SBSS to

AFEMS) and were reported and depreciated manually by DFAS. In addition, the AF had an increase in general PP&E in

AFEMS due to an increase in support equipment acquisitions of approximately $1 billion. Then, the AF had a decrease in

medical equipment acquisitions of about $169 million as a result of DMLSS not loading assets that had a net book value of

zero, which understated the amount of assets on hand.

The data provided by the BEA consists of investment and net book value data for 84 groups of equipment such as aircraft,

ships, and combat vehicles. The Department adjusts BEA data to eliminate equipment items (such as spares, munitions, and

inventory items) that are not accounted for as military equipment. Such items are accounted for and reported as Inventory

and Related Property.

As of September 30

Depreciation/ 

Amortization 

Method

N/A N/A $ 431,607 N/A $ $ 416,974

S/L 2-5 or 10 23,806 -24 23,782

S/L 5 or 10 19,419,138 -12,674,764 92,367,308

S/L various 300,790,000 -211,730,000 0

338 0 99

$ 366,916,740 $ -248,962,310 $ $ 112,786,130

Legend for Valuation Methods:

2004 2003

S/L = Straight Line N/A = Not Applicable

 Service Life

(Amounts in thousands)

 I. Other 

B. Buildings, Structures, and Facilities 

Acquisition 

Value

3,364,351

17,266,526

0 0

[1] Note 15.B for additional information on Capital Leases

1. Major Asset Classes:

A. Land 431,607

J 20 or 40 18,166,919

Prior FY Net Book 

Value

Net Book 

Value

23,782

E. General Equipment 6,744,374

C. Leasehold Improvements S/L 0

-246,439

0

lease term 409,498

lease term

2,523,416

89,060,000

163,059 188,025

338

J. Total General PP&E 117,954,430

G. Assets Under Capital Lease [1]

H. Construction-in-Progress N/A N/A 3,364,351

(Accumulated 

Depreciation/ 

Amortization)

F. Military Equipment

D. Software 

42,478,002 $ -24,311,083

 N/A

S/L

United States Air Force • 2004 Annual Financial Statement
BEA uses Department of Defense budget, expenditure, and delivery data to calculate the Department’s annual investment in

equipment, after recognizing any equipment transfers or war losses. BEA recently revised its Fiscal Year 2003 estimate.

Previous BEA estimates were based, in part, on projections because source data was not available. The revised estimate for

Fiscal Year 2003 is based on updated and more complete source data. Further, the revised estimate reflects changes in the

methods and data BEA uses to project the investment in, and depreciation of, military equipment resulting from BEA’s 2003

Comprehensive Revision of the National Income and Product Accounts. A major factor in the reduction of the acquisition

value of military equipment included in the updated estimate was new data that showed that governments purchased a

smaller proportion of the domestic supply of software than had previously been estimated.

The value of the BEA data provided by the DoD to the Air Force for inclusion in the financial statements for the 4th Quarter,

2004 amounted to approximately $300,790,000 thousand less accumulated depreciation of $211,730,000 thousand for a net

realized book value of $89,060,000 thousand. 

The overall increase in General Property, Plant and Equipment is $5,168,299 thousands of, which is Military Equipment,

derived from BEA data, which are approximately $3,400,000 thousands. The remaining difference of $1,768,299 thousand

represents general increases in equipment and construction-in-progress.

The Construction-in-Progress on line 1.H. increased $840,935 thousand since September 2003 due to an increase in construction projects started and not completed.

The Other asset class on line 1.I. increased by $239 thousand since September 2003. The Other category represents the

timing factor inherent in timber harvesting. The timber markets, driven by supply and demand, are volatile and fluctuate.

Timber sale contracts are awarded at irregular intervals, with some contracts held back until the market improves. Similarly,

when buyers pay for just the timber they cut, they may hold off when markets are bad and cut more when markets are

good. Weather conditions also influence the flow of timber and revenue.

Relevant Information for Comprehension

Personal property in the Air Force consists of General Equipment, Automated Data Processing (ADP) hardware and software, Medical Equipment, Special Tools and Test Equipment (ST/STE) and Military Equipment. 

Other Air Force Disclosures

For the 4th Quarter, FY 2004 reports, the Air Force used FY 2002 ending data for (ST/STE). The FY 2002 values were used

because the two systems previously used to report ST/STE have been turned off and are scheduled to be replaced by Air

Force Equipment Management System (AFEMS) in FY 2005.

For the 4th Quarter, FY 2004 reports, the Air Force used a special extract from AFEMS to identify the General PP&E assets

that had not passed the required edit checks (e.g. missing historical cost, acquisition dates or serial numbers). The dollar

value of these assets exceeded $3 billion and were not initially included in the financial statements. Therefore, DFAS used

the extract data and depreciated these assets and included the cost plus depreciation in the financial statements. The Air

Force is currently working this data exception problem to assure that all assets are properly recorded and depreciated in

future financial statements. The value of the Air Force internal use software reported for 4th Quarter FY 2004 is the same

dollar value that was reported in previous financial statements. On prior reporting cycles, the Air Force used a rudimentary

manual process to collect these values, however this process is no longer considered reliable. The Air Force is working this

issue and estimate that a systematic process will be established to both capture and report internal used software in FY

2005. The value of the Air Force’s General PP&E real property in the possession of contractors is included in the values

reported above for the Major Asset Classes of Land and Buildings, Structures, and Facilities. The value of General PP&E personal property (Major Asset Classes of Software and Equipment) does not include all of the General PP&E above the DoD

49
50

capitalization threshold in the possession of contractors. The net book amount of such property is immaterial in relation to

the total General PP&E net book value. In accordance with a strategy approved by the OMB, the General Accounting

Office, and the Inspector General, DoD, the Department is developing new policies and a contractor-reporting process to

capture General PP&E information for future reporting purposes in compliance with GAAP.

Note Reference

See Note Disclosure 1.O., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing PP&E.

Note 10.A. Assets Under Capital Lease

Description of Lease Arrangements

The Air Force is the lessee in twelve capital leases. Eleven leases are for military family housing acquired through Section

801 Family Housing Program, and one is for a piece of medical equipment. The leased items are capitalized and reported as

an asset when the costs of the items exceed the capitalization threshold. Leased items not meeting the capitalization threshold are expensed. All leases originating prior to FY 1992 are funded on a fiscal-year basis. Six of the current military family

housing leases originated before FY 1992. 

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30

1. Intra-governmental Liabilities

A. Accounts Payable $ 0 $ 0

B. Debt 0 0

C. Environmental Liabilities 0 0

D. Other 682,737 699,256

E. Total Intra-governmental Liabilities $ 682,737 $ 699,256

2. Non-Federal Liabilities

A. Accounts Payable $ 473,152 $ 0

B. Military Retirement Benefits and

Other Employment-Related Actuarial Liabilities 

C. Environmental Liabilities 6,876,461 7,560,554

D. Loan Guarantee Liability 0 0

E. Debt Held by Public 0 0

F. Other Liabilities 2,721,503 2,922,241

G. Total Non-Federal Liabilities $ 11,234,558 $ 11,745,063

3. Total Liabilities Not Covered by Budgetary Resources $ 11,917,295 $ 12,444,319

4. Total Liabilities Covered by Budgetary Resources $ 12,569,893 $ 11,567,996

5. Total Liabilities $ 24,487,188 $ 24,012,315

2004 2003

(Amounts in thousands)

1,163,442 1,262,268

As of September 30

(Amounts in thousands)

1. Entity as Lessee, Assets Under Capital Lease:

A. Land and Buildings $ 408,540 $

B. Equipment 408,540

C. Other 0

D. Accumulated Amortization -246,439

E. Total Capital Leases $ 163,059 $ 188,025

408,540

958

0

-221,473

2004 2003

United States Air Force • 2004 Annual Financial Statement
Other Information

Liabilities Not Covered and Covered by Budgetary Resources - These are liabilities that are not considered covered by realized budgetary resources as of the balance sheet date. Budgetary resources include the following:

• New budget authority

• Spending authority from offsetting collections (credited to an appropriation or fund account)

• Recoveries of unexpired budget authority through downward adjustments of prior-year obligations

• Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances 

during the year

• Borrowing authority or permanent indefinite appropriations that have been enacted and signed into law as of the 

balance sheet date, provided that the Office of Management and Budget (OMB) can apportion the resources with

out first meeting a contingency or without additional action by the Congress. 

Liabilities Covered by Budgetary Resources 

These are resources the reporting entity incurred that are covered by realized budget resources as of the balance sheet

date. Budgetary resources encompass not only new budget authority but also other resources available to cover liabilities

for specified purposes in a given year. Available budgetary resources include the following:

• New budget authority

• Spending authority from offsetting collections (credited to an appropriation or fund account)

• Recoveries of unexpired budget authority through downward adjustments of prior-year obligations

• Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances during

the year

• Borrowing authority or permanent indefinite appropriations that have been enacted and signed into law as of the balance sheet date, provided that the OMB can apportion the resources without first meeting a contingency or without

additional action by the Congress.

Fluctuations and Abnormalities

Accounts Payable—Cancelled Appropriations increased 100 percent, when compared with FY 2003. The increase is due to

a change in the USSGL crosswalk. USSGL 2960, Accounts Payable from Cancelled Appropriations, is now reported on the

Accounts Payable lines of the Balance Sheet instead of Other Liabilities.

Information Related to Liabilities Not Covered by Budgetary Resources

Other Liability Disclosures

Other Intra-governmental Liabilities Not Covered by Budgetary Resources consists of $101,737 thousand in judgement fund

liabilities, $304,420 thousand in Federal Employees’ Compensation Act (FECA) reimbursement to the Department of Labor,

$25,823 thousand in unemployment compensation liabilities, $3,329 thousand in education benefit liabilities, and $250,757

thousand in custodial liabilities.

51
52

Other Nonfederal Liabilities Not Covered by Budgetary Resources consists of $91,980 thousand in nonenvironmental disposal liabilities, $47,224 thousand in capital lease liabilities, $308,765 thousand in contingent liabilities, $2,272,599 thousand in

accrued annual leave liabilities for military and civilians, and $934 thousand in accrued interest liability. 

Note Reference

For Additional Line Item discussion, see:

• Note 12, Accounts Payable

• Note 13, Debt

• Note 14, Environmental Liabilities and Disposal Liabilities

• Note 15, Other Liabilities

• Note 16, Commitments and Contingencies

• Note 17, Military Retirement Benefits and Other Employment Related Actuarial Liabilities

Note 12. Accounts Payable

Other Information:

The Intra-governmental Payables category consists of amounts owed to other federal agencies for goods or services ordered

and received but not yet paid for. Interest, penalties, and administrative fees are not applicable to intra-governmental

payables. The Nonfederal Payables (to the Public) category consists of payments to nonfederal governmental entities 

Fluctuations

The fluctuation associated with Intra-governmental accounts payable is the direct result of the elimination process which

requires the accrual of accounts payable to agree with Air Force trading partner seller data. The increase is primarily attributable to recording level 1 accounts payable based on actual seller side data provided by the agency or using an estimation

technique for those agencies that did not provide actuals. Buyer side adjustments for FY 2004 were significantly higher than

for previous periods. Air Force accrued $2,034,149 thousand in FY 2004 compared to $1,054,040 thousand in FY 2003.

Intra-governmental Eliminations

For the majority of intra-agency sales, the Air Force’s feeder and the DFAS accounting systems do not capture trading partner data at the transaction level in a manner that facilitates trading partner aggregations. Therefore, the Air Force was

unable to reconcile intra-governmental accounts payable to the related intra-governmental accounts receivable that generated the payable. The DoD and Air Force intend to develop long-term systems improvements that will include sufficient 

As of September 30 

 (Amounts in thousands) 

1. Intra-governmental Payables: $ 1,900,411 $ $ 1,413,940

2. Non-Federal Payables (to the Public): $ 7,707,163 $ 0 7,707,163 $ 7,080,910

3. Total $ 9,607,574 $ 0 9,607,574 $ 8,494,850

1,900,411

$

$

N/A

Total Total Accounts 

Payable

 Interest, Penalties, 

and Administrative 

Fees

2004 2003

United States Air Force • 2004 Annual Financial Statement
up-front edits and controls to eliminate the need for after-the-fact reconciliations. The volume of intra-governmental transactions is so large that after-the-fact reconciliation cannot be accomplished with the current or foreseeable resources. The

DoD summary-level seller accounts receivables were compared to the Air Force accounts payable. An adjustment was

posted to the Air Force accounts payable based on the comparison with the accounts receivable of the DoD components

providing goods or services to the Air Force.

Comparison prior to eliminations:

Sep 2004 Sep 2003 $ Change

Intra-governmental accounts payable 

before eliminations $ 2,462,030 $ 1,805,481 $ 656,549

Less Intra-Air Force eliminationss $ 561,620 $ 391,541 $ -170,079

Total $ 1,900,410 $1,413,940 $ 486,470

(All data in thousands)

Allocation of Undistributed Disbursements

The DoD policy is to allocate supported undistributed disbursements between federal and nonfederal categories based on

the percentage of federal and nonfederal accounts payable. Unsupported undistributed disbursements should be recorded in

the United States Standard General Ledger account 2120, Disbursements in Transit. The Air Force followed this 

allocation policy.

Note Reference

See Note Disclosure 1.G., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing accounting for intra-governmental activities.

Note 13. Debt

Not Applicable

Other Information

Note Reference

See Note Disclosure 1.G., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing accounting for Intra-governmental Activities, Public Debt.

53
54

Note 14. Environmental Liabilities and Disposal Liabilities

Other Information Related to Environmental Liabilities

Fluctuations

Accrued Environmental Restoration Costs (Defense Environmental Restoration Program [DERP]-funded) Active Installations

– Environmental Restoration decreased $676,673 thousand, or 14 percent, when compared with FY 2003. This decrease is

in line with an 11 percent decline in sites and a lower actual inflation rate than originally estimated, so existing site costs did

not increase as fast as in prior years. Strict management program reviews early in FY 2004 led to better control of costs and

the net closure of approximately 289 sites during the year.

Accrued Environmental Restoration Costs (DERP-funded) Active Installations – Environmental Restoration for Closed Ranges

increased $506,684 thousand, or 60 percent, when compared with FY 2003. The total number of all sites at September 30,

2003 was 260. The comparable number of sites for September 30, 2004 was 292, which indicates the increase expected.

However, this total number of sites includes sites that are closed, as well as active sites. The operation closed 52 sites during

FY 2004, which leaves active sites at 240 as of September 30, 2004. The number of active sites at September 30, 2003 was

210. Because of the relatively new nature of the munitions response reporting for closed ranges and expected growth in

sites, the Air Force believes this liability will continue to grow significantly for several years.

Other Accrued Environmental Costs (Non-DERP funds) Active Installations – Environmental Corrective Action decreased

$21,956 thousand, or 11 percent, when compared with FY 2003. Resource Conservation and Recovery Act (RCRA) corrective action sites are defined by the Environmental Protection Agency as Solid Waste Management Units (SWMU). SWMUs

(Amounts in thousands)

$ $ 3,842,847 $ 4,225,215 $ 4,901,889

1,329,856 1,344,856 838,172

00 0

00 0

182,385 182,385 204,341

106,106 112,283 66,454

00 0

00 0

1,247,513 1,379,647 1,908,999

00 0

129,124 142,801 139,956

00 0

00 0

00 0

00 0

0 0 50,592

00 0

00 0

2. Total Environmental Liabilities: $ 549,356 $ 6,837,831 $ 7,387,187 $ 8,110,403

5. Chemical Weapons Disposal Program 0

6. Other 0

3. Other Nuclear Powered Ships 0

4. Other National Defense Weapons Systems 0

1. Nuclear Powered Aircraft Carriers 0

2. Nuclear Powered Submarines 0

D. Environmental Disposal for Weapons Systems Programs 

3. BRAC Installations—Environmental Corrective Action 13,677

4. Other 0

1. BRAC Installations—Environmental Restoration (ER) 132,134

2. BRAC Installations—ER for Transferring Ranges 0

C. Base Realignment and Closure (BRAC)

3. Active Installations—Environ.Response at Active Ranges 0

4. Other 0

1. Active Installations—Environmental Corrective Action 0

2. Active Installations—Environmental Closure Requirements 6,177

B. Other Accrued Environmental Costs (Non-DERP funds)

3. Formerly Used Defense Sites (FUDS)—ER 0

4. FUDS—ER for Transferred Ranges 0

1. Active Installations—Environmental Restoration (ER) 382,368

2. Active Installations—ER for Closed Ranges 15,000

A. Accrued Environmental Restoration (DERP funded) Costs:

1. Environmental Liabilities – Non Federal

As of September 30 2004 2003

Current Liability Noncurrent 

Liability Total Total

United States Air Force • 2004 Annual Financial Statement
are not determined in a scientific manner and may arise from any indication of potential pollution. Therefore, there are a

high number of SWMUs. Superficial investigation generally leads to the conclusion that there is no significant pollution at the

SWMU. The amount of the liability fluctuates greatly from year-to-year as further investigation results in significant changes

in cost estimates. These changes result from the additional information gained in each step of the cleanup process and the

relatively few sites that actually require significant cleanup costs.

Other Accrued Environmental Costs (Non-DERP funds) Active Installations – Environmental Closure Requirements

increased $45,829 thousand, or 69 percent, when compared with FY 2003. The increase is due to a change in the amortization computation for Underground Storage Tanks (USTs) and Landfills. Amortization of USTs is now based on the year the

facility is placed in service instead of the planned year for closure. Additionally, the inventory of Landfills and USTs has

expanded as reporting continues to improve. Likewise, units reported have moved to the use of the Remedial Action Cost

Engineering and Requirements System (RACER) as the estimating tool, which changes the cost estimates from previous periods. The Air Force expects continued increase in the liability for closures as the inventory of facilities with a liability continues to increase and cost estimates are changed to the verified, validated, and approved cost methodology of RACER. During

FY 2005, the liability for Treatment, Storage, and Disposal Facilities (TSDFs) is expected to increase significantly as the amortization computation is changed to the year the facility was placed in service instead of the planned closure year.

Base Realignment and Closure (BRAC) Installations – Environmental Restoration decreased $529,352 thousand, or 28 percent, when compared with FY 2003. The decrease is due to a new cost estimating and reporting policy being used by the

active Air Force. In the past, site cost estimates were run until the duration of the remediation, for example, FY 2300. This

policy was changed to 25 years of Remediation Action Operation (RA-O) with a 5 year Long Term Monitoring (LTM) cost

estimate that means the site cost estimate would be cut-off by FY 2034.

Optimization of existing systems contributed to the decrease. This is a systematic approach for evaluating and improving site

remediation processes by reducing risk and enhancing system performance, minimizing both short and long term costs,

assessing decision logic to reach site cleanup goals, and accelerating site closure. Also, a portion of the cost reduction is due

to privatization, in which the government cleanup function has been converted to the private sector. Additionally, the FY

2003 ending liability balance for Environmental Restoration was in error. $139,956 thousand of Environmental Corrective

Action requirements were added to the Environmental Restoration line as well as being reported on the Environmental

Corrective Action line. The new ending Environmental Restoration balance includes the correction, contributing to the

reported decrease.

Environmental Disposal for Weapons Systems Programs - Other National Defense Weapons Systems decreased $50,592

thousand, or 100 percent, when compared with FY 2003. The decrease is due to a policy change during FY 2004 that transferred accounting responsibility for all disposal costs to the Department of the Army for inclusion in their financial statements. The Air Force no longer reports this activity.

General Disclosures

Accrued Environmental Restoration Costs (DERP-funded) Active Installations – Environmental Restoration and

Other Accrued Environmental Costs (Non-DERP funds) Active Installations – Environmental Corrective Action

Environmental cleanup liabilities are incurred in connection with the Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA) and the Resource Conservation and Recovery Act (RCRA). Cost estimates are

performed using the RACER unless there is a historic comparable project, a specific bid, or an independent government cost

estimate for the project. The liability amount is composed of the sum of several stages of activity and not necessarily contained in a single estimate or contract.

55
56

The change in environmental cleanup liability during a reporting period is comprised of revaluations of the cost-to-complete

cleanup of sites that existed at the beginning of the period plus the cost-to-complete cleanup for new sites introduced during

the reporting period, less amounts expensed in the program during the reporting period. The beginning environmental

cleanup liability plus the cost-to-complete new sites added during the period plus or minus changes in cost-to-complete estimates (revaluations) during the period is equal to the ending environmental cleanup liability for the period. Because the

DERP is accounted for as a totally self-contained program, all direct and indirect costs of the program are captured and

reported.

Non-DERP, non-BRAC environmental cleanup liabilities represent corrective actions required under RCRA law. These environmental cleanup liabilities are estimated in the same manner as DERP environmental cleanup liabilities. The change in nonDERP, non-BRAC environmental cleanup liabilities during a reporting period is comprised of revaluations of the cost-to-complete for sites that existed at the beginning of the period plus the cost-to-complete for new sites added during the reporting

period less amounts expensed during the period. Because the non-DERP, non-BRAC environmental cleanup activity is part of

general funding achieved using 3400 appropriation funds, there is no special accounting for the costs of the entire program.

Therefore, the costs captured for the non-DERP, non-BRAC environmental cleanup reflect only direct costs. Because this

program was not tracked and appropriated specifically, there was no accounting specific to this program. Expense codes for

this program were established in 1999 and implemented in FY 2000. Therefore, the expense portion of the estimate has no

significant history. Because of the lack of expense history for the program, there is no reliable data for estimating the current

portion of the non-DERP, non-BRAC environmental cleanup liability. It is believed that the current portion of the environmental cleanup liability in this area is relatively small and not material in the classification of liabilities. Because the non-DERP

non-BRAC environmental cleanup liabilities are only estimated between 1 July and 1 September of each year, there is no significant change other than at fiscal yearend for non-DERP non-BRAC environmental liabilities. On less than an annual basis

the only change to the liability estimate in this area is the amount recorded as expensed during the reporting period.

Included in the environmental restoration liability for active installations are 27 sites that represent building demolition and

debris removal costs of approximately $56,500 thousand at September 30, 2004. Building demolition and debris removal

costs represent a mixture of environmental and nonenvironmental costs that are not separated due to their joint nature.

Accrued Environmental Restoration Costs (DERP funded) Active Installations – Environmental Restorations for

Closed Ranges

The environmental cleanup of military ranges is governed by the Military Munitions Rule in 40 CFR 266.201. Environmental

cleanup liabilities on ranges refer only to munitions related activities. Other actions are captured under the DERP, BRAC,

and non-DERP, non-BRAC environmental cleanup categories. Additionally, environmental cleanup liabilities are reported only

for closed ranges. As of September 30, 2002, the Air Force had 509 ranges, of which 268 were considered operational

ranges. The environmental cleanup liability is reported only for closed ranges that numbered 260 as of September 30, 2003

(236 closed, 18 transferred, and 6 transferring). 

Environmental cleanup areas within a closed range are referred to as Munitions Response Areas (MRAs). As studies are

done to find munitions- related contamination on closed ranges, the number of sites is expected to rise. As of September

30, 2003, there were 210 active areas on closed ranges resulting in an estimated environmental cleanup liability of $838,172

thousand, increasing to 240 active areas with an estimated cost of $1,344,856 thousand by September 30, 2004. As investigations progress, the number of sites will increase to reflect specific areas of pollution. The Air Force expects the number of

sites reported to increase as pollution is discovered and sites are defined in areas less than the total boundary of the closed

range. For example, one closed range of 100 acres may become three sites: one of five acres with pollution A, one of 15

acres with pollution B, and the remaining 80 acres with no pollution found. Thus, one closed range can become three sites,

each with its own cost-to-complete cleanup estimate. The sum of the sites’ costs-to-complete cleanup becomes the enviUnited States Air Force • 2004 Annual Financial Statement
ronmental cleanup liability for closed ranges. The environmental cleanup for closed ranges is in its infancy, and the total liability is expected to increase significantly over the coming years as investigations progress. Current policy is to investigate all

closed ranges by the end of 2007.

Although there are no stated standards for the environmental cleanup of closed ranges, the Air Force has implemented studies to determine the extent of pollution from munitions. It is expected that there will be significant changes in range cleanup

standards that eventually will be applied on a case-by-case basis for munitions-response requirements.

As investigations progress, it is expected the environmental cleanup liability for closed ranges will increase materially. The

liability for environmental cleanup will reflect direct costs. Also, the lack of expense history for range environmental cleanup

makes it impossible to estimate current liabilities reliably for some time. The current liability reflects the amount contained

in the President’s Budget that shows the expected activity for the next fiscal year.

Other Accrued Environmental Costs (Non-DERP funds) Active Installations – Environmental Closure

Requirements

Environmental closure liabilities are incurred under RCRA with the cost-to-complete closure reported for RCRA facilities.

Cost estimates are prepared under assumptions of a clean close, as defined in the RCRA law and estimated using RACER in

the absence of a specific contract cost or bid. The specific facilities reported cover landfills, Underground Storage Tanks

(USTs), and Treatment, Storage and Disposal Facilities (TSDFs).

Disposal liabilities are presented as an accrued amount for the life of the RCRA facilities, and the total liability is presented in

the year-end narrative. The accounting standard requires full cost be recognized for closure liability. Closure liabilities recognized by the Air Force cover only direct costs. No cost accounting exists to determine indirect closure costs. This is not

considered material in the cost estimates because indirect costs incurred would not happen for at least 20 years and, in many

cases, far beyond 20 years. The present value of such costs would be negligible in recognition of closure liabilities.

There are no material changes in environmental closure liabilities on less than an annual basis because revaluation and addition of new sites occurs in the last quarter of the year in preparation for the budget process. Because environmental closure

liabilities are estimated in the last quarter of the year, new closure sites recognized in the last quarter of the year and no

accounting process to capture environmental closure expenses, there is no material change in environmental closure liabilities on less than an annual basis. The total amortized annual portion of the liability estimate is recognized in the fiscal

yearend liability, therefore, there is no change in the amortized liability amount on a quarterly basis. There is no value to the

amortization of the estimated liability more frequently than annually because there is no cash impact for such recognition and

there is no funding requirement in connection with the liability amortization. Because the function does not generate any

revenues it is not essential to match costs against revenues to establish net income.

The environmental closure liability for landfills is based on the proportion of the landfill used as of the reporting date. This

estimate includes the cost of capping the fill, as well as 30 years of monitoring required by federal regulations.

Reporting of landfill closure liability is not in conformance with the accounting standard. The standard would recognize all

future costs regardless of timing. The Air Force recognizes only the initial closure. A landfill cap typically requires replacement every 20 to 40 years. An estimation of current costs based on all future costs, regardless of timing, would result in an

infinite liability. This result would be meaningless and not the intent of the standard. Therefore, the Air Force reports only

the cost of the initial cap required to close a landfill. The Air Force believes this reporting is more meaningful. The present

value of the future caps (those after the initial cap) would be negligible.

57
58

UST closure liabilities are based on an assumed life of 20 years and two years of monitoring with closure costs estimated for

a clean close. (Clean close is defined in the federal regulations.) TSDF closure liabilities are based on an assumed life of 30

years. Disposal costs include two years of monitoring with closure costs estimated for a clean close.

The unamortized and amortized liability amount is disclosed below. The amortized liability is the amount recognized on the

financial statements.

FY 2004

(amounts in thousands)

Unamortized Amortized

TSDFs $18,193 $5,361

Landfills $204,590 $64,822

USTs $59,229 $42,100

Total $282,012 $112,283

Base Realignment and Closure (BRAC) Installations – Environmental Restoration and Environmental

Corrective Action

The Air Force Real Property Agency (AFRPA) estimates a $1,522,448 thousand total environmental liability as of September

30, 2004. This amount includes all cleanup requirements to meet applicable laws and regulatory requirements and to transfer property. However, this amount does not include Land Use Control/Institutional Control costs beyond system operations associated with property transfer. Cost estimates are assigned to current operating periods using RACER. 

Reporting of Estimates

Our financial statements are prepared in accordance with Federal Generally Accepted Accounting Principles. These

accounting principles require us to make certain estimates, judgments, and assumptions that we believe are reasonable based

upon information available to us at the time. These estimates, judgments, and assumptions can affect the reported amounts

of environmental liabilities as of the date of the financial statements.

Our financial statements would be affected to the extent there are material differences between these estimates and actual

results. In many cases, the accounting treatment of a particular transaction is specifically dictated by the Department of

Defense (DoD) Financial Management Regulations (FMRs) and does not require management’s judgment in its application.

There also are areas in which management judgment in selecting any available alternative could produce a materially different

result.

Note Reference

For regulatory discussion on environmental liabilities, see DoD FMR, Volume 6B, Chapter 10, Paragraph 1016 and Volume 4,

Chapters 13 and 14.

United States Air Force • 2004 Annual Financial Statement
Note 15.A. Other Liabilities

Other Information Pertaining to Other Liabilities

Intra-governmental Fluctuations

The $609,675 thousand increase in Advances from Others on Line 1.A. in comparison with FY 2003 is due to the timing of

the receipt and execution of orders mainly in the Research, Test and Development (RDT&E) classified program, causing variations in the year-end balances.

The $37,787 thousand increase in Disbursing Officer Cash on Line 1.E. is attributed to the reduction of requirements that

have subsided in asociation with Operation Iraqi Freedom, with has returning to pre-war levels. 

The decrease on Line 1.K is due to the reduction of custodial liability in the recording of off-line receivables. 

The decrease in Judgement Fund liabilities of $150,510 thousand result from contractor claims under the Contract Disputes

Act on Air Force contracts that have been adjudicated by a court or a board in favor of the contractor. Initially, Treasury

(Amounts in thousands)

$ 664,325 $ 0 $ 664,325 $ 145,290

00 0 0

23,508 0 23,508 23,503

00 0 0

311,323 0 311,323 273,536

00 0 0

00 0 0

00 0 0

00 0 0

00 0 0

43 101,737 101,780 252,091

135,509 168,912 304,421 304,751

00 0 0

321,123 0 321,123 624,734

$ 1,455,831 $ 270,649 $ 1,726,480 $ 1,623,905

$ 1,589,124 $ 0 $ 1,589,124 $ 1,289,522

71,763 0 71,763 68,038

00 0 0

00 0 0

00 0 0

30,199 0 30,199 29,181

304 1,199 1,503 5,143

00 0 0

30,280 61,700 91,980 70,689

0 0 0 5,880

00 0 0

0 0 0 445,939

2,272,599 0 2,272,599 2,152,619

00 0 0

32,900 202,736 235,636 263,801

934 308,767 309,701 190,076

$ 4,028,103 $ 574,402 $ 4,602,505 $ 4,520,888

$ 5,483,934 $ 845,051 $ 6,328,985 $ 6,144,793

2004 2003

Current Liability Noncurrent 

Liability Total Total

(4) Other 

M. Other Liabilities

(4) Other

K. Other Liabilities

L. Total Intra-governmental Other Liabilities 

G. Accounts Payable—Cancelled Appropriations

H. Judgement Fund Liabilities 

I. FECA Reimbursement to the Department of Labor 

J. Capital Lease Liability

F. Nonenvironmental Disposal Liabilities: 

E. Liability for Subsidy Related to Undisbursed Loans

3. Total Other Liabilities:

(2) Excess/Obsolete Structures

G. Temporary Early Retirement Authority

H. Nonenvironmental Disposal Liabilities:

(1) National Defense PP&E (Nonnuclear)

I. Accounts Payable—Cancelled Appropriations

J. Accrued Unfunded Annual Leave 

(3) Conventional Munitions Disposal 

As of September 30

D. Loan Guarantee Liability

A. Accrued Funded Payroll and Benefits

B. Advances from Others

2. Non-Federal:

1. Intra-governmental:

C. Deferred Credits

(1) National Defense PP&E (Nonnuclear)

(2) Excess/Obsolete Structures

A. Advances from Others

B. Deferred Credits 

C. Deposit Funds and Suspense Account Liabilities

N. Total Non-Federal Other Liabilities

K. Accrued Entitlement Benefits for Military Retirees and Survivors

L. Capital Lease Liability

F. Deposit Funds and Suspense Accounts

(3) Conventional Munitions Disposal

D. Resources Payable to Treasury

E. Disbursing Officer Cash

59
60

pays the monetary awards to the contractor. The Air Force must subsequently reimburse the Treasury’s Judgement Fund

for the amount that was paid to the contractors. The amount reported as the total Judgement Fund liability is the amount

owed as of September 30, 2004. This amount includes approximately $42 thousand owed for Judgement Fund liabilities that

resulted because of the Notification and Federal Employee Antidiscrimination and Retaliatory Act of 2002. This amount can

change daily and can fluctuate substantially due to new billings by the Treasury and payments made to the Treasury by DFAS

and the U.S. Army Corps of Engineers on behalf of the Air Force.

Other Liabilities

The amount of $321,124 thousand represents $41,216 thousand in government contributions for employee benefits,

$25,823 thousand in unfunded unemployment compensation liabilities, $250,756 thousand in custodial liabilities, and $3,329

thousand in DoD education benefit liabilities.

Non-Federal Fluctuations

Accrued Funded Payroll and Benefits increased $299,602 thousand, or 23 percent, when compared with FY 2003. The

change is due to the increase in the number of military personnel when Air Force Reserve and Air National Guard military

personnel were activated in support of the war effort.

The Temporary Early Retirement Authority (TERA) liabilities decrease of $3,640 thousand is due to the termination of the

program in FY 2002.

Nonenvironmental Disposal Liabilities – Excess/Obsolete Structures increased $21,291 thousand, or 30 percent, when compared with FY 2003. The increase is attributable to the recently completed housing market analysis that better defined the

Air Force’s surplus, inadequate housing inventory. Modifications in future year demolition strategy account for the change in

disposal liability.

Nonenvironmental Disposal Liabilities – Conventional Munitions Disposal decreased $5,880 thousand, or 100 percent, when

compared with FY 2003. The decrease is due to a policy change during FY 2004 that transferred accounting responsibility

for all disposal costs to the Department of the Army for inclusion in their financial statements. The Air Force no longer

reports this activity.

Accounts Payable – Cancelled Appropriations decreased $445,939 thousand, or 100 percent, when compared with FY 2003.

The decrease is due to a change in the U.S. Standard General Ledger (USSGL) crosswalk. USSGL 2960, Accounts Payable

from Cancelled Appropriations, is now reported on the Accounts Payable lines of the Balance Sheet instead of 

Other Liabilities.

The increase in contingent liabilities of $106 thousand is attributed to the win/loss settlement of case(s) and the associated

dollar value. 

The change in Capital Lease Liability is due to a decrease in leases held by the Air Force in FY04. 

Non-Federal

Other Liabilities

The amount of $309,700 thousand represents legal contingencies of $308,766 thousand and accrued interest liability of 

$934 thousand.

The recorded estimated probable liability amount of $13,550 thousand has been included in the accompanying financial statements for open contractor claims greater than $100,000 and neither under appeal nor in litigation. In addition to the conUnited States Air Force • 2004 Annual Financial Statement
tractor claims under appeal and the open contractor claims for an amount greater than $100,000, the Air Force was party to

numerous other contractor claims in amounts less than $100,000 per claim. These claims are a routine part of the contracting business and are typically resolved through mutual agreement between the contracting officer and the contractor.

Because of the routine nature of these claims, no requirement exists for a consolidated tracking mechanism to record the

amount of each claim, the number of open claims, or the probability of the claim being settled in favor of the claimant. The

potential liability arising from these claims in aggregate would not materially affect the operations or financial condition of the

Air Force. A reasonably possible liability is estimated at $5,669 thousand and is not included in the reported amount.

The total estimated probable liability for claims and litigation against the Air Force handled by the Civil Law and Litigation

Directorate, as of September 30, 2004, was valued at $284,526 thousand and has been included in the accompanying financial statements. As of June 30, 2004, the Air Force was party to 3,548 claims and litigation actions. This liability dollar

amount recorded in the financial statements is an estimate based on the weighted average payout rate for the previous three

years. A reasonably possible liability is estimated at $246,008 thousand and is not included in the reported amount. Neither

past payments nor the current contingent liability estimate provides a basis for accurately projecting the results of any individual lawsuit or claim. It is uncertain that claims will ever accrue to the Air Force. In addition, many claims and lawsuits,

even if successful, will not be paid out of Air Force Funds. 

As of September 30, 2004, the Air Force was party to 62 contract appeals before the Armed Services Board of Contract

Appeals (ASBCA). The probable amount of loss from contractor claims of $10,689 thousand has been included in the financial statements. The contractor claims involve unique circumstances, which are considered by the ASBCA in formulating

decisions on the cases. Such claims are funded primarily from Air Force appropriations. A reasonably possible liability is estimated at $115,624 thousand and is not included in the reported amount. 

Other Disclosures

Intra-governmental Reconciliation for Fiduciary Transactions with the Department of Labor (DoL) and the Office

of Personnel Management (OPM):

With respect to the major fiduciary balances with the DoL and the OPM, the Air Force was able to reconcile with the OPM

and the DoL. During these reconciliations, immaterial differences were identified.

Note 15.B. Capital Lease Liability

As of September 30

(Amounts in thousands)

1. Future Payments Due:

A. 2004 $ $ $ 0 $ 45,433 45,600

B. 2005 0 45,152 45,475

C. 2006 0 42,056 45,152

D. 2007 0 38,978 42,056

E. 2008 0 38,502 38,978

F. After 5 Years 0 115,278 165,138

I. Net Capital Lease Liability $ $ $ 0 $ 235,638 263,802

$ 188,413 $

3. Capital Lease Liabilities Not Covered by Budgetary Resources: $ 47,224 $ 82,679

Land and Buildings

G. Total Future Lease Payments Due

H. Less: Imputed Interest Executory Costs 

2. Capital Lease Liabilities Covered by Budgetary Resources: 299,510

89,761 118,597

235,638 0 $

325,399 $ 382,399

89,761 0 0

115,278 0

$ 325,399 $ 0 $ 0 $

38,978 0

38,502 0

45,152 0

42,056 0

Total

45,433 0 $

Equipment Other Total

2004 2003

Asset Category

61
62

Other Information

The Air Force is the lessee in eleven capital leases for family housing. Six of the military housing leases were awarded prior

to FY 1992 and are funded on a FY basis.

Note 16. Commitments and Contingencies

Disclosures Related to Commitments and Contingencies

Relevant Information for Comprehension

The Commitments and Contingencies consist of the following reasonably possible liabilities:

Contractual Actions:

Contractor Claims $5,669 Thousand

Appeals before Armed Services Board of Contract Appeals (ASBCA) $115,624 Thousand

$121,293 Thousand

Claims and Litigation from Civil Law: $246,008 Thousand

Total $367,301 Thousand

Note Reference

See Note Disclosure 1.S., Significant Accounting Policies, for additional discussion on financial reporting requirements and

Department of Defense policies governing Contingencies and Other Liabilities.

Note 17. Military Retirement Benefits and Other Employment Related Actuarial

Liabilities

(Amounts in thousands) 

1. Pension and Health Benefits:

A. Military Retirement Pensions $ 0 $ 0$ 0$ 0

B. Military Retirement Health Benefits 0 0 0 0

C. Medicare-Eligible Retiree Benefits 0 0 0 0

D. Total Pension and Health Benefits $ 0 $ 0 $ 0 $ 0

2. Other:

A. FECA $ 1,163,442 $ 0 $ 1,163,442 $ 1,262,267

B. Voluntary Separation Incentive Programs 0 00 0

C. DoD Education Benefits Fund 0 00 0

D. [Enter Program Name} 0 00 0

E. Total Other $ 1,163,442 $ 0 $ 1,163,442 $ 1,262,267

3. Total Military Retirement Benefits and Other

 Employment Related Actuarial Liabilities: $ 1,163,442 $ 0 $ 1,163,442 $ 1,262,267

2003

Actuarial Present 

Value of Projected 

Plan Benefits

Unfunded 

Actuarial Liability

 As of September 30 2004

 

Assumed 

Interest 

Rate (%)

(Less: Assets 

Available to Pay 

Benefits)

Unfunded 

Actuarial Liability

United States Air Force • 2004 Annual Financial Statement
Military Retirement Pensions—Assumptions

The portion of the military retirement benefits actuarial liability applicable to the Department of the Air Force is reported on

the financial statements of the Military Retirement Fund.

Military Retirement Health Benefits—Assumptions

Health benefits are funded centrally at the Department of Defense (DoD) level. As such, the portion of the health benefits

actuarial liability that is applicable to the Air Force is reported only on the DoD Agency-wide financial statements.

Federal Employees’ Compensation Act (FECA)—Assumptions and Actuarial Cost Method Used

The Air Force’s actuarial liability for workers’ compensation benefits is developed by the Department of Labor and provided

to the Air Force at the end of each fiscal year. The liability includes the expected liability for death, disability, medical, and

miscellaneous costs for approved compensation cases. The liability is determined using a method that utilizes historical benefit payment patterns to predict the ultimate payments. The projected annual benefit payments are then discounted to the

present value using the Office of Management and Budget’s (OMB’s) economic assumptions for 10-year U.S. Treasury notes

and bonds. Cost-of-Living Adjustments (COLAs) and medical inflation factors are also applied to the calculation of projected

future benefits. Interest rate assumptions utilized for discounting were as follows::

2004

4.883% in Year 1

5.235% in Year 2 and thereafter

To provide more specifically for the effects of inflation on the liability for future workers’ compensation benefits, wage inflation factors (COLAs) and medical inflation factors (consumer price index medical or CPIMs) were applied to the calculation

of projected future benefits. These factors were also used to adjust the methodology’s historical payments to current year

constant dollars.

The compensation COLAs and CPIMs used in the projections for various charge-back years (CBYs) are as follows:

CBY COLA CPIM

2005 2.03% 4.14%

2006 2.73% 3.96%

2007 2.40% 3.98%

2008 2.40% 3.99%

2009+ 2.40% 4.02%

The model’s resulting projections were analyzed to insure that the estimates were reliable. The analysis was based on two

tests: (1) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual payments, and (2) a comparison of the ratio of the estimated liability to the actual payment of the beginning year calculated for

the current projection to the liability-payment ratio calculated for the prior projection.

Note Reference

For regulatory discussion on “Military Retirement Benefits and Other Employment Related Actuarial Liabilities,” see DoD

Financial Management Regulation, Volume 6B, Chapter 10, paragraph 1019.

63
64

Note 18. Unexpended Appropriations 

Other Information Pertaining to Unexpended Appropriations

Relevant Information for Comprehension

Unexpended Obligations reported as a component of Unexpended Appropriations include both Undelivered Orders-Unpaid

and Undelivered Orders-Paid only for direct appropriated funds. This amount is distinct from Change in Amount of Goods,

Services, and Benefits Ordered but Not Yet Received line of the Statement of Financing, which includes the change during

the fiscal year in Unexpended Obligations against Budget Authority from all sources.

An adjustment is reflected in line 1.C., Unexpended Obligations, to balance Note 18 to Unexpended Appropriations reflected on the balance sheet. The discrepancy is due to problems in the classification of the Direct vs reimbursable attribute for

budgetary accounts. Further analysis and corrective action will be accomplished during FY 2005.

Note 19.A. General Disclosures Related to the Statement of Net Cost

Disclosures Related to the Statement of Net Cost 

Statement of Net Cost

The Consolidated Statement of Net Cost (SoNC) in the federal government is unique because its principles are based on

understanding the net cost of programs and/or organizations that the federal government supports through appropriations or

other means. This statement provides gross and net cost information that can be related to the amount of output or outcome for a given program and/or organization administered by a responsible reporting entity.

Reporting Entities

The amounts presented in the SoNC are based on obligations and disbursements and therefore may not in all cases report

actual accrued costs. The Air Force generally records transactions on a cash basis and not an accrual basis as is required by

Federal Generally Accepted Accounting Principles (GAAP). Therefore, the Air Force systems do not capture actual costs.

As such, information presented in the SoNC is based on budgetary obligations, disbursements, and collection transactions, as

well as non-financial feeder systems; the information is then adjusted to record known accruals for major items such as payroll expenses, accounts payable, and environmental liabilities.

Fluctuations and Abnormalities

Treasury changed the Statement of Net Cost mapping for FY 2004. Other Gains (USSGL 7190) was moved from Gross

Costs with the Public to Earned Revenue from the Public. Additionally, amounts previously recorded in FY 2003 as Other

Gains have been ruled as immaterial prior period adjustments that should have been recorded as Other Expenses Not

Requiring Budgetary Resources (USSGL 6790).

As of September 30

 (Amounts in thousands) 

1. Unexpended Appropriations:

A. Unobligated, Available 3,284,541 $ 8,323,168

B. Unobligated, Unavailable 2,194,414 1,571,907

C. Unexpended Obligations 44,181,715 40,847,242

D. Total Unexpended Appropriations 49,660,670 $ 50,742,317

2004 2003

$

$

United States Air Force • 2004 Annual Financial Statement
Intra-governmental Earned Revenue 25 percent increase is due to larger spending authority earned in the O&M and RDT&E

appropriations. The O&M increase was due to a concerted effort, in August and September 2004, at the Major Command

level to properly code the reimbursable transactions in the accounting system to better reflect the total amount of goods and

services sold to other DoD organizations. The RDT&E increase was a product of an OMB $2 Billion increase to spending

authority (Reimbursable Budget Authority) resulting in a larger amount of goods and services sold to other DoD agencies. 

The 106 percent increase in Earned Revenue from the Public is due to two factors. First, reporting of GLA 7190, Other

Gains, to this line is a change for FY 2004. Previously, 7190 was included in Gross Cost. This account includes an increase in

Other Gains on assets resulting from events other than the disposition of assets. Also GLA 7190 was used to adjust transferin balances when the amounts of intra-governmental transfers-out reported by the transferring entity are more than was

accounted for on AF books. 

Note 19.B. Gross Cost and Earned Revenue by Budget Functional Classification

Not applicable.

Note 19.C. Gross Cost to Generate Intra-governmental Revenue and Earned

Revenue (Transactions with Other Federal-Non-DoD-Entities) by Budget

Functional Classification

Not applicable.

Note 19.D. Imputed Expenses

Other Information

Fluctuations

The Civilian Health imputed expense increased $55,339 thousand, or 16 percent, when compared with FY 2003. The major

factor contributing to this fluctuation is an increase in the cost factors computed by the Office of Personnel Management

(OPM). 

The Judgement Fund imputed expense decrease of $15,462 thousand is due to a decline in the number of Air Force lawsuits

requiring payment by the Department of Treasury.

Information Related to Imputed Expenses

The total Civilian Retirement imputed expense of $244,900 thousand is comprised of $219,009 thousand for the Civil Service

Retirement System (CSRS) and $25,891 thousand for the Federal Employees’ Retirement System (FERS).

As of September 30

(Amounts in thousands)

1. Civilian (e.g.,CSRS/FERS) Retirement $ 244,900 $ 254,229

2. Civilian Health 393,519 338,180

3. Civilian Life Insurance 1,316 1,249

4. Military Retirement Pension 0 0

5. Military Retirement Health 0 0

6. Judgment Fund 23,872 39,334

7. Total Imputed Expenses $ 663,607 $ 632,992

2004 2003

65
66

The imputed expenses are equal to the imputed revenue recognized on the Statement of Changes in Net Position and disclosed in detail in Note 20.

Note 19.E. Benefit Program Expenses 

Not applicable.

Note 19.F. Exchange Revenue 

Disclosures Related to the Exchange Revenue: 

Exchange Revenue arises when a government entity provides goods and services to the public or to another government for a

price, or earned revenue. Exchange revenue includes most user charges other than taxes, i.e., regulatory user charges.

Goods and services provided through reimbursable programs to the public or to another U.S. Government entity (intra-Air

Force, intra-DoD or other federal entity) is provided at cost. Such reimbursable sales are reported as earned revenues. Costs

are equal to the amount reported as earned. Since FY 2000, sales to the Foreign Military Trust Fund and related cost of sales

have been reclassified as nonfederal transactions with the public, rather than as intra-governmental transactions as in prior years.

Note 19.G. Amounts for Foreign Military Sales (FMS) Program Procurements from

Contractors

Disclosures Related to Amounts for FMS Program Procurements from Contractors

Not applicable.

Note 19.H. Stewardship Assets

Disclosures Related to Stewardship Assets

Stewardship assets include Heritage Assets, Stewardship Land, Nonfederal Physical Property, and Investments in Research

and Development. The current-year costs of acquiring, constructing, improving, reconstructing, or renovating heritage

assets; costs of acquiring stewardship land; and costs to prepare stewardship land for its intended use are required to be recognized and disclosed in the SoNC or the notes. Such costs, if any, are not separately identifiable and are not believed to be

material.

Note 19.I. Intra-governmental Revenue and Expense

Disclosures Related to Intra-governmental Revenue and Expense:

Intra-governmental Revenue

The Air Force’s accounting systems do not capture trading partner data at the transaction level in a manner that facilitates

trading partner aggregations. Therefore, the Air Force was unable to reconcile intra-governmental revenue balances with its

trading partners. The DoD intends to develop long-term systems improvements that will include sufficient up-front edits

and controls to eliminate the need for after-the-fact reconciliation. The volume of intra-governmental transactions is so large

that after-the-fact reconciliation cannot be accomplished with the existing or foreseeable resources.

United States Air Force • 2004 Annual Financial Statement
Intra-governmental Operating Expenses

The Air Force’s operating expenses were adjusted based on a comparison between the Air Force’s accounts payable and the

DoD Summary-level seller accounts receivables. An adjustment was posted to accounts payable and operating expenses to

reflect unrecognized accounts payable and operating expenses. 

Note 19.J. Suborganization Program Costs

Not applicable.

Note 20. Disclosures Related to the Statement of Changes in Net Position

Other Information

Relevant Information for Comprehension

The Federal Accounting Standards Advisory Board issued Statement of Federal Financial Accounting Standards No. 23,

Eliminating the category National Defense Property, Plant and Equipment, in May 2003. This standard requires the capitalization and depreciation of the cost of military equipment. This information was included in the statements through a priorperiod adjustment.

Imputed Financing

The amounts remitted to the Office of Personnel Management (OPM) by and for employees covered by the Civil Service

Retirement System (CSRS), the Federal Employees’ Retirement System (FERS), the Federal Employees Health Benefits

Program (FEHB), and the Federal Employees Group Life Insurance Program (FEGLI) do not fully cover the U.S.

Government’s cost to provide these benefits. An imputed cost is recognized as the difference between the Government’s

cost of providing these benefits to the employees and contributions made by and for them. The OPM provides the cost factors to Defense Finance and Accounting Service (DFAS) for computation of imputed financing cost. DFAS provides the costs

to the Office of the Under Secretary of Defense (Personnel and Readiness) (OUSD [P&R]) for validation. Approved imputed

costs are provided to the reporting components for inclusion in their financial statements.

As of September 30

(Amounts in thousands)

1. Prior Period Adjustments 

 Increases/Decreases to Net Position

Beginning Balance: 

A. Changes in Accounting Standards $ 0 $ 0 $ 122,475,076 $ 0

B. Errors and Omissions in Prior Year 

 Accounting Reports 

C. Other Prior Period Adjustments 0 0 0 0

D. Total Prior Period Adjustments $ 0 $ 0 $ 122,475,076 $ 0

2. Imputed Financing:

A. Civilian CSRS/FERS Retirement $ 244,900 $ 0 $ 254,229 $ 0

B. Civilian Health 393,519 0 338,180 0

C. Civilian Life Insurance 1,316 0 1,249 0

D. Military Retirement Pension 0 0 0 0

E. Military Retirement Health 0 0 0 0

F. Judgment Fund 23,872 0 39,334 0

 G. Total Imputed Financing $ 663,607 $ 0 $ 632,992 $ 0

Cumulative Results 

of Operations

2004

 Cumulative Results 

of Operations

2004 2003

Appropriations 

Unexpended

0 0

Appropriations

2003

Unexpended

0 0

67
68

The total Civilian Retirement imputed financing of $244,900 thousand is comprised of $219,009 thousand for the CSRS and

$25,891 thousand for the FERS.

The imputed revenue is equal to the imputed expense recognized in the Statement of Net Cost and disclosed in detail in

Note 19D.

Note 21. Disclosures Related to the Statement of Budgetary Resources

Other Information Related to the Statement of Budgetary Resources

The amount of direct obligations incurred and apportioned under category A is $74,410,933 thousand, category B is

$55,500,271 thousand, and exempt is $2,069 thousand. For reimbursable obligations incurred and apportioned, category A

is $1,100,885 thousand, category B is $3,346,500 thousand, and exempt is $0.

Unexpended Obligations presented in the SBR includes Unexpended Obligations for both direct and reimbursable funds.

The Department of Defense has not fully implemented the U.S. Standard General Ledger (USSGL) in all operational accounting systems.

The statement does not include any amounts for which the Department of Treasury is willing to accept corrections to canceled appropriation amounts, in accordance with the Statement of Federal Financial Accounting Standards No.1. 

Adjustments in funds that are temporarily not available pursuant to public law and those that are permanently not available

(included in the Adjustments line on the SBR) are not included in the Spending Authority from Offsetting Collections and

Adjustments line of the SBR or the Spending Authority for Offsetting Collections and Adjustments line of the Statement of

Financing.

Due to accounting system deficiencies, the proper amount of intra-agency eliminations for this statement cannot be determined. Accounting systems currently do not provide or capture data needed for obligations incurred and recoveries of prior

year obligations in accordance with the Office of Management and Budget Circular A-11, “Instructions on Budget Execution,”

requirements. Although the Defense and Accounting Service-Denver (DFAS-DE) developed an alternative methodology to

calculate these items, the auditors and DFAS-DE concur that this methodology also distorts the obligation figures. As a

result, the amount of distortion cannot be reliably determined and may or may not be material.

Note 22. Disclosures Related to the Statement of Financing

Disclosures Related to the Statement of Financing 

The objective of the Statement of Financing is to reconcile the difference between budgetary obligations and the net cost of

operations reported. It is presented as combined or combining statements rather than consolidated statements due to intragovernmental transactions not being eliminated. Due to limitations in the Department of the Air Force’s financial system,

As of September 30

(Amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for 

 Undelivered Orders at the End of the Period $ 42,905,248 $ 42,556,665

2. Available Borrowing and Contract Authority at the End

 of the Period 0 0

2004 2003

United States Air Force • 2004 Annual Financial Statement
budgetary data are not in agreement with proprietary expenses and assets capitalized. Differences between budgetary and

proprietary data constitute a previously identified deficiency.

Note 1A and Note 1F provide additional detail.

Other Information Related to the Statement of Financing

Components Requiring or Generating Resources in Future Period, Other consists of $56,454 thousand in closed-year liabilities and $(3,249) thousand in DoD education benefit liabilities. Components Not Requiring or Generating Resources, Other,

consists of $(191,867) thousand in bad debt expense, $(584,699) thousand in Other Expenses not Requiring Budgetary

Resources, and $(1,948,496) thousand in Cost Capitalization Offset. 

The components and amount of liabilities not covered by budgetary resources are disclosed in Note 11, Liabilities Not

Covered by Budgetary Resources.

Intra-entity transactions have not been eliminated because the statements are presented as combined and combining.

Budgetary data are not in agreement with Proprietary Expenses and Asset Capitalized. This causes a difference between

Net Cost on the Statement of Net Cost and on the Statement of Financing. The amount on the “Resources that finance the

acquisition of assets” line has been adjusted $28,258 thousand to resolve differences.

Note 23. Disclosures Related to the Statement of Custodial Activity

Not applicable.

Note 24.A. Other Disclosures 

ENTITY AS LESSEE—Operating Leases

Fluctuations and Abnormalities

The increase in the Other Lease Category costs from FY03Q4 and FY04Q4 is due to a dramatic increase in the number of

high-cost leases entered into by the Air Force (AF) in support of contingency operations in SWA/Afghanistan and AMC’s

efforts to convert their administrative support fleet to GSA leases. The bulk of the spike in lease costs for SWA and

Afghanistan was the result of Air Combat Command (ACC) continuous effort to accomplish vehicle validation visits at all

deployed locations, increased OPSTEMPO, and continued fluidity with build up of steady state operating locations. ACC

expects continued significant quarterly changes in SWA commercial leases until a more stable environment is realized.

Additionally, our GSA lease cost figures may continue to increase because as more alternative fuels become available, the AF

is moving to GSA leases for general purpose Alternative Fueled Vehicles. We expect GSA lease costs will stabilize by the end

of FY05 unless we have significant operational increase or changes in environmental laws affecting Federal fleets. The

$ 114,934 $ 1,399

117,172 738

119,523 458

121,933 87

124,384 85

195 87

$ 598,141 $ 2,854

Total Total

Total Future Lease Payments Due $ 608 $ 0 $ 597,533

After 5 Years 195 0 0

2009 98 0 124,286

2008 84 0 121,849

2007 63 0 119,460

2006 55 0 117,117

2005 $ 113 $

Land and Buildings

0 $ 114,821

Equipment Other

(Amounts in thousands)

B. Future Payments Due:

Fiscal Year

As of September 30 2004 2003

69
70

increase in the Land and Buildings Category cost between FY07 and FY11 is due to an additional 1700 family housing units

for USAF-Europe. The Air Force has no leases in the Equipment Category and does not anticipate any in the future. 

Definitions

• Lessee—A person or entity who receives the use and possession of leased property (e.g. real estate or equipment)

from a lessor in exchange for a payment of funds. 

• Operating Lease—A lease which does not transfer substantially all the benefits and risk of ownership. Payments should

be charged to expense over the lease term as it becomes payable.

Land and Buildings Leases consist of:

• Description of Leases: The figures represent operating leased facilities in the U.S. and overseas applicable to active Air

Force, Air Force Reserve and Air Force National Guard.

Equipment Leases consist of:

• Description of Leases: Operating leases for medical equipment are one-year leases with four option years. Each year,

facilities must specifically exercise the option to continue the lease. The operating leases contain an option to purchase

allow the government to purchase the equipment a fair market value at the end of the lease period.

Other Leases consist of:

• Description of Leases: Operating Leases for Motor Vehicles are essentially one to three-year leases funded in appropriation 3400 (O&M). As the out-year estimates indicate, the Air Force expects to continue to reduce the level of owned

assets, while increasing the number of operational leases from commercial and GSA sources. The Air Force will continue to displace commercial leases in favor of IFMS (General Services Administration) leases because IFMS leases are typically more economical. Also, the commercial lease costs in support of operations in Iraq and Afghanistan have increased

significantly and our estimations are that it will be at least another year before we see stabilization in our commercial

lease costs. 

Note 24.B. Other Disclosures

Undistributed Collections and Disbursements: Accounts receivable and payable are adjusted for undistributed collections and

disbursements. These transactions represent the Air Force’s in-float (undistributed) collections and disbursements for transactions that were reported by a disbursing station but not recorded by the appropriate accountable station. Undistributed

amounts are prorated by appropriation based on the percentage of distributed government and public receivables and

payables.

Canceled Balances: All unliquidated balances associated with closed accounts have been canceled in accordance with Public

Law 101-510. Canceled accrued expenditures unpaid are reflected in the financial statements as unfunded liabilities.

Canceled undelivered orders outstanding are not included in the financial statements; however, these orders may result in

future expenditures.

United States Air Force • 2004 Annual Financial Statement
General Fund

Consolidating and 

Combining Statements

71

United States Air Force
72

Consolidating Balance Sheet—General Fund

As of September 30, 2004 and 2003 ($ in Thousands)

United States Air Force • 2004 Annual Financial Statement

 

Air Force 

Active 

Air Force 

Reserve 

Air National 

Guard

 ASSETS (Note 2) 

 Intra-governmental: 

 Fund Balance with Treasury (Note 3) 

 Entity $ 57,691,648 $ 909,269 $ 1,946,792

 Non-Entity Seized Iraqi Cash 0 0 0

 Non-Entity-Other 53,290 0 0

 Investments (Note 4) 711 0 0

 Accounts Receivable (Note 5) 959,581 112,322 179,587

 Other Assets (Note 6) 56 0 0

 Total Intra-governmental Assets $ 58,705,286 $ 1,021,591 $ 2,126,379

 Cash and Other Monetary Assets (Note 7) $ 311,323 $ 0 $ 0

 Accounts Receivable (Note 5) 953,472 9,285 16,126

 Loans Receivable (Note 8) 00 0

 Inventory and Related Property (Note 9) 46,607,419 693,550 4,039,279

 General Property, Plant and Equipment (Note 10) 113,134,711 1,059,098 3,760,621

 Investments (Note 4) 0 0 0

 Other Assets (Note 6) 10,787,653 5,336 16,599

 TOTAL ASSETS $ 230,499,864 $ 2,788,860 $ 9,959,004

 LIABILITIES (Note 11)

 Intra-governmental: 

 Accounts Payable (Note 12) $ 523,132 $ 46,248 $ 82,481

 Debt (Note 13) 00 0

 Environmental Liabilities (Note 14) 00 0

 Other Liabilities (Note 15 and Note 16) 1,770,504 1,803 2,150

 Total Intra-governmental Liabilities $ 2,293,636 $ 48,051 $ 84,631

 Accounts Payable (Note 12) $ 6,216,413 $ 154,602 $ 238,396

 Military Retirement Benefits and Other 834,997 121,955 206,490

 Employment-Related Actuarial Liabilities (Note 17) 

 Environmental Liabilities (Note 14) 7,387,187 0 0

 Loan Guarantee Liability (Note 8) 00 0

 Other Liabilities (Note 15 and Note 16) 4,466,857 55,927 79,721

 Debt Held by Public 00 0

 TOTAL LIABILITIES $ 21,199,090 $ 380,535 $ 609,238

 NET POSITION 

 Unexpended Appropriations (Note 18) $ 49,486,289 $ 803,393 $ 1,787,049

 Cumulative Results of Operations 159,814,485 1,604,932 7,562,717

 TOTAL NET POSITION $ 209,300,774 $ 2,408,325 $ 9,349,766

 TOTAL LIABILITIES AND NET POSITION $ 230,499,864 $ 2,788,860 $ 9,959,004
73

Component 

Level 

Combined 

Total Eliminations 

2004 

Consolidated 

2003 

Consolidated

$ 0 $ 60,547,709 $ 0 $ 60,547,709 $ 59,714,038

 0 0 0 0 0

0 53,290 0 53,290 52,503

0 711 0 711 712

-561,619 689,871 0 689,871 541,429

443,883 443,939 0 443,939 339,093

$ -117,736 $ 61,735,520 $ 0 $ 61,735,520 $ 60,647,775

$ 0 $ 311,323 $ 0 $ 311,323 $ 147,926

0 978,883 0 978,883 772,500

00 0 0 0

0 51,340,248 0 51,340,248 51,815,831

0 117,954,430 0 117,954,430 112,786,130

 0 0 0 0 0

0 10,809,588 0 10,809,588 9,912,151

$ -117,736 $ 243,129,992 $ 0 $ 243,129,992 $ 236,082,313

$ 1,248,550 $ 1,900,411 $ 0 $ 1,900,411 $ 1,413,940

00 0 0 0

00 0 0 0

-47,977 1,726,480 0 1,726,480 1,623,905

$ 1,200,573 $ 3,626,891 $ 0 $ 3,626,891 $ 3,037,845

$ 1,097,752 $ 7,707,163 $ 0 $ 7,707,163 $ 7,080,909

0 1,163,442 0 1,163,442 1,262,267

0 7,387,187 0 7,387,187 8,110,403

00 0 0 0

0 4,602,505 0 4,602,505 4,520,888

00 0 0 0

$ 2,298,325 $ 24,487,188 $ 0 $ 24,487,188 $ 24,012,312

$ -2,416,061 $ 49,660,670 $ 0 $ 49,660,670 $ 50,742,317

0 168,982,134 0 168,982,134 161,327,684

$ -2,416,061 $ 218,642,804 $ 0 $ 218,642,804 $ 212,070,001

$ -117,736 $ 243,129,992 $ 0 $ 243,129,992 $ 236,082,313
74

Consolidating Statement of Net Cost—General Fund

For the periods ended September 30, 2004 and 2003 ($ in Thousands)

United States Air Force • 2004 Annual Financial Statement

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.

Air Force 

Active

Air Force 

Reserve

Air National 

Guard

Program Costs

A. Military Personnel 0

 Intra-governmental Gross Costs $ -3,201 $ 46,772 $ 275,635

 (Less: Intra-governmental Earned Revenue) -288,373 -5,856 -21,120

 Intra-governmental Net Costs $ -291,574 $ 40,916 $ 254,515

 Gross Costs With the Public 26,499,285 1,191,146 2,017,930

 (Less: Earned Revenue From the Public) -94,079 3 -12,475

 Net Costs With the Public $ 26,405,206 $ 1,191,149 $ 2,005,455

 Total Net Cost $ 26,113,632 $ 1,232,065 $ 2,259,970

B. Operation and Maintenance 0

 Intra-governmental Gross Costs $ 14,295,821 $ 698,044 $ 1,893,086

 (Less: Intra-governmental Earned Revenue) -3,557,430 -303,209 -524,737

 Intra-governmental Net Costs $ 10,738,391 $ 394,835 $ 1,368,349

 Gross Costs With the Public 23,228,346 1,734,741 3,502,356

 (Less: Earned Revenue From the Public) -502,304 -6,321 -135,839

 Net Costs With the Public $ 22,726,042 $ 1,728,420 $ 3,366,517

 Total Net Cost $ 33,464,433 $ 2,123,255 $ 4,734,866

C. Procurement 0

 Intra-governmental Gross Costs $ 652,495 $ 0 $ 0

 (Less: Intra-governmental Earned Revenue) -265,408 0 0

 Intra-governmental Net Costs $ 387,087 $ 0 $ 0

 Gross Costs With the Public 27,231,988 0 0

 (Less: Earned Revenue From the Public) -401,470 0 0

 Net Costs With the Public $ 26,830,518 $ 0 $ 0

 Total Net Cost $ 27,217,605 $ 0 $ 0

D. Research, Development, Test & Evaluation 0

 Intra-governmental Gross Costs $ 791,689 $ 0 $ 0

 (Less: Intra-governmental Earned Revenue) -2,553,633 0 0

 Intra-governmental Net Costs $ -1,761,944 $ 0 $ 0

 Gross Costs With the Public 20,987,117 0 0

 (Less: Earned Revenue From the Public) -174,458 0 0

 Net Costs With the Public $ 20,812,659 $ 0 $ 0

 Total Net Cost $ 19,050,715 $ 0 $ 0

E. Military Construction/Family Housing 0

 Intra-governmental Gross Costs $ 196,768 $ 601 $ 3,483

 (Less: Intra-governmental Earned Revenue) 781 0 0

 Intra-governmental Net Costs $ 197,549 $ 601 $ 3,483

 Gross Costs With the Public 217,498 91,367 276,538

 (Less: Earned Revenue From the Public) 00 0

 Net Costs With the Public $ 217,498 $ 91,367 $ 276,538

 Total Net Cost $ 415,047 $ 91,968 $ 280,021

F. Other 0

 Intra-governmental Gross Costs $ 10,764 $ 0 $ 0

 (Less: Intra-governmental Earned Revenue) 00 0

 Intra-governmental Net Costs $ 10,764 $ 0 $ 0

 Gross Costs With the Public 3,547 0 0

 (Less: Earned Revenue From the Public) -11,010 0 0

 Net Costs With the Public $ -7,463 $ 0 $ 0

 Total Net Cost $ 3,301 $ 0 $ 0

G. Total Program Costs 0

 Intra-governmental Gross Costs $ 15,944,336 $ 745,417 $ 2,172,204

 (Less: Intra-governmental Earned Revenue) -6,664,063 -309,065 -545,857

 Intra-governmental Net Costs $ 9,280,273 $ 436,352 $ 1,626,347

 Gross Costs With the Public 98,167,781 3,017,254 5,796,824

 (Less: Earned Revenue From the Public) -1,183,321 -6,318 -148,314

 Net Costs With the Public $ 96,984,460 $ 3,010,936 $ 5,648,510

 Total Net Cost $ 106,264,733 $ 3,447,288 $ 7,274,857

 Cost Not Assigned to Programs 00 0

 (Less: Earned Revenue Not Attributable to Programs) 00 0

 Net Cost of Operations $ 106,264,733 $ 3,447,288 $ 7,274,857
75

Component 

Level

Combined 

Total Eliminations

2004 

Consolidated

2003 

Consolidated

$ 319,206 $ 0 $ 319,206 $ 720,365

-315,349 0 -315,349 -342,368

$ 3,857 $ 0 $ 3,857 $ 377,997

29,708,361 0 29,708,361 28,348,890

-106,551 0 -106,551 -147,296

$ 29,601,810 $ 0 $ 29,601,810 $ 28,201,594

$ 29,605,667 $ 0 $ 29,605,667 $ 28,579,591

$ 16,886,951 $ 0 $ 16,886,951 $ 15,259,669

-4,385,376 0 -4,385,376 -3,730,957

$ 12,501,575 $ 0 $ 12,501,575 $ 11,528,712

28,465,443 0 28,465,443 27,571,579

-644,464 0 -644,464 -525,209

$ 27,820,979 $ 0 $ 27,820,979 $ 27,046,370

$ 40,322,554 $ 0 $ 40,322,554 $ 38,575,082

$ 652,495 $ 0 $ 652,495 $ 2,669

-265,408 0 -265,408 -214,765

$ 387,087 $ 0 $ 387,087 $ -212,096

27,231,988 0 27,231,988 35,414,003

-401,470 0 -401,470 -13,188

$ 26,830,518 $ 0 $ 26,830,518 $ 35,400,815

$ 27,217,605 $ 0 $ 27,217,605 $ 35,188,719

$ 791,689 $ 0 $ 791,689 $ 976,052

-2,553,633 0 -2,553,633 -2,356,078

$ -1,761,944 $ 0 $ -1,761,944 $ -1,380,026

20,987,117 0 20,987,117 19,273,993

-174,458 0 -174,458 -138,222

$ 20,812,659 $ 0 $ 20,812,659 $ 19,135,771

$ 19,050,715 $ 0 $ 19,050,715 $ 17,755,745

$ 200,852 $ 0 $ 200,852 $ 146,489

781 0 781 0

$ 201,633 $ 0 $ 201,633 $ 146,489

585,403 0 585,403 1,240,859

0 0 00

$ 585,403 $ 0 $ 585,403 $ 1,240,859

$ 787,036 $ 0 $ 787,036 $ 1,387,348

$ 10,047,907 $ 10,058,671 $ 0 $ 10,058,671 $ 9,741,420

2,516,739 2,516,739 0 2,516,739 2,657,757

$ 12,564,646 $ 12,575,410 $ 0 $ 12,575,410 $ 12,399,177

-10,475,871 -10,472,324 0 -10,472,324 -12,046,057

-386,383 -397,393 0 -397,393 -12,243

$ -10,862,254 $ -10,869,717 $ 0 $ -10,869,717 $ -12,058,300

$ 1,702,392 $ 1,705,693 $ 0 $ 1,705,693 $ 340,877

$ 10,047,907 $ 28,909,864 $ 0 $ 28,909,864 $ 26,846,664

2,516,739 -5,002,246 0 -5,002,246 -3,986,411

$ 12,564,646 $ 23,907,618 $ 0 $ 23,907,618 $ 22,860,253

-10,475,871 96,505,988 0 96,505,988 99,803,267

-386,383 -1,724,336 0 -1,724,336 -836,158

$ -10,862,254 $ 94,781,652 $ 0 $ 94,781,652 $ 98,967,109

$ 1,702,392 $ 118,689,270 $ 0 $ 118,689,270 $ 121,827,362

00 0 0 0

00 0 0 0

$ 1,702,392 $ 118,689,270 $ 0 $ 118,689,270 $ 121,827,362

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.
76

United States Air Force • 2004 Annual Financial Statement

Consolidating Statement of Changes in Net Position—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.

Air Force 

Active

Air Force 

Reserve

Air National 

Guard

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balances $ 152,136,711 $ 1,595,916 $ 7,595,057

Prior Period Adjustments - Restated (+/-) 0 00

Beginning Balance, Restated 152,136,711 1,595,916 7,595,057

Prior Period Adjustments - Not Restated (+/-) 0 00

Beginning Balances, as adjusted 152,136,711 1,595,916 7,595,057

Budgetary Financing Sources:

Appropriations received 0 00

Appropriations transferred-in/out (+/-) 0 00

Other adjustments (rescissions, etc) (+/-) 0 00

Appropriations used 112,007,930 3,418,963 7,171,317

Nonexchange revenue 8,827 0 0

Donations and forfeitures of cash and cash equivalents 2,171 0 0

Transfers-in/out without reimbursement (+/-) 671,000 0 0

Other budgetary financing sources (+/-) 0 00

Other Financing Sources:

Donations and forfeitures of property 0 00

Transfers-in/out without reimbursement (+/-) 588,973 37,340 71,200

Imputed financing from costs absorbed by others 663,607 0 0

Other (+/-) 0 00

Total Financing Sources 113,942,508 3,456,303 7,242,517

Net Cost of Operations (+/-) 106,264,733 3,447,288 7,274,857

Ending Balances $ 159,814,486 $ 1,604,931 $ 7,562,717

UNEXPENDED APPROPRIATIONS

Beginning Balances $ 48,066,969 $ 956,002 $ 2,046,631

Prior Period Adjustments (+/-)

Prior Period Adjustments - Restated (+/-) 0 00

Beginning Balance, Restated 48,066,969 956,002 2,046,631

Prior Period Adjustments - Not Restated (+/-) 0 00

Beginning Balances, as adjusted 48,066,969 956,002 2,046,631

Budgetary Financing Sources:

Appropriations received 114,855,435 3,582,508 7,042,722

Appropriations transferred-in/out (+/-) -115,191 -267,364 -71,901

Other adjustments (rescissions, etc) (+/-) -1,312,994 -48,790 -59,086

Appropriations used -112,007,930 -3,418,963 -7,171,317

Nonexchange revenue 0 00

Donations and forfeitures of cash and cash equivalents 0 00

Transfers-in/out without reimbursement (+/-) 0 00

Other budgetary financing sources (+/-) 0 00

Other Financing Sources:

Donations and forfeitures of property 0 00

Transfers-in/out without reimbursement (+/-) 0 00

Imputed financing from costs absorbed by others 0 00

Other (+/-) 0 00

Total Financing Sources 1,419,320 -152,609 -259,582

Net Cost of Operations (+/-)

Ending Balances $ 49,486,289 $ 803,393 $ 1,787,049
77

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.

Component 

Level

Combined 

Total Eliminations

2004 

Consolidated

2003 

Consolidated

$ 0 $ 161,327,684 $ 0 $ 161,327,684 $ 47,443,218

00 0 0 0

0 161,327,684 0 161,327,684 47,443,218

0 0 0 0 122,475,076

0 161,327,684 0 161,327,684 169,918,294

00 0 0 0

00 0 0 0

00 0 0 0

2,088,776 124,686,986 0 124,686,986 113,384,126

0 8,827 0 8,827 0

0 2,171 0 2,171 9,096

0 671,000 0 671,000 0

0 0 0 0 -678,772

00 0 0 0

-386,383 311,130 0 311,130 -110,688

0 663,607 0 663,607 632,992

00 0 0 0

1,702,393 126,343,721 0 126,343,721 113,236,754

1,702,392 118,689,270 0 118,689,270 121,827,362

$ 1 $ 168,982,135 $ 0 $ 168,982,135 $ 161,327,686

$ -327,285 $ 50,742,317 $ 0 $ 50,742,317 $ 39,543,850

00 0 0 0

-327,285 50,742,317 0 50,742,317 39,543,850

00 0 0 0

-327,285 50,742,317 0 50,742,317 39,543,850

0 125,480,665 0 125,480,665 124,225,931

0 -454,456 0 -454,456 2,179,806

0 -1,420,870 0 -1,420,870 -1,823,145

-2,088,776 -124,686,986 0 -124,686,986 -113,384,126

00 0 0 0

00 0 0 0

00 0 0 0

00 0 0 0

00 0 0 0

00 0 0 0

00 0 0 0

00 0 0 0

-2,088,776 -1,081,647 0 -1,081,647 11,198,466

$ -2,416,061 $ 49,660,670 $ 0 $ 49,660,670 $ 50,742,316
78

Combining Statement of Budgetary Resources—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

United States Air Force • 2004 Annual Financial Statement

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

Air Force Active Air Force 

Reserve

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES

 Budget Authority:

 Appropriations received $ 114,858,556 $ 3,582,508

 Borrowing authority 0 0

 Contract authority 0 0

 Net transfers (+/-) 125,871 -192,964

 Other 0 0

 Unobligated balance:

 Beginning of period 8,661,900 162,910

 Net transfers, actual (+/-) 429,938 -74,400

 Anticipated Transfers Balances 0 0

 Spending authority from offsetting collections:

 Earned 0 0

 Collected 7,198,945 259,901

 Receivable from Federal sources 230,989 53,249

 Change in unfilled customer orders 0 0

 Advance received 188,077 0

 Without advance from Federal sources -109,846 50

 Anticipated for the rest of year, without advances 0 0

 Transfers from trust funds 0 0

 Subtotal 7,508,165 313,200

 Recoveries of prior year obligations 1,304,731 56,209

 Temporarily not available pursuant to Public Law 0 0

 Permanently not available -1,329,777 -48,790

 Total Budgetary Resources $ 131,559,384 $ 3,798,673

STATUS OF BUDGETARY RESOURCES

 Obligations incurred:

 Direct $ 119,492,619 $ 3,366,775

 Reimbursable 3,487,131 308,877

 Subtotal 122,979,750 3,675,652

 Unobligated balance:

 Apportioned 7,894,840 34,944

 Exempt from apportionment 2,709 0

 Other available 0 0

 Unobligated Balances Not Available 682,085 88,077

 Total, Status of Budgetary Resources $ 131,559,384 $ 3,798,673

Relationship of Obligations to Outlays:

 Obligated Balance, Net - beginning of period $ 47,752,881 $ 887,527

 Obligated Balance transferred, net (+/-) 0 0

 Obligated Balance, Net - end of period:

 Accounts receivable -1,172,373 -114,923

 Unfilled customer order from Federal sources -827,056 -50

 Undelivered orders 43,105,532 675,121

 Accounts payable 8,005,704 226,101

 Outlays:

 Disbursements 120,194,950 3,667,422

 Collections -7,387,022 -259,901

 Subtotal 112,807,928 3,407,521

 Less: Offsetting receipts -115,376 0

 Net Outlays $ 112,692,552 $ 3,407,521
79

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

Air National 

Guard

Component 

Level

2004 

Combined

2003 

Combined

$ 7,042,722 $ 0 $ 125,483,786 $ 124,235,723

0 00 0

0 00 0

37,699 0 -29,394 1,888,215

0 00 0

365,136 0 9,189,946 6,066,510

-109,600 0 245,938 291,591

0 00 0

0 00 0

658,759 0 8,117,605 7,802,547

33,327 0 317,565 -322,918

0 00 0

-5 0 188,072 213,465

-185 0 -109,981 472,167

0 00 0

0 00 0

691,896 0 8,513,261 8,165,261

70,139 0 1,431,079 1,955,959

0 00 0

-59,086 0 -1,437,653 -1,806,362

$ 8,038,906 $ 0 $ 143,396,963 $ 140,796,897

$ 7,053,879 $ 0 $ 129,913,273 $ 123,375,566

651,378 0 4,447,386 8,231,386

7,705,257 0 134,360,659 131,606,952

142,782 0 8,072,566 8,320,595

0 0 2,709 2,573

-1 0 -1 -1

190,868 0 961,030 866,778

$ 8,038,906 $ 0 $ 143,396,963 $ 140,796,897

$ 1,901,175 $ 0 $ 50,541,583 $ 41,822,195

0 00 0

-189,316 0 -1,476,612 -1,159,047

-287 0 -827,393 -937,374

1,437,060 -2,907,921 42,309,792 42,168,646

365,685 2,907,921 11,505,411 10,469,360

7,890,009 0 131,752,381 120,782,356

-658,755 0 -8,305,678 -8,016,013

7,231,254 0 123,446,703 112,766,343

0 0 -115,376 -156,704

$ 7,231,254 $ 0 $ 123,331,327 $ 112,609,639
80

United States Air Force • 2004 Annual Financial Statement

Combining Statement of Financing—General Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.

Air Force Active

Air Force 

Reserve

Resources Used to Finance Activities:

Budgetary Resources Obligated

 Obligations incurred $ 122,979,750 $ 3,675,652

 Less: Spending authority from offsetting collections -8,812,896 -369,410

 and recoveries (-)

 Obligations net of offsetting collections and recoveries 114,166,854 3,306,242

 Less: Offsetting receipts (-) -115,376 0

 Net obligations 114,051,478 3,306,242

Other Resources

 Donations and forfeitures of property 0 0

 Transfers in/out without reimbursement (+/-) 588,973 37,340

 Imputed financing from costs absorbed by others 663,607 0

 Other (+/-) 0 0

 Net other resources used to finance activities 1,252,580 37,340

 Total resources used to finance activities 115,304,058 3,343,582

Resources Used to Finance Items not Part

of the Net Cost of Operations

 Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

 Undelivered Orders (-) -2,228,506 112,671

 Unfilled Customer Orders 78,231 50

 Resources that fund expenses recognized in prior periods -862,836 -11,266

 Budgetary offsetting collections and receipts that 115,376 0

 do not affect net cost of operations

 Resources that finance the acquisition of assets -15,956,828 -15,952

 Other resources or adjustments to net obligated resources

 that do not affect net cost of operations

 Less: Trust or Special Fund Receipts Related to Exchange in the 0 0

 Entity's Budget (-)

 Other (+/-) -588,973 -37,340

 Total resources used to finance items not -19,443,536 48,163

 part of the net cost of operations

 Total resources used to finance the net cost of 95,860,522 3,391,745

 operations

Components of the Net Cost of Operations that will

not Require or Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future

Period:

 Increase in annual leave liability 127,062 3,244

 Increase in environmental and disposal liability 0 0

 Upward/Downward reestimates of credit subsidy expense (+/-) 0 0

 Increase in exchange revenue receivable from the the public (-) 0 0

 Other (+/-) 52,756 315

 Total components of Net Cost of Operations that 179,818 3,559

 will require or generate resources in future periods

Components not Requiring or Generating Resources:

 Depreciation and amortization 9,601,433 45,074

 Revaluation of assets or liabilities (+/-) -547,355 -1,625

 Other (+/-)

 Trust Fund Exchange Revenue 0 0

 Cost of Goods Sold 0 0

 Operating Material & Supplies Used 3,791,424 28,284

 Other -2,621,109 -19,751

 Total components of Net Cost of Operations that 10,224,393 51,982

 will not require or generate resources

 Total components of net cost of operations that 10,404,211 55,541

 will not require or generate resources in the current

 period

Net Cost of Operations 106,264,733 3,447,286
81

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.

Air National Guard Component Level 2004 Combined 2003 Combined

$ 7,705,256 $ 0 $ 134,360,658 $ 131,606,952

-762,035 0 -9,944,341 -10,121,221

6,943,221 0 124,416,317 121,485,731

0 0 -115,376 -156,704

6,943,221 0 124,300,941 121,329,027

0 000

71,200 -386,383 311,130 -110,688

0 0 663,607 632,992

0 000

71,200 -386,383 974,737 522,304

7,014,421 -386,383 125,275,678 121,851,331

228,325 2,088,776 201,266 -8,331,143

-190 0 78,091 685,633

-21,986 0 -896,088 0

0 0 115,376 9,106

-95,614 0 -16,068,394 -19,120,713

0 000

-71,200 386,383 -311,130 110,688

39,335 2,475,159 -16,880,879 -26,646,429

7,053,756 2,088,776 108,394,799 95,204,902

7,394 0 137,700 478,344

0 0 0 -344,161

0 000

0 000

134 0 53,205 14,770

7,528 0 190,905 148,953

201,198 0 9,847,705 13,282,864

-2,718 -386,383 -938,081 1,641,043

0 000

0 000

99,294 0 3,919,002 0

-84,203 0 -2,725,063 11,549,603

213,571 -386,383 10,103,563 26,473,510

221,099 -386,383 10,294,468 26,622,463

7,274,855 1,702,393 118,689,267 121,827,365
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United States Air Force • 2004 Annual Financial Statement
General Fund

Required Supplementary

Stewardship Information

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United States Air Force
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United States Air Force • 2004 Annual Financial Statement
National Defense Property, Plant and Equipment

The Federal Accounting Standards Advisory Board (FASAB) revised the Statement of Federal Financial Accounting Standards

No. 6 to require the capitalization and depreciation of military equipment (formerly National Defense Property, Plant and

Equipment/ND PP&E) for fiscal years 2004 and beyond and encouraged early implementation. 

1. Museums 

The Air Force Museum, located at Wright-Patterson Air Force Base, Ohio, houses the main collection of historical artifacts

that are registered as historical property in the USAF Museum System. The other 17 Air Force museums are considered Air

Force Field Museums or Heritage Centers, which also contain items of historical interest; some however, are specific to the

general locality. 

All remaining museums and Heritage Centers are reported in acceptable condition. 

2. Monuments and Memorials

The memorials and monuments reported above, except for 28, are all located at the Air Force Academy in the Air Gardens

and Honor Court. Most of these monuments and memorials honor specific individuals or cadet wings for various accomplishments. The remaining 28 memorials, all with costs that exceed $100,000, are located on various Air Force bases

throughout the United States. All are reported in acceptable condition.

3. Cemeteries 

The Air Force has administrative and curatorial responsibilities for 39 cemeteries on its bases. The cemeteries are maintained by the bases and are in good condition. 

4. Archeological Sites

As of 30 September 2004, the AF has 1,685 archeological sites listed on, or eligible for, the National Register. The AF has

9,779 potentially eligible archeological sites, and 2,464 non-eligible archaeological sites. Neither is listed on this report. The

numbers of archaeological sites will increase yearly as the AF completes surveys in compliance with the National Historic

Preservation Act. The number of archaeological sites on AF managed lands is reported each year in the Report to Congress

on Federal Archaeological Activities (FY03 report submitted March 04). The identified sites are maintained in an acceptable

condition.

5. Buildings and Structures

The Air Force currently considers 4,074 buildings and structures as heritage assets. Most of these buildings and structures

are considered Multi-use Heritage Assets, and as such, have been reported as general property, plant, and equipment on the

Quantities 10/1/2003 9/30/2004

Museums Each 18 0 0 18

Monuments & Memorials Each 151 2 0 153

Cemeteries Sites 39 0 0 39

Archeological Sites Sites 1,685 0 0 1,685

Buildings & Structures Each 4,074 0 0 4,074

Major Collections Each 4 0 0 4

Additions Deletions As Of

HERITAGE ASSETS

For Fiscal Year Ended September 2004

Measurement As Of

85
86

Balance Sheet. The buildings and structures are maintained by each base civil engineering group and are considered to be in

good condition. 

6. Major Collections

The Air Force has four significant or major collections consisting of: (a) the Air Force Art Collection, and (b) three collections

at the Air Force Academy containing historical items and memorabilia as well as distinctive works of art. The curators for all

major collections reported the contents to be in good condition. They further added that almost all of the materials are protected in an environment suitable for long-term storage. The overall condition of the collections in the museums is good;

items are displayed and protected in accordance with the standards of Air Force Instruction 84-103, USAF Museum System.

The Air Force has 7,728 acres of mission-essential land under their administration. Lands purchased by the Air Force with

the intent to construct buildings or facilities are considered general PP&E and are reported on the balance sheet. All stewardship lands, as reported, are in acceptable condition, based on designated use.

The Air National Guard investments in non-federal physical property are strictly through the Military Construction

Cooperative Agreements (MCCAs). These agreements involve the transfer of money only and allow joint participation with

States, Counties, and Airport Authorities for construction or repair of airfield pavements and facilities required to support

the flying mission assigned at these civilian airfields.

Investment values included in this report are based on Nonfederal Physical Property outlays (expenditures). Outlays are

used because current DoD systems are unable to capture and summarize costs in accordance with the Federal Accounting

Standards requirements. 

Categories FY 2000 FY 2001 FY 2002 FY 2003 FY 2004

Funded Assets:

 National Defense Mission Related $6.80 $20.20 $21.30 $11.31 $18.30 

Total $6.80 $20.20 $21.30 $11.31 $18.30 

NONFEDERAL PHYSICAL PROPERTY

Yearly Investment in State and Local Governments

For Fiscal Years 2000 through 2004 ($ in Millions )

(a) (d)

1. Mission 0

2. Parks & Historic Sites 0

Totals 0 7,728

Land Use As of 10/1/2003 Additions Deletions As of 9/30/2004

7,728 0

0 0 0

7,728 0 7,728

STEWARDSHIP LAND

For Fiscal Year Ended September 2004 (Acres in Thousands)

(b) (c) (e)

United States Air Force • 2004 Annual Financial Statement
Basic Research is the systematic study to gain knowledge or understanding of the fundamental aspects of phenomena and

of observable facts without specific applications, processes, or products in mind. Basic Research involves the gathering of a

fuller knowledge or understanding of the subject under study. Major outputs are scientific studies and research papers.

Applied Research is the systematic study to gain knowledge or understanding necessary for determining the means by

which a recognized and specific need may be met. It is the practical application of such knowledge or understanding for the

purpose of meeting a recognized need. This research points toward specific military needs with a view toward developing

and evaluating the feasibility and practicability of proposed solutions and determining their parameters. Major outputs are

scientific studies, investigations, and research papers, hardware components, software codes, and limited construction of, or

part of, a weapon system to include nonsystem specific development efforts.

Development takes what has been discovered or learned from basic and applied research and uses it to establish technological feasibility, assessment of operability, and production capability. Development is comprised of five stages defined below:

1. Advanced Technology Development is the systematic use of the knowledge or understanding gained from research

directed toward proof of technological feasibility and assessment of operational and producibility rather than the development of hardware for service use. Employs demonstration activities intended to prove or test a technology or method.

2. Advanced Component Development and Prototypes evaluates integrated technologies in as realistic an operating environment as possible to assess the performance or cost reduction potential of advanced technology. Programs in this phase

are generally system specific. Major outputs of Advanced Component Development and Prototypes are hardware and software components, or complete weapon systems, ready for operational and developmental testing and field use. 

3. System Development and Demonstration concludes the program or project and prepares it for production. It consists

primarily of preproduction efforts, such as logistics and repair studies. Major outputs are weapon systems finalized for complete operational and developmental testing.

4. RDT&E Management Support is support for installations and operations for general research and development use.

This category includes costs associated with test ranges, military construction maintenance support for laboratories, operations and maintenance of test aircraft and ships, and studies and analysis in support of the R&D program.

1. Basic Research $206 $203 $208 $141 $326 

2. Applied Research 577 637 666 510 886

3. Development

 Advanced Technology Development 554 545 492 399 1,074

 Advanced Component Development and Prototypes 899 1,237 884 1,065 2,003

 System Development and Demonstration 4,251 3,279 3,194 2,903 4,390

 Research, Development, Test and Evaluation

 Management Support 768 777 769 597 1,000

 Operational Systems Development 7,096 7,295 7,225 7,864 10,612

Totals $14,351 $13,973 $13,438 $13,479 $20,291 

FY 2003 FY 2004

INVESTMENTS IN RESEARCH AND DEVELOPMENT 

Yearly Investment in Research and Development

For Fiscal Years 2000 through 2004 ($ in Millions)

Categories FY 2000 FY 2001 FY 2002

87
88

5. Operational Systems Development is concerned with development projects in support of programs or upgrades still in

engineering and manufacturing development, which have received approval for production, for which production funds have

been budgeted in subsequent fiscal years.

The following are representative program examples for each of the above major categories:

Basic Research—The Air Force supported basic researchers have developed a method to produce gallium nitride material

for use in improved semiconductor devices. This advance could enable improved electronics that can perform in harsh environments. Possible applications include: remote-sensing platforms; displays and indicators based on light-emitting diodes;

laser diodes for optical data storage; and sensor and detector surveillance systems, such as the solar-blind shield and biological agent detectors.

Air Force supported basic researchers have discovered a new method of improving digital signal processing through holography. These holographic systems are able to record fast events that occur on the nanosecond timescale. This advance could

lead to significant improvements in our capability to track and identify enemy aircraft and missile threats.

Applied Research—The AF’s Applied Research program is developing technologies to support the air and space force of

the future. Development of electronic components and subsystems for use in shallow-depth phased-array radar antennas

for persistent intelligence, surveillance, and reconnaissance and time-sensitive strike capabilities. Such phased-array antennas,

at 1/5 the cost of conventional antennas, could have direct application to advanced unmanned aerial vehicles and fighter aircraft. Wireless Intrusion Detection System sensors for information assurance were designed, developed, and field-tested.

This program opens the door for secure operation of military wireless networks based on this widely available and costeffective technology. 

Advanced Technology Development—The AF’s Advanced Technology Development program demonstrates, in a realistic

operational environment, integrated sets of technology to prove military worth and utility. The first example was when the

AF and the Defense Advanced Research Projects Agency conducted a successful jettison release of a weapon from a Boeing

X-45A Joint Unmanned Combat Air System (J-UCAS) over the Precision Impact Range Area (PIRA) at Edwards Air Force

Base, CA. It is an aviation first for a UAV to release from an internal weapons bay. Secondly, AFRL also demonstrated a 330

Gigahertz detector that operates at frequencies billions of times faster than the blink of an eye. This technology will be used

to produce compact solid-state circuits operating at Terahertz frequencies. Likely technology application would be to enable

a new generation of sensors to enhance homeland security. Completed the final transition of the very successful Laser

Infrared Countermeasures Fly-out Experiment demonstration with a final risk reduction live fire missile test at Tonopah

National Test Range, Nevada. This test showed conclusively that Closed Loop Infrared Countermeasures jamming techniques provide a robust capability against a wide variety of infrared missiles, including proliferated Man Portable Air Defense

Systems.

Developed a custom-molded, noise-attenuating earplug that enables seamless voice communications to and from radios,

while electronically passing all outside environmental sounds to the operator at safe levels. 

Demonstration and Validation (Advanced Component Development and Prototypes)—The Air Force’s Advanced

Component Development and Prototypes (ACD&EP) programs are comprised of system specific advanced technology integration efforts accomplished in an operational environment to help expedite transition from the effort: In FY04 the Air Force

successfully demonstrated Fighter Aircraft Command and Control Enhancement (FACE). FACE provides an improved,

beyond-line-of-sight (BLOS) command and control link with fighter aircraft by integrating Iridium telephone communications

equipment with existing aircraft communications equipment. BLOS capability has traditionally been provided by low-density,

high-demand airborne platforms acting as communications relays. FACE provides relief for these overworked assets, while

allowing combatant commanders to maintain positive control of the battle space. FACE, which has been approved for

United States Air Force • 2004 Annual Financial Statement
deployment to Afghanistan through the Air Force’s Rapid Response Process, has the potential for extensive use in virtually

any Area of Responsibility, including Homeland Defense.

In FY04, the joint DARPA/Air Force program office awarded Falcon contracts (other transaction agreements administered by

DARPA) for the development and demonstration of key technologies. The small responsive launch vehicle portion (four contracts) is proceeding toward a FY05 down select (to one or more contractors) with a launch no later than FY07 while the

hypersonic test vehicle portion (one contract) is also working toward a FY07 launch. The ultimate goal of this technology

demonstration program is to demonstrate and validate key technologies leading to residual capability and follow-on operational systems.

In FY04, the Air Force awarded contracts for Space Based Radar (SBR) for up-front, in-depth, system engineering, focused

concept-specific, risk-reduction activities, and alternative concept-exploration activities leading to the System Requirements

Review. The SBR program will provide day/night, all-weather global surface moving target indications (MTI), synthetic aperture radar (SAR) and high-resolution terrain information (HRTI) capabilities from a space-based platform. The ultimate goal

is a FY15 first launch.

Engineering and Manufacturing Development—The Air Force’s System Demonstration and Engineering Development

(SD&ED) efforts are development projects which have not received approval for full-production. Examples of Air Force

SD&ED efforts are: (1) The Space Based Infrared System Increment 1 Mission Control Station (MCS) achieved initial operational capability on 18 December 2001. The MCS consolidates Defense Support Program operations at Buckley AFB,

Colorado, reducing manpower by 58% and operations and maintenance costs by 25%. Subsequent upgrades to the MCS

throughout fiscal year 2002 resulted in closure of the Air-Land Enhanced Reconnaissance and Targeting ALERT ground station on 25 September 2002, consolidating all space-based strategic and theater missile warning operations, realizing additional manpower and Operations and Maintenance funds savings. (2) Another example, the F/A-22 Raptor program continues

development and low-rate production of the Air Force’s next generation air dominance fighter. Designed to penetrate

enemy airspace and achieve a first look, first kill capability against multiple targets, the F/A-22’s combination of stealth, supercruise, maneuverability, and integrated avionics, coupled with improved supportability, represents an exponential leap in

warfighting capabilities and allows for the full realization of operational concepts that are vital to the 21st century Air Force.

Initial operational capability is planned for December 2005. The F/A-22 has been in Engineering and Manufacturing

Development (EMD) since 1991 and is currently meeting or exceeding all key performance parameters.

Significant program accomplishments in fiscal year 2004 include:

• Completion of Fatigue Testing through 2.68 lifetimes. Static test unit disassembled for study 

• Commencement of Initial Operational Test and Evaluation. Open air and simulator testing phase is complete with the

remainder of the effort focused on analysis and reporting the data

• Completion of multiple supersonic AMRAAM and AIM-9 missile shots, along with the first-ever JDAM drop

• The exceeding of over 3,100 flight test missions, logging in over 6,900 hours on the EMD aircraft fleet

The F-35 Joint Strike Fighter (JSF) program is developing a family of strike fighter aircraft for the Air Force, Navy, Marine

Corps and our allies, with maximum commonality among the variants to minimize life cycle costs. The Air Force

Conventional Takeoff and Landing (CTOL) variant will be a multi-role, primary air-to-ground aircraft to replace the F-16 and

A-10 and complement the F/A-22. In addition, the Air Force recently announced the intent to buy the Short Takeoff and

Vertical Landing (STOVL) variant to provide dedicated close air support from austere bases. While the F/A-22 will establish

air dominance, the F-35—with its combination of stealth, large internal payloads and multi-spectral avionics—will provide

persistent stealth and precision engagement to the future battlespace. The F-35 has been in System Development and

89
90

Demonstration since 2001. In March 2004, the USD (AT&L) approved a program restructure to address design maturity

issues. As a result of this restructure, the F-35 is still projected to meet or exceed all key performance parameters.

Significant program accomplishments in fiscal year 2004 include: 

• Service acquisition oversight transition from the Navy to the Air Force

• Completion of the Air System Design Integration and Maturity Review (DIMR)

• Pratt & Whitney F135 First Engine to Test

• General Electric F136 First Engine to Test

Additionally, the program continued the International Commonality Effort to identify an ORD compliant configuration for

international partners that maximizes commonality with the U.S. baseline program consistent with National Disclosure

Policy. The B-1B Defensive System Upgrade Program (DSUP) was canceled in December 2002 due to repeated cost and

schedule overruns. However, the Air Force continued to improve the B-1B’s effectiveness through integration of new computers and advanced conventional weapons. Combined Developmental and Operational Testing (DT/OT) for the new computers was completed in July, and dedicated operational testing completed in December 2002. Testing showed the computers met or exceeded all key performance parameters and they were approved for full-rate production in April 2003.

Combined DT/OT flight test JSOW and JASSM Integration (JJI) was completed on the B-1. The JJI-modified B-1 was determined to be operationally effective and suitable. The weapon system experienced no JJI component failures during OT&E.

This weapon integration added significant operational capabilities to the B-1.

In August 2004, the Space Based Infrared System (SBIRS) program delivered its first space payload for integration with a classified host satellite. The SBIRS payload includes an infrared sensor, which will operate in Highly Elliptical Orbit (HEO). 

In FY04, the Air Force awarded contracts for Transformational Satellite Communications System (TSAT) space segment development and continued technology development for the next-generation communication satellite. The TSAT program will

develop key technologies such as laser communications, internet-like communications protocols, and methods of dynamically

allocating communications capability among users. The ultimate goal is a FY13 first launch of a transformational satellite. 

The Counter Communications Systems first system was delivered in December 2003. Air Force Space Command declared

initial capability on Sept. 24, 2004, after the final two systems were delivered. The Counter Communications Systems

(CCS) is operated by the 76th Space Control Squadron at Peterson AFB, CO, and is a transportable ground-based system

that denies adversary satellite communications through reversible, non-destructive methods.

Research, Development, Test and Evaluation Management Support—The Air Force’s Research, Development, Test,

and Evaluation (RDT&E) Management Support efforts include projects directed toward support of installation or operations

required for general research and development use. Included would be test ranges, military construction, maintenance support of laboratories, operation and maintenance of test aircraft and ships, and studies and analyses in support of the research

and development program. Example of Air Force RDT&E management support is: The Major Test and Evaluation

Investment program, which funds the planning, improvements and modernization for three national asset test centers having

over $10 billion of unique test facilities/capabilities operated and maintained by the Air Force for the Department of Defense

(DoD) test and evaluation missions, and available to others having a requirement for their unique capabilities. The test capabilities and facilities are operated and maintained by the Air Force for the DoD test and evaluation missions, and are available

to others having a requirement for their unique capabilities. Many efforts are contained within this program, but two examples are the Propulsion Wind Tunnel Upgrade at Arnold Engineering Development Center. This effort replaces outdated

data acquisition, processing, and control systems and drive motors. A second example is the Threat Simulator Development

United States Air Force • 2004 Annual Financial Statement
program, which supports many of the AF Electronic Warfare Test Processes. Current projects focus on improved Low

Radar Cross Section threat modeling and simulation, and enhanced infrared and radio frequency countermeasures testing.

Operational Systems Development—The Air Force’s operational system efforts include projects in support of development acquisition programs or upgrades in System Demonstration and Development (SDD). Examples of operational systems development are: The AIM-9X Short Range Missile (SRM) completed its OPEVAL on 29 August 2003. After 22 live fire

tests, 177 sorties, and 2,300 captive flight hours, the AIM-9X was found to be “Operationally Effective and Suitable.” The

program beat its Initial Operational Capability (IOC) by six months in November 2003. In addition, Milestone III was completed and Full-Rate Production was approved with the first full-rate production lot (Lot 5) to be awarded in 1QFY05.

Finally, platform integration efforts for the F-16 and F-18E/F remain on track.

The Phase 3 (AIM-120C-7) effort completed System Demonstration and Development (SDD) in May 2004 and is ready to

begin Operational Test (OT). The AIM-120C-7 provides a major upgrade over the AIM-120C-6 guidance section, particularly

the use of circular processor cards over previously used rectangular cards. These cards provide significant space savings

within the missile for added capability in addition to providing greater processing power. 

AMRAAM Phase 4 builds on the AIM-120C-7 capability and is progressing well on track. This new AIM-120D missile will

add a GPS/INU and a two-way Data Link to enhance accuracy and control, and thus, increasing weapon effectiveness. In

addition, the AIM-120D will have increased range and third party targeting which expands the HOBS launch envelope. The

SDD contract was awarded in December 2003 and initial systems integration testing of the Proof of Design (POD) missile

began in September 2004.

The Joint Direct Attack Munition Program successfully completed operational testing of the MK-82 500lb JDAM on the B-2A

providing an operational capability to the warfighter to drop 80 JDAMs, each targeted to a separate point, from a single aircraft, on a single sortie. JDAM also successfully completed operational testing of the MK-82 on the F-16 (Block 25-30) accelerating an additional capability to the warfighter in support of ongoing operations. 

The SAASM/Anti-Jam development effort, a 27-month effort that commenced in FY03 and continues through FY05, will provide JDAM the capability to decrease vulnerability to crypto compromise and spoofing as well as enhanced anti-jam performance. All JDAMS delivered starting in FY06 and beyond will be SAASM capable. JDAMs delivered in FY06 will be anti-jam

capable. The program has successfully completed one captive carriage and four guided releases using SAASM hardware.

Anti-jam testing will begin in early FY05.

The JDAM program successfully completed in record time the certification of a non-standard fuze/warhead combination to

further minimize JDAM MK-82 collateral damage concerns in support of F-16 units for ongoing operations. This capability

provided the warfighter the ability to use the FMU-139 fuze with the BLU-109 penetrator warhead to both enable detonation at impact (rather than after penetration as they normally do with the FMU-143 fuze) and have the smaller fragmentation

pattern of the BLU-109, further minimizing the risk of collateral damage.

The Small Diameter Bomb (SDB) program will increase the number of kills per platform or sortie (x4) while achieving

required effects by improving accuracy and reducing collateral damage over current inventory weapons. SDB is an incremental development weapon program that entered a 36-month System Development and Demonstration (SDD) of its first

increment in FY04. The first Increment of SDB will attack fixed and stationary targets using anti-jam/SAASM Inertial

Navigation System (INS)/Global Positioning Satellite (GPS) aided by a very wide area differential GPS solution and standoff

capability. The program has successfully completed seven free flight events. The program is working towards a MS C decision in April 05 with LRIP scheduled for May 05. The SDB will provide transformational capability to the Air Force by

increasing loadout per weapon station on multiple platforms, reducing sorties and minimizing collateral damage.

91
92

The Air Force Space program achieved seven successful launches of military satellites, utilizing Titan, Atlas & Delta to launch

DMSP F-16, NRO, UHF-11, GPS IIR-10, DSP-22, GPS IIR-11 and GPS IIR-12.

The Air Force continues to develop the Family of Advanced Beyond Line of Sight Terminals (FAB-T) to provide robust,

secure, strategic and tactical global communications for nuclear and conventional forces. This family of terminals will provide

transformational communications via connectivity to Advanced EHF satellites (AEHF), Wideband Gapfiller Satellites (WGS),

and the future Transformational Satellite Communications System (TSAT). Future increments of this terminal will provide

laser communications in conjunction with optical capabilities on TSAT to deliver data in excess of one GB per second, as well

as a new multi-band antenna that will enable aircraft to have simultaneous connectivity to multiple satellites via a phased

array construct. This capability will allow the Air Force to reduce the costs of integrating multiple antennas to communicate

with different satellite constellations.

In FY04, the Air Force awarded a contract for the Space Based Space Surveillance (SBSS) pathfinder satellite. The SBSS

pathfinder program will design, build, launch and operate this single satellite with a visible sensor payload, as well as build and

operate a ground segment to support initial satellite operations. The SBSS Pathfinder will detect and track objects in Earth

orbit, contributing to timely space situation awareness, and is scheduled to launch in late 2007.

In FY04, the Air Force awarded a contract to begin architecture development for the Orbital Deep Space Imager (ODSI).

The ODSI program will deploy a satellite constellation for reconnaissance of objects in deep space in support of overall battlespace awareness. The first ODSI launch is scheduled for FY12. 

United States Air Force • 2004 Annual Financial Statement
93

General Fund

Required 

Supplementary 

Information

United States Air Force
94

Disaggregated Statement of Budgetary Resources—General Fund

For years ended September 30, 2004 and 2003 ($ in Thousands)

United States Air Force • 2004 Annual Financial Statement

Other

Research, Development, 

Test & Evaluation

Operation and 

Maintenance

BUDGETARY RESOURCES

1. Budget Authority:

1a. Appropriations received $ 387,428 $ 20,540,054 $ 39,682,758

2b. Borrowing authority 0 00

1c. Contract authority 0 00

1d. Net transfers (+/-) -382,470 -50,686 556,232

1e. Other 0 00

2. Unobligated balance:

2a. Beginning of period 2,787 2,006,444 859,909

2b. Net transfers, actual (+/-) 0 0 745,680

2c. Anticipated Transfers Balances 0 00

3. Spending authority from offsetting collections:

3a. Earned 0 00

1. Collected 11,241 2,743,842 4,619,439

2. Receivable from Federal sources -232 -17,883 380,438

3b. Change in unfilled customer orders 0 00

1. Advance received 0 230,101 0

2. Without advance from Federal sources 0 36,014 -167,905

3c. Anticipated for the rest of year, without advances 0 00

3d. Transfers from trust funds 0 00

3e. Subtotal 11,009 2,992,074 4,751,144

4. Recoveries of prior year obligations 0 70,735 525,757

5. Temporarily not available pursuant to Public Law 0 00

6. Permanently not available -1,837 -248,689 -495,338

7. Total Budgetary Resources $ 16,917 $ 25,309,932 $ 46,626,142

STATUS OF BUDGETARY RESOURCES

8. Obligations incurred:

8a. Direct 2,684 20,538,300 40,674,543

8b. Reimbursable 11,010 2,772,784 4,560,162

8c. Subtotal 13,694 23,311,084 45,234,705

9. Unobligated balance:

9a. Apportioned 515 2,848,059 103,541

9b. Exempt from apportionment 2,709 0 0

9c. Other available 0 00

10. Unobligated Balances Not Available 0 -849,211 1,287,897

11. Total, Status of Budgetary Resources $ 16,918 $ 25,309,932 $ 46,626,143

Relationship of Obligations to Outlays:

12. Obligated Balance, Net – beginning of period $ 2,294 $ 7,153,485 $ 18,257,328

13. Obligated Balance transferred, net (+/-) 0 00

14. Obligated Balance, Net – end of period:

14a. Accounts receivable -3 -222,989 -1,166,513

14b. Unfilled customer order from Federal sources 0 -375,942 -304,380

14c. Undelivered orders -2,907,685 7,614,135 15,670,520

14d. Accounts payable 2,914,984 857,802 2,617,891

15. Outlays:

15a. Disbursements 8,924 22,502,697 45,936,224

15b. Collections -11,241 -2,973,943 -4,538,611

15c. Subtotal -2,317 19,528,754 41,397,613

16. Less: Offsetting receipts 0 00

17. Net Outlays $ -2,317 $ 19,528,754 $ 41,397,613
95

Procurement Military Personnel

Military Construction/ 

Family Housing 2004 Combined 2003 Combined

$ 32,748,086 $ 29,823,154 $ 2,302,306 $ 125,483,786 $ 124,235,723

0 0 00 0

0 0 00 0

-2,810 -142,431 -7,229 -29,394 1,888,215

0 0 00 0

4,766,061 565,628 989,116 9,189,946 6,066,510

4,998 -406,010 -98,730 245,938 291,591

0 0 00 0

0 0 00 0

267,130 476,734 -781 8,117,605 7,802,547

10,064 -54,822 0 317,565 -322,918

0 0 00 0

38,799 0 0 188,072 213,465

21,909 1 0 -109,981 472,167

0 0 00 0

0 0 00 0

337,902 421,913 -781 8,513,261 8,165,261

248,956 581,701 3,931 1,431,079 1,955,959

0 0 00 0

-508,384 -139,066 -44,338 -1,437,653 -1,806,362

$ 37,594,809 $ 30,704,889 $ 3,144,275 $ 143,396,963 $ 140,796,897

33,121,531 33,449,486 2,126,729 129,913,273 123,375,566

286,806 -3,183,376 0 4,447,386 8,231,386

33,408,337 30,266,110 2,126,729 134,360,659 131,606,952

4,062,315 45,794 1,012,342 8,072,566 8,320,595

0 0 0 2,709 2,573

0 0 0 -1 -1

124,157 392,984 5,203 961,030 866,778

$ 37,594,809 $ 30,704,888 $ 3,144,274 $ 143,396,963 $ 140,796,897

$ 20,565,944 $ 2,148,716 $ 2,413,816 $ 50,541,583 $ 41,822,195

0 0 00 0

-55,973 -31,134 0 -1,476,612 -1,159,047

-147,070 -2 0 -827,393 -937,374

19,324,782 26,362 2,581,679 42,309,792 42,168,646

3,235,611 1,810,517 68,606 11,505,411 10,469,360

31,336,002 30,082,204 1,886,330 131,752,381 120,782,356

-305,930 -476,734 781 -8,305,678 -8,016,013

31,030,072 29,605,470 1,887,111 123,446,703 112,766,343

0 -115,376 0 -115,376 -156,704

$ 31,030,072 $ 29,490,094 $ 1,887,111 $ 123,331,327 $ 112,609,639
96

Notes

1. FY04 O&M Sustainment Required is based on Facilities Sustainment Model (FSM) 04 requirements (per request of

OUSD(AT&L) to use draft DoD Financial Management Regulation, Volume 6B, Chapter 12, dated Oct 2003). O&M requirements are less the MILPERS contribution (49%).

2. FY04 O&M Sustainment Actuals come from SAF/FMBOO using the CRIS database. The numbers are not certified

DFAS numbers and are subject to change. Certifed numbers for FY04 obligations are not expected until mid-November. 

3. MFH Deferred Sustainment is based upon a combination of historical expenditures for day-to-day maintenance and condition assessment surveys for MFH real property maintenance by contract. These requirements are part of the 2002 Family

Housing Master Plan. 

4. Table 12-3 does not include NAF sustainment funding information because their systems are not able to capture the

requested data for the NAF program. AFSVA and AF/ILVF are working to be able to provide the requested information for

the FY05 Financial Statement. 

5. FY04 RDT&E Sustainment data comes from AF/TER using the CRIS database to provide the Actual funds and Integrated

Budget Documentation and Execution System (IDECS) database to provide the Required funds for RDT&E facility sustainment. FY04 was the first time RDT&E sustainment data was separated from the general T&E support funds. The budgeted

funding for T&E facility sustainment is planned to increase in FY05 and FY06.

Notes

1. Obligations and expenditures for RDT&E Sustainment and Restoration & Modernization (SRM) funding before FY04 are

not available. 

Property Type FY 2001 FY 2002 FY 2003 FY 2004

Buildings, Structures, and Utillities 368,470 808,628 417,112 $550,966

Table 12-4 Annual Deferred Sustainment Trend

Property Type 1. Required 2. Appropriated 3. Executed 4. Difference

Buildings, Structures, and Utilities 2,406,443 2,124,700 1,751,123 $550,966 

Annual Sustainment FY 2004

General Property, Plant, and Equipment

Real Property Deferred Annual Sustainment and RestorationTables

As of September 30, 2004 ($ in thousands)

Table 12-3

United States Air Force • 2004 Annual Financial Statement
Notes

1. Before FY04, the Air Force did not maintain data on the cost to C1 for all facilities. The FY03 Installations’ Readiness

Report (IRR) highlighted cost to C2 but id not include the total AF backlog. Therefore, the FY03 R&M requirements for

Table 12-5 use the total R&M Operation and Maintenance (O&M) requirement projected for each year, non-Military Family

Housing (MFH), and MFH MILCON requirements to C2 from the FY02 IRR. The FY04 R&M requirements are the FY03 IRR

Costs to C1. Because the annual R&M requirements shown in Table 12-5 are calculated differently, they provide a statistically

irrelevant “apples to oranges” comparison.

a. FY03 Requirements: FY02 IRR Costs to C2 breakdown is: $12.5B MILCON, $5.1B for Family Housing, and $2.9

MILCON for Transportation Working Capital Fund, Defense Logistics Agency, Non-Appropriated Funds, RDT&E (Research,

Development, Test, and Evaluation), Medical, other non-O&M facilities. The total FY03 O&M R&M backlog is $7.9B. FY03

R&M MILCON numbers include new footprint. New footprint is an essential element of our IRR requirements. It provides

the facilities necessary to effectively support our installations’ mission.

b. FY04 Requirements: FY03 IRR Costs to C1 breakdown is: $15.0B MILCON (excluding new footprint), $5.3B new

footprint MILCON, $5.6B for Family Housing, $3.4B Host Nation, $0.6B DLA, and $2.2B MILCON for Transportation

Working Capital Fund, Non-Appropriated Funds, RDT&E (Research, Development, Test, and Evaluation), Medical, other

non-O&M facilities. The total FY04 O&M R&M backlog is $8.7B, and the total MFH O&M R&M backlog is $0.8B.

Real Property Condition Information

The readiness of Air Force facilities is assessed using the IRR. The IRR assigns C-ratings ranging from C-4 (worst) to C-1

(best) facilities aggregated in nine facility classes. The FY03 IRR identified that 59 percent of Air Force facility classes were

rated C-4 or C-3. Facility clases rated as having significant (C-3) or major (C-4) deficiences preclude satisfactory mission

accomplishment.

Property Type End FY 2003 End FY 2004 Change

Buildings, Structures, and Utilities $28,400,000 41,500,000 $13,100,000 

Table 12-5 Restoration & Modernization Requirements

97
98

The figures presented are actual deferred maintenance amounts for FY04. The figures include Active Air Force, Air National

Guard, and the Air Force Reserve.

United States Air Force • 2004 Annual Financial Statement

Major Type

1. Aircraft $11,000

2. Ships $0

3. Missiles $85,000

4. Combat Vehicles $0

5. Other Weapon Systems $136,000

 Subcategories as required $0

Total $232,000

Military Equipment 

Deferred Maintenance Amounts 

As of September 30, 2004 (Amounts in Thousands)
99

Schedule, Part A 

DoD Intra-governmental Asset Balances

($ in thousands)

Treasury 

Index

Loans 

Receivable

Executive Office of the President 11 $ -9

Department of Agriculture 12 $ 816

Department of Commerce 13 $ 292 $ 10,835

Department of the Interior 14 $ 700 $ 114,361

Department of Justice 15 $ 5,709 $ 1,177

Navy General Fund 17 $ 4,792

United States Postal Service 18 $ 121

Department of State 19 $ 25,313

Department of the Treasury 20 $ 60,600,999 $ 1,246 $ 712 $ 62

Army General Fund 21 $ 14,203 $ 2,880

Office of Personnel Management 24 $ 2

Social Security Administration 28 $ 1

Library of Congress 3 $ 920

Smithsonian Institution 33 $ 22

Department of Veterans Affairs 36 $ 239

Government Printing Office 4 $ 31

General Service Administration 47 $ 642

National Science Foundation 49 $ 5,491 $ 1,813

Central Intelligence Agency 56 $ 516

Federal Emergency Management Agency 58 $ 536

Environmental Protection Agency 68 $ 226 $ 2,386

Department of Transportation 69 $ 28,745 $ 58,821

Homeland Security 70 $ 50

Agency for International Development 72 $ 1,335

Small Business Administration 73 $ 848

Department of Health and Human Services 75 $ 14

National Aeronautics and Space Administration 80 $ 11,021 $ 16,180

National Archives and Records Administration 88 $ 50

Department of Energy 89 $ 3,163 $ 2,872

Department of Education 91 $ 33

US Army Corps of Engineers 96 $ 55

Other Defense Organizations General Funds 97 $ 120,458 $ 172

Other Defense Organizations Working Capital Funds 97-4930 $ 387,873 $ 1,969

Army Working Capital Fund 97-4930.001 $ 749 $ -442

Navy Working Capital Fund 97-4930.002 $ 1,507

Air Force Working Capital Fund 97-4930.003 $ 74,035 $ 228,984

The General Fund of the Treasury 99 $ 0

Fund Balance 

with Treasury Investments Other Accounts Receivable
100

United States Air Force • 2004 Annual Financial Statement

Schedule, Part B 

DoD Intra-governmental entity liabilities

($ in thousands)

Treasury 

Index

Debts/ 

Borrowings 

From Other 

Agencies

Executive Office of the President 11 $ $ 196,761

Department of Agriculture 12 $ 351

Department of Commerce 13 $ 565 $ 33,744

Department of the Interior 14 $ 1,935 $ 33

Department of Justice 15 $ 1,009

Department of Labor 16 $ 67,065 $ 330,244

Navy General Fund 17 $ 15,358 $ 75,516

Department of State 19 $ 6,788

Department of the Treasury 20 $ 107,861 $ 175,194

Army General Fund 21 $ 155,513 $ 15,155

Office of Personnel Management 24 $ 2,782 $ 41,216

Federal Communications Commission 27 $ 30

Social Security Administration 28 $ 7 $ 1,505

Library of Congress 3 $ 336

Nuclear Regulatory Commission 31 $ 29

Smithsonian Institution 33 $ 30

Department of Veterans Affairs 36 $ 9,852

Government Printing Office 4 $ 601

General Service Administration 47 $ 262,986 $ 41,274

National Science Foundation 49 $ 868

Federal Labor Relations Authority 54 $ 1

Tennessee Valley Authority 64 $ 1,882

Environmental Protection Agency 68 $ 69 $ 0

Department of Transportation 69 $ 23,667 $ 595

Homeland Security 70 $ 1,645

Agency for International Development 72 $ 7,851 $ 286

Small Business Administration 73 $ 36

Department of Health and Human Services 75 $ 388

National Aeronautics and Space Administration 80 $ 29,539 $ 263,608

Department of Energy 89 $ 14,193 $ 53,115

US Army Corps of Engineers 96 $ 43

Other Defense Organizations General Funds 97 $ 37,775 $ 3,333

Other Defense Organizations Working Capital Funds 97-4930 $ 617,597 $ -45

Army Working Capital Fund 97-4930.001 $ 19,595

Navy Working Capital Fund 97-4930.002 $ 60,640 $ 0

Air Force Working Capital Fund 97-4930.003 $ 451,525 $ 0

The General Fund of the Treasury 99 $ 494,947

DoD Medicare-Eligible Retiree Health Care Fund $ 0

Other Accounts 

Payable
101

Schedule, Part C

DoD Intra-governmental revenue and related costs

($ in thousands)

Treasury 

Index

Executive Office of the President 11 $ 829,012

Department of Agriculture 12 $ 369

Department of Commerce 13 $ 1,163

Department of the Interior 14 $ 1,965

Department of Justice 15 $ 15,971

Navy General Fund 17 $ 199,799

United States Postal Service 18 $ 345

Department of State 19 $ 28,800

Department of the Treasury 20 $ 1,305

Army General Fund 21 $ 129,602

Office of Personnel Management 24 $ 1

Social Security Administration 28 $ 97

Nuclear Regulatory Commission 31 $ -2

Department of Veterans Affairs 36 $ 908

General Service Administration 47 $ 2,566

National Science Foundation 49 $ 54,043

Central Intelligence Agency 56 $ 1,977

Federal Emergency Management Agency 58 $ 489

Environmental Protection Agency 68 $ 501

Department of Transportation 69 $ 55,831

Agency for International Development 72 $ 37,910

Department of Health and Human Services 75 $ 93

National Aeronautics and Space Administration 80 $ 78,148

National Archives and Records Administration 88 $ 25

Department of Energy 89 $ 19,733

Department of Education 91 $ 127

US Army Corps of Engineers 96 $ 954

Other Defense Organizations General Funds 97 $ 1,711,234

Other Defense Organizations Working Capital Funds 97-4930 $ 1,312,211

Army Working Capital Fund 97-4930.001 $ 1,722

Navy Working Capital Fund 97-4930.002 $ 19,355

Air Force Working Capital Fund 97-4930.003 $ 301,785

The General Fund of the Treasury 99 $ -59,893

DoD Medicare-Eligible Retiree Health Care Fund $ 194,208

Earned 

Revenue

Schedule, Part E

DoD Intra-governmental Non-exchange Revenues

(& in thousands)

Treasury 

Index

Navy General Fund 17 $ -2,809

Army General Fund 21 $ 9,386 $ 44,393

Other Defense Organizations General Funds 97 $ 343,362

Other Defense Organizations Working Capital Funds 97-4930 $ 451,000

Air Force Working Capital Fund 97-4930.003 $ 220,000 $ 34

Transfers In Transfers Out
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Audit Opinion

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Principal Statements

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Consolidated Balance Sheet—Working Capital Fund

As of September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements.

 2004 

Consolidated

2003 

Consolidated

1. ASSETS (Note 2)

A. Intra-governmental:

1. Fund Balance with Treasury (Note 3)

a. Entity $ 1,051,110 $ 732,842

b. Non-Entity Seized Iraqi Cash 0 0

c. Non-Entity-Other 0 0

2. Investments (Note 4) 0 0

3. Accounts Receivable (Note 5) 576,396 605,077

4. Other Assets (Note 6) 10 3

5. Total Intra-governmental Assets $ 1,627,516 $ 1,337,922

B. Cash and Other Monetary Assets (Note 7) $ 0$ 0

C. Accounts Receivable (Note 5) 103,111 167,764

D. Loans Receivable (Note 8) 0 0

E. Inventory and Related Property (Note 9) 21,025,528 22,524,996

F. General Property, Plant and Equipment (Note 10) 1,197,683 1,329,629

G. Investments (Note 4) 0 0

H. Other Assets (Note 6) 788,966 380,362

2. TOTAL ASSETS $ 24,742,804 $ 25,740,673

3. LIABILITIES (Note 11)

A. Intra-governmental:

1. Accounts Payable (Note 12) $ 256,763 $ 231,725

2. Debt (Note 13) 0 0

3. Environmental Liabilities (Note 14) 0 0

4. Other Liabilities (Note 15 and Note 16) 243,131 345,437

5. Total Intragovernmental Liabilities $ 499,894 $ 577,162

B. Accounts Payable (Note 12) $ 497,471 $ 88,984

C. Military Retirement Benefits and Other Employment-Related 238,729 275,132

D. Actuarial Liabilities (Note 17)

E. Environmental Liabilities (Note 14) 0 0

F. Loan Guarantee Liability (Note 8) 0 0

G. Other Liabilities (Note 15 and Note 16) 1,616,321 1,891,851

H. Debt Held by Public 0 0

4. TOTAL LIABILITIES $ 2,852,415 $ 2,833,129

5. NET POSITION

A. Unexpended Appropriations (Note 18) $ 0$ 0

B. Cumulative Results of Operations 21,890,389 22,907,544

6. TOTAL NET POSITION $ 21,890,389 $ 22,907,544

7. TOTAL LIABILITIES AND NET POSITION $ 24,742,804 $ 25,740,673
116

United States Air Force • 2004 Annual Financial Statement

Consolidated Statement of Net Cost—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.

2004 2003

Consolidated Consolidated

1. Program Costs

A. Intra-governmental Gross Costs $ 5,399,793 $ 5,448,310

B. (Less: Intra-governmental Earned Revenue) -11,888,462 -13,317,788

C. Intra-governmental Net Costs $ -6,488,669 $ -7,869,478

D. Gross Costs With the Public 8,674,787 8,224,828

E. (Less: Earned Revenue From the Public) -891,419 -393,889

F. Net Costs With the Public $ 7,783,368 $ 7,830,939

G. Total Net Cost $ 1,294,699 $ -38,539

2. Cost Not Assigned to Programs 0 0

3. (Less: Earned Revenue Not Attributable to Programs) 0 0

4. Net Cost of Operations $ 1,294,699 $ -38,539
117

Consolidated Statement of Changes in Net Position—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.

2004 2003

Consolidated Consolidated

CUMULATIVE RESULTS OF OPERATIONS

1. Beginning Balances $ 11,537,088 $ 11,593,865

2. Prior Period Adjustments (+/-)

2.A. Prior Period Adjustments - Restated (+/-) 11,370,456 11,370,456

2.B. Beginning Balance, Restated 22,907,544 22,964,321

2.C. Prior Period Adjustments - Not Restated (+/-) 699,393 -55,128

3. Beginning Balances, as adjusted 23,606,937 22,909,193

4. Budgetary Financing Sources:

4.A. Appropriations received 0 0

4.B. Appropriations transferred-in/out (+/-) 0 0

4.C. Other adjustments (rescissions, etc) (+/-) 0 0

4.D. Appropriations used 0 23,956

4.E. Nonexchange revenue 0 0

4.F. Donations and forfeitures of cash and cash equivalents 0 0

4.G. Transfers-in/out without reimbursement (+/-) -580,900 0

4.H. Other budgetary financing sources (+/-) 0 0

5. Other Financing Sources:

5.A. Donations and forfeitures of property 0 0

5.B. Transfers-in/out without reimbursement (+/-) 34 -209,350

5.C. Imputed financing from costs absorbed by others 159,017 145,206

5.D. Other (+/-) 0 0

6. Total Financing Sources -421,849 -40,188

7. Net Cost of Operations (+/-) 1,294,699 -38,539

8. Ending Balances $ 21,890,389 $ 22,907,544

UNEXPENDED APPROPRIATIONS

1. Beginning Balances $ 0$ 0

2. Prior Period Adjustments (+/-)

2.A. Prior Period Adjustments - Restated (+/-) 0 0

2.B. Beginning Balance, Restated 0 0

2.C. Prior Period Adjustments - Not Restated (+/-) 0 0

3. Beginning Balances, as adjusted 0 0

4. Budgetary Financing Sources:

4.A. Appropriations received 0 23,956

4.B. Appropriations transferred-in/out (+/-) 0 0

4.C. Other adjustments (rescissions, etc) (+/-) 0 0

4.D. Appropriations used 0 -23,956

4.E. Nonexchange revenue 0 0

4.F. Donations and forfeitures of cash and cash equivalents 0 0

4.G. Transfers-in/out without reimbursement (+/-) 0 0

4.H. Other budgetary financing sources (+/-) 0 0

5. Other Financing Sources:

5.A. Donations and forfeitures of property 0 0

5.B. Transfers-in/out without reimbursement (+/-) 0 0

5.C. Imputed financing from costs absorbed by others 0 0

5.D. Other (+/-) 0 0

6. Total Financing Sources 0 0

7. Net Cost of Operations (+/-) 0 0

8. Ending Balances $ 0$ 0
118

United States Air Force • 2004 Annual Financial Statement

Combined Statement of Budgetary Resouces—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

2004 2003

Combined Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES

1. Budget Authority:

1a. Appropriations received $ 0 $ 23,956

1b. Borrowing authority 0 0

1c. Contract authority 684,378 -35,575

1d. Net transfers (+/-) 0 0

1e. Other 0 0

2. Unobligated balance:

2a. Beginning of period 607,130 305,847

2b. Net transfers, actual (+/-) -580,900 -125,000

2c. Anticipated transfers balances 0 0

3. Spending authority from offsetting collections:

3a. Earned 0 0

1. Collected 17,824,823 17,643,264

2. Receivable from Federal sources -186,398 83,803

3b. Change in unfilled customer orders 0 0

1. Advance received -173,221 -371,890

2. Without advance from Federal sources -733,915 200,583

3c. Anticipated for the rest of year, without advances 0 0

3d. Transfers from trust funds 0 0

3e. Subtotal 16,731,289 17,555,760

4. Recoveries of prior year obligations 3,180 2,027

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -36,669 -119,535

7. Total Budgetary Resources $ 17,408,408 $ 17,607,480

STATUS OF BUDGETARY RESOURCES

8. Obligations incurred:

8a. Direct $ 2,027 $ 23,956

8b. Reimbursable 17,271,941 16,976,393

8c. Subtotal 17,273,968 17,000,349

9. Unobligated balance:

9a. Apportioned 134,440 607,132

9b. Exempt from apportionment 0 0

9c. Other available 0 -1

10. Unobligated Balances Not Available 0 0

11. Total, Status of Budgetary Resources $ 17,408,408 $ 17,607,480

Relationship of Obligations to Outlays:

12. Obligated Balance, Net - beginning of period $ 3,317,312 $ 3,504,176

13. Obligated Balance transferred, net (+/-) 0 0

14. Obligated Balance, Net - end of period:

14a. Accounts receivable -958,783 -1,145,183

14b. Unfilled customer order from Federal sources -3,265,470 -3,999,386

14c. Undelivered orders 6,610,227 6,166,726

14d. Accounts payable 2,370,008 2,295,155

15. Outlays:

15a. Disbursements 16,752,435 16,900,798

15b. Collections -17,651,602 -17,271,374

15c. Subtotal -899,167 -370,576

16. Less: Offsetting receipts 0 0

17. Net Outlays $ -899,167 $ -370,576
119

Combined Statement of Financing—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.

2004 2003

Combined Combined

Resources Used to Finance Activities:

Budgetary Resources Obligated

1. Obligations incurred $ 17,273,968 $ 17,000,349

2. Less: Spending authority from offsetting collections -16,734,467 -17,557,786

 and recoveries (-)

3. Obligations net of offsetting collections and recoveries 539,501 -557,437

4. Less: Offsetting receipts (-) 0 0

5. Net obligations 539,501 -557,437

Other Resources

6. Donations and forfeitures of property 0 0

7. Transfers in/out without reimbursement (+/-) 33 -209,350

8. Imputed financing from costs absorbed by others 159,017 145,206

9. Other (+/-) 0 0

10. Net other resources used to finance activities 159,050 -64,144

11. Total resources used to finance activities 698,551 -621,581

Resources Used to Finance Items not Part of the Net Cost of Operations

12. Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

12a. Undelivered Orders (-) -951,116 -468,106

12b. Unfilled Customer Orders -907,137 -171,307

13. Resources that fund expenses recognized in prior periods -36,403 0

14. Budgetary offsetting collections and receipts that 0 0

 do not affect net cost of operations

15. Resources that finance the acquisition of assets -2,686,199 1,006,802

16. Other resources or adjustments to net obligated resources

 that do not affect net cost of operations

16a. Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 0 0

16b. Other (+/-) -34 0

17. Total resources used to finance items not part of the net cost of operations -4,580,889 367,389

18. Total resources used to finance the net cost of operations -3,882,338 -254,192

Components of the Net Cost of Operations that will

not Require or Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future Period:

19. Increase in annual leave liability

20. Increase in environmental and disposal liability 0 0

21. Upward/Downward reestimates of credit subsidy expense (+/-) 0 0

22. Increase in exchange revenue receivable from the the public (-) 0 0

23. Other (+/-) 0 0

24. Total components of Net Cost of Operations that 0 27,382

 will require or generate resources in future periods 0 27,382

Components not Requiring or Generating Resources:

25. Depreciation and amortization 259,260 185,805

26. Revaluation of assets or liabilities (+/-) -5,660,357 2,466

27. Other (+/-)

27a. Trust Fund Exchange Revenue 0 0

27b. Cost of Goods Sold 5,866,525 0

27c. Operating Material & Supplies Used 325,585 0

27d. Other 4,386,024 0

28. Total components of Net Cost of Operations that 5,177,037 188,271

 will not require or generate resources

29. Total components of net cost of operations that will not 5,177,037 215,653

 require or generate resources in the current period

30. Net Cost of Operations 1,294,699 -38,539
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121

Working Capital Fund

Footnotes to the 

Principal Statements

United States Air Force
122

United States Air Force • 2004 Annual Financial Statement

Note 1. Significant Accounting Policies

1.A. Basis of Presentation 

These financial statements have been prepared to report the financial position and results of operations of the United States

Air Force Working Capital Fund (AFWCF), as required by the “Chief Financial Officers (CFO) Act of 1990,” expanded by the

“Government Management Reform Act (GMRA) of 1994,” and other appropriate legislation. The financial statements have

been prepared from the books and records of the AFWCF in accordance with “Department of Defense Financial

Management Regulation (DoDFMR),” the Office of Management and Budget (OMB) Bulletin No. 01-09, “Form and Content

of Agency Financial Statements” and to the extent possible Federal Generally Accepted Accounting Principles (GAAP). The

accompanying financial statements account for all resources for which the AFWCF is responsible except that information relative to classified assets, programs, and operations. This information has been excluded from the statements or otherwise

aggregated and reported in such a manner that is no longer considered classified. The AFWCF’s financial statements are in

addition to the financial reports that are prepared by the United States Air Force pursuant to OMB directives to monitor and

control the Air Force’s use of budgetary resources.

The AFWCF is unable to implement all elements of Federal GAAP and the OMB Bulletin No. 01-09, due to limitations of its

financial management processes and systems, including nonfinancial feeder systems and processes. Reported values and

information for the AFWCF’s major asset and liability categories are derived largely from nonfinancial feeder systems, such as

inventory systems and logistic systems. These systems were designed to support reporting requirements focusing on maintaining accountability over assets and reporting the status of federal appropriations, rather than preparing financial statements

in accordance with Federal GAAP. The AFWCF continues to implement process and system improvements addressing the

limitations of its financial and nonfinancial feeder systems. A more detailed explanation of these financial statement elements

is provided in the applicable footnote.

The AFWCF continues to enter material amounts of unsupported accounting entries. Financial and nonfinancial feeder systems continue to lack sufficient customer identification necessary to accurately process eliminations. The issue has been

addressed as part of the Air Force plan for obtaining a favorable opinion by FY 2007. This was also disclosed in the DoD

Agency-wide Note 1.

1.B. Mission of the Reporting Entity

The United States Air Force was created on September 18, 1947 by the National Security Act of 1947. The National

Security Act Amendments of 1949 established the DoD and made the Air Force a department within the DoD. The overall

mission of the DoD is to organize, train, and equip armed forces to deter aggression and if necessary, defeat aggressors of

the United States and its allies. The overall mission of the Air Force is to defend the United States through control and

exploitation of air and space.

The stock and industrial revolving fund accounts were created by the National Security Act of 1947, as amended in 1949 and

codified in Title 10, U.S.C., Section 2208. The revolving funds were established as a means to more effectively control the

cost of work performed by the DoD. The DoD began operating under the revolving fund concept as early as July 1, 1951.

1.C. Appropriations and Funds 

The Air Force’s funds are divided into the general, working capital (revolving funds), trust, special, and deposit funds. These

appropriations and funds are used to fund and report how the resources have been used in the course of executing the Air

Force’s missions.
Working Capital Funds receive their initial working capital through an appropriation or a transfer of resources from existing

appropriations or funds, and use those capital resources to finance the initial cost of products and services. Financial

resources to replenish the initial working capital and to permit continuing operations are generated by the acceptance of customer orders. The Defense Working Capital Fund (DCWF) operates with financial principles that provide improved cost visibility and accountability to enhance business management and improve the decision making process. The activities provide

goods and services on a reimbursable basis. Receipts derived from operations generally are available in their entirety for use

without further congressional action.

Air Force systems are not transaction driven for budgetary accounts. Therefore, in some cases proprietary and statistical

accounts are used to develop the Report on Budget Execution (SF133) and Statement of Budgetary Resources for reporting

budgetary data. 

Supply Management

The Air Force Stock Funds were established within the DoD under 10 U.S.C. 2208, as described in DoD Financial

Management Regulation 7000.14-R, to finance inventories of supplies. Most inventories of supplies are financed by use of a

stock fund. Exceptions include an item financed with a procurement appropriation or when financing by other means has

been deemed to be more economical and efficient. A stock fund operates as a revolving fund acquiring inventories with

funds received from prior sales to customers.

There are four active business activities in the Supply Management Activity Group (SMAG). They are Materiel Support

Division (MSD), General Support Division (GSD), Medical-Dental Division, and Academy Division. In FY 2001, the Fuels

Division was taken over by the Defense Energy Support Center; therefore, all activity within the Fuels Division is residual.

Troop Support is also a residual activity.

Depot Maintenance

The Air Force Depot Maintenance Activity Group (DMAG) performs manufacturing, development, and test work as well as

aviation maintenance. Primarily supporting Air Force organizations, DMAG also supports other DoD components, government agencies, and foreign governments. The DMAG environment is rapidly changing. Weapons systems embodying new

material and technologies require new maintenance processes, while improvements in reliability reduce the frequency of

maintenance for many items. The net result requires flexibility in addressing both wartime and peacetime workload changes.

The DMAG achieves this flexibility by employing the unique strengths of organic (in-house) and contractor repair resources.

Transportation

The unique transportation responsibilities of the Air Mobility Command (AMC) include the executive travel mission and

operation of other operational support aircraft, the air weather service, AMC training, AMC base operations, tanker operations, and other miscellaneous AMC functions. The Air Force Transportation Defense Business Operations Fund (DBOF)

was established during FY 1993 and discontinued in FY 1995 in accordance with the DWCF improvement plan. Only residual accounting remains.

Air Force Working Capital Fund Component

The purpose of the Air Force Component Activity is to provide an activity within the AFWCF to record transactions that

cannot be identified to a specific business area. The January 21, 1997 memorandum “Policy and Procedures for Cash

Management Working Capital Funds (DWCF)” established the “Component Level Adjustment” column. Additional DFASArlington memorandums provided specific and detailed instructions and procedures to maintain accountability for fund balances with Treasury. 

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Additional DFAS-Arlington memorandums provided specific and detailed instructions and procedures to maintain accountability for fund balances with Treasury. 

Operations of the activities within the AFWCF are based on policies and procedures that include: 

(1) Funding Authority. Prior to FY 1992, industrial fund activities were not issued funding documents. Activities now

receive obligation authority for customer orders from the Air Force Deputy Assistant Secretary, Budget (SAF/FMB). The

total costs that can be incurred are a function of the cost goals applied to the actual customer funded workload. 

(2) Minor Construction Funding. Minor construction projects that cost $100,000 or more, but less than $300,000, are

funded through a separate section of the capital budget, and depreciated over a 20-year period.

(3) Software Development Costs. Policy and procedures have been changed to move the development costs of new

software that meets capitalization requirements to the capital budget. Software is to be amortized after release.

(4) Capital Budgeting. Activity group budgets are segregated into operating and capital budgets. Any investment in equipment, software, minor construction and other management improvements that meet capitalization requirements are funded

through the capital budget and the cost is depreciated or amortized over the relevant life cycle.

(5) Asset Capitalization and Depreciation. The assets of the industrial and stock funds were transferred to the DBOF

and subsequently to the AFWCF. Capital assets, excluding land, which exceed a unit cost of $100,000 or more are subject to

depreciation. In addition, capital assets previously capitalized using the established thresholds for prior years will continue to

be depreciated if depreciation was being recorded prior to the increase to the $100,000 threshold.

(6) Rates and Prices. All Air Force activity groups within the WCF are expected to set their rates and prices based upon

full cost recovery, ensuring that cost reductions made by an activity will be passed on to the customers. Rates and prices

normally will not change during the year of execution, but occasionally change based on certain world situations. If there is a

need for a price change in Depot Maintenance, the authority is requested from HQ Air Force Material Command. 

The FY 2004, AFWCF operations encompassed three activity groups: Supply Management, Depot Maintenance, and

Information Services. These activity groups use their resources to finance the initial cost of products or services for activities

of the United States Government, primarily those of the DoD. Work is generated by the acceptance of customer orders

from ordering activities.

1.D. Basis of Accounting

The AFWCF generally records transactions on an accrual accounting basis as is required by Federal GAAP. However, some

of the Air Force’s financial and nonfinancial feeder systems and processes are not designed to collect and record financial

information on the full accrual accounting basis. The AFWCF has undertaken efforts to determine the actions required to

bring all of its financial and nonfinancial feeder systems and processes into compliance with all elements of Federal GAAP.

One such action is the current revision of its accounting systems to record transactions based on the United States

Government Standard General Ledger (USSGL). Until such time that all of the processes are updated to collect and report

financial information as required by Federal GAAP, some of the AFWCF’s financial data will be based on budgetary transactions (obligations, disbursements, and collections) and nonfinancial feeder systems. For example, most of information presented on the Statement of Net Cost is based on accrued costs. However, some of this information is based on obligations

and disbursements.

Under the accrual method revenues are recognized when earned and expenses are recognized when incurred, without

regard to receipt or payment of cash. Budgetary accounting is accomplished through unique general ledger accounts to facilitate compliance with legal and internal control requirements associated with the use of federal funds. However, the cash

United States Air Force • 2004 Annual Financial Statement
basis of accounting may be followed if the reported activity and amounts are not materially significant. In addition to the

accrual basis of accounting, Depot Maintenance also uses the full absorption accounting principal. During FY 1996, DFASDE, SAF/FMB, and OSD/FM jointly agreed on the use of this principal by Depot Maintenance. This principal requires that

overhead costs such as depreciation and bad debt expenses are included in the cost of services sold. The effect of known

intrafund transactions is eliminated.

The Air Force uses several service unique general ledger structures plus data converted from the Defense Business

Management System (DBMS). The financial statements depicted are derived from supply, maintenance, and accounting

records, utilizing the Air Force service and DBMS unique general ledger structures. The activity groups’ general ledger

accounts are “cross-walked” to the USSGL chart of accounts to produce the financial statements.

In addition, the Air Force identifies programs based upon the major appropriation groups provided by Congress. The Air

Force is in the process of reviewing available data and attempting to develop a cost-reporting methodology that balances the

need for cost information required by the SFFAS No. 4, “Managerial Cost Accounting Concepts and Standards for the

Federal Government,” with the need to keep the financial statements readable.

The asset accounts used to prepare the statements are categorized as either entity or non-entity. Entity assets consist of

resources that the agency has the authority to use, or where management is legally obligated to use funds to meet entity

obligations. Non-entity assets are assets that are held by an entity that are not available for use in the operations of the entity. 

Material disclosures are provided at Note 10.

1.E. Revenues and Other Financing Sources

The Under Secretary of Defense (Comptroller) directed, per memorandum dated January 1992, all of the services to use

the percentage of completion accounting method to recognize revenue and expenses. The DoD 7000.14-R, Financial

Management Regulation, Chapter 11B, January 1995, also prescribes this method of accounting.

Each working capital activity group recognizes revenue in the following manner:

Supply Management

Air Force Supply Management revenue is recognized at the time of sale under constructive delivery terms (normally when an

item is released from inventory or delivered to the customer). Foreign Military Sales transactions also require proof of shipment before revenue is recognized. Generally, Supply Management’s revenue consists of sales at standard prices less sales

returns. Sales of Materiel Support Division items are at exchange price. The Medical-Dental division and the Air Force

Academy Store add surcharges to their billings rather than include a surcharge in the standard price. Intradivision Supply

Management sales have been eliminated. Cash discounts and interfund retail stock loss allowances are reported as additional

revenue.

Depot Maintenance

Revenue recognition for Organic DMAG is the percentage of completion method now that the Depot Maintenance

Accounting and Production System (DMAPS) is fully operational at all three ALCs. 

Revenue recognition for Contract DMAG is based on the number of units produced times the Unit Sales Price (USP) and

does not recognize IRR at this time. 

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Information Services

The Information Services Activity Group (ISAG), as a service type organization, recognizes revenue in one of two ways based

on the service level agreement between the customer and the provider. ISAG uses either the completed contract method

or the percentage of completion method.

1.F. Recognition of Expenses

For financial reporting purposes, the DoD policy requires the recognition of operating expenses in the period incurred.

However, because the Air Force’s financial and nonfinancial feeder systems were not designed to collect and record financial

information on the full accrual accounting basis, accrual adjustments are made for major items such as payroll expenses,

accounts payable, and environmental liabilities. Expenditures for capital and other long-term assets are not recognized as

expenses in the AFWCF’s operations until depreciated in the case of property, plant, and equipment (PP&E) or consumed in

the case of operating materials and supplies (OM&S). Certain expenses, such as annual and military leave earned but not

taken, are financed in the period in which payment is made. Operating expenses were adjusted as a result of the elimination

of balances between the DoD Components. Net increases or decreases in unexpended appropriations are recognized as a

change in net position. See Note 19.I, Intra-governmental Expenses and Revenue, for disclosure of adjustment amounts.

1.G. Accounting for Intra-governmental Activities

The Air Force, as an agency of the federal government, interacts with and is dependent upon the financial activities of the

federal government as a whole. Therefore, these financial statements do not reflect the results of all financial decisions applicable to the Air Force as though the agency was a stand-alone entity.

The Air Force’s proportionate share of public debt and related expenses of the federal government are not included. Debt

issued by the federal government and the related costs are not apportioned to the federal agencies. The Air Force’s financial

statements, therefore, do not report any portion of the public debt or interest thereon, nor do the statements report the

source of public financing whether from issuance of debt or tax revenues.

Financing for the construction of the DoD facilities is obtained through budget appropriations. To the extent this financing

ultimately may have been obtained through the issuance of public debt, interest costs have not been capitalized since the

Department of the Treasury does not allocate such interest costs to the benefiting agencies.

The Air Force’s civilian employees participate in the Civil Service Retirement System (CSRS) and Federal Employees

Retirement System (FERS), while military personnel are covered by the Military Retirement System (MRS). Additionally,

employees and personnel covered by FERS and MRS also have varying coverage under Social Security. The AFWCF funds a

portion of the civilian and military pensions. Reporting civilian pension information under the CSRS and FERS retirement systems is the responsibility of the Office of Personnel Management (OPM). The AFWCF recognizes an imputed expense for

the portion of civilian employee pensions and other retirement benefits funded by the OPM in the Statement of Net Cost,

and recognizes corresponding imputed revenue in the Statement of Changes in Net Position.

To prepare reliable financial statements, transactions occurring between components or activities within the DoD or

between two or more federal agencies must be eliminated. However, the Air Force, as well as the rest of the federal government, cannot accurately identify all intra-governmental transactions by customer. The Defense Finance and Accounting

Service (DFAS) is responsible for eliminating transactions between the components or activities of the AFWCF. For FY 1999

and beyond, seller entities within the Department provided summary seller-side balances for revenue, accounts receivable,

and unearned revenue to the buyer-side internal DoD accounting offices. In most cases, the buyer-side records have been

adjusted to recognize unrecorded costs and accounts payable. Intra-DoD intra-governmental balances were then eliminated.

United States Air Force • 2004 Annual Financial Statement
The Department of the Treasury Financial Management Service (FMS) is responsible for eliminating transactions between the

Department and other federal agencies. In September 2000, the FMS issued the “Federal Intra-governmental Transactions

Accounting Policies and Procedures Guide.” The DoD was not able to fully implement the policies and procedures in this

guide related to reconciling intra-governmental assets, liabilities, revenues, and expenses for nonfiduciary transactions. The

Air Force was able to implement the policies and procedures contained in the “Intra-governmental Fiduciary Transactions

Accounting Guide,” as updated by the “Federal Intra-governmental Transactions Accounting Policies and Procedures Guide,”

for reconciling intra-governmental transactions pertaining to investments in federal securities, borrowings from the United

States (U.S.) Treasury and the Federal Financing Bank, Federal Employees’ Compensation Act transactions with the

Department of Labor (DoL), and benefit program transactions with the OPM.

1.H. Transactions with Foreign Governments and International Organizations

Each year, the DoD Components sell defense articles and services to foreign governments and international organizations,

primarily under the provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, the AFWCF has

authority to sell defense articles and services to foreign countries and international organizations, generally at no profit or

loss to the U.S. Government. Customers may be required to make payments in advance.

1.I. Funds with the U.S. Treasury 

The AFWCF’s financial resources are maintained in U.S. Treasury accounts. The majority of cash collections, disbursements,

and adjustments are processed worldwide at the Defense Finance and Accounting Service (DFAS), Military Services and U.S.

Army Corps of Engineers (USACE) disbursing stations, as well as the Department of State financial service centers. Each disbursing station prepares monthly reports that provide information to the U.S. Treasury on check issues, electronic funds

transfers, interagency transfers, and deposits.

In addition, the DFAS sites and the USACE Finance Center submit reports to the Department of the Treasury, by appropriation, on interagency transfers, collections received, and disbursements issued. The Department of the Treasury then records

this information to the applicable Fund Balance with Treasury (FBWT) account maintained in the Treasury’s system.

Differences between the AFWCF’s recorded balance in the FBWT account and Treasury’s FBWT sometimes result and are

subsequently reconciled.

Fund Balances with Treasury are maintained at the AFWCF corporate business area today. In 1992, when the Defense

Business Operating Fund was established, the FBWT was moved from the Air Force level to the DoD level. In 1996, the

DWCF was established and the FBWT was moved back to the Air Force level. However, allocations of FBWT were at a

lower level than the level transferred out. The cash balance had been maintained at 10 days worth of cash, but what was

allocated back was 3 days worth of cash. The days are based on the average of cash needed to pay vendors. The fund has

been “under funded” since that time. 

Material disclosures are provided at Note 3. Differences are caused by in-transit disbursements and unmatched disbursements, which are not recorded in the accounting offices’ detail-level records.

1.J. Foreign Currency

Not applicable.

1.K. Accounts Receivable

As presented on the Balance Sheet, accounts receivable includes accounts receivables, claims receivables, and refunds receivable from other Federal entities or from nonfederal entities. Allowances for loss on accounts receivable due from nonfederal

entities are based upon analysis of collection experience by fund type. The AFWCF does not recognize an allowance for loss

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on accounts receivable amounts from another Federal agency. Claims against another federal agency are to be resolved

between the agencies. If the claim cannot be resolved by the agencies involved, it should be referred to the General

Accounting Office. Only Supply Management allows for allowance for loss accounts receivable based upon analysis of historical data from prior year accounts receivable balances, write-offs, and collection policy.

Material disclosures are provided at Note 5.

1.L. Loans Receivable. As Applicable

Not applicable.

1.M. Inventories and Related Property

Inventory for the AFWCF is all held in the Supply Management Activity Group (SMAG) except for work-in-process inventory

which is in the Depot Management Activity Group. Prior to fiscal year 2004 the majority of the SMAG inventory was reported at approximate historical cost based on Latest Acquisition Cost (LAC), adjusted for holding gains and losses. In fiscal year

2004 approximately 50% of the Supply Management Activity Group inventory changed from the LAC method and began

using a Moving Average Cost (MAC) method of valuation. This allowed SMAG to comply with the SFFAS No. 3,

“Accounting for Inventory and Related Property” for that percentage of the inventory. The remaining 50% of the SMAG

inventory is managed in the Standard Base Supply System using the LAC method for valuation and will be changed to MAC

valuation beginning in fiscal year 2005. The conversion to MAC included programming changes for the SMAG accounting

system to convert from the Air Force General Ledger (AFGL) to the United States Standard General Ledger (USSGL) for

supply accounting. 

Under the LAC method of inventory valuation gains and losses resulting from valuation changes for inventory items were

recognized and reported in the Statement of Net Cost and included in the calculation of Cost of Goods Sold. To calculate

the allowances for gain or loss on inventories, DFAS Denver prepared an inventory worksheet monthly for each fund code

within the SMAG. SFFAS No. 3, “Accounting for Inventory and Related Property,” directs that using a historical cost valuation method does not require an allowance for holding gains and losses account. Additionally, SFFAS No. 3 provides for

either the direct or allowance method to be used in valuing inventory held for repair. Therefore the change to a historical

costing method also included the elimination of the allowance for holding gains and losses, revaluation of all inventories to a

historical basis and the creation of an allowance for repairs. The implementation of Moving Average Cost for 50% of SMAG

inventories in fiscal year 2004 eliminated the need for the gains and losses allowance account for that portion of the inventory and has been credited against a prior period. Inventory held for repair is now valued at MAC with an allowance for repair

equal to the latest repair cost.

Related property includes operating materials and supplies (OM&S) and stockpile materials. The OM&S including munitions

not held for sale are valued at standard purchase price. The department uses the consumption method of accounting for

OM&S for the most part, expensing material when it is issued to the end user. Where current systems cannot fully support

the consumption method, the AFWCF uses the purchase method, expensed when purchased. 

Material disclosures related to inventory and related property are provided at Note 9.

1.N. Investments in U.S. Treasury Securities

Not applicable.

1.O. General Property, Plant, and Equipment

General property, plant, and equipment (PP&E) assets are capitalized at historical acquisition cost plus capitalized improvements, when an asset has a useful life of two or more years, and when the acquisition cost equals or exceeds the DoD capiUnited States Air Force • 2004 Annual Financial Statement
talization threshold of $100,000. Also, improvement costs over the DoD capitalization threshold of $100,000 for General

PP&E are required to be capitalized. All General PP&E, other than land, is depreciated using the straight-line method. Land

is not depreciated.

Prior to FY 1996, General PP&E with an acquisition cost of $15,000, $25,000, and $50,000 for FYs 1993, 1994, and 1995

respectively, and an estimated useful life of 2 or more years was capitalized. These assets remain capitalized and are reported on WCF financial statements. General PP&E previously capitalized at amounts below $100,000 were written off General

Fund financial statements in FY 1998.

When it is in the best interest of the government, the Air Force provides government property necessary to complete contract work to contractors. Such property is either owned or leased by the Air Force, or purchased directly by the contractor for the government based on contract terms. When the value of contractor procured General PP&E exceeds the DoD

capitalization threshold, the items should be included in the value of General PP&E reported on the Air Force’s Balance

Sheet. The AFWCF recently completed a study that indicates that the value of General PP&E that meets the capitalization

requirement and is in the possession of contractors is not material to the Department’s financial statements. Regardless, the

AFWCF is developing new policies and a contractor reporting process that will provide appropriate General PP&E information for future financial statement reporting purposes. Accordingly, the Air Force currently reports only the government

property in the possession of contractors that is maintained in the Air Force’s property systems.

For entities operating as business type activities (WCFs), all PP&E used in the performance of their mission is categorized as

General PP&E, whether or not it meets the definition of any other PP&E categories. National Defense PP&E, Heritage

Assets and Stewardship Land owned or maintained on a WCF installation are reported in the Supplemental Stewardship

Report of the applicable military department. 

Material disclosures are provided at Note 10.

1.P. Advances and Prepayments

Payments in advance of the receipt of goods and services are recorded as advances or prepayments and reported as an asset

on the Balance Sheet. Advances and prepayments are recognized as expenditures and expenses when the related goods and

services are received.

1.Q. Leases

Not applicable.

1.R. Other Assets 

The AFWCF conducts business with commercial contractors under two primary types of contracts: fixed price and cost

reimbursable. To alleviate the potential financial burden on the contractor that these long-term contracts can cause, the

AFWCF provides financing payments. One type of financing payment that the AFWCF makes is for real property, and is

based upon a percentage of completion. In accordance with SFFAS No 1, “Accounting for Selected Assets and Liabilities,”

such payments are treated as construction in process and are reported on the General PP&E line and in Note 10, General

PP&E, Net. In addition, based on the provision of the Federal Acquisition Regulations, the AFWCF makes financing payments under fixed price contracts that are not based on a percentage of completion. The AFWCF reports these financing

payments as advances or prepayments in the “Other Assets” line item. The AFWCF treats these payments as advances or

prepayments because the AFWCF becomes liable only after the contractor delivers the goods in conformance with the contract terms. If the contractor does not deliver a satisfactory product, the AFWCF is not obligated to reimburse the contractor for its costs, and the contractor is liable to repay the AFWCF for the full amount of the advance. The AFWCF has completed a review of all applicable federal accounting standards, applicable public laws on contract financing, Federal Acquisition

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Regulation Parts 32, 49, and 52 and the OMB guidance in Code 5 of Federal Regulations Part 1315, “Prompt Payment.” The

AFWCF has concluded that SFFAS No. 1 does not fully or adequately address the subject of progress payment accounting

and is considering what further action is appropriate.

1.S. Contingencies and Other Liabilities 

The SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” defines a contingency as an existing condition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss to the AFWCF. The uncertainty will be

resolved when one or more future events occur or fail to occur. A contingency is recognized as a liability when a past event

or exchange transaction has occurred, a future loss is probable, and the amount of loss can be reasonably estimated.

Financial statement reporting is limited to disclosure when conditions for liability recognition do not exist, but there is at

least a reasonable possibility that a loss or an additional loss will be incurred. Examples of loss contingencies include the collectability of receivables, pending or threatened litigation, possible claims and assessments. The AFWCF’s loss contingencies

arising are events such as aircraft, ship and vehicle accidents, medical malpractice, property or environmental damages, and

contractual disputes.

1.T. Accrued Leave

Civilian annual leave and military leave that have been accrued and not used as of the balance sheet date are reported as liabilities. The liability reported at the end of the fiscal year reflects the current pay rates.

1.U. Net Position

Net Position consists of unexpended appropriations and cumulative results of operations. Unexpended appropriations represent amounts of authority, which are unobligated and have not been rescinded or withdrawn, and amounts obligated but

for which legal liabilities for payments have not been incurred.

Cumulative results of operations for the AFWCF represent the excess of revenues over expenses, less refunds to customers,

and returns to the U.S. Treasury since fund inception.

1.V. Treaties for Use of Foreign Bases 

The DoD Components have the use of land, buildings and other facilities that are located overseas and have been obtained

through various international treaties and agreements negotiated by the Department of State. The DoD capital assets located overseas are purchased with appropriated funds, however the host country retains the title to the land and any improvements. Generally, treaty terms allow the DoD Components continued use of these properties until the treaties expire.

These fixed assets are subject to loss in the event treaties are not renewed or the AFWCF does not reach agreements that

allow for the continued use. Therefore, in the event treaties or other agreements are terminated and the use of foreign

bases is not allowed the losses will be recorded for the value of any nonretrievable capital assets. Negotiations between the

United States and the host country determine the amount to be paid the United States for such capital investments.

1.W. Comparative Data 

Not applicable.

1.X. Unexpended Obligations 

The AFWCF records obligations for goods and services that have been ordered but not yet received. No liability for payment has been established in the financial statements because goods/services have yet to be delivered.

United States Air Force • 2004 Annual Financial Statement
1.Y. Problem Disbursements 

Problem disbursements represent disbursements of Air Force Working Capital funds reported by a disbursing station to the

Department of Treasury that have not yet been precisely matched against the specific source obligation. The problem disbursements arise when the various contracting, disbursing, and accounting systems fail to match the data necessary to properly account for the transaction in all the applicable accounting systems.

The Air Force Working Capital fund had a $342.7 thousand decrease in problem disbursements and $48,527.2 thousand

decrease in in-transit disbursements. Defense Finance and Accounting Service has efforts underway to improve the systems

and to resolve all previous problem disbursements and to process all in-transit disbursements. The amount over 180 days

old for UMD is $175.9 thousand, for NULO is $0.00, and for in-transit is $1,752.1 thousand. The amount over 120 days old

for UMD is $103.14, for NULO is $0.00, and for in-transit is $8,641.4 thousand. The current absolute value of in-transit disbursements is $502,975.7 thousand.

Note 2. Non-entity Assets

Asset accounts are categorized as either entity or non-entity. Entity accounts consist of resources that are available for use

in the operations of the entity. The Air Force is authorized to decide how to use resources in entity accounts. The Air

Force may be legally obligated to use these resources to meet entity obligations. Non-entity accounts, on the other hand,

consist of assets that are held by an entity but are not available for use in the operations of the entity.

The Air Force Working Capital Fund does not have any non-entity assets.

As of September 30

(Amounts in thousands)

1. Intra-governmental Assets

 A. Fund Balance with Treasury $ 0 $ 0

 B. Investments 0 0

 C. Accounts Receivable 0 0

 D. Other Assets 0 0

 E. Total Intra-governmental Assets $ 0 $ 0

2. Non-Federal Assets

 A. Cash and Other Monetary Assets $ 0 $ 0

 B. Accounts Receivable 0 0

 C. Loans Receivable 0 0

 D. Inventory & Related Property 0 0

 E. General PP&E 0 0

 F. Investments 0 0

 G. Other Assets 0 0

 H. Total Non-Federal Assets $ 0 $ 0

3. Total Non-Entity Assets $ 0$ 0

4. Total Entity Assets $ 24,742,804 $ 25,740,673

5. Total Assets $ 24,742,804 $ 25,740,673

2004 2003

(Amounts in dollars and cents)

1. Total Problem Disbursements, Absolute Value 

 Unmatched Disbursements (UMDs) 2,548,304.11 2,813,110.98 4,712,851.72 1,899,740.74

 Negative Unliquidated Obligations (NULOs) 11,615,822.46 6,497,624.92 4,255,145.38 -2,242,479.54

2. Total In-transit Disbursements, Net $ 537,627,452.62 $ 464,048,716.87 $ 415,521,508.49 $ -48,527,208.38

Sept 2004 Decrease/Increase from 

FY03 to FY04

As of August 31, 2004 Sept 2002 Sept 2003

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Note 3.A. Fund Balance with Treasury

The reconciling amount on line 3 above represents $652,746.5 thousand for the United States Transportation Command

(USTC), which is reported at the Department of the Treasury as part of the Air Force Working Capital Fund (AFWCF).

However, for the purposes of Audited Financial Statements (AFS), USTC is included with the Other Defense Organizations

(ODO) reporting, which is separate from the AFWCF. Therefore, USTC cash is not included on the AFWCF 

AFS statements.

Fluctuations and Abnormalities

Fund Balance with Treasury increased $318,268.2 thousand in FY 2004. The increase can be attributed to three primary

factors. First, the Supply Management Activity Group (SMAG) and the Depot Maintenance Activity Group (DMAG) both had

increases in fund balances from the prior year, which is attributed to favorable financial performance. Net operating results

for the two business areas, before elimination and AFS required adjustments, totaled $619,075.5 thousand, which represents

a source of cash. Secondly, a $343,635.1 thousand increase to the fund balance is attributed to favorable balance sheet performance. This increase was the result of the collection of an additional $94,327.7 thousand in accounts receivable over the

prior year, coupled with an increase in accounts payable in the amount of $249,307.4 thousand. These increases are discussed in Note 5 and Note 12, respectively. Overall, the increase to cash was $962,710.6 thousand, which was offset by a

mandated cash pull totaling $578,400.0 thousand, accounting for an overall increase of $384,310.6 thousand. The remaining

decrease of $66,042.4 thousand can be attributed to normal business fluctuations in other areas of the Working Capital Fund.

Note Reference

See Note Disclosure 1.I, Significant Accounting Policies, for additional discussion on financial reporting requirements and

Department of Defense policies governing funds with the U.S. Treasury.

Note 3.B. Disclosures Related to Suspense/Budget Clearing Accounts

Not applicable.

As of September 30

(Amounts in thousands)

1. Fund Balances

A. Appropriated Funds $ 0 $ 0

B. Revolving Funds 1,051,110 732,842

C. Trust Funds 0 0

D. Other Fund Types 0 0

E. Total Fund Balances $ 1,051,110 $ 732,842

2. Fund Balances Per Treasury Versus 

A. Fund Balance per Treasury $ 1,703,858 $ 2,475,046

B. Fund Balance per AFWCF 1,051,110 732,842

3. Reconciling Amount $ 652,748 $ 1,742,204

2004 2003

United States Air Force • 2004 Annual Financial Statement
Note 4. Investments

Not applicable.

Note 5. Accounts Receivable

Other information

Fluctuations

Non-federal receivables decreased $64,653.4 thousand. The amount consists of a decrease in the Supply Management

Activity Group (SMAG) which is offset by an increase in the Depot Maintenance Activity Group (DMAG). SMAG had a

decrease of $78,283.4 thousand, which is attributed to two factors. At the end of FY 2003, accounts receivable deliveries

suspense were reclassified from other assets to non-federal receivables. Deliveries suspense are receivables from sales

transactions to foreign governments. While the original transaction is recorded at the standard rates, foreign policy often

dictates the actual amount to be collected from the foreign government. Once the amount is determined, the billing is

processed. In FY 2004 it was determined that the amount should be reported in other assets until the billing occurs and the

receivable is established. The reclassification resulted in a decrease of $117,903.1 thousand. The decrease is offset by an

increase of $19,810.1 thousand, which is the result of reclassification of unsupported undistributed collections to U. S.

Standard General Ledger (USSGL) account 2400. In FY 2003, the unsupported undistributed collections were netted with

the unsupported undistributed disbursements; therefore there was no impact on receivables. The remaining increase in

SMAG can be attributed to a $18,023.1 thousand reclassification of receivables from intra-governmental to non-federal for

foreign military sales receivables that were previously recorded incorrectly. The DMAG increase of $12,997.8 thousand is

primarily attributed to an uncollected demand letter to Boeing for an overpayment of approximately $8,456.4 thousand on a

KC-135 contract. The letter is currently under dispute by Boeing. The remaining fluctuations are a result of normal business

operations. 

Information Related to Accounts Receivables

Allowance Method

The SMAG uses an allowance method based on historical data for non-federal receivables. The Depot Maintenance and the

Information Services Activity Groups generally use the direct write-off method for uncollectible accounts.

Allocation of Undistributed Collections

The Department of Defense (DoD) policy is to allocate supported undistributed collections between federal and non-federal

categories based on the percentage of federal and non-federal accounts receivable. Unsupported undistributed collections

As of September 30

(Amounts in thousands)

1. Intra-governmental Receivables: $ 576,396 N/A $ 576,396 $ 605,077

2. Non-Federal Receivables (From the Public): $ 103,189 $ -78 $ 103,111 $ 167,764

3. Total Accounts Receivable: $ 679,585 $ -78 $ 679,507 $ 772,841

2004 2003

Allowance

For

Estimated

Gross 

Amount Due

Accounts 

Receivable, Net

Accounts 

Receivable, 

Net Uncollectibles

133
134

are recorded in USSGL account 2400, Liability For Deposit Funds, Clearing Accounts, and Undeposited Collections. The Air

Force Working Capital Fund (AFWCF) followed this allocation procedure, applying $(2,980.0) thousand in undistributed collections to accounts receivable and recording $18,913.2 thousand of unsupported undistributed to USSGL account 2400.

Elimination Adjustments

Accounts receivable within the AFWCF have been eliminated for statement presentation purposes. The total value of the

receivables that were eliminated on these financial statements is $341,080.9 thousand.

The Air Force accounting systems do not capture trading partner data at the transaction level in a manner that facilitates

trading partner aggregations. Therefore, the Air Force was unable to reconcile intra-governmental accounts receivable balances with its trading partners. Through the ongoing Business Management Modernization Program, the Department

intends to develop long-term systems improvements that will capture the data necessary to perform reconciliations.

Receivables over 180 Days

The Air Force has $13,643.1 thousand intragovernment receivables and $18,488.3 thousand non-federal receivables over

180 days. Processes have been implemented to closely monitor the delinquent receivables and to refer them to the appropriate entity for resolution. 

Note Reference

See Note Disclosure 1.K., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing accounts receivable.

Note 6. Other Assets

Other Information Related to Other Assets:

Fluctuations and Abnormalities 

Intra-governmental other assets (Line 1)

The $7.3 thousand increase to intra-governmental other assets is caused by an increase in unearned revenue reported by

seller side data. The unearned revenue is reported as advances in the Supply Management Activity Group (SMAG).

As of September 30

(Amounts in thousands)

1. Intra-governmental Other Assets:

A. Advances and Prepayments $ 10 $ 3

B. Other Assets 0 0

C. Total Intra-governmental Other Assets $ 10 $ 3

2. Non-Federal Other Assets:

A. Outstanding Contract Financing Payments $ 0 $ 0

B. Other Assets (With the Public) 788,966 380,362

C. Total Non-Federal Other Assets $ 788,966 $ 380,362

3. Total Other Assets: $ 788,976 $ 380,365

2004 2003

United States Air Force • 2004 Annual Financial Statement
Non-federal other assets (Line 2)

The $408,604.7 thousand increase in non-federal other assets consists of a $27,389.9 thousand decrease in the Depot

Maintenance Activity Group (DMAG) and a $435,994.6 thousand increase in SMAG. 

For DMAG, the decrease in advances is largely due to the phaseout of Contract DMAG. The increase in other assets is due

to the unallocated labor and material expenditures account. This account is used to record expenditures that can not be

identified to a specific job order number. The Air Logisitics Centers have been notified of the increase and will continue to

research the issue. The remaining increases or decreases for DMAG’s advances and other assets are a result of normal operations.

For SMAG, the $246,139.0 thousand increase in advances was largely due to paid intransits from vendors that were reported

in FY 2003 as inventory. In FY 2004 this was corrected to be reported as non-federal advances. For FY 2003 the ending

balance of paid intransits was $278,486.9 thousand. The $189,855.9 thousand increase in other assets is due to two events.

The first is due to other assets accounts receivable deliveries suspense that were reported in FY 2003 as accounts receivables for 4th Quarter only. During 1st Quarter, FY 2004 this error was corrected and the transactions are properly recorded as other assets. For FY 2003 the ending balance of the account was $117,903.1 thousand. The second event is an

increase of $71,780.0 thousand in returns to vendors pending credit. The Materiel Support Division is continuing its

research the reason for the increase. The remaining increases or decreases for SMAG’s advances and other assets are a

result of normal operations.

Non-Federal Other Assets (in Thousands)

Types of Asset 2004 2003

SMAG – Advances and Prepayments to Contractors $374,443 $128,304

DMAG – Advances and Prepayments to Contractors 7,044 38,899

SMAG – Other Assets 401,543 211,688

DMAG – Other Assets 5,936 1,471

Total Non-Federal Other Assets $788,966 $380,362

Note Reference

See Note Disclosure 1.R., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing other assets.

Note 7. Cash and Other Monetary Assets

As of September 30

(Amounts in thousands)

1. Cash $ 0$ 0

2. Foreign Currency (non-purchased) 0 0

3. Other Monetary Assets 0 0

4. Total Cash, Foreign Currency, and Other Monetary Assets $ 0$ 0

2004 2003

135
136

Other Information Pertaining to Entity Cash and Other Monetary Assets

Definitions

Cash—The total of cash resources under the control of the Working Capital Fund, including coin, paper currency, purchased

foreign currency, negotiable instruments, and amounts on deposit in banks and other financial institutions. Cash available for

agency use should include petty cash funds and cash held in revolving funds that will not be transferred into the U.S.

Government General Fund.

Foreign Currency—The total U.S. dollar equivalent of non-purchased foreign currencies held in foreign currency fund

accounts. Non-purchased foreign currency is limited to the Treasury Index 97X7000 fund account (formerly called FT

accounts).

Other Monetary Assets—included gold, special drawing rights, and U.S. Reserve in the International Monetary Fund. 

This category is principally for use by the Department of Treasury.

Note Reference

See Note Disclosure 1.J., Significant Accounting Policies, for additional discussion on financial reporting requirements and

Department of Defense (DoD) policies governing foreign currency.

For regulatory discussion on other assets, see the DoD Financial Management Regulation, Volume 6B, Chapter 10, 

paragraph 1009.

Note 8. Direct Loan and/or Loan Guarantee Programs

Not applicable.

Note 9. Inventory and Related Property

As of September 30

(Amounts in thousands)

1. Inventory, Net (Note 9.A.) $ 20,492,890 $ 21,869,635

2. Operating Materials and Supplies, Net (Note 9.B.) 532,638 655,361

3. Stockpile Materials, Net (Note 9.C.) 0 0

4. Total $ 21,025,528 $ 22,524,996

2004 2003

United States Air Force • 2004 Annual Financial Statement
Note 9.A. Inventory, Net

Restrictions of Inventory Use, Sale, or Disposition

There are no restrictions on the use, sale, or disposition of inventory except in the following situations: 

(1) Distributions without reimbursement are made when authorized by Department of Defense (DoD) directives.

(2) War Reserve Material includes fuels and subsistence items that are considered restricted.

(3) Inventory, with the exception of safety stocks, may be sold to foreign, state and local governments, private parties, and

contractors in accordance with current policies and guidance or at the direction of the President.

Other Information

Definitions

Inventory available and purchased for resale includes consumable spare and repair parts as well as repairable items owned

and managed by the Department. Material available and purchased for resale includes material held due to a managerial

determination that it should be retained to support military or national contingencies. 

Inventory held for repair is damaged inventory that requires repair to make it suitable for sale. Many of the inventory items

are more economical to repair than to procure. In addition, because the Department often relies on weapon systems and

machinery no longer in production, the Department supports a process that encourages the repair and rebuilding of certain

items. This repair cycle is essential to maintaining a ready, mobile, and armed military force.

Excess, obsolete, and unserviceable inventory consists of scrap materials or items that cannot be economically repaired and

are awaiting disposal. Potentially reusable material, presented in previous years as excess, obsolete, and unserviceable, is

included in the held for use or held for repair categories, according to its condition.

Work in process balances include costs related to the production or servicing of items, including direct material, direct labor,

applied overhead, and other direct costs. Work in process also includes the value of finished products or completed services

pending the submission of bills to the customer. The work in process designation may also be used to accumulate the

amount paid to a contractor under cost-reimbursable contracts, including the amount withheld from payment to ensure performance and the amount paid to other government plants for accrued costs of end-items of material ordered but not delivered.

2003

Inventory, Revaluation Inventory, Inventory, Valuation

Gross Value Allowance Net Net Method

(Amounts in thousands)

1. Inventory Categories:

 A. Available and Purchased for Resale $ 22,004,327 $ -11,311,957 $ 10,692,370 $ 15,118,285 LAC/O/MAC

 B. Held for Repair 13,419,021 -4,088,513 9,330,508 6,057,706 LAC/O/MAC

 C. Excess, Obsolete, and Unserviceable 753,522 -753,522 0 0

 D. Raw Materials 0 00 0

 E. Work in Process 470,012 0 470,012 693,644 AC

 F. Total $ 36,646,882 $ -16,153,992 $ 20,492,890 $ 21,869,635

Legend for Valuation Methods:

 holding gains and losses

2004

AC = Actual Cost

SP = Standard Price

Adjusted LAC = Latest Acquisition Cost, adjusted for NRV = Net Realizable Value

O = Other

As of September 30

137
138

Fluctuations

Inventory decreased $1,376,744.7 thousand due to the following factors. 

Gross inventory values for the Supply Management Activity Group (SMAG) had an increase of $845,962.5 thousand after FY

2003 was restated. Two events caused the increase for SMAG. First was an increase of $1,124,449.4 thousand (5.5% of

total net inventory) that is a result of normal operations. The second event was a change in the accounting for intransit

inventory and caused a decrease of $278,486.9 thousand to inventory available and purchased for resale. In FY 2003 paid

intransit from vendors were recorded in the inventory available and purchased for resale account. In FY 2004 this was corrected and is now recorded in the advance account in the other assets line. See Note 6 for further details. Each category

related to SMAG did have fluctuations however, these were related to the movement of inventory from the category of

available and purchased for resale to the category of held for repair and the recent population of the excess, obsolete and

unserviceable inventory category. Work in process (WIP) had a decrease of $223,632.5 thousand. The continuing phase out

of Contract Depot Maintenance Activity Group (DMAG) operations resulted in a decrease of WIP of $178,621.2 thousand.

DMAG had a decrease of $45,011.3 thousand. This is attributed to the clean-up of problematic invoices that resulted from

the DMAPS/DIFMS implementation. Once the bills were able to be processed, the associated WIP was relieved.

The revaluation allowance values increased $1,999,074.7 thousand, which leads to the decrease in total inventory. In FY

2004 SMAG changed its inventory valuation method for the portions of its General and Materiel Support Divisions that are

reported by FIABS. The new inventory method is Moving Average Cost. The change impacted total inventory by an

increase in the amount of $11,370,455.9 thousand. This adjustment was processed as a prior period adjustment, and the FY

2003 total inventory has been restated by this amount. The original FY 2003 inventory amount was $10,499,179.0 thousand.

General Composition of Inventory

Inventory includes spare and repair parts, clothing and textiles, fuels, and ammunition. Inventory is tangible personal property that is (1) held for sale or held for repair for eventual sale, (2) in the process of production for sale, or (3) to be consumed

in the production of goods for sale or in the provision of services for a fee. 

The category inventory held for repair consists of damaged material that requires repair to make it usable. Excess inventory

is condemned material that must be retained for management purposes. The category held for sale includes all issuable

material. The category held for repair includes all economically reparable material. Work in process includes depot maintenance work with its associated labor, applied overhead, and supplies used in the delivery of maintenance services. The U.S.

Standard General Ledger does not include a separate work in process account unrelated to sales. Inventory is assigned to

categories based on guidance in the DoD Financial Management Regulation, Volume 11B.

Note Reference

See Note Disclosure 1.M., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing inventory and related property.

United States Air Force • 2004 Annual Financial Statement
Note 9.B. Operating Materials and Supplies (OM&S), Net

Other Information

Fluctuations

The OM&S category held for use (Line 1A) decreased $122,723.3 thousand for the following reasons. A decrease of

$85,624.9 thousand is a result of the phase out of Contract DMAG operations. A decrease of $26,505.6 thousand can be

attributed to the write off of obsolete floating stock, coupled with the clean up of the unmatched OM&S accounts for

Organic DMAG. The remaining fluctuations are a result of normal operations.

General Composition of Operating Materials and Supplies

OM&S include spare and repair parts. The OM&S data reported on the financial statements are derived from logistics systems designed for material management purposes, i.e. accountability and visibility. The reported balances from these systems are not recorded at historical cost, in conformance with the valuation requirements in the Statement of Federal

Financial Accounting Standard (SFFAS) No. 3, “Accounting for Inventory and Related Property.” Instead, the Air Force uses

standard price to value OM&S without computing unrealized holding gains or losses. Furthermore, past audit results have

led to uncertainties pertaining to the completeness and existence of the OM&S quantities used to derive the balances reported in the financial statements.

For the most part, DMAG uses the consumption method of accounting for OM&S, since OM&S is defined in the SFFAS No.

3 as material which has not yet been issued to the end user. Once issued, the material is expensed. As stated above, current financial and logistics systems cannot fully support the consumption method. According to federal accounting standards,

the consumption method of accounting should be used to account for OM&S unless (1) the amount of OM&S is not significant, (2) OM&S are in the hands of the end user for use in normal operations, or (3) it is cost-beneficial to expense OM&S

when purchased (purchase method). The DoD, in consultation with its auditors, is (1) developing specific criteria for determining when OM&S amounts are not significant for the purpose of using the consumption method, (2) developing functional

requirements for feeder systems to support the consumption method, (3) identifying feeder systems that are used to manage

OM&S items, and (4) developing plans to revise those systems to support the consumption method. For FY 2004, the

department reported significant amounts using the purchase method either because the systems could not support the consumption method or because management deems that the item is in the hands of the end user.

OM&S, OM&S, Valuation 

 Net Net Method

(Amounts in thousands)

1. OM&S Categories:

A. Held for Use $ 532,638 $ 0 $ 532,638 $ 655,361 

B. Held for Repair 0 0 0 0 

C. Excess, Obsolete, and Unserviceable 000 0 

D. Total $ 532,638 $ 0 $ 532,638 $ 655,361

O = Other

As of September 30 2004 2003

OM&S

Gross Value

Revaluation

Allowance

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost NRV = Net Realizable Value

AC = Actual Cost

 adjusted for holding gains and losses 

SP = Standard Price

139
140

Note Reference

See Note Disclosure 1.M., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing Inventory and related property.

Note 9.C. Stockpile Materials, Net

Not applicable

Note 10. General Property, Plant, and Equipment (PP&E), Net

Other Information

Fluctuations and Abnormalities

The decrease of $28,772.2 thousand in other property, plant and equipment is caused by an incorrect general ledger account

used during FY 2003. In FY 2004 the correct general ledger account of general equipment was used. Acquisition values for

software and general equipment only increased 3 percent, however depreciation values caused fluctuations for the net book

value. The fluctuation in depreciation is caused by a change made in General Accounting and Finance System – Rehost

(GAFS-R). In FY 2003, $377,348.7 thousand was erroneously reported as general equipment accumulated depreciation. In

FY2004 it was correctly reported as software accumulated depreciation. Since software can depreciate faster than general

equipment, the amount of overall depreciation has therefore increased. Additional increases or decreases represent normal

operations and do not exceed the 10 percent threshold. 

Information Related to General PP&E, Net

Real property reported by the Automated Civil Engineering System (ACES) and personal property reported by the Air Force

Equipment Management System (AFEMS) and the Information Processing Management System (IPMS) has not been validated

and reconciled to reported figures received by Defense Finance and Accounting Service (DFAS) from the field activities.

However, the Depot Maintenance ALCs and Aerospace Maintenance and Regeneration Center (AMARC) use the ACES to

capture the costs of real property based on preponderance of use for each building. They use the straight-line method for

As of September 30 2004

(Amounts in thousands)

1. Major Asset Classes:

A. Land N/A N/A $ 0 N/A $ 0 $ 0

B. Buildings, Structures, and Facilities S/L 20 or 40 809,196 $ -559,967 249,229 235,804

C. Leasehold Improvements S/L lease term 0 0 0 0

D. Software S/L 2-5 or 10 978,030 -608,565 369,465 809,852

E. General Equipment S/L 5 or 10 2,044,958 -1,493,532 551,426 227,317

F. Military Equipment S/L various 0 0 0 0

G. Assets Under Capital Lease [1] S/L lease term 0 0 0 0

H. Construction-in-Progress N/A N/A 27,563 N/A 27,563 27,884

I. Other 0 0 0 28,772

J. Total General PP&E $ 3,859,747 $ -2,662,064 $ 1,197,683 $ 1,329,629

[1] Note 15.B for additional information on Capital Leases

S/L = Straight Line N/A = Not Applicable

2003

(Accumulated 

Depreciation/ 

Amortization)

Acquisition 

Value

Legend for Valuation Methods:

Depreciation/ 

Amortization 

Method

 Net Book 

Value

Service 

Life

Prior FY Net 

Book Value

United States Air Force • 2004 Annual Financial Statement
recording depreciation maintained on spreadsheets in place of the ACES schedule. The accounting entries are recorded

directly into the field-level trial balances. 

Any Working Capital Fund Special Tools and Special Test equipment in the possession and control of the Air Force are

reported in the Air Force General Fund financial statements.

The value of Air Force General PP&E real property in the possession of contractors is included in the value reported above

for the Major Asset Classes of Land and Buildings, Structures, and Facilities. The value of General PP&E personal property

(Major Asset Classes of Software and Equipment) does not include all of the General PP&E in the possession of contractors

that is above the Department of Defense (DoD) capitalization threshold. The net book amount of such property is immaterial in relation to the total General PP&E net book value. In accordance with a strategy approved by the Office of

Management and Budget, the General Accounting Office, and the Inspector General, DoD, the Department is developing

new policies and a contractor-reporting process to capture General PP&E information for future reporting purposes in compliance with generally accepted accounting practices.

Past audit results have identified uncertainties as to whether all General PP&E assets in the possession or control (existence)

of the Department are properly and accurately recorded in the system (completeness).

Note Reference

See Note Disclosure 1.N., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing General PP&E.

Note 10.A. Assets Under Capital Lease

Not applicable.

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30

1. Intra-governmental Liabilities

A. Accounts Payable $ 0 $ 0

B. Debt 0 0

C. Environmental Liabilities 0 0

D. Other 0 0

E. Total Intra-governmental Liabilities $ 0$ 0

2. Non-Federal Liabilities

A. Accounts Payable $ 0$ 0

B. Military Retirement Benefits and Other

 Employment-Related Actuarial Liabilities 

C. Environmental Liabilities 0 0

D. Loan Guarantee Liability 0 0

E. Debt Held by Public 0 0

F. Other Liabilities 0 0

G. Total Non-Federal Liabilities $ 238,729 $ 275,132

3. Total Liabilities Not Covered by Budgetary Resources $ 238,729 $ 275,132

4. Total Liabilities Covered by Budgetary Resources $ 2,613,686 $ 2,557,997

5. Total Liabilities $ 2,852,415 $ 2,833,129

2004 2003

(Amounts in thousands)

238,729 275,132

141
142

Other Information

Fluctuations and Abnormalities

The amounts recorded on line 2B represent the Federal Employees Compensation Act (FECA) actuarial liabilities provided

by the Department of Labor. The $36,402.5 thousand decrease is due to a decrease in the number of employees. 

Definitions

Liabilities Not Covered and Covered by Budgetary Resources – These are liabilities that are not considered covered

by realized budgetary resources as of the balance sheet date. Budgetary resources include the following:

• New budget authority

• Spending authority from offsetting collections (credited to an appropriation or fund account)

• Recoveries of unexpired budget authority through downward adjustments of prior-year obligations

• Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances during 

the year

• Borrowing authority or permanent indefinite appropriations that have been enacted and signed into law as of the bal

ance sheet date, provided that the Office of Management and Budget (OMB) can apportion the resources without first 

meeting a contingency or without additional action by the Congress. 

Liabilities Covered by Budgetary Resources

These are resources the reporting entity incurred that are covered by realized budget resources as of the balance sheet

date. Budgetary resources encompass not only new budget authority but also other resources available to cover liabilities

for specified purposes in a given year. Available budgetary resources include the following:

• New budget authority

• Spending authority from offsetting collections (credited to an appropriation or fund account)

• Recoveries of unexpired budget authority through downward adjustments of prior-year obligations

• Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances during 

the year

• Borrowing authority or permanent indefinite appropriations that have been enacted and signed into law as of the bal

ance sheet date, provided that the OMB can apportion the resources without first meeting a contingency or without 

additional action by the Congress.

Note Reference

For additional line item discussion, see:

• Note 8, Direct Loans and/or Loan Guarantee Programs

• Note 12, Accounts Payable

• Note 13, Liabilities Not Covered and Covered by Budgetary Resources

United States Air Force • 2004 Annual Financial Statement
• Note 14, Environmental Restoration Liabilities and Environmental Disposal Liabilities

• Note 15, Other Liabilities

• Note 16, Commitments and Contingencies

• Note 17, Military Retirement Benefits and Other Employment Related

Note 12. Accounts Payable

Other Information

Definition

Intra-governmental payables consist of amounts owed to other federal agencies for goods or services ordered and received

but not yet paid for. Interest, penalties, and administrative fees are not applicable to intra-governmental payables. Non-federal payables (to the public) are payments to non-federal entities. 

Fluctuations and Abnormalities

Intra-governmental payables increased by $25,033.7 thousand. An increase of $80,841.3 thousand is attributed to the Supply

Management Activity Group (SMAG). SMAG is reporting increased accounts payable to the US Army and US Navy that the

Air Force Material Command is currently researching. The increase is offset by the elimination adjustments processed to

match the accounts receivables as reported by other government agencies.

Non-federal payables increased by $408,487.9 thousand. The Supply Management Activity Group (SMAG) accounted for

$419,095.5 thousand of the increase, which is offset by normal operations in the remaining business areas. An increase of

$206,458.6 thousand is attributed to a change in allocation method regarding undistributed disbursements. In FY 2003, the

undistributed was allocated to non-federal payables, which decreased the total payables reported. In FY 2004, the undistributed was all allocated to intragovernmental payables due to systems changes. The change in allocations did not affect the

intragovernmental payable balance as the undistributed was eliminated within the AFWCF. The remaining increase of

$202,029.3 thousand is attributable to an increase in expense volume in September 2004 in comparison to September 2003.

Expenses incurred in one month are generally paid in the subsequent month, resulting in the subsequent increase in accounts

payable at the end of September 2004.

Undistributed Disbursements

Undistributed disbursements consist of the difference between (1) disbursements/collections recorded at the transaction

level to a specific obligation, payable, or receivable in the activity field records, and (2) those disbursements/collections

reported by the U.S. Treasury via the reconciled DD1329 and DD1400. The total undistributed disbursement amounts displayed in this note should agree with the undistributed amounts reported on accounting reports (SF 133/(M) 1002/(M)

1307). In-transit payments are payments that have been made for other agencies or entities that have not been recorded in

As of September 30

 (Amounts in thousands) 

1. Intra-governmental Payables: $ 256,763 N/A $ 256,763 $ 231,725

2. Non-Federal Payables (to the Public): $ 497,471 $ 0 $ 497,471 $ 88,984

3. Total $ 754,234 $ 0 $ 754,234 $ 320,709

2004 2003

Total Total

Interest, 

Penalties, and 

Administrative

Accounts 

Payable

143
144

their accounting records. These payments are applied to each entity's outstanding accounts payable balance at year-end.

Accounts payable were adjusted downward in the amount of $644,649.2 thousand for these payments. 

Allocation of Undistributed Disbursements

The Department of Defense (DoD) policy is to allocate supported undistributed disbursements between intragovernmental

and non-federal categories based on the percentage of intragovernmental and non-federal accounts payable. Unsupported

undistributed disbursements should be recorded in U.S. Standard General Ledger account (USSGLA) 2120, Disbursements in

Transit. The AFWCF followed this allocation policy reporting $67,014.5 thousand in USSGLA 2120. 

Intragovernmental Eliminations

For the majority of intra-agency sales, the AFWCF accounting systems do not capture trading partner data at the transaction

level in a manner that facilitates trading partner aggregations. Therefore, the AFWCF was unable to reconcile intragovernmental accounts payable to the related intragovernmental accounts receivable that generated the payable. Elimination

adjustments are made at the consolidated business activity level instead of at the fund-code level, resulting in less distortion

of the actual payable amounts.

The DoD intends to develop long-term systems improvements that will include sufficient up-front edits and controls to eliminate the need for after-the-fact reconciliations. The volume of intragovernmental transactions is so large that after-the-fact

reconciliations cannot be accomplished with the existing or foreseeable resources.

Note Reference

See Note Disclosure 1.G., Significant Accounting Policies, for additional discussion on financial reporting requirements and

DoD policies governing accounting for intragovernmental activities.

Note 13. Debt 

Not applicable.

Note 14. Environmental Liabilities and Disposal Liabilities

Not applicable.

United States Air Force • 2004 Annual Financial Statement
Note 15.A. Other Liabilities 

Other Information Pertaining to Other Liabilities

Fluctuations and Abnormalities

Line 1.A—Intra-governmental advances from others decreased due largely to the decrease in the Depot Maintenance

Activity Group (DMAG) Contract progress billings. Contract DMAG is phasing out of the Working Capital Fund (WCF).

Line 1.K—The other intra-governmental liabilities increase represents employee benefits that are payable to the Office of

Personnel Management (OPM). Liabilities fluctuate based on staffing levels and participation in benefit programs by employees.

Line 2.A—The decrease in accrued funded payroll and benefits is a result of fewer days accrued in FY 2004. In FY 2003,

there were nine days of accrued payroll and benefits and in FY 2004 there were four days.

2003

Total

(Amounts in thousands)

1. Intra-governmental:

A. Advances from Others $ 234,529 $ 0 $ 234,529 $ 339,302

B. Deferred Credits 0 0 0 0

C. Deposit Funds and Suspense Account Liabilities 000 0

D. Resources Payable to Treasury 0 0 0 0

E. Disbursing Officer Cash 0 0 0 0

F. Non-environmental Disposal Liabilities: 

 (1) National Defense PP&E (Nonnuclear) 0 0 0 0

 (2) Excess/Obsolete Structures 0 0 0 0

 (3) Conventional Munitions Disposal 0 0 0 0

 (4) Other 000 0

G. Accounts Payable—Cancelled Appropriations 0 0 0 0

H. Judgement Fund Liabilities 0 0 0 0

I. FECA Reimbursement to the Department of Labor 0 0 0 0

J. Capital Lease Liability 0 0 0 0

K. Other Liabilities 8,602 0 8,602 6,135

L. Total Intra-governmental Other Liabilities $ 243,131 $ 0 $ 243,131 $ 345,437

2. Non-Federal:

A. Accrued Funded Payroll and Benefits $ 135,633 $ 0 $ $ 161,111

B. Advances from Others 15,256 0 5,542

C. Deferred Credits 0 0 0

D. Loan Guarantee Liability 0 0 0

E. Liability for Subsidy Related to Undisbursed Loans 0 0 0

F. Deposit Funds and Suspense Accounts 18,913 0 -22

G. Temporary Early Retirement Authority 0 0 0

H. Non-environmental Disposal Liabilities:

 (1) National Defense PP&E (Nonnuclear) 0 0 0

 (2) Excess/Obsolete Structures 0 0 0

 (3) Conventional Munitions Disposal 0 0 0

 (4) Other 00 0

I. Accounts Payable—Cancelled Appropriations 0 0 0

J. Accrued Unfunded Annual Leave 0 0 0

K. Accrued Entitlement Benefits for Military Retirees and Survivors 00 0

L. Capital Lease Liability 0 0 0

M.Other Liabilities 1,446,519 0 1,725,220

N. Total Non-Federal Other Liabilities $ 1,616,321 $ 0 $ $ 1,891,851

3. Total Other Liabilities: $ 1,859,452 $ 0 $ $ 2,237,288

As of September 30 2004

Total

Current

 Liability

Noncurrent

 Liability

135,633

15,256

0

0

0

18,913

0

0

0

0

0

0

0

0

0

1,446,519

1,616,321

1,859,452

145
146

Line 2.B—The increase of advances from others is caused by DMAG. This increase is largely due to a problem with the

billing of public workload. DMAG receives advances from the public. This is recorded as a liability until the work is completed and the revenue can be reported as earned. Since DMAG was unable to process the bills for work that was completed, the advances from others amount was not moved to earned revenue from the public. The Air Logistics Centers are

aware of the issue and are working to resolve it. The remaining fluctuations are a result of normal operations.

Line 2.F—The fluctuation represents unsupported undistributed collections, for which guidance was issued to reclassify to

deposit funds and suspense accounts. In FY 2003 the reclassification was not prepared for the Supply Management Activity

Group (SMAG). If the reclassification has been prepared the amount would have little fluctuation from the amount

processed in FY 2004. 

Information Related to Other Liabilities (Line 2.M)

DMAG work in process accrued expenses has decreased as a result of the removing Contract DMAG from the Working

Capital Funds, which has resulted in a decline in material, labor, and overhead cost accruals. 

SMAG other liabilities related to foreign military sales consist of money that various countries have deposited with the SMAG as

a buy-in on future purchases they plan to make under the foreign military sales program. These funds are considered a liability

as the funds are returned if the countries do not make future purchases. Revenue is not recognized on these transactions until

the purchase takes place. The decrease in this account is caused by some foreign governments canceling agreements.

The Component other liability is related to an abnormal non-federal accounts receivable amount. The amount was abnormal because of Undistributed Collections. FACTS I will not accept an abnormal balance in non-federal accounts receivable;

therefore, the amount was reclassified as a non-federal other liability. 

Note Reference

See Note Disclosure 1.S., Significant Accounting Policies, for additional discussion on financial reporting requirements and

Department of Defense policies governing contingencies and other liabilities.

Note 15.B. Capital Lease Liability

Not applicable.

Note 16. Commitments and Contingencies

Not applicable.

As of Septemb 30

DMAG/Information Services Activity Group (ISAG) – Progress Billings 0 1

DMAG – WIP Accrued Expenses $ 1,377,793 $ 1,616,599

SMAG – Future Purchase - Foreign Military Sales $ 29,049 $ 62,521

SMAG – Other Accrued Liabilities $ 4,140 $ 10,630

Component – Reclass of Abnormal Non-Federal Accounts Receivable $ 35,537 $ 35,469

Total $ 1,446,519 $ 1,725,220

FY2004 FY 2003

United States Air Force • 2004 Annual Financial Statement
Note 17. Military Retirement Benefits and Other Employment Related Actuarial

Liabilities

Other Information Pertaining to Military Retirement Benefits and Other Employment-Related

Actuarial Liabilities

Fluctuations and Abnormalities

The decrease of FECA is due to the decrease in total employees in FY 2004.

Federal Employee’s Compensation Act (FECA)

The Air Force Working Capital Fund’s actuarial liability for workers’ compensation benefits is developed by the Department

of Labor and provided to the Air Force at the end of each fiscal year. The liability includes the expected liability for death,

disability, medical, and miscellaneous costs for approved compensation cases. The liability is determined using a method that

utilizes historical benefit payment patterns related to predict the ultimate payments. The projected annual benefit payments

are then discounted to the present value using the Office of Management and Budget’s economic assumptions for 10-year

Treasury notes and bonds. Cost-of-Living Adjustments (COLAs) and medical inflation factors are also applied to the calculation of projected future benefits. 

Interest rate assumptions utilized for discounting are as follows:

2002 2003 2004

5.20% in year 1 3.84% in year 1 4.883% in year 1

5.20% in year 2 4.35% in year 2 5.235% in year 2

and thereafter and thereafter and thereafter

To provide more specifically for the effects of inflation on the liability for workers’ compensation benefits, wage inflation factors (COLAs) and medical inflation factors (Consumer Price Index Medical or CPIMs) were applied to the calculation of projected future benefits. These factors were also used to adjust the methodology’s historical payments to current year constant dollars.

(Amounts in thousands) 

1. Pension and Health Benefits:

A. Military Retirement Pensions $ 0 $ 0$ 0$ 0

B. Military Retirement Health Benefits 0 0 0 0

C. Medicare-Eligible Retiree Benefits 0 0 0 0

D. Total Pension and Health Benefits $ 0 $ 0 $ 0 $ 0

2. Other:

A. FECA $ 238,729 $ 0 $ 238,729 $ 275,132

B. Voluntary Separation Incentive Programs 0 000

C. DoD Education Benefits Fund 0 000

D. [Enter Program Name} 0 000

E. Total Other $ 238,729 $ 0 $ 238,729 $ 275,132

3. Total Military Retirement Benefits and Other $ 238,729 $ 0 $ 238,729 $ 275,132

 Employment Related Actuarial Liabilities:

Unfunded 

Actuarial 

Liability

Unfunded 

Actuarial 

Liability

As of September 30 2004 2003

(Less: Assets 

Available to Pay 

Benefits)

Actuarial Present 

Value of Projected 

Plan Benefits

Assumed 

Interest 

Rate (%)

147
148

The compensation COLAs and CPIMs used in the projections for various charge-back years (CBYs) are as follows:

CBY COLA CPIM

2005 2.03% 4.14%

2006 2.73% 3.96%

2007 2.40% 3.98%

2008 2.40% 3.99%

2009+ 2.40% 4.02%

The model’s resulting projections were analyzed to ensure that the estimates were reliable. The analysis was based on two

tests: (1) a comparison of the percentage change in the liability amount by agency to the percentage change in actual payments, and (2) a comparison of the ratio of the estimated liability to the actual payment of the beginning year calculated for

the current projection to the liability-payment ration calculated for the prior projection.

Actuarial data and percentages are only updated at the end of the fiscal year; therefore, amounts referenced in this note are

the balances at September 30, 2004 and September 30, 2003.

Note Reference

For regulatory discussion on “Military Retirement Benefits and Other Employment Related Actuarial Liabilities,” see

Department of Defense Financial Management Regulation, Volume 6B, Chapter 10, paragraph 1019.

Note 18. Unexpended Appropriations 

Not applicable.

Note 19.A. General Disclosures Related to the Statement of Net Cost

Fluctuations and Abnormalities

Intra-governmental Earned Revenue

Intra-governmental revenue had a decrease of $1,429,325.2 thousand, which represents a 10.73 percent decrease. A portion of the decrease is attributed to the implementation of the General Accounting and Finance System - Rehost in FY 2004.

For the Supply Management Activity Group (SMAG), in FY 2003 a portion of other income was erroneously reported as

intra-governmental and in FY 2004 this error was corrected. It is currently reported as non-federal instead. The phase out

of Contract Depot Maintenance Activity Group (DMAG) contributes significantly to the decrease in intra-governmental revenue. The Air Force Working Capital Fund is in the process of discontinuing to contract out Depot operations, therefore

the related revenues are decreasing. Any remaining fluctuations are a result of normal operations.

Earned Revenue from the Public

Earned revenue from the public had an increase of $497,530.1 thousand. The increase is largely attributed to the implementation of the General Accounting and Finance System - Rehost in FY 2004. For SMAG, in FY 2003 a portion of other income

was erroneously reported as intra-governmental and in FY 2004 this error was corrected. It now reported as non-federal.

The remaining fluctuation is a result of normal operations.

United States Air Force • 2004 Annual Financial Statement
Information Related to the Statement of Net Cost 

Statement of Net Cost

The Consolidated SoNC in the federal government is unique because its principles are based on understanding the net cost

and/or organizations that the federal government supports through appropriations or other means. This statement provides

gross and net cost information that can be related to the amount of output or outcome for a given program and/or organization administered by a responsible reporting entity.

Working Capital Funds

While the Air Force Working Capital Fund (AFWCF) generally records transactions on an accrual basis as is required by generally accepted accounting principles, the systems do not always capture actual costs. Information presented on the SoNC is

primarily based on budgetary obligations, disbursements, or collection transactions, as well as information from nonfinancial

feeder systems.

Note 19.B. Gross Cost and Earned Revenue by Budget Functional Classification

Not applicable.

Note 19.C. Gross Cost to Generate Intra-governmental Revenue and Earned

Revenue (Transactions with Other Federal-Non-DoD-Entities) by Budget

Functional Classification

Relevant Information for Comprehension

The Air Force’s accounting systems do not capture cost data in a manner that enables the Air Force to determine if the cost

was incurred to generate intra-governmental revenue. Therefore, this note could not be completed. The Department is in

the process of upgrading its financial and feeder systems and will be addressing this issue. Additionally, the identification of

intra-governmental revenue and expenses is a government-wide problem. The Office of Management and Budget and the

Department of the Treasury are developing government-wide guidance to enable accurate reporting of intra-governmental

transactions. 

Note 19.D. Imputed Expenses 

Other Information

The increase in imputed expenses can be attributed to rising cost of employee benefit programs.

As of September 30

(Amounts in thousands)

1. Civilian (e.g.,CSRS/FERS) Retirement $ 63,443 $ 64,298

2. Civilian Health 95,320 80,667

3. Civilian Life Insurance 255 241

4. Military Retirement Pension 0 0

5. Military Retirement Health 0 0

6. Judgment Fund 0 0

7. Total Imputed Expenses $ 159,018 $ 145,206

2004 2003

149
150

Note 19.E. Benefit Program Expenses 

Not applicable.

Note 19.F. Exchange Revenue 

Definition

Exchange Revenue arises when a government entity provides goods and services to the public or to another government

entity for a price (earned revenue). Exchange revenue includes most user charges other than taxes, i.e., regulatory user

charges.

Note 19.G. Amounts for Foreign Military Sales (FMS) Program Procurements from

Contractors

Not applicable.

Note 19.H. Stewardship Assets

Not applicable.

Note 19.I. Intra-governmental Revenue and Expense

Information Related to Intra-governmental Revenue and Expense

Intra-governmental Revenue

The AFWCF’s accounting systems do not capture trading partner data at the transaction level in a manner that facilitates

trading partner aggregations. Therefore, the AFWCF was unable to reconcile intra-governmental revenue balances with its

trading partners. The Department intends to develop long-term systems improvements that will include sufficient up-front

client edits and controls to eliminate the need for after-the-fact reconciliations. The volume of intra-governmental transactions is so large that such reconciliations cannot be accomplished with the existing or foreseeable resources.

Intra-governmental Operating Expenses

The AFWCF’s operating expenses were adjusted based on a comparison between the AFWCF’s accounts payable and the

DoD summary- level seller accounts receivables. An adjustment was posted to accounts payable and operating expenses to

reflect unrecognized accounts payable and operating expenses. The operating expenses of the AFWCF were adjusted

upward in the amount of $107,916.5 thousand.

Note 19.J. Suborganization Program Costs

Not applicable.

United States Air Force • 2004 Annual Financial Statement
Note 20. Disclosures Related to the Statement of Changes in Net Position

Other Information

Information Related to the Statement of Changes in Net Position

Prior Period Adjustments. Materiel Support Division inventory valued at LAC was converted to Moving Average Cost

historical cost basis valuation on October 1, 2003. This change in inventory valuation method was required by the Office of

the Under Secretary of Defense (OUSD) policy. Historical cost does not require an allowance for gains and losses. The

change in accounting policy created a prior period adjustment in FY 2004 of $11,604,540.3 thousand for the elimination of

the allowance for gains and losses, the establishment of an allowance for repairs and the revaluation of inventory. The

amount $699,393.4 thousand represents standard price changes. The table below provides detail by USSGL of the prior

period adjustment. In addition, there is an ongoing effort by the OUSD Comptroller regarding the baselining of inventory,

which may result in changes in inventory valuation in subsequent periods.

USSGL Description

1521 Serviceable Inventory $ 82,823,884 

1523 Unserviceable Inventory 3,917,057,191

1524 Excess, Obsolete & Unserviceable Inventory 3,917,057,191

1529 1R01 Standard Price Change Loss 663,591,208

1529 1G01 Standard Price Change Gain $ 4,851,105,837 

6500 Cost of Goods Sold $ 4,241,778,398 

1529 3A03 Allowance for Repairs $ 4,241,778,398 

1521/23/24 Inventory $ 11,658,804,025 

1529 1001 Inventory – Allowance for Holding Gains & Losses $ 11,658,804,025 

1529 Inventory – Allowance $ 11,604,540,255 

7401 Prior Period Adjustment – Restated $ 10,905,146,882 

7400 Prior Period Adjustment – Not restated 699,393,373

Debit Credit

Establish the Allowance for Repairs - 1 Oct 2003

Adjustment to eliminate the allowance account

Inventory Revaluation to MAC from LAC/Carcass - 1 Oct 2003

Original Entries into the Inventory Allowance account

(Amounts in thousands)

1. Prior Period Adjustments Increases (Decreases)

 to Net Position Beginning Balance: 

A. Changes in Accounting Standards $ 699,393 $ 0 $ 0 $ 0

B. Errors and Omissions in Prior Year 

 Accounting Reports 

C. Other Prior Period Adjustments 0 0 00

D. Total Prior Period Adjustments $ 12,069,849 $ 0 $ 11,315,328 $ 0

2. Imputed Financing:

A. Civilian CSRS/FERS Retirement $ 63,443 $ 0 $ 64,298 $ 0

B. Civilian Health 95,319 0 80,667 0

C. Civilian Life Insurance 255 0 241 0

D. Military Retirement Pension 0 0 0 0

E. Military Retirement Health 0 0 0 0

F. Judgment Fund 0 0 0 0

G. Total Imputed Financing $ 159,017 $ 0 $ 145,206 $ 0

Cumulative Results 

2004

Operations

Cumulative Results

2003

of Operations

Unexpended

 of Appropriations 

2004

Unexpended

Appropriations

2003

11,370,456 0 0

As of September 30

11,315,328

151
152

The General Support Division inventory valued at LAC was converted to Moving Average Cost historical cost basis valuation

on October 1, 2003. This change in inventory valuation method was required by the Office of the Under Secretary of

Defense (OUSD) policy. Historical cost does not require an allowance for gains and losses. The change in accounting policy

created a prior period adjustment in FY 2004 of $133,808.6 thousand for the elimination of the allowance for gains and losses and the elimination of the potential excess allowance of $331,500.5 thousand. The table below provides detail by USSGL

of the prior period adjustment. The entry was recorded to GLA 7400 in the General Accounting and Finance System -

Rehost (GAFS-R). Due to year-end processing problems in GAFS-R, the reclassification to GLA 7401 will be accomplished in

the Defense Departmental Reporting System - Audited Financial Statements (DDRS-AFS). In addition, there is an ongoing

effort by the OUSD Comptroller regarding the baselining of inventory, which may result in changes in inventory valuation in

subsequent periods.

Imputed Financing

The amounts remitted to the Office of Personnel Management (OPM) by and for employees covered by the Civil Service

Retirement System, Federal Employee Retirement System, Federal Employees Health Benefits program, and the Federal

Employee Group Life Insurance program do not fully cover the Government’s cost to provide these benefits. An imputed

cost is recognized as the difference between the Government’s cost of providing these benefits to the employees and contributions made by and for them. The OPM provides the cost factors to the Defense Finance and Accounting Service (DFAS)

for computation of imputed financing cost. Then DFAS provides the costs to the OUSD (Personnel and Readiness) for validation. Approved imputed costs are provided to the reporting components for inclusion in their financial statements.

Note 21. Disclosures Related to the Statement of Budgetary Resources

As of September 30

(Amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for 

 Undelivered Orders at the End of the Period $ 7,117,842 $ 6,166,726

2. Available Borrowing and Contract Authority at the End of the Period 3,839,310 3,191,601

2004 2003

USSGL Description

1521/23/24 Inventory $ 133,808,567 

1529 Inventory – Allowance $ 133,808,567 

7110 Loss $ 331,500,483 

1529 Potential Excess Allowance $ 331,500,483 

1529 Inventory - Allowance $ 133,808,567 

7401 Prior Period Adjustment – Restated $ 133,808,567 

1529 Potential Excess Allowance $ 331,500,483 

7401 Prior Period Adjustment – Restated $ 331,500,483 

Adjustment to eliminate the allowance account

Original Entries into the Inventory Allowance Account

Adjustment to eliminate the allowance account

Debit Credit

Original Entries into Potential Excess Allowance

United States Air Force • 2004 Annual Financial Statement
Other Information

Information Related to the Statement of Budgetary Resources

Intra-entity Transactions. The Statement of Budgetary Resources (SBR) does not include intra-entity transactions because

the statements are presented as combined and combining.

Apportionment Categories. Office of Management and Budget Bulletin No. 01-09, section 9.27, specifically requires disclosure of the amount of direct and reimbursable obligations incurred against amounts apportioned under categories A, B,

and exempt from apportionment. This disclosure should agree with the aggregate of the related information as included in

each reporting entity’s SF 133 and lines 8A and 8B in the SBR. Category A direct obligations total $2,027.2 thousand, which

represents an adjusting entry. Category A reimbursable obligations total $17,271,941.4 thousand. There are no category B

or exempt obligations.

Undelivered Orders. Undelivered orders presented in the SBR includes undelivered orders-unpaid for both direct and

reimbursable funds.

Spending Authority from Offsetting Collections. Adjustments in funds that are temporarily not available pursuant to

Public Law, and those that are permanently not available (included in the “Adjustments” line on the SBR), are not included in

the “Spending Authority from Offsetting Collections and Adjustments” line on the SBR or the “Spending Authority for

Offsetting Collections and Adjustments” line on the Statement of Financing.

Note 22. Disclosures Related to the Statement of Financing

Other Disclosures

The objective of the Statement of Financing is to reconcile the difference between budgetary obligations and the net cost of

operations reported. It is presented as combined or combining statements rather than consolidated statements because

intra-governmental transactions are not eliminated. Because of limitations in the Air Force Working Capital Fund’s financial

system, budgetary data is not in agreement with proprietary expenses and assets capitalized. Differences between budgetary and proprietary data constitute a previously identified deficiency.

Note 1A and Note 1F provide additional detail.

Other Information Related to the Statement of Financing

Statement of Financing Adjustments

Budgetary data is not in agreement with Proprietary Expenses and Assets Capitalized. This causes a difference in Net Cost

between the Statement of Net Cost (SoNC) and the Statement of Financing. Line 15 on the Statement of Financing,

“Resources that finance the acquisition of assets,” is adjusted in order to align the amount of net cost on the Statement of

Financing with the amount reported on the (SoNC). Line 15 was adjusted by an absolute value of $1,147,112.4 thousand to

balance the report. The adjustment will be researched to determine the cause of the increase over prior reporting periods.

Note 23. Disclosures Related to the Statement of Custodial Activity

Not applicable.

153
154

Note 24.A. Other Disclosures 

Undistributed Collections and Disbursements

Differences often occur between the time that the Department of the Treasury records cash transactions and the time that

the field records transactions in the general ledger. The timing differences are accounted for in the undistributed collection

and disbursements accounts, which offset accounts receivable and accounts payable in the accounting records.

Undistributed amounts are reconciled monthly to ensure that they are fully supported. Unsupported amounts are reclassifed to General Ledger Accounts 2400 and 2120.

Various categories make up the total undistributed. In-transit items and uncleared interfund transactions represent the

majority of the undistributed. The in-transit category consists of transactions that are paid/collected by one entity on behalf

of another entity. The transaction is recorded at Treasury in the month of occurrence; however, it generally takes 30-60

days to be distributed to the accountable entity. Interfund transactions are intra-governmental, no-check-drawn transactions

that are generated by the billing activity at the end of the month. They are then transmitted to a central location to be distributed to the accountable entity. Since this is an end-of-month process, the accountable entity does not receive the data

until the next month. Recons and suspense are also categories of undistributed. Recons are created when the cumulative

disbursements and collections reported by the field entities on monthly reports do not equal cumulative amounts generated

from current-month transactions. When differences occur between the field-level weekly and monthly reports, the amount

is suspensed until anything out-of-balance can be researched and corrected in subsequent months. The suspense category

may also contain amounts that are not supported by voucher data but have been reported to Treasury. Once again, this data

is researched and corrected. Other miscellaneous posting errors can contribute to undistributed balances, which are identified monthly and corrected at the appropriate location.

United States Air Force • 2004 Annual Financial Statement
Working Capital Fund

Consolidating and 

Combining Statements

155

United States Air Force
156

United States Air Force • 2004 Annual Financial Statement

Consolidating Balance Sheet—Working Capital Fund

As of September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

Depot 

Maintenance

Supply 

Management

Information 

Services

ASSETS (Note 2)

 Intra-governmental:

 Fund Balance with Treasury (Note 3)

 Entity $ 537,530 $ 466,474 $ 30,350

 Non-Entity Seized Iraqi Cash 00 0

 Non-Entity-Other 00 0

 Investments (Note 4) 00 0

 Accounts Receivable (Note 5) 411,812 437,397 55,774

 Other Assets (Note 6) 0 104,722 0

 Total Intra-governmental Assets $ 949,342 $ 1,008,593 $ 86,124

 Cash and Other Monetary Assets (Note 7) $ 0$ 0$ 0

 Accounts Receivable (Note 5) 49,520 52,333 641

 Loans Receivable (Note 8) 00 0

 Inventory and Related Property (Note 9) 1,002,650 20,022,878 0

 General Property, Plant and Equipment (Note 10) 1,038,003 129,255 30,418

 Investments (Note 4) 00 0

 Other Assets (Note 6) 12,980 775,986 0

TOTAL ASSETS $ 3,052,495 $ 21,989,045 $ 117,183

LIABILITIES (Note 11)

 Intra-governmental:

 Accounts Payable (Note 12) $ 259,752 $ 305,197 $ 10,235

 Debt (Note 13) 00 0

 Environmental Liabilities (Note 14) 00 0

 Other Liabilities (Note 15 and Note 16) 346,651 798 394

 Total Intra-governmental Liabilities $ 606,403 $ 305,995 $ 10,629

 Accounts Payable (Note 12) $ 13,248 $ 465,655 $ 136,792

 Military Retirement Benefits and Other 206,663 22,457 9,609

 Employment-Related Actuarial Liabilities (Note 17)

 Environmental Liabilities (Note 14) 00 0

 Loan Guarantee Liability (Note 8) 00 0

 Other Liabilities (Note 15 and Note 16) 1,510,123 60,540 10,121

 Debt Held by Public 00 0

TOTAL LIABILITIES $ 2,336,437 $ 854,647 $ 167,151

NET POSITION

 Unexpended Appropriations (Note 18) $ 0$ 0$ 0

 Cumulative Results of Operations 716,058 21,134,398 -49,968

TOTAL NET POSITION $ 716,058 $ 21,134,398 $ -49,968

TOTAL LIABILITIES AND NET POSITION $ 3,052,495 $ 21,989,045 $ 117,183
157

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

Transportation

Component 

Level

Combined 

Total Eliminations

2004 

Consolidated

2003 

Consolidated

$ 10,223 $ 6,533 $ 1,051,110 $ 0 $ 1,051,110 $ 732,842

0 0 00 0 0

0 0 00 0 0

0 0 00 0 0

0 -1 904,982 328,586 576,396 605,077

0 0 104,722 104,712 10 3

$ 10,223 $ 6,532 $ 2,060,814 $ 433,298 $ 1,627,516 $ 1,337,922

$ 0$ 0$ 0$ 0$ 0$ 0

617 0 103,111 0 103,111 167,764

0 0 00 0 0

0 0 21,025,528 0 21,025,528 22,524,996

7 0 1,197,683 0 1,197,683 1,329,629

0 0 00 0 0

0 0 788,966 0 788,966 380,362

$ 10,847 $ 6,532 $ 25,176,102 $ 433,298 $ 24,742,804 $ 25,740,673

$ 1 $ 10,164 $ 585,349 $ 328,586 $ 256,763 $ 231,725

0 0 00 0 0

0 0 00 0 0

0 0 347,843 104,712 243,131 345,437

$ 1 $ 10,164 $ 933,192 $ 433,298 $ 499,894 $ 577,162

$ 1,693 $ -119,917 $ 497,471 $ 0 $ 497,471 $ 88,984

0 0 238,729 0 238,729 275,132

0 0 00 0 0

0 0 00 0 0

0 35,537 1,616,321 0 1,616,321 1,891,851

0 0 00 0 0

$ 1,694 $ -74,216 $ 3,285,713 $ 433,298 $ 2,852,415 $ 2,833,129

$ 0$ 0$ 0$ 0$ 0$ 0

9,153 80,748 21,890,389 0 21,890,389 22,907,544

$ 9,153 $ 80,748 $ 21,890,389 $ 0 $ 21,890,389 $ 22,907,544

$ 10,847 $ 6,532 $ 25,176,102 $ 433,298 $ 24,742,804 $ 25,740,673
158

United States Air Force • 2004 Annual Financial Statement

Consolidating Statement of Net Cost—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.

Combined 

Total Eliminations

2004 

Consolidated

2003 

Consolidated

Program Costs

B. Component Level 0

 Intra-governmental Gross Costs $ 10,166 $ 0 $ 10,166 $ 1

 (Less: Intra-governmental Earned Revenue) 00 0 1

 Intra-governmental Net Costs $ 10,166 $ 0 $ 10,166 $ 2

 Gross Costs With the Public 00 0 0

 (Less: Earned Revenue From the Public) 00 0 0

 Net Costs With the Public $ 0$ 0$ 0$ 0

 Total Net Cost $ 10,166 $ 0 $ 10,166 $ 2

C. Depot Maintenance 0

 Intra-governmental Gross Costs $ 2,706,901 $ 2,091,148 $ 615,753 $ 1,198,929

 (Less: Intra-governmental Earned Revenue) -6,811,091 -2,950,348 -3,860,743 -4,653,703

 Intra-governmental Net Costs $ -4,104,190 $ -859,200 $ -3,244,990 $ -3,454,774

 Gross Costs With the Public 3,940,937 0 3,940,937 4,291,719

 (Less: Earned Revenue From the Public) -168,063 0 -168,063 -199,659

 Net Costs With the Public $ 3,772,874 $ 0 $ 3,772,874 $ 4,092,060

 Total Net Cost $ -331,316 $ -859,200 $ 527,884 $ 637,286

D. Information Services 0

 Intra-governmental Gross Costs $ 59,464 $ 20 $ 59,444 $ 83,811

 (Less: Intra-governmental Earned Revenue) -708,754 -140,870 -567,884 -475,537

 Intra-governmental Net Costs $ -649,290 $ -140,850 $ -508,440 $ -391,726

 Gross Costs With the Public 670,818 0 670,818 589,886

 (Less: Earned Revenue From the Public) -2,865 0 -2,865 0

 Net Costs With the Public $ 667,953 $ 0 $ 667,953 $ 589,886

 Total Net Cost $ 18,663 $ -140,850 $ 159,513 $ 198,160

E. Supply Management 0

 Intra-governmental Gross Costs $ 7,782,043 $ 3,067,613 $ 4,714,430 $ 4,165,569

 (Less: Intra-governmental Earned Revenue) -9,527,399 -2,067,564 -7,459,835 -8,188,549

 Intra-governmental Net Costs $ -1,745,356 $ 1,000,049 $ -2,745,405 $ -4,022,980

 Gross Costs With the Public 4,063,032 0 4,063,032 3,343,049

 (Less: Earned Revenue From the Public) -719,910 0 -719,910 -194,230

 Net Costs With the Public $ 3,343,122 $ 0 $ 3,343,122 $ 3,148,819

 Total Net Cost $ 1,597,766 $ 1,000,049 $ 597,717 $ -874,161

F. Transportation 0

 Intra-governmental Gross Costs $ 0$ 0$ 0$ 0

 (Less: Intra-governmental Earned Revenue) 00 0 0

 Intra-governmental Net Costs $ 0$ 0$ 0$ 0

 Gross Costs With the Public 0 0 0 174

 (Less: Earned Revenue From the Public) -581 0 -581 0

 Net Costs With the Public $ -581 $ 0 $ -581 $ 174

 Total Net Cost $ -581 $ 0 $ -581 $ 174

G. Total Program Costs 0

 Intra-governmental Gross Costs $ 10,558,574 $ 5,158,781 $ 5,399,793 $ 5,448,310

 (Less: Intra-governmental Earned Revenue) -17,047,244 -5,158,782 -11,888,462 -13,317,788

 Intra-governmental Net Costs $ -6,488,670 $ -1 $ -6,488,669 $ -7,869,478

 Gross Costs With the Public 8,674,787 0 8,674,787 8,224,828

 (Less: Earned Revenue From the Public) -891,419 0 -891,419 -393,889

 Net Costs With the Public $ 7,783,368 $ 0 $ 7,783,368 $ 7,830,939

 Total Net Cost $ 1,294,698 $ -1 $ 1,294,699 $ -38,539

 Cost Not Assigned to Programs 00 0 0

 (Less: Earned Revenue Not Attributable to Programs) 00 0 0

 Net Cost of Operations $ 1,294,698 $ -1 $ 1,294,699 $ -38,539
159

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160

United States Air Force • 2004 Annual Financial Statement

Consolidating Statement of Changes in Net Postition—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.

Depot 

Maintenance

Supply 

Management

Information 

Services

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balances $ 609,469 $ 10,868,004 $ -39,871

Prior period adjustments (+/-)

Prior Period Adjustments - Restated (+/-) 0 11,370,456 0

Beginning Balance, Restated 609,469 22,238,460 -39,871

Prior Period Adjustments - Not Restated (+/-) 0 699,393 0

Beginning Balances, as adjusted 609,469 22,937,853 -39,871

Budgetary Financing Sources:

Appropriations received 0 00

Appropriations transferred-in/out (+/-) 0 00

Other adjustments (rescissions, etc) (+/-) 0 00

Appropriations used 0 00

Nonexchange revenue 0 00

Donations and forfeitures of cash and cash equivalents 0 00

Transfers-in/out without reimbursement (+/-) -358,400 -222,500 0

Other budgetary financing sources (+/-) 0 00

Other Financing Sources:

Donations and forfeitures of property 0 00

Transfers-in/out without reimbursement (+/-) -213 247 0

Imputed financing from costs absorbed by others 133,887 16,564 8,566

Other (+/-) 0 00

Total Financing Sources -224,726 -205,689 8,566

Net Cost of Operations (+/-) -331,316 1,597,766 18,663

Ending Balances $ 716,059 $ 21,134,398 $ -49,968

UNEXPENDED APPROPRIATIONS

Beginning Balances $ 0$ 0$ 0

Prior period adjustments (+/-)

Prior Period Adjustments - Restated (+/-) 0 00

Beginning Balance, Restated 0 00

Prior Period Adjustments - Not Restated (+/-) 0 00

Beginning Balances, as adjusted 0 00

Budgetary Financing Sources:

Appropriations received 0 00

Appropriations transferred-in/out (+/-) 0 00

Other adjustments (rescissions, etc) (+/-) 0 00

Appropriations used 0 00

Nonexchange revenue 0 00

Donations and forfeitures of cash and cash equivalents 0 00

Transfers-in/out without reimbursement (+/-) 0 00

Other budgetary financing sources (+/-) 0 00

Other Financing Sources:

Donations and forfeitures of property 0 00

Transfers-in/out without reimbursement (+/-) 0 00

Imputed financing from costs absorbed by others 0 00

Other (+/-) 0 00

Total Financing Sources 0 00

Net Cost of Operations (+/-)

Ending Balances $ 0$ 0$ 0
161

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.

Transportation

Component 

Level

Combined 

Total Eliminations

2004 

Consolidated

2003 

 Consolidated

$ 8,572 $ 90,914 $ 11,537,088 $ 0 $ 11,537,088 $ 11,593,865

0 0 11,370,456 0 11,370,456 11,370,456

8,572 90,914 22,907,544 0 22,907,544 22,964,321

0 0 699,393 0 699,393 -55,128

8,572 90,914 23,606,937 0 23,606,937 22,909,193

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 0 0 0 0 23,956

0 00 0 0 0

0 00 0 0 0

0 0 -580,900 0 -580,900 0

0 00 0 0 0

0 00 0 0 0

0 0 34 0 34 -209,350

0 0 159,017 0 159,017 145,206

0 00 0 0 0

0 0 -421,849 0 -421,849 -40,188

-581 10,166 1,294,698 -1 1,294,699 -38,539

$ 9,153 $ 80,748 $ 21,890,390 $ 1 $ 21,890,389 $ 22,907,544

$ 0$ 0$ 0$ 0$ 0$ 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 0 0 0 0 23,956

0 00 0 0 0

0 00 0 0 0

0 0 0 0 0 -23,956

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

0 00 0 0 0

$ 0$ 0$ 0$ 0$ 0$ 0
162

United States Air Force • 2004 Annual Financial Statement

Combining Statement of Budgetary Resources—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

Depot 

Maintenance

Supply 

Management

Information 

Services

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES

 Budget Authority:

 Appropriations received $ 0$ 0$ 0

 Borrowing authority 0 00

 Contract authority 26,598 656,341 1,439

 Net transfers (+/-) 0 00

 Other 0 00

 Unobligated balance:

 Beginning of period 483,862 8,991 17,397

 Net transfers, actual (+/-) -358,400 -222,500 0

 Anticipated Transfers Balances 0 00

 Spending authority from offsetting collections:

 Earned 0 00

 Collected 6,999,114 10,106,978 718,664

 Receivable from Federal sources -166,139 -21,808 1,616

 Change in unfilled customer orders 0 00

 Advance received -173,221 0 0

 Without advance from Federal sources -531,460 -177,871 -24,584

 Anticipated for the rest of year, without advances 0 00

 Transfers from trust funds 0 00

 Subtotal 6,128,294 9,907,299 695,696

 Recoveries of prior year obligations 0 00

 Temporarily not available pursuant to Public Law 0 00

 Permanently not available 0 -36,669 0

 Total Budgetary Resources $ 6,280,354 $ 10,313,462 $ 714,532

STATUS OF BUDGETARY RESOURCES

 Obligations incurred:

 Direct $ 0$ 0$ 0

 Reimbursable 6,192,365 10,371,068 710,535

 Subtotal 6,192,365 10,371,068 710,535

 Unobligated balance:

 Apportioned 87,989 -57,606 3,997

 Exempt from apportionment 0 00

 Other available 0 00

 Unobligated Balances Not Available 0 00

 Total, Status of Budgetary Resources $ 6,280,354 $ 10,313,462 $ 714,532

Relationship of Obligations to Outlays:

 Obligated Balance, Net - beginning of period $ -4,100 $ 3,377,896 $ 37,442

 Obligated Balance transferred, net (+/-) 0 00

 Obligated Balance, Net - end of period:

 Accounts receivable -465,342 -471,709 -56,652

 Unfilled customer order from Federal sources -2,064,652 -934,175 -266,643

 Undelivered orders 1,355,747 5,056,743 197,737

 Accounts payable 1,777,521 552,931 157,780

 Outlays:

 Disbursements 6,282,591 9,744,854 738,724

 Collections -6,825,893 -10,106,978 -718,664

 Subtotal -543,302 -362,124 20,060

 Less: Offsetting receipts 0 00

 Net Outlays $ -543,302 $ -362,124 $ 20,060
163

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.

Transportation Component 

Level

2004 

Combined

2003 

Combined

$ 0 $ 0 $ 0 $ 23,956

0 000

0 0 684,378 -35,575

0 000

0 000

5,966 90,914 607,130 305,847

0 0 -580,900 -125,000

0 000

0 000

0 67 17,824,823 17,643,264

0 -67 -186,398 83,803

0 000

0 0 -173,221 -371,890

0 0 -733,915 200,583

0 000

0 000

0 0 16,731,289 17,555,760

3,180 0 3,180 2,027

0 000

0 0 -36,669 -119,535

$ 9,146 $ 90,914 $ 17,408,408 $ 17,607,480

$ 2,027 $ 0 $ 2,027 $ 23,956

-2,027 0 17,271,941 16,976,393

0 0 17,273,968 17,000,349

9,146 90,914 134,440 607,132

0 000

0 0 0 -1

0 000

$ 9,146 $ 90,914 $ 17,408,408 $ 17,607,480

$ 3,963 $ -97,889 $ 3,317,312 $ 3,504,176

0 000

-617 35,537 -958,783 -1,145,183

0 0 -3,265,470 -3,999,386

0 0 6,610,227 6,166,726

1,693 -119,917 2,370,008 2,295,155

-293 -13,441 16,752,435 16,900,798

0 -67 -17,651,602 -17,271,374

-293 -13,508 -899,167 -370,576

0 000

$ -293 $ -13,508 $ -899,167 $ -370,576
164

United States Air Force • 2004 Annual Financial Statement

Combining Statement of Financing—Working Capital Fund

For the years ended September 30, 2004 and 2003 ($ in Thousands)

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.

Depot 

Maintenance

Supply 

Management

Information 

Services

Resources Used to Finance Activities:

Budgetary Resources Obligated

 Obligations incurred $ 6,192,365 $ 10,371,068 $ 710,535

 Less: Spending authority from offsetting collections -6,128,294 -9,907,298 -695,695

 and recoveries (-)

 Obligations net of offsetting collections and recoveries 64,071 463,770 14,840

 Less: Offsetting receipts (-) 00 0

 Net obligations 64,071 463,770 14,840

Other Resources

 Donations and forfeitures of property 00 0

 Transfers in/out without reimbursement (+/-) -213 247 -1

 Imputed financing from costs absorbed by others 133,887 16,564 8,566

 Other (+/-) 00 0

 Net other resources used to finance activities 133,674 16,811 8,565

 Total resources used to finance activities 197,745 480,581 23,405

Resources Used to Finance Items not Part

of the Net Cost of Operations

 Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

 Undelivered Orders (-) -203,832 -769,428 19,546

 Unfilled Customer Orders -704,682 -177,871 -24,584

 Resources that fund expenses recognized in prior periods -32,417 -1,716 -2,270

 Budgetary offsetting collections and receipts that 00 0

 do not affect net cost of operations

 Resources that finance the acquisition of assets -136,998 -2,550,744 -8,623

 Other resources or adjustments to net obligated resources

 that do not affect net cost of operations

 Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 00 0

 Other (+/-) 213 -247 0

 Total resources used to finance items not -1,077,716 -3,500,006 -15,931

 part of the net cost of operations

 Total resources used to finance the net cost of operations -879,971 -3,019,425 7,474

Components of the Net Cost of Operations that will

not Require or Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future

Period:

 Increase in annual leave liability 00 0

 Increase in environmental and disposal liability 00 0

 Upward/Downward reestimates of credit subsidy expense (+/-) 00 0

 Increase in exchange revenue receivable from the the public (-) 00 0

 Other (+/-) 00 0

 Total components of Net Cost of Operations that 00 0

 will require or generate resources in future periods

Components not Requiring or Generating Resources:

 Depreciation and amortization 167,103 83,028 9,129

 Revaluation of assets or liabilities (+/-) 35,196 -5,697,620 2,067

 Other (+/-)

 Trust Fund Exchange Revenue 00 0

 Cost of Goods Sold 0 5,866,524 0

 Operating Material & Supplies Used 325,585 0 0

 Other 20,771 4,365,259 -7

 Total components of Net Cost of Operations that 548,655 4,617,191 11,189

 will not require or generate resources

 Total components of net cost of operations that 548,655 4,617,191 11,189

 will not require or generate resources in the current period

Net Cost of Operations -331,316 1,597,766 18,663
165

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.

Transportation

Component 

Level

2004 

Combined

2003 

Combined

$ 0 $ 0 $ 17,273,968 $ 17,000,349

-3,180 0 -16,734,467 -17,557,786

-3,180 0 539,501 -557,437

0 0 00

-3,180 0 539,501 -557,437

0 0 00

0 0 33 -209,350

0 0 159,017 145,206

0 0 00

0 0 159,050 -64,144

-3,180 0 698,551 -621,581

2,598 0 -951,116 -468,106

0 0 -907,137 -171,307

0 0 -36,403 0

0 0 00

0 10,166 -2,686,199 1,006,802

0 0 00

0 0 -34 0

2,598 10,166 -4,580,889 367,389

-582 10,166 -3,882,338 -254,192

0 0 00

0 0 00

0 0 00

0 0 00

0 0 0 27,382

0 0 0 27,382

0 0 259,260 185,805

0 0 -5,660,357 2,466

0 0 00

0 1 5,866,525 0

0 0 325,585 0

0 1 4,386,024 0

0 2 5,177,037 188,271

0 2 5,177,037 215,653

-582 10,168 1,294,699 -38,539
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Working Capital Fund

Required 

Supplementary 

Information

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Schedule, Part A

DoD Intra-governmental Asset Balances

($ in thousands)

Treasury 

Index

Loans 

Receivable Investments

Department of Agriculture 12 $ 20

Department of Commerce 13 $ 2

Department of the Interior 14 $ 43

Department of Justice 15 $ 501

Navy General Fund 17 $ 3,701

Department of State 19 $ 18

Department of the Treasury 20 $ 1,051,111 $ 859

Army General Fund 21 $ 3,637

Office of Personnel Management 24 $ 6

General Service Administration 47 $ 5,598

National Science Foundation 49 $ 998

General Accounting Office 5 $ 2

Air Force General Fund 57 $ 451,525 $ 0

Department of Transportation 69 $ 982

Homeland Security 70 $ 1,048

Small Business Administration 73 $ 0

National Aeronautics and Space Administration 80 $ 285

Department of Energy 89 $ 120

US Army Corps of Engineers 96 $ 25

Other Defense Organizations General Funds 97 $ 31,900

Other Defense Organizations Working Capital Funds 97-4930 $ 60,489

Army Working Capital Fund 97-4930.001 $ 5,316 $ 10

Navy Working Capital Fund 97-4930.002 $ 9,320

Fund Balance 

with Treasury

Accounts 

Receivable Other

Schedule, Part B 

DoD Intra-governmental entity liabilities

($ in thousands)

Treasury 

Index

Debts/ 

Borrowings 

From Other 

Agencies

Unidentifiable Federal Agency Entity (Other than DoD entities) 0 $ 0

Navy General Fund 17 $ 66

Army General Fund 21 $ 876 $ 401

Office of Personnel Management 24 $ 8,602

Air Force General Fund 57 $ 74,035 $ 228,984

National Aeronautics and Space Administration 80 $ 20

Other Defense Organizations General Funds 97 $ 1,734 $ 219

Other Defense Organizations Working Capital Funds 97-4930 $ 171,651 $ 4,742

Army Working Capital Fund 97-4930.001 $ 4,302 $ 78

Navy Working Capital Fund 97-4930.002 $ 4,163

The General Fund of the Treasury 99 $ 20

Accounts 

Payable Other
170

United States Air Force • 2004 Annual Financial Statement

Schedule, Part C

DoD Intra-governmental revenue and related costs

($ in thousands)

Treasury 

Index

Department of Agriculture 12 $ 20

Department of the Interior 14 $ 58

Department of Justice 15 $ 3,235

Navy General Fund 17 $ 81,341

Department of State 19 $ 287

Department of the Treasury 20 $ 835

Army General Fund 21 $ 20,817

Office of Personnel Management 24 $ 6

General Service Administration 47 $ 82

National Science Foundation 49 $ 12

Securities and Exchange Commission 50 $ 51

Air Force General Fund 57 $ 9,794,922

Department of Transportation 69 $ 3,011

Homeland Security 70 $ 7,823

Small Business Administration 73 $ 3

National Aeronautics and Space Administration 80 $ 1,800

Department of Energy 89 $ 45

US Army Corps of Engineers 96 $ 8

Other Defense Organizations General Funds 97 $ 1,276,159

Other Defense Organizations Working Capital Funds 97-4930 $ 554,837

Army Working Capital Fund 97-4930.001 $ 12,969

Navy Working Capital Fund 97-4930.002 $ 130,141

Earned Revenue

Schedule, Part E 

DoD Intra-governmental non-exchange revenues

($ in thousands)

Treasury 

Index

Navy General Fund 17 $ 0

Army General Fund 21 $ 350,000

Air Force General Fund 57 $ 34 $ 220,000

Other Defense Organizations Working Capital Funds 97-4930 $ 10,900

Transfers 

In

Transfers 

Out
Working Capital Fund

Audit Opinion

171

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The United States Air Force Annual Financial Statement is available for viewing on 

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