i

Table of Contents

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

Message from the Principal Deputy Assistant Secretary of the Air Force (Financial Management and Comptroller)...........iii

Management Discussion and Analysis

 Air Force Heritage.......................................................................................................................................1

 Air Force in Action – 2007.............................................................................................................................2

 Air Force Structure.....................................................................................................................................5

Air Force Smart Operations in the 21st Century – The Way Ahead.........................................................................10

 CFO Compliance.................................................................................................................................10 

Department of the Air Force General Fund

 Air Force Resources and Organizations.............................................................................................................11

 Air Force Strategic Financial Management and Transformation...........................................................................12

Air Force Working Capital Fund

 Supply Management Activity Group.....................................................................................................................17

 Depot Maintenance Activity Group..............................................................................................................19

Financing The Fight

Financial Statements

General Fund

 -Principal Statements..................................................................................................................25

 -Notes to the Principal Statements..................................................................................................31

 -Required Supplementary Stewardship Information............................................................................77

 -Required Supplementary Information................................................................................................85

 -Audit Opinion...........................................................................................................................97

 Working Capital Fund

 -Principal Statements..............................................................................................................105

 -Notes to the Principal Statements......................................................................................................111

 -Required Supplementary Information.....................................................................................................139

 -Audit Opinion..................................................................................................................................143
ii

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Michael W. Wynne
iii

John G. Vonglis

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1

Air Force Heritage

“In the development of airpower, one has to 

look ahead and not backward and fi gure out 

what is going to happen—not too much of 

which has happened.”

Brigadier General Billy Mitchell

We are America’s Airmen. We follow and celebrate the path of 

greatness that has led us on the course to develop the capabilities 

with which we fl y, fi ght, and win. As we celebrate our 60th Anniversary, we recognize the pursuit of air and space dominance for 

our country was not won by words alone, but by the unending efforts of our forebears. Our mission is to deliver sovereign options 

for the defense of the United States and its global interests––to fl y 

and fi ght in air, space, and cyberspace. We are constantly aware of 

our vision: Lasting Heritage...Limitless Horizons. 

“The mission is to deliver sovereign 

options...the subject is national investment 

in the strate-gic shield on which our freedoms and commerce depend.”

Secretary of the Air Force Michael Wynne

Our core values are:

• Integrity First

• Service Before Self

• Excellence in All We Do

Our critical capabilities are:

• Global Vigilance

• Global Reach

• Global Power

Our priorities are:

• Fighting and Winning the Global War on Terror

• Developing and Caring for Our Airmen and Their Families

• Recapitalizing and Modernizing Our Aging Aircraft and 

Spacecraft Inventories

Our goals are:

• Foster Mutual Respect and Integrity

• Sustain Air, Space, and Cyberspace Capabilities

A heritage flight with a P-51 Mustang, F-15 Eagle, F-22 Raptor and 

A-10 Thunderbolt II fly over the crowd at the Arctic Thunder air 

show at Elmendorf Air Force Base, Alaska. 

OVER IRAQ -- A pair of F-16 Fighting Falcons launch flares during a mission. 

Management Discussion and Analysis
2

• Provide Persistent Situational Awareness

• Develop Joint and Battle-Ready Trained Airmen

• Improve the Total Force Quality of Life

• Implement Open, Transparent Business Practices and a Clean 

Audit

• Foster Air Force Smart Operations for the 21st Century 

(AFSO21)

A linchpin to our success, now and into the future, is the strategic 

foresight, accountability, and professional management of Air 

Force resources by our Financial Management professionals. The 

Air Force has recognized, most recently in the Air Force Posture 

Statement, that operations support functions are critical to the 

execution of the Air Force mission. In FY 2007, the efforts and 

innovation of Air Force fi nancial management personnel continued to prove this by providing transforming effi ciencies that 

enable Air Force priorities and support all echelons in Financing 

the Fight.

Air Force in Action – FY 2007

In FY 2007, the Air Force continued to pursue, and excel in, the 

defense of America’s interests in a historically unprecedented and 

dynamic strategic environment. The Air Force remained committed to and successful in achieving our top service priorities:

• Fighting and Winning the Global War on Terrorism (GWOT)

• Developing and Caring for Our Airmen and Their Families

• Recapitalizing and Modernizing Our Aging Aircraft and 

Spacecraft Inventories

Fighting and Winning the GWOT

The Air Force has been in continual combat for 17 years. This 

continued in FY 2007 with combat operations over Iraq, clearly a 

critical front in the GWOT. In addition, the Air Force has been a 

decisive force on the Joint and coalition team in Operation Enduring Freedom in Afghanistan. America’s Airmen also continued to 

protect and defend the skies of our Homeland in Operation Noble 

Eagle, now in its sixth year. We have remained committed to 

fi nding and destroying our nation’s enemies wherever they seek 

sanctuary in our vital national struggle against violent extremism.

The Air Force operates on a global scale, 24/7. During FY 2007 

on any day or time, the Air Force had 30,000 Airmen deployed to 

the Central Command conducting theater operations and 60,000 

Airmen from Pacifi c Air Forces and U.S. Air Forces in Europe 

fully engaged in the full spectrum of dissuasion, deterrence, coalition training, and military-to-military activities.

BAGHDAD, Iraq -- Air Force pararescuemen are extracted from an 

abandoned housing site via HH-60G Pave Hawk helicopter. 
3

These Airmen, along with those supporting them from home 

stations, allowed the United States to fully exploit the inherent 

qualities of air, space, and cyberspace operations—speed, range, 

and payload—and allow the deployed Air Force footprint to be 

smaller but vastly more fl exible and lethal.

Our Airmen have excelled across the board in these demanding 

tasks. There is perhaps no better example than more than 7,700 

Airmen fulfi lling “nontraditional” ground force tasks in areas 

such as detainee operations, convoy operations and protection, 

explosive ordnance disposal, security, provincial reconstruction 

teams, and many other roles. 

Developing and Caring for 

Our Airmen and Their Families

The Air Force in FY 2007 remained a seamless Total Force, 

with more than 690,000 Airmen serving on Active Duty, in the 

Air National Guard (ANG), in the Air Force Reserve Command 

(AFRC), and as Air Force civilians. America’s Airmen are, 

simply, the bedrock of America’s ability to succeed in an era of 

challenge and uncertainty.

During the more than six decades of U.S. Air Force history, our 

Airmen have been global fi rst responders in times of crisis due 

in large part to their training and dedication. In FY 2007 this 

trend continued, starting with an Air Force enlistee’s fi rst day in 

uniform. Air Force Basic Military Training (BMT) was changed 

to stress an expeditionary mindset from day one. 

Air Force BMT now mirrors the Air Force deployment cycle of 

Air Expeditionary Forces and emphasizes basic war skills and 

practical application throughout. We are expanding BMT by 2 

weeks to provide more opportunities for fi eld exercises, and we 

have instituted “Airmen’s Time” to permit veterans to mentor 

trainees and share their real-world experiences. During Airmen’s 

Time we will relate daily training to warrior and Airmanship 

qualities and reinforce our core values.

As Airmen progress through their careers, we have implemented 

a number of advanced training initiatives. The Space Professional 

Development Program ensures that our space operations acquisition and support personnel receive the training and experience 

essential to accomplish our mission in space. The U.S. Air Force 

Warfare Center provides advanced training to ensure that our 

warfi ghting capability remains unrivaled, including joint and combined exercises. We have also focused on important Quality of 

Life initiatives. The Air Force provides unequaled dining, fi tness, 

and morale programs for our deployed Airmen, and our Learning 

Resource Centers provide distance learning, continued professional development, and connectivity with family and friends.

Another key to caring for Air Force families is our investment in 

military housing. In FY 2007, through military construction and 

housing privatization, we provided quality homes faster than ever. 

We are on track to eliminate all inadequate housing at overseas 

locations by FY 2009, and we have also focused on childcare centers, fi tness centers, and dormitories for unaccompanied members.

Maj. Kevin Mountcastle talks with his family after giving them a tour of 

a C-130 Hercules upon arriving back home from supporting Operation Enduring Freedom. 
4

Recapitalizing and Modernization

“America needs to understand that 

we will not win tomorrow’s fi ght without this 

recapitalization.”

General T. Michael Moseley, Air Force Chief of Staff 

The demands of the GWOT, operations costs, fuel and many other 

factors continue to apply pressure on the Air Force budget. We are 

managing this by focusing on a “mission fi rst” view and using tools 

such as Force Shaping, AFSO21, and aircraft retirements. These enable us to operate, organize, train, and equip the Air Force to meet the 

demands of the future.

In light of the demands faced by America’s air and space power assets, modernization is a critical effort. It took approximately 50 years 

for the United States to go from humankind’s fi rst powered fl ight at 

Kitty Hawk to testing the B-52 Stratofortress bomber. More than 50 

years after that, the B-52 remains a workhorse of the Air Force. Our 

legacy systems have served us well and tested and proven the dedication and expertise of Airmen for decades. To ensure America’s continued dominance in air, space and cyberspace, however, we recognize 

that we must take concrete steps to equip our Airmen of the future.

In FY 2007, the Air Force continued to recapitalize our assets, 

divesting signifi cant numbers of our oldest, least capable and 

most costly aircraft. To meet our 2025 force structure objectives, 

we must synchronize and are synchronizing this recapitalization 

with modernization.

The demands on air and space power for our country are many, 

but informed and wise modernization has proven that even with 

constrained resources, we can meet these demands. Examples 

include:

• The operational fi elding of America’s Fifth Generation 

Fighters, the F-22A Raptor, a fi ghter that continues to ensure 

American air superiority, and the soon-to-be-fi elded F-35 

Lighting II, the fi nest multi-role fi ghter in the world. These 

aircraft will ensure America’s ability to both dominate the 

skies and support the range of future Joint missions.

• The outstanding continued performance of the C-17 airlifter 

to handle any and all demands. 

“The mission of the United States Air Force 

is to fl y and fi ght, and let’s not forget this.”

General T. Michael Moseley, Air Force Chief of Staff

An F-22 Raptor and an F-35 Lightning II. 

Bombers, like this B-52 Stratofortress ready to refuel from a KC-135 

Stratotanker over Afghanistan, provide coalition ground forces ondemand close air support. The bomber is from the 2nd Bomb Wing 

at Barksdale Air Force Base, La. 
5

• Acquisition and operations of innovative Unmanned Aerial 

Systems (UASs) such as the Predator, the Reaper, and Global 

Hawk, including standing up of the fi rst all-UAS operational 

Wing in history.

• Leverage in cyberspace with the creation of the USAF 

Cyberspace Command, a partner with both Air Force Space 

Command and the Air Combat Command.

• Recognizing and embracing the Air Force role in Joint 

Warfi ghting Integration—inherent in all we do is constant cognizance that we are part of the Joint fi ght. For example, Airmen are now training at the Army’s National Training Center, 

with modernized Stryker Brigade Combat Teams, and with the 

Marine Corps in development of the Future Combat System.

Stated simply, the Air Force is dealing with budgetary constraints 

by eliminating low-leverage assets in favor of very high-leverage 

assets. We are focusing on these high-leverage assets, including 

the KC-X airborne refueling tanker, space systems, the CSAR-X 

(Combat Search and Rescue) system, the F-35 Lightning II Fighter 

and the next-generation bomber. This step is necessary to fulfi ll 

our obligation to the country to be the best possible stewards of 

our nation’s resources. As we undertake this modernization, we are 

constantly cognizant of the resources entrusted to us. 

The Air Force is also modernizing in other ways. During FY 2007 

it became clearly—and expensively—evident that the Air Force, 

along with all U.S. government functions, would have to spend 

much more for petroleum and petroleum-based products. Within 

the Department of Defense (DoD), the Air Force uses proportionately the most fuel of all the Services. For every $10 per barrel 

increase in petroleum, the Air Force pays more than $600 million.

Higher fuel prices were not just recognized in expenditures and 

in future fi nancial planning and budgeting, but also with strident 

action. The Air Force took the lead in energy conservation initiatives: using alternative fuels, implementing conservation initiatives, and promoting new technologies. We are doing these things 

not just for the bottom line, but because they are the right things to 

do. And through our leadership, the Air Force became an exemplar 

for all of DoD.

Air Force Structure

The command line of the Air Force fl ows from the President and 

the National Command Authority to the Secretary of Defense and 

the Department of the Air Force. The Air Force is headed by the 

Secretary of the Air Force, with the Chief of Staff reporting to the 

Secretary. Immediately subordinate to the departmental headquarters are the Major Commands, Field Operating Agencies, Direct 

Reporting Units, and the Auxiliary.

Capt. Jason Simmons and Staff Sgt. Clinton Tips update anti-virus 

software for Air Force units to assist in the prevention of cyberspace 

hackers. The Air Force is setting up the Air Force Cyberspace Command soon and these Airmen will be the operators on the ground 

floor. 

A Global Hawk unmanned system vehicle is towed back to its hangar 

following a mission at a deployed location in Southwest Asia. Once 

mission parameters are programmed into a Global Hawk, the UAS can 

autonomously taxi, take off, fly, remain on station capturing imagery, return and land. Ground-based operators monitor the UAS’s status, and 

can change navigation and sensor plans during flight as necessary. 
6

 The basic Air Force chain of command is: 

MAJOR COMMANDS (MAJCOMs)

Major Commands are primarily of two types: operational and 

support. Within the operational commands, the divisions are 

generally defi ned according to purpose or location (e.g., combat, 

movement of people and supplies, or Pacifi c and European theaters). The support commands generally are organized according 

to function (e.g., logistic, support, or training) and are directly 

subordinate to Air Force Headquarters. A list of the MAJCOMs 

and their missions follows:

“Offense is the essence of airpower.”

General H.H. “Hap” Arnold, USAAF

AIR COMBAT COMMAND (ACC)

Missions: Operates USAF bombers (active, Air National Guard, 

and Air Force Reserve Command); and USAF’s CONUS-based 

fi ghter and attack, reconnaissance, battle management, and 

command and control aircraft and intelligence and surveillance 

systems. Provides combat airpower to America’s warfi ghting 

commands (CENTCOM, EUCOM, NORTHCOM, PACOM, and 

SOUTHCOM); nuclear, conventional, and information operations forces to STRATCOM; and air defense forces to North 

American Aerospace 

American Aerospace Defense Command (NORAD). Provides 

support to activate USAF Cyberspace Command as a separate 

MAJCOM.

Command Personnel: 154,000

Primary Aircraft Inventory includes: Bombers, Fighters, Recon, 

ISR, and Trainers

OVER VIRGINIA -- Lt. Col. James Hecker flies over Fort Monroe before 

delivering the first operational F-22A Raptor to its permanent home 

at Langley Air Force Base, Va. This is the first of 26 Raptors to be 

delivered to the 27th Fighter Squadron. 
7

AIR EDUCATION AND 

TRAINING COMMAND (AETC) 

Missions: Recruit, train, and educate professional, expeditionaryminded Airmen to sustain the combat capability of America’s Air 

Force. Conduct Joint, readiness, and Air Force security assistance 

training.

Command Personnel: 87,000

Primary Aircraft Inventory includes: Trainers, Fighters, Transports, Helicopters, and Tankers

AIR FORCE MATERIEL COMMAND (AFMC)

Missions: Deliver warwinning expeditionary capabilities to the 

warfi ghter through development and transition of technology, professional acquisition management, and world-class sustainment of 

all Air Force weapons systems.

Command Personnel: 82,000

Primary Aircraft Inventory includes: Fighters, Transports, and 

Trainers

AIR FORCE SPACE COMMAND (AFSPC)

Missions: Operate and test USAF ICBM forces for STRATCOM; 

missile warning radars, sensors, and satellites; national spacelaunch facilities and operational boosters; worldwide space surveillance radars and optical systems; worldwide space environment 

systems; and position, navigation, and timing systems.

Command Personnel: 27,000

Primary Aircraft Inventory includes: Missile Warning Systems, 

ICBMs, Satellite Systems, and Space Surveillance Systems

AIR FORCE SPECIAL 

OPERATIONS COMMAND (AFSOC)

Missions: Serve as America’s specialized air power, providing 

combat search and rescue and delivering special operations power 

anytime, anywhere. Also tasked with the seven following mission 

areas: Shaping the battlefi eld, information operations, precision 

engagement, SOF mobility, agile combat support, aerospace interface, and personnel recovery/recovery operations. 

A T-6A Texan II pilot flies in formation with another T-6A. The Texan II is 

replacing the T-37 Tweet as the primary trainer for Air Force pilots.

Airman 1st Class Marlon Wells uses a flashlight to visually inspect the 

avionics system in the cargo bay of a C-130 Hercules aircraft. 

A Titian IV Centaur rocket launch. The rocket is the largest unmanned 

space booster used by the Air Force. The vehicle carries payloads 

equivalent to the size and weight of those carried on the space shuttle.
8

Command Personnel: 13,000

Primary Aircraft Inventory includes: Helicopters, Special Operations Aircraft and Forces, and Tankers

AIR MOBILITY COMMAND (AMC)

Missions: Provide rapid global mobility and sustainment through 

tactical and strategic airlift and aerial refueling for U.S. armed 

forces. Provide special duty and operational support aircraft and 

global humanitarian support.

Command Personnel: 141,000

Primary Aircraft Inventory includes: Transports, Helicopters, and 

Tankers

PACIFIC AIR FORCES (PACAF) 

Mission: Provide ready air and space power to promote U.S. interests in the Asia-Pacifi c region during peacetime, crisis, and war. 

Command Personnel: 46,000

Primary Aircraft Inventory includes: Fighters, Transports, and 

Tankers

U.S. AIR FORCES IN EUROPE (USAFE)

Missions: Provide the Joint Force commander rapidly deployable expeditionary aerospace forces. Plan, conduct, coordinate 

and support air and space operations to achieve U.S. national and 

North Atlantic Treaty Organization (NATO) objectives based on 

U.S. European Command (EUCOM) tasks. Support U.S. military 

plans and operations in Europe, the Mediterranean, the Middle 

East, and Africa. Support activation of AFRICOM as a Unifi ed 

Command with dedicated air component for Africa.

Command Personnel: 33,000

Primary Aircraft Inventory includes: Fighters, Transports, and 

Tankers

AIR RESERVE COMPONENTS (AFRC)

Missions: Support the active duty force. Serve in such missions as 

fi ghter, bomber, airlift, aerial port operations, aeromedical evacuation, aerial fi re fi ghting, weather reconnaissance, space operations, airborne air control, fl ying training, fi ght testing, and aerial 

spraying. Provide support and disaster relief in the United States 

and support national counterdrug efforts.

A C-17 Globemaster III conducts an assault landing. 

Two Air Force CV-22 Ospreys prepare to land. 

F-15E Strike Eagles taxi to their parking spaces at Royal Air 

Force Base Lakenheath, England.
9

Command Personnel: 78,000

Primary Aircraft Inventory includes: Fighters, Transports, and 

Tankers

AIR NATIONAL GUARD (ANG)

Missions: Provide combat capability to the warfi ghter and 

security for the homeland. Protect life and property and preserve 

peace, order, and public safety.

Command Personnel: 107,000

Primary Aircraft Inventory includes: Fighters, Transports, and Tankers

FIELD OPERATING AGENCY (FOA)

FOA is a subdivision of the Air Force and is directly subordinate 

to a Headquarters U.S. Air Force functional manager. An FOA 

performs fi eld 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 specifi cally directed by a 

DoD authority. Examples of the 32 FOAs include the Air Force 

Audit Agency, Air Force Communications Agency, Air Force 

Cost Analysis Agency, Air Force Services Agency, and Air Force 

Weather Agency. 

DIRECT REPORTING UNIT (DRU)

DRU is a subdivision of the Air Force and is directly subordinate 

to Headquarters Air Force. A DRU performs a mission that does 

not fi t into any of the MAJCOMs. A DRU has many of the same 

administrative and organizational responsibilities as a MAJCOM. 

The fi ve DRUs are the Air Force Academy, Air Force Studies and 

Analysis Agency, Air Force Doctrine Center, Air Force District 

of Washington, and Air Force Operational Test and Evaluation 

Center.

• 

Lt. Col. Mark McCauley (from left), Col. Charles Smith and Maj. Mark 

Mitchum, pilots with the Virginia Air National Guard, walk to their respective 

F-16 Fighting Falcons for their final flight in that aircraft. They belong to the 

first Air National Guard unit to fly the F-22 Raptor.

Air Force Reserve Command WC-130J Hercules, also known as 

a Hurricane Hunter, takes off with an aircrew from the 815th Airlift 

Squadron and support members from the 403rd Wing at Keesler Air 

Force Base, Miss. 

U.S. Air Force Academy graduates throw their hats in the air as the Air Force 

Thunderbirds fly overhead signaling the end of the graduation ceremony. 
10

Auxiliary

An Air Force auxiliary is an organization created by statute that 

the Secretary of the Air Force may use to fulfi ll the Air Force’s 

noncombat programs and missions. The Civil Air Patrol (CAP) is 

the only U.S. Air Force auxiliary to date.

Air Force Smart Operations in the 

21st Century – the Way Ahead

“Hitler built a fortress around Europe, but 

he forgot to put a roof on it.”

President Franklin D. Roosevelt

The proud heritage that today’s Airmen inherit means that Air 

Force Financial Management professionals must embrace and 

manage change—a challenge they are uniquely qualifi ed to meet. 

The key to this is AFSO21. Perhaps it was best summarized by 

the Secretary of the Air Force when he asked Airmen, “Is each 

task relevant, productive and value-added? In other words, is it 

necessary at all? With AFSO21, we will march unnecessary work 

out the door—forever.”

This plan—this challenge—fi ts Air Force Financial Management perfectly. As we found in FY 2007, America’s Airmen can 

redesign the way fi nancial services are provided, reallocate staff, 

and improve overall services delivered ... and march unnecessary 

work out the door to the benefi t of the American taxpayer.

CFO Compliance

All of these Air Force Initiatives must be accomplished in accordance with applicable laws and as responsible stewards of 

the nation’s resources. To that end, we are focused on complete 

compliance with federal directives and Secretary of the Air Force 

guidance. To support the Air Force Chief Financial Offi cers 

Act (CFO Act) compliance goal to “Implement open, transparent business practices, and achieve a clean audit,” we initiated 

a fi nancial reporting risk analysis program in compliance with 

Offi ce of Management and Budget (OMB) Circular A-123, 

Appendix A. This program identifi es and tests management’s 

internal controls over fi nancial reporting and seeks to identify 

and correct discrepancies that could result in reporting misstatements. This initiative, coupled with our fi nancial system compliance and data reliability efforts, as well as participation in the 

Offi ce of the Under Secretary of Defense (Comptroller) Financial 

Improvement and Audit Readiness (FIAR) Plan, is improving the 

reliability of fi nancial decision making information available to 

the warfi ghter and achieving the objectives of the CFO Act. This 

applies across both the General Fund of the Air Force Working 

Capital Fund.

Civil Air Patrol members prepare for mission.

An F-4 Phantom, P-47 Thunderbolt, F-16 Fighting Falcon 

and P-51 Mustang fly in a heritage flight formation. 
11

After this general Air Force background, we will continue the 

management discussion and analysis with brief reviews of the Air 

Force General Fund and Working Capital Fund. These reviews 

will include details on Air Force stewardship of taxpayer dollars 

during FY 2007. The following sections will include descriptions 

of functional areas that these funds support and how they are used 

to further Air Force capabilities for the nation.

Department of the 

Air Force General Fund

The General Fund is a fund in which all receipts of the United 

States Government are deposited, except those from specifi c 

sources required by law to be deposited into other designated 

funds and from which appropriations are made by Congress to 

carry on the general and ordinary operations of the Government. 

In 1990 the Chief Financial Offi cers Act was passed, ordering 

Federal agencies to centralize their fi nance systems to better account for their spending. In 1996, Congress passed the Federal 

Financial Management Improvement Act (FFMIA), enabling the 

advancement of Federal fi nancial management by requiring that 

Federal fi nancial management systems provide accurate, reliable, 

and timely fi nancial management information to the government’s 

managers. The most common of governmental funds are operating funds, in this case the operating funds of the Air Force are 

known as the General Fund. It is used to account for all fi nancial 

resources except those required to be accounted for in such other 

funds (i.e., Working Capital Fund, addressed later in this Report).

Air Force Resources 

The three vital resources to successful accomplishment of the Air 

Force mission are:

• Places: A network of bases that refl ect the Air Force’s global 

competencies:

 - The Air Force is a global force, spanning facilities 

 both in the United States and around the world.

Note: Number of U.S. major Air Force installations = 72— Number of U.S. Air Force Foreign major installations = 12.

Source: 2007 USAF Almanac, May 2007 
12

• People: Trained, motivated, and dedicated:

 - Aerospace power is a proven necessity for victory on 

 land, at sea, in air and space, and in cyberspace. The 

 foundation of this is our people.

 - The shift in missions to the reserve component (the Air 

 Force Reserve and the Air National Guard) is clear. 

 Indeed, without these “hometown warriors,” the Air 

 Force could not complete our full range of necessary 

 missions.

• Systems: Modern weapons platforms that integrate air, 

space, and cyber assets into an undefeatable force:

 - To the Air Force, “systems” no longer means just 

 “manned aircraft.” They mean space launch vehicles, 

 satellites, intelligence surveillance and reconnaissance 

 (ISR) assets, unmanned aerial systems (UASs), and the 

 cohesive infra structure to make the “system” an asset 

 for Air Force people to accomplish the Air Force and 

 joint mission.

Air Force Strategic Financial 

Management and Transformation

To accomplish Air Force goals and realize the Air Force vision, 

Air Force Financial Management (SAF/FM) is setting the pace 

for transformation across the entire Air Force. The strategic vision 

for SAF/FM entails moving the career fi eld away from transaction 

processing toward greater decision support and enhanced strategic 

advice to commanders. The vehicle for realizing this vision is the 

single largest change effort in SAF/FM history. The phases of 

FM Transformation primarily focus on revolutionizing the core 

fi nancial functions, changing the behavior and capabilities of 

the fi nancial personnel performing those functions, establishing 

on-demand support services, realigning and integrating the Air 

Force Accounting and Budget offi ces, modifying design support 

systems and programs, creating training materials and programs 

(including Web-based training tools), and establishing a continuous cultural improvement program to achieve the transformation 

to a world-class operation. 

In FY 2007, SAF/FM created a road map through our 

FY 2007–2012 Strategic Plan that translates our vision into 

concrete, actionable, and measurable steps. It integrates ongoing 

transformation initiatives into strategy and communicates priorities, focuses efforts, and serves as a fi lter to help determine where 

to invest time, people, and resources. 

The strategic goals outlined in the Strategic Plan are:

• Foster mutual respect and integrity 

• Reduce Air Force cost structure 

• Expand partnership in strategic Air Force decisions 

• Recruit, prepare, and retain a well-trained and highly educated professional team for today and tomorrow 

• Provide our customers with world-class fi nancial services 

• Implement open, transparent business practices and achieve 

a clean audit

• Continuously streamline fi nancial management processes and 

increase capabilities

To better achieve these goals, FM is transforming—in the same 

manner as the entire Air Force—our systems, people, and services. 

Systems: Critical fi nancial Information Technology systems 

will continue to be modernized, streamlined, and implemented to 

effi ciently provide timely, accurate business intelligence. Revolutionary systems such as the Defense Integrated Military Human 

Resources System (DIMHRS), which will reduce manpower, 

time, and resources needed to provide fi nancial and personnel 

support, are being implemented to support the warfi ghter. Defense 

Enterprise Accounting and Management System (DEAMS) is 

transforming Air Force accounting using industry’s best practices 

to provide improvements in quality, fl exibility, accountability, 

speed, and accuracy. 

A pilot version of new technology-driven budget formulation 

software will demonstrate increased capabilities and integration. 

Continued efforts to update systems such as these are creating a 

foundation for the future in Financing the Fight. 
13

People: The FM workforce is critical to leveraging these systems 

and achieving FM’s strategic goals. The FM Airmen—offi cer, 

enlisted, and civilian; active, reserve, and guard—provide valuable, accurate, and timely fi nancial services to enable FM’s 

tactical, operational, and strategic force development to provide 

the right training to the right person at the right time. FM’s Career 

Field Managers are adjusting education curricula to accommodate 

changes in the career fi eld and supplementing existing courses to 

maximize training opportunities. We will continue to develop the 

FM workforce as they enable us to attain our goals. 

Services: Services transformation comprises work streams, also 

known as Lanes of Transformation, and report to the Director of 

Strategic Planning and Transformation (SAF/FMT). These lanes 

are inextricably linked to both people and systems, completing 

the overall transformation effort for Air Force FM. In 2007, the 

lanes shifted focus to concentrate on enhancing AF-wide business 

processes and practices for the following upcoming initiatives: 

• Financial Services Delivery Model: This model and our 

adherence to it is responsible for consolidating and transforming the FM career fi eld through the establishment of the 

Air Force Financial Services Center (AFFSC) at Ellsworth 

AFB, SD. The delivery model for fi nance operations is a 

two-phased approach. Phase I will consolidate back-offi ce 

military and travel pay processing for Active and Reserve 

bases into one location called the Central Processing Center, 

which opened in September 2007. This effort will align remaining base processes with those that migrate to the center. 

Phase II consists of the transition to a 3-tier customer service 

concept, which includes a 24/7 Call Center, online services, 

and face-to-face support, allowing customers to get fi nance 

help anytime and anywhere in the world. The AFFSC has 

already opened and will become fully operational in October 

2008.

• Decision Support: The Decision Support team has made 

great strides in shifting the focus of fi nancial managers from 

transactional work to decision support by providing the FM 

community with enhanced fi nancial training, improved processes, and a refo-cused organizational structure at the base 

level. The team remains focused on supporting career fi eld 

managers in identifying the necessary skills and capabilities 

to provide enhanced decision support and delivering the appropriate training to achieve the FM vision. 

• Strategic Communications: The development of our Strategic Plan looking toward 2008 meant greater focus on our 

Strategic Communications team, which was turned into a 

specifi c lane. The Strategic Communications lane is responsible for marketing Financial Management Transformation 

to the rest of the Air Force through dynamic and informative 

materials as well as documenting transformation successes.

• Air Force Smart Operations for the 21st Century (AFSO21): 

AFSO21 is responsible for identifying opportunities and 

leading efforts to improve processes. Through lean practices 

to eliminate waste and increase operational support, the 

AFSO21 team is helping the Air Force better manage its 

fi nancial resources. 

• Education and Training Transformation: This lane provides 

the training strategies and materials needed to implement 

the other lanes of transformation. Working under Career 

Field Manager guidance, the Education and Training team is 

developing Web-based training tools, updating procedures 

manuals, and revamping classroom curricula. These are just a 

few of the actions undertaken by this lane to ensure that FM 

Deployed USAF Finance office.
14

personnel have the skills necessary to perform their duties in 

the transformed environment. 

• Budget Transformation Operation: The goal of this lane is to 

create a world-class operation in the Headquarters Air Force 

Budget Operations Offi ce (SAF/FMBO) by strategically 

allocating resources, reengineering processes, and building 

continuous cultural improvements.

Transformation accomplishments in 

FY 2007 included:

• The AFFSC is on track for completion and opened its doors 

September 2007; the initial cadre has arrived at Ellsworth 

AFB, SD. The AFFSC teams have also completed (and 

continue to complete) cutover site awareness visits to all Air 

Force bases. Additionally, the Contact Center development is 

moving forward and is on target to open in October 2008.

• The AFSO21 lane began operations in October 2006. Since 

then, the team has held numerous continual process improvement events encompassing transparency, decision support, 

and customer support processes. This progress has helped 

enable the Air Force and SAF/FM in their efforts to revitalize 

the Air Force weapon system inventory. 

• The Decision Support team completed the realignment of 

base fi nancial personnel, delivered core accounting and 

budget training, developed improved civilian personnel 

documents for enhanced career advancement, and delivered a “Roadmap to Decision Support” to articulate the FM 

Strategic Vision of providing fi nancial analysis and decision 

support to commanders. 

• The Analytical Capability Transformation team opened the 

Financial Management Center of Expertise (COE) on April 

18, 2006, to offer on-demand, specialized fi nancial analysis 

for O&M decision support to bases and MAJCOMs. The 

COE is on track and became fully operational in 2007. SAF/

FMT has turned it over to the Deputy Assistant Secretary for 

Cost and Economics, SAF/FMC. 

• The Education, Training, and Development team has been 

working to institutionalize decision support training and 

education into the development of the FM Force. The team 

provided direct support to FM transformation efforts by 

developing enhanced, Web-based training and education; it 

has provided thought leadership and delivered results that 

expanded and enhanced the relevance of training provided to 

all FM personnel. Additionally, the team created more than 

100 new Web-based courses.

• The Strategic Communications team produced multiple 

products to market Financial Management’s transformation. 

Some examples include the creation and dissemination of 

brochures, newsletters, briefs, fl ash pieces, and events (e.g., 

Financial Management Executive Session and Professional 

Development Institute tradeshow booth).

• The Budget Transformation Operation (BTO) team was successful in evolving the budget execution process by eliminating the cumbersome fi nancial plan and replacing it with 

a streamlined execution plan. Additionally, their efforts are 

changing a culture by shifting focus from being reactive information providers to proactive problem solvers. The BTO 

lane is also fully engaged in redoing the funding process and 

justifi cation books. 

Secretary of the Air Force Michael W. Wynne and John Vonglis are briefed on the 

new Air Force Financial Services Center operations at Ellsworth Air Force Base, S.D. 
15

• A state-of-the-art fi nancial management system that serves 

the Air Force and U.S. Transportation Command came to 

fruition on August 3, 2007, when the DEAMS Increment 

1 was successfully fi elded at Scott AFB, Ill. DEAMS will 

replace several antiquated systems, considerably reducing the 

time to process and track fi nancial transactions.

• These transformation efforts are enabling us to change the 

way FM does business in order to meet the current challenges and needs of the Air Force.

Objective of Internal Controls

Air Force Financial Management Transformation, however, must 

be based on management integrity. To this end, we have put in 

place robust internal controls. The objectives of the system of 

internal accounting and administrative control of the Department 

of the Air Force are to provide reasonable assurance that:

• Obligations and costs comply with applicable law.

• Funds, property, and other assets are safeguarded against 

waste, loss, unauthorized use, and misappropriation.

• Revenues and expenditures applicable to Air Force operations are properly recorded and accounted for to permit the 

preparation of accounts and reliable fi nancial and statistical reports, and to maintain accountability over the assets, 

including nonappropriated fund activities.

• Programs and administrative and operating functions are 

effi ciently and effectively carried out in accordance with 

applicable law and management policy.

• The internal control process emphasized prevention of 

waste, fraud, and mismanagement along with timely correction of internal control weaknesses.

Internal Control Program 

Accomplishments and Highlights

The Federal Managers’ Financial Integrity Act (FMFIA) implementation in the Air Force rests on a solid general control environment supported by positive endorsement from top management. FY 2007 was a year of strong internal control activity as 

our fi nancial managers continued to integrate their job oversight 

responsibilities with the internal control program’s evaluation 

procedures. Using pervasive technologies, Air Force Major Commands increased distribution of internal control information on 

their force-wide available Web sites. For example, the Air Force 

Space Command established an Internal Control Program Web 

page on the Air Force Portal that provides links to applicable 

regulations, document templates, a 27 page PowerPoint training 

briefi ng, and a by-name list of internal control program coordinators for the centers, wings, and headquarters. The Web page 

is continuously updated to ensure that its content is both current 

and user friendly. This site provides every level throughout the 

command with the tools needed to manage and assess controls. 

This training has increased program awareness, reduced training 

expenses, enhanced effi ciency, and gained the active participation of personnel at all levels. 

During FY 2007, we continued to implement new program 

requirements directed in DOD Instruction 5010.40, Managers’ 

Internal Control Program Procedures, in response to revised 

guidance in OMB Circular A-123, Management’s Responsibility 

for Internal Control. The revised guidance included additional 

requirements to specifi cally address establishing and assessing 

Mr. John Vonglis, the Principal Deputy Assistant Secretary of the AF (FM), 

poses with the staff of the Realigned ALO-FMA at Offutt AFB.
16

internal controls over fi nancial statement reporting. It also required the establishment of a senior assessment team to provide 

direction and oversight for the assessments. The Offi ce of the Under Secretary of Defense/Comptroller (OUSD/C) directed that our 

review encompass specifi c key focus areas material to DoD and 

the effectiveness of key business process internal controls, which 

signifi cantly affect fi nancial reports. During this year we documented the required processes, performed risk analysis, developed 

swim-lane fl owcharts, and analyzed existing internal controls for 

the required focus areas. Based on this year’s review effort, we 

identifi ed seven material weaknesses that were briefed to the Air 

Force Senior Assessment Team and approved to be included in the 

Secretary’s Annual Statement of Assurance. The specifi c focus 

areas we documented will grow through a continuous cycle; new 

areas included each fi scal year until all fi nancial statements and 

the processes throughout fi nancial reporting are included. For 

more about these efforts, we will next look at the operations and 

effi ciencies of the Air Force Working Capital Fund. 

Air Force Working 

Capital Fund

The Air Force Working Capital Fund (AFWCF) is a revolving fund 

established to meet the diverse weapon system sustainment requirements for the Air Force, Army, Navy and Foreign Military operating 

forces. Under the revolving fund concept, an appropriation or transfer of funds fi nances initial AFWCF operations. General/appropriated fund payments from customers for goods delivered or services 

performed subsequently replenish this initial working capital investment and sustain a continuous cycle of operations, minimizing the 

need for aditional annual appropriations from Congress. 

Air Force Working Capital Fund (WCF) Overview

Air Force Materiel Command (AFMC) supports Air Force warfi ghters 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 more than 90 percent of WCF 

revenue and expense activity (excluding the Transportation WCF, 

which is managed by the United States Transportation Command). 

The AFMC managed WCF consists of two functions: Supply 

Management and Depot Maintenance. These functions, referred to 

as activity groups, supply singular goods and services to Air Force 

and Department of Defense (DoD) customers as well as customers 

outside the DoD, such as local and foreign governments. Supply 

Management expedites repair, replenishment, and inventory control 

for spare parts and associated logistics support services to fulfi ll 

AF needs during war and peacetime. Depot Maintenance provides 

economical and responsive repair, overhaul, and modifi cation of 

aircraft, missiles, engines, and other major end items and associated components. The Information Services business area was closed 

effective March 31, 2007, and no longer operates under the WCF.

WCFs allow the Air Force to accomplish the following:

• Ensure readiness through reduced support costs, stabilized 

rates, and customer service

• Provide fl exibility to adjust customer support needs in response to real-world situations 

• 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

Airman 1st Class Mark Drennen checks an AIM-120 missile on an F-16 

Fighting Falcon. 
17

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 2 million items including 

weapon systems spare parts, medical/dental supplies and equipment, and items used for non-weapon systems applications. 

Material procured from vendors held in inventory is for sale to 

authorized customers. The SMAG consists of four divisions: Material Support Division (MSD), General Support Division (GSD), 

Medical/Dental Division, and United States Air Force Academy 

Cadet Issue Division. AFMCmanages MSD and GSD. Headquarters, United States Air Force, manages the Medical/Dental Division and the Air Force Academy Cadet Issue Division. 

The MSD is responsible for depot level reparable spare parts 

managed by the Air Force along with some consumable spares. 

The principal products of MSD are serviceable spare parts and 

assemblies unique to AF weapon systems.

The WCF Retail Operations consist 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—the warfi ghter. Large bulk buys allow 

the Air Force to take advantage of economies of scale and achieve 

signifi cant cost savings. Additionally, each division concentrates 

its efforts in a specifi c area of expertise. 

The GSD items support installation maintenance, administrative 

functions, and fi eld and depot maintenance of aircraft and other 

systems. GSD supports AF installations throughout the world. 

The Surgeon General of the AF 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 care of USAF active 

military, retirees, and family members. This division’s war reserve 

material (WRM) requirement 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 

fi nances 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 manufacturers. 

Customers, Products, and Services

In addition to managing various inventories, 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 AF Acquisition Executive. 

SMAG Transformation Initiatives

The AF has undertaken a fundamental redesign of supply chain 

management processes as part of the Expeditionary Logistics for 

the 21st Century (eLog21) effort to transform AF logistics. SMAG 

processes have been, and will continue to be, profoundly impacted 

as previous Purchasing and Supply Chain Management (PSCM) and 

Weapon System Supply Chain Management (WSSCM) initiatives 

are woven into an overarching strategy to transform organizations, 

processes, and information technology supporting warfi ghter supply 

The U.S. Air Force Demonstration Squadron, “Thunderbirds.” 
18

requirements. HQ USAF leads the process of defi ning and implementing an enterprise resource planning tool under the Expeditionary Combat Support System (ECSS) development. And AFMC 

is charged with heading up the formation of the Global Logistics 

Support Center (GLSC) and the Centralized Asset Management 

(CAM) offi ce, both of which will centralize key resource planning 

and execution processes with the goal of bringing an enterprise 

perspective to weapon system sustainment activities. The major 

pillars of the AF’s supply chain transformation are briefl y 

described below.

• eLog21 is the AF logistics road map to 

transformation and offers vast improvements to the effectiveness (and costs) associated with logistics support to combat 

forces. Through eLog21, AF leaders aim to cut 

across stovepipes, eliminating burdensome legacy 

processes and systems used AF-wide. The eLog21 

vision is to provide an integrated AF-wide logistics 

system that delivers consistent capabilities to the warfi ghter in a fl exible, scalable, modular, and expeditious 

manner; a system that exploits our nation’s total capabilities in the most cost-effective manner.

• ECSS is a commercial off-the-shelf (COTS)–based technology solution that will enable a seamless fl ow of information 

across the entire AF logistics community through a comprehensive set of integrated IT modules. ECSS will create an 

AF-wide solution that exploits current technology and creates 

an integrated data environment. It will consist of separate but 

integrated modules ranging from fi nance and purchasing to order management and bill of materials as well as other logistics 

functions—all accessible via the AF portal. ECSS will be a 

critical enabler for the GLSC when fully operational.

• The AF GLSC will own the USAF supply chain. GLSC’s 

mission is to merge wholesale and retail logistics as well 

as integrate and oversee all logistics processes, technology, 

and resources in order to deliver end-to-end supply chain 

management capabilities to the warfi ghter. While GLSC 

organizational structure and relationships are still being 

discussed, the CSAF decided that the GLSC will be a direct 

reporting unit under the AFMC commander, and high-level 

GLSC functions have been documented in AF Program Action Directive 07-01.

Customer Support Performance Measures

Mission Capable (MICAP) and Customer Wait Time (CWT) measures allow managers to assess the quality of spares support provided 

and plan corrective action when needed. MICAP hours are accrued 

when a weapon system’s mission capability is affected by parts that 

are on backorder to a wholesale source of supply. For every day during the month that the requisition is unfi lled, 24 hours are assigned to 

the requisition. CWT measures the average time elapsed—expressed 

in days—between customer order and satisfaction of that order, including the wait time backorder. MICAP hours for AFMC-managed 

items have improved signifi cantly since 1999. MSD items accrued 

an average of 5 million monthly MICAP hours during calendar year 

2000. That number dropped to 1.3 million hours for the 12 month 

period ending in April 2007. CWT is a newer metric, but has also 

shown a signifi cant improvement. The monthly average CWT for 

MSD items during FY 2004 was 7.4 days. For the period from May 

2006 to April 2007, the number dropped to 5.5 days. 

Staff Sgt. Shannon Hughes (left) hands Senior Airman Damon Johnson a 

tool as they work on an A-10 Thunderbolt II during its phase inspection. 
19

2007 Financial Performance Measures

SMAG measures fi nancial 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 profi t and loss 

indicator. The NOR objective of an activity group is to break even 

over the budget cycle. Setting rates that effectively offset prior 

year net profi t or loss and break even for new activity in the ratesetting year accomplishes this objective. Revenues are amounts 

earned as a result of normal operations and usually derive 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. The objective is to provide 

needed goods and services to customers while generating the revenue required to sustain continued operations within the activity.

Depot Maintenance Activity Group

The Depot Maintenance Activity Group (DMAG) ensures successful management and execution of comprehensive depot 

maintenance programs for AF-managed equipment in accordance 

with existing AF guidance. In peacetime, DMAG enhances readiness by effi ciently and economically repairing, overhauling, and 

modifying aircraft, engines, missiles, components, and software 

to meet warfi ghter demands. During wartime or contingencies, the 

group shifts to surge repair op-erations and realigns capacity to 

support the warfi ghter’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 AFMC depots and contract operations accomplish these goals. 

DMAG supports a variety of customers including Air Force 

Major Commands, Air National Guard (ANG), Air Force Reserve 

Command (AFRC), SMAG, Foreign Military Sales, and non-DoD 

customers. Additionally, DMAG provides storage, reclamation, 

and regeneration of equipment not currently used by the military 

services. This work is done at the Aerospace Maintenance and Regeneration Group at Davis-Monthan AFB, Arizona. Contract depot maintenance is transitioning from the AFWCF to be fi nanced 

directly by the using commands, SMAG, and other customers.

DMAG has two principal objectives. The fi rst is to provide 

organic depot repair capability for fi elded and emerging weapon 

systems so that warfi ghters have mission-essential equipment. 

The second DMAG objective is to ensure its ability to rapidly 

respond to those warfi ghter 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 work-load capacity and capability to 

meet depot maintenance in the following areas: peacetime support, surge, and core requirements. To better support the services 

that DMAG provides to its customers, an integrated suite of 

systems—the Depot Maintenance Accounting and Production 

Systems (DMAPS)—provides improved fi nancial, production, 

and material functionality in support of the warfi ghter’s needs 

for quality organic depot maintenance. This includes improved 

fi nancial management support/tools and reporting for organic 

depot maintenance activities, to include substantial compliance 

with legislative requirements such as the CFO Act. 

Transformation Initiatives

As pointed out previously, AFSO21 is the overarching program 

to facilitate the process improvement culture that encompasses 

all transformation efforts. Process improvement activities have 

reduced fl ow days and backlogs and have avoided costs, thus 

increasing equipment availability to the warfi ghter and reducing 

Depot-level maintenance on a KC-135 Airframe.
20

operating costs in support of eLog21 and Aircraft Availability 

Improvement Program (AAIP) goals. AAIP identifi es airframespecifi c goals for availability and cost and identifi es supporting 

improvement initiatives. Developed by the System Program Manager in partnership with the Lead MAJCOMs, AAIP plans are a 

collection of initiatives with sponsors from across the Air Force 

all focused on improving availability and reducing cost. 

The primary improvement methodologies have been Lean and 

Critical Chain Project Management (CCPM). These methodologies have been the main enablers in reducing backlogs through 

eliminating waste and increasing fl ow. CCPM has reduced aircraft 

fl ow days in Programmed Depot Maintenance (PDM) through 

better management of resources and schedule times. 

Additionally, DMAG has been actively supporting SMAG 

through initiatives such as GLSC and Repair Enterprise 21 

(RE21). RE21 is an enterprise-wide, single repair network supporting a single supply chain through centralizing intermediate 

repair; it will be managed through GLSC.

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. We have 

designed these measures to achieve accountability at the appropriate depot maintenance level—the Depot Maintenance Manager. 

Customer support performance measures monitor progress toward 

DMAG goals. 

The Due Date Performance (the ability of the depot to provide 

aircraft on time) is currently exceeding the standard of 95 percent, 

holding at 97 percent as of June 2007. The depot performance of 

Air Logistics Centers (ALCs) continues to have a direct impact 

on the warfi ghter’s ability to meet worldwide missions.

Financial Performance Measures

Financial performance measures assess the fi nancial performance 

of the DMAG. These measures are designed to achieve accountability at the appropriate level and also measure compliance with 

DMAG budget objectives. Budget objectives are identifi ed in 

each ALC fi nancial performance plan and are used to measure 

results during execution. 

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 depends directly 

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 levels adequate 

to meet 6 months of capital disbursements. 

Cash management efforts continue to focus on analyzing data, 

developing tools to identify changes in cash, and forecasting 

future needs for cash. Each month, AFMC prepares a statement 

of sources and uses of cash. These statements are used to identify 

areas of cash increases and drains to monitor performance against 

the recommended policy.

Centralized Asset Management (CAM) and 

Global Logistics Support

CAM is focused on improving how AF manages sustainment 

resources across the enterprise. It will optimize support in steady 

state and expeditionary operations. Under the CAM construct, 

AFMC will assume planning, programming, budgeting, and 

execution responsibility for Depot Purchased Equipment Maintenance (DPEM), Depot-Level Reparable (DLR), Sustainment 

Tech. Sgt. Rosits, a member of the 332nd Air Expeditionary Wing honor guard, Engineering (Sust Eng), Technical Orders (TOs), Contractor 

holds the American Flag during a change-of-command at Balad Air Base, Iraq. 
21

Logistics Support (CLS), Aviation Petroleum Oil and Lubricants 

(AVPOL), Flying Hour (FH) Consumables, and Support Equipment (Supp Equip). 

“Air dominance is something we earned for 

the last 50 years, and we intend to retain it.”

Secretary of the Air Force Michael Wynne

Financing the Fight

We face an uncertain world with asymmetric threats to our sovereignty and security. We must come to accept that the technology 

as well as the manner and means of warfi ghting in defense of 

America are changing, and that the changes are not gradual but 

exponential. This is particularly true of understanding air, space, 

and cyberspace power. As we survey the past, consider this: The 

then-Army Signal Corps purchased its fi rst airplane in 1905. By 

1917, U.S. aircraft were fl ying in combat. Within 25 years, all 

of the magnifi cent aircraft that would win all of the air wars of 

World War II were operational. And less than 15 years after that, 

the very fi rst uniquely US Air Force airplanes, both what we now 

know as the C-130 and the B-52, were fl ying—as they are today. 

In 1958, no American had been in space, but of course by 1969 

we had put men on the moon.

Today we must—for our troops on the ground and in the larger 

sense for the security of our country—dominate air, space, and 

cyberspace. This requires not gradual, linear change but innovative and constant transformation. The entire Air Force is called 

upon to undertake this challenge, and America’s Airmen are 

responding with characteristically stellar performance.

Enabling our Airmen also requires the greatest and most effective use of the resources of this great country. Air Force Financial 

Management professionals bear this in mind around the world, 

day and night. They are the best stewards of those resources that 

could be wished by any country at any time. They are, indeed, 

Financing the Fight.

An E-3 Sentry Airborne Warning and Control System sits on the flightline at a forward-deployed location in Southwest Asia. 
22
Annual Financial Statements

Fiscal Year 2007

Fiscal Year 2007—Annual Financial Statements

23
Limitations to the Financial Statements

The principal financial statements have been prepared to report the financial position and results of operations of the entity, pursuant to the requirements of 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 Generally Accepted Accounting Principles for Federal entities and the formats prescribed by 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. The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity.

24

Limitations to the 

Financial Statements
The FY 2007 Department of the Air Force General Fund Principal Statements and related 

notes are presented in the format prescribed by the Department of Defense Financial Management Regulation 7000.14-R, Volume 6B. The statements and related notes summarize 

financial information for individual activity groups and activities within the General Fund 

for the fiscal year ending September 30, 2007, and are presented on a comparative basis with 

information previously reported for the fiscal year ending September 30, 2006.

The following statements comprise the Department of the Air Force General Fund Principal 

Statements:

• Consolidated Balance Sheet

The Consolidated Balance Sheet presents as of September 30, 2007 and 2006 those resources 

owned or managed by the Air Force which are available to provide future economic benefits 

(assets); amounts owed by the Air Force that will require payments from those resources or 

future resources (liabilities); and residual amounts retained by the Air Force, comprising the 

difference (net position).

• Consolidated Statement of Net Cost

The Consolidated Statement of Net Cost presents the net cost of the Air Force’s operations 

for the years ended September 30, 2007 and 2006. The Air Force’s net cost of operations 

includes the gross costs incurred by the Air Force less any exchange revenue earned from Air 

Force activities.

• Consolidated Statement of Changes in Net Position

The Consolidated Statement of Changes in Net Position presents the change in the Air Force’s 

net position resulting from the net cost of Air Force’s operations, budgetary financing sources 

other than exchange revenues, and other financing sources for the years ended September 30, 

2007 and 2006.

• Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources presents the budgetary resources available 

to the Air Force during FY 2007 and 2006, the status of these resources at September 30, 2007 

and 2006, and the outlay of budgetary resources for the years ended September 30, 2007 and 

2006.

The Principal Statements and related notes have been prepared to report financial position 

pursuant to the requirements of the Chief Financial Officers Act of 1990, the Government 

Management Reform Act of 1994, and the Office of Management and Budget’s Circular 

A-136, “Financial Reporting Requirements.”

25

General Fund

Fiscal Year 2007

Principal Statements

General Fund—Principal Statements
Consolidated Balance Sheet - General Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Consolidated

2006 

Consolidated

1. ASSETS (NOTE 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3)

 a. Entity $ 80,031,552 $ 68,767,178

 b. Non-Entity Seized Iraqi Cash 0 0

 c. Non-Entity-Other 94,844 80,989

 2. Investments (Note 4) 823 722

 3. Accounts Receivable (Note 5) 388,823 665,672

 4. Other Assets (Note 6) 423,952 454,968

 5. Total Intragovernmental Assets $ 80,939,994 $ 69,969,529

 B. Cash and Other Monetary Assets (Note 7) $ 107,908 $ 114,779

 C. Accounts Receivable, Net (Note 5) 545,796 1,041,746

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property, Net (Note 9) 46,335,059 48,584,335

 F. General Property, Plant and Equipment, Net (Note 10) 143,257,880 141,861,111

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 10,448,818 11,379,126

2. TOTAL ASSETS $ 281,635,455 $ 272,950,626

3. LIABILITIES (NOTE 11)

 A. Intragovernmental

 1. Accounts Payable (Note 12) $ 1,509,631 $ 1,425,771

 2. Debt (Note 13) 0 0

 3. Other Liabilities (Note 15 & 16) 2,033,326 2,258,259

 4. Total Intragovernmental Liabilities $ 3,542,957 $ 3,684,030

 B. Accounts Payable (Note 12) $ 3,189,763 $ 4,269,732

 C. Military Retirement and Other Federal Employment Benefits 

 (Note 17)

1,137,016 1,143,748

 D. Environmental and Disposal Liabilities (Note 14) 6,898,867 6,554,952

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 & Note 16) 6,081,496 6,253,108

4. TOTAL LIABILITIES $ 20,850,099 $ 21,905,570

5. NET POSITION

 A. Unexpended Appropriations - Earmarked Funds (Note 23) $ 0 $ 0

 B. Unexpended Appropriations - Other Funds 80,465,487 70,186,333

 C. Cumulative Results of Operations - Earmarked Funds 4,548 4,540

 D. Cumulative Results of Operations - Other Funds 180,315,321 180,854,183

6. TOTAL NET POSITION $ 260,785,356 $ 251,045,056

7. TOTAL LIABILITIES AND NET POSITION $ 281,635,455 $ 272,950,626

26

General Fund

Principal Statements
Consolidated Statement of Net Cost - General Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Consolidated

2006 

Consolidated

1. Program Costs (Note 18)

 A. Gross Costs $ 142,462,370 $ 142,378,997 

 B. (Less: Earned Revenue) -5,715,540 -5,320,847

 C. Net Program Costs $ 136,746,830 $ 137,058,150 

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ 136,746,830 $ 137,058,150 

27

General Fund

Principal Statements
Consolidated Statement of Changes in Net Position - General Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Earmarked Funds

2007 

All Other Funds

2007 

Eliminations

CUMULATIVE RESULTS OF OPERATIONS (Note 19)

1. Beginning Balances $ 4,540 $ 180,854,184 $ 0

2. Prior Period Adjustments

A. Changes in accounting principles (+/-) 0 0 0

B. Corrections of erros (+/-) 0 0 0

3. Beginning balances, as adjusted $ 4,540 $ 180,854,184 $ 0

4. Budgetary Financing Sources

A. Other adjustments (rescissions, etc.) 0 0 0

B. Appropriations used 0 136,203,035 0

C. Nonexchange revenue 928 5 0

D. Donations and forfeitures of cash and cash equivalents 1,843 0 0

E. Transfers-in/out without reimbursement 0 282,000 0

F. Other budgetary financing sources 0 0 0

5. Other Financing Sources

A. Donations and forfeitures of property 0 0 0

B. Transfers-in/out without reimbursement (+/-) 0 261,389 0

C. Imputed financing from costs absorbed by others 0 724,671 0

D. Other (+/-) 0 -1,265,895 0

6. Total financing Sources $ 2,771 $ 136,205,205 $ 0

7. Net Cost of Operations (+/-) 2,765 136,744,066 0

8. Net Change 6 -538,861 0

9. Cumulative Results of Operations 4,546 180,315,323 0

UNEXPENDED APPROPRIATIONS

10. Beginning Balances $ $ 70,186,334 $ 0

11. Prior Period Adjustments

 A. Changes in accounting principles 0 0 0

 B. Corrections of errors 0 0 0

12. Beginning balaces, as adjusted $ 0 $ 70,186,334 $ 0

13. Budgetary Financing Sources

 A. Appropriations received 0 147,671,923 0

 B. Appropriations transferred-in/out 0 579,271 0

 C. Other adjustments (recissions, etc) 0 -1,769,006 0

 D. Appropriations used 0 -136,203,035 0

14. Total Budgetary Financing sources 0 10,279,153 0

15. Unexpended Appropriations 0 80,465,487 0

16. Net Position $ 4,546 $ 260,780,810 $ 0

28

General Fund

Principal Statements
2007 

Consolidated

2006 

Earmarked Funds

2006 

All Other Funds

2006 

Eliminations

2006 

Consolidated

$ 180,858,724 $ 5,451 $ 161,338,650 $ 0 $ 161,344,101

0 0 0 0 0

0 0 19,309,311 0 19,309,311

$ 180,858,724 $ 5,451 $ 180,647,961 $ 0 $ 180,653,412

0 0 0 0 0

 136,203,035 -1,251 132,720,187 0 132,718,936

 933 877 0 0 877

 1,843 1,779 0 0 1,779

282,000 0 106,784 0 106,784

0 0 0 0 0

0 0 0 0 0

 261,389 0 46,239 0 46,239

 724,671 0 698,815 0 698,815

-1,265,895 0 3,690,030 0 3,690,030

$ 136,207,976 $ 1,405 $ 137,262,055 $ 0 $ 137,263,460

 136,746,831 2,316 137,055,834 0 137,058,150

-538,855 -911 206,221 0 205,310

 180,319,869 4,540 180,854,182 0 180,858,722

$ 70,186,334 $ -1,251 $ 63,717,889 $ 0 $ 63,716,638

0 0 0 0 0

0 0 0 0 0

$ 70,186,334 $ -1,251 $ 63,717,889 $ 0 $ 63,716,638

 147,671,923 0 139,764,959 0 139,764,959

 579,271 0 2,469,906 0 2,469,906

-1,769,006 0 -3,046,233 0 --3,046,233

-136,203,035 1,251 -132,720,187 0 -132,718,936

 10,279,153 1,251 6,468,445 0 6,469,696

 80,465,487 0 70,186,334 0 70,186,334

$ 260,785,356 $ 4,540 $ 251,040,516 $ 0 $ 251,045,056

29

General Fund

Principal Statements
Combined Statement of Budgetary Resources - General Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Combined

2006 

Combined

BUDGETARY FINANCING ACCOUNTS (Note 20)

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 17,112,927 $ 13,006,208 

2. Recoveries of prior year unpaid obligations 3,921,941 1,450,906 

3. Budget authority

 A. Appropriation 147,674,697 139,767,610 

 B. Borrowing authority 0 0

 C. Contract authority 0 0

 D. Spending authority from offsetting collections

 1. Earned

 a. Collected 10,237,677 9,255,190 

 b. Change in receivables from Federal sources -517,749 -99,279

 2. Change in unfilled customer orders

 a. Advance received 376,618 -94,677

 b. Without advance from Federal sources 250,810 -102,493

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

 4. Previously unavailable 0 0

 5. Expenditure transfers from trust funds 0 0

 E. Subtotal $ 158,022,053 $ 148,726,351 

4. Nonexpenditure transfers, net, anticipated and actual 861,271 2,576,690 

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -1,769,006 -3,046,233

7. Total Budgetary Resources $ 178,149,186 $ 162,713,922 

STATUS OF BUDGETARY RSOURCES:

8. Obligations incurred:

 A. Direct $ 146,524,833 $ 136,439,546 

 B. Reimbursable 10,449,009 9,161,449 

 C. Subtotal 156,973,842 145,600,995 

9. Unobligated balance:

 A. Apportioned 18,573,839 14,998,616 

 B. Exempt from apportionment 3,271 3,174 

 C. Subtotal 18,577,110 15,001,790 

10. Unobligated balance not available 2,598,234 2,111,137 

11. Total status of budgetary resources $ 178,149,186 $ 162,713,922 

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 53,989,101 51,840,781 

 B. Less: Uncollected customer payments from Federal sources, brought forward, 

 October 1

$ -2,633,723 $ -2,835,497

 C. Total unpaid obligated balance 51,355,378 49,005,284 

13. Obligations incurred net (+/-) $ 156,973,842 $ 145,600,995 

14. Less: Gross outlays -146,107,640 -142,001,769

15. Obligated balance transferred, net

 A. Actual transfers, unpaid obligations (+/-) 0 0

 B. Actual transfers, uncollected customer payments from Federal sources (+/-) 0 0

 C. Total Unpaid obligated balance transferred, net 0 0

16. Less: Recoveries of prior year unpaid obligations, actual $ -3,921,941 $ -1,450,906

17. Change in uncollected customer payments from Federal sources (+/-) 266,938 201,773 

18. Obligated balance, net, end of period

A. Unpaid obligations 60,933,360 53,989,101 

B. Less: Uncollected customer payments (+/-) from Federal sources (-) -2,366,785 -2,633,723

C. Total, unpaid obligated balance, net, end of period 58,566,575 51,355,378 

NET OUTLAYS

19. Net Outlays:

 A. Gross outlays $ 146,107,640 $ 142,001,769 

 B. Less: Offsetting collections -10,614,293 -9,160,512

 C. Less: Distributed Offsetting receipts -140,980 -185,423

20. Total Net Outlays $ 135,352,367 $ 132,655,834 

30

General Fund

Principal Statements
TITLE

Sub Title

Notes to the financial statements communicate information essential for fair presentation of the financial statements that is not displayed on the face of the financial 

statements.

Fiscal Year 2007

Notes to the Principal Statements

General Fund

General Fund—Notes to the Principal Statements

31
32

General Fund

Notes to the Principal Statements

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 Air Force, as 

required by the “Chief Financial Officers Act of 1990,” expanded by the “Government Management Reform Act 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 Financial Management Regulation”, Office of Management and Budget 

(OMB) Circular A-136, “Financial Reporting Requirements,” and to the extent possible generally accepted accounting 

principles (GAAP). Effective 4th Quarter, Fiscal Year (FY) 2006, the DoD no longer publishes consolidating/combining financial statements. The accompanying financial statements account for all resources for which the Air Force is responsible, 

unless otherwise noted. 

Information relative to classified assets, programs, and operations is excluded from the statements or otherwise aggregated 

and reported in such a manner that it is not discernable.

The Air Force is unable to fully implement all elements of GAAP and OMB Circular A-136 due to limitations of its financial and nonfinancial management processes and systems that feed into the financial statements. The Air Force derives its 

reported values and information for major asset and liability categories largely from nonfinancial systems, such as inventory and logistic systems. These systems were designed to support reporting requirements for maintaining accountability 

over assets and reporting the status of federal appropriations rather than preparing financial statements in accordance with 

GAAP. The Air Force continues to implement process and system improvements addressing these limitations. 

The Air Force incorporates internal controls, reconciliations, management by exception reports, and other management 

control 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 Air Force currently has nine auditor identified financial statement material weaknesses: (1) financial and nonfinancial 

feeder systems do not contain an adequate audit trail and other systems controls, (2) intragovernmental transactions cannot 

be accurately identified by the customer, which is required for eliminations when preparing consolidated financial statements, (3) operating materials and supplies may not be reported in the financial statements accurately, (4) the Air Force 

needs additional controls over financial reporting for general property, plant and equipment (PP&E), (5) the value of the Air 

Force government furnished and contractor acquired material is not accurately reported, (6) the amounts for environmental 

liability may not be reliable due to lack of supporting documentation, (7) the Air Force has material amounts of accounting 

adjustments that are not adequately supported, (8) the Statement of Net Cost is based on budgetary obligations, disbursements and collections and may not report all actual cost, and (9) the Air Force is unable to reconcile budgetary obligations 

to net cost in Note 21, “Reconciliation of Net Cost of Operations to Budget.” These findings are being addressed with corrective actions in the Financial Improvement Plan.

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 DoD and made the Air Force a department within DoD. The overall mission 

of the Air Force is to deliver sovereign options for the defense of the United States of America and its global interests to fly 

and fight in air, space and cyberspace.
33

General Fund

Notes to the Principal Statements

1.C. Appropriations and Funds 

The Air Force receives its appropriations and funds as general, working capital (revolving), trust, special, and deposit funds. 

The Air Force uses these appropriations and funds to execute its missions and subsequently report on resource usage. 

y General funds are used for financial transactions funded by congressional appropriations, including personnel, 

operations and maintenance, research and development, procurement, and military construction accounts.

y Trust funds contain receipts and expenditures of funds held in trust by the government for use in carrying out 

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

trust and special funds may be designated as earmarked funds. Earmarked funds are financed by specifically 

identified revenues, required by statute to be used for designated activities, benefits or purposes, and remain 

available over time. Earmarked funds also have a requirement to account for and report on the receipt, use and 

retention of revenues and other financing sources that distinguish them from general revenues.

y Special fund accounts are used to record government receipts reserved for a specific purpose.

y Deposit funds are used to record amounts held temporarily until paid to the appropriate government or public 

entity. The Air Force is acting as an agent or custodian for funds awaiting distribution.

The Air Force is a party to allocation transfers with other federal agencies as a transferring (parent) entity and a receiving (child) entity. Allocation transfers are legal delegations by one agency of its authority to obligate budget authority and 

outlay funds for another agency. Generally, all financial activity related to these allocation transfers (e.g. budget authority, 

obligations, outlays) is reported in the financial statements of the parent entity. Exceptions to this general rule apply to specific funds for which OMB has directed that all activity be reported in the financial statements of the child entity. Exceptions include all U.S. Treasury-Managed Trust Funds, Executive Office of the President (EOP), and all other funds specifically designated by OMB. 

The Air Force is a party to allocation transfers as the child for the Department of Agriculture. 

The Air Force is a party to allocation transfers as the child for EOP (Foreign Military Sales – Military Assistance Program) 

meeting the OMB exception. However, activities for this fund are reported in the DOD financial statements, not the Air 

Force. 

The Air Force allocates funds, as the parent, to the Department of Transportation. 

The accounts used to prepare the financial statements are categorized as either entity or nonentity. The Air Force 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. Nonentity 

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. The following is a list of the major 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
34

General Fund

Notes to the Principal Statements

57 * 1007 Medicare Eligible Retiree Health Fund Contributions, Air Force

57 * 1008 Medicare Eligible Retiree Health Fund Contributions, Air Force Reserve

57 * 1009 Medicare Eligible Retiree Health Fund Contributions, Air National Guard

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 (Incl Nonentity) Budget Clearing Accounts

57 * 6XXX (Nonentity) Deposit Fund Accounts

57 **** (Nonentity) Receipt Accounts

1.D. Basis of Accounting 

For FY 2007, 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 GAAP for federal agencies. These systems were not designed to collect and record financial information on the full accrual accounting basis as required by GAAP. Most of the Air Force’s financial and nonfinancial legacy 

systems were designed to record information on a budgetary basis. However, some accounts such as civilian pay, military 

pay and accounts payable are presented on the accrual basis of accounting on the financial statements, as required by federal 

accounting standards.

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

processes into compliance with GAAP. One such action is the current revision of its accounting systems to record transactions based on the U.S. 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 GAAP, the Air Force’s financial 

data will be derived from budgetary transactions (obligations, disbursements, and collections), transactions from nonfinancial feeder systems, and accruals made for major items such as payroll expenses, accounts payable, and environmental 

liabilities.

In addition, DoD identifies program costs based upon the major appropriation groups provided by the Congress. Current processes and systems do not capture and report accumulated costs for major programs based upon the performance 

measures as required by the “Government Performance and Results Act.” The DoD is working towards a cost reporting 
35

General Fund

Notes to the Principal Statements

methodology that meets the need for cost information required by the Statement of Federal Financial Accounting Standards 

(SFFAS) No. 4, “Managerial Cost Accounting Concepts and Standards for the Federal Government.” 

1.E. Revenues and Other Financing Sources 

The Air Force receives congressional appropriations as financing sources for general funds on either an annual or multiyear basis. When authorized by legislation, these appropriations are supplemented by revenues generated by sales of goods 

or services. The Air Force recognizes revenue as a result of costs incurred for goods or services provided to other federal 

agencies and the public. Full cost pricing is the Air Force’s standard policy for services provided as required by OMB Circular A-25, User Charges. The Air Force recognizes revenue when earned within the constraints of current system capabilities. In some instances, revenue is recognized when bills are issued.

The Air Force does not include nonmonetary support provided by U.S. allies for common defense and mutual security in 

amounts reported in the Statement of Net Cost and in Note 21, “Reconciliation of Net Cost of Operations to Budget.” The 

U.S. has cost sharing agreements with other countries. Examples include countries where there is a mutual or reciprocal 

defense agreement, where U.S. troops are stationed, or where the U.S. fleet is in a port.

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, accruals are made for major items such as payroll expenses, accounts 

payable, environmental liabilities, and unbilled revenue. In the case of Operating Materials and Supplies (OM&S), operating expenses are generally recognized when the items are consumed. In general, the Air Force uses the consumption 

method of accounting for OM&S, since OM&S is defined in the SFFAS No. 3, “Accounting for Inventory and Related 

Property,” as materiel that has not been issued to the end user.

1.G. Accounting for Intragovernmental Activities 

Preparation of reliable financial statements requires the elimination of transactions occurring among entities within the DoD 

or between two or more federal agencies. However, the Air Force cannot accurately eliminate intragovernmental transactions by customer because the Air Force’s systems do not track at the transaction level. Generally, seller entities within the 

DoD provide 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 are adjusted to agree with the DoD seller-side balances. 

IntraDoD governmental balances are then eliminated. The volume of intragovernmental transactions is so large that afterthe-fact reconciliations cannot be accomplished effectively with existing or foreseeable resources. The DoD is developing 

long-term system improvements to ensure accurate intragovernmental information, to include sufficient up-front edits and 

controls eliminating the need for after-the-fact reconciliations.

The U.S. Treasury Financial Management Service is responsible for eliminating transactions between DoD and other 

federal agencies. The Treasury Financial Manual, Part 2 – Chapter 4700, “Agency Reporting Requirements for the Financial Report of the United States Government and the U.S. Treasury’s, Federal Intragovernmental Transactions Accounting 

Policy Guide,” provide guidance for reporting and reconciling intragovernmental balances. While the Air Force is unable to 

fully reconcile intragovernmental transactions with all federal partners, the Air Force is able to reconcile balances pertaining to investments in federal securities, Federal Employees’ Compensation Act transactions with the Department of Labor, 

and benefit program transactions with the Office of Personnel Management. 
36

General Fund

Notes to the Principal Statements

The Department’s proportionate share of public debt and related expenses to the Federal Government are not included. 

The Federal Government does not apportion debt and its related costs to federal agencies. The DoD’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 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 U.S. Treasury 

does not allocate such interest costs to the benefiting agencies.

1.H. Transactions with Foreign Governments and International Organizations 

Each year, the Air Force sells defense articles and services to foreign governments and international organizations under the 

provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, DoD 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. Payment in U.S. dollars is required in advance. 

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

The Air Force’s monetary financial resources are maintained in U.S. Treasury accounts. The disbursing offices of the Defense Finance and Accounting Service (DFAS), the Military Services, the U.S. Army Corps of Engineers (USACE), and the 

Department of State’s financial service centers process the majority of the Air Force’s cash collections, disbursements, and 

adjustments worldwide. 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 U.S. Treasury by appropriation on interagency 

transfers, collections received, and disbursements issued. The U.S. Treasury records this information to the applicable Fund 

Balance with Treasury (FBWT) account. Differences between the Air Force’s recorded balance in FBWT accounts and 

U.S. Treasury’s FBWT accounts sometimes result and are subsequently reconciled.

1.J. Foreign Currency 

Cash is the total of cash resources under the control of DoD, which includes coin, paper currency, negotiable instruments, 

and amounts held for deposit in banks and other financial institutions. Foreign currency consists of the total U.S. dollar 

equivalent of both purchased and nonpurchased foreign currencies held in foreign currency fund accounts.

The majority of cash and all foreign currency is classified as nonentity and is restricted. Amounts reported consist primarily 

of cash and foreign currency held by disbursing officers to carry out their paying, collecting, and foreign currency accommodation exchange missions. 

The Air Force conducts a significant portion of its operations overseas. The Congress established a special account to 

handle the gains and losses from foreign currency transactions for five general fund appropriations: operations and maintenance, military personnel, military construction, family housing operations and maintenance, and family housing construction. The 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 adjustments to the original obligation amount at the time of payment. The Air Force does not separately identify 

currency fluctuation transactions. 
37

General Fund

Notes to the Principal Statements

1.K. Accounts Receivable 

As presented in the Balance Sheet, accounts receivable include three categories: 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 in 

accordance with dispute resolution procedures defined in the Intragovernmental Business Rules published in the Treasury 

Financial Manual at http://www.fms.treas.gov/tfm/vol1/07-03.pdf .

The allowance for the Air Force entity receivables is computed each quarter based on the average percent of write offs to 

outstanding public accounts receivable for the last five years. Interest allowance is calculated using an average percent of 

write offs to outstanding public accounts receivable over a five year period starting with FY 2002 data.

1.L. Direct Loans and Loan Guarantees 

Not Applicable

1.M. Inventories and Related Property 

Related property includes OM&S and stockpile materiels. The majority of OM&S, with the exception of munitions not 

held for sale, are valued using the moving average cost method. Munitions not held for sale are valued at standard purchase 

price. The Air Force uses consumption method for OM&S in all cases.

The Air Force determined that the recurring high dollar value of OM&S in need of repair is material to the financial statements and requires a separate reporting category. Many high dollar items, such as aircraft engines, are categorized as 

OM&S rather than military equipment. 

The Air Force recognizes condemned materiel as “Excess, Obsolete, and Unserviceable.” The cost of disposal is greater 

than the potential scrap value; therefore, the net value of condemned materiel is zero. Potentially redistributed materiel, 

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.

1.N. Investments 

The Air Force reports investments in U.S. Treasury securities at cost, net of amortized premiums or discounts. Premiums or 

discounts are amortized over the term of the investment using the effective interest rate method or another method obtaining 

similar results. The Air Force’s intent is to hold investments to maturity, unless they are needed to finance claims or otherwise sustain operations. Consequently, a provision is not made for unrealized gains or losses on these securities. 

The Air Force invests in nonmarketable securities. The two types of nonmarketable securities are par value and marketbased intragovernmental securities. The Bureau of Public Debt issues nonmarketable par value intragovernmental securities. Nonmarketable, market-based intragovernmental securities mimic marketable securities, but are not publicly traded.

1.O. General Property, Plant and Equipment 

The SFFAS No. 23, “Eliminating the Category National Defense Property, Plant, and Equipment,” established GAAP for 

valuing and reporting military equipment (e.g. ships, aircraft, combat vehicles, weapons) in federal financial statements. 

The Standard provided for the use of estimated historical cost for valuing military equipment if obtaining actual historical 
38

General Fund

Notes to the Principal Statements

cost information is not practical. The DoD used Bureau of Economic Analysis (BEA) to calculate the value of the military 

equipment for reporting periods from October 1, 2002, through March 31, 2006. 

Effective 3rd Quarter, FY 2006, the DoD replaced the BEA estimation methodology with one that is based on internal records for military equipment. The DoD identified the universe of military equipment by accumulating information relating 

to program funding and associated military equipment, equipment useful life, program acquisitions, and disposals to create 

a baseline. The military equipment baseline is updated using expenditure information and information related to acquisition 

and disposals. 

In FY 2006, the Air Force revised the real property capitalization threshold from $100 thousand to $20 thousand. The current $100 thousand capitalization threshold remains unchanged for the remaining General PP&E categories. 

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 thousand. The DoD also requires capitalization of improvement costs over the DoD capitalization threshold of $100 thousand 

for General PP&E. The DoD depreciates all General PP&E, other than land, on a straight-line basis.

General PP&E previously capitalized at amounts below $100 thousand 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 to contractors to complete 

contract work. The Air Force either owns or leases such property, or it is 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, Federal accounting standards require that it be reported on the Air Force’s Balance Sheet. Currently, the Air 

Force only reports on the Balance Sheet the value of property that the Air Force owns or leases to the contractor. The Air 

Force does not report the value of equipment purchased directly by the contractor.

The DoD is developing new policies and a contractor reporting process for Government Furnished Equipment that will 

provide appropriate General PP&E information for future financial statement reporting purposes. Accordingly, Air Force 

reports only government property in the possession of contractors that is maintained in Air Force’s property systems. The 

Air Force does not report the value of equipment purchased directly by the contractor. The DoD has issued new property 

accountability and reporting requirements that require Air Force to maintain, in their property systems, information on 

all property furnished to contractors. This action and other DoD proposed actions are structured to capture and report the 

information necessary for compliance with federal accounting standards. 

1.P. Advances and Prepayments 

The Department’s policy is to record advances and prepayments in accordance with GAAP. As such, payments made in 

advance of the receipt of goods and services are reported as an asset on the Balance Sheet. The DoD’s policy is to expense 

and/or properly classify assets when the related goods and services are received. 

1.Q. Leases 

Lease payments for the rental of equipment and operating facilities are classified as either capital or operating leases. When 

a lease is essentially equivalent to an installment purchase of property (a capital lease), Air Force records the applicable 

asset and liability if the value equals or exceeds the current capitalization threshold. The Air Force records the amounts as 

the lesser of the present value of the rental and other lease payments during the lease term (excluding portions representing 

executory costs paid to the lessor) or the asset’s fair market value. The discount rate for the present value calculation is ei-
39

General Fund

Notes to the Principal Statements

ther the lessor’s implicit interest rate or the government’s incremental borrowing rate at the inception of the lease. The Air 

Force, as the lessee, receives the use and possession of leased property, for example real estate or equipment, from a lessor 

in exchange for a payment of funds. An operating lease does not substantially transfer all the benefits and risk of ownership. Payments for operating leases are charged to expense over the lease term as it becomes payable.

Office space and leases entered into by Air Force in support of contingency operations are the largest component of operating leases. These costs were gathered from existing leases, General Services Administration (GSA) bills, and Interservice 

Support Agreements. Future year projections use the Consumer Price Index (CPI), rather than the DoD inflation factor. 

The CPI impacts increases to the leases, especially those at commercial lease sites. Equipment leases have a variety of 

lease terms which are not expected to be renewed upon expiration. Other operating leases are generally one-year leases. 

1.R. Other Assets 

Other assets include those assets, such as military and civil service employee pay advances, travel advances, and certain 

contract financing payments that are not reported elsewhere on Air Force’s Balance Sheet. 

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, Air Force 

may provide financing payments. Contract financing payments are defined in the Federal Acquisition Regulations, Part 32, 

as authorized disbursements of monies to a contractor prior to acceptance of supplies or services by the Government. Contract financing payments clauses are incorporated in the contract terms and conditions and may include advance payments, 

performance-based payments, commercial advance and interim payments, progress payments based on cost, and interim 

payments under certain cost-reimbursement contracts. 

Contract financing payments do not include invoice payments, payments for partial deliveries, lease and rental payments, 

or progress payments based on a percentage or stage of completion, which the Defense Federal Acquisition Regulation 

Supplement authorizes only for construction of real property, shipbuilding, and ship conversion, alteration, or repair. Progress payments for real property and ships are reported as Construction in Progress. It is the Department‘s policy to record 

certain contract financing payments as Other Assets. 

1.S. Contingencies and Other Liabilities 

The SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” as amended by SFFAS No. 12, “Recognition of 

Contingent Liabilities Arising from Litigation,” defines a contingency as an existing condition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss. The uncertainty will be resolved when one or more future 

events occur or fail to occur. The Air Force recognizes contingent liabilities when past events or exchange transactions 

occur, a future loss is probable, and the loss amount 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 of incurring a loss or additional losses. Examples of loss contingencies include the collectibility of receivables, pending, or threatened litigation, and possible claims and assessments. The Air Force’s risk of loss and 

resultant contingent liabilities arise from pending or threatened litigation or claims and assessments 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 Air Force’s assets. This type of liability has two components: nonenvironmental and environmental. Consistent with SFFAS No. 6, “Accounting for Property, Plant, and Equipment,” recognition of an anticipated environmental disposal liability begins when the asset is placed into service. Nonen-
40

General Fund

Notes to the Principal Statements

vironmental disposal liabilities are recognized for assets when management decides to dispose of an asset based upon the 

DoD’s policy, which is consistent with SFFAS No. 5, “Accounting for Liabilities of Federal Government.” Air Force does 

not recognize contingent liabilities associated with nonenvironmental disposals due to immateriality.

1.T. Accrued Leave 

The Air Force reports as liabilities military leave and civilian earned leave, except sick leave, that has been accrued and not 

used as of the Balance Sheet date. Sick leave is expensed as taken. The liability reported at the end of the accounting period 

reflects the current pay rates.

1.U. Net Position 

Net Position consists of unexpended appropriations and cumulative results of operations.

Unexpended Appropriations represent the amounts of authority that are unobligated and that have not been rescinded or 

withdrawn. Unexpended appropriations also represent amounts obligated for which legal liabilities for payments have not 

been incurred. 

Cumulative Results of Operations represent the net difference, since inception of an activity, between expenses and losses 

and financing sources (including appropriations, revenue, and gains). Beginning with FY 1998, the cumulative results also 

include donations and transfer in and out of assets that were not reimbursed.

1.V. Treaties for Use of Foreign Bases 

The DoD has the use of land, buildings, and other overseas facilities that are obtained through various international treaties 

and agreements negotiated by the Department of State. The Air Force purchases capital assets overseas with appropriated 

funds; however, the host country retains title to land and improvements. Generally, treaty terms allow the Air Force continued use of these properties until the treaties expire. In the event treaties or other agreements are terminated, whereby use of 

the foreign bases is prohibited, losses are recorded for the value of any nonretrievable capital assets. The settlement due to 

the U.S. or host nation is negotiated and takes into account the value of capital investments and may be offset by the cost of 

environmental clean-up.

1.W. Comparative Data 

Not Applicable 

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, unless title passes.

1.Y. Undistributed Disbursements and Collection 

Undistributed disbursements and collections represent the difference between disbursements and collections matched at the 

transaction level to a specific obligation, payable, or receivable in the activity field records as opposed to those reported by 

the U.S. Treasury. These amounts should agree with the undistributed amounts reported on the monthly accounting reports. 

In-transit payments are those payments that have been made but have not been recorded in the fund holder’s accounting 

records. These payments are applied to the entities’ outstanding accounts payable balance. In-transit collections are those 

collections from other agencies or entities that have not been recorded in the accounting records. These collections are also 

applied to the entities’ accounts receivable balance.
41

General Fund

Notes to the Principal Statements

The DoD policy is to allocate supported undistributed disbursements and collections between federal and nonfederal 

categories based on the percentage of distributed federal and nonfederal accounts payable and accounts receivable. Unsupported undistributed disbursements are recorded in accounts payable. Unsupported undistributed collections are recorded in 

other liabilities. 

1.Z. Significant Events 

Beginning 4th Quarter, FY 2007, DoD began presenting the Statement of Financing (SOF) as a note in accordance with the 

(OMB) Circular A-136. The SOF will no longer be considered a basic statement and is now referred to as “Reconciliation 

of Net Cost of Operations to Budget.”

Note 2. Nonentity Assets

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Assets

A. Fund Balance with Treasury $ 94,844 $ 80,989 

B. Accounts Receivable 2,376 2,715 

C. Total Intragovernmental Assets $ 97,220 $ 83,704

2. Nonfederal Assets

A. Cash and Other Monetary Assets $ 107,908 $ 114,779 

B. Accounts Receivable 157,416 568,289 

C. Other Assets 186,025 196,826 

D. Total Nonfederal Assets $ 451,349 $ 879,894

3. Total Nonentity Assets 548,569 963,598

4. Total Entity Assets $ 281,086,886 $ 271,987,028 

5. Total Assets $ 281,635,455 $ 272,950,626

Relevant Information for Comprehension

Nonentity assets are assets for which the Air Force maintains stewardship accountability and responsibility to report, but are 

not available for the Air Force’s operations.

Intragovernmental Fund Balance with Treasury asset class represents amounts in Air Force’s deposit fund and two suspense 

fund accounts (Uniformed Services Thrift Savings Plan Suspense and Thrift Savings Plan Suspense) that are not available 

for Air Force use. 

Intragovernmental Accounts Receivable when collected goes to the U.S. Treasury as miscellaneous receipts. 

Nonfederal Cash and Other Monetary Assets represent disbursing officers’ cash and undeposited collections as reported on 

the Statement of Accountability (Standard Form 1219). These assets are held by the Air Force disbursing officers as agents 

of the U.S. Treasury.

Nonfederal Accounts Receivable, when collected, goes to the U.S. Treasury as miscellaneous receipts. 

The Nonfederal Accounts Receivable amount also includes interest receivables on aged debts. 
42

General Fund

Notes to the Principal Statements

Nonfederal Other Assets consist of advances to contractors as part of the advance payment pool agreements with the Massachusetts Institute of Technology and other nonprofit institutions. These agreements are used for the financing of cost-type 

contracts with nonprofit educational research institutions for experimental, research and development work when several 

contracts or a series of contracts require financing by advance payments.

Note 3. Fund Balance with Treasury

As of September 30 2007 2006

(amounts in thousands)

1. Fund Balances

 A. Appropriated Funds $ 80,023,587 $ 68,762,362 

B. Revolving Funds 0 0 

C. Trust Funds 6,824 3,944 

D. Special Funds 1,140 872 

E. Other Fund Types $ 94,845 80,989 

F. Total Fund Balances $ 80,126,396 $ 68,848,167

2. Fund Balances Per Treasury Versus Agency

A. Fund Balance per Treasury $ 81,162,222 $ 69,960,267 

B. Fund Balance per Air Force 80,126,396 68,848,167

3. Reconciling Amount $ 1,035,826 $ 1,112,100

Fund Balance with Treasury

Other Fund Types include balances in deposit fund accounts for Small Escrow, State and Local Taxes, Servicemen’s Group 

Life Insurance fund, and Uniformed Services Thrift Savings Plan (TSP).

The Air Force shows a reconciling amount of $1.0 billion with the U.S. Treasury, which is comprised of :

y $18.3 million in allocation transfers to Air Force from the Department of Agriculture and the Foreign Military Sales-Military Assistance Program (MAP). The U.S. Treasury reports these funds as Air Force in the 

Fund Balance with Treasury (FBWT), but Air Force does not include in its FBWT because the Departments 

of Agriculture and MAP report these balances in their financial statements. 

y $158.5 million in withdrawal of the FBWT for unavailable receipt accounts at September 30, 2007. These 

funds are in included in FBWT per U.S. Treasury but not included in FBWT per Air Force.

y $868.0 million in withdrawal of the FBWT in the cancelling appropriations at September 30, 2007. These 

funds are included in FBWT per U.S. Treasury but not included in FBWT per Air Force.

y $9.4 million in allocation transfers from Air force to the Department of Transportation. These funds are reported in FBWT by Air Force but are not included in FBWT at U.S. Treasury, because U.S. Treasury reports 

these balances under Department of Transportation.
43

General Fund

Notes to the Principal Statements

Status of Fund Balance with Treasury

As of September 30 2007 2006

(amounts in thousands)

1. Unobligated Balance

A. Available $ 18,577,110 $ 15,001,790 

B. Unavailable 2,598,234 2,111,136 

2. Obligated Balance not yet Disbursed 60,933,360 53,989,101

3. Reconciling Amount 385,286 380,571 

4. NonFBWT Budgetary Accounts -2,367,594 -2,634,431

5. Total l $ 80,126,396 $ 68,848,167

Status of Fund Balance with Treasury

The Status of Fund Balance with Treasury (FBWT) reflects both budgetary and nonbudgetary resources.

Unobligated Balance represents the cumulative amount of budgetary authority that has not been set aside to cover outstanding obligations. Unobligated Balance is classified as available or unavailable and is associated with appropriations expiring 

at fiscal year end that remain available only for obligation adjustments until the account is closed. 

Obligated Balance not yet Disbursed represents funds that have been obligated for goods that have not been received, services that have not been performed, and goods and services that have been delivered/received but not yet paid.

Nonbudgetary FBWT includes entity and nonentity FBWT accounts which represent adjustments that do not have budgetary authority, such as unavailable receipt accounts or clearing accounts. The items reported consist of FBWT for suspense, 

deposit and receipt accounts. 

NonFBWT Budgetary Accounts represent adjustments to budgetary account that do not affect FBWT. The items that comprise the amount reported as NonFBWT consist of reimbursements and other income earned receivable, investments and 

discounts in U.S. Treasury securities, and unfilled customer orders without advances. This category reduces the Status of 

FBWT. 

Unobligated balances are segregated to show available and unavailable amounts in the note schedule. Certain unobligated 

balances may be restricted to future use and are not apportioned for current use. The unobligated balance unavailable of 

$2.6 billion is not available for new obligations because the period for new obligations established by law has expired. 
44

General Fund

Notes to the Principal Statements

Disclosures Related to Suspense/Budget Clearing Accounts

As of September 30 2005 2006 2007

(Decrease)/ 

Increase from 

FY 

2006 - 2007

(amounts in thousands)

Account

F3845 – Personal Property Proceeds $ 0 $ 0 $ 0 $ 0

F3875 – Budget Clearing Account Suspense 336,053 362,040 358,605 -3,435

F3880 – Lost or Cancelled Treasury Checks 691 553 374 -179

F3882 – Uniformed Services Thrift Savings Plan Suspense 25,523 30,802 32,842 2,040

F3885 – Interfund/IPAC Suspense -74,564 -63,012 -68,537 -5,525

F3886 – F3886 – Thrift Savings Plan Suspense 0 0 0 0

Total $ 287,703 $ 330,383 $ 323,284 $ -7,099

Relevant Information for Comprehension

The F3845 suspense account represents the balance of proceeds from the sale of personal property. 

The F3875 suspense account represents the Disbursing Officer’s suspense. Account F3885 represents the Interfund and 

Intragovernmental Payment and Collection suspense. Account F3886 represents the (payroll) TSP suspense. These three 

suspense accounts temporarily hold collections or disbursements until they can be assigned or identified to a valid appropriation. 

The F3880 suspense account represents the balance of U.S. Treasury checks that: (1) have either been lost by the payee and 

need to be reissued, (2) have never been cashed by the payee, or (3) have been cancelled by the U.S. Treasury and need to 

be transferred to the original appropriation. 

The F3882 suspense account was established for the Uniformed Services TSP in FY 2002. The amounts in this account 

represent a timing difference between the posting of the TSP deductions by the National Finance Center and the posting of 

these amounts in the military accounting systems in the following month. 
45

General Fund

Notes to the Principal Statements

Disclosures Related to Problem Disbursements

As of September 30 2005 2006 2007

(Decrease)/ 

Increase from 

FY 

2006 - 2007

(amounts in thousands)

1. Total Problem Disbursements, Absolute Value

A. Unmatched Disbursements (UMDs) $ 272,972 $ 32,063 $ 97,098 $ 65,035

B. Negative Unliquidated Obligations (NULO) 8,209 6,291 6,201 -90

C. In-Transit Disbursements 1,027,549 1,333,019 1,013,198 -319,821

2. Total $ 1,308,730 $ 1,371,373 $ 1,116,497 $ -254,876

Relevant Information for Comprehension

The amount of Unmatched Disbursements (UMDs) over 180 days is $0, Negative Unliquidated Obligations (NULOs) is $0, 

and in-transits is $3.2 million. The amount of UMDs over 120 days old is $0, NULOs is $0, and in-transits is $5.8 million. 

The current value of net in-transits is $599.2 million.

Problem Disbursements are reported as an absolute value amount. Absolute value is the sum of the positive values of debit 

and credit transactions without regard to the plus or minus signs.

An Unmatched Disbursement occurs when a payment is not matched to a corresponding obligation in the accounting system.

A Negative Unliquidated Obligation occurs when a payment is made against a valid obligation, but the payment is greater 

than the amount of the obligation recorded in the official accounting system. These payments have been made using available funds and are based on valid receiving reports for goods and services delivered under valid contracts. 

The In-transits Disbursements represent the absolute value of disbursements and collections made by an Air Force disbursing activity on behalf of an accountable activity and have not been posted to the accounting system. 

Beginning with 2nd Quarter, FY 2007, In-transit Disbursements are reported as an absolute value as opposed to net amounts 

disclosed in prior years. This reporting change applies to amounts in the note schedule for both the current and comparative 

years. 
46

General Fund

Notes to the Principal Statements

Note 4. Investments and Related Interest

As of September 30

2007

Cost Amortization 

Method

Amortized 

(Premium) / 

Discount

Investments, 

Net

Market Value 

Disclosure

(amounts in thousands)

1. Intragovernmental Securities

A. Nonmarketable, Market-Based 

1. Military Retirement Fund $ 0 $ 0 $ 0 $ 0 

2. Medicare Eligible Retiree Health Care Fund 0 0 0 0 

3. US Army Corps of Engineers 0 0 0 0 

4. Other Funds 816 -1 815 820 

5. Total Nonmarketable, Market-Based 816 -1 815 820

B. Accrued Interest 8 8 9

C. Total Intragovernmental Securities $ 824 $ -1 $ 823 $ 829

2. Other Investments

 A. Total Other Investments $ 0 $ 0 $ 0 N/A

As of September 30

2006

Cost Amortization 

Method

Amortized 

(Premium) / 

Discount

Investments, 

Net

Market Value 

Disclosure

(amounts in thousands)

3. Intragovernmental Securities

A. Nonmarketable, Market-Based 

1. Military Retirement Fund $ 0 $ 0 $ 0 $ 0 

2. Medicare Eligible Retiree Health Care Fund 0 0 0 0 

3. US Army Corps of Engineers 0 0 0 0 

4. Other Funds 713 1 714 712 

5. Total Nonmarketable, Market-Based 713 1 714 712

B. Accrued Interest 8 8 8

C. Total Intragovernmental Securities $ 721 $ 1 $ 722 $ 720

4. Other Investments

 A. Total Other Investments $ 0 $ 0 $ 0 N/A

Relevant Information for Comprehension

The Federal Government does not set aside assets to pay future benefits and expenditures associated with earmarked funds. 

The cash generated from earmarked funds are deposited in the U.S. Treasury, which uses the cash for general Government purposes. U.S. Treasury securities are issued to the earmarked funds as evidence of earmark fund receipts. The U.S. 
47

General Fund

Notes to the Principal Statements

Treasury securities are an asset to the Air Force and a liability to the U.S. Treasury. Because the Air Force and the U.S. 

Treasury are both parts of the Federal Government, these assets and liabilities offset each other from the standpoint of the 

Government as a whole. For this reason, they do not represent an asset or a liability in the U.S. Government wide financial 

statements. The U.S. Treasury securities provide the Air Force with authority to draw upon the U.S. Treasury to make future 

benefit payments or other expenditures. When the Air Force requires redemption of these securities, the Government finances 

the securities out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying 

less debt, or by curtailing other expenditures. This is the same way the Government finances all other expenditures. 

Note 5. Accounts Receivable

As of September 30

2007 2006

Gross Amount 

Due

Allowance For 

Estimated 

Uncollectibles

Accounts 

Receivable, Net

Accounts 

Receivable, Net

(amounts in thousands)

1. Intragovernmental Receivables $ 388,823 N/A $ 388,823 $ 665,672

2. Nonfederal Receivables (From the Public) $ 602,261 $ -56,465 $ 545,796 $ 1,041,746

3. Total Accounts Receivable $ 991,084 $ -56,465 $ 934,619 $ 1,707,418 

Relevant Information for Comprehension

As presented on the Consolidated Balance Sheet, accounts receivable includes reimbursement receivable and refund receivable such as out-of-service debts ($ owed by former service members) and contractor debts. It also includes net interest 

receivables. Canceled accounts receivable are reported as nonentity receivables because these amounts are deposited into 

a U.S.Treasury miscellaneous receipt account when collected. Reconciliation between Treasury Report on Receivables 

(TROR) Due from the Public and the Balance Sheet was accomplished. This reconciliation is performed to ensure that the 

financial statements are in agreement with the receivable amount reported to the U.S. Treasury. The difference between accounts receivable on the Balance Sheet and TROR Due from the Public include the allowance for estimated uncollectible of 

$56.5 million, unsupported collections in-transit in the amount of $606.0 thousand and undistributed collections of $236.0 

thousand. Undistributed collections are prorated between public and intragovernmental receivables based on a percentage 

calculated from receivable amounts represented on the Balance Sheet.
48

General Fund

Notes to the Principal Statements

Aged Accounts Receivable

As of September 30

2007 2006

Intragovernmental Nonfederal Intragovernmental Nonfederal

(amounts in thousands)

CATEGORY

Nondelinquent

 Current $ 727,855 $ 236,748 $ 1,085,890 $ 193,635

 Noncurrent 0 0 5,725 0

Delinquent

 1 to 30 days $ 20,902 $ 7,130 $ 34,155 $ 6,010 

 31 to 60 days 1,216 3,483 122,543 4,677 

 61 to 90 days 951 6,200 28,469 6,744 

 91 to 180 days 170 14,036 64,611 21,217 

 181 days to 1 year 250 25,829 55,201 41,513 

 Greater than 1 year and less than or equal to 2 years 122 47,914 7,145 12,565 

 Greater than 2 years and less than or equal to 6 years 86 54,582 6,437 705,483 

 Greater than 6 years and less than or equal to 10 years 0 188,099 0 179,819 

 Greater than 10 years 0 22,069 0 17,702 

Subtotal $ 751,552 $ 606,090 $ 1,410,176 $ 1,189,365

 Less Supported Undistributed Collections -1,530 -3,829 -665 -94

 Less Eliminations -361,199 0 -743,840 0 

 Less Other 0 0 0 0 

Total $ 388,823 $ 602,261 $ 665,671 $ 1,189,271

Relevant Information for Comprehension

During the 1st Quarter, FY 2007, intragovernmental and nonfederal receivables in all aging categories were adjusted to bring 

the DFAS-Dayton accounting information into compliance with DoD Financial Management Regulation policy on posting 

and aging of receivables. These adjustments were part of a comprehensive clean-up effort by the Air Force and DFAS. 

Demand letters are sent to nonfederal debtors once the payment becomes 30 days delinquent in accordance with the procedures outlined in the Concept of Operations for Managing Accounts Receivables. The delinquencies for the Air Force 

consist primarily of debts that have been turned over to the Contract Debt System (CDS) and the Defense Debt Management 

System (DDMS) for resolution.

The $21.0 million in Intragovernmental Delinquent Receivables (1 to 30 days old) consists primarily of internal Air Force 

billings and will be collected in the next 30 days. 

The majority of the $369.0 million in Nonfederal Delinquent Receivables (From the Public) consists primarily of delinquent 

contractor debts and interest penalties associated with those debts. The Debt Management Office is actively pursuing collection of these debts. 
49

General Fund

Notes to the Principal Statements

Note 6. Other Assets

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Other Assets

 A. Advances and Prepayments $ 423,952 $ 454,968 

 B. Other Assets 0 0 

 C. Total Intragovernmental Other Assets $ 423,952 $ 454,968

2. Nonfederal Other Assets

 A. Outstanding Contract Financing Payments $ 10,183,088 $ 11,098,138 

 B. Other Assets (With the Public) 265,730 280,988 

 C. Total Nonfederal Other Assets $ 10,448,818 $ 11,379,126

3. Total Other Assets $ 10,872,770 $ 11,834,094

Relevant Information for Comprehension

Nonfederal Other Assets (With the Public) is comprised primarily of advances to contractors as part of advance payment 

pool agreements with the Massachusetts Institute of Technology and other nonprofit institutions and travel advances. The 

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.

Contract terms and conditions for certain types of contract financing payments convey certain rights to theAir Force that 

protect the contract work from state or local taxation, liens or attachment by the contractor’s creditors, transfer of property, 

or disposition in bankruptcy; however, these rights should not be misconstrued to mean that ownership of the contractor’s 

work has transferred to the government. The government does not have the right to take the work, except as provided in 

contract clauses related to termination or acceptance, and the Air Force is not obligated to make payment to the contractor 

until delivery and acceptance. 

The Contract Financing Payment balance of $10.2 billion is comprised of $9.6 billion in contract financing payments and an 

additional $720.3 million in estimated future funded payments that will be paid to the contractor upon future delivery and 

government acceptance of a satisfactory product. (See additional discussion in Note 15, Other Liabilities).
50

General Fund

Notes to the Principal Statements

Note 7. Cash and Other Monetary Assets

As of September 30 2007 2006

(amounts in thousands)

1. Cash $ 104,681 $ 111,641 

2. Foreign Currency 3,227 3,138 

3. Other Monetary Assets 0 0 

4. Total Cash, Foreign Currency, & Other Monetary Assets $ 107,908 $ 114,779

Relevant Information for Comprehension

Cash and foreign currency are nonentity assets and, as such, are considered restricted assets that are held by the Air Force 

but not available for use in its operations. These assets are held by the Air Force’s Disbursing Officers as agents of the U.S. 

Treasury. The total balance of $108.0 million is restricted.

Note 8. Direct Loan and/or Loan Guarantee Programs

Not Applicable

Note 9. Inventory and Related Property

As of September 30 2007 2006

(amounts in thousands)

1. Inventory, Net $ 0 $ 0 

2. Operating Materiels & Supplies, Net 46,335,059 48,584,335 

3. Stockpile Materiels, Net 0 0 

4. Total $ 46,335,059 $ 48,584,335

Inventory, Net

Not Applicable
51

General Fund

Notes to the Principal Statements

Operating Materiels and Supplies, Net

As of September 30

2007 2006

OM&S Gross 

Value

Revaluation 

Allowance OM&S, Net OM&S, Net Valuation 

Method

(amounts in thousands)

1. OM&S Categories

 A. Held for Use $ 35,998,482 $ 0 $ 35,998,482 $ 37,448,202 SP, LAC

 B. Held for Repair 10,336,577 0 10,336,577 11,136,133 SP, LAC

 C. Excess, Obsolete, and Unserviceable 1,489,448 -1,489,448 0 0 NRV

 D. Total $ 47,824,507 $ -1,489,448 $ 46,335,059 $ 48,584,335

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

SP = Standard Price O = Other

AC = Actual Cost

General Composition of OM&S

The Operating Materiels and Supplies (OM&S) include weapon systems spares, ammunition, tactical missiles, uninstalled 

aircraft and cruise missile engines, and uninstalled intercontinental ballistic missile motors.

In addition to the account balances shown in Note 9, 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.

Restrictions on the use on OM&S

The Air Force does not maintain any OM&S restricted assets.

Decision Criteria for Identifying the Category to Which OM&S Items Are Assigned

The category Held for Use includes all materiels available for issuance. OM&S classified as such is marked within each 

supply or inventory system with condition codes A-D.

The category Held as Excess, Obsolete, and Unserviceable includes all materiels that managers determine to be more costly 

to repair than to replace. Items retained for management purposes, which are beyond economic repair are coded “condemned.” The net value of these items is zero and they are shown as Excess, Obsolete, and Unserviceable and assigned 

condition codes H, P, S, or V.

The category Held for Repair includes all economically reparable materiels and includes all other condition codes as defined by the Military Standard Transaction Reporting and Accounting Procedures Manual (DoD 4000.25-2-M).

Changes in the Criteria for Identifying the Category to Which OM&S Items Are Assigned 

Before FY 2002, the Department of Defense (DoD) categorized potentially redistributable materiel, regardless of condition, 

as Excess, Obsolete, and Unserviceable.
52

General Fund

Notes to the Principal Statements

The DoD’s approved methodology for determining historical cost is the Moving Average Cost (MAC). As of 3rd Quarter, 

FY 2007, Air Force has fully implemented MAC in three of the six systems used to report OM&S values into the accounting system. In two of the three remaining systems, the beginning inventory balances have been established, but the cost for 

the quantities on hand for each national stock number have not been validated. It is anticipated that a majority of the cost 

associated with the inventory balances in these two systems will be validated using MAC standards by December 31 2008. 

Validation of the beginning balance in the Combat Ammunitions System (CAS), which manages approximately 50% of all 

OM&S, is not scheduled to be completed until 1st Quarter, FY 2009.

Under current DoD policy, no allowance is made for serviceable, ready-to-issue, items (category Held for Use). An allowance equal to 100% of MAC or standard price, however, is made for the category Excess, Obsolete, and Unserviceable. 

This allowance results in a net book value of zero for items that have no intrinsic value to the Air Force. The category Held 

for Repair represents suspended, unserviceable (but reparable) items. Air Force will continue to report Held for Repair at 

MAC or standard price until Office of the Secretary of Defense guidance is provided on how to compute an allowance for 

repair.

Contractor Supported Weapon Systems (CSWS)

Currently the OM&S values included on the financial statements for CSWS are manually reported to Defense Finance and 

Accounting Service (DFAS). The Air Force is currently working with these contractors to develop the information systems 

capability that will compute MAC, accumulate and report the Air Force’s financial data to DFAS using a standard system to 

system interface. Once completed by 1st Quarter, FY 2009, this module and interface will be used as a prototype for implementation for most of the CSWS.

Operating Materiels and Supplies (OM&S) Value

The OM&S data reported on the financial statements are derived from logistics systems designed for materiel management 

purposes. Some of 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.”

Items commonly used in and available from the commercial sector are not managed in the DoD materiel management 

activities. Further, unlike the commercial sector, the DoD operational cycles are based on national need and thereby 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 activities risk of losing sales. Therefore, DoD does 

not attempt to account separately for items held for current or future use.

In general, the Air Force uses the consumption method of accounting for OM&S, since OM&S is defined in SFFAS No. 3 

as materiel that has not yet been issued to the end user. Once issued, the materiel is expensed. 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).

Other Air Force Disclosures

In the past, the Air Force provided only minimal OM&S accounting data that can be used to prepare the financial statements 

but has made considerable strides in improving the systems to provide actual transactions for completing the financial 

statements. However, in some cases, the data provided still consists of only beginning and ending balances for each of the 

asset accounts Held for Use; Excess, Obsolete, Unserviceable; and Held for Repair. Without the required additional data 
53

General Fund

Notes to the Principal Statements

(acquisitions, transfers in, amounts consumed, transfers out, trading partner data, etc.), DFAS can only report the net change 

between prior period ending balances and the values reported as current period ending balances.

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, the DFAS accounting systems, other DoD services, 

and other federal agencies for reporting the data for all items transferred in and out. Consequently, intragovernmental transactions (trading partner data) could not always be reconciled. The Air Force and DFAS are currently developing processes, 

methodologies and standard electronic interfaces that will allow intragovernmental transactions to be reported monthly into 

the Air Force accounting system.

Stockpile Materials, Net

Not Applicable

Note 10. General PP&E, Net

As of September 30

2007 2006

Depreciation/ 

Amortization 

Method

Service Life Acquisition Value

(Accumulated 

Depreciation/ 

Amortization)

Net Book Value Prior FY Net 

Book Value

(amounts in thousands)

1. Major Asset Classes

 A. Land N/A N/A $ 437,150 N/A $ 437,150 $ 440,350 

 B. Buildings, Structures, and 

 Facilities

S/L 20 Or 40 47,823,687 $ -27,199,311 20,624,376 19,841,215 

 C. Leasehold Improvements S/L lease term 0 0 0 0 

 D. Software S/L 2-5 or 10 621,881 -186,792 435,089 486,985 

 E. General Equipment S/L 5 or 10 33,157,666 -26,038,055 7,119,611 6,468,989 

 F. Military Equipment S/L Various 243,018,606 -131,965,091 111,053,515 111,230,820 

 G. Assets Under Capital Lease S/L lease term 405,988 -296,239 109,749 125,162 

 H. Construction-in- Progress N/A N/A 3,478,390 N/A 3,478,390 3,267,590 

 I. Other 0 0 0 0 

 J. Total General PP&E $ 328,943,368 $ -185,685,488 $ 143,257,880 $ 141,861,111

See Note 15 for additional information on Capital Leases

Legend for Valuation Methods:

S/L = Straight Line N/A = Not Applicable

Relevant Information for Comprehension

General PP&E

There are restrictions on the Air Force’s ability to dispose of real property (land and buildings) located outside the continental United States.
54

General Fund

Notes to the Principal Statements

Military Equipment

In accordance with the requirements of Statement of Federal Financial Accounting Standards (SFFAS) No. 23, “Eliminating 

the Category National Defense Property, Plant, and Equipment,” beginning in FY 2003, the Air Force capitalized military 

equipment into General Property, Plant, and Equipment (PP&E) at estimated historical cost using information obtained 

from the Bureau of Economic Analysis (BEA). Effective 3rd Quarter, FY 2006, the Air Force replaced the BEA estimation 

methodology with one that is based on departmental internal records for military equipment. 

Other Air Force Disclosures

In 4th Quarter, FY 2007, the Air Force used some FY 2002 ending data for Special Tools and Special Test Equipment (ST/

STE) and actual data for the B2 aircraft. Air Force Equipment Management System (AFEMS) has automated the reporting process for this information. In FY 2008, ST/STE will be inventoried, costed, and loaded into AFEMS. All ST/STE 

should be reported by the end of FY 2009. The net book value of ST/STE for the 4th Quarter, FY 2007, remains unchanged 

at $170.3 million, which is immaterial to the balance of general equipment.

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 class of Software and Equipment does not include all of the General PP&E above the DoD capitalization threshold in the possession of contractors. The Air Force does not report the value of equipment purchased directly by 

the contractor. The Government Accountability Office, the Inspector General, DoD, and the Air Force are developing new 

policies and a contractor reporting process to capture General PP&E information for future reporting purposes in compliance with generally accepted accounting principles.

Contractor Supported Weapon Systems (CSWS) 

Air Force is working with the CSWS contractor to report all equipment in the hands of the contractors. It is anticipated 

that a large portion of the contractor acquired equipment will be reported through the Government On-Line Data System to 

the Air Force Equipment Management System (AFEMS) by December 31, 2008. AFEMS will provide accountability and 

reporting to the Air Force accounting system.

Heritage Assets

Heritage Assets and Stewardship Land are resources that protect, restore, enhance, modernize, preserve and sustain mission 

capability within the Air Force through effective planning and management of natural and cultural resources to guarantee 

access to air, land, and waters. These assets are resources that are managed to provide multiple use activities for the public 

benefit. This includes actions to comply with requirements such as Federal Laws, Executive Orders, DoD policies, final 

governing standards and other binding agreements.

Heritage Assets consists of buildings and structures, museums, major collections, monuments and memorials, archeological 

sites and cemeteries, while Stewardship Land consist mainly of mission essential (donated, public domain, executive order) 

land. The Air Force, with minor exceptions, uses most of the buildings and structures as part of their every day activities 

and includes them on the balance sheet as multi-use heritage assets (capitalized and depreciated). The mission essential 

stewardship land is used for many different activities including general base operations, training sites, bombing ranges, 

recreation, and timber production.

Buildings and Structures: The Air Force considers 4,091 buildings and structures on Air Force bases and sites to be 

heritage assets. In order to be considered a heritage asset, the building and/or facility must be listed, eligible, or potentially 
55

General Fund

Notes to the Principal Statements

eligible for the National Register. These buildings and structures are maintained by each base’s civil engineering group as 

part of their overall responsibility.

Museums: The Air Force Museum System consists of 13 museums with the major museum located at Wright-Patterson Air 

Force Base, Ohio. It houses the main collection of historical artifacts. The museums are considered Air Force field museums or heritage centers, which also contain items of historical interest, some of which are specific to the general locality. 

The Air Force also has several heritage centers that are no longer considered museums.

Major Collections: The Air Force has three significant collections which contain the Air Force art collection and two other 

collections at the Air Force Academy that contain objects, memorabilia, and documents, as well as distinctive works of 

original art.

Cemeteries: The Air Force has administrative and curatorial responsibilities for 39 cemeteries on its active duty bases.

Archeological Sites: The Air Force has 1,425 archeological sites listed on or eligible for the National Register. 

Assets Under Capital Lease

As of September 30 2007 2006

(amounts in thousands)

1. Entity as Lessee, Assets Under Capital Lease

 A. Land and Buildings $ 405,988 $ 453,481 

 B. Equipment 0 0 

 C. Accumulated Amortization -296,239 -328,319

 D. Total Capital Leases $ 109,749 $ 125,162

Relevant Information for Comprehension

The Air Force is the lessee in nine capital leases for military family housing acquired through the Section 801 Family 

Housing Program. Four of the nine leases are funded on a fiscal year basis because they originated prior to FY 1992. The 

leases are capitalized and reported as an asset since their costs exceed the capitalization threshold of $100.0 thousand. The 

net value of assets under capital lease will continue to decrease through amortization and all capital leases are scheduled to 

expire by 4th Quarter, FY 2015. The Air Force is not acquiring any new capital leases.
56

General Fund

Notes to the Principal Statements

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Liabilities

 A. Accounts Payable $ 0 $ 0 

 B. Debt 0 0 

 C. Other 512,987 971,752 

 D. Total Intragovernmental Liabilities $ 512,987 $ 971,752

2. Nonfederal Liabilities

 A. Accounts Payable $ 234,292 $ 185,457 

 B. Military Retirement and Other Federal Employment Benefits 1,132,550 1,123,322 

 C. Environmental Liabilities 6,093,809 5,787,360 

 D. Other Liabilities $ 2,706,792 $ 3,494,673 

 E. Total Nonfederal Liabilities 10,167,443 10,590,812

3. Total Liabilities Not Covered by Budgetary Resources 10,680,430 11,562,564

4. Total Liabilities Covered by Budgetary Resources 10,169,668 10,343,006

5. Total Liabilities $ 20,850,098 $ 21,905,570

Information Related to Liabilities Not Covered by Budgetary Resources

Liabilities Not Covered by Budgetary Resources are liabilities for which congressional action is needed before budgetary 

resources can be provided. 

The liabilities for Military Retirement and Other Federal Employment Benefits, Environmental Liabilities, annual leave 

liabilities for military and civilians, Federal Employees’ Compensation Act (FECA), and unemployment compensation account for 91% of the Total Liabilities not Covered by Budgetary Resources. These liabilities will be liquidated with future 

appropriations because the due dates extend past the budget life cycle of appropriations currently funded and received. 

The liabilities for Accounts Payable represent payables in cancelled appropriations that will be paid using available funds at 

the time of disbursement, subject to limitations.

Intragovernmental Liabilities Other are primarily comprised of FECA liabilities to the Department of Labor, unemployment 

compensation, and custodial liabilities.

Nonfederal Other Liabilities are primary comprised of capital lease liabilities, contingent liabilities, and accrued annual 

leave liabilities for military and civilians.

Military Retirement and Other Federal Employment Benefits not covered by budgetary resources represents the FECA actuarial in the amount of $1.1 billion. The FECA actuarial is not due and payable during the current fiscal year. Refer to Note 

17, Military Retirement and Other Federal Employment Benefits, for additional details and disclosures. 
57

General Fund

Notes to the Principal Statements

Note 12. Accounts Payable

As of September 30

2007 2006

Accounts Payable Interest, Penalties, and 

Administrative Fees Total Total

(amounts in thousands)

1. Intragovernmental Payables $ 1,509,630 $ N/A $ 1,509,630 $ 1,425,771

2. Nonfederal Payables (to the Public) 3,189,303 460 3,189,763 4,269,732

3. Total $ 4,698,933 $ 460 $ 4,699,393 $ 5,695,503

Relevant Information for Comprehension

The Air Force’s systems do not track intragovernmental transactions by customer at the transaction level. Therefore, internal DoD buyer-side balances are adjusted to agree with internal seller-side balances for revenue, accounts receivable, and 

unearned revenue. Accounts Payable were adjusted by accruing additional accounts payable and expenses. 

Note 13. Debt

Not Applicable 
58

General Fund

Notes to the Principal Statements

Note 14. Environmental Liabilities and Disposal Liabilities

As of September 30

2007 2006

Current Liability Noncurrent 

Liability Total Total

(amount in thousands)

1. Environmental Liabilities--Nonfederal

A. Accrued Environmental Restoration Liabilities

 1. Active Installations—Installation Restoration Program 

 (IRP) and Building Demolition and Debris Removal (BD/DR)

$ 411,589 $ 3,381,456 $ 3,793,045 $ 3,638,581 

 2. Active Installations—Military Munitions Response Program 

 (MMRP)

28,365 1,368,684 1,397,049 1,393,705

 3. Formerly Used Defense Sites—IRP and BD/DR 0 0 0 0

 4. Formerly Used Defense Sites--MMRP 0 0 0 0

B. Other Accrued Environmental Liabilities—Active Installations

 1. Environmental Corrective Action 8,900 156,475 165,375 136,910

 2. Environmental Closure Requirements 4,068 83,295 87,363 99,481

 3. Environmental Response at Operational Ranges 0 0 0 0

 4. Other 0 0 0 0

C. Base Realignment and Closure (BRAC)

 1. Installation Restoration Program 112,590 1,330,011 1,442,601 1,204,872

 2. Military Munitions Response Program 280 3,240 3,520 0

 3. Environmental Corrective Action / Closure Requirements 771 9,144 9,915 81,403

 4. Other 0 0 0 0

D. Environmental Disposal for Weapons Systems Programs

 1. Nuclear Powered Aircraft Carriers 0 0 0 0

 2. Nuclear Powered Submarines 0 0 0 0

 3. Other Nuclear Powered Ships 0 0 0 0

 4. Other National Defense Weapons Systems 0 0 0 0

 5. Chemical Weapons Disposal Program 0 0 0 0

 6. Other 0 0 0 0

2. Total Environmental Liabilities $ 566,563 $ 6,332,305 $ 6,898,868 $ 6,554,952

Other Information Related to Environmental Liabilities

An environmental liability is a probable and measurable future outflow or expenditure of resources that exist as of the 

financial reporting date for environmental cleanup costs resulting from past transactions or events. For financial statement 

reporting purposes, the term “environmental cleanup costs” includes costs associated with environmental restoration of environmental sites funded under the Air Force portion of the Defense Environmental Restorations Program (DERP), corrective actions funded with other than DERP, Base Realignment and Closure (BRAC), and environmental costs associated with 

the future disposal of facilities, equipment, munitions, or closure facilities. These costs include researching and determining the existence of hazardous waste, removing, containing, and/or disposing of hazardous waste from property, or material 

and/or property that consist of hazardous waste at the time of shutdown or disposal of the asset. Cleanup costs may include, 

but are not limited to, decontamination, decommissioning, site restoration, site monitoring, closure, and post closure costs 

related to Air Force operations that result in hazardous waste.
59

General Fund

Notes to the Principal Statements

Other Categories Disclosure

Others Category Disclosure Comparative Table (amounts in thousands)

2007 2006

Other Accrued Environmental Costs – Other $ 0 $ 0

Base Realignment and Closure – Other 

 - Manpower services at BRAC installations and headquarters offices $ 0 $ 214,171

Environmental Disposal for Weapons Systems Programs – Other $ 0 $ 0

The Air Force has reported all environmental costs in the applicable lines below and does not have any environmental costs 

to report as “Other.” Therefore, this schedule shows all zeros.

The amount reported for BRAC – “Other” in FY 2006 was reclassified into the Installation Restoration Program (IRP) line 

in 4th Quarter, FY 2006, to better reflect the distribution of management and manpower estimates and to be consistent with 

DoD policy. All future management and manpower estimates will be reported in the IRP and Environmental Corrective 

Action/Closure Requirements lines.

Applicable Laws and Regulations of Cleanup Requirements 

The Air Force is required to clean-up contamination resulting from past waste disposal practices, leaks, spills and other 

past activity, which has created a public human health or environmental risk. The Air Force does this in coordination with 

regulatory agencies, and if applicable, with other responsible parties. The Air Force is also required to recognize closure 

and post closure costs for its Property Plant and Equipment (PP&E) and environmental corrective action costs for current 

operations. The Air Force is responsible for tracking and reporting all required environmental information related to environmental restoration costs, other accrued environmental costs, disposal costs of weapons systems, and environmental costs 

related to BRAC actions that have taken place in prior years. Examples of relevant laws and regulations that are considered 

for discussion include:

(a) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 

(b) Superfund Amendments and Reauthorization Act (SARA)

(c) Clean Water Act

(d) Safe Drinking Water Act

(e) Clean Air Act

(f) Resource Conversation and Recovery Act (RCRA)

(g) Toxic Substances Control Act (TSCA)

(h) Medical Waste Tracking Act

(i) Atomic Energy Act

(j) Nuclear Waste Policy Act

(k) Low Level Radioactive Waste Policy Amendments Act

(l) National Defense Authorizations Acts
60

General Fund

Notes to the Principal Statements

The two laws with the majority of cost estimates for active environmental cleanup are CERCLA and RCRA. 

Types of Environmental Liabilities Identified 

The Air Force has cleanup requirements for the DERP at active installations, BRAC installations, and cleanup requirements 

at active installations that are not covered by DERP. The Air Force is required to perform all environmental cleanup in 

coordination with regulatory agencies, other responsible parties, and current property owners.

The environmental cleanup of military ranges is governed by the military munitions rule in 40 CFR 266.202, Definition of 

Solid Waste. Environmental cleanup on ranges refers to munitions related activities. Environmental cleanup areas within a 

closed range are referred to as Munitions Response Areas. As studies are done to find munitions-related contamination on 

closed ranges, the number of cleanup projects is expected to rise. As investigations progress, the number of military munitions responses will increase to reflect specific areas of pollution. The Air Force expects the number of responses reported 

to increase as pollution is discovered and their identification is defined in areas less than the total boundary of the closed 

range.

Methods for Assigning Total Cleanup Costs to Current Operating Periods

The Air Force uses engineering estimates and independently validated models to estimate environmental cleanup costs. 

The models are either developed within the Remedial Action Cost Engineering Requirements application, or a historic 

comparable project, a specific bid, or an independent government cost estimate is referenced for the current project. The 

Air Force validates the models in accordance with DoD Instruction 5000.61 and primarily uses the models to estimate the 

environmental cleanup costs based on data received during a preliminary assessment and initial site investigation. The Air 

Force primarily uses engineering estimates after obtaining data during the remedial investigation/feasibility phase of the 

environmental project. Once the environmental cleanup cost estimates are complete, the Air Force complies with accounting standards to assign costs to current operating periods. Because the Accrued Environmental Restoration Liabilities is 

accounted for as a totally self-contained program, all direct and indirect costs of the program are captured and reported.

The accounting standard requires full cost be recognized for closure requirements. The Air Force has closure requirements or disposal liabilities at active installations. Disposal liabilities are presented as an accrued amount for the life of the 

landfill. 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 (closing) the landfill, as well as 30 years of monitoring required by federal 

regulations.

The Air Force has already expensed the costs for cleanup associated with General PP&E placed into service prior to 

October 1, 1997, unless the costs are intended to be recovered through user charges. If the costs are recovered through user 

charges, then the Air Force expenses the associated environmental cost systemically over the life of the asset. For General 

PP&E placed into service after September 30, 1997, the Air Force expenses the associated environmental costs systematically over the life of the asset. The Air Force expenses the full cost to cleanup contamination for Stewardship PP&E at the 

time the asset is placed into service. The Air Force uses the physical capacity for operating landfills method for systematic 

recognition. In the future, the Air Force plans to start reporting environmental liability for other facilities, such as fuel 

storage tanks, military and non-military equipment, and asbestos. At that time, the Air Force plans to use life expectancy in 

years. 
61

General Fund

Notes to the Principal Statements

Nature of Estimates and the Disclosure of Information Regarding Possible Changes due to Inflation, 

Deflation, Technology, or Applicable Laws and Regulations

The Air Force is not aware of any pending changes to reported values of reported Environmental Liabilities. The Air Force 

does understand that the liabilities can change in the future due to changes in laws and regulations, changes in agreements 

with regulatory agencies, and advances in technology.

Level of Uncertainty Regarding the Accounting Estimates used to Calculate the Reported Environmental Liabilities

Environmental liabilities for the Air Force are based on accounting estimates which require certain judgments and assumptions to be made by management. The Air Force believes the estimates are reasonable based upon the information available 

to at the time of the calculation. Actual results may vary materially from the accounting estimates if agreements with regulatory agencies require remediation to a different degree than anticipated when the estimate was calculated. The liabilities 

can be further impacted if further investigation discovers contamination different than known at the time of the estimate. 

Air Force financial statements would be affected to the extent there are material differences between these estimates and 

actual costs. There are areas in which management judgment in selecting any available alternative could produce a materially different result. 

Other Accrued, Non-BRAC environmental cleanup activity uses Air Force Operation and Maintenance appropriated funds. 

Because of the type of funding used Air Force currently does not track as environmental costs. Therefore, the costs captured for the Other Accrued, Non-BRAC environmental cleanup reflect only direct cost. It is believed that the current 

portion of the environmental liability is relatively small and not material. During FY 2008, the Air Force plans to develop a 

process for estimating the indirect cost and liability.

Environmental Restoration for Overseas Bases

In addition to the liabilities reported above, the Air Force has the potential to incur costs for restoration initiatives in conjunction with returning overseas Defense facilities to host nations. The Air Force is unable to provide a reasonable estimate 

at this time because the extent of restoration required is not known.

Environmental Disclosures

As of September 30 2007 2006

(amounts in thousands)

A. The unrecognized portion of the estimated total cleanup costs associated with general 

property, plant, and equipment.

$ 67,280 $ 103,690 

B. Changes in total cleanup costs due to changes in laws, regulations, and/or technology. $ -12,662 $ -44,891

C. Portion of the changes in estimated costs due to changes in laws and technology that is 

related to prior periods. $ -4,357 $ 0 

The unrecognized portion of the total cleanup is the estimated total cleanup cost less the amount that is recognized on the 

financial statements. 

Changes in environmental regulations and cleanup standards resulted in a reduction of total cleanup costs.
62

General Fund

Notes to the Principal Statements

Note 15. Other Liabilities 

As of September 30

2007 2006

Current

Liability

Noncurrent

Liability Total Total

(amounts in thousands)

1. Intragovernmental

 A. Advances from Others $ 0 $ 0 $ 882,243 $ 622,200

 B. Deposit Funds and Suspense Account Liabilities 290,441 0 290,441 299,582

 C. Disbursing Officer Cash 293,933 0 293,933 311,604

 D. Judgment Fund Liabilities 0 0 0 0

 E. FECA Reimbursement to the Department of Labor 126,664 168,426 295,090 290,415

 F. Other Total Intragovernmental Other Liabilities 271,619 0 271,619 734,458

 G. Total Intragovernmental Other Liabilities $ 1,864,900 $ 168,426 $ 2,033,326 $ 2,258,259

2. Nonfederal

 A. Accrued Funded Payroll and Benefits $ 2,066,760 $ 0 $ 2,066,760 $ 965,802

 B. Advances from Others 9,980 0 9,980 31,769

 C. Deferred Credits 0 0 0 0

 D. Deposit Funds and Suspense Accounts 95,073 0 95,073 79,865

 E. Temporary Early Retirement Authority 0 0 0 130

 F. Nonenvironmental Disposal Liabilities

 1. Military Equipment (Nonnuclear) 0 0 0 0

 2. Excess/Obsolete 0 0 0 0

 3. Conventional Munitions Disposal 0 0 0 0

 G. Accrued Unfunded Annual Leave 2,250,677 0 2,250,677 2,839,835

 H. Capital Lease Liability 6,897 150,828 157,725 188,119

 I. Other Liabilities 1,073,845 427,436 1,501,281 2,147,588

 J. Total Nonfederal Other Liabilities $ 5,503,232 $ 578,828 $ 6,081,496 $ 6,253,108

3. Total Other Liabilities $ 7,368,132 $ 746,690 $ 8,114,822 $ 8,511,367

Relevant Information for Comprehension

The amount of Intragovernmental Other Liabilities represents Government contributions for employee benefits, unemployment compensation, education benefits, and custodial liabilities.

The amount of Nonfederal Other Liabilities represents legal contingencies, employee benefits, and contract holdbacks.

Contingent Liabilities includes $720.3 million in estimated future contract financing payments that will be paid to the 

contractor upon delivery and Government acceptance of a satisfactory product. In accordance with contract terms, specific 

rights to the contractor’s work vests with the Government when a specific type of contract financing payment is made. This 
63

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Notes to the Principal Statements

action protects taxpayer funds in the event of contract nonperformance. These rights should not be misconstrued as the 

rights of ownership. The Air Force is under no obligation to pay the contractor for amounts greater than the amounts authorized in the contract until delivery and Government acceptance. Because it is probable that the contractor will complete 

its efforts and deliver a satisfactory product to the Air Force and the amount of potential future payments are estimable; the 

Air Force has recognized a contingent liability for estimated future payments, which are conditional pending delivery and 

Government acceptance.

The recorded estimated probable liability amount of $29.4 million is included in other liabilities nonfederal for open contractor claims greater than $100.0 thousand. At this time, these claims are not in appeal or in litigation. In addition to the 

contractor claims under appeal and the open contractor claims for an amount greater than $100.0 thousand, the Air Force 

was party to numerous other contractor claims in amounts less than $100.0 thousand 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 $26.1 million and is not included in the 

reported amount but is disclosed in Note 16.

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, 2007, was valued at $274.1 million and is included in other liabilities nonfederal. As of 

September 30, 2007, the Air Force was party to 14,984 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 $358.9 million and is not included in the reported amount but is disclosed in Note 16. 

Neither past payments nor the current contingent liability estimate provides a basis for accurately projecting the results of 

any individual lawsuit or claim. Since monetary judgments paid to civil litigants comes from a judgment fund administrated by the Treasury, it is uncertain that claims will become a liability to the Air Force. There are only two types of cases; 

where the Treasury will seek reimbursements from the affected agency; the Contract Dispute Act cases and select Government personnel disciplinary matters. 

As of September 30, 2007, the Air Force was party to 195 contract appeals before the Armed Services Board of Contract 

Appeals (ASBCA). The probable amount of loss from contractor claims of $123.9 million is included in other liabilities 

nonfederal. 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 $501.7 million and is not included in the reported amount but is disclosed in Note 16.

Contractor claims and ASBCA claims are updated annually because there are only marginal changes. 

Estimation Methodology 

The Air Force General Counsel through legal determination assesses and categorizes all contingent legal liability cases that 

equal or exceed the materiality threshold set by the DoDIG. For the remaining cases falling below the dollar materiality 

threshold set by DoDIG, they are considered in aggregate, if the total amount of the cases equal or exceed the established 

materiality threshold. 

The Air Force General Counsel also solicits case data through quarterly data calls from the Air Force JAC (Civil Lawsuits 

and Litigation Directorate) and annually from HQ AFMC/JAB (ASBCA) and HQ AFMC/PK (Open Contractor Claims and 
64

General Fund

Notes to the Principal Statements

Contract Appeals). Air Force financial management personnel use the solicited case data which includes the current reporting year and each of the prior two years to estimate the amounts of probable and reasonably possible contingent liabilities.

Air Force financial management personnel use a three year prior case analysis spreadsheet which was developed by the 

Air Force Audit Agency to calculate and estimate the amount of contingent liabilities (probable and reasonably possible) 

for reporting or disclosing in the quarterly financial statements. In cases where Air Force General Counsel discloses that a 

judgment has been awarded against the Air Force, these amounts will be reported on the Balance Sheet and within this note. 

Amounts for reasonably possible cases are disclosed in Note 16.

Capital Lease Liability

As of September 30

2007 2006

Land and 

Buildings Equipment Other Total Total

(amounts in thousands)

1. Future Payments Due

 A. 2007 $ 0 $ 0 $ 0 $ 0 $ 39,878

 B. 2008 38,594 0 0 38,594 38,594

 C. 2009 38,478 0 0 38,478 38,478

 D. 2010 38,478 0 0 38,478 38,478

 E. 2011 36,789 0 0 36,786 36,786

 F. 2012 13,088 0 0 13,088 0

 G. After 5 Years 26,838 0 0 26,838 43,520

 H. Total Future Lease Payments Due $ 192,262 $ 0 $ 0 $ 192,262 $ 235,734

 I. Less: Imputed Interest Executroy Costs 34,537 0 0 34,537 47,615

 J. Net Captial Lease Liability $ 157,725 $ 0 $ 0 $ 157,725 $ 188,119

2. Capital Lease Liabilities Covered by Budgetary

 Resources $ 135,750 $ 158,472

3. Capital Lease Liabilities Not Covered by Budgetary

 Resources $ 21,975 $ 29,647
65

General Fund

Notes to the Principal Statements

Note 16. Commitments and Contingencies

Relevant Information for Comprehension

The Air Force is a party in various administrative proceedings and legal actions, with claims including environmental damage claims, equal opportunity matters, and contractual bid protests. We are not aware of any contingent liabilities relative to 

these actions. 

The Air Force has accrued contingent liabilities for legal actions where the Air Force Office of the General Counsel considers an adverse decision probable and the amount of loss is measurable. In the event of an adverse judgment against the government, some of the liabilities may be payable from the Judgment Fund. The Air Force records Judgment Fund liabilities 

in Note 12 “Accounts Payable” and Note 15, “Other Liabilities.”

The Commitments and Contingencies consist of the following reasonably possible liabilities:

(amounts in millions)

Contractual Actions:

Contractor Claims $ 26.1

Appeals before Armed Services Board of Contract Appeals (ASBCA) 501.7

Claims and Litigation from Civil Law 358.9

Total $ 886.7

The amounts disclosed for litigations claims and assessments are fully supportable and agree with the Air Force’s legal 

representation letters and management summary schedule.

The amount of undelivered orders for open contracts citing cancelled appropriations which remain unfilled or unreconciled 

for which the Air Force may incur a contractual commitment for payment is $ 939.5 million.

Contingencies that are considered both measurable and probable have been recognized as liabilities. Refer to Note 15 for 

further details. 

The Air Force is a party in numerous individual contracts that contain clauses, such as price escalation, award fee payments, 

or dispute resolution, that may or may not result in a future outflow of expenditures. Currently, Air Force does not have a 

systemic process by which it captures or assesses these potential contingent liabilities; therefore, the amounts reported may 

not fairly present the Air Force’s contingent liabilities. 
66

General Fund

Notes to the Principal Statements

Note 17. Military Retirement and Other Federal Employment Benefits

As of September 30

2007 2006

Present Value 

of Benefits

Assumed 

Interest 

Rate (%)

(Less: Assets 

Available to 

Pay Benefits)

Unfunded 

Liability

Present Value 

of Benefits

(amounts in thousands)

1. Pension and Health Actuarial Benefits

A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0

B. Military Retirement Health Benefits

C. Military Medicare-Eligible Retiree Benefits 0 0 0 0

D. Total Pension and Health Actuarial Benefits $ 0 $ 0 $ 0 $ 0

2. Other Actuarial Benefits

A. FECA $ 1,132,550 $ 0 $ 1,132,550 $ 1,123,323

B. Voluntary Separation Incentive Programs 0 0 0 0

C. DoD Education Benefits Fund 0 0 0 0

D. Total Other Actuarial Benefits $ 1,132,550 $ $ 1,132,550 $ 1,123,323

3. Other Federal Employment Benefits $ 4,466 $ -4,466 $ 0 $ 20,425

4. Total Military Retirement and Other Federal 

Employment Benefits: $ 1,137,016 $ -4,466 $ 1,132,550 $ 1,143,748

Actuarial Cost Mehtohd Used:

Assumptions:

Market Value of investments in Market-based and Marketable Securities:

Relevant Information for Comprehension

Federal Employees’ Compensation Act (FECA)

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 economic assumptions for 10-year U.S. Treasury notes and bonds. 

Interest rate assumptions utilized for discounting were as follows:

2006

5.170% in Year 1

5.313% in Year 2

 And thereafter

To adjust more specifically for the effects of inflation on the liability for future workers’ compensation benefits, wage 

inflation factors (Cost of Living Adjustments or COLAs) and medical inflation factors (Consumer Price Index Medical or 

CPIMs) were applied to the calculation of projected future benefits. The actual rates for these factors for the charge back 

year (CBY) 2006 were also used to adjust the methodology’s historical payments to current year constant dollars.
67

General Fund

Notes to the Principal Statements

The compensation COLAs and CPIMs used in the projections for various CBYs were as follows:

2006 2007 2008 2009 2010 +

COLA 3.50% 3.13% 2.40% 2.40% 2.43% 

CPIM 4.00% 4.01% 4.01% 4.01% 4.09%

The model’s resulting projections were analyzed to insure that the estimates were reliable. The analysis was based on four 

tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual incremental payments, (3) a comparison of the incremental 

paid loses per case (a measure of case-severity) in CBY 2006 to the average pattern observed during the most current three 

charge back years, and (4) a comparison of the estimated liability per case in the 2006 projection to the average pattern for 

the projections of the most recent three years.

The Air Force’s actuarial liability for workers’ compensation benefits is developed and provided by the Department of Labor at the end of each fiscal year. There is no change on a quarterly basis. A comparison of 4th Quarter, FY 2007, and 

4th Quarter, FY 2006, disclosed a minor change. Programs for which actuarial benefits are computed include FECA, the 

expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but unreported claims. 

Note 18. General Disclosures Related to the Statement of Net Cost

Intragovernmental Costs and Exchange Revenue 

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Costs $ 30,577,467 $ 30,656,499 

2. Public Costs 111,884,904 111,722,498 

3. Total Costs $ 142,462,371 $ 142,378,997

4. Intragovernmental Earned Revenue $ -4,571,324 $ -4,493,654

5. Public Earned Revenue -1,144,216 -827,193

6. Total Earned Revenue $ -5,715,540 $ -5,320,847

7. Net Cost of Operations $ 136,746,831 $ 137,058,150

Relevant Information for Comprehension

Intragovernmental costs and revenue are related to transactions made between two reporting entities within the Federal 

Government.

Public costs and revenues are exchange transactions made between the reporting entity and a nonfederal entity.

The Air Force’s systems do not track intragovernmental transactions by customer at the transaction level. Therefore, internal DoD buyer-side balances are adjusted to agree with internal seller-side balances for revenue. Accounts Payable were 

adjusted by accruing additional accounts payable and expenses.

The Statement of Net Cost (SNC) is unique because its principles are driven on understanding the net cost of programs and/

or organizations that the Federal Government supports through appropriations or by other means. This statement provides 
68

General Fund

Notes to the Principal Statements

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.

The amounts presented in this statement are based on obligations and disbursements and, thus, may not report actual accrued costs in all cases and may not meet accounting standards. As such, the information presented is based on budgetary 

obligations, disbursements, and collection transactions, as well as nonfinancial feeder systems, adjusted to record known 

accruals for major items such as payroll expenses, accounts payable, and environmental liabilities.

The Air Force’s accounting systems do not capture information relative to heritage assets separately and distinctly from 

normal operations. Where it was able to separately identify the cost of acquiring, constructing, improving, reconstructing, 

or renovating heritage assets, the Air Force has identified $2.0 million for the fiscal year.

Note 19. Disclosures Related to the Statement of Changes in Net Position

As of September 30

2007 2006

Cumulative Results 

of Operations

Unexpended 

Appropriations

Cumulative Results 

of Operations

Unexpended 

Appropriations

(amounts in thousands)

1. Prior Period Adjustments Increases (Decreases) 

to Net Position Beginning Balance

A. Changes in Accounting Standards $ 0 $ 0 $ 0 $ 0 

B. Errors and Omissions in Prior Year Accounting 

 Reports 0 0 19,309,311 0 

C. Total Prior Period Adjustments $ 0 $ 0 $ 19,309,311 $ 0

2. Imputed Financing

A. Civilian CSRS/FERS Retirement $ 212,145 $ 0 $ 230,498 $ 0 

B. Civilian Health 479,398 0 454,584 0 

C. Civilian Life Insurance 1,520 0 1,481 0 

D. Judgment Fund 31,608 0 12,252 0 

E. IntraEntity 0 0 0 0 

F. Total Imputed Financing $ 724,671 $ 0 $ 698,815 $ 0

Relevant Information for Comprehension

The Appropriation Received line item on the Statement of Changes in Net Position (SCNP) differs from that reported on the 

Statement of Budgetary Resources because Appropriations Received on the SCNP do not include appropriated dedicated 

and earmarked receipts. Dedicated and earmarked receipts are accounted for as either nonexchange revenue or donations 

and forfeitures of cash and cash equivalent. This difference totals $2.8 million.

The eliminations column on the SCNP will reflect zero dollars. Statement of Federal Financial Accounting Standards Number 27, “Identifying and Reporting Earmarked Funds,” effective for reporting years after 

FY 2005, required that DoD modify the SCNP. The Federal Accounting Standards Advisory Board determined that restatement of prior comparative balances would not be allowed. To meet the requirement, additional columns were added 

to separately display gross amounts for earmarked funds, and all other (nonearmarked) funds. In the SCNP, all offsetting 
69

General Fund

Notes to the Principal Statements

balances (i.e. transfers-in and transfers-out, revenues and expenses) for intraDoD activity between earmarked and other 

(nonearmarked) funds are reported on the same lines. This results in an eliminations column, which appears to contain no 

balances. In reality, the column contains all appropriate elimination entries, but all net to zero within each respective line. 

The amounts remitted to the Office of Personnel Management (OPM) by and for employees covered by the Civil Service 

Retirement System, the Federal Employees’ Retirement System, the Federal Employees Health Benefits Program, and the 

Federal Employees Group Life Insurance Program do not fully cover the U.S. Government’s cost to provide these benefits. 

The financial statements recognized an imputed cost as the difference between the Government’s cost of providing these 

benefits to the employees and contributions made by and for them. OPM provides the cost factors to 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. After validation, OUSD (P&R) provides the imputed costs to the reporting components for inclusion in their financial statements.

For the Judgment Fund, the Air Force recognizes liabilities and expenses when unfavorable litigation outcomes are probable and the amounts can be estimated. The U.S. Treasury provides the dollar amount of the imputed financing. The 

U.S.Treasury based the imputed financing on the amount the judgment fund is expected to pay for settlements.

Other Financing Sources, Other consists of other gains and losses to adjust intragovenmental transfers in. 

Earmarked Cumulative Results of Operations ending balance on the SCNP does not agree with the Earmarked Cumulative 

Results reported on the Balance Sheet because the cumulative results on the Balance Sheet are presented net of eliminations. 
70

General Fund

Notes to the Principal Statements

Note 20. Disclosures Related to the Statement of Budgetary Resources

As of September 30 2007 2006

(amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for Undelivered Orders at the End 

of the Period

$ 64,119,346 $ 56,974,233 

2. Available Borrowing and Contract Authority at the End of the Period $ 0 $ 0 

Apportionment Categories

Funds are apportioned by three categories: (1) category A is apportioned quarterly, (2) category B is apportioned by activity 

or project, and (3) exempt are funds not subject to apportionment. The amount of direct obligations incurred and apportioned under category A is $83.0 billion, category B is $63.6 billion, and exempt is $1.9 million. For reimbursable obligations incurred and apportioned, category A is $6.5 billion, category B is $4.0 billion, and exempt is $13.9 million. 

Relevant Information for Comprehension

The Statement of Budgetary Resources (SBR) includes intraentity transactions because the financial statements are presented as combined and combining.

Permanent indefinite appropriations are as follows (reference Note 23 for additional information):

y Department of the Air Force General Gift Fund [10 USC 2601(b)]

y Wildlife Conservation Fund [16 USC 670(a)]

Appropriations Received

The Appropriation Received line item on the Statement of Changes in Net Position differs from that reported on the SBR 

because Appropriations Received on the Statement of Changes in Net Position do not include dedicated appropriations and 

earmarked receipts. Dedicated and earmarked receipts are accounted for as either nonexchange revenue or donations and 

forfeitures of cash and cash equivalent. This difference totals $2.8 million.

Air Force has no material differences between amounts reported on the SBR and the SF133, Report on Budget Execution. 
71

General Fund

Notes to the Principal Statements

Note 21. Reconciliation of Net Cost of Operations to Budget

As of September 30 2007 2006

(amounts in thousands)

Resources Used to Finance Activities:

Budgetary Resources Obligated:

1. Obligations incurred $ 156,973,842 $ 145,600,995 

2. Less: Spending authority from offsetting collections and recoveries (-) -14,269,297 -10,409,647

3. Obligations net of offsetting collections and recoveries $ 142,704,545 $ 135,191,348

4. Less: Offsetting receipts (-) -140,980 -185,423

5. Net obligations $ 142,563,565 $ 135,005,925

Other Resources:

6. Donations and forfeitures of property 0 0 

7. Transfers in/out without reimbursement (+/-) 261,389 46,239 

8. Imputed financing from costs absorbed by others 724,671 698,815 

9. Other (+/-) -1,265,895 3,690,029 

10. Net other resources used to finance activities $ -279,835 $ 4,435,083

11. Total resources used to finance activities $ 142,283,730 $ 139,441,008

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:

 A. Undelivered Orders (-) $ -7,144,892 $ -2,386,909

 B. Unfilled Customer Orders 627,428 -197,170

13. Resources that fund expenses recognized in prior Periods (-) -801,933 -898,944

14. Budgetary offsetting collections and receipts that do not affect Net Cost of

 Operations

140,978 185,423

15. Resources that finance the acquisition of assets (-) -15,504,535 -17,411,172

16. Other resources or adjustments to net obligated resources that do not

 affect Net Cost of Operations: 

 A. Less: Trust or Special Fund Receipts Related to exchange in the 

 Entity’s Budget (-)

0 0

 B. Other (+/-) 1,004,509 -3,736,270

17. Total resources used to finance items not part of the Net Cost of 

Operations $ -21,678,445 $ -24,445,042

18. Total resources used to finance the Net Cost of Operations $ 120,605,285 $ 114,995,966

Components of the Net Cost of Operations that will not Require or 

Generate Resources in the Current Period:

Components Requiring or Generating Resoucres in Future Period:

19. Increase in annual leave liability $ 3,809 $ 491,847

20. Increase in environmental and disposal liability 343,915 0

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

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

23. Other (+/-) 84,400 610,486

24. Total components of Net Cost of Operations that will Require or Generate 

 Resources in future periods $ 432,124 $ 1,102,333

Components not Requiring or Generating Resources: 

25. Depreciation and amortization $ 11,977,009 $ 16,091,380

26. Revaluation of assets or liabilities (+/-) 1,429,657 569,343

27. Other (+/-)

A. Trust Fund Exchange Revenue 0 0

B. Cost of Goods Sold 0 0

C. Operating Material and Supplies Used 25,927,617 13,272,303

D. Other -23,624,862 -8,973,175

28. Total Components of Net Cost of Operations that will not Require or 

 Generate Resources

$ 15,709,421 $ 20,959,851

29. Total Components of Net Cost of Operations that will not Require or 

 Generate Resources in the current period $ 16,141,545 $ 22,062,184

30. Net Cost Operations $ 136,746,830 $ 137,058,150
72

General Fund

Notes to the Principal Statements

Relevant Information for Comprehension

Beginning 4th Quarter, FY 2007, the Air Force began presenting the Statement of Financing (SOF) as a note in accordance 

with the Office of Management and Budget Circular A-136. The SOF will no longer be considered a basic statement and is 

now referred to as “Reconciliation of Net Cost of Operations to Budget.”

Because of the Air Force’s financial system limitations, budgetary data is not in agreement with proprietary expenses and 

assets capitalized. Differences have not existed in the past so the difference between the budgetary and proprietary data is 

being researched to determine the cause. The note schedule was adjusted by $7.8 million to bring it into balance with the 

Statement of Net Cost. The adjustment was to the Other Components not Requiring or Generating Resources category. 

The following note schedule lines are presented as combined instead of consolidated due to intraagency budgetary transactions not being eliminated: 

y Obligations Incurred

y Less: Spending Authority from Offsetting Collections and Recoveries

y Obligations Net of Offsetting Collections and Recoveries

y Less: Offsetting Receipts

y Net Obligations

y Undelivered Orders

y Unfilled Customer Orders 

Other Resources, Other consists of other gains and losses to adjust intragovernmental transfers in.

Other resources or adjustments to net obligated resources that do not affect the Net Cost of Operations, Other consists of net 

transfers in and transfers out without reimbursement and other gains and losses to adjust intragovernmental transfers in. 

Components requiring or generating resources in future periods are costs not funded in the period the costs are incurred. 

The expense and the corresponding liability are recognized in the current period but the budgetary resources will not be provided until a subsequent period. The amount of liabilities not covered by budgetary resources for the 4th Quarter, FY 2007, 

is $10.2 billion. In general, the changes in liabilities not covered by budgetary resources as shown on the Balance Sheet are 

reflected on the Reconciliation of Net Cost of Operations to Budget. Differences are a result of custodial liabilities, unfunded capital lease liabilities, and environmental liabilities covered by unobligated budgetary resources.

Liabilities not covered by budgetary resources on the Balance Sheet and the amount reported as components requiring or 

generating resources in future periods on the Reconciliation of Net Cost of Operations to Budget differs by $512.4 million. 

This difference consists of Custodial Lease Liabilities of $467.2 million which are offset by a nonentity asset account, not 

an expense; unfunded environmental liabilities of $37.5 million which are offset by the unfunded expenses, previously estimated and recorded as unfunded; and $7.7 million in unfunded capital leases which are offset by a funded expense account.

Note 22. Disclosures Related to Incidental Custodial Collections

The Air Force collected $68.1 million of incidental custodial revenues generated from collection of accounts receivable in 

cancelled accounts. The Air Force distributed $68.1 million to the U.S. Treasury.
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Note 23. Earmarked Funds

BALANCE SHEET 

As of September 30

Military 

Retirement Fund

Medicare Eligible 

Retiree Health Care 

Fund

Other Earmarked 

Funds Eliminations Total

(amounts in thousands)

ASSETS

Fund balance with Treasury $ 0 $ 0 $ 7,964 $ 0 $ 7,964

Investments 0 0 823 0 823

Accounts and Interest Receivable 0 0 2 0 2

Other Assets 0 0 5 0 5

Total Assets $ 0 $ 0 $ 8,794 $ 0 $ 8,794

LIABILITIES AND NET POSITION 

As of September 30

Military Retirement Benefits and Other 

Federal Employment Benefits

$ 0 $ 0 $ 0 $ 0 $ 0

Other Liabilities 0 0 4,246 -1,930 2,316

Total Liabilities $ 0 $ 0 $ 4,246 $ -1,930 $ 2,316

Unexpended Appropriations 0 0 0 0 0

Cumulative Results of Operations 0 0 4,548 0 4,548

Total Liabilities and Net Position $ 0 $ 0 $ 8,794 $ -1,930 $ 6,864

STATEMENT OF NET COST 

As of September 30

Program Costs $ 0 $ 0 $ 16,632 $ 0 $ 16,632

Less Earned Revenue 0 0 -13,867 0 -13,867

Net Program Costs $ 0 $ 0 $ 2,765 $ 0 $ 2,765

Less Earned Revenues Not Attributable 

to Programs 0 0 0 0 0

Net Cost of Operations $ 0 $ 0 $ 2,765 $ 0 $ 2,765

STATEMENT OF CHANGES IN NET 

POSITION 

As of September 30

Net Position Beginning of the Period $ 0 $ 0 $ 4,540 $ 0 $ 4,540

Net Cost of Operations 0 0 2,765 0 2,765

Budgetary Financing Sources 0 0 2,773 0 2,773

Other Financing Sources 0 0 0 0 0

Change in Net Position $ 0 $ 0 $ 0 $ 0 $ 0

Net Position End of Period $ 0 $ 0 $ 4,548 $ 0 $ 4,548
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Earmarked Funds

Department of the Air Force General Gift Fund [10 USC 2601 (b)]

The Department of the Air Force General Gift Fund accepts, holds, and administers any gift, device, or bequest of real 

or personal property, made on the condition that it is used for the benefit (or in connection with the establishment, maintenance, or operation) of a school, hospital, library, museum, or cemetery under the Air Force’s jurisdiction. The fund is 

available to such institutions or organizations – subject to the terms of the gift, device, or bequest.

Conditional gifts are invested in U.S. Treasury securities, and any interest earned on these securities is added back into the 

fund.

Wildlife Conservation Fund [16 USC 670 (a)]

The Wildlife Conservation Fund provides for (1) the conservation and rehabilitation of natural resources on military installations, (2) the sustainable multipurpose use of the resources which include hunting, fishing, trapping, and nonconsumptive uses, and (3) the public access to military installations to facilitate its use – subject to safety requirements and military 

security. The fund is available to carry out these programs and other such expenses that may be necessary for the purpose 

of the cited statute.

Consisting of both appropriated and nonappropriated funding, this fund gives installation commanders the authority to collect fees from the sale of hunting and fishing permits.

Air Force Cadet Fund [37 USC 725 (s)]

The Air Force Cadet Fund is maintained for the benefit of Air Force Academy cadets. Disbursements are made for the personal services of cadets such as laundry, arts, and athletics while collections are received from the same cadets at least equal 

to any disbursements made.

The Air Force Cadet Fund is classified as a special fund, the Air Force General Gift Fund and Wildlife Conservation Fund 

are trust funds. All three funds utilize receipt and expenditure accounts in accounting for and reporting the funds.

Relevant Information for Comprehension

The Total Earmarked Funds column is shown as consolidated. All intraDoD activity between earmarked funds and nonearmarked funds has been eliminated from this column, which causes assets to not equal liabilities and net position.
75

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Note 24. Other Disclosures 

As of September 30

2007 

Asset Category

Land and Buildings Equipment Other Total

(amounts in thousands)

1. ENTITY AS LESSEE-Operating Leases

Future Payments Due

Fiscal Year

2008 $ 54,367 $ 0 $ 113,202 $ 167,569 

2009 55,125 0 117,730 172,855 

2010 56,283 0 122,440 178,723 

2011 57,465 0 127,337 184,802 

2012 58,671 0 132,431 191,102 

After 5 Years 59,903 0 137,728 197,631 

Total Future Lease Payments Due $ 341,814 $ 0 $ 750,868 $ 1,092,682

Relevant Information for Comprehension

Leases in the land and buildings category include costs for operating leased housing facilities for the active Air Force in the 

U.S. and overseas. Section 801 Family Housing Program leases are not included in this category.

The Air Force does not have any leases in the equipment category. 

Other leases consist of Air Force vehicle leases from the General Services Administration and commercial lessors located in 

Europe, Southwest Asia, and the U.S.

Note 25. Restatements

Not Applicable 

General Fund

Notes to the Principal Statements
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Fiscal Year 2007

Required Supplementary

Stewardship Information

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STEWARDSHIP INVESTMENTS

Stewardship investments are substantial investments made by DoD for the long-term benefit of the nation and public, but 

are not physical assets owned by DoD. Stewardship investments include expenses incurred for federally financed but not 

federally owned physical property (Nonfederal Physical Property) and federally financed research and development (Research and Development). 

NONFEDERAL PHYSICAL PROPERTY 

Nonfederal Physical Property investments are expenses included in calculating net cost incurred by the reporting entity for 

the purchase, construction or major renovation of physical property owned by state and local governments. The expenses 

include the costs identified for major additions, alterations and replacements, purchases of major equipment, and purchases 

or improvements of other nonfederal assets. In addition, Nonfederal Physical Property Investments include federallyowned physical property transferred to state and local governments.

NONFEDERAL PHYSICAL PROPERTY 

Yearly Investment in State and Local Governments

For the Current and Four Preceding Fiscal Years

(amounts in millions)

Categories FY 2007 FY 2006 FY 2005 FY 2004 FY 2003

1. Transferred Assets:

 National Defense Mission Related

$ 0 $ 0 $ 0 $ 0 $ 0

2. Funded Assets:

 National Defense Mission Related

$ 2.80 $ 8.50 $ $8.30 $ 18.30 $ 11.31

 Totals $ 2.80 $ 8.50 $ $8.30 $ 18.30 $ 11.31

The Air National Guard investments in Nonfederal 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 GAAP requirements.

RESEARCH AND DEVELOPMENT

Investments in research and development are incurred in the search for new or refined knowledge and ideas and for the 

application or use of such knowledge and ideas for the development of new or improved products and processes with the 

expectation of maintaining or increasing national economic productive capacity or yielding other future benefits.
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INVESTMENTS IN RESEARCH AND DEVELOPMENT 

Yearly Investment in Research and Development

For the Current and Four Preceding Fiscal Years

(amounts in millions)

Categories FY 2007 FY 2006 FY 2005 FY 2004 FY 2003

1. Basic Research $ 383 $ 334 $ 287 $ 209 $ 220

2. Applied Research 1,032 939 805 805 735

3. Development

 Advanced Technology Development 937 901 966 681 545

 Advanced Component Development and Prototypes 2,310 1,985 1,897 1,426 4,385

 System Development and Demonstration 4,094 4,172 4,179 4,390 4,341

 Research, Development, Test and Evaluation

 Management Support 1,286 1,271 824 890 880

 Operational Systems Development 11,481 9,622 10,083 10,361 7,571

4. Totals $ 21,523 $ 19,224 $ 19,041 $ 18,762 $ 18,677

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 the following five stages:

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 activities 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.
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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.

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 - In an effort to reduce atmospheric interference in free space laser communications, a team of Air Force 

scientists demonstrated new ways to deal with fading effects that occur when light interferes with itself as it propagates 

through atmospheric turbulence. Researchers also developed a wave optics simulation that is the first to accurately model a 

“partially coherent beam” to reduce signal fading due to atmospheric effects (cloud or fog). 

The Air Force, in partnership with the U.S. Department of Energy and the National Science Foundation, is researching heat 

flow related to the field of molecular electronics. Long-chain molecules attached to tiny electrodes are used to transport and 

switch electrons. This effort led to development of an ultrafast thermal measurement technique critical for the stability and 

performance of heat sensitive micro-nano applications, such as lasers and optoelectronic devices. 

Applied Research - Air Force scientists discovered a suitable method for applying a polymer nanocomposite solution 

that will serve as an electromagnetic interference (EMI) shielding material for use in protecting ground-based structures, 

aircraft, spacecraft, and satellites from internal and external EMI effects. The use of polymer nanocomposites as an EMI 

shielding material vice the current aluminum systems will result in reduced weight and eliminate corrosion resulting from 

the hardware necessary to keep the aluminum in place. The new method can be quickly and easily adapted as a retrofit to 

systems that are currently unshielded. 

The Air Force is developing state-of-the-art weaponry that users can launch into the vicinity of mobile targets to autonomously find and defeat them. This capability provides increased survivability, multiple kills per pass, and minimal pilot 

workload. Since there is an inherent delay between observing a target and subsequently launching a weapon, users require 

the capability to rapidly search a large area. They also need a weapon that can operate day or night and in adverse weather. 

Under the Wide-Area Search Synthetic Aperture Radar program, the Air Force is partnering with industry to use Synthetic 

Aperture Radar (SAR) weapons technology to address the need to perform wide-area searches for mobile and relocatable 

targets in adverse weather. The research team transformed a SAR device into a multimode radar seeker, combining SAR 

technology with a ground moving-target indicator and high-range-resolution radar signal processing. Users will employ 

these modes to perform autonomous target classification to increase probability of kill.

The Air Force and the Federal Aviation Administration are working together to improve aircrew safety in situations where 

lasers are carelessly or maliciously pointed at aircraft. A team of optics, human factors, and computer specialists developed a one-of-a-kind laser positioning system integrated with a Boeing 737 flight simulator that realistically mimics a laser 

flashed at an aircraft cockpit from the ground. A handheld laser pointer directed at an approaching aircraft from two miles 

away can cause windshield glare, after images, and flash blindness that temporarily impairs vision and leaves a pilot unable 

to see an airport’s runway and surrounding landscape. The 4-axes-of-motion system uses fiber-optic cables to transport a 

laser beam from its source to the simulator. Researchers will monitor the reactions of Air Force pilots to laser illumination 

during simulated flights and use this data to generate safety procedures and prepare for further in-flight testing.
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Advanced Technology Development - The Air Force developed new work-centered, interface-distributed environment 

software that provides a timeline visualization capability that reflects near-real-time updates to mission data and depicts a 

given problem in the context of related elements. The visual fusion of relevant information in the display assists operators 

in rapidly understanding, not only the meaning of an alert, but the factors affecting mission viability and possible solutions. 

Also of significance is the tool’s capacity to perform “what-if” simulations. These hypothetical scenarios facilitate ongoing situational awareness by allowing operators to examine the repercussions of any changes made to the mission itinerary. 

This unique capability enables a prompt reaction to mission problems – a response based on actionable information and 

executed in a timely manner. The new capability has been deployed within the Air Mobility Division of the Al-Udeid Air 

Base Combined Air Operations Center in Qatar, where it is used to attain “fleet-at-a-glance” situational awareness of intheater airlift.

As part of efforts to reduce the U.S. military’s reliance on foreign energy sources, the Air Force completed certification 

of an alternative jet fuel on the B-52H Stratofortress bomber on August 8, 2007 at Edwards AFB, California. The signing 

ceremony certified that the blended Fischer-Tropsch (FT) and JP-8 fuel is safe for operational use in all B-52H aircraft and 

marked the formal conclusion of testing. This FT experiment is part of the Pentagon’s Assured Fuel Initiative that seeks to 

convert coal, of which the United States has abundant reserves, into liquid fuel. The fuel is derived from refining natural 

gas under the FT process, which is named after its German inventors of the 1920’s. The Air Force plans to test and certify 

every airframe to fly on a domestically produced synthetic fuel blend by early 2011.

The Air Force developed improved turbine engine life-management tools that integrate state-of-the-art material analysis, 

enhanced non-destructive evaluation, and data management as a comprehensive life management system. Component cost 

avoidance is estimated to exceed $300 million for the F100/F110 engine series alone. 

The Air Force 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. The Joint Unmanned Combat Air Systems (J-UCAS) program was terminated in December 2005. The two J-UCAS X-45A aircraft flew 

a total of 64 flights and performed limited demonstrations of precision weapon drops, multi-ship coordinated flight, and collaborative targeting technologies, illustrating the potential for future unmanned combat air systems development programs. 

The Air Force continued to advocate the AFRL Automated Air Refueling (AAR) program, which continues to make historic 

progress. The AAR program consists of a combination of simulation and flight tests in order to develop the appropriate 

requirements and system design for UAV refueling, which may also be applied to manned refueling. In the flight test, the 

AAR program uses the Calspan Learjet (UAV Surrogate) and the 107th ANG KC-135 for flight test. In August 2006, during the Station-Keeping Flight Test, the AAR program demonstrated “hands-off” formation flight for over 85 minutes in the 

contact position and more than 229 minutes in all refueling positions. In August 2007, during the Positions and Pathways 

Flight Test, the AAR program successfully demonstrated maneuvering from the observation position (off the wing of the 

tanker) to pre-contact position, to the contact position, and then back.

Demonstration and Validation (Advanced Component Development and Prototypes) - The Air Force’s Advanced 

Component Development and Prototypes programs are comprised of system specific advanced technology integration 

efforts accomplished in an operational environment to help expedite transition from the effort. In FY 2004, 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 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.
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In FY 2005, the Air Force restructured and refocused the Space Radar (SR) program (formerly Space Based Radar) to address congressional concerns with technical risk, affordability, and DoD-Intelligence Community (IC) integration. In January 2005, the Secretary of Defense and the Director of Central Intelligence signed a joint memo designating the SR program 

as the single space radar capability for the nation. In May 2007, the Deputy Secretary of Defense and the Principle Deputy 

Director of National Intelligence signed the Joint Radar Enterprise Memorandum, agreeing to a joint funding arrangement, 

acquisition strategy, and management structure. The details of this arrangement are being captured in the Joint Radar Enterprise Management Plan. The SR Initial Capabilities Document (ICD) was approved by the IC Mission Requirements Board 

(MRB) in December 2005 and the DoD Joint Requirements Oversight Council (JROC) in January 2006. The Capability 

Development Document is being prepared in parallel with the SR system concept of operations (CONOPS), and both are 

on track for MRB and JROC approval in 1st Quarter, FY 2009. In addition, the IC and OSD Cost Analysis Improvement 

Groups (CAIG) are developing a comprehensive joint Independent Cost Estimate (ICE), with an expected completion date 

of November 2007. The SR program implemented a demonstration framework approach to system development. This 

approach will further technology maturity risk reduction and CONOPS experimentation through a mix of space, air, and 

land-based demonstration activities that will maximize existing assets. The SR program continues to make significant advancement towards the System Requirements Review milestone scheduled for 1st Quarter, FY 2008. The SR program will 

provide day/night, all-weather global surface moving target indications (MTI), SAR, and high-resolution terrain information (HRTI) capabilities from a space-based platform. Initial launch capability is planned for 4th Quarter, FY 2016. 

System Development and Demonstration - The Air Force’s System Development & Demonstration (SDD) efforts are 

development projects which have not received approval for full-production. In FY 2006, the F-22 Raptor program closed 

out Engineering and Manufacturing Development (EMD) and is now in Full Rate Production. The Air Combat Command 

at Langley AFB, VA, achieved Initial Operational Capability (IOC) in December 2005. In closing out EMD in June 2006, 

the F-22 program completed the full-scale airframe structural fatigue testing and analysis, completed support and test of the 

flight test engines, and completed integration of the Operational Flight Program (OFP) software in the Avionics Integration 

Lab for future software development and support efforts. The successful conclusion of EMD laid the foundation for future 

F-22 Raptor enhancements under the current incremental modernization strategy.

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-22. While the F-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 is in the 6th year of a 12-year SDD effort. Significant program accomplishments in FY 2007 include:

y First flight of CTOL AA-1 on December 15, 2006 

y Completed Critical Design Review (CDR) for Carrier Variant (CV) in June 2007 

y Awarded contract for Low Rate Initial Production (LRIP) Lot 1 (2 CTOL aircraft) in July 2007 

y Fourteen test aircraft are currently in assembly (5 CTOLs, 5 STOVLs, and 4 CVs) 

The Transformational Satellite Communications (TSAT) system will provide the essential capabilities required to enable the 

DoD’s vision for 21st century military operations. TSAT, which consists of a five-satellite geosynchronous satellite constellation, network operations centers, and associated ground architecture, will establish global internet-like connectivity that 

is essential for U.S. and allied personnel to communicate as a joint networked force. It will also extend assured, protected 

communications connectivity to mobile forces in theater and vastly increase the overall capacity of our military satellite in-
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frastructure. FY 2007 has proven to be a milestone year for TSAT. The program made excellent progress in demonstrating 

the maturity of its critical technology elements by successfully completing the third of three demonstrations at MIT Lincoln 

Laboratory (MIT/LL) testing each competing contractor’s proposed Laser Communications (or ‘lasercom’) and next-generation satellite processor/router (NGPR) equipment. The program also completed a successful four-week system design 

review (SDR) where the government assessed the viability of the architecture designs for each competing contractor on the 

satellite segment and on the TSAT Mission Operations System (TMOS) ground segment, whose contract was awarded in 

January 2006.

Based upon the extent and success of risk reduction efforts accomplished thus far on this program, TSAT is prepared to 

meet a Key Decision Point-B (KDP-B) milestone in order to gain Milestone Decision Authority (MDA) acceptance to proceed into the Preliminary Design Phase of the program’s acquisition cycle. In preparation for the KDP-B decision, several 

in-depth reviews were performed this summer on TSAT, including an Independent Program Assessment, an Independent 

Cost Evaluation, and a Technical Readiness Assessment. The underlying result of these detailed reviews was that the program structure, budgeting, and technical development are well defined, properly managed and adequately mature enough 

to support the initiation of preliminary design activities. Additionally, in June 2007, the TSAT program released a Request 

for Proposals (RFP) on the space segment development contract. The Air Force is reviewing bids from multiple contractors. Based on an Authority to Proceed from the MDA in November 2007, the TSAT program anticipates a contract award 

announcement as early as the first quarter of FY 2008. 

TSAT is on track to successfully meet the KDP-B review in November 2007, award the space segment contract in early FY 

2008, begin satellite design work, and continue development of the TMOS segment. The ultimate goal is an FY 2016 first 

launch of TSAT.

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. The projects include 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. An 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. 

Many efforts are contained within the Air Force I&M program, but two examples are the Advanced Airborne Instrumentation Integration (AAII) at AAC Eglin AFB, which will provide a common suite of aircraft instrumentation among test 

centers. AAII will provide capabilities to quickly and non-intrusively collect airborne weapon data for developmental and 

operational test and training that will support future test customers and be standardized among Air Force Test Centers. The 

key features will be high data rates, smaller size, high reliability with the use of solid state recording units and data handling, and efficient use of the radio frequency spectrum. In addition, the Advanced GPS Range System (AGRS) will provide 

AFFTC Edwards AFB and AAC Eglin AFB customers with increased Time-Space-Position-Information (TSPI) by upgrading GPS-based Range TSPI systems. AGRS will increase TSPI accuracy (Position, Velocity, and Attitude), use modularized 

and miniaturized system components upgrade GPS TSPI software for real-time data filtering, processing, and display, and 

upgrade the data link capability.

Operational Systems Development - The Air Force’s operational system efforts include projects in support of development acquisition programs or upgrades in SDD. The F-22 Raptor program continued full rate production on the world’s 

only 5th generation production line, and it will maintain its role as the key enabler of joint air dominance through an incre-
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mental modernization program funded through Operational Systems Development activities. Over 100 aircraft have been 

delivered through the end of FY 2007. The development program will enhance the air vehicle, engine, and training systems 

to improve F-22A weapons, communications, and Intelligence Surveillance Reconnaissance (ISR) capabilities to further 

enhance Global Strike capabilities. Increment 2 is now resident in delivered aircraft and represents the first upgrade over 

IOC capabilities. FY 2007 activities included development of the Increment 3 suite. A Critical Design Review (CDR) for 

Increment 3.1, focused on dramatically improving the F-22A Raptor’s Air-To-Ground attack capabilities with 4th generation 

synthetic aperture radar and a new weapon, the Small Diameter Bomb, was completed. 

The Advanced Medium Range Air-to-Air Missile (AMRAAM) Phase 3 (AIM-120C-7) effort completed SDD in May 

2004 and Operational Test (OT) in September 2007. Production for this variant began in the 4th Quarter, FY 2004, and will 

complete in the 2nd Quarter, FY 2009. 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 (AIM-120D) builds on the AIM-120C-7 capability and is progressing. This new AIM-120D missile 

will add a GPS/INU and a 2-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. Captive flight testing has been initiated on the F/A-18C/D and F-15C/D. 

There are currently two proof-of-design (POD) units and five proof-of-manufacturing units supporting simulation/integration labs, production test equipment development, and ground and flight testing.

The Small Diameter Bomb I (SDB I) 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 I is an 

incremental development weapon program that entered low rate initial production in FY 2005. The first increment of SDB 

I will attack fixed and stationary targets using anti-jam/SAASM Inertial Navigation System/Global Positioning Satellite 

(GPS) aided by a very wide area differential GPS solution and standoff capability. The program successfully completed the 

IOT&E phase of Seamless Verification in July 2006. The program met Required Assets Available (RAA) in August 2006. 

SDB I weapon deliveries and F-15E aircraft modifications were completed in time to not only meet RAA requirements, 

but also a real-world operational deployment whereby 43 weapons have been successfully dropped. 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.

The SDB I Focused Lethality Munition (FLM), a variant of SDB I, is a Joint Capabilities Technology Development (JCTD) 

program that will demonstrate the military utility of a low collateral damage warhead integrated into the SDB I weapon. 

This JCTD will fully leverage the SDB I program to facilitate rapid acquisition. FLM will exploit the Multi-phase Blast 

Explosive fill and composite case warhead to create a more intense and lethal near-field blast with significantly less warhead fragmentation effects than current weapons. The FLM capability will increase combatant commanders’ strike options, 

particularly in an urban environment, while decreasing collateral damage risk. The FLM JCTD effort began in August 2006 

and will deliver a functional prototype weapon in July 2008 and upon a successful Military Utility Assessment, FLM will 

transition to operational use.
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Statement of Disaggregated Budgetary Resources - General Fund

As of September 30, 2007 and 2006 (amounts in thousands)

Other

Research, 

Develpment, 

Test & 

Evaluation

Operation and 

Maintenance

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 4,099 $ 3,658,594 $ 1,304,025

2. Recoveries of prior year unpaid obligations 122 523,661 2,425,681

3. Budget authority

 A. Appropriation 404,235 24,740,416 48,401,385

 B. Borrowing authority 0 0 0

 C. Contract authority 0 0 0

 D. Spending authority from offsetting collections

 1. Earned

 a. Earned 14,055 3,220,296 6,145,858

 b. Change in receivables from Federal sources 0 -10,279 -474,146

 2. Change in unfilled customer orders

 a. Advance received 0 215,189 28,987

 b. Without advance from Federal sources 0 52,586 174,301

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

 4. Previously unavailable 0 0 0

 5. Expenditure transfers from trust funds 0 0 0

 E. Subtotal $ 418,290 $ 28,218,208 $ 54,276,385

4. Nonexpenditure transfers, net, anticipated and actual -401,461 -11,567 767,949

5. Temporarily not available pursuant to Public Law 0 0 0

6. Permanently not available 0 -291,588 -587,618

7. Total Budgetary Resources $ 21,050 $ 32,097,308 $ 58,186,422

STATUS OF BUDGETARY RESOURCES:

8. Obligations incurred

 A. Direct $ 2,663 $ 24,768,002 $ 50,505,393

 B. Reimbursable 13,867 3,453,566 6,115,425

 C. Subtotal 16,530 28,221,568 56,620,818

9. Unobligated balance

 A. Apportioned 1,249 3,475,466 169,482

 B. Exempt from apportionment 3,271 0 0

 C. Subtotal 4,520 3,475,466 169,482

10. Unobligated balance not available 0 400,273 1,396,122

11. Total status of budgetary resources $ 21,050 $ 32,097,307 $ 58,186,422

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 1,643 8,037,755 19,025,559

 B. Less: Uncollected customer payments from Federal sources, brought

 forward, October 1 $ 0 $ -765,712 $ -1,659,021

 C. Total unpaid obligated balance 1,643 7,272,043 17,366,538

13. Obligations incurred net (+/-) $ 16,531 $ 28,221,568 $ 56,620,817

14. Less: Gross outlays -13,580 -26,345,869 -52,328,432

15. Obligated

 A. Actual transfers, unpaid obligations (+/-) 0 0 0

 B. Actual transfers, uncollected customer payments from Federal sources (+/-) 0 0 0

 C. Total Unpaid obligated balance transferred, net 0 0 0

16. Less: Recoveries of prior year unpaid oblligations, actual $ -122 $ -523,661 $ -2,425,681

17. Change in uncollected customer payments from Federal sources (+/-) 0 -42,306 299,844

18. Obligated balance, net, end of period

 A. Unpaid obligations 4,471 9,380,793 20,892,264

 B. Less: Uncollected customer payments 0 -808,018 -1,359,177

 C. Total, unpaid obligated balance, net, end of period 4,471 8,572,775 19,533,087

NET OUTLAYS:

19. Net Outlays

 A. Gross outlays $ 13,580 $ 26,354,869 $ 52,328,432

 B. Less: Offsetting collections -14,055 -3,435,485 -6,174,845

 C. Less: Distributed Offsetting receipts -140,980 0 0

20. Net Outlays $ -141,455 $ 22,919,384 $ 46,153,587
87

General Fund

Required Supplementary Information

Procurement Military

Personnel

Military

Contruction / 

Family Housing

2007

Combined

2006

Combined

$ 9,813,139 $ 421,054 $ 1,912,016 $ 17,112,927 $ 13,006,208

686,060 200,958 85,459 3,921,941 1,450,906

40,050,972 31,612,389 2,465,300 147,674,697 139,767,610

0 0 0 0 0

0 0 0 0 0

460,706 383,486 13,275 10,237,677 9,255,190

-20,895 -12,429 0 -517,749 -99,279

130,940 0 1,502 376,618 -94,677

23,890 34 0 250,810 -102,493

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

$ 40,645,613 $ 31,983,480 $ 2,480,077 $ 158,022,053 $ 148,726,351

49,625 621,942 -165,217 861,271 2,576,690

0 0 0 0 0

-737,554 -129,435 -22,810 -1,769,006 -3,046,233

$ 50,456,883 $ 33,097,999 $ 4,289,525 $ 178,149,186 $ 162,713,922

$ 36,905,597 $ 32,481,017 $ 1,862,160 $ 146,524,833 $ 136,439,546

501,060 363,560 1,530 10,449,009 9,161,449

37,406,657 32,844,577 1,863,690 156,973,842 145,600,995

12,507,710 20,595 2,399,336 18,473,839 14,998,616

0 0 0 3,271 3,174

12,507,710 20,595 2,399,336 18,577,110 15,001,790

542,515 232,827 26,497 2,598,234 2,111,137

$ 50,456,882 $ 33,097,999 $ 4,289,523 $ 178,149,186 $ 162,713,922

$ 22,892,295 $ 829,223 $ 3,202,626 $ 53,989,101 $ 51,840,781

-231,950 22,959 0 -2,633,723 -2,835,497

22,660,345 852,182 3,202,626 51,355,378 49,005,284

$ 37,406,658 $ 32,844,578 $ 1,863,690 $ 156,973,842 $ 145,600,995

-34,250,410 -31,140,311 -2,020,040 -146,107,640 -142,001,769

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

$ -686,060 $ -200,958 $ -85,459 $ -3,921,941 $ -1,450,906

-2,995 12,395 0 266,938 201,773

25,362,483 2,332,531 2,960,818 60,933,360 53,989,101

-234,945 35,354 0 -2,366,785 -2,633,723

25,127,538 2,367,885 2,960,818 58,566,575 51,355,378

$ 34,250,410 $ 31,140,311 $ 2,020,040 $ 146,107,640 $ 142,001,769

-591,646 -383,486 -14,777 -10,614,293 -9,160,512

0 0 0 -140,980 -185,423

$ 33,658,764 $ 30,756,825 $ 2,005,263 $ 135,352,367 $ 132,655,834
88

General Fund

Required Supplementary Information

DISAGGREGATED STATEMENT OF BUDGETARY RESOURCES

The Air Force has performance measures based on missions and outputs. The Air Force, however, is unable to accumulate 

costs for major programs based on those performance measures, because its financial processes and systems were not designed to collect and report this type of cost information. Until the process and systems are upgraded, the Department will 

break out programs by the major appropriation groupings.

REAL PROPERTY DEFERRED MAINTENANCE

 For Fiscal Year Ended September 30, 2007 

(amounts in thousands)

Property Type Fiscal Year 2007

1. Plant Replacement 

Value

2. Required Work (deferred 

maintenance) 3. Percentage

1. Category 1: Buildings, Structures, and Utilities $ 236,608,198,469 $ 14,661,965,726 6%

2. Category 2: Buildings, Structures, and Utilities $ 14,960,189,031 Note 1 Note 1

3. Category 3: Buildings, Structures, and Utilities 

(Heritage Assets)

$ 13,136,217,284 $ 1,341,827,151 10%

Notes: 

1. The Air Force does not track deficiency requirements for facilities excess to its mission needs.

Use of Q-Rating versus Facilities Sustainment Model (FSM) to reflect 

Deferred Sustainment Maintenance

2. The use of Q-Rating as a basis of calculated deferred maintenance does not seem prudent. The services Q-Rating data 

is not a mature dataset as compared to the FSM dataset. We believe that the services will need at least 2 to 3 years to 

develop a better Q-Rating dataset. With the addition of facility sustainment requirements for this year, we believe the 

Q-Rating dataset has become even more unstable.

3. At this stage of the Q-Rating development and implementation, facility Q-Ratings can’t be readily tied to actual obligations nor does facility Q-Ratings provide a consistent service-wide model based on commercial standards.

4. Based on previous submissions to HQ SAF/FMPS & DFAS-DE, the use of FSM as a benchmark has proven to be a very 

defendable model in the Air Force Corporate Structure (AFCS). FSM can be linked to actual obligations, is consistent across the services, and uses commercial standards in its development which provides the stability and credibility 

needed to defend our budgets in the AFCS.

5. The inclusion of the “A” factor to represent “acceptable operating condition” is not currently valid. At this time, there is 

no dataset which can be used to underpin target Q-Rating percentages nor to identify acceptable operating conditions for 

specific Air Force facilities.

6. At A=100%, the FY 2007 accumulated deferred sustainment based on Q-Ratings is $14.7 billion. Though a backlog of 

$14.7 billion obviously appears significant, this considerably large requirement adds little value in the AFCS’s decisionmaking process. From our experience, the AFCS will quickly question such a large backlog if used to defend our budget 

shortfalls. Variable “A” factors would need to be developed to make the proposed deferred maintenance concept feasible. For the purpose of this submittal, the Air Force set A at 100%.
89

General Fund

Required Supplementary Information

7. Strategically, the use of annual deferred sustainment maintenance based on FSM has already proven to be successful in 

defending our budgets through the AFCS. In FY 2006, the annual deferred sustainment maintenance based on FSM was 

at a reasonable level of $467 million.

MILITARY EQUIPMENT DEFERRED MAINTENANCE

For Fiscal Year Ended September 30, 2007 

 (amounts in thousands)

Major Type

1. Aircraft

2. Software

3. Engines

4. Non-MSD Exchangeables

5. Other Major End Items

6. Missiles

7. Area Base Maintenance

8. Storage

$ 250,953

130,936

85,195

33,991

33,471

8,065

9,274

879

Total $ 562,764

The figures presented are projected deferred maintenance amounts for FY 2007, since the actual data for the FY 2007 

GWOT Supplemental was not available.

The figures include Active Air Force, Air National Guard and the Air Force Reserve.

STEWARDSHIP PLANT, PROPERTY, AND EQUIPMENT (PP&E)

Heritage Assets are items of historical, natural, cultural, educational, or artistic significance (e.g., aesthetic) or items with 

significant architectural characteristics.

HERITAGE ASSETS

For Fiscal Year Ended September 30, 2007

(a) (b) (c) (d) (e) (f)

Heritage Asset Categories Measurement 

Quantity FY 2006 Additions Deletions FY 2007

Buildings and Structures Each 4,548 0 457 4,091

Archeological Sites Sites 1,514 0 89 1,425

Monuments & Memorials Each 244 0 0 244

Cemeteries Sites 39 0 0 39

Museums Each 14 0 1 13

Major Collections Each 4 0 1 3
90

General Fund

Required Supplementary Information

1. Museums

The term “museum” means a public or private nonprofit agency or institution organized on a permanent basis for essentially educational or aesthetic purposes, that utilizes a professional staff, owns or utilizes tangible objects, cares for the 

tangible objects, and exhibits the tangible objects to the public on a regular basis (20 U.S.C. 9172). In accordance with Air 

Force Mission Directive 29, the National Museum of the U.S. Air Force (NMUSAF) portrays the history and traditions of 

the USAF through specialized interpretive exhibits and display of USAF historical property, and by operating the USAF’s 

national museum. The Museum fulfills the Secretary of the Air Force’s statutory responsibility (10 U.S.C. 8013: 16 U.S.C. 

432, 461, 10 U.S.C. 2572) for the identification, preservation, and utilization of the USAF’s historical property collection 

which is an integral component of the national collection. 

The National Museum of the United States Air Force, located at Wright-Patterson Air Force Base, Ohio, is the services’ 

single, authorized national museum. This museum has a professionally-qualified staff and is responsible to the Secretary of 

the Air Force for the management and stewardship of the national historical collection as part of the United States Air Force 

Heritage Program (USAFHP). The NMUSAF retains the majority of the national historic collection of artifacts, as well as 

two dimensional objects (images, graphic arts, printed references, and paper ephemera), so they may be afforded the highest 

level of professional care as well as exhibition to nearly 1.2 million visitors a year. The NMUSAF has achieved full professional accreditation by the American Association of Museums.

The other 12 reported museums are defined as Air Force Field Museums and are operated by their respective major commands (MAJCOM’s). While they are responsible for Air Force Historical Property on loan from the NMUSAF, they have 

been limited in both their scope and capabilities. The MAJCOM’s also operate at various base locations small heritage 

centers and historical exhibits, which are further limited in capabilities and are neither manned nor resourced at professional 

museum levels. All Air Force field museums have been reported to be in acceptable condition. 

The single Air National Guard museum listed in 2006 was an erroneous report and has been deleted per National Guard 

Bureau (NGB-PAI-H). 

2. Monuments and Memorials

Monuments and Memorials are site and structures built to honor and preserve the memory of significant individuals and/

or events in history. The 244 memorials and monuments, 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 Air Force 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 

Cemeteries are maintained on land where the gravesites of prominent historical figures are located. The Air Force has administrative and curatorial responsibilities for 39 cemeteries on its Active Duty bases. The cemeteries are maintained by the 

bases and are in good condition. 

4. Archeological Sites

Archeological Sites are sites that have been identified, evaluated, and determined to be eligible for or are listed on the National Register of Historic Places (NRHP).
91

General Fund

Required Supplementary Information

As of September 20, 2007, the Air Force has 1,425 archaeological sites listed on or eligible for listing on the NRHP (as 

reported in the FY 2006 Annual Report to Congress on Federal Archaeological Activity). The Air Force has 10,299 recorded, but unevaluated (potentially eligible) archaeological sites, and 5,238 sites considered not eligible for the Register. 

A total of 16,962 archaeological sites have been reported from Air Force lands. Eligible and listed sites (heritage assets) 

are protected from vandalism and looting, and are maintained in good condition on Air Force installations. Heritage asset 

archaeological sites are subject to a National Historic Preservation Act, Section 106, review and consultation when affected 

by Air Force undertakings. 

5. Buildings and Structures

Buildings and Structures includes buildings and structures that are listed on, or eligible for listing on, the NRHP, including 

Multi-use Heritage Assets. It also includes National Historic Landmarks; buildings or structures that are contributing elements to districts listed on or eligible for the NRHP or a National Historic Landmark District; and buildings and structures 

designated eligible in the NHRP for purposes of program alternatives.

As of September 20, 2007, the Air Force considers 4,091 buildings and structures as heritage assets (non Capehart-Wherry 

Era). Of these, 614 are in National Historic Landmarks, 164 are listed on the NRHP, and 3,340 are eligible for listing on the 

NRHP. Heritage assets, buildings and structures, are maintained by each base civil engineering group and are considered to 

be in good condition. These buildings and structures are subject to the review and consultation requirements of the NHPA, 

Section 106, whenever Air Force undertakings might affect their historic characteristics. 

As of September 20, 2007, the Air Force considers 15,787 buildings and structures as NRHP listed and eligible buildings 

and structures. The majority of these are Capehart-Wherry Era (CWE) houses (11,696), which are subject to a recently 

completed nationwide program comment from the Advisory Council on Historic Preservation which allows the Air Force to 

demolish or remove all but three CWE houses from the Air Force inventory. We do not consider CWE housing as heritage 

assets.

6. Major Collections

The Air Force has three significant or major collections. The Air Force Art Program Office, on behalf of the Office of the 

Secretary of the Air Force, manages an extensive Art Collection available to a worldwide audience. The Air Force Academy (AFA) has two separate special collections which contain objects, memorabilia, and documents, as well as distinctive 

works of original art held in support of academic programs. One less collection from FY 2006 is being reported by the 

AFA. This collection of artifacts is now included with the national historic collection of the United States Air Force Heritage Program administered by the National Museum of the United States Air Force (NMUSAF). All major collections are 

reported to be in overall good condition with steady improvements being made in both accountability and storage/display 

environments. 

STEWARDSHIP LAND

 Stewardship Land is land and land rights owned by the Federal Government but not acquired for, or in connection with, 

items of General PP&E. “Acquired for or in connection with” is defined as including land acquired with the intent to construct General PP&E and land acquired in combination with General PP&E.
92

General Fund

Required Supplementary Information

STEWARDSHIP LAND

For Fiscal Year Ended September 30, 2007

(in thousands of acres)

(a)

Land Use

(b)

FY 2006

(c)

Additions

(d)

Deletions

(e)

FY 2007

1. Mission 7,705 0 4 7,701

2. Parks & Historic Sites 0 0 0 0

Totals 7,705 0 4 7,701

The Air Force has approximately 7,704,000 acres of mission-essential Stewardship Land under their administration. The 

beginning balance was (FY 2006 Ending Balance) adjusted by 18,000 acres. During this period of time, various transactions 

have occurred that decreased the number of acres by approximately 649 acres. Lands purchased by the Air Force with the 

intent to construct buildings or facilities are considered general plant, property, and equipment (PP&E) and are reported on 

the balance sheet. All stewardship lands, as reported, are in acceptable condition, based on designated use. 
93

General Fund

Required Supplementary Information

Required Supplementary Information - Part A

AT57 - Air Force General Fund

Schedule, Part A DoD Intragovernmental

Asset Balances.

(amounts in thousands)

Treasury 

Index 

Fund Balance 

with 

Treasury 

Accounts 

Receivable

Loans 

Receivable Investments Other

Executive Office of the President 11 $ 2,840 

Department of Agriculture 12 864 

Department of Commerce 13 63 $ 15,727

Department of the Interior 14 3 96,119

Department of Justice 15 1,543 4,349

Department of Labor 16

Navy General Fund 17 42,101 

United States Postal Service 18 138 

Department of State 19 17,006 

Department of the Treasury 20 $ 80,126,396 846 $ 823

Army General Fund 21 14,697 183

Office of Personnel Management 24 15 59,980

Federal Communications Commission 27

Social Security Administration 28

Library of Congress 3 8 

Nuclear Regulatory Commission 31

Department of Veterans Affairs 36 269 8

Government Printing Office 4 2

General Service Administration 47 283 2,660

National Science Foundation 49 3,026 16,709

General Accounting Office 5 4

Central Intelligence Agency 56 344

Tennessee Valley Authority 64

Environmental Protection Agency 68 38 8,045

Department of Transportation 69 1,621

Homeland Security 70 19,879 15,562

Agency for International Development 72 182

Small Business Administration 73 155 156

Department of Health and Human Services 75 5 394

National Aeronautics and Space Administration 80 6,110 55,206

Department of Energy 89 7,376 7,801

Department of Education 91

US Army Corps of Engineers 96 63

Other Defense Organizations General Funds 97 59,131 7,506

Other Defense Organizations Working Capital 

Funds

97-4930 168,208 11,597

Army Working Capital Fund 97-4930.001 31

Navy Working Capital Fund 97-4930.002 944 7 

Air Force Working Capital Fund 97-4930.003 42,647 120,321 

Totals $ 80,126,396 $ 388,821 $ 823 $ 423,951 
94

General Fund

Required Supplementary information

Required Supplementary Information - Part B

AT57 - Air Force General Fund

Schedule, Part B DoD Intragovernmental 

entity liabilities.

(amounts in thousands)

Treasury 

Index Accounts Payable

Debts/Borrowings 

From Other 

Agencies Other

Department of Agriculture 12 $ 1,539 

Department of Commerce 13

Department of the Interior 14 4,005

Department of Justice 15 6,807 $ 3,045 

Department of Labor 16 325,949 

Navy General Fund 17 5,280 234,131 

United States Postal Service 18 12,838 

Department of State 19 11,941 

Department of the Treasury 20 446 230

Army General Fund 21 36,350 111,494 

Office of Personnel Management 24 2,220 53,138 

Federal Communications Commission 27 36

Social Security Administration 28 2

Nuclear Regulatory Commission 31 52

Department of Veterans Affairs 36 6,188

General Service Administration 47 148,419

National Science Foundation 49 3,478

Tennessee Valley Authority 64 1,942

Environmental Protection Agency 68 151

Department of Transportation 69 43,951

Homeland Security 70 32,692

Agency for International Development 72 1,642

Small Business Administration 73 155

Department of Health and Human Services 75 573

National Aeronautics and Space Administration 80 7,356 25 

Department of Energy 89 39,798 1,202 

Department of Education 91 0

US Army Corps of Engineers 96 918

Other Defense Organizations General Funds 97 43,599 531,281

Other Defense Organizations Working Capital Funds 97-4930 813,102 1,001 

Army Working Capital Fund 97-4930.001 5,610

Navy Working Capital Fund 97-4930.002 26,312

Air Force Working Capital Fund 97-4930.003 252,228 418

The General Fund of the Treasury 99 771,412 

Totals $ 1,509,630 $ 2,033,326

General Fund

Required Supplementary Information
95

General Fund

Required Supplementary Information

Required Supplementary Information - Part C

AT97 - Air Force General Fund

Schedule, Part C DoD Intragovernmental revenue 

and related costs.

(amounts in thousands)

Treasury 

Index Earned Revenue

Executive Office of the President 11 $ 10,772 

Department of Agriculture 12 4,657 

Department of Commerce 13 753 

Department of the Interior 14 3,299 

Department of Justice 15 22,046 

Navy General Fund 17 237,660 

United States Postal Service 18 480 

Department of State 19 28,955 

Department of the Treasury 20 9,906 

Army General Fund 21 300,266 

Office of Personnel Management 24

Library of Congress 3 48 

Nuclear Regulatory Commission 31 23 

Department of Veterans Affairs 36 1,011 

Government Printing Office 4 4 

General Service Administration 47 1,012 

National Science Foundation 49 62,393

General Accounting Office 5 32

Central Intelligence Agency 56 1,958

Environmental Protection Agency 68 434

Homeland Security 70 125,619

Agency for International Development 72 1,088

Department of Health and Human Services 75 67

National Aeronautics and Space Administration 80 63,672

Department of Energy 89 38,437

US Army Corps of Engineers 96 1,342

Other Defense Organizations General Funds 97 1,693,280

Other Defense Organizations Working Capital Funds 97-4930 1,414,729

Army Working Capital Fund 97-4930.001 1,820

Navy Working Capital Fund 97-4930.002 17,121

Air Force Working Capital Fund 97-4930.003 327,203

DoD Medicare-Eligible Retiree Health Care Fund 181,809

Totals $ 4,551,896
96

General Fund

Required Supplementary Information

Required Supplementary Information - Part E

AT57 - Air Force General Fund

Schedule, Part E DoD Intragovernmental 

non-exchange revenues. 

(amounts in thousands)

Treasury 

Index Accounts Payable Other

Navy General Fund 17 $ 12,648 

Army General Fund 21 29,764 

Other Defense Organizations General Funds 97 $ 237,609

Other Defense Organizations Working Capital Funds 97-4930 68,384

Air Force Working Capital Fund 97-4930.003 282,000 2,192

Totals $ 587,993 $ 44,604
TITLE

Sub Title

97

Fiscal Year 2007

Audit Opinion

General Fund

General Fund—Audit Opinion
98

General Fund

Audit Opinion
99

General Fund

Audit Opinion
100

General Fund

Audit Opinion
101

General Fund

Audit Opinion
102

General Fund

Audit Opinion
103

General Fund

Audit Opinion
General Fund

Audit Opinion

104
The FY 2007 Department of the Air Force Working Capital Fund Principal Statements and 

related notes are presented in the format prescribed by the Department of Defense Financial 

Management Regulation 7000.14-R, Volume 6B. The statements and related notes summarize 

financial information for individual activity groups and activities within the Working Capital 

Fund for the fiscal year ending September 30, 2007, and are presented on a comparative basis 

with information previously reported for the fiscal year ending September 30, 2006.

The following statements comprise the Department of the Air Force Working Capital Fund 

Principal Statements:

• Consolidated Balance Sheet

The Consolidated Balance Sheet presents as of September 30, 2007 and 2006 those resources 

owned or managed by the Air Force which are available to provide future economic benefits 

(assets); amounts owed by the Air Force that will require payments from those resources or 

future resources (liabilities); and residual amounts retained by the Air Force, comprising the 

difference (net position).

• Consolidated Statement of Net Cost

The Consolidated Statement of Net Cost presents the net cost of the Air Force’s operations 

for the years ended September 30, 2007 and 2006. The Air Force’s net cost of operations 

includes the gross costs incurred by the Air Force less any exchange revenue earned from Air 

Force activities.

• Consolidated Statement of Changes in Net Position

The Consolidated Statement of Changes in Net Position presents the change in the Air Force’s 

net position resulting from the net cost of Air Force’s operations, budgetary financing sources 

other than exchange revenues, and other financing sources for the years ended September 30, 

2007 and 2006.

• Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources presents the budgetary resources available to the Air Force during FY 2007 and 2006, the status of these resources at September 

30, 2007 and 2006, and the outlay of budgetary resources for the years ended September 30, 

2007 and 2006.

The Principal Statements and related notes have been prepared to report financial position 

pursuant to the requirements of the Chief Financial Officers Act of 1990, the Government 

Management Reform Act of 1994, and the Office of Management and Budget’s Circular 

A-136, “Financial Reporting Requirements.”

Working Capital Fund—Principal Statements

Working Capital Fund

Fiscal Year 2007

Principal Statements

105
106

Working Capital Fund

Principal Statements

Consolidated Balance Sheet - Working Capital Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Consolidated

2006 

Consolidated

1. ASSETS (Note 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3)

 a. Entity $ 1,287,299 $ 1,357,976

 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) 330,378 420,073

 4. Other Assets (Note 6) 1,248 5,218

 5. Total Intragovernmental Assets $ 1,619,025 $ 1,783,267

 B. Cash and Other Monetary Assets (Note 7) $ 0 $ 0

 C. Accounts Receivable, Net (Note 5) 117,808 232,314

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property, Net (Note 9) 34,517,432 34,530,876

 F. General Property, Plant and Equipment, Net (Note 10) 1,091,070 1,169,165

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 319,462 541,143

2. TOTAL ASSETS $ 37,664,797 $ 38,256,765

3. LIABILITIES (Note 11)

 A. Intragovernmental

 1. Accounts Payable (Note 12) $ 117,965 $ 171,623

 2. Debt (Note 13) 0 0

 3. Other Liabilities (Note 15 & 16) 135,036 174,216

 4. Total Intragovernmental Liabilities $ 253,001 $ 345,839

 B. Accounts Payable (Note 12) $ 946,756 $ 494,347

 C. Military Retirement and Other Federal Employment Benefits (Note 17) 228,900 227,035

 D. Environmental and Disposal Liabilities (Note 14) 0 0

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 & Note 16) 714,711 1,197,430

4. TOTAL LIABILITIES $ 2,143,368 $ 2,264,651

5. NET POSITION

 A. Unexpended Appropriations - Earmarked Funds (Note 23) $ 0 $ 0

 B. Unexpended Appropriations - Other Funds 4,558 0

 C. Cumulative Results of Operations - Earmarked Funds 0 0

 D. Cumulative Results of Operations - Other Funds 35,516,871 35,992,114

6. TOTAL NET POSITION $ 35,521,429 $ 35,992,114

7. TOTAL LIABILITIES AND NET POSITION $ 37,664,797 $ 38,256,765
107

Working Capital Fund

Principal Statements

Consolidated Statement of Net Cost - Working Capital Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Consolidated

2006 

Consolidated

1. Program Costs (Note 18)

 A. Gross Costs $ 10,735,131 $ 8,671,960

 B. (Less: Earned Revenue) -10,431,762 -10,783,023

 C. Net Program Costs $ 303,369 $ -2,111,063

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ 303,369 $ -2,111,063
108

Working Capital Fund

Principal Statements

Consolidated Statement of Changes in Net Position - Working Capital Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Earmarked Funds

2007 

All Other Funds

2007 

Eliminations

CUMULATIVE RESULTS OF OPERATIONS (Note 19)

1. Beginning Balances $ 0 $ 35,992,114 $ 0

2. Prior Period Adjustments 0

 A. Changes in accounting principles (+/-) 0 0 0

 B. Corrections of erros (+/-) 0 0 0

3. Beginning balances, as adjusted $ 0 $ 35,992,114 $ 0

4. Budgetary Financing Sources 0

 A. Other adjustments (rescissions, etc.) 0 0 0

 B. Appropriations used 0 39,324 0

 C. Nonexchange revenue 0 0 0

 D. Donations and forfeitures of cash and cash equivalents 0 0 0

 E. Transfers-in/out without reimbursement 0 -382,000 0

 F. Other budgetary financing sources 0 0 0

5. Other Financing Sources 0

 A. Donations and forfeitures of property 0 0 0

 B. Transfers-in/out without reimbursement (+/-) 0 2,192 0

 C. Imputed financing from costs absorbed by others 0 168,610 0

 D. Other (+/-) 0 0 0

6. Total financing Sources $ 0 $ -171,874 $ 0

7. Net Cost of Operations (+/-) 0 303,369 0

8. Net Change 0 -475,243 0

9. Cumulative Results of Operations 0 35,516,871 0

UNEXPENDED APPROPRIATIONS

10. Beginning Balances $ 0 $ 0 $ 0

11. Prior Period Adjustments 0

 A. Changes in accounting principles 0 0 0

 B. Corrections of errors 0 0 0

12. Beginning balaces, as adjusted $ 0 $ 0 $ 0

13. Budgetary Financing Sources 0

 A. Appropriations received 0 44,054 0

 B. Appropriations transferred-in/out 0 0 0

 C. Other adjustments (recissions, etc) 0 -172 0

 D. Appropriations used 0 -39,324 0

14. Total Budgetary Financing sources 0 4,558 0

15. Unexpended Appropriations 0 4,558 0

16. Net Position $ 0 $ 35,521,429 $ 0
109

Working Capital Fund

Principal Statements

2007 

Consolidated

2006 

Earmarked Funds

2006 

All Other Funds

2006 

Eliminations

2006 

Consolidated

$ 35,992,114 $ 0 $ 33,774,838 $ 0 $ 33,774,838

0 0 0 0 0

0 0 0 0 0

$ 35,992,114 $ 0 $ 33,774,838 $ 0 $ 33,774,838

0 0 0 0 0

39,324 0 48,389 0 48,389

0 0 0 0 0

0 0 0 0 0

-382,000 0 -106,784 0 -106,784

0 0 0 0

0 0 0 0 0

2,192 0 0 0 0

168,610 0 164,609 0 164,609

0 0 0 0 0

$ -171,874 $ 0 $ 106,214 $ 0 $ 106,214

303,369 0 -2,111,062 0 -2,111,062

-475,243 0 2,217,276 0 2,217,276

35,516,871 0 35,992,114 0 35,992,114

$ 0 $ 0 $ 0 $ 0 $ 0

0 0 0 0 0

0 0 0 0 0

$ 0 $ 0 $ 0 $ 0 $ 0

44,054 0 48,577 0 48,577

0 0 0 0 0

-172 0 -188 0 -188

-39,324 0 -48,389 0 -48,389

4,558 0 0 0 0

4,558 0 0 0 0

$ 35,521,429 $ 0 $ 35,992,114 $ 0 $ 35,992,114
110

Working Capital Fund

Principal Statements

Combined Statement of Budgetary Resources - Working Capital Fund

As of September 30, 2007 and 2006 ($ in thousands)

2007 

Combined

2006 

Combined

BUDGETARY FINANCING ACCOUNTS (Note 20)

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 925,137 $ 292,678

2. Recoveries of prior year unpaid obligations 23,358 79,238

3. Budget authority

 A. Appropriation 44,054 48,577 

 B. Borrowing authority 0 0

 C. Contract authority 9,804,575 9,857,832 

 D. Spending authority from offsetting collections

 1. Earned

 a. Collected 14,106,630 15,953,188 

 b. Change in receivables from Federal sources -373,583 -43,158

 2. Change in unfilled customer orders

 a. Advance received -40,165 10,419 

 b. Without advance from Federal sources 230,560 -936,323

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

 4. Previously unavailable 0 0

 5. Expenditure transfers from trust funds 0 0

 E. Subtotal 23,772,071 24,890,535 

4. Nonexpenditure transfers, net, anticipated and actual -382,000 -106,784

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -9,162,481 -8,457,316

7. Total Budgetary Resources $ 15,176,085 $ 16,698,351 

STATUS OF BUDGETARY RSOURCES:

8. Obligations incurred:

 A. Direct $ 0 $ 0

 B. Reimbursable 14,102,303 15,773,214 

 C. Subtotal 14,102,303 15,773,214 

9. Unobligated balance:

 A. Apportioned 1,073,782 925,137 

 B. Exempt from apportionment 0 0

 C. Subtotal 1,073,782 925,137

10. Unobligated balance not available 0 0

11. Total status of budgetary resources $ 15,176,085 $ 16,698,351 

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 8,603,483 8,621,328 

 B. Less: Uncollected customer payments from Federal sources, brought forward, October 1 $ -3,987,910 $ -4,967,392

 C. Total unpaid obligated balance 4,615,933 3,653,936

13. Obligations incurred net (+/-) $ 14,102,303 $ 15,773,214

14. Less: Gross outlays -13,798,923 -15,711,459

15. Obligated balance transferred, net

 A. Actual transfers, unpaid obligations (+/-) 0 0

 B. Actual transfers, uncollected customer payments from Federal sources (+/-) 0 0

 C. Total Unpaid obligated balance transferred, net 0 0

16. Less: Recoveries of prior year unpaid obligations, actual -23,358 -79,238

17. Change in uncollected customer payments from Federal sources (+/-) 143,023 979,482

18. Obligated balance, net, end of period

 A. Unpaid obligations 8,883,865 8,603,843

 B. Less: Uncollected customer payments (+/-) from Federal sources (-) -3,844,887 -3,987,910

 C. Total, unpaid obligated balance, net, end of period 5,038,978 4,615,933

NET OUTLAYS

19. Net Outlays:

 A. Gross outlays 13,798,923 15,711,459

 B. Less: Offsetting collections -14,066,465 -15,963,606

 C. Less: Distributed Offsetting receipts 0 0

20. Total Net Outlays $ -267,542 $ -252,147

Working Capital Fund

Principal Statements
Notes to the financial statements communicate information essential for fair presentation of 

the financial statements that is not displayed on the face of the financial statements.

Fiscal Year 2007

Notes to the Principal Statements

Working Capital Fund

Working Capital Fund—Notes to the Principal Statements

111
112

Working Capital Fund

Notes to the Principal Statements

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 Act of 1990,” expanded by the 

“Government Management Reform Act of 1994,” and other appropriate legislation. The financial statements have been prepared from the books and records of AFWCF in accordance with the “Department of Defense (DoD) Financial Management 

Regulation (FMR),” the Office of Management and Budget (OMB) Circular A-136, “Financial Reporting Requirements,” 

and to the extent possible generally accepted accounting principles (GAAP). Effective 4th Quarter, Fiscal Year (FY) 2006, 

DoD no longer publishes consolidating/combining financial statements. The accompanying financial statements account for 

all resources for which AFWCF is responsible unless otherwise noted. 

The AFWCF is unable to fully implement all elements of GAAP and OMB Circular A-136 due to limitations of its financial 

and nonfinancial management processes and systems that feed into the financial statements. The AFWCF derives its reported values and information for major asset and liability categories largely from nonfinancial systems, such as inventory and 

logistic systems. These systems were designed to support reporting requirements for maintaining accountability over assets 

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

AFWCF continues to implement process and system improvements addressing these limitations.

The AFWCF currently has eight auditor identified financial statement material weaknesses: (1) financial and nonfinancial feeder systems do not contain an adequate audit trail for the proprietary and budgetary accounts, (2) AFWCF may 

have material amounts of account adjustments that are not adequately supported, (3) AFWCF cannot accurately identify 

all intragovernmental transactions by customer, which is required for eliminations when preparing consolidated financial 

statements, (4) the value of the AFWCF government furnished and contractor acquired material and equipment may not be 

accurately reported, (5) AFWCF General Property, Plant, and Equipment (PP&E) may not be accurately valued, (6) operating materials and supplies (OM&S) are not reflected at historical cost, (7) cost of goods sold and work in progress are not 

recorded in accordance with the Statement of Federal Financial Accounting Standards (SFFAS) No. 3, “Accounting for 

Inventory and Related Property,” and (8) supply management systems do not provide sufficient audit trails to confirm and 

value the in-transit inventory reported as part of inventory held for sale on the Consolidated Balance Sheet. 

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 DoD. The overall mission of the Air Force is to deliver sovereign options for the defense of the United States of America and its global 

interest—to fly and fight in air, space, and cyberspace. Our priorities are: (1) win the Global War on Terror, (2) develop and 

care for our airmen, and (3) modernize and recapitalize our aircraft and equipment.

The stock and industrial revolving fund accounts were created by the “National Security Act of 1947,” as amended in 1949 

and codified in United States Code 10 Section 2208. The revolving funds were established as a means to more effectively 

control the cost of work performed by DoD. The DoD began operating under the revolving fund concept July 1, 1951.

Since FY 2006, AFWCF operations consist of two major activity groups: Supply Management Activity Group (SMAG) 

and Depot Maintenance Activity Group (DMAG). Prior to FY 2006, there was a third activity group called Information 

Services Activity Group (ISAG). The ISAG was discontinued from AFWCF at the end of FY 2005. As of September 30, 
113

Working Capital Fund

Notes to the Principal Statements

2007, the remaining ISAG unfilled customer orders and Balance Sheet accounts were liquidated resulting in official closure 

of accounting records and financial statements.

The SMAG manages and finances the majority of Air Force supply requirements. 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 replenishing inventories with funds received from sales to customers. All AFWCF supply activities establish prices based 

on full cost recovery. If an operating loss or gain is incurred, the activity will make the appropriate adjustment in following year’s prices 

to recoup the loss or return the gain to their customers.

There are four active business activities in SMAG: (1) Material Support Division (MSD), (2) General Support Division (GSD), (3) 

Medical-Dental Division, and (4) Air Force Academy Division. The Fuels Division was discontinued in FY 2001, and their accounting 

records were closed September 30, 2007.

A brief description is provided below for the four active SMAG business activities.

y MSD manages over 130 thousand depot level repair and unique consumable items to support Air Force 

weapon systems.

y GSD manages over 1.5 million consumable supply items, which support field and depot maintenance of 

aircraft, ground and airborne communication, and electronic systems.

y Medical-Dental manages over 7 thousand different items, which are used to support medical and dental supply and equipment requirements.

y Air Force Academy manages the procurement of uniforms and uniform accessories for sale to cadets.

The DMAG repairs weapon systems and spare parts that ensure readiness in peacetime and provide sustainment to combat 

forces in wartime. In peacetime, the Air Force enhances readiness by efficiently and economically repairing, overhauling, 

and modifying aircraft, engines, missiles, depot level reparables, and software to meet customer demands. Depots have 

unique skills and equipment required to support and overhaul both new, complex components as well as aging weapon 

systems. An extremely important facet of the depots is that during wartime or contingencies, the Air Force can surge repair 

operations and realign capacity to support the war fighters’ immediate needs. This is achieved by employing the unique 

strengths of organic (in-house) and contracted (contract) repair resources. All AFWCF depot activities establish rates based 

on full cost recovery. If an operating loss or gain is incurred, the activity will make the appropriate adjustment in following 

year’s rates to recoup the loss or return the gain to their customers.

1.C. Appropriations and Funds 

The AFWCF receives its appropriations and funds as general and working capital (revolving). The AFWCF uses these appropriations and funds to execute its missions and subsequently report on resource usage.

The AFWCF receives a special appropriation for the procurement of Medical-Dental War Readiness Material (WRM). 

 Working Capital Funds (WCF) received funding to establish an initial corpus through an appropriation or a transfer of resources from existing appropriations or funds. The corpus finances operations and transactions that flow through the fund. 

The WCF resources the goods and services sold to customers on a reimbursable basis and maintains the corpus. Reimbursable receipts fund future operations and generally are available in their entirety for use without further congressional action. 

At various times, Congress provides additional appropriations to supplement WCF as an infusion of cash when revenues are 
114

Working Capital Fund

Notes to the Principal Statements

inadequate to cover costs within the corpus.

Operations of the activities within AFWCF are financed by two working capital fund types, operating authority and contract 

authority. Operating authority is used for the daily recurring business operating expenses incurred to produce the maintenance service being demanded. Contract authority is used to procure supply and Capital Investment Program (CIP) requirements. The CIP requirements are classified into four categories: (1) equipment, (2) software, (3) hardware, and (4) minor 

construction. Equipment, software, and hardware CIP requirements must be greater than $250 thousand and have a useful 

life of more than two years. The minor construction threshold is $100 thousand. These items are currently depreciated over 

the expected life of the asset with zero salvage value.

1.D. Basis of Accounting 

For FY 2007, AFWCF’s financial management systems are unable to meet all of the requirements for full accrual accounting. Many of AFWCF’s financial and nonfinancial feeder systems and processes were designed and implemented prior to 

the issuance of GAAP for federal agencies. These systems were not designed to collect and record financial information on 

the full accrual accounting basis as required by GAAP. Most of AFWCF’s financial and nonfinancial legacy systems were 

designed to record information on a budgetary basis. 

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

and processes into compliance with GAAP. One such action is the current revision of its accounting systems to record 

transactions based on the U.S. Standard General Ledger (USSGL). Until all of AFWCF’s financial and nonfinancial feeder 

systems and processes are updated to collect and report financial information as required by GAAP, AFWCF’s financial data 

will be derived from budgetary transactions (obligations, disbursements, and collections), transactions from nonfinancial 

feeder systems, and accruals made for major items such as payroll expenses, accounts payable, and environmental liabilities.

In addition, DoD identifies program costs based upon the major appropriation groups provided by the Congress. Current processes and systems do not capture and report accumulated costs for major programs based upon the performance 

measures as required by the “Government Performance and Results Act.” The DoD is working towards a cost reporting 

methodology that meets the need for cost information required by SFFAS No. 4, “Managerial Cost Accounting Concepts 

and Standards for the Federal Government.”

1.E. Revenues and Other Financing Sources 

The SMAG recognizes revenue from the sale of inventory items and receipt of direct reimbursement for the purchase of 

initial and readiness spares by customers. Revenue from the sale of inventory is recognized at the time of sale. Revenue 

from the receipt of direct reimbursements is recognized upon receipt from the General Fund. 

The DMAG (organic) recognizes revenue according to the percentage of completion method. The DMAG (contract) recognizes revenue based on the number of units produced multiplied by the unit sales price which is recognized upon completion of the repair. Due to the anticipated closure of DMAG (contract) activity in FY 2008, it is not cost-effective to implement system modifications to support the percentage of completion method.

1.F. Recognition of Expenses

For financial reporting purposes, DoD policy requires the recognition of operating expenses in the period incurred. However, because AFWCF’s financial and nonfinancial feeder systems were not designed to collect and record financial informa-
115

Working Capital Fund

Notes to the Principal Statements

tion on the full accrual accounting basis, accruals are made for major items such as payroll expenses, accounts payable, environmental liabilities, and unbilled revenue. In the case of OM&S, operating expenses are generally recognized when the 

items are purchased. Efforts are underway to transition towards the consumption method for recognizing OM&S expenses.

1.G. Accounting for Intragovernmental Activities 

Preparation of reliable financial statements requires the elimination of transactions occurring among entities within DoD 

or between two or more federal agencies. However, AFWCF cannot accurately eliminate intragovernmental transactions 

by customer because AFWCF’s systems do not track at the transaction level. Generally, seller entities within DoD provide 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 are adjusted to agree with DoD seller side balances. IntraDoD 

intragovernmental balances are then eliminated. The volume of intragovernmental transactions is so large that after the fact 

reconciliation cannot be accomplished effectively with existing or foreseeable resources. The DoD is developing long-term 

system improvements to ensure accurate intragovernmental information, to include sufficient upfront edits and controls 

eliminating the need for after the fact reconciliations.

The U.S. Treasury Financial Management Service is responsible for eliminating transactions between DoD and other federal agencies. The Treasury Financial Manual, Part 2 – Chapter 4700, “Agency Reporting Requirements for the Financial 

Report of the United States Government,” and the U.S. Treasury’s “Federal Intragovernmental Transactions Accounting 

Policy Guide” provide guidance for reporting and reconciling intragovernmental balances. While AFWCF is unable to 

fully reconcile intragovernmental transactions with all federal partners, AFWCF is able to reconcile balances pertaining to 

Federal Employees’ Compensation Act transactions with the Department of Labor and benefit program transactions with the 

Office of Personnel Management.

The DoD’s proportionate share of public debt and related expenses of the Federal Government is not included. The Federal 

Government does not apportion debt and its related costs to federal agencies. The DoD’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 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 U.S. Treasury 

does not allocate such interest costs to the benefiting agencies.

1.H. Transactions with Foreign Governments and International Organizations 

Each year, AFWCF sells defense articles and services to foreign governments and international organizations under the 

provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, DoD 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. Payment in U.S. dollars is required in advance. 

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

The AFWCF’s monetary financial resources are maintained in U.S. Treasury accounts. The disbursing offices of the Defense Finance and Accounting Service (DFAS), the Military Services, the U.S. Army Corps of Engineers (USACE), and 

the Department of State’s financial service centers process the majority of AFWCF’s cash collections, disbursements, and 

adjustments worldwide. Each disbursing station prepares monthly reports that provide information to the U.S. Treasury on 

check issues, electronic fund transfers, interagency transfers, and deposits.
116

Working Capital Fund

Notes to the Principal Statements

In addition, DFAS sites and the USACE Finance Center submit reports to the U.S. Treasury by appropriation on interagency 

transfers, collections received, and disbursements issued. The U.S. Treasury records this information to the applicable Fund 

Balance with Treasury (FBWT) account. Differences between AFWCF’s recorded balance in the FBWT accounts and U.S. 

Treasury’s FBWT accounts sometimes result and are subsequently reconciled.

The Air Force has hired an independent public accounting firm to audit the AFWCF Fund Balance with Treasury (FBWT) 

reconciliation process as directed in Department of Defense (DoD) Instruction 7600.02, “Audit Policies.

1.J. Foreign Currency 

Not Applicable

1.K. Accounts Receivable 

As presented in the Balance Sheet, accounts receivable includes three categories: 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 in 

accordance with dispute resolution procedures defined in the Intragovernmental Business Rules published in the Treasury 

Financial Manual at http://www.fms.treas.gov/tfm/voll/07-03.pdf.

1.L. Direct Loans and Loan Guarantees 

Not Applicable

1.M. Inventories and Related Property 

The AFWCF values 99% of its resale inventory using the moving average cost method. The AFWCF reports the remaining 1% of resale inventories at historical cost using latest acquisition cost adjusted for holding gains and losses. The latest 

acquisition cost method is used because legacy inventory systems were designed for materiel management rather than 

accounting. Although these systems provide visibility and accountability over inventory items, they do not maintain historical cost data necessary to comply with SFFAS No. 3, “Accounting for Inventory and Related Property.” Additionally, 

these systems cannot produce financial transactions using the USSGL, as required by the “Federal Financial Management 

Improvement Act of 1996” (P.L. 104-208). By utilizing new systems development processes, AFWCF is continuing to 

transition the remaining balance of the inventories to the moving average cost method. However, since the on-hand balances which were transitioned were not, for the most part, baselined to auditable historical cost, the reported values remain 

noncompliant with SFFAS No. 3 and GAAP.

The AFWCF manages only military or government specific materiel under normal conditions. Materiel is a unique term 

that relates to military force management, and includes all items (including ships, tanks, self-propelled weapons, aircraft, 

etc., and related spares, repair parts, and support equipment, but excluding real property, installation, and utilities) necessary to equip, operate, maintain, and support military activities without distinction as to its application for administrative or 

combat purposes. Items commonly used in and available from the commercial sector are not managed in AFWCF materiel management activities. Operational cycles are irregular and military risks associated with stock out positions have no 

commercial parallel. The AFWCF holds materiel based on military need and support for contingencies. The DoD does not 

attempt to account separately for “inventory held for sale” and “inventory held in reserve for future sale” based on SFFAS 

No. 3 definitions, unless otherwise noted.
117

Working Capital Fund

Notes to the Principal Statements

Related property includes OM&S which is valued at standard purchase price. The AFWCF uses both the consumption 

method and the purchase method of accounting for OM&S. Items that are centrally managed and stored are generally 

recorded using the consumption method and are reported on the Balance Sheet as OM&S. When current systems cannot 

fully support the consumption method, AFWCF uses the purchase method. Under this method, materials and supplies are 

expensed when purchased. During FY 2007, AFWCF expensed significant amounts using the purchase method because the 

systems could not support the consumption method or management deemed that the item was in the hands of the end user. 

This is a material weakness for DoD and long-term system corrections are in process. Once the proper systems are in place, 

these items will be accounted for under the consumption method of accounting.

The AFWCF determined that the recurring high dollar value of OM&S in need of repair is material to the financial statements and requires a separate reporting category. Many high dollar items, such as aircraft engines, are categorized as 

OM&S rather than military equipment.

The AFWCF recognizes condemned materiel as “Excess, Obsolete, and Unserviceable.” The cost of disposal is greater than 

the potential scrap value; therefore, the net value of condemned materiel is zero. Potentially redistributed materiel, 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. 

Past audits identified uncertainties about completeness and existence of reported values of inventory. Inventory available 

and purchased for resale includes consumable items and reparable parts owned and managed by AFWCF. This inventory 

is retained to support military or national contingencies. Inventory held for repair is damaged inventory that requires repair 

to make suitable for sale. Often, it is more economical to repair these inventory items rather than to procure these items. 

The AFWCF often relies on weapon systems and machinery that are no longer in production. As a result, AFWCF supports 

a process that encourages the repair and rebuilding of certain items. This repair cycle is essential in maintaining a ready, 

mobile, and armed military force. 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 that are yet to be placed in service and transferred to an asset account. The work 

in process designation may also be used to accumulate the amount paid to a contractor under cost reimbursable contracts, 

to include amounts withheld from payment to ensure performance and amounts paid to other government plants for accrued costs of end items of materiel ordered, but not delivered. Work in process includes munitions in production and depot 

maintenance work with its associated labor, applied overhead, and supplies used in the delivery of maintenance services. 

1.N. Investments 

Not Applicable

1.O. General Property, Plant and Equipment 

In FY 2006, DoD revised the real property capitalization threshold from $100 thousand to $20 thousand. The current $100 

thousand capitalization threshold remains unchanged for the remaining General PP&E categories. The AFWCF has not 

implemented this revised policy due to system and process limitations.

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 the acquisition cost equals or exceeds the DoD capitalization threshold of $100 thousand. The 

DoD also requires capitalization of improvement costs over the DoD capitalization threshold of $100 thousand for General 

PP&E. The DoD depreciates all General PP&E, other than land, on a straight-line basis.
118

Working Capital Fund

Notes to the Principal Statements

Prior to FY 1996, General PP&E was capitalized if it had an acquisition cost of $15 thousand, $25 thousand, and $50 thousand for FYs 1993, 1994, and 1995, respectively, and an estimated useful life of two or more years. General PP&E previously capitalized at amounts below $100 thousand was written off of the General Fund financial statements in FY 1998. No 

adjustment was made for WCF assets that remain capitalized and reported on WCF financial statements.

When it is in the best interest of the government, AFWCF provides government property to contractors to complete contract 

work. The Air Force either owns or leases such property, or it is 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, 

Federal accounting standards require that it be reported on AFWCF’s Balance Sheet. 

The DoD is developing new policies and a contractor reporting process for Government Furnished Equipment that will 

provide appropriate General PP&E information for future financial statement reporting purposes. Accordingly, AFWCF 

reports only government property in the possession of contractors that is maintained in AFWCF’s property systems. The 

DoD has issued new property accountability and reporting requirements that require AFWCF to maintain, in their property 

systems, information on all property furnished to contractors. This action and other DoD proposed actions are structured to 

capture and report the information necessary for compliance with federal accounting standards.

1.P. Advances and Prepayments 

The AFWCF’s policy is to record advances and prepayments in accordance with GAAP. As such, payments made in advance of the receipt of goods and services are reported as an asset on the Balance Sheet. The DoD’s policy is to expense 

and/or properly classify assets when the related goods and services are received. The AFWCF complies with this policy. 

1.Q. Leases 

Not Applicable 

1.R. Other Assets 

Other assets includes those assets, such as military and civil service employee pay advances, travel advances, and certain 

contract financing payments that are not reported elsewhere on AFWCF’s Balance Sheet. 

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 long-term contracts can cause, AFWCF may 

provide financing payments. Contract financing payments are defined in the Federal Acquisition Regulations, Part 32, as 

authorized disbursements of monies to a contractor prior to acceptance of supplies or services by the Government. Contract financing payments clauses are incorporated in the contract terms and conditions and may include advance payments, 

performance-based payments, commercial advance and interim payments, progress payments based on cost, and interim 

payments under certain cost-reimbursement contracts.

Contract financing payments do not include invoice payments, payments for partial deliveries, lease and rental payments, or 

progress payments based on a percentage or stage of completion, which the Defense Federal Acquisition Regulation Supplement authorizes only for construction of real property, shipbuilding, and ship conversion, alteration, or repair. Progress 

payments for real property and ships are reported as Construction in Progress. It is DoD policy to record certain contract 

financing payments as Other Assets.
119

Working Capital Fund

Notes to the Principal Statements

1.S. Contingencies and Other Liabilities 

The SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” as amended by SFFAS No. 12, “Recognition of 

Contingent Liabilities Arising from Litigation,” defines a contingency as an existing condition, situation or set of circumstances that involves an uncertainty as to possible gain or loss. The uncertainty will be resolved when one or more future 

events occur or fail to occur. The AFWCF recognizes contingent liabilities when past events or exchange transactions occur, a future loss is probable, and the loss amount 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 of incurring a loss or additional losses. Examples of loss contingencies include the collectibility of receivables, pending or threatened litigation, and possible claims and assessments. The AFWCF’s risk of loss and 

resultant contingent liabilities arise from pending or threatened litigation or claims and assessments due to events such as 

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

1.T. Accrued Leave 

The AFWCF reports as a liability civilian earned leave, except sick leave, that has been accrued and not used as of the 

Balance Sheet date. Sick leave is expensed as taken. The liability reported at the end of the accounting period reflects the 

current pay rates.

1.U. Net Position 

Net Position consists of unexpended appropriations and cumulative results of operations.

Unexpended Appropriations represent the amounts of authority that are unobligated and that have not been rescinded or 

withdrawn. Unexpended appropriations also represent amounts obligated for which legal liabilities for payments have not 

been incurred. 

Cumulative Results of Operations represent the net difference, since inception of an activity, between expenses and losses 

and financing sources (including appropriations, revenue, and gains). Beginning with FY 1998, the cumulative results also 

include donations and transfer in and out of assets that were not reimbursed.

1.V. Treaties for Use of Foreign Bases 

Not Applicable

1.W. Comparative Data 

Not Applicable 

1.X. Unexpended Obligations 

The AFWCF 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 and services not yet delivered, unless title passes.

1.Y. Undistributed Disbursements and Collection 

Undistributed disbursements and collections represent the difference between disbursements and collections matched at the 

transaction level to a specific obligation, payable, or receivable in the activity field records as opposed to those reported by 

the U.S. Treasury. These amounts should agree with the undistributed amounts reported on the monthly accounting reports. 
120

Working Capital Fund

Notes to the Principal Statements

In-transit payments are those payments that have been made, but have not been recorded in the fund holder’s accounting 

records. These payments are applied to the entities’ outstanding accounts payable balance. In-transit collections are those 

collections from other agencies or entities that have not been recorded in the accounting records. These collections are also 

applied to the entities’ accounts receivable balance.

The DoD policy is to allocate supported undistributed disbursements and collections between federal and nonfederal 

categories based on the percentage of distributed federal and nonfederal accounts payable and accounts receivable. Unsupported undistributed disbursements are recorded in accounts payable. Unsupported undistributed collections are recorded in 

other liabilities.

1.Z. Significant Events 

Beginning 4th Quarter, FY 2007, DoD began presenting the Statement of Financing (SOF) as a note in accordance with 

OMB Circular A-136. The SOF will no longer be considered a basic statement and is now referred to as “Reconciliation of 

Net Cost of Operations to Budget.”

Note 2. Nonentity Assets

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Assets

 A. Fund Balance with Treasury $ 0 $ 0

 B. Accounts Receivable 0 0

 C. Total Intragovernmental Assets $ 0 $ 0

2. Nonfederal Assets

 A. Cash and Other Monetary Assets $ 0 $ 0

 B. Accounts Receivable 0 0

 C. Other Assets $ 0 $ 0

 D. Total Nonfederal Assets $ 0 $ 0

3. Total Nonentity Assets $ 0 $ 0

4. Total Entity Assets $ 37,664,797 $ 38,256,765

5. Total Assets $ 37,664,797 $ 38,256,765

Asset accounts are categorized as either entity or nonentity. Entity accounts consist of resources that are available for use in the operations of the entity. The AFWCF is authorized to decide how to use resources in entity accounts. The AFWCF may be legally obligated 

to use these resources to meet entity obligations. Nonentity assets are assets for which the entity maintains stewardship accountability 

and responsibility to report, but are not available for the entity’s operations.

The AFWCF has no Nonentity Assets.
121

Working Capital Fund

Notes to the Principal Statements

Note 3. Fund Balance with Treasury

As of September 30 2007 2006

(amounts in thousands)

1. Fund Balances

A. Appropriated Funds $ 0 $ 0

B. Revolving Funds 1,287,399 1,357,976

C. Trust Funds 0 0

D. Special Funds 0 0

E. Other Fund Types 0 0

F. Total Fund Balances $ 1,287,399 $ 1,357,976

2. Fund Balances Per Treasury Versus Agency

A. Fund Balance per Treasury $ 1,705,484 $ 1,380,931

B. Fund Balance per AFWCF 1,287,399 1,357,976

3. Reconciling Amount $ 418,085 $ 22,955

The reconciling amount represents $418.1 million for the United States Transportation Command (USTC), which is reported by the U.S. 

Treasury as part of the AFWCF. However, for the purposes of Audited Financial Statements (AFS), USTC is included with the Other 

Defense Organizations reporting which is separate from the AFWCF. Therefore, USTC cash is not included on the AFWCF AFS.

Status of Fund Balance with Treasury

As of September 30 2007 2006

(amounts in thousands)

1. Unobligated Balance

 A. Available $ 1,073,782 $ 925,139

 B. Unavailable 0 0

2. Obligated Balance not yet Disbursed 8,883,865 8,603,843

3. Nonbudgetary FBWT 0 0

4. NonFBWT Budgetary Accounts -8,670,248 -8,171,006

5. Total $ 1,287,399 $ 1,357,976

Status of Fund Balance with Treasury (FBWT) reflects the budgetary resources to support the FBWT. 

Unobligated Balance represents the cumulative amount of budgetary authority that has not been set aside to cover outstanding obligations. Unobligated Balance is classified as available or unavailable and is associated with appropriations expiring 

at fiscal year end that remain available only for obligation adjustments until the account is closed. There are no restrictions 

on the Unobligated Balance.

Obligated Balance not yet Disbursed represents funds that have been obligated for goods that have not been received, services that have not been performed, and goods and services that have been delivered/received but not yet paid. 
122

Working Capital Fund

Notes to the Principal Statements

Nonbudgetary FBWT includes entity and nonentity FBWT accounts which do not have budgetary authority, such as unavailable receipt accounts or clearing accounts. 

NonFBWT Budgetary Accounts represent adjustments to budgetary accounts that do not affect FBWT such as contract 

authority, borrowing authority and investment accounts, accounts receivable, as well as the unfilled orders without advance 

from customers. This category reduces the Status of FBWT. 

Disclosures Related to Suspense/Budget Clearing Accounts

The AFWCF has no Disclosures Related to Suspense/Budget Clearing Accounts.

Disclosures Related to Problem Disbursements

As of September 30 2005 2006 2007 (Decrease)/Increase 

from FY 2006 - 2007

(amounts in thousands)

1. Total Problem Disbursements, Absolute Value

A. Unmatched Disbursements (UMDs) $ 60,443 $ 8,377 $ 12,624 $ 4,247

B. Negative Unliquidated Obligations (NULO) 2,405 717 971 254

C. In-Transit Disbursements 432,917 205,614 173,842 -31,772

2. Total $ 495,765 $ 214,708 $ 187,437 $ -27,271

Problem Disbursements are reported as an absolute value amount. Absolute value is the sum of the positive values of debit and credit 

transactions without regard to the plus or minus signs.

An Unmatched Disbursement occurs when a payment is not matched to a corresponding obligation in the accounting system. 

A Negative Unliquidated Obligation occurs when a payment is made against a valid obligation, but the payment is greater than the 

amount of the obligation recorded in the official accounting system. These payments have been made using available funds and are 

based on valid receiving reports for goods and services delivered under valid contracts.

The In-Transit Disbursements represent the absolute value of disbursements and collections made by a DoD disbursing activity on behalf 

of an accountable activity and have not been posted to the accounting system.

Beginning with 2nd Quarter, FY 2007, In-Transit Disbursements are reported as an absolute value as opposed to net amounts disclosed in 

prior years. This reporting change applies to amounts in the note schedule for both the current and comparative years.

Note 4. Investments and Related Interest

The AFWCF has no Investments and Related Interest.
123

Working Capital Fund

Notes to the Principal Statements

Note 5. Accounts Receivable

As of September 30

2007 2006

Gross Amount Due

Allowance For 

Estimated 

Uncollectibles

Accounts 

Receivable

Accounts 

Receivable, Net

(amounts in thousands)

1. Intragovernmental Receivables $ 330,378 N/A $ 330,378 $ 420,073

2. Nonfederal Receivables (From the Public) 117,808 $ 0 117,808 232,314

3. Total Accounts Receivable $ 448,186 $ 0 $ 448,186 $ 652,387

The AFWCF policy is all NonFederal Receivables (From the Public) will be collected resulting in the Allowance for Estimated Uncollectibles being reported as a $0.0 balance.

Aged Accounts Receivable

As of September 30

2007 2006

Intragovernmental Nonfederal Intragovernmental Nonfederal

(amounts in thousands)

Nondelinquent

 Current $ 495,044 $ 113,230 $ 727,179 $ 220,312

 Noncurrent 0 0 0 0

Delinquent

 1 to 30 days $ 190 $ 293 $ 624 436

 31 to 60 days 274 15 2,353 264

 61 to 90 days 14 88 2,323 936

 91 to 180 days 140 105 -521 718

 181 days to 1 year 508 1,035 129 3,656

Greater than 1 year and less than or equal to 2 years 57 2,248 1,023 5,274

Greater than 2 years and less than or equal to 6 years 0 760 13 651

Greater than 6 years and less than or equal to 10 

years

0 0 0 125

Greater than 10 years 0 135 0 3

Subtotal $ 496,227 $ 117,909 $ 733,123 $ 232,375

 Less Supported Undistributed 0 -36 -467 0

 Less Eliminations -165,914 0 -312,643 0

 Less Other 65 -65 60 -61

Total $ 330,378 $ 117,808 $ 420,073 $ 232,314

Delinquent Nonfederal receivables over 60 days old are referred to the Debt Management Office (DMO) at Columbus and those exceeding 180 days are referred to the U.S. Treasury or the Department of Justice (DOJ) by Columbus for collection action, as appropriate. Collection actions involving amounts of $600 or more will appropriately be transferred to DMO after a 60 day delinquency. Debt returned 

uncollectible from U.S. Treasury of $500 thousand or more is referred to DOJ. Debt returned less than $100 thousand, may be written 
124

Working Capital Fund

Notes to the Principal Statements

off by DMO after coordination with AFWCF management. The Defense Finance and Accounting Service Denver and AFWCF management follow up on a monthly basis to confirm the status of the delinquent account receivables referred to the above agencies.

Delinquent Intragovernmental receivables not paid within 30 days are disputed in accordance with the procedures outlined in the Intragovernmental Business Rules published in the Treasury Financial Management guidance.

In the 4th Quarter, FY 2006, 91 to 180 days Intragovernmental category, $521.0 thousand is an abnormal balance due to a posting error. 

The posting error was corrected 1st Quarter, FY 2007.

The Other line for 4th Quarter, FY 2007 represents the correction of posting errors resulting in a reclassification of Nonfederal to Intragovernmental receivables.

The Other line for 4th Quarter, FY 2006 represents the correction of posting errors resulting in a reclassification of Nonfederal to Intragovernmental receivables

Note 6. Other Assets

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Other Assets

 A. Advances and Prepayments $ 1,248 $ 5,218

 B. Other Assets 0 0

 C. Total Intragovernmental Other Assets $ 1,248 $ 5,218

2. Nonfederal Other Assets

 A. Outstanding Contract Financing Payments $ 153,834 $ 177,481

 B. Other Assets (With the Public) 165,628 363,662

 C. Total Nonfederal Other Assets $ 319,462 $ 541,143

3. Total Other Assets $ 320,710 $ 546,361

Contract terms and conditions for certain types of contract financing payments convey certain rights to the AFWCF that protect the contract work from state or local taxation, liens or attachment by the contractor’s creditors, transfer of property, or disposition in bankruptcy; 

however, these rights should not be misconstrued to mean that ownership of the contractor’s work has transferred to the Government. 

The Government does not have the right to take the work, except as provided in contract clauses related to termination or acceptance, 

and the AFWCF is not obligated to make payment to the contractor until delivery and acceptance. 

The Outstanding Contract Financing Payments balance of $153.8 million is comprised of $131.3 million in contract financing payments 

and an additional $22.5 million in estimated future funded payments that will be paid to the contractor upon future delivery and Government acceptance of a satisfactory product. (See additional discussion in Note 15, Other Liabilities). 
125

Working Capital Fund

Notes to the Principal Statements

Information Related Nonfederal Other Assets – Other Assets (With the Public)

Types of Asset (amounts in millions) 2007

Advances -

 SMAG - Advances and Prepayments For In-transit Inventory Items $ 13.1

Total Advances 13.1

Other Assets - 

 SMAG - Other assets returns to vendors pending credit 151.2

 DMAG - Unallocated labor and materials 1.3

Total Other Assets 152.5

Total Non-Federal Other Assets $ 165.6

Note 7. Cash and Other Monetary Assets

The AFWCF has no Cash or Other Monetary Assets.

Note 8. Direct Loan and/or Loan Guarantee Programs

The AFWCF has no Direct Loan and/or Loan Guarantee Programs.

Note 9. Inventory and Related Property

As of September 30 2007 2006

(amounts in thousands)

1. Inventory, Net $ 34,273,552 $ 34,170,548

2. Operating Materiels & Supplies, Net 243,880 360,328

3. Stockpile Materiels, Net 0 0

4. Total $ 34,517,432 $ 34,530,876
126

Working Capital Fund

Notes to the Principal Statements

Inventory, Net

As of September 30

2007 2006

Inventory, 

Gross Value

Revaluation

Allowance Inventory, Net Inventory, Net

Valuation

Method

(amounts in thousands)

1. Inventory, Categories

 A. Available and Purchased for Resale $ 23,852,074 $ 9,104 $ 23,861,178 $ 23,963,306 LAC/MAC

 B. Held for Repair 14,398,613 -4,198,978 10,199,635 9,908,297 LAC/MAC

 C. Excess, Obsolete, and Unserviceable 776,025 -776,025 0 0 NRV

 D. Raw Materials 0 0 0 0 MAC,SP,LAC

 E. Work in Process 212,739 0 212,739 298,945 AC

 F. Total $ 39,239,451 $ -4,965,899 $ 34,273,552 $ 34,170,548

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

SP = Standard Price O = Other

AC = Actual Cost MAC = Moving Average Cost

General Composition of Inventory

Inventory includes weapon system consumable and reparable parts, base supply items, and Medical-Dental supplies. Inventory is tangible personal property that is held for sale or held for repair for eventual sale, in the process of production for sale, or to be consumed in 

the production of goods for sale or in the provision of services for a fee. 

Restrictions

There are no restrictions on the use, sale, or disposition of inventory except for War Reserve Materiel.

Definitions

Inventory Available and Purchased for Resale includes consumable and reparable parts owned and managed by AFWCF.

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 AFWCF often relies on weapon systems and machinery no longer in production, AFWCF 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 materiels or items that cannot be economically repaired and are awaiting disposal. 
127

Working Capital Fund

Notes to the Principal Statements

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 materiel ordered but not delivered.

Operating Materiels and Supplies, Net

As of September 30

2007 2006

OM&S

Gross Value

Revaluation

Allowance OM&S, Net OM&S, Net Valuation

Method

(amounts in thousands)

1. OM&S Categories

 A. Held for Use $ 243,880 $ 0 $ 243,880 $ 360,328 LAC/MAC

 B. Held for Repair 0 0 0 0 LAC/MAC

 C. Excess, Obsolete, and Unserviceable 0 0 0 0 NRV

 D. Total $ 243,880 $ 0 $ 243,880 $ 360,328 

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

SP = Standard Price O = Other

AC = Actual Cost MAC = Moving Average Cost

General Composition of Operating Materiels and Supplies

Operating Materiel and Supplies (OM&S) includes consumable supplies used to remanufacture spare parts and weapons 

systems.

Restrictions

There are no restrictions on the use, sale, or disposition of OM&S.

Definition

Held for Use is consumable supplies owned and managed by AFWCF.

Stockpile Materiels, Net

The AFWCF has no Stockpile Materiels.
128

Working Capital Fund

Notes to the Principal Statements

Note 10. General PP&E, Net

As of September 30

2007 2006

Depreciation/ 

Amortization 

Method

Service

Life

Acquisition

 Value

(Accumulated 

Depreciation/ 

Amortization)

Net Book Value Prior FY Net

Book Value

(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 40 908,071 $ -653,403 254,668 318,730 

C. Leasehold Improvements S/L lease 

term

0 0 0 0

D. Software S/L 2-5 Or 10 1,068,779 -780,156 288,623 305,282

E. General Equipment S/L 5 or 10 2,032,123 -1,535,569 496,554 502,354

F. Military Equipment S/L Various 0 0 0 0

G. Assets Under Capital

 Lease

S/L lease 

term

0 0 0 0

H. Construction-in- Progress N/A N/A 51,225 N/A 51,225 42,799

 I. Other 0 0 0 0

J. Total General PP&E $ 4,060,198 $ -2,969,128 $ 1,091,070 $ 1,169,165

Note 15 for additional information on Capital Leases

Legend for Valuation Methods:

S/L = Straight N/A = Not Applicable

Real property reported by the Automated Civil Engineering System (ACES) and equipment reported by the Air Force Equipment 

Management System and Information Processing Management System have not been validated and reconciled. Past audit results have 

identified uncertainties as to whether all General PP&E assets in the possession or control (existence) of the AFWCF are properly and 

accurately recorded in the system (completeness). The Air Logistic Centers (ALC) and Aerospace Maintenance and Regeneration Group 

(AMARG) use ACES to capture the costs of real property based on preponderance of use for each building. The ALC and AMARG use 

the straight line method for recording depreciation maintained on spreadsheets in place of the ACES schedule. The accounting entries 

are recorded directly into the field level trial balances. 

The value of AFWCF General PP&E 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 (Major Asset Classes of Software and General Equipment) may not include all of the General PP&E in the possession of contractors that is above the Department of Defense (DoD) capitalization threshold. 

The AFWCF has no General PP&E located Outside of the Continental/Contiguous United States.

Assets Under Capital Lease

The AFWCF has no Assets Under Capital Lease.
129

Working Capital Fund

Notes to the Principal Statements

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Liabilities

 A. Accounts Payable $ 0 $ 0

 B. Debt 0 0

 C. Other 0 0

 D. Total Intragovernmental Liabilities $ 0 $ 0

2. Nonfederal Liabilities 

 A. Accounts Payable $ 0 $ 0

 B. Military Retirement and Other Federal Employment Benefits 228,900 227,035

 C. Environmental Liabilities 0 0

 D. Other Liabilities 28,376 0

 E. Total Nonfederal Liabilities $ 257,276 $ 227,035

3. Total Liabilities Not Covered by Budgetary Resources $ 257,276 $ 227,035

4. Total Liabilities Covered by Budgetary Resources $ 1,886,092 $ 2,037,616

5. Total Liabilities $ 2,143,368 $ 2,264,651

Liabilities not covered by budgetary resources are liabilities for which Congressional action is needed before budgetary resources can be 

provided.

Military Retirement and Other Federal Employment Benefits represent the Actuarial Federal Employee Compensation future liabilities as 

provided by the Department of Labor.

Military Retirement and Other Federal Employment Benefits not covered by budgetary resources are comprised of $228.9 million for 

Federal Employee’s Compensation Act actuarial liabilities not due and payable during the current fiscal year. Refer to Note 17, Military 

Retirement and Other Federal Employment Benefits, for additional details and disclosures.

Nonfederal Other Liabilities includes $28.4 million in foreign government deposits. These deposits represent future purchases that 

various foreign military customers plan to make from the Supply Management Activity Group. These advanced funds held for future 

purchases are a liability and are returned if the countries do not make future purchases. Revenue is not recognized on these transactions 

until the purchase takes place. The U.S. Treasury directed the policy change which was implemented on 2nd Quarter, FY 2007.
130

Working Capital Fund

Notes to the Principal Statements

Note 12. Accounts Payable

As of September 30

2007 2006

Accounts Payable

Interest, Penalties, 

and Administrative 

Fees

Total Total

(amounts in thousands)

1. Intragovernmental Payables $ 117,965 N/A $ 117,965 $ 171,623

2. Nonfederal Payables (to the Public) 946,756 0 946,756 494,347

3. Total $ 1,064,721 $ 0 $ 1,064,721 $ 665,970

The AFWCF’s systems do not track intragovernmental transactions by customer at the transaction level. Therefore, internal DoD buyerside balances are adjusted to agree with internal seller-side balances for revenue, accounts receivable, and unearned revenue. Accounts 

payable are adjusted by reclassifying amounts between federal and nonfederal accounts payable. 

Note 13. Debt

The AFWCF has no Debt.

Note 14. Environmental Liabilities and Disposal Liabilities

The AFWCF has no Environmental Liabilities and Disposal Liabilities.
131

Working Capital Fund

Notes to the Principal Statements

Note 15. Other Liabilities 

As of September 30

2007 2006

Current Liability

Noncurrent 

Liability

Total Total

(amounts in thousands)

1. Intragovernmental

 A. Advances from Others $ 124,243 $ 0 $ 124,243 $ 163,617

 B. Deposit Funds and Suspense Account Liabilities 0 0 0 0

 C. Disbursing Officer Cash 0 0 0 0

 D. Judgment Fund Liabilities 0 0 0 0

 E. FECA Reimbursement to the Department of Labor 0 0 0 0

 F. Other Liabilities 10,793 0 10,793 10,599

 G. Total Intragovernmental Other Liabilities $ 135,793 $ 0 $ 135,036 $ 174,216

2. Nonfederal

 A. Accrued Funded Payroll and Benefits $ 141,206 $ 0 $ 141,206 $ 147,711

 B. Advances from Others 26,115 0 26,115 5,215

 C. Deferred Credits 0 0 0 0

 D. Deposit Funds and Suspense Accounts 0 0 0 806

 E. Temporary Early Retirement Authority 0 0 0 0

 F. Nonenvironmental Disposal Liabilities 0 0 0 0

 (1) Military Equipment (Nonnuclear) 0 0 0 0

 (2) Excess/Obsolete Structures 0 0 0 0

 (3) Conventional Munitions Disposal 0 0 0 0

 G. Accrued Unfunded Annual Leave 0 0 0 0

 H. Capital Lease Liability 0 0 0 0

 I. Other Liabilities 524,890 22,500 547,390 1,043,698

 J. Total Nonfederal Other Liabilities $ 692,211 $ 22,500 $ 714,711 $ 1,197,430

3. Total Other Liabilities $ 827,247 $ 22,500 $ 849,747 $ 1,371,646

Information Related to Intragovernmental Other Liabilities

As of September 30

(amounts In thousands) FY 2007

DMAG Health Benefits $ 4,774

DMAG Life Insurance 92

DMAG Retirement 4,824

SMAG Health Benefits 488

SMAG Life Insurance 12

SMAG Retirement 603

Total $ 10,793
132

Working Capital Fund

Notes to the Principal Statements

Information Related to Nonfederal Other Liabilities

As of September

(amounts In thousands) FY 2007

Contract DMAG WIP Material and Labor $ 456,500

DMAG Contract Withholds 5,635

SMAG Future Purchase - Foreign Military Sales 28,377

SMAG Contract Withholds 34,378

Contingent Liabilities Contract Financing Payments 22,500

Total $ 10,793

Contingent liabilities balance includes $22.5 million in estimated future contract financing payments that will be paid to the 

contractor upon delivery and Government acceptance. In accordance with contract terms, specific rights to the contractor’s 

work vests with the Government when a specific type of contract financing payments is made. This action protects taxpayer funds in the event of contract nonperformance. These rights should not be misconstrued as the rights of ownership. 

The AFWCF is under no obligation to pay the contractor for amounts greater than the amounts authorized in the contract 

until delivery and Government acceptance. Because it is probable that the contractor will complete its efforts and deliver a 

satisfactory product to the AFWCF and the amount of potential future payment is estimable; the AFWCF has recognized a 

contingent liability for estimated future payments, which are conditional pending delivery and Government acceptance.

Note 16. Commitments and Contingencies

The AFWCF is not aware of any Commitments and Contingencies for legal liability except for the $22.5 million contact financing payments reported in Note 15.

The AFWCF is a party in numerous individual contracts that contain clauses, such as price escalation, award fee payments, or dispute 

resolution, that may or may not result in a future outflow of expenditures. Currently, AFWCF does not have a systemic process by which 

it captures or assesses these potential contingent liabilities; therefore, the amounts reported may not fairly present AFWCF’s contingent 

liabilities. 
133

Working Capital Fund

Notes to the Principal Statements

Note 17. Military Retirement and Other Federal Employment Benefits

As of September 30

2007 2006

Present Value of 

Benefits

Assumed Interest 

Rate (%)

Unfunded 

Liability

Present Value of 

Benefits

(amounts in thousands)

1. Pension and Health Actuarial Benefits $ 0 $ 0 $ 0 $ 0

 A. Military Retirement Pensions 0 0 0 0

 B. Military Retirement Health Benefits 0 0 0 0

 C. Military Medicare-Eligible Retiree Benefits 0 0 0 0

 D. Total Pension and Health Actuarial Benefits $ 0 $ 0 $ 0 $ 0

2. Other Actuarial Benefits 0 0 0 0

 A. FECA $ 228,900 $ 0 $ 228,900 $ 227,035

 B. Voluntary Separation Incentive Programs 0 0 0 0

 C. DoD Education Benefits Fund 0 0 0 0

 D. Total Other Actuarial Benefits $ 228,900 $ 0 $ 228,900 $ 227,035

3. Other Federal Employment Benefits $ 0 $ 0 $ 0 $ 0

4. Total Military Retirement and Other Federal 

 Employment Benefits $ 228,900 $ 0 $ 228,900 $ 227,035

Federal Employees Compensation Act (FECA)

The AFWCF actuarial liability for workers’ compensation benefits is developed by the Department of Labor and is updated at the end of 

each fiscal year. The liability includes the estimated liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims. The liability is determined using a method that utilizes historical 

benefit payment patterns related to a specific incurred period to predict the ultimate payments. The projected annual benefit payments 

are discounted to present value using the Office of Management and Budget’s (OMB’s) economic assumptions for 10-year Treasury 

notes and bonds. Cost of living adjustments (COLAs) and consumer price index medical (CPIM) factors are applied to the calculation of 

projected future benefits.

The liability for future workers’ compensation (FWC) benefits includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims. The liability is determined using 

a method that utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related 

to that period. Consistent with past practice, these projected annual benefits payments have been discounted to present value using the 

OMB’s economic assumptions for 10-year Treasury notes and bonds. Interest rate assumptions utilized for discounting were as follows:

2006

5.170% in Year 1

5.313% 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 (CPIMs) were applied to the calculation of projected future benefits. 

The actual rates for these factors for the charge back year (CBY) 2006 are used to adjust the methodology’s historical payments to current year constant dollars.
134

Working Capital Fund

Notes to the Principal Statements

The compensation COLAs and CPIMs used in the projections for various CBY were as follows:

2006 2007 2008 2009 2010 +

COLA 3.50% 3.13% 2.40% 2.40% 2.43% 

CPIM 4.00% 4.01% 4.01% 4.013% 4.09%

The model’s resulting projections were analyzed to insure that the estimates were reliable. The analysis was based on four 

tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual incremental payments, (3) a comparison of the incremental 

paid loses per case (a measure of case-severity) in CBY 2006 to the average pattern observed during the most current three 

charge back years, and (4) a comparison of the estimated liability per case in the 2006 projection to the average pattern for 

the projections of the most recent three years. 

Note 18. General Disclosures Related to the Statement of Net Cost

Intragovernmental Costs and Exchange Revenue

As of September 30 2007 2006

(amounts in thousands)

1. Intragovernmental Costs $ 3,956,343 $ 4,748,892

2. Public Costs 6,778,788 3,923,068

3. Total costs $ 10,735,131 $ 8,671,960

4. Intragovernmental Earned Revenue $ -9,697,266 $ -10,105,650

5. Public Earned Revenue -734,496 -677,373

6. Total Earned Revenue $ -10,431,762 $ -10,783,023

7. Net Cost of Operations $ 303,369 $ -2,111,063

Intragovernmental costs and revenue are related to transactions made between two reporting entities within the Federal Government. 

Public costs and revenues are exchange transactions made between the reporting entity and a nonfederal entity.

The AFWCF’s systems do not track intergovernmental transactions by customer at the transaction level. Therefore, internal DoD 

buyer-side balances are adjusted to agree with seller-side balances for revenue. Expenses are adjusted by reclassifying amounts between 

federal and nonfederal expenses.

The Statement of Net Cost (SNC) is unique because its principles are driven 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.

The AFWCF records transactions on an accrual basis. The AFWCF may not have all the actual costs and revenues input into the system 

in time for reporting. Accrual estimates based upon budget information, historical data, and current data not yet input are made as 

required by generally accepted accounting principles. These estimates are reversed in order to allow actual cost and revenue data to 

populate the general ledger in subsequent months.
135

Working Capital Fund

Notes to the Principal Statements

Note 19. Disclosures Related to the Statement of Changes in Net Position

As of September 30

2007 2006

Cumulative 

Results of 

Operations

Unexpended 

Appropriations

Cumulative 

Results of 

Operations

Unexpended 

Appropriations

(amounts in thousands)

1. Prior Period Adjustments Increases (Decreases) to Net 

 Positions Beginning Balance

 A. Changes in Accounting Standards $ 0 $ 0 $ 0 $ 0

 B. Errors and Omissions in Prior Year Accounting Reports 0 0 0 0

 C. Total Prior Period Adjustments $ 0 $ 0 $ 0 $ 0

2. Imputed Financing

 A. Civilian CSRS/FERS Retirement $ 50,951 $ 0 $ 55,234 $ 0

 B. Civilian Health 117,383 0 109,111 0

 C. Civilian Life Insurance 276 0 264 0

 D. Judgment Fund 0 0 0 0

 E. IntraEntity 0 0 0 0

 F. Total Imputed Financing $ 168,610 $ 0 $ 164,609 $ 0

The Imputed Financing 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. OPM 

provides the cost factors to the 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) for validation. Approved imputed costs are 

provided to the reporting components for inclusion in their financial statements.

Note 20. Disclosures Related to the Statement of Budgetary Resources

As of September 30 2007 2006

(amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for Undelivered Orders at the End of the Period $ 7,196,353 $ 7,151,764

2. Available Borrowing and Contract Authority at the End of the Period $ 0 $ 4,183,095

The Statement of Budgetary Resources (SBR) includes intraentity transactions because the statements are presented as combined and 

combining.

This note has been modified to accurately report the remaining available balance of borrowing and contract authority. Previously, the 

AFWCF reported the amount of the contract/borrowing authority that had initially been used and not subsequently replaced by reimbursement or appropriation.

Office of Management and Budget Circular A-136 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 in the SBR, lines 8A and 8B. There are no Category A direct 

obligations. Category B reimbursable obligations total $14.1 billion. There are no category B direct or exempt obligations.
136

Working Capital Fund

Notes to the Principal Statements

Note 21. Reconciliation of Net Cost of Operations to Budget

As of September 30 2007 2006

(amounts in thousands)

Resources Used to Finance Activities:

Budgetary Resources Obligated:

1. Obligations incurred $ 14,102,303 $ 15,773,214

2. Less: Spending authority from offsetting collections and recoveries (-) -13,946,800 -15,063,364

3. Obligations net of offsetting collections and recoveries $ 155,503 $ 709,850

4. Less: Offsetting receipts (-) 0 0

5. Net obligations $ 155,503 $ 709,850

Other Resources:

6. Donations and forfeitures of property 0 0 

7. Transfers in/out without reimbursement (+/-) 2,192 0

8. Imputed financing from costs absorbed by others 168,610 164,609

9. Other (+/-) 0 0 

10. Net other resources used to finance activities $ 170,802 $ 164,609

11. Total resources used to finance activities 326,305 874,459

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:

 A. Undelivered Orders (-) $ -44,589 $ -214,214

 B. Unfilled Customer Orders 190,395 -925,904

13. Resources that fund expenses recognized in prior Periods (-) 0 -7,923

14. Budgetary offsetting collections and receipts that do not affect Net Cost of Operations 0 0

15. Resources that finance the acquisition of assets (-) -5,376,572 -4,988,458

16. Other resources or adjustments to net obligated resources that do not affect Net Cost of Options:

 A. Less: Trust or Special Fund Receipts Related to exchange in the Entity’s Budget (-) 0 0

 B. Other (+/-) -2,192 0

17. Total resources used to finance items not part of the Net Cost of Operations $ -5,232,958 $ -6,136,499

18. Total resources used to finance the Net Cost of Operations $ -4,906,653 $ -5,262,040

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 $ 0 $ 0 

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 fromthe public (-) 0 6

23. Other (+/-) 30,241 1,244

24. Total components of Net Cost of Operations that will Require or Generate Resources in future periods $ 30,241 $ 1,250

Components not Requiring or Generating Resources: $ $ 142,937 $ $166,193

25. Depreciation and amortization

26. Revaluation of assets or liabilities (+/-) 1,893,247 849,401

27. Other (+/-)

 A. Trust Fund Exchange Revenue 0 0 

 B. Cost of Goods Sold 5,331,747 5,130,847

 C. Operating Material and Supplies Used 0 0 

 D. Other -2,188,150 -2,996,714

28. Total Components of Net Cost of Operations that will not Require or Generate Resources $ $5,179,781 $ 3,149,727

29. Total components of Net Cost of Operations that will not Require or Generate Resources 

 in the current period $ $5,210,022 $ 3,150,977

30. Net Cost of Operations $ $ 303,369 $ -2,111,063
137

Due to the AFWCF’s financial system limitations, budgetary data is not in agreement with proprietary expenses and assets capitalized. 

The difference between budgetary and proprietary data is a previously identified deficiency. 

Resources that finance the acquisition of assets are adjusted in order to align the note schedule with the amount reported on the Statement of Net Cost. This adjustment is $233.0 million, absolute value.

The following schedule lines are presented as combined instead of consolidated due to intraagency budgetary transactions not being 

eliminated:

y Obligations Incurred

y Less: Spending Authority from Offsetting Collections and Recoveries

y Obligations Net of Offsetting Collections and Recoveries

y Less: Offsetting Receipts

y Net Obligations

y Undelivered Orders

y Unfilled Customer Orders 

Resources Used to Finance Items Not Part of Net Cost of Operations, Other line is comprised of $2.2 million excess data 

processing equipment transfer from Air Force General Fund to AFWCF Depot Maintenance Activity Group (DMAG). 

Components Requiring or Generating Resources in Future Periods, Other line is comprised of $28.4 million for foreign 

government deposits and $1.8 million in Federal Employees Compensation Act (FECA).

Components Not Requiring or Generating Resources, Other line is comprised of Supply Management Activity Group 

materials to replace condemned and consumable parts required for depot production of $2.9 billion and DMAG completed 

production projects returned to customers of ($5.1) billion.

Components of the Net Cost of Operation that will Require or Generate Resources in Future Periods is in balance with the 

Total Liabilities Not Covered by Budgetary Resources. 

Note 22. Disclosures Related to Incidental Custodial Collections

The AFWCF has no Disclosures Related to Incidental Custodial Collections.

Note 23. Earmarked Funds

The AFWCF has no Earmarked Funds.

Note 24. Other Disclosures 

The AFWCF has no Other Disclosures.

Note 25. Restatements

The AFWCF has no Restatements of prior period adjustments for material errors.

Working Capital Fund

Notes to the Principal Statements
138

Working Capital Fund

Principal Statements

Working Capital Fund

Notes to the Principal Statements
Working Capital Fund

Required Supplementary Information

Fiscal Year 2007

Required Supplementary Information

Working Capital Fund

Working Capital Fund —Required Supplementary Informatio

n

139
Statement of Disaggregated Budgetary Resources - Working Capital Fund

As of September 30, 2007 and 2006 (amounts in thousands)

Working 

Capital Fund

2007 

Combined

2006 

Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 925,138 $ 925,137 $ 292,678

2. Recoveries of prior year unpaid obligations 23,359 23,358 79,238

3. Budget authority

 A. Appropriation 44,054 44,054 48,577

 B. Borrowing authority 0 0 0

 C. Contract authority 9,804,576 9,804,575 9,857,832

 D. Spending authority from offsetting collections

 1. Earned

 a. Earned 14,106,629 14,106,630 15,953,188

 b. Change in receivables from Federal sources -373,583 -373,583 -43,158

 2. Change in unfilled customer orders

 a. Advance received -40,165 -40,165 10,419

 b. Without advance from Federal sources 230,560 230,560 -936,323

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

 4. Previously unavailable 0 0 0

 5. Expenditure transfers from trust funds 0 0 0

 E. Subtotal $ 23,772,071 $ 23,772,071 $ 24,890,535

4. Nonexpenditure transfers, net, anticipated and actual -382,000 -382,000 -106,784

5. Temporarily not available pursuant to Public Law 0 0 0

6. Permanently not available -9,162,482 -9,162,481 -8,457,316

7. Total Budgetary Resources 15,176,086 15,176,086 16,698,351

STATUS OF BUDGETARY RESOURCES:

8. Obligations incurred

 A. direct $ 0 $ 0 $ 0

 B. Reimbursable 14,102,303 14,102,303 15,773,214

 C. Subtotal 14,102,303 14,102,303 15,773,214

9. Unobligated balance

 A. Apportioned 1,073,782 1,073,782 925,137

 B. Exempt from apportionment 0 0 0

 C. Subtotal 1,073,782 1,073,782 925,137

10. Unobligated balance not available 0 0 0

11. Total status of budgetary resources $ 15,176,085 $ 15,176,085 $ 16,698,351

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 $ 8,603,843 $ 8,603,843 $ 8,621,328

 B. Less: Uncollected customer payments from Federal sources, 

 brought forward, October 1 

-3,987,910 -3,987,910 -4,967,392

 C. Total unpaid obligated balance 4,615,933 4,615,933 3,653,936

13. Obligations incurred net (+/-) $ 14,102,303 $ 14,102,303 $ 15,773,214

14. Less: Gross outlays -13,798,923 -13,798,923 -15,711,459

15. Obligated

 A. Actual transfers, unpaid obligations (+/-) 0 0 0

 B. Actual transfers, uncollected customer payments from Federal sources (+/-) 0 0 0

 C. Total Unpaid obligated balance transferred, net 0 0 0

16. Less: Recoveries of prior year unpaid oblligations, actual $ -23,359 $ -23,359 $ -79,238

17. Change in uncollected customer payments from Federal sources (+/-) 143,023 143,023 979,482

18. Obligated balance, net, end of period

 A. Unpaid obligations 8,883,865 8,883,865 8,603,843

 B. Less: Uncollected customer payments -3,884,887 -3,884,887 -3,987,910

 C. Total, unpaid obligated balance, net, end of period 5,038,978 5,038,978 4,615,933

NET OUTLAYS:

19. Net Outlays

 A. Gross outlays $ 13,798,923 $ 13,798,923 $ 15,711,459

 B. Less: Offsetting collections -14,066,464 -14,066,465 -15,963,606

 C. Less: Distributed Offsetting receipts 0 0 0

20. Net Outlays $ -267,541 $ -267,542 $ -252,147

140

Working Capital Fund

Required Supplementary Information
141

Working Capital Fund

Required Supplementary Information

DISAGGREGATED STATEMENT OF BUDGETARY RESOURCES

The Air Force has performance measures based on missions and outputs. The Air Force, however, is unable to accumulate costs for 

major programs based on those performance measures, because its financial processes and systems were not designed to collect and 

report this type of cost information. Until the process and systems ae upgraded, the Department will break out programs by the major 

appropriation groupings.

Required Supplementary Information - Part A 

AT97 - Air Force Working Capital Fund 

Schedule, Part A DoD Intragovernmental 

Asset Balances. 

(amounts in thousands)

Treasury 

Index

Fund Balance 

with 

Treasury

Accounts 

Receivable

Loans 

Receivable Investments Other

Department of Agriculture 12 $ 63

Department of Justice 15 206

Navy General Fund 17 4,701

Department of State 19 12 

Department of the Treasury 20 $ 1,287,399 2

Army General Fund 21 217

General Service Administration 47 2,279

National Science Foundation 49 96

Air Force General Fund 57 252,228 $ 418

Department of Transportation 69 -519

Homeland Security 70 1,781

National Aeronautics and Space Administration 80 664

Other Defense Organizations General Funds 97 39,289

Other Defense Organizations Working Capital 

Funds

97-4930 22,812 829

Army Working Capital Fund 97-4930.001 1,657

Navy Working Capital Fund 97-4930.002 4,892

Totals $ 1,287,399 $ 330,380 $ 1,247

Required Supplementary Information - Part A 

AT97 - Air Force Working Capital Fund 

Schedule, Part A DoD Intragovernmental Asset 

Balances. 

(amounts in thousands)

Treasury 

Index Accounts Payable

Debts/Borrowings 

From Other 

Agencies 

Other

Navy General Fund 17 $ 310 

Army General Fund 21 670 $ 202

Office of Personnel Management 24 10,793

Air Force General Fund 57 42,647 120,321

Homeland Security 70 1,755

Other Defense Organizations General Funds 97 455

Other Defense Organizations Working Capital Funds 97-4930 58,942 1,965

Army Working Capital Fund 97-4930.001 12,921

Navy Working Capital Fund 97-4930.002 2,021

Totals $ 117,966 $ 135,036
Required Supplementary Information - Part C 

AT97 - Air Force Working Capital Fund 

Schedule, Part C DoD Intragovernmental revenue 

and related costs. 

(amounts in thousands)

Treasury 

Index Earned Revenue

Department of Agriculture 12 $ 787 

Department of Justice 15 4,700 

Navy General Fund 17 84,564 

Department of State 19 84 

Army General Fund 21 26,435 

General Service Administration 47 55 

National Science Foundation 49 $96 

Air Force General Fund 57 7,932,537 

Department of Transportation 69 74 

Homeland Security 70 9,145 

National Aeronautics and Space Administration 80 2,172 

US Army Corps of Engineers 96 339 

Other Defense Organizations General Funds 97 1,319,276 

Other Defense Organizations Working Capital Funds 97-4930 242,190 

Army Working Capital Fund 97-4930.001 20,289 

Navy Working Capital Fund 97-4930.002 48,888 

Totals $ 9,691,631 

Required Supplementary Information - Part E 

AT97 - Air Force Working Capital Fund 

Schedule, Part E DoD Intragovernmental 

non-exchange revenues. 

(amounts in thousands)

Treasury 

Index Accounts Payable Other

Navy General Fund 17 $ 100,000

Air Force General Fund 57 $ 2,192 282,000

Other Defense Organizations General Funds 97 0

Totals $ 2,192 $ 382,000

142

Working Capital Fund

Required Supplementary Information
143

Working Capital Fund

Principal Statements

Fiscal Year 2007

Audit Opinion

Working Capital Fund

Working Capital Fund —Audit Opinio

n

143
144

Working Capital Fund

Audit Opinion
145

Working Capital Fund

Audit Opinion
146

Working Capital Fund

Audit Opinion
147

Working Capital Fund

Audit Opinion
148

Working Capital Fund

Audit Opinion
149

Working Capital Fund

Audit Opinion
Contact Us/

Questions and Comments

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1130 Air Force Pentagon,

Washington, DC 20330-1130

Website: www.saffm.hq.af.mil/financialstatement.asp

For More Information

Principal Deputy Assistant Secretary of the Air Force

for Financial Management and 

Comptroller, Headquarters

U.S. Air Force, Washington, D.C.

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