2003 Annual Financial Statement Annual Financial Statement

United States Air Force United States Air Force

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

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

Overview

General Funds

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

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

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

Fiscal Year 2003 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

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

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

Quality People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Operational Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Financing the Fight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Working Capital Fund

Working Capital Fund Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Air Force Materiel Command Focus on Warfighter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Sustained Exceptional Logistics Support to the Warfighter—OPERATION IRAQI FREEDOM . . . .16

Transformation Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Air Force Working Capital Fund Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Funding Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Air Force Working Capital Fund Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Depot Maintenance Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Supply Management Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Information Services Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Financial Statements

General Funds

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Footnotes to the Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Consolidating and Combining Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85

Required Supplementary Stewardship Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115

Working Capital Fund

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Footnotes to the Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

Consolidating and Combining Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177

Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .181

2003 Annual Financial Statement

Table of Contents

i
United States Air Force 

ii

SECRETARY OF THE AIR FORCE

WASHINGTON

January 2004

Message from the Secretary of the Air Force

Fiscal Year 2003 will live as a landmark success for the United States Air Force. Already answering the call to serve

around the world and at home, the men and women of the Air Force again responded with professionalism and dedication to deliver decisive air and space power for our operations in Afghanistan and Iraq. It is with great pride that I

note the Air Force met this challenge with unprecedented success while also securing our homeland in OPERATION

NOBLE EAGLE and continuing our global fight against terrorism. As they have done time and time again, America’s

airmen proved they are the cornerstones of the most powerful and ready force in our service’s storied history. 

These successes and our support to our talented airmen required expert management of our financial resources.

The Assistant Secretary for Financial Management has mobilized a forward-looking team focused on delivering sophisticated and timely support to our warfighters, from training and weapons systems to the welfare of Air Force families.

The successes of Fiscal Year 2003 would not have been possible without our continuing innovation in all aspects of Air

Force financial management. Just as our warfighters continue to hone their skills, we must continue to provide financial services and programs that are every bit as transformational as the warfighting concepts and systems they support. To do so, I encourage you to pay special attention to Air Force Financial Management Transformation efforts

and our focus on performance-based management.

We are leading force-wide initiatives to leverage technology, best management practices, and the good ideas of Air

Force people to constantly improve our support of all Air Force operations. Our efforts will be Chief Financial

Officer (CFO) Act compliant, and this statement fulfills the requirements of the CFO Act. The statement documents

the expenditures devoted to our General Fund and Working Capital Fund activities.

We are committed to expert leadership, management, and accountability in our finances as a fundamental part of providing for the world’s preeminent air and space power. Air Force people and the people of the United States of

America deserve nothing less. 
2003 Annual Financial Statement

iii

DEPARTMENT OF THE AIR FORCE

WASHINGTON DC

OFFICE OF THE ASSISTANT SECRETARY

January 2004

Message from the

Assistant Secretary of the Air Force,

Financial Management and Comptroller

Even considering the impressive accomplishments of the recent past, this year has been extraordinary. Our Air Force

financial management team across the enterprise supported OPERATION IRAQI FREEDOM with innovative and

timely financial services to our warfighters. Just as our airmen fighting abroad and protecting at home found new and

better ways to accomplish their demanding missions, we did also and provided them with the world-class financial

support they deserve.

An important key to this has been the work of our Transformation Program Management Office and the extended

transformation efforts across the Air Force. What was until the beginning of FY 2003 a nascent idea has proven to be

profoundly valuable. Gaining the insight of everyone from combat pilots to depot maintenance personnel, we have

successfully institutionalized a process of continuous improvement. To name but a few examples, we have improved

web-based services for better support to deployed airmen at lower cost, we are delivering more sophisticated financial management decision support services, and we are reducing our procurement cycle times and more closely linking acquisition decisions with warfighter requirements. You will read about even more examples in this report. In

sum, we are making considerable progress by listening to our customers, leveraging technology, and reducing costs. 

We are off to a great start—but it is just the start. We are determined to continue the process of transformation not

only to enhance but also to revolutionize the way we do business. This involves a completely different approach to

decision-making, from defining our requirements to shaping our work force. The dynamic threat environment we

face today demands we deliver fast, flexible, agile, and sophisticated financial services using people, processes, and

systems that are integrated and capability-focused.

This statement provides both broad summaries and financial specifics of our efforts in FY 2003, fulfills the requirements of the Chief Financial Officer (CFO) Act, and documents the expenditures devoted to our General Fund and

Working Capital Fund activities. It also briefly reviews selected performance measures established as part of the

Government Performance and Results Act.

We are justly proud of Air Force men and women serving around the world. We must continue to match their transformation in warfighting and technology with a transformation in financial management and business practices.

Synchronizing these revolutions is vital to the Air Force and to the United States of America.

Financing the Fight

Air Force in Action

As America and the world celebrate the 100th anniversary of powered flight, a sense of amazement comes to

all who consider the tremendous advances and innovations represented by this anniversary. In no sphere is

this amazement more justified, in no arena has the

promise of Kitty Hawk been more fulfilled, than in the

transformation and operations of the U.S. Air Force in

FY 2003. The past year has seen the Air Force continue

the war on terrorism, remain a vital part of homeland

defense efforts and guarantee the welfare of airmen—

responding with dedication and professionalism to serious and looming threats to American security.

Operation IRAQI FREEDOM (OIF) opened with the

“shock and awe” of American air power, and throughout OIF the Air Force has been both spear and shield,

working in complete concert with joint forces to first

sweep a brutal tyrant from the scene, then to work to

secure a ravaged land. From the power of B-2 precision

weapons to the mobility of a C-17 airdrop of an airborne brigade, from global communications and intelligence to heroic efforts to quickly establish forward

bases, OIF illustrates the integration of Air Force people

and technology to achieve historically unprecedented air

and space capabilities.

Even as these Air Force capabilities were employed in

Iraq, so did they continue and expand in other key

areas. Ongoing Operation ENDURING FREEDOM

efforts as part of the global war on terrorism continued

in Afghanistan with missions across the spectrum, from

combat operations to humanitarian support, illustrating

Air Force abilities to access and succeed in one of the

most remote areas of the world. Operation NOBLE

EAGLE continued as the Air Force rose to protect the

homeland with reassuring power and surveillance over

key areas of America.

Success in these and many other operations around the

world proved repeatedly the vital role of the Air Force

in the defense of America. In sustaining this irreplaceable role, the training and development of professional

airmen, the cultivation of key technologies for warfighter employment, and the integration of all into operational capability conclusively bore out the value of continued and expanded Air Force Transformation.

Some of the current real threats to American security

had been imagined in the recent past, but many were

new and unimagined. The Air Force must and is adapting to this new world by recognizing a broader spectrum of conflict, new categories of extant and potential

enemies and the importance of forward-looking thinking and planning. Air Force Transformation efforts are

aimed at moving ahead to ensure evermore dynamic,

versatile and adaptable air and space power with the

capability and agility to decisively face and defeat future

threats to America.

In FY 2003, the Air Force left no doubt as to its status

as the world’s—indeed, history’s—preeminent air and

space power. Regardless of weather, darkness, distance,

season or foe, the Air Force delivered peril to enemies

and assurance to friends. Americans, dealing with the

maelstrom of a changing world, can rest both at home

and abroad, secure in the knowledge that there is protection above. 

2003 Annual Financial Statement

General Funds Overview

1

“For those who have gone before us, who have given

their lives so that we could have the greatest Air Force

on Earth, so that we could enjoy the wonders of freedom

and liberty, we pledge our best.”

General John Jumper, USAF

Chief of Staff
Air Force Organizations

In FY 2003, Air Force active duty members, Air

National Guardsmen, Reservists and civilians responded

to unprecedented challenges with unprecedented performance. Calling upon the Air Force Core Values of

“Integrity First—Service Before Self—Excellence In All

That We Do,” Air Force people proved time and time

again, around the world, that they comprise the world’s

preeminent air and space power.

The integrated components of the Air and Space

Expeditionary Force were involved in operations ranging from major theater war to homeland security to

humanitarian relief. Air Force people and organizations

did this with effectiveness and efficiency heretofore

unseen in air and space operations—all while constantly

preparing to face the challenges of the future.

Major Commands, Direct Reporting Units

and Field Operating Agencies

Major Commands

The Air Force is organizationally aligned into 10 Major

Commands (MAJCOMs, including the Air Force

Reserve and the Air National Guard). A MAJCOM represents a subdivision of the Air Force assigned one or

more elements of the Air Force mission, and is subordinate to Headquarters Air Force (HAF). Bases and installations fall under MAJCOMs.

Direct Reporting Units

Direct Reporting Units (DRUs) are single-mission

organizations that report directly to HAF. 

Field Operating Agencies

Field Operating Agencies (FOAs) execute responsibilities under the organizational aegis of a functional manager at HAF.

Fiscal Year 2003 Results

Budget by Appropriation Categories

Six major appropriation categories comprised the Air

Force FY 2003 budget, as follows:

■ Operations and Maintenance (O&M): Pays the

salaries and benefits of civilian employees and other

day-to-day operating costs (e.g., fuel, spare parts).

■ Military Personnel (MILPERS): Finances the salaries

and benefits of uniformed personnel.

■ Procurement (PROC): Funds Air Force investment

in major systems.

■ Research, Development, Test, and Evaluation

(RDT&E): Funds system development.

■ Military Construction (MILCON): Pays for facilities

construction.

■ Military Family Housing (MFH): Provides for the

operation, maintenance and construction of housing units.

United States Air Force 

2
Performance Measures 

Quality People

The Air Force’s most important resource is its people.

It is Air Force airmen, whether they are civilian, enlisted, or officer, who fight and win America’s air wars and

guarantee air and space dominance. They must be

determined, mission-focused, and fully energized. The

Air Force relies on a highly skilled, educated, and technologically superior force to function as an effective

warfighting team.

Increasing demands for U.S. military presence around

the globe, whether participating in the Global War on

Terrorism, or contributing to the war effort in Iraq, continue to increase Air Force operations tempo. Despite

these demands, Air Force members proudly serve their

country and senior Air Force leaders value their service

and readily undertake the obligation to care for them

and their families.

The Active Military chart shows a leveling trend over

the last 4 years, although active strength has declined

approximately 31 percent from 1990 levels. 

The Active Civilian chart shows that civilian population

trends in the active Air Force have declined by more

than 30 percent since FY 1990. Due to personnel drawdowns of the past decade, new hires have been limited.

Moreover, many experienced employees have moved

on to other jobs or have taken advantage of early

retirement options. As a result, 42 percent of Air Force

civilian personnel will be eligible to retire in the next 5

years. The Air Force is taking necessary steps to

reshape the civilian force to ensure future availability of

sufficient and experienced personnel with the requisite

skills to fill the positions.

2003 Annual Financial Statement

3

Active Military

535

361 356 353 368 374

0

100

200

300

400

500

600

FY 1990 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003

Numbers in Thousands

Active Civilian

249

166 161 162 160 165

0

50

100

150

200

250

300

FY 1990 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003

Numbers in Thousands
The reserve component, consisting of the Air Force

Reserve and the Air National Guard, is an integral part

of the Total Force. These personnel are integrated into

all mission areas and nearly half of the mission-oriented

squadrons in the total Air Force are in the reserve components. A majority of the Air Force’s vital air refueling

capability is in the Air National Guard and Air Force

Reserve.

For all personnel, the Air Force ranks quality of life

(QoL) as one of its top priorities. Air Force QoL initiatives acknowledge the intense demands placed on the

mission-focused total force. The Air Force has and will,

with the continued support of Congress, pursue adequate manpower; improve workplace environments;

seek fair and competitive compensation and benefits;

balance deployments and exercise schedules; provide

safe, affordable, and adequate housing; enhance community and family programs; improve educational

opportunities; and provide quality health care. Efforts to

compensate the Air Force total force continued with

the FY03 National Defense Authorization Act (NDAA).

As a result, key legislation directly impacting total force

pay and compensation, travel and transportation entitlements, and retirement and education programs were

authorized and implemented over FY 2003.

Enhancing community and family programs is a crucial

link between members, families and leadership creating

the necessary support to encourage retention. In 2001,

the Air Force began taking a more collaborative

approach to community and family service delivery by

creating Community Action Information Boards (CAIB)

and Integrated Delivery System (IDS) working groups at

the Air Staff, MAJCOM, and Installation levels. The

CAIB brings together senior leaders to identify and

resolve individual issues that impact the readiness of Air

Force members and their families, promote the Air

Force as a positive way of life, and enhance members’

and families’ ability to function as productive members

of the Air Force community. The emphasis is on positive actions and programs that strengthen force readiness through a sense of community and assist Air Force

members and civilians, their families and communities

to thrive and successfully manage the demands of military life. Established as the action arm of the CAIB, the

IDS working group brings together all community and

family agencies to ensure our military members and

their families have access to the services and activities

they need. Additionally, Family Support Centers continue to meet individual and family needs by distributing

information concerning all aspects of Air Force life and

through AF Crossroads, the official family and community website for the Air Force.

Recruiting

In FY 2003, the Air Force was slightly over end-strength

requirements. The Air Force exceeded its FY 2003

recruiting goal of 37,000, sending 37,144 people to

basic training. Further, the Air Force enters FY 2004

with a solid Delayed Entry Program under which 43%

of the FY 2004 accession needs are already under contract and scheduled to enter active duty during the next

year.

United States Air Force 

4
The Air Force exceeded its FY 2003 recruiting goal not

by lowering standards, but by intensifying efforts to promote the benefits of the Air Force. This success, in the

face of stiff competition from the private sector and an

increased propensity to pursue civilian college opportunities, is the result of hard work and well-orchestrated

approaches. Such success reflects a combination of

measures—more recruiters on the street, a focused television advertising campaign, and higher enlistment

bonuses. These are all important tools to maintaining a

high-quality force, and the Air Force will continue to

make recruiting a top priority.

In support of its recruiting mission, the Air Force:

■ Increased the number of production recruiters

from 1,085 at the beginning of FY 1999 to 1,610 by

the end of FY 2003.

■ Instituted an aggressive advertising campaign to

include a full year of national television advertising.

■ Kept pace in cyberspace, modernizing the innovative USAF web site to promote a better understanding of the Air Force overall, effectively reaching the Internet generation.

The need to recruit qualified men and women, both

military and civilian, to serve in the Air Force remains as

important today as it was when the service was established. A service population reflective of the strengths

of a diverse America will provide the necessary new talent required for today’s unique challenges. As the Air

Force succeeds in sending its message to young people

across the nation, the nation can be confident in a positive, high-quality response. For instance, more than

99% of those enlisting are high school graduates.

Education and Training

Recruiting good people into the Air Force is just the

beginning. They need training to perform highly technical work—the basis of the Air Force’s record of military

success. The Air Force continues to offer professional

military education (PME) programs that span the

careers of all members. From Airman Leadership

School to the Air War College, PME provides opportunities to all Air Force personnel, granting them the skills

and knowledge they need to manage Air Force

resources and to operate weapons systems.

The newest PME course, the Air and Space Basic

Course (ASBC) offered at Maxwell Air Force Base,

Alabama, is designed to meet the needs of newly commissioned officers and selected civilian interns. At the

direction of Air Force leadership, the ASBC and USAF

Senior NCO Academy launched an historic Combined

Ops Initiative, leveraging officer and enlisted PME in

providing an order of magnitude improvement in followership, leadership, and mentoring. The week-long

merger brings lieutenants and senior NCOs together in

joint classroom discussions, wargaming laboratory, and

field exercises. A post-graduation survey of junior grade

officer and senior NCO students showed an appreciation of valuable lessons learned, improved understanding of respective roles, increased need for effective

communication skills, and an emphasis on support for

professional relationships.

2003 Annual Financial Statement

5
Technical training courses are also a vital part of Air

Force training, instructing new and retraining airmen on

the fundamentals of their new career areas and the

detailed tasks they will face. For example, the 51-day

Security Forces Apprentice course teaches airmen all

aspects of their multi-faceted career field missions—

missions they will perform around the globe. In addition, the Community College of the Air Force (CCAF)

offers numerous courses leading to an Associates

degree and had awarded 243,899 degrees at the close

of FY 2003. 

In FY 2003, in a groundbreaking education initiative, 11

Air Force enlisted members were admitted to the Air

Force Institute of Technology (AFIT) in highly technical

areas in pursuit of a master’s degree. Given the greater

emphasis on a more technical Air Force, enlisted members will share in the responsibility to “meet the challenge” in the immediate years ahead by studying at a

preeminent institution.

A new officer education development program was

developed to better educate officers based on specific

career phases and Air Force needs. The model will permit short modular course completion, specific technical

training needs, and PME at sequenced points “just in

time” for individual and Air Force requirements. This

model incorporates best business practices in using

resources when and where needed.

United States Air Force 

6

Recruits with High School Diploma

99% 99% 99% 99% 99% 99%

0%

20%

40%

60%

80%

100%

120%

FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003

Recruits in Top Half of Entrance Test

73% 75% 75%

80%

76%

78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003
Retention

Enlisted retention rates were uncharacteristically high in

FY 2002 due to Stop Loss. As such, the Air Force

expects to meet two of the goals ending FY 2003 with a

61% reenlistment rate for first-term personnel, 73%

for second-term personnel and 95% for career airmen.

To help retain critical skills, in Apr 02 the Air Force

completed its initial re-recruiting program. The program concentrated on development engineers entering

critical decision points. The Air Force is seeking to institutionalize the re-recruiting program as a retention initiative and expand it to other critical Air Force specialties. In FY 2003, the Air Force announced the Critical

Skill Retention Bonus (CSRB) program for five designated critical officer skills. Payment of CSRB is viewed as

an important retention tool for these career fields—all

of which have been facing the lowest retention rates in

the Air Force for several years. 

The Air Force Reserve met its end strength goal of 100

percent.

Rated Retention

A special subset of the retention challenge is maintaining

the health of the rated force in order to preserve the

warfighting capability of the Air Force. The Air Force

boasts the world’s most efficient and talented support

force, combined with technologically superior, integrated air and space systems. However, retention of skilled

pilots, navigators, and Air Battle Managers (ABMs)

remains crucial to accomplishing operational missions.

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

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

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

economy and unprecedented airline hiring, along with

continued high operations tempo, contributed by the

end of FY 2001 to a shortage of approximately 1,200

pilots—9% of the requirement. In FY 2002 the pilot

shortfall dropped to approximately 600 pilots, or 5% of

the requirement. By the end of FY 2003, the pilot

shortfall is approximately 400 pilots, or 3% of the

requirement. This short-term increase is attributable to

the short-term decline in airline pilot hiring combined

with the positive retention effects of Air Force initiatives such as Aviator Continuation Pay (ACP) in addition

to the Permanent Rated Recall and Rated Retired Recall

programs. In FY 2003 the pilot long-term bonus “take

rate” (our best indicator of pilot retention trends) was

approximately 61%. This is an increase from a 47%

“take rate” during FY 2002. The total “take rate” for

initially eligible pilots was also up for FY 2003 at 67%

compared to 58% in FY 2002. However, because there

are fewer initially eligible pilots in this year group (due

to production in the mid-1990s) significant retention

challenges remain. In fact, Air Force inventory forecasts

estimate pilot shortfalls of 600-900 pilots through FY

2010. While airline hiring by the major airlines has

shrunk in the short term following September 11th

(from 4,000 new hires in FY 2001 to approximately 600

in FY 2003), two important points need to be considered: 1) that during lean economic times the airlines

tend to hire a higher percentage of former military

pilots (up to 75%) and 2) that the long range forecast of

airline hiring shows significant increases in the coming

years, due to a variety of factors, not the least of which

is a significant airline pilot retirement bubble beginning

2003 Annual Financial Statement

7
in 2005. As such, pilot retention will continue to be a

significant issue for the long-term health of Air Force

warfighting capability. 

Until the bonus was offered, 30% of the navigator force

was retirement eligible in the following two years and

nearly half could have retired within 4 years. At mid-FY

2003, half of those navigators accepted bonus agreements cutting the retirement eligible pool by 50%. The

bonus influenced navigators to stay in the service longer

and provided relief for HQ staff pilot shortfalls (HQ

level staff manning raised overall to 76% while pilot

rated staff positions were manned at 58%). ABM shortfalls were no less acute as ABM inventory was estimated to be approximately 11% short of requirements at a

time during which the demand for their expertise at

home and abroad was greatest. ABMs are a resource

critical to Air Force warfighting capabilities as they

operate in low-density/high demand missions and aircraft (AWACS, JSTARS, and GTACS). The ABM bonus

has been a great success with an aggressive “take rate”

of approximately 75% for FY 2003. As a result, initial

indications are that the ABM ACP has accelerated ABM

inventory wellness by three full years.

Overall, the Air Force’s integrated focus on retention

initiatives will continue to emphasize long-term rather

than short-term retention. Initiative options include:

increasing active duty service commitments, increasing

compensation, managing operations tempo, and

enhancing quality of life programs.

United States Air Force 

8

Enlisted Retention

94% 93% 91% 91% 90%

95% 95%

71% 69% 69% 70% 69%

80%

73%

56% 54%

49%

53% 56%

73%

61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003

Career Goal

Second

First

Pilot Retention—Cumulative Continuation Rates

71%

41%

49%

65%

75%

46% 45%

77%

87%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003
2003 Annual Financial Statement

9

Operational Performance

Air Force Flying Hour Program

The Air Force flying hour program was developed to

provide training opportunities to prepare units to support their mission to the warfighting commanders. The

execution of the President’s Budget (PB) flying hour

program is impacted by contingency operation support,

maintenance issues, fact-of-life impacts, aircraft flight

operations suspensions, aircraft delivery delays, weapon

system retirements and approved program changes.

Though the execution of the flying hour program does

not define unit readiness, it can be a forward indicator

of possible readiness issues. The MAJCOMs determine

the reasons for execution deviations to required courses of action may be determined. Additionally, these

evaluations provide insight into possible future-year

requirements.

FY 2003 flying hour program execution significantly

increased compared to the FY 2003 PB, particularly in

the fighters, bombers and tankers, to an overall execution rate of 101.9%. The execution was impacted by

the support of contingencies—OPERATION ENDURING FREEDOM and OPERATION IRAQI FREEDOM.

Flying hour program execution includes active Air Force

Congressionally-funded O&M hours. They do not

include incrementally funded contingency support

hours, Transportation Working Capital Fund hours, foreign national reimbursable training hours, Special

Operations hours and RDT&E hours.

Bonus Take Rate

30%

61%

67%

37%

47%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Long-Term Bonus “Take Rate” New Pilot Bonus “Take Rate”

FY 2001

FY 2002

FY 2003

Pilot Shortage

1200

900

400

0

200

400

600

800

1000

1200

1400

FY 2001

FY 2002

FY 2003
Weapon System Performance

The Air Force uses a variety of metrics to gauge the

performance of its weapon systems and organizations.

They are barometers for measuring the effectiveness of

organizational structures, training, manpower and

equipment levels, quality of spare parts, maintenance

actions, and a variety of other indicators of the Air

Force’s ability to provide mission-ready weapon systems to the warfighter. Chief among these performance

metrics are Mission Capable rates, Non-Mission

Capable rates, Cannibalization rates, and engine and

supply measures.

Mission Capable Rates

Mission Capable (MC) rates are perhaps the bestknown yardstick for measuring the readiness of Air

Force aircraft. MC rates reflect the percentage of aircraft, by fleet that is capable of performing at least one

of their assigned missions. The FY 2003 aggregate MC

rate of 75.9% is a slight improvement over the FY 2002

rate, and is based on a combined MC rate of A/O-10,

B-1, B-2, B-52, C-141, C-5, C-17, E-3, F-15, F-15E,

F-16, F-117, HC-130, KC-10, KC-135, HH-60, RQ-1,

and U-2 aircraft. MC rates categorized into Fighter,

Bomber, Strategic, and Other are drawn from the

aggregate fleet above. The FY 2003 MC rates for

Fighters, Bombers and Other categories showed a slight

drop from FY 2002 rates, while the Strategic fleet saw a

4% increase in MC rates.

United States Air Force 

10

Mission Capable Rates

76.2%

70.7%

70.1%

76.6%

75.8%

73.3%

76.5%

75.9% 76.1%

69.8%

66%

68%

70%

72%

74%

76%

78%

Aggregate Fighter Bomber Strategic Other

2002

2003

Non-Mission Capable Rates

Total Non-Mission Capable for Maintenance (TNMCM)

is a measure of a maintenance organization’s ability to

fix aircraft quickly and accurately and Total Non-Mission

Capable for Supply (TNMCS) measures spare parts

availability. The FY 2003 aggregate fleet TNMCM rate

remains unchanged at 19.3%, the lowest rate since FY

1997. TNMCS rates for the same period decreased

from 11.7% to 10.7%, representing a 9% improvement in delivering critical aircraft parts.

Other Key Metrics

Cannibalization (CANN) rates reflect the number of

cannibalization actions that occur per 100 sorties for a

particular weapon system. The aggregate CANN rate

for FY 2003 dropped 15% from the FY 02 rate of 9.4

actions per 100 sorties. The FY 2003 rate of 8.8

CANNs per 100 sorties represents the lowest CANN

rate since FY 95. Engine Not-Mission Capable-Supply

(ENMCS) rate for Air Force engines dropped from

13.2% to 10.1%, a remarkable 23% improvement.

Major improvements were seen in engines powering

F-15, F-16, F-117, C-17 and A-10 aircraft. Improving
War Readiness Engine (WRE) numbers complemented

the improved ENMCS rates as the number of WRE

engines increased despite the high wartime operational

tempo. The same engines that drove improvements in

ENMCS rates were responsible for an increase of 97

WRE engines above FY 2002 levels. Investments in

engine modifications, spare parts, and reliability-centered maintenance continued to pay “quality” dividends

throughout FY03. Engines powering the B-1, B-52, F15, F-16, and B-2 reached record setting on-wing operating times.

Aircraft MC rates are but one indicator of enhanced

weapon system readiness. Measuring the efficiency of

our depot program is equally important to increasing

the availability of aircraft to operational units. While

programmed depot maintenance and fleet modernization activities are critical to maintaining mission-ready

aircraft, the Air Force strives to make continual

improvements in business practices designed to

increase the availability of aircraft to operational units.

Evidence of the success of those efforts is the fact that

the number of aircraft in depot fell in FY 03 to 452

compared with the FY 2000 high of 557. For example,

the number of KC-135s in depot fell to less than 90 aircraft in FY 03, down from 176 aircraft in FY 2000.

Aircraft that are not in depot are on the flight line supporting operational missions.

Air Force weapon system performance measures for FY

2003 provide a snap-shot of the efforts of the logistics

community to support and provide combat-capable

forces that are organized, trained and equipped to provide efficient and effective combat and combat support

efforts across the full spectrum of military operations.

Financing the Fight

The Air Force business transformation vision for the

future is a single, capability-focused enterprise, with the

common goal of serving the warfighter’s needs and one

that closes the seams dividing our capabilities today.

Financial Management Transformation

Air Force Financial Management is continuing to make

strides toward its vision of being strategic partners with

Air Force commanders and decision-makers. In 2003,

the first phase of transformation initiatives were put

into motion with the establishment of 14 transformation

teams and participation across the Financial

Management community. Additionally, initiative task

forces represent nearly every MAJCOM and a broad

cross-section of our Air Force installations. The establishment of the Financial Management Transformation

Program Management Office (SAF/FMT) provided assistance in linking the overall Financial Management

Strategy to the initiative task force teams and the

MAJCOMs. This office also played a key role in leading

the development of the Air Force Financial

Management Strategic Plan (the Strategic Plan) for

2003-2008. The purpose of the Strategic Plan is to provide a roadmap that translates the lofty aspirations of

the vision into concrete, actionable, and measurable

steps. It communicates priorities, focuses our effort,

and serves as a filter to help where to invest our time. 

The President’s Management Agenda (PMA), August

2001, provides the broad government-wide framework

from which the Strategic Plan flows. The PMA identifies

five broad initiatives:

■ Strategic management of human capital

■ Competitive sourcing

■ Improved financial government

■ Expanded electronic government

■ Budget and performance integration

The Strategic Plan flows the PMA initiatives into a series

of 17 strategic objectives, each of which corresponds to

three themes—Air Force financial management’s top

priorities:

■ Warfighter Support: Centered on developing an

expeditionary-focused FM workforce (military and

2003 Annual Financial Statement

11
civilian) trained and prepared to support deployed

commanders and members.

■ Strategic Resourcing and Cost Management:

Maximizing resource effectiveness and cost efficiency by linking systems and resourcing strategies

to measurable performance. 

■ Information Integration and Reliability:

Providing relevant, timely, accurate and reliable

financial information that supports decision-making. 

Within these themes, each initiative will be evaluated

from the perspective of the mission, the customer,

internal processes and our people. Following are the

major initiatives that are being undertaken in an effort

to reach our vision. 

Establishment of the Information Technology Directorate

The Air Force has recognized the need for a single

source of data, standardization, and governance across

functional communities. To that end, during FY 2003,

SAF/FM championed the organization of the Financial

Management Information Systems & Technology

Directorate (SAF/FMPT). 

SAF/FMPT has laid out four primary goals which include

developing a financial management enterprise architecture, establishing a single authoritative source of data,

fielding a commercial-off-the-shelf (COTS) product for

accounting and finance and lastly, to develop a new

budget formulation system for the Air Force.

Additionally, a new information technology (IT) portfolio

management process for accounting and finance as well

as budgeting systems will be implemented to help

reduce the amount of duplicative and stand alone financial management systems throughout the Air Force. 

The budget/financial execution systems effort is based

at Maxwell AFB, AL, Gunter Annex, while the accounting and financial management portfolio is managed out

of Wright-Patterson AFB, OH. The guidance provided

by FMPT will assist in transitioning the Financial

Management community toward a single authoritative

source of data, which can provide leadership with critical decision support information.

Establishment of a Workforce Management Office

The goals set forth in the April 2002 Air Force Financial

Management Vision Statement provided the genesis for

the requirement to ensure the effective and efficient

management of the Financial Management workforce.

In FY 2003 the Workforce Management Directorate

(SAF/FMPW) was established with the mission to serve

and support our Air Force financial management workforce and organizations to optimally achieve Air Force

needs. In order to support this mission, FMPW has

partnered with internal FM offices and our Air Force

Personnel community to set forth revised Force

Development Programs. Additionally, significant accomplishments have been achieved toward ensuring that

education, training and development of the workforce

are aligned with the SAF/FM vision statement.

Air Force Customer Service Concept—Military Pay

Air Force personnel are our most important resource

and the Air Force must make every effort to provide

outstanding customer service in our Personnel and

Financial Services Offices. The initiative is a threephased approach to provide “one-stop shopping” for

customer services, delivering service to customers anytime, anywhere through use of the worldwide web and

interactive voice response technology. Taking advantage

of available technology, services will be provided using

the web via the AF Portal, contact centers under a single 800 number and a front-line cadre of customer

service providers. The consolidation of myPay and the

Air Force Personnel Center’s virtual MPF and virtual

CPF under the AF Portal is a major step toward

improving service to the customer. A key enabler for

the initiative is to ensure all members have access to

web-based applications; self-service kiosks strategically

deployed throughout an installation are one method of

ensuring easy access to payroll and personnel applications. Additionally, migration from paper-based processUnited States Air Force 

12
es to electronic processes will further streamline customer service operations.

Vendor/Commercial Pay Concept

The current process for vendor payment is complex

and fragmented, with multiple stakeholders, and relies

heavily on manual transaction processing. Contractual

payments require the requesting activity to submit a

purchase request, the contracting function to award the

contract, the vendor to fill the order and submit an

invoice, the requesting activity to receive and accept

the goods, and the paying office to make payment on

the invoice. The excessive billing costs are primarily

attributable to manual processing. During 2003, the

Vendor/Commercial Pay task force began introducing

widespread eCommerce to the Air Force using the

Wide Area Workflow system that was piloted in the

Pacific theater and in Air Education and Training

Command. Using this system, the Air Force, DFAS and

vendors will submit and receive the vast majority of

transactions associated with bidding on a contract,

billing for the goods or services, verifying receipt, and

payment via the internet. This process will save countless manhours and greatly reduce transaction errors,

which have in the past accounted for a substantial portion of the lost discounts and interest penalty payments. 

Reengineer Wing/Unit Level Decision Support 

The wing and unit level Financial Analysis offices are the

building blocks for Air Force budgets. All too often

these offices have spent an inordinate amount of time in

bookkeeping, enforcement of budget rules, preparing

budget documents and briefing staff members. While

each of these activities is important, the higher value to

the Air Force is the analysis and decision support they

provide to their commanders and senior leaders. In

phase one of this initiative, the task force is providing a

tool to all Air Force bases to speed the loading of budget targets in the accounting system. This is expected to

permit over 15,000 manhours, presently used for clerical work, to be diverted to the analytical efforts our

commanders are demanding. In the coming year, this

group will work toward reengineering resource management at the wing/unit level and streamlining the

financial plan, both of which are expected to make significant progress towards reducing transaction-based

workload.

Reengineer Acquisition Decision Support

The Air Force Cost process must provide enhanced

decision support for acquisition decisions based on

analysis that correctly balances warfighting requirements, available resources and risk. During Phase 1, the

task force thoroughly reviewed the current cost

processes, evaluated best practices from government

and industry, and examined the cost tools available for

use. In Phase 2 of the project, the task force will reengineer FM processes and practices to maximize stability

of acquisition funds, better support evolutionary acquisition and spiral development, maximize flexibility in

funds management, and develop a process that allows

for prioritization of Air Force acquisition programs.

Pilot programs are currently underway which are working towards achieving a shortened cost estimating

process while improving estimate quality. 

Combat Comptroller Concept

Supporting deployed operations around the world during peacetime, contingencies and war is a critical priority for financial management personnel. To make these

operations more efficient, the task force is aiming to

remove accounting transaction processing from the theater, decrease accounting reconciliation cycle time, and

reduce cash/check handling. Already the Air Force has

introduced a Knowledge Management link to be used

by deployed personnel, streamlined electronic transfer

of funds into deployed theaters, standardized routine

deployment processes, and improved training. The Air

Force is preparing to introduce more electronic banking

such as ATMs where possible, and stored value cards at

other locations. These will permit purchases from

Services or the BX without the use of cash. The task

force is also attempting to shift more accounting work

from the theater to a central back shop. The Central

Processing Site pilot consolidates the accounting pro2003 Annual Financial Statement

13
cessing and reconciliation at a single stateside location.

While this will not immediately reduce the requirement

for deployed personnel, it is step one of a multi-generational plan to do just that. Eventually, the task force

expects to see hand-held devices in the field, which

directly transmit purchase requests and other documents to this central accounting shop. In Phase 2, there

are continued efforts toward evaluating and improving

support at deployed locations to include developing a

standardized FM CONOPS. 

Reengineer the Air Force—DFAS Relationship

The Air Force is jointly working with the Defense

Finance and Accounting Service (DFAS) to ensure our

customers are provided with quality services and timely

accurate information. In Phase 1 of this initiative, the

task force has examined two key processes for internal

governmental accounting and found significant opportunities for improvement. In one pilot, accuracy of

accounting records was dramatically improved at the

two pilot bases and substantial funds, which had been

unnecessarily obligated for excessive periods of time,

were made available to commanders for key warfighting

requirements. The second pilot brings together

Financial Management, Contracting and DFAS to reduce

costs associated with intergovernmental purchases.

Through the active partnership with Contracting, significant amounts of surcharges from other governmental

agencies will be avoided and better contractual decisions will be made. In Phase 2 of this initiative, the

process of accounting for commercial purchases will be

examined. The initiative seeks to optimize the writing

of contracts to not only provide the good or service at

the lowest cost, but to simplify the billing, payment and

accounting associated with it. 

Financial Management Knowledge Management Concept

Air Force downsizing, reorganizations and personnel

cuts indicate that we are beyond “doing more with

less.” World-class financial tools are needed to help

financial management professionals become more productive, enhance their skills and continue to become

strategic partners with commanders and leaders at all

levels. Knowledge Management will do this by revolutionizing the way the Air Force trains, supports and

develops Financial Management personnel. It will capture and make available for reuse, a wide variety of corporate knowledge from across the entire financial management community. Hosted on Air Force Knowledge

Now, the knowledge management system is organized

into Communities of Practice that correspond to the

way we do business. For example, there are

Communities of Practice for Cost, Budget, Accounting

and Finance, Policy, Automated Tools and others. This

system offers a sophisticated online Wisdom and Advice

feature, document management capabilities, and various

collaboration tools such as online forums. The first

phase of this initiative built the infrastructure and began

to populate it with data. Subsequent efforts will include

additional technical innovation tools, an expanded user

base, additional Communities of Practice, and expanded

knowledge content. 

United States Air Force 

14
Working Capital Fund Concept

Air Force Materiel Command Focus on

the Warfighter

Air Force Materiel Command (AFMC) supports Air

Force warfighters and operations via three major business areas that all operate as revolving funds, i.e., they

charge users for the goods and services they provide. 

Depot Maintenance Activity Group (DMAG): The

DMAG is responsible for maintenance and repair of systems and spare parts while striving to meet or exceed

required standards for quality, timeliness and cost.

Repair and overhaul is accomplished by both Air Force

Materiel Command (AFMC) depots and contract operations.

Supply Management Activity Group (SMAG): The

SMAG provides inventory management of spare parts

and associated logistics support services. The major

components of SMAG include:

■ Materiel Support Division (MSD): The principal products of MSD are reparable spare parts and

assemblies unique to Air Force weapon systems,

i.e., those spare parts that can be repaired. The

sale of reparable parts represents about 90 percent

of total sales. The remainder represents sales of

some consumable items, i.e., items disposed of

when they fail. Although most consumable items

have been transferred to the Defense Logistics

Agency (DLA) for management, items designated

as design unstable remain on the AFMC product

list.

■ General Support Division (GSD): The GSD

provides both Air Force and non-Air Force customer’s inventory management of the consumable

spare parts that were transferred to DLA. 

■ Medical/Dental: The Surgeon General of the Air

Force is responsible for the overall management of

the Medical/Dental Division. The Medical/Dental

division purchases large quantities of medical commodities in order to sell small quantities directly to

the consumer, thereby providing effective support

necessary to maintain established norms in the

health care of USAF active military, retirees, and

their dependents. 

■ AF Academy: The Air Force Academy Cadet

Issue Division finances the purchase of uniforms,

uniform accessories, and computers for sale to

cadets. The division’s customer base includes more

than 4,000 cadets who receive distinctive uniforms

procured from a number of domestic manufacturing contractors.

Information Services Activity Group (ISAG): The

ISAG provides technological support for all levels of

information systems, from development of leading-edge

technologies to the maintenance and modification of

older legacy systems. It offers comprehensive support

to its customers, including the development, maintenance, integration, and sustainment of their combat

support information systems.

2003 Annual Financial Statement

Air Force Working Capital Fund

15

“Working capital funds provide a financial structure that

is intended to promote total cost visibility and full cost

recovery of support services. The funds are structured

around functions that provide goods and services to customers throughout DoD. Managers of these functions

prepare their proposed budgets based on anticipated

workload and expenses. At the same time, fund customers include in their budgets their planned requirements for goods and services from the various functions.

These budgets are submitted to the Components, and

the budget process sets rates for each function. Rates

are keyed to a unit of output that is unique to each function. The rates are stabilized for the budget year and are

intended to ensure that customers pay for the full cost of

goods and services they receive from the functions.” 

—Department of Defense (DoD) Costing
Sustained Exceptional Logistics Support

to the Warfighter—OPERATION IRAQI

FREEDOM

When the call came to support OPERATION IRAQI

FREEDOM (OIF), the men and women of the Air Force

Materiel Command (AFMC) responded. 

Extraordinary efforts included accelerating testing and

fielding of new technologies, standing up new units, and

deploying to the CENTCOM Area of Responsibility.

AFMC personnel stepped forward and showed their

dedication in working toward a common goal—supporting the warfighter. AFMC men and women worked

harder than ever to make sure America’s warfighters

had the capabilities they needed to carry out their missions. Warfighter sustainment experts worked around

the clock to get mission-critical parts to deployed people across the globe. They fostered and maintained the

mentality that there is nobody more important than the

person flying the mission and the person fixing the

aircraft.

Throughout the war, the Air Force showed the fourth

straight year of improvements across major readiness

indicators. The right application of AFMC/LG involvement was needed to produce these results, including

direct shipments from vendors to warfighters and finding the fastest transportation routes. At the height of

the war there were about 10,000 shipments per week,

with around 82,000 requisitions filled overall. Aggressive

work and coordination between AFMC, Air Mobility

Command, and commercial carriers led to this success. 

Supply Chain Managers (SCMs) ensured high-level visibility on critical spares and leveraged the supply chain to

reduce customer wait time. Parts constraints were

quickly resolved by the collaboration of contracting

offices and contractors, manufacturers, funds/budget

managers, and SCMs. Therefore, in FY 2003 Total NonMission Capable Due to Supply (TNMCS) rates were

the lowest since FY 1997, and were only 11 percent for

premier weapon systems. In fact, there was no sortie

lost due to lack of parts or munitions. TNMCS

improvements during OIF were driven by mobilization

of Air Force Reserve forces and the Air National Guard,

24/7 deployed operations, and deferred scheduled

maintenance for non-critical items. Furthermore, cannibalization actions were reduced 43 percent in FY 2003,

with April 2003 showing the best monthly cannibalization rate ever recorded.

AFMC warfighter support continues to improve, as

shown by Mission Capable (MICAP) hours (hours

accrued until warfighter order is filled) at its lowest historical level. In fact, MICAP hours for April FY 2003

were at the lowest level since MICAP metric tracking

began (May 2000), leading to mission capable rates in

FY 2003 at the highest levels since July 1996. Great

improvements were also made in Logistics Response

Times (LRT, the entire pipeline from requisition to base

level customer receipt). Prior to 9/11 the average was

37 days, but during OIF the average improved to 33.4

days. In addition to LRT improvements, issue and stockage effectiveness times have also moved in positive

directions. Engine readiness is at the highest levels since

the Gulf War. FY 2003 engine production continued to

run above budgeted goals.

Improving mission capable rates for aircraft and engines

were not the only ways AFMC enhanced Air Force

combat power. More aircraft were made available to

United States Air Force 

16

“Every sortie launched, every target confirmed, every

bomb dropped and every radio message completed in

support of our war on terrorism happens because AFMC

people continue to anticipate and meet the needs of

America’s warfighters.”

Gen. Lester L. Lyles

Former Commander, AFMC
the warfighter, depot production was above target in

FY 2003 and on-time-due-date performance continued

to trend upwards. In fact, AFMC averaged 44 days earlier than scheduled on aircraft delivery. As a result, in FY

2003 the warfighter had 20 percent more aircraft than

3 years ago. 

AFMC people indeed rose to the challenge of OIF, as

they continue to do for OPERATION NOBLE EAGLE

and OPERATION ENDURING FREEDOM. Simply, by

doing the critical work of supply, maintenance and logistics better and faster, AFMC dramatically illustrated

improved support to Air Force warfighters.

Transformation Efforts

As AFMC success in OIF shows, transformation of Air

Force operations and enterprise processes has already

yielded impressive results, but this transformation must

continue and expand to enable the flexible, responsive

force needed to face future challenges. Even as the Air

Force transformation process streamlines acquisition

and contracting procedures at the highest levels of the

Air Force, so also must transformation opportunities be

acted on at every level—from headquarters to the

flight-line airman.

AFMC, as the key Major Command in acquiring, supplying, maintaining and delivering Air Force material and

equipment, clearly met this challenge head-on in FY

2003. AFMC undertook across-the-board initiatives to

increase efficiency and reduce costs, all with the focus

on support to Air Force warfighters and operations.

Every aspect of AFMC processes is open to review, and

the Air Force has already benefited with in-place initiatives to provide more effective support. All AFMC functions and activities are involved, and the results in FY

2003 ranged from improving depot maintenance procedures to the integration of supply chain functions and

reshaping to free military positions for warfighting roles

to taking advantage of inherent civilian expertise. A

review of AFMC activity group transformation efforts

includes:

DMAG Transformation

A number of Depot Maintenance Reengineering and

Transformation initiatives have been approved. The

expected results from these initiatives equate to

improved readiness and support to the warfighter,

improvement in execution year financial results, and

improved processes. 

In Depot Maintenance Transformation (DMT), AFMC

has chartered a Business Process Reengineering (BPR)

team to integrate process improvement efforts on the

shop floor with production support processes and to

determine the most effective Maintenance, Repair, and

Overhaul (MRO) information system enabler. This

results in a “lean” focus on production and production

support, and each production line will implement 6S

(sort, straighten, scrub, standardize, safety, and sustain),

reconfigure into production cells, and construct a tailored logistics support plan that will provide all materials

and tools at point of use. DMAG will have enterprise

processes that will be more effective and efficient, and

will establish Production Support Cells (PSC) that will

support and be located on the shop floor. Production

shop floor change has already begun in some areas.

2003 Annual Financial Statement

17
Eighty percent of all production lines will be converted

to cellular flow by the end of 2004. 

As a result, future depot maintenance will incorporate:

■ Single piece cellular flow 

■ All resources at point of use at time of need

■ Flexible workforce 

■ Standard work

■ Visual controls

■ One easy-to-use information system

■ Right-sized, state of the art, facilities/equipment

■ Alignment of responsibility, authority, and accountability

■ Pro-active planning and scheduling of workload in

anticipation of customer requirements

SMAG Transformation Initiatives

The SMAG is implementing a major redesign of the

spares supply process through a set of initiatives

designed to improve support to the warfighter. These

initiatives will result in a fundamental reshaping of the

internal management processes and data systems used

on a daily basis to buy, repair, and distribute the thousands of different items needed to maintain weapon

systems in a mission-capable (MC) status. Five primary

initiatives address key areas of opportunity within the

spares process.

■ Purchasing and Supply Chain Management

(PSCM)—When implemented, PSCM will integrate

purchasing and supply processes into a single endto-end process that spans the Air Force supply system, reducing supply chain operating costs and

improving warfighter readiness. 

■ Weapon System Supply Chain Management (WS

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

manager position that reports directly to the

“CEO” or the Air Force equivalent, System

Program Director (SPD). It integrates the weapon

system supply chain to maximize spares support to

achieve weapon system availability. 

■ Logistics Enterprise Architecture (LOGEA)—

LOGEA is an initiative to develop a single authoritative strategic map of future Logistics business practices, systems, and organizations. It is a single

authoritative source defining operating and systems

models, aligns business and IT initiatives, and provides a vehicle to ensure transformation coordination across the Air Force and outside the Air

Force. 

■ Advanced Planning System (APS)—APS aims to

improve the process of translating warfighter needs

into executable logistics system support plans and

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

and resources across the Air Force supply chain. 

■ FY 04 Metrics Way Ahead—HQ AFMC/LG recognizes Aircraft Availability (AA) as the organizational

focus and is implementing a new approach to the

FY 04 Supply Performance Metrics. Metrics that

United States Air Force 

18
show a high correlation to AA, known as

Performance Measures, will be formally reported.

These measures include MICAP Hours and

Customer Wait Time (CWT). 

ISAG Transformation Initiatives

In response to changes in Air Force structure and operations, technology, customer needs and to take better

advantage of industry core competencies, the ISAG is

reshaping itself to meet future information technology

requirements for the warfighter. The end result is an

organization that is more net-centric, building an objectoriented skills base, and concentrating on architecture,

integration, and independent testing to assure top performance and interoperability in the systems we deploy

to our warfighters. One key in this reshaping involves

releasing military positions to be used in other warfighting roles as well as partnering with industry providers

for the development of systems while leveraging our

unparalleled acquisition and engineering expertise. 

In sum and across activity groups, AFMC recognizes

that Air Force transformation is a process that cannot

rest on its laurels. As such, AFMC is pressing ahead

with transformation initiatives, expanding the implementation of good ideas and improved procedures and

empowering all AFMC people to contribute to better

ways of doing business for the Air Force.

Air Force Working Capital Fund

(AFWCF) Overview

The Air Force Materiel Command (AFMC) accounts for

more than 95 percent of Air Force Working Capital

Fund (AFWCF) revenue and expense activity (excluding

the Transportation Working Capital Fund, which is managed by the United States Transportation Command).

The AFWCF consists of three functions: Supply

Management, Depot Maintenance, and Information

Services. These functions, referred to as activity groups,

supply their singular goods and services to Air Force

and DoD customers. Supply Management provides

inventory management for spare parts and associated

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

economical and responsive repair, overhaul, and modification of aircraft, missiles, engines, other major end

items, and their associated components. The

Information Services business area provides for the

maintenance and development of automated information systems for information-related activities of the Air

Force, Department of Defense (DoD), along with certain other Government agencies.

Working Capital Funds (WCFs) allow the Air Force to

accomplish the following:

■ Ensure readiness through reduced support costs,

stabilized rates, and customer service

■ 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

Funding Authority

The Office of the Under Secretary of Defense

(Comptroller) (OUSD(C)), through the Assistant

Secretary of the Air Force (Financial Management and

Comptroller) (SAF/FM), allocates to activity groups

their annual cost authority. Specific capital investment

targets are established to support the replacement and

modernization of equipment and other capital assets

through the budget, obligation, and procurement

processes.

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. The ability to generate cash is dependent on setting

rates to recover full costs, including prior-year losses,

2003 Annual Financial Statement

19
accurately projecting workloads, and meeting established operational goals.

Effective cash management is directly dependent on the

availability of accurate and timely data on cash levels

and operational results. Cash levels should be maintained to cover at least seven to 10 days of operational

costs as well as cash adequate to meet six months of

capital disbursements. The recommended cash range

for FY 2003, the FY 2003 result, and the FY 2004 goal

are below.

Cash management efforts continue to focus on analyzing data and developing tools to identify changes in

cash. Monthly, AFMC prepares a statement of sources

and uses of cash and use these statements to identify

areas of cash increases and drains. 

United States Air Force 

20

Activity Group FY 2003 Goal* FY 2003 Result** FY 2004 Goal*

DMAG $199.5 M $352.7 M $299.7 M

SMAG $143.5 M $316.5 M $399.5 M

ISAG $41.2 M $50.4 M $52.6 M

Transportation $860.0 M $1,742.2 M $304.0 M

Other $29.0 M $13.2 M $29.0 M

Total $1,273.2 M $2,475.0 M $1,084.8 M

Source: *FY04 PB, **30 September 03 Financial Data

AF Working Capital Fund

Cash Performance Measure

Air Force Working Capital Fund Organization

Air Force Working Capital Fund Activity Groups and Divisions

Information Services

Activity Group (ISAG)

AFMC-Managed

Materiel Systems

Group (MSG)

Depot Maintenance

Activity Group (DMAG)

AFMC-Managed

Supply Management

Activity Group (SMAG)

Medical-Dental

Air Force Academy

Materiel Support

AFMC-Managed

General Support

AFMC-Managed

Standard Systems

Group (SSG)

Air Force Working

Capital Fund Areas

Oklahoma City

Air Logistics Center

(OC-ALC)

Ogden Air

Logistics Center

(OO-ALC)

Warner-Robins

Air Logistics Center

(WR-ALC)

Aerospace

Maintenance and

Regeneration Center

(AMARC)
2003 Annual Financial Statement

21

* Excludes Overtime

FY03 SOURCE: SMAG and ISAG FY04 PB, DMAG 8203 Rpt.

AFWCF Civilian Personnel

1,144 1,131 1,056 1,172

22,265 21,729* 22,006 21,519*

1,808 1,749 2,225 2,175

0

5,000

10,000

15,000

20,000

25,000

30,000

FY 2002 End Strength FY 2002 Work Years FY 2003 End Strength FY 2003 Work Years

SMAG

DMAG

ISAG

FY03 SOURCE: SMAG and ISAG FY04 PB, DMAG 8203 Rpt.

AFWCF Military Personnel

862 839

1,138

817

210 298

151

179

49

50

60

59

0

200

400

600

800

1,000

1,200

1,400

FY 2002 End Strength FY 2002 Work Years FY 2003 End Strength FY 2003 Work Years

SMAG

DMAG

ISAG

Revenue for FY 2003

MSD

38%

GSD

14%

DMAG

44%

ISAG

4%

Academy

0% Med-Dent

0%

Source: *Mtly Exec Rpt 

Expenses for FY 2003

MSD

36%

GSD

14%

DMAG

46%

ISAG

4%

Med-Dent

0%

Academy

0%

Source: *Mtly Exec Rpt 
Depot Maintenance Activity Group

The Depot Maintenance Activity Group (DMAG)

repairs systems and spare parts which support the

warfighter in peacetime and provide sustainment to

combat forces in wartime. In peacetime, DMAG

enhances readiness by efficiently and economically

repairing, overhauling, and modifying aircraft, engines,

missiles, components, and software to meet the

warfighter demands. During wartime or contingencies,

the group shifts to surge repair operations and realign

capacity to support the warfighter’s immediate needs.

Mission Statement

Support an Air and Space Expeditionary Force by providing repair systems and spare parts that ensure readiness in peacetime and provide sustainment to combat

forces in wartime.

Customers, Products and Services

DMAG provides major overhaul and repair of systems

and spare parts while striving to meet or exceed

required standards for quality, timeliness, and cost. Both

the Air Force Material Command (AFMC) depots and

contract operations accomplish these goals.

Depot maintenance supports customers across the Air

Force. In addition to supporting the warfighter with

depot level repair of weapon systems, DMAG provides

storage, reclamation, and regeneration for equipment

not currently used by the active forces of all military

services. This work is done at the Aerospace

Maintenance and Regeneration Center at Davis

Monthan AFB, Arizona. 

The Depot Maintenance Activity Group has two principal objectives. The first objective is to provide organic

and contract depot repair capability for fielded and

emerging weapon systems, so warfighters have needed

mission-essential equipment. Secondly, DMAG ensures

the ability to rapidly respond to warfighter requirements driven by contingency operations. This requires

both short and long term strategies, and the depot

maintenance strategic plan guides the DMAG to have

the right workload capacity and capability to meet

depot maintenance: (a) peacetime support; (b) surge

and (c) core requirements.

Depot Maintenance Accounting and

Production System (DMAPS)

DMAPS is an integrated suite of systems providing

improved financial, production and material functions in

support of warfighter needs for quality organic depot

maintenance. During Fiscal Year 2003, AFMC completed implementation of the financial portion of the

DMAPS. This followed successful implementation of

production functions in Fiscal Year 2002. DMAPS brings

substantial improvement to financial management and

reporting for organic depot maintenance activities, to

include substantial compliance with legislative requirements, such as the Chief Financial Officers (CFO) Act.

The integrated suite of systems provides AFMC the

capability to capture actual and planned direct material

and direct labor at the task level and report this on a

daily basis. DMAPS also provides the capability to apply

overhead and general and administrative expenses on a

planned dollar rate per direct labor hour, giving organic

depot maintenance activities the capability to look at

production cost on a daily basis at the task level. Other

benefits include a standard DoD financial reporting system, a fully automated billing process, reduction of

some legacy systems and a consolidated fund control

process. 

Customer Support Performance

Measures

Customer Support Performance Measures for DMAG

consist primarily of Production Performance Measures

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

DMAG output. These are designed to achieve accountability at the appropriate depot maintenance level, the

Depot Maintenance Manager. They measure compliance

with DMAG goals.

United States Air Force 

22
Organic Production Hours: The maintenance hours

necessary to produce a product (i.e., aircraft, engines,

spares, software, etc.) or to provide a service.

Aircraft Days Held Index: The length of time that

the depot or depot maintenance contractor possesses

aircraft for maintenance or modifications.

Aircraft Due Date Performance: The ability of the

depot and depot maintenance contractors to produce

aircraft according to schedule.

Aircraft Quality Defect Rate: The ability of the

depot and depot maintenance contractors to produce

defect-free aircraft, ready for use by the customer.

Engine Quality Defect Rate: The ability of the depot

to produce engines that are defect free and ready for

use by the customer.

Exchangeable Quality Defect Rate: The ability of

the depot, to produce components that are defect free

and ready to use by the customer.

Financial Performance Measures

Financial Performance Indicators assess the financial

performance of the DMAG. They are designed to

achieve accountability at the appropriate level and

measure compliance with DMAG objectives.

The following represent the DMAG Financial

Performance Indicators for Organic. We are currently in

the process of realigning the Contract DMAG program,

to provide a more direct relation between customers

and repair contractors:

2003 Annual Financial Statement

23

Measure FY 2003 Goal* FY 2003 Result** FY 2004 Goal 

Organic Production Hours (DPSH) 22,083 K 23,302K**  22,136K

Aircraft Days Held Index (yr) <1.0 1.02 <1.0

Aircraft Due Date Performance >90 Percent 78 Percent >90 Percent

Aircraft Quality Defect Rate (18 mo avg) Varies by MDS 0.21*** Varies by MDS

Engine Quality Defect Free Percentage Varies by engine 0.04*** Varies by engine

Exchangeable Quality Defect Rate (Defects per item) 0.03 0.020*** 0.03

Source: *FY03 Depot Maint Mission Area Ops Plan, **30 Sep 03 Execution Data, ***Oct 02-Jun 03, **** FY04 PB

Organic Depot Maintenance

Customer Support Performance Measures

Measure FY 2003 Goal* FY 2003 Results** FY 2004 Goal*

Organic Net Operating Result (NOR) ($173.8) M ($116.9) M*** $107.2 M

Organic Expense Rate $193.05 $184.86 $221.12 

Source: *FY03 = 04PB excluding $109M planned reimbursement not provided during execution **FY03 30 Sep 03 Financial Data

Depot Maintenance

Financial Performance Measures

***$70M of the FY03 loss was a duplication of losses also reported in FY02

Organic Net Operating Result: The profit or loss

from annual operations and is based on work performed. Revenue includes amounts earned from stabilized sales rates and reimbursements. The goal of the

fund is to break even over the long run.

Organic Expense Rate: Estimated cost per hour for

work produced including all labor, material and business

operations costs. It provides managers visibility of cost

trends.
Supply Management Activity Group

Mission Statement

The SMAG provides policy, guidance, and resources to

meet Air Force needs for spare parts. SMAG manages

approximately two million items including weapon systems spare parts, medical/dental supplies and equipment, and items used for non-weapon systems applications. Materiel procured from vendors held in inventory

is for sale to authorized customers.

SMAG consists of four divisions: the Materiel Support

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

Medical/Dental Division, and Air Force Academy Cadet

Issue Division. The Air Force Materiel Command

(AFMC) manages MSD and GSD. The United States Air

Force Headquarters (HQ USAF) manages the

Medical/Dental Division and Air Force Academy Cadet

Issue Division. Since the onset of FY 2002,

Headquarters Defense Logistics Agency/Defense Energy

Service Center assumed management of the Fuels

Division.

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

reparable spare parts and some consumable spares.

The principal products of MSD are serviceable spare

parts and assemblies unique to Air Force weapon systems. 

The Retail Operations of the Air Force Working Capital

Fund is comprised of the General Support, Medical

Dental, and United States Air Force Academy Divisions.

Although each division operates independently they all

purchase large quantities of commodities in order to

sell small quantities directly to the ultimate consumer

(supporting the warfighter). Large bulk buys allow them

to take advantage of the economies of scale and achieve

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

GSD items support installation maintenance and administrative functions, field and depot maintenance of aircraft and other systems. GSD supports more than 150

Air Force installations throughout the world.

The Surgeon General of the Air Force is responsible for

the overall management of the Medical/Dental Division.

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

the health care of USAF active military, retirees, and

their dependents. The war reserve materiel (WRM)

requirement of this division is to provide medical supplies and equipment vital to support forces in combat

and contingency operations. 

The Air Force Academy Cadet Issue Division finances

the purchase of uniforms, uniform accessories, and

computers for sale to cadets. The division’s customer

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

manufacturing contractors.

Customers, Products, and Services

In addition to the management of various inventories,

the SMAG provides a wide range of logistics support

services, including requirements forecasting, item introduction, cataloging, provisioning, procurement, repair,

technical support, data management, item disposal, distribution management, and transportation.

United States Air Force 

24
SMAG provides support to a variety of customers.

During FY 2003, the customer base consisted primarily

of the following:

The supply business also provides initial provisioning

support to the Air Force Acquisition Executive. 

Customer Support Performance

Measures 

SMAG evaluated customer support performance of Air

Force managed items for FY 2003 based on the following indicators. These indicators provide feedback to

allow managers to assess quality of spares support provided and plan corrective action when needed. General

Support Division reports these indicators at the base

level not at the aggregate level. As a result of the FY

2004 Metrics Way Ahead initiative, future performance

measures will be reported on MICAP Hours and CWT.

Issue Effectiveness (IE), Stockage Effectiveness (SE),

Logistics Response Time (LRT), and Backorders are

now Process Indicators and will only be referenced as

part of root-cause analysis.

2003 Annual Financial Statement

25

SMAG Customers

Air Force Major

Commands

53%

Air Force Surgeon

General, Other*

8%

Air National Guard and

Air Force Reserves

17%

AFMC Depot

Maintenance and

Contractors

22%

*Other military services within the DoD, other agencies within the Federal Government, 

and Foreign Military Sales (FMS). Source: Mtly Exec Rpt

Measure FY 2003 Goal* FY 2003 Result** FY 2004 Goal***

Issue Effectiveness (IE) 65.1 Percent 69.3 Percent No Goal

Stockage Effectiveness (SE) 74.4 Percent 76.5 Percent No Goal

Logistics Response Time (LRT) 35.3 Days 26.9 Days No Goal

Backorder Reduction 177,281 Units 288,644 Units No Goal

MICAP 3,139,459 Hours 2,216,802 Hours 2,181,437

CWT No Goal 8.52 Days 8.34 Days

Materiel Support Division

Customer Support Performance Measures

Source: *FY03 Supply Mgnt Mission Area Ops Plan, **30 Sep 03 Execution Data, ***FY04 Sustainment Mission Area Ops Plan for 

Supply

Issue Effectiveness (IE): IE reflects the percentage of

time base supply satisfies base demands with stock off

the shelf, irrespective of authorized stock levels. The IE

supports the AFMC Expeditionary Combat Support

Enabling Task to “equip and sustain the war fighter with

reach back capability to the latest available technology

and resources.”

Stockage Effectiveness (SE): SE represents the percentage of time base supply satisfies base demands with

stock off the shelf, for items with authorized stock levels only.

Logistics Response Time (LRT): LRT measures the

average time taken to satisfy customer (base supply or

depot retail) requisitions for those Air Force managed

items that were not immediately available.

Backorders: A backorder is a demand placed on the

Air Force supply system that cannot be immediately satisfied from existing inventory. The SMAG strives to

reduce backorders by having parts on the shelf for

immediate issue and increasing war fighter readiness.

Mission Capability (MICAP) Hours: A MICAP backorder is a demand placed on the supply system that

cannot be immediately satisfied from existing inventory

and has been designated as affecting mission capability

by the customer. MICAP hours are accrued until the

order is filled. The SMAG strives to reduce MICAP

hours by having parts on the shelf for immediate issue

and thus increasing operational readiness.
United States Air Force 

26

Financial Performance Measures

SMAG measures financial performance based on the following indicators shown for MSD and GSD. These indicators allow effective and efficient utilization of funding

to support customer needs, while providing vital information needed for accurate budget forecasts.

Measure FY 2003 Goal* FY 2003 Result** FY 2004 Goal* (05 BER)

Revenue $6114.2 M $6,596.8 M $6,656.8 M 

Expenses $6013.5 M $6,170.2 M $6,511.7 M 

Net Operating Result (NOR) $100.7 M $426.6 M $145.1 M 

Unit Cost Target (UCT) 1.030 1.050 1.000

Source: *FY04 PB, **30 September 03 Financial Data (CFIS)

Supply Management

Financial Performance Measures

Materiel Support Division

Measure FY 2003 Goal* FY 2003 Result** FY 2004 Goal*

Revenue $2,088.1 M $2,451.8 M $2,379.0 M 

Expenses $2,088.1 M $2,397.5 M $2260.2 M 

Net Operating Result (NOR) $0 M $54.4 M $118.8 M 

Unit Cost Target (UCT) 1.000 1.077 1.000

Source: *FY04 PB, **30 September 03 Financial Data (CFIS)

Supply Management

Financial Performance Measures

General Support Division

Revenue: Revenues are amounts earned as a result of

normal operations and usually result from sale of, or

reimbursements for, goods and services provided to

DoD activities, other federal government agencies and

the public.

Expenses: Expenses are the use of resources during

an accounting period in carrying out the DoD’s mission.

They occur from rendering services, delivering or producing goods, or carrying out other mission related

activities and relate to normal operating activities. 

Net Operating Result (NOR): The NOR is the difference between revenue and expenses, i.e., a bottomline profit and loss indicator. The NOR objective of an

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

cycle. Setting rates that effectively offset the prior year

net profit or loss accomplishes this. 

Unit Cost Target (UCT): UCT is a limitation

imposed by the Office of the Under Secretary of

Defense (Comptroller) on the annual operating budget

(AOB), restricting obligations to a percentage of gross

sales. The AOB is the funding document providing the

authority to incur costs. The UCT is determined by

dividing costs by sales. Another description is the ratio

of obligations to gross sales. A definition for costs is an

obligation (excluding initial and capital expenses) and

credit returns. 
Information Services Activity Group

The Information Services Activity Group (ISAG) was

established to develop and maintain automated information systems for specific Air Force, DoD, and other

Government agencies. Two Air Force entities act as one

information technology provider activity under the

command of the Air Force Materiel Command,

Electronic Systems Center (ESC), at Hanscom Air

Force Base (AFB), Massachusetts. The two entities are

the Materiel Systems Group (MSG), located at WrightPatterson AFB, Ohio, and the Standard Systems Group

(SSG) located at Maxwell AFB-Gunter Annex, Alabama.

Mission Statement

Develop, acquire, integrate, implement, protect and

sustain combat support information systems for the

United States Air Force and Department of Defense

customers.

Customers, Products, and Services

ISAG provides information products and services via

two business lines—the information technology solutions line (rate based) and the commercial information

technology (surcharge) line.

The information technology solutions business line

develops, acquires, and sustains automated information

systems in two target markets: 1) AFMC-level supply

management and depot maintenance information systems and 2) Air Force-wide, standardized support systems. This includes a 24-hour, seven-day help desk for

customers to call for hardware and software support.

The ISAG provides their service based on service-level

agreements (SLAs) with known customers which specify how many direct billable hours of service per year

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

The commercial information technology business line

provides computer hardware, software, peripheral

equipment and related services to the Department of

the Air Force, other agencies including DoD, and private parties (as authorized by law) through their webbased “Virtual Superstore” called “AFWay.” Thousands

of customers across the Air Force and DoD enjoy onestop shopping from the online catalog of computer and

computer-related products and services. For providing

this service, the commercial information technology line

collects a small surcharge, which is embedded into the

price of the item, on equipment and services sold.

Customer Support Performance

Measures 

ISAG measures the quality of support to its consumer

base using several performance indicators. Critical to

the ISAG customer is the timeliness of software releases required to either fix deficiency reports or to make

enhancements to the software. In addition, the ISAG

customers demand timely resolution to their software

problems or discrepancies.

2003 Annual Financial Statement

27

Measure FY 2003 Goal* FY 2003 Result** FY 2004 Goal***

Software Releases 95 Percent 99 Percent TBD

Priority 1 Deficiency Reports 66 Percent 92 Percent TBD

Priority 2 Deficiency Reports 75 Percent 96 Percent TBD

Source: *CDA Internal Goal/Metric, **Mtly Exec Rpt

Information Services

Customer Support Performance Measures

*** Due to ongoing transformation efforts, ISAG has suspended reporting of these Non-Financial Metrics. Once transformation is

complete, a joint MSG/SSG team will attempt to design metrics that better support a netcentric philosophy and will reflect a balanced 

scorecard approach.
United States Air Force 

28

Software Releases: The percentage of software

which is delivered on time.

Priority 1 Deficiency Reports: Percentage of reported priority 1 software deficiencies resolved within 48

hours. Priority 1 software deficiencies are those deficiencies which if not resolved, will prevent the accomplishment of an essential mission capability.

Priority 2 Deficiency Reports: Percentage of reported priority 2 software deficiencies resolved within 45

days. Priority 2 software deficiencies are those deficiencies which if not resolved, will affect technical, cost,

schedule risks to the project or to the life cycle support

of the system, and no workaround is known.

Financial Performance Measures

Measure FY 2003 Goal* FY 2003 Result** FY 2004 Goal*

Revenue $608.0 M $658.5 M $641.4 M

Cost of Operations (Expenses) $613.2 M $675.2 M $631.3 M

Net Operating Result (NOR) ($5.2) M ($16.7) M $10.1 M

Source: *FY04 PB, **30 Sep 03 Financial Data

Information Services

Financial Performance Measures

Revenue: Revenue is earned through the sale of direct

billable labor hours at the ISAG composite rate; direct

reimbursements for pass-through contract efforts and

extraordinary expenses (e.g., mission-unique travel,

equipment, and supplies); and the collection of commercial information technology surcharges. 

Cost of Operations (Expenses): Cost of operations

(expenses) measures the resources consumed in filling

customer orders. These costs include labor and nonlabor expenses, both direct and overhead. 

Net Operating Result (NOR): The NOR is the difference between revenue and expenses, i.e., a bottomline profit and loss indicator. The NOR objective of an

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

cycle. Setting rates that effectively offset the prior year

net profit or loss accomplishes this.
Fiscal Year 2003

Annual Financial Statements

2003 Annual Financial Statement

United States Air Force

29
Limitations of the Financial Statements

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

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

While the statements have been prepared from the books and records of the entity, in accordance with the formats

prescribed by the Office of Management and Budget, the statements are in addition to the financial reports used to

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

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

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

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

other instances when the Department’s application of the accounting standards is different from the auditor’s application of the standards. In those situations, the Department has reviewed the intent of the standard and applied it in a

manner that management believes fulfills that intent. 

The statements should be read with the realization that they are for a component of the United States Government,

a sovereign entity. One implication of this is that the liabilities cannot be liquidated without legislation that provides

resources to do so.

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

Standard No. 6 to require the capitalization and depreciation of military equipment (formerly known as National

Defense Property, Plant and Equipment) for fiscal years (FY) 2003 and beyond, and encouraged early implementation.

Accordingly, the Department began the process of developing and reporting values for these assets in notes to the

Balance Sheet, beginning in FY 2002.

United States Air Force 

30
2003 Annual Financial Statement

31

Principal Statements

General Funds
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United States Air Force 

32
Consolidated Balance Sheet—General Funds

As of September 30, 2003 and 2002 ($ in Thousands)

2003 Annual Financial Statement

33

 2003 

Consolidated

2002 

Consolidated

1. ASSETS (Note 2) 

 A. Intragovernmental: 

 1. Fund Balance with Treasury (Note 3) 

 a. Entity $ 59,714,038 $ 47,888,000

 b. Non-Entity Seized Iraqi Cash 0 0

 c. Non-Entity-Other 52,503 54,750

 2. Investments (Note 4) 712 708

 3. Accounts Receivable (Note 5) 541,429 443,154

 4. Other Assets (Note 6) 339,093 4,989

 5. Total Intragovernmental Assets $ 60,647,775 $ 48,391,601

 B. Cash and Other Monetary Assets (Note 7) $ 147,926 $ 140,645

 C. Accounts Receivable (Note 5) 772,500 1,017,910

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property (Note 9) 51,815,831 28,817,564

 F. General Property, Plant and Equipment (Note 10) 112,786,130 24,247,152

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 9,912,151 7,535,914

2. TOTAL ASSETS $ 236,082,313 $ 110,150,786

3. LIABILITIES (Note 11) 

 A. Intragovernmental: 

 1. Accounts Payable (Note 12) $ 1,413,940 $ 1,124,733

 2. Debt (Note 13) 0 134

 3. Environmental Liabilities (Note 14) 0 0

 4. Other Liabilities (Note 15 & Note 16) 1,623,905 2,179,087

 5. Total Intragovernmental Liabilities $ 3,037,845 $ 3,303,954

 B. Accounts Payable (Note 12) $ 7,080,909 $ 6,206,967

 C. Military Retirement Benefits and Other Employment-Related 1,262,267 1,211,045

 Actuarial Liabilities (Note 17) 

 D. Environmental Liabilities (Note 14) 8,110,403 8,454,564

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 & Note 16) 4,520,888 3,987,188

 G. Debt Held by Public (Note 13) 0 0

4. TOTAL LIABILITIES $ 24,012,312 $ 23,163,718

5. NET POSITION 

 A. Unexpended Appropriations (Note 18) $ 50,742,317 $ 39,543,850

 B. Cumulative Results of Operations 161,327,684 47,443,218

6. TOTAL NET POSITION $ 212,070,001 $ 86,987,068

7. TOTAL LIABILITIES AND NET POSITION $ 236,082,313 $ 110,150,786

The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Net Cost—General Funds

For the years ended September 30, 2003 and 2002 ($ in Thousands)

United States Air Force 

34

 2003 

Consolidated

2002 

Consolidated

1. Program Costs 

 A. Intragovernmental Gross Costs $ 26,846,664 $ 21,820,712

 B. (Less: Intragovernmental Earned Revenue) -3,986,411 -2,327,324

 C. Intragovernmental Net Costs $ 22,860,253 $ 19,493,388

 D. Gross Costs With the Public 99,803,267 72,927,138

 E. (Less: Earned Revenue From the Public) -836,158 -680,711

 F. Net Costs With the Public $ 98,967,109 $ 72,246,427

 G. Total Net Cost $ 121,827,362 $ 91,739,815

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ 121,827,362 $ 91,739,815

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.
Consolidated Statement of Changes in Net Position—General Funds

For the years ended September 30, 2003 and 2002 ($ in Thousands)

2003 Annual Financial Statement

35

 2003 

Consolidated

2002 

Consolidated

CUMULATIVE RESULTS OF OPERATIONS 

1. Beginning Balances $ 47,443,218 $ 70,732,397

2. Prior period adjustments (+/-) 122,475,076 -31,869,730

3. Beginning Balances, as adjusted 169,918,294 38,862,667

4. Budgetary Financing Sources: 

 4.A. Appropriations received 0 0

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

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

 4.D. Appropriations used 113,384,126 99,437,408

 4.E. Nonexchange revenue 0 0

 4.F. Donations and forfeitures of cash and cash equivalents 9,096 12,682

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

 4.H. Other budgetary financing sources (+/-) -678,772 246,474

5. Other Financing Sources: 

 5.A. Donations and forfeitures of property 0 0

 5.B. Transfers-in/out without reimbursement (+/-) -110,688 26,728

 5.C. Imputed financing from costs absorbed by others 632,990 597,076

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

6. Total Financing Sources 113,236,752 100,320,368

7. Net Cost of Operations (+/-) 121,827,362 91,739,815

8. Ending Balances $ 161,327,684 $ 47,443,220

UNEXPENDED APPROPRIATIONS 

1. Beginning Balances $ 39,543,850 $ 39,006,789

2. Prior period adjustments (+/-) 0 0

3. Beginning Balances, as adjusted 39,543,850 39,006,789

4. Budgetary Financing Sources: 

 4.A. Appropriations received 124,225,931 96,952,072

 4.B. Appropriations transferred-in/out (+/-) 2,179,806 5,084,803

 4.C. Other adjustments (rescissions, etc) (+/-) -1,823,144 -2,062,406

 4.D. Appropriations used -113,384,126 -99,437,408

 4.E. Nonexchange revenue 0 0

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

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

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

5. Other Financing Sources: 

 5.A. Donations and forfeitures of property 0 0

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

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

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

6. Total Financing Sources 11,198,467 537,061

7. Net Cost of Operations (+/-) 0 0

8. Ending Balances $ 50,742,317 $ 39,543,850

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.
Combined Statement of Budgetary Resources—General Funds

For the years ended September 30, 2003 and 2002 ($ in Thousands)

United States Air Force 

36

 2003 

Combined

2002 

Combined

BUDGETARY FINANCING ACCOUNTS 

BUDGETARY RESOURCES 

1. Budget Authority: 

 1a. Appropriations received $ 124,235,723 $ 96,329,855

 1b. Borrowing authority 0 0

 1c. Contract authority 0 0

 1d. Net transfers (+/-) 1,888,215 4,954,597

 1e. Other 0 0

2. Unobligated balance: 

 2a. Beginning of period 6,066,510 7,203,289

 2b. Net transfers, actual (+/-) 291,591 130,206

 2c. Anticipated Transfers balances 0 0

3. Spending authority from offsetting collections: 

 3a. Earned 0 0

 1. Collected 7,802,547 6,551,584

 2. Receivable from Federal sources -322,918 274,507

 3b. Change in unfilled customer orders 0 0

 1. Advance received 213,465 106,478

 2. Without advance from Federal sources 472,167 -1,182

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

 3d. Transfers from trust funds 0 0

 3e. Subtotal 8,165,261 6,931,387

4. Recoveries of prior year obligations 1,955,959 1,051,593

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -1,806,362 -2,062,413

7. Total Budgetary Resources $ 140,796,897 $ 114,538,514

STATUS OF BUDGETARY RESOURCES 

8. Obligations incurred: $ 

 8a. Direct $ 123,375,566 $ 100,622,101

 8b. Reimbursable 8,231,386 7,849,904

 8c. Subtotal 131,606,952 108,472,005

9. Unobligated balance: 

 9a. Apportioned 8,320,595 5,268,178

 9b. Exempt from apportionment 2,573 4,607

 9c. Other available -1 -1

10. Unobligated Balances Not Available 866,778 793,725

11. Total, Status of Budgetary Resources $ 140,796,897 $ 114,538,514

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS: 

12. Obligated Balance, Net - beginning of period $ 41,822,195 $ 37,049,171

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

14. Obligated Balance, Net - end of period: 

 14a. Accounts receivable -1,159,047 -1,481,965

 14b. Unfilled customer order from Federal sources -937,374 -465,207

 14c. Undelivered orders 42,168,646 34,030,703

 14d. Accounts payable 10,469,360 9,738,663

15. Outlays: 

 15a. Disbursements 120,782,356 102,374,064

 15b. Collections -8,016,013 -6,658,063

 15c. Subtotal 112,766,343 95,716,001

16. Less: Offsetting receipts -156,704 -121,154

17. Net Outlays $ 112,609,639 $ 95,594,847

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
Combined Statement of Financing—General Funds

For the years ended September 30, 2003 and 2002 ($ in Thousands)

2003 Annual Financial Statement

37

 2003 

Combined

2002 

Combined

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

1. Obligations incurred $ 131,606,952 $ 108,472,005

2. Less: Spending authority from offsetting collections -10,121,221 -7,982,980

 and recoveries (-) 

3. Obligations net of offsetting collections and recoveries 121,485,731 100,489,025

4. Less: Offsetting receipts (-) -156,704 -121,154

5. Net obligations 121,329,027 100,367,871

Other Resources 

6. Donations and forfeitures of property 0 0

7. Transfers in/out without reimbursement (+/-) -110,688 26,727

8. Imputed financing from costs absorbed by others 632,992 597,076

9. Other (+/-) 0 0

10. Net other resources used to finance activities 522,304 623,803

11. Total resources used to finance activities 121,851,331 100,991,674

Resources Used to Finance Items not Part 

of the Net Cost of Operations 

12. Change in budgetary resources obligated for goods, 

 services and benefits ordered but not yet provided 

 12a. Undelivered Orders (-) -8,331,143 -2,222,784

 12b. Unfilled Customer Orders 685,633 105,295

13. Resources that fund expenses recognized in prior periods 0 -651,941

14. Budgetary offsetting collections and receipts that 9,106 0

 do not affect net cost of operations 

15. Resources that finance the acquisition of assets -19,120,713 -10,859,967

16. Other resources or adjustments to net obligated resources 

 that do not affect net cost of operations 

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

 Entity's Budget (-) 0 0

 16b. Other (+/-) 110,688 0

17. Total resources used to finance items not -26,646,429 -13,629,397

 part of the net cost of operations 

18. Total resources used to finance the net cost of operations 95,204,902 87,362,277

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 Periods: 

19. Increase in annual leave liability 478,341 -71,316

20. Increase in environmental and disposal liability -344,161 1,117,408

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

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

23. Other (+/-) 14,770 73,202

24. Total components of Net Cost of Operations that 148,950 1,119,294

 will require or generate resources in future periods 

Components not Requiring or Generating Resources: 

25. Depreciation and amortization 13,282,864 1,795,095

26. Revaluation of assets or liabilities (+/-) 1,641,043 3,715,480

27. Other (+/-) 11,549,603 -2,252,331

28. Total components of Net Cost of Operations that 26,473,510 3,258,244

 will not require or generate resources 

29. Total components of net cost of operations that 26,622,460 4,377,538

 will not require or generate resources in the current period 

30. Net Cost of Operations 121,827,362 91,739,815

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

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Footnotes to the

Principal Statements

2003 Annual Financial Statement

General Funds

39
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United States Air Force 

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Note 1. Significant Accounting Policies

1.A. Basis of Presentation

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

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

“Government Management Reform Act (GMRA) of 1994” and other appropriate legislation. The financial statements

have been prepared from the books and records of the Air Force in accordance with “Department of Defense

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

and Content of Agency Financial Statements,” and to the extent possible, Federal Generally Accepted Accounting

Principles (GAAP). The accompanying financial statements account for all resources for which the Air Force is responsible except that information relative to classified assets, programs, and operations that have been excluded from the

statement or otherwise aggregated and reported in such a manner. The information provided is no longer classified.

The Air Force’s financial statements are in addition to the financial reports also prepared by the Air Force pursuant to

OMB directives that are used to monitor and control the Air Force’s use of budgetary resources.

The Air Force is unable to implement fully all elements of Federal GAAP and the OMB Bulletin No. 01-09 due to limitations of both its financial and nonfinancial processes and feeder systems. Reported values and information for the Air

Force’s major asset and liability categories are derived largely from the nonfinancial inventory and logistic feeder systems. These systems were designed to support reporting requirements focusing on maintaining accountability over

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

Federal GAAP. As a result, the Air Force currently cannot implement every aspect of GAAP and the OMB Bulletin

No. 01-09. The Air Force continues to implement process and system improvements addressing the limitation of its

financial and nonfinancial feeder systems.

The Air Force continues to enter material amounts of unsupported accounting entries. Financial and non-financial

feeder systems continue to lack sufficient customer identification necessary to accurately process eliminations. The

issue has been addressed as part of the Air Force plan for gaining a favorable opinion by FY 2007. This was also disclosed in the DoD Agency wide Footnote 1. 

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

1.B. Mission of the Reporting Entity

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

Security Act Amendments of 1949 established the Department of Defense (DoD) and made the Air Force a department within DoD. The overall mission of the Air Force is to defend the United States through control and exploitation of air and space.

The accounts used to prepare the statements are classified as entity/nonentity. Entity accounts consist of resources

the agency has authority to decide how to use or is legally obligated to use to meet entity obligations. Nonentity

accounts are assets held by an entity but are not available for use in operations.

The Air Force incorporates internal controls, reconciliations, management by exception reports, and other management control information into the accounting systems. 

When possible, the financial statements are presented on the accrual basis of accounting as required by federal

accounting standards. 

2003 Annual Financial Statement

41
Following is a list of Air Force account numbers and titles (all accounts are entity accounts unless otherwise noted):

Air Force Account Number Title

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

57 * 0810 Environmental Restoration, Air Force

57 * 1999 Unclassified Receipts and Expenditures, Air Force

57 * 3010 Aircraft Procurement, Air Force

57 * 3011 Procurement of Ammunition, Air Force

57 * 3020 Missile Procurement, Air Force

57 * 3080 Other Procurement, Air Force

57 * 3300 Military Construction, Air Force

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

57 * 3500 Military Personnel, Air Force

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

57 * 3700 Personnel, Air Force Reserve

57 * 3730 Military Construction, Air Force Reserve

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

57 * 3830 Military Construction, Air National Guard

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

57 * 3850 Personnel, Air National Guard

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

57 X 8418 Air Force Cadet Fund

57 X 8928 Air Force General Gift Fund

57 * 3XXX Budget Clearing Accounts

57 * 6XXX (Nonentity) Deposit Fund Accounts

1.C. Appropriations and Funds

The Air Force’s appropriations and funds are divided into general, working capital (revolving), trust, special, and

deposit funds. These appropriations and funds are used to fund and report how the resources have been used in the

course of executing the Air Force’s missions. These notes describe attributes of these funds.

■ General funds are used for financial transactions arising under congressional appropriations, including personnel,

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

■ Working Capital fund activities are reported in a separate set of audited financial statements and related footnotes.

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

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

■ Special funds account for Air Force receipts earmarked for a specific purpose.

■ Deposit funds generally are used to: (1) hold assets for which the Air Force is acting as an agent or a custodian or

whose distribution awaits legal determination, or (2) account for unidentified remittances.

United States Air Force 

42
1.D. Basis of Accounting

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

by Federal GAAP. For FY 2003, the Air Force’s financial management systems are unable to meet all of the requirements for full accrual accounting. Many of the Air Force’s financial and nonfinancial feeder systems and processes

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

designed to collect and record financial information on the full accrual accounting basis as required by Federal GAAP.

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

systems and processes into compliance with all elements of Federal GAAP. One such action is the current revision of

its accounting systems to record transactions based on the United States Government Standard General Ledger

(USSGL). Until such time as all of the Air Force’s financial and nonfinancial feeder systems and processes are updated

to collect and report financial information as required by Federal GAAP, the Air Force’s financial data will be based on

budgetary transactions (obligations, disbursements, and collections), transactions from nonfinancial feeder systems,

and adjusted for known accruals of major items such as payroll expenses, accounts payable, and environmental liabilities. However, when possible, the financial statements are presented on the accrual basis of accounting as required.

One example of information presented on the budgetary basis is the data on the Statement of Net Cost (SONC).

Much of this information is based on obligations and disbursements and may not always represent all accrued costs.

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

Air Force is in the process of reviewing available data and attempting to develop a cost reporting methodology that

balances the need for cost information required by the Statement of Federal Financial Accounting Standard (SFFAS)

No. 4, “Managerial Cost Accounting Concepts and Standards for the Federal Government,” with the need to keep

the financial statements from being overly voluminous.

1.E. Revenues and Other Financing Sources

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

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

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

costs incurred or services performed on behalf of other federal agencies and the public. Revenue is recognized when

earned under the reimbursable order process.

The Air Force does not include non-monetary support provided by U.S. Allies for common defense and mutual security in its list of other financing sources that appears in the Statement of Financing. The U.S. has agreements with foreign countries that include both direct and indirect sharing of costs that each country incurs in support of the same

general purpose. 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 serviced in a port. DoD is reviewing these types of financing and cost

reductions in order to establish accounting policies and procedures to identify what, if any, of these costs are appropriate for disclosure in the DoD and Air Force financial statements in accordance with generally accepted accounting

principles. Recognition of support provided by host nations would affect both financing sources and recognition of

expenses.

1.F. Recognition of Expenses

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

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

items such as payroll expenses, accounts payable, and environmental liabilities. Expenditures for capital and other

long-term assets are not recognized as expenses in the Air Force’s operations until depreciated in the case of

Property, Plant, and Equipment (PP&E) or consumed in the case of Operating Materials and Supplies (OM&S). Net

increases or decreases in unexpended appropriations are recognized as a change in the net position.

2003 Annual Financial Statement

43
Certain expenses, such as annual and military leave earned but not taken, are financed in the period in which payment

is made.

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

19.I, Intragovernmental Expenses and Revenue for disclosure of adjustment amounts.

1.G. Accounting for Intra-governmental Activities

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

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

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

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

Debt issued by the federal government and the related costs are not apportioned to federal agencies. The Air Force’s

financial statements, therefore, do not report any portion of the public debt or interest thereon, nor do the statements report the source of public financing whether from issuance of debt or tax revenues.

Financing for the construction of DoD facilities is obtained through budget appropriations. To the extent this financing

ultimately may have been obtained through the issuance of public debt, interest costs have not been capitalized since

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

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

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

Additionally, employees and personnel covered by FERS and MRS also have varying coverage under Social Security.

The Air Force funds a portion of the civilian and military pensions. Reporting civilian pension under CSRS and FERS

retirement systems is the responsibility of the Office of Personnel Management (OPM). The Air Force recognizes an

imputed expense for the portion of civilian employee pensions and other retirement benefits funded by the OPM in

the Statement of Net Cost; and recognizes corresponding imputed revenue from the civilian employee pensions and

other retirement benefits in the Statement of Changes in Net Position. 

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

must be eliminated. However, the Air Force, as well as the rest of the federal government, cannot accurately identify

all intragovernment transactions by customer. The Defense Finance and Accounting Service (DFAS) is responsible for

eliminating transactions between components or activities of the Air Force. For FYs 1999 and beyond, seller entities

within the Department provided summary seller-side balances for revenue, accounts receivable, and unearned revenue to the buyer-side internal DoD accounting offices. In most cases, the buyer-side records have been adjusted to

recognize unrecorded costs and accounts payable. Intra-Air Force balances were then eliminated. 

The Department of the Treasury, Financial Management Service (FMS) is responsible for eliminating transactions

between the Department and other federal agencies. In September 2000, the FMS issued the “Federal

Intragovernmental Transactions Accounting Policies and Procedures Guide.” The DoD was not able to fully implement

the policies and procedures in this guide related to reconciling intragovernmental assets, liabilities, revenues and

expenses for nonfiduciary transactions. The Air Force, however, was able to implement the policies and procedures

contained in the “Intragovernmental Fiduciary Transactions Accounting Guide,” as updated by the “Federal

Intragovernmental Transactions Accounting Policies and Procedures Guide,” issued October 2002, for reconciling

intra-governmental transactions. These transactions pertain to investments in Federal securities, borrowings from the

United States (U.S.) Treasury and the Federal Financing Bank, Federal Employees’ Compensation Act transactions

with the Department of Labor (DoL), and benefit program transactions with the OPM.

United States Air Force 

44
1.H. Transactions with Foreign Governments and International Organizations

Each year, the DoD Components sell defense articles and services to foreign governments and international organizations, primarily under the provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act,

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. Customers may be required to make payments in advance.

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

The Air Force’s financial resources are maintained in U.S. Treasury accounts. The majority of cash collections, disbursements, and adjustments are processed worldwide at the DFAS, Military Services, and the USACE disbursing stations, as well as the Department of State financial service centers. Each disbursing station prepares monthly reports

which provide information to the U.S. Treasury on check issues, electronic fund transfers, interagency transfers and

deposits.

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

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

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

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

Differences between accounting offices’ detail-level records and Treasury’s FBWT accounts are disclosed in Note

21.B, specifically, differences caused by in-transit disbursements and unmatched disbursements (where the specific

disbursement has not been recorded in the appropriate accounting offices’ detail-level records).

1.J. Foreign Currency

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

handle gains and losses from foreign currency transactions for five general fund appropriations (operation and maintenance, military personnel, military construction, family housing operation and maintenance, and family housing construction). Gains and losses are computed as the variance between the exchange rate current at the date of payment

and a budget rate established at the beginning of each fiscal year. Foreign currency fluctuations related to other

appropriations require adjustment to the original obligation amount at the time of payment. These currency fluctuations are not identified separately. Material disclosures are provided at Note 7.

1.K. Accounts Receivable

As presented in the Balance Sheet statement, accounts receivable include accounts, claims, and refunds receivable

from other federal entities or from the public. Allowances for uncollectable accounts due from the public are based

upon analysis of collection experience by fund type. The Department does not recognize an allowance for estimated

uncollectable amounts from other federal agencies. Claims against other federal agencies are to be resolved between

the agencies. Material disclosures are provided at Note 5.

1.L. Loans Receivable. As Applicable.

Not applicable.

1.M. Inventories and Related Property

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

National Defense Property, Plant, and Equipment, revises accounting principles for military equipment (previously

referred to as National Defense Property, Plant, and Equipment). The standard renames National Defense Property,

Plant, and Equipment to military equipment, classifies military equipment as general property, plant, and equipment,

and requires the capitalization and depreciation of the cost of military equipment, including the cost of modifications

2003 Annual Financial Statement

45
and upgrades. Likewise, military equipment (previously referred to as National Defense Property, Plant, and

Equipment) also includes items which will now be classified as Operating Materials and Supplies. 

Implementation of the new accounting principles requires the adjustment of the October 1, 2002, Operating

Materials and Supplies balance to recognize the investment, accumulated depreciation, and net book value of military

equipment that previously had been expensed and is discussed further in Note 9.

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

The OM&S are reported at approximate historical cost using Standard Price (SP).

The Air Force uses the Standard Price method because its Operating Materials and Supplies (OM&S) systems were

designed for material management rather than accounting. The systems provide accountability and visibility over

inventory items. They do not maintain the historical cost data necessary to comply with SFFAS No. 3, “Accounting for

Inventory and Related Property.” Neither can they directly produce financial transactions using the United States

Government Standard General Ledger (USSGL), as required by the Federal Financial Management Improvement Act

of 1996 (P.L 104-208). DoD is transitioning to a Moving Average Cost methodology for valuing inventory that, when

fully implemented, will allow the Air Force to comply with SFFAS No. 3.

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

no management or valuation difference between the two USSGL accounts. Further, the DoD manages only military or

government-specific material under normal conditions. Items commonly used in, and available from the commercial

sector are not managed in the DoD material management activities. Operational cycles are irregular, and the military

risks associated with stock-out positions have no commercial parallel. The DoD holds material based on military need

and support for contingencies. Therefore, the Air Force does not attempt to account separately for items held for

current or future use.

Related property includes Operating Materials and Supplies (OM&S) and stockpile materials. The OM&S, including

munitions not held for use, are valued at SP. Ammunition and munitions are treated as OM&S. For the most part, the

Air Force is using the consumption method of accounting for OM&S, expensing material when it is issued to the end

user. 

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

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

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

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

In addition, past audit results identified uncertainties about the completeness and existence or quantities used to produce the reported values. Material disclosures related to inventory and related property are provided at Note 9.

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

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

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

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

unless needed to finance claims or otherwise sustain operations. Consequently, a provision is not made for unrealized

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

accordance with the directions of the donor. Material disclosures are provided at Note 4.

The Air Force invests in both marketable and non-marketable securities. Marketable securities are investments trading on a public market. The two types of non-marketable securities are par value and market based

Intragovernmental securities. The Bureau of Public Debt issues non-marketable Par Value Intragovernmental

United States Air Force 

46
Securities. Non-marketable, Market Based Intragovernmental Securities mimic marketable securities, but are not

traded publicly. See Note 4 for material disclosures.

1.O. General Property, Plant and Equipment

Statement of Federal Financial Accounting Standards No. 23, Eliminating the Category National Defense Property,

Plant, and Equipment, establishes new generally accepted accounting principles for valuing and reporting military

equipment (e.g. ships, aircraft, combat vehicles, weapons) in federal financial statements. The standard requires the

capitalization and depreciation of the cost of military equipment, including the cost of modifications and upgrades, for

accounting periods beginning after September 30, 2002.

Until this change in accounting principle, the acquisition costs for military equipment were classified as National

Defense Property, Plant, and Equipment (PP&E) and were expensed in the period incurred. Implementation of this

new accounting principle required the Department to adjust the October 1, 2002 General PP&E balance to recognize

the investment, accumulated depreciation, and net book value of military equipment that previously had been

expensed. As discussed further in Note 10, General PP&E, the adjustment was based on data provided by the Bureau

of Economic Analysis at the Department of Commerce.

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

useful life of two or more years and when the acquisition cost equals or exceeds the DoD capitalization threshold of

$100,000. Also, improvement costs over the DoD capitalization threshold of $100,000 for General PP&E, are

required to be capitalized. All General PP&E, other than land, is depreciated on a straight-line basis. Land is not

depreciated. 

When it is in the best interest of the government, the Air Force provides to contractors government property necessary to complete contract work. Such property is either owned or leased by the Air Force, or purchased directly by

the contractor for the government based on contract terms. When the value of contractor procured General PP&E

exceeds the DoD capitalization threshold, such PP&E is required to be included in the value of General PP&E reported on the Air Force’s Balance Sheet. The DoD is developing new policies and a contractor reporting process that will

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

currently reports only government property in the possession of contractors maintained in the Air Force real property systems. 

To bring the Air Force into fuller compliance with federal accounting standards, DoD has issued new property

accountability and reporting regulations that require the DoD Components to maintain, in DoD Component 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. 

Material disclosures are provided at Note 10.

1.P. Advances and Prepayments

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

an asset on the Balance Sheet. Advances and prepayments are recognized as expenditures and expenses when the

related goods and services are received.

1.Q. Leases

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

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

lease) the Air Force records the applicable asset and liability if the value equals or exceeds the current DoD capitalization threshold. The Air Force records the amounts as the lesser of the 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

2003 Annual Financial Statement

47
value. The Air Force deems the use of estimates for these costs as adequate and appropriate due to the relatively low

dollar value of capital leases. Imputed interest was necessary to reduce net minimum lease payments to present value

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

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

1.R. Other Assets

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

cost reimbursable. In order to alleviate the potential financial burden on the contractor that long-term contracts can

cause, the Air Force provides financing payments. One type of financing payment for real property is based on the

percentage of completion. In accordance with the SFFAS No. 1, “Accounting for Selected Assets and Liabilities,’ such

payments are treated as construction in progress and reported on the General PP&E line and in Note 10, General

PP&E, Net. In addition, based on the Federal Acquisition Regulation, the Air Force makes financing payments under

fixed price contracts not based on percentage of completion. The Air Force reports these financing payments as

advances or prepayments in the “Other Assets” line item. The Air Force treats these payments as advances or prepayments because the Air Force becomes liable only after the contractor delivers the goods. If the contractor does

not deliver a satisfactory product, the Air Force is not obligated to reimburse the contractor and the contractor is

liable to repay the Air Force for the full amount of the advance. The DoD has completed a review of applicable federal accounting standards; public laws on contract financing; Federal Acquisition Regulation Parts 32, 49, and 52; and the

OMB guidance in 5 Code of Federal Regulations Part 1315, “Prompt Payment.” The DoD has concluded that SFFAS

No. 1 does not address fully or adequately the subject of progress payment accounting and is considering what action

is appropriate. 

1.S. Contingencies and Other Liabilities

The SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” defines a contingency as an existing condition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss to the Air Force. The

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

liability when a past event or exchange transaction has occurred, a future loss is probable and the amount of loss can

be reasonably estimated. Financial statement reporting is limited to disclosure when conditions for liability recognition

do not exist but there is at least a reasonable possibility that a loss or additional loss will be incurred. Examples of loss

contingencies include the collectability of receivables, pending or threatened litigation, and possible claims and assessments. The Air Force’s loss contingencies arising as a result of pending or threatened litigation or claims and assessments occur due to events such as aircraft and vehicle accidents, medical malpractice, property or environmental

damages, and contract disputes.

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

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

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

non-environmental disposal liability is recognized for an asset when management makes a decision to dispose of the

asset. The Department has agreed to the recognition of the nonenvironmental disposal liability for nuclear-powered

assets when the asset is placed in service. Such amounts are developed in conjunction with and not easily identifiable

separately from environmental disposal costs. Material disclosures are provided at Notes 14 and 15.

1.T. Accrued Leave

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

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

United States Air Force 

48
1.U. Net Position

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

represent amounts of authority, which are unobligated and have not been rescinded or withdrawn, and amounts obligated but for which legal liabilities for payments have not been incurred.

Cumulative results of operations represent the difference, since inception of an activity, between expenses and losses

and financing sources (including appropriations, revenue, and gains). Beginning with FY 1998, this included the cumulative amount of donations and transfers of assets in and out without reimbursement.

1.V. Treaties for Use of Foreign Bases

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

obtained through various international treaties and agreements negotiated by the Department of State. The DoD capital assets overseas are purchased with appropriated funds; however, title to land and improvements are retained by

the host country. Generally, treaty terms allow the DoD Components continued use of these properties until the

treaties expire. These fixed assets are subject to loss in the event treaties are not renewed or other agreements are

not reached which allow for the continued use by the DoD Components. Therefore, in the event treaties or other

agreements are terminated whereby use of the foreign bases is no longer allowed, losses will be recorded for the

value of any nonretrievable capital assets after negotiations between the U.S. and the host country have been concluded to determine the amount to be paid the U.S. for such capital investments.

1.W. Comparative Data

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

of operations for FY 2003. Financial statement fluctuations greater than 2 percent of total assets on the Balance Sheet

and/or greater than 10 percent between FY 2002 and FY 2003 are explained within the Notes to the Financial

Statements.

1.X. Unexpended Obligations

The Air Force obligates funds to provide goods and services for outstanding orders not yet delivered. The financial

statements do not reflect this liability for payment for goods/services not yet delivered.

2003 Annual Financial Statement

49
Note 2. Nonentity and Entity Assets

Other Information

Relevant Information for Comprehension

Assets are categorized as:

■ Entity assets consist of resources that the agency has the authority to use, or where management is legally obligated to use funds, to meet entity obligations. 

■ Nonentity assets are assets held by an entity, but are not available for use in the operations of the entity. The

$125,940,237.53 in Other Nonentity Assets are advances to the contractor as reported on the Statement of

Accountability (SF 1219) and are part of an advance payment pool agreement with the Massachusetts Institute of

Technology or other non-profit institutions. Nonentity Fund Balance With Treasury represents amounts in Air

Force deposit and suspense accounts that are not available for Air Force use. Nonentity Accounts Receivables,

both Intra-governmental and Non-Federal, represents receivables in cancelled year appropriations that, when

collected, go to the Treasury as miscellaneous receipts. The Nonentity Non-Federal Accounts Receivable amount

also includes interest receivables on aged debt. Nonentity Cash and Other Monetary Assets represent disbursing

officers cash and undeposited collections as reported on the Statement of Accountability. These assets are held

by the Air Force disbursing officers as an agent of the Treasury.

Note Reference

For Additional Line Item discussion, see:

■ Note 3, Fund Balance with Treasury

■ Note 4, Investments

■ Note 5, Accounts Receivable

■ Note 6, Other Assets

■ Note 7, Cash and Other Monetary Assets

■ Note 8, Direct Loan and/or Loan Guarantee Programs

■ Note 9, Inventory and Related Property Operating Materials and Supplies, Net

■ Note 10, General PP&E, Net

United States Air Force 

50

As of September 30,

(Amounts in thousands)

1. Intra-governmental Assets:

A. Fund Balance with Treasury $ 52,503 $ 59,714,038 $ 59,766,541 $ 54,750

B. Investments 0 712 712 0

C. Accounts Receivable -2,580 544,008 541,428 10,913

D. Other Assets 0 339,093 339,093 0

E. Total Intra-governmental Assets $ 49,923 $ 60,597,851 $ 60,647,774 $ 65,663

2. Non-Federal Assets:

A. Cash and Other Monetary Assets $ 147,926 $ 0 $ 147,926 $ 140,645

B. Accounts Receivable 289,787 482,713 772,500 711,546

C. Loans Receivable 0 0 0 0

D. Inventory & Related Property 0 51,815,832 51,815,832 0

E. General Property, Plant and Equipment 0 112,786,131 112,786,131 0

F. Other Assets 125,940 9,786,211 9,912,151 125,064

G. Total Non-Federal Assets $ 563,653 $ 174,870,887 $ 175,434,540 $ 977,255

3. Total Assets: $ 613,576 $ 235,468,738 $ 236,082,314 $ 1,042,918

Nonentity Entity Total

2003 2002 Non-Entity 

Assets
Note 3. Fund Balance with Treasury

Other Information Related to Fund Balance with Treasury

Fluctuations

The Appropriated Funds increase of $11,837,813 thousand is directly tied to the supplemental funding received for

the Global War on Terrorism (GWOT). 

The Trust Fund decrease of $7,804 thousand from year-end FY 2002 results from monies being spent by the Air

Force Gift Fund. The Air Force Museum Foundation allocated gift funds to construct a building to be used by the Air

& Space Museum located at Wright-Patterson Air Force Base.

The Other Fund Types decrease of $6,218 thousand from year-end FY 2002 is related to the decrease in amounts

found in deposit funds. Deposit funds are used as temporary accounts to hold amounts to eventually pay for state and

local income taxes, savings bonds, charitable contributions, and employees’ organizational dues. The amount held in

deposit funds is associated with the timing difference as these deposit funds are held until paid to the appropriate

agencies on a quarterly basis.

Other Information Related to Fund Balance with Treasury

■ Air Force Cadet Fund—The Cadet Fund is a Revolving Trust Fund account maintained for the benefit of the US

Air Force Academy Cadets. The appropriation was initially funded at its inception. From that point on the fund

was to be self-sufficient. Collections are received at least equal to any disbursements, and the account revolves

funds through the disbursement and collection process with no requirement for additional appropriated funding.

The Cadet Fund is an X year account, meaning there is no time limit on obligations. 

■ Intragovernmental Paying and Collecting (IPAC)—The Intragovernmental Payment and Collection (IPAC)

differences are reconcilable differences that represent amounts reported by Treasury but not reported by the

organization. As of September 30, 2003, there was no IPAC differences over 180 days old. As of September 30,

2002, there was $1,069 thousand of IPAC differences greater than 180 days old. A majority of the differences

represent internal DoD transactions and therefore, do not affect the Fund Balance With Treasury (FBWT) at the

DoD consolidated level. For individual entity level statements however, these differences would affect the

amount reported for FBWT. The Department is working with the DFAS sites, and the Department of Treasury,

and a Treasury Department contractor to develop an automated tool to aid in reconciling the Treasury’s

Statement of Differences. The accounting and paying centers established metrics and implemented monthly

reporting requirements for FY 2001. These actions will aid the Air Force in clearing the old balances and establishing better internal controls over the IPAC process.

2003 Annual Financial Statement

51

As of September 30,

(Amounts in thousands)

1. Fund Balances:

A. Appropriated Funds $ 59,726,905 $ 47,889,092

B. Revolving Funds 0 0

C. Trust Funds 3,942 11,746

D. Other Fund Types 35,694 41,912

E. Total Fund Balances $ 59,766,541 $ 47,942,750

2. Fund Balances Per Treasury Versus Agency:

A. Fund Balance per Treasury $ 59,766,541 $ 47,942,751

B. Fund Balance per 59,766,541 47,942,750

C. Reconciling Amount $ 0$ 1

2003 2002
■ Check Issue Discrepancy—DFAS is in the process of collecting information for all check issue discrepancy data

unsupportable because: (1) records have been lost during deactivation of disbursing offices; (2) the Treasury may

not assist in research efforts for transactions over 1-year old; or (3) corrections were processed for transactions

that Treasury removed from the check comparison report. Transactions that have no supporting documentation

due to one of the preceding situations shall be provided to the Department of the Treasury with a request to

remove them from the Treasury Check Comparison Report. The vast majority of the remaining check issue discrepancies are a result of timing differences between the Air Force and the Department of the Treasury for processing checks. The Department does not require that the DoT remove any amounts from the check-issue comparison report since $9,339 thousand was written off during FY2003 to bring the check-issue report balance to

$0. Further, no empirical evidence has been presented that demonstrates check issue discrepancies adversely

affect the FBWT.

Note Reference

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

and DoD policies governing Funds with the U.S. Treasury.

Note 4. Investments

Other Information

Fluctuations

The Air Force Gift Fund cash donations that are not going to be used in the immediate future to fund donor designated projects are invested in marketable securities with Treasury. Increases and decreases in the investment cost

amount reflect the changes in those investments.

Relevant Information for Comprehension

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

the Air Force along with the interest received from the investment of such donations. The related earnings are allocated to appropriate Air Force activities to be used in accordance with the directions of the donor. These funds are

recorded as Non-Marketable Market Based U.S. Treasury Securities, which are not traded on any security exchange,

but they mirror the prices of marketable securities with similar terms.

Note Reference

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

U.S. Treasury Securities.

United States Air Force 

52

As of September 30,

Amortization

Method

(Amounts in thousands)

1. Intra-governmental Securities:

A. Marketable $ 0 $ $ $ 0

B. Non-Marketable, Par Value 0 0

C. Non-Marketable, Market-Based 714 708

D. Subtotal $ 714 $ $ $ 708

E. Accrued Interest $ 0 $ $ 0

F. Total Intragovernmental Securities $ 714 $ $ $ 708

2. Other Investments: $ 0 0 $ 0 0$ 0

2002

Cost

Amortized

(Premium/

Discount)

Investments,

Net

Investments,

Net

Market Value

Disclosure

2003

0 0$ 0

0

(2) 712 0

0 0

$ 0

(2) 712 $ 0

(2)

0

712 $ 0
Note 5. Accounts Receivable

Allowance Method

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

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

results in an estimated allowance of $218,408 thousand. Interest allowance of $7,128 thousand is calculated using an

average percent of writeoffs to outstanding public accounts receivable over a five-year period starting with FY 1999

data. For Air Force entity receivables, the allowance is computed each year based on the average percent of writeoffs

to outstanding public accounts receivable for the last five years resulting in an estimated allowance of $5,774 thousand.

Other Information

Relevant Information for Comprehension

As presented on the Consolidated Balance Sheet, accounts receivable include reimbursements receivable and refunds

receivable such as out-of-service debts (amounts owed by former service members), contractor debt, and unused

travel tickets. It also includes net interest receivable per DoD FMR Vol. 6B guidance. Canceled accounts receivables

are reported as nonentity receivables because these amounts are deposited into a Treasury miscellaneous receipt

account when collected. A reconciliation between Report on Receivables Due from the Public and the Balance Sheet

was accomplished. The differences between the Balance Sheet (line 1C) and Report on Receivables Due from the

Public (line 7) include the allowance for estimated receivables that will be uncollected of $231,310 thousand and

undistributed collections of $2,905 thousand. Undistributed collections are prorated between public and intragovernmental receivables on the balance sheet based on the percentages of distributed receivables. This reconciliation is

performed to ensure the financial statements are in agreement with the public receivables reported to the

Department of Treasury. 

Fluctuations

Intragovernmental Receivables before eliminations decreased by $400,913 thousand from September 2002. We

attribute this to the increased focus on reducing accounts receivable balances within DoD agencies. The increase on

the financial statement of $98,274 thousand is after intragovernmental Air Force eliminations. 

Sep 2003 Sep 2002 $ Change

A/R Government before Eliminations $932,969 $1,333,882 $<400,913>

Less Intra AF Eliminations $391,541 $890,728 $<499,187> 

Total $541,428 $443,154 $98,274

(Both columns reflect data in thousands)

Debts were collected since September 2002 for Air Force Operation & Maintenance funds owed by the Air National

Guard of $62,298 thousand, Air Mobility Command of $24,754 thousand, Intrafund Reimbursement of $91,726 thousand, and Air Force Reserve of $91,924 thousand. Debts were collected for Air Force Research, Development,

Testing & Evaluation funds owed by Program Management & Support of $45,700 thousand and the Office of the

2003 Annual Financial Statement

53

As of September 30,

(Amounts in thousands)

1. Intra-governmental Receivables: $ 541,429 N/A $ 541,429 $ 443,154

2. Non-Federal Receivables (From the Public): $ 1,003,810 $ (231,310) $ 772,500 $ 1,017,910

3. Total Accounts Receivable: $ 1,545,239 $ (231,310) $ 1,313,929 $ 1,461,064

Accounts 

Receivable, Net

Accounts 

Receivable, Net

Allowance for 

Estimated 

Uncollectibles

Gross Amount 

Due

2003 2002
Secretary of Defense (OSD) of $28,300 thousand. The true change in actual receivable balances is a decrease of

$400,913 thousand that we believe is attributable to increased focus on collecting debt since FY 2002. The $499,187

thousand change is elimination activity between Air Force Active, Air Force Reserve, and Air National Guard appropriations.

Public accounts receivables decreased $245,410 thousand since September 2002. Since FY 2002, there is an increased

focus on ensuring that all debt is reflected in the accounting records. The overall net decrease during the year resulted from the reversal of a debt worth $299,123 thousand for contract debt against Johnson Controls World Services,

Inc (JCWS). This debt was previously in litigation. Memorandum from SAF/FMPB gave the authority to remove the

JCWS debt from the Air Force receivables records and reports. The litigation has been settled but it is still unknown

the exact amount the Air Force will receive. It is known that the amount will be substantially less than the receivable

amount that was booked prior to September 2003. The exact amount of money to be collected by the government

from JCWS is still undetermined due to questions related to offsets, closed account legislation, and other issued

according to the memorandum.

Another decrease is the over reporting of General Electric (GE) debt at DFAS-Denver departmental level and in the

Contractor Debt System worth $316,236 thousand. For year-end 2002, GE debt was reported at DFAS-Denver

based on information provided by the Defense Contract Management Agency (DCMA) not realizing the same debt

was reported on the Monthly Receivable Management Report (MDMR) file at DFAS-Columbus. The MDMR file

reported these debts under a case number instead of using the GE contract numbers as reported by DCMA causing a

duplicate reporting of debts.

Public accounts receivables debts in the Contractor Debt System - Columbus (CDS) increased overall by $193,789

thousand since FY 2002. Debts processed in the Mechanization of Contract Administration Services (MOCAS) contract payments increased by $6,810 thousand since September 2002. The reporting of these debts resulted from an

OSD initiative to ensure the accountability of all debt on all Services’ financial statements. The remaining $169,350

thousand increase results from public accounts receivables reported on the Air Force field sites base-level accounting

systems and off-line receivables consolidated at the Denver center.

Accounts Receivable Over 180 Days

Intragovernmental receivables over 180 days reported on the Quarterly Receivable Report (QRR) are $43,098 thousand. Public receivables over 180 days reported on the QRR is $131,541 thousand excluding $501,736 thousand

reported in litigation. Debts in litigation are being pursued in court for collection as such are not subject to write-off

or other active collection procedures.

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

partner aggregations. Therefore, the Air Force was unable to reconcile intragovernmental accounts receivable balances with its trading partners. Through the ongoing Business Management Modernization Program (BMMP), the

Department intends to develop long-term systems improvements that will capture the data necessary to perform

reconciliation.

Allocation of Undistributed Collections

The Department of Defense policy is to allocate supported undistributed collections between federal and non-federal

categories based on the percentage of Federal and Non-federal Accounts Receivable. Unsupported, undistributed collections should be recorded in the United States Standard General Ledger (USSGL) account 2400, Liability for

Deposit Funds, Clearing Accounts and Undeposited Collections. The Air Force follows this allocation procedure.

Note Reference

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

and DoD policies governing Accounts Receivable. 

United States Air Force 

54
Note 6. Other Assets

Other Information Related to Other Assets

Fluctuations

Advances and Prepayments on line 1.A. increased $334,111 thousand from September 2002. Amounts are recorded

based upon elimination data as provided by Air Force trading partners. The increase includes $314,422 thousand,

reported by the Air Force Depot Maintenance Activity Group.

The comparison of FY 2003 to FY 2002 for Advances and Prepayments (in thousands):

FY 2003 FY 2002

Government advances before accrual 56.3 286.4

Accruals to match seller data 721,476.9 79,927.6

721,533.2 80,214.0

Less intra Air Force eliminations 382,739.9 75,225.8

Reported advances and prepayments 339,093.3 4,988.2

Outstanding Contract Financing Payments increased 33 percent from $7,275,853 thousand to $9,645,299 thousand as

reported for FY 2002 and FY 2003 respectively. The increase is predominantly attributed to additional progress payments for the F-22 program, which is experiencing an increase in production.

Relevant Information for Comprehension

Other Assets

The $266,852 thousand on line 2.B. is composed of $134,311 thousand in travel advances, $125,610 thousand in

advances to contractors as reported on the SF 1219, Statement of Accountability, and $6,931 thousand in other

advances to contractors.

Advances to the contractor as reported on the SF 1219, Statement of Accountability, are payments as part of an

advance payment pool agreement with Massachusetts Institute of Technology or other non-profit institutions.

Advance payment pool agreements are used for the financing of cost-type contracts with non-profit educational or

research institutions for experimental, or research and development work, when several contracts or a series of contracts require financing by advance payments.

Outstanding Contract Financing Payments

The Air Force reports, as an advance and prepayment, all outstanding financing payments for fixed-price contracts

that are not based on percentage or stage of completion. Under the contract terms, the Air Force becomes liable

only after the contractor delivers the goods in conformance with the contract terms. If the contractor does not deliv2003 Annual Financial Statement

55

As of September 30,

(Amounts in thousands)

1. Intra-governmental Other Assets:

A. Advances and Prepayments $ 339,093 $ 4,988

B. Other Assets 0 0

C. Total Intra-governmental Other Assets $ 339,093 $ 4,988

2. Non-Federal Other Assets:

A. Outstanding Contract Financing Payments $ 9,645,299 $ 7,275,853

B. Other Assets (With the Public) 266,852 260,062

C. Total Non-Federal Other Assets $ 9,912,151 $ 7,535,915

3. Total Other Assets: $ 10,251,244 $ 7,540,903

2003 2002
er a satisfactory product, the Air Force is not obligated to reimburse the contractor for its cost and the contractor is

liable to repay the Air Force for the full amount of the outstanding contract finance payments. 

Note Reference

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

and DoD policies governing Other Assets.

Note 7. Cash and Other Monetary Assets

■ Cash—The total of cash resources under the control of the Air Force, which includes coin, paper currency,

negotiable instruments, and amounts on deposit in banks and other financial institutions. Cash available for

agency use should include petty cash funds and cash held in revolving funds which will not be transferred into the

U.S. Government General Fund.

■ Foreign Currency—consists of the total U.S. dollar equivalent of non-purchased foreign currencies held in foreign

currency fund accounts.

■ Other Monetary Assets—includes gold, special drawing rights, and U.S. Reserves in the International Monetary

Fund. This category is principally for use by the Department of the Treasury. 

Other Information Related to Cash and Other Monetary Assets

Fluctuations

Cash and Foreign Currency increased during FY 2003 due to the requirements associated with Operation Enduring

Freedom and Operation Iraqi Freedom. Those requirements have now subsided and both Cash and Foreign

Currency have returned to pre-war levels. An ongoing effort to replace foreign currency contracts with U.S. Dollar

contracts however, has caused an increased need for U.S. dollars and a corresponding decrease in foreign currency

requirements. 

Relevant Information for Comprehension

Cash and Foreign Currency reported is primarily cash held by Disbursing Officers to carry out their paying, collecting

and foreign currency accommodation exchange mission. The primary source of the amounts reported is the Standard

Form 1219, Statements of Accountability reported by DoD Disbursing Officers.

Foreign Currency is valued using the Department of Treasury Prevailing Rate of Exchange. This rate is the most favorable rate that would legally be available to the U.S. Government’s acquisition of foreign currency for its official disbursements and provide currency for exchange of U.S. dollars for troops.

Note Reference

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

and DoD policies governing Foreign Currency.

United States Air Force 

56

As of September 30,

(Amounts in thousands)

1. Cash $ 136,195 $ 116,261

2. Foreign Currency (non-purchased) 11,731 24,385

3. Other Monetary Assets 0 0

4. Total Cash, Foreign Currency, and Other Monetary Assets $ 147,926 $ 140,646

2003 2002
Note 8. Direct Loan and/or Loan Guarantee Programs

Direct Loan and/or Loan Guarantee Programs

The entity operates the following direct loan and/or Loan guarantee program(s):

■ Military Housing Privatization Initiative

■ Direct Loan Or Loan Guarantee Program Title

Other Information

Not applicable.

Note 9. Inventory and Related Property

Note 9.A. Inventory, Net

Not applicable.

Note 9B. Operating Materials and Supplies, Net

Restrictions on OM&S

Not applicable.

Other Information

Fluctuations 

The major fluctuation between the comparative periods for OM&S was the result of the Air Force complying with

the change in accounting principle regarding military equipment which was effective for accounting periods beginning

after September 30, 2002. Until the change, some OM&S (aircraft engines, missile engines, electronic pods, and

cruise missiles) were considered National PP&E and were expensed at the time of acquisition. This change in

accounting principles resulted in an increase in OM&S of approximately $18,597,641 thousand.

2003 Annual Financial Statement

57

As of September 30,

 Valuation 

 Method

(Amounts in thousands)

1. OM&S Categories:

A. Held for Use $ 38,860,094 $ 0 $ 38,860,094 $ 23,779,740 SP

B. Held for Repair 12,955,737 0 12,955,737 5,037,823 SP

C. Excess, Obsolete, and Unserviceable 2,042,114 -2,042,114 0 0

D. Total $ 53,857,945 $ -2,042,114 $ 51,815,831 $ 28,817,563 NRV

SP = Standard Price

AC = Actual Cost

OM&S, Net

O = Other

2002

OM&S

Gross Value

Revaluation

Allowance

2003

OM&S, Net 

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost adjusted for holding gains and losses NRV = Net Realizable Value

As of September 30,

(Amounts in thousands)

1. Inventory, Net $ 0 $ 0

2. Operating Materials & Supplies, Net 51,815,831 28,817,563

3. Stockpile Materials, Net 0 0

4. Total $ 51,815,831 $ 28,817,563

2003 2002
The Air Force has a significant increase in the amounts reported as OM&S by the FX accounts and contractor

($1,237,992 thousand). This was due in part to a) increase in program build up, and b) better reporting by the

account managers.

The Air Force also reported a significant increase in the amounts reported for munitions, $1,590,025 thousand. This

was due, in part, to increased accountability and validating that duplicate data did not reside in two different systems.

In FY 2002, munitions data that resided in the Financial Inventory Accounting and Billing System (FIABS) was also considered to be in the Combat Ammunitions System (CAS). Therefore, an adjustment to the CAS data was made using

the FIABS data to avoid duplicate reporting. After some additional reviews, this assumption appears to be invalid.

Therefore, no adjustment was made to the CAS data for determining which system will report munitions and which

national stock numbers are considered to be munitions. Further, the Combat Ammunition System is undergoing a

major system modification that will provide better accountability of all Air Force munitions items.

Information related to OM&S

General Composition of Operating Materials and Supplies

Operating Materials and Supplies include spare and repair parts, ammunition, tactical missiles, aircraft configuration

pods, and centrally managed aircraft engines. 

Balances

In addition to the account balances shown in Table 9.B., the Federal accounting standard requires disclosure of the

amount of OM&S held for future use. Except for an immaterial amount of munitions, the Air Force does not have any

items considered held for future use.

Decision Criteria for Identifying the Category to Which OM&S is Assigned 

Managers determine which items are more costly to repair than to replace. Items retained for management purposes

are coded “condemned.” The net value of these items is zero and is shown as “Excess, Obsolete, and

Unserviceable.”

The category “Held for Use” includes all issuable materials and is coded within each supply or inventory system as

condition codes

The Category “Excess, Obsolete, and Unserviceable” includes all material assigned condition codes H, P & S. The

Category “Held for Repair” relates to impaired assets and includes all other condition codes as defined by the Military

Standard Transaction Reporting and Accounting Procedures Manual (DoD 4000.25-2-M).

Changes in the Criteria for Identifying the Category to Which OM&S is Assigned

The category “Held for Use” includes all issuable material. The category “Held for Repair” includes all economically

reparable material. Before FY 2002, the Department showed potentially redistributable material, regardless of condition, as “Excess, Obsolete, and Unserviceable”.

The Air Force has not yet implemented “moving average cost,” the DoD approved methodology for reporting historical cost, within any of the supply or inventory accounting systems for OM&S. Consequently, all OM&S assets are valued at standard price, with an allowance for “Excess, Obsolete and Unserviceable.” Under current DoD policy, no

allowance is used for serviceable ready to issue items (category “Held for Use”). An allowance equal to 100 percent

of standard price however, is used for the category “Excess, Obsolete and Unserviceable.” This allowance results in a

net book value of zero which is considered appropriate because the items are coded condemned and therefore have

no intrinsic value to the Air Force. The category “Held for Repair” represents suspended, unserviceable (but reparable) items which have a value to the Air Force but that value is less than the items “Held for Use” and greater than

“Excess, Obsolete and Unserviceable” items. To date, OSD has not provided sufficient guidance or policy to the Air

United States Air Force 

58
Force on the methodology for computing an allowance for “Held for Repair”; therefore, “Held for Repair” is reported at full standard price.

Government-Furnished Material (GFM) and Contractor-Acquired Material (CAM)

Generally, the value of the Air Force’s GFM and CAM in the hands of contractors is not included in the OM&S values

reported above. The DoD is presently reviewing its process for reporting these amounts in an effort to determine

the appropriate accounting treatment and the best method to quarterly collect and report required information without duplicating information already in other existing logistics systems. 

Operating Materials and Supplies (OM&S) Value

The OM&S data reported on the financial statements are derived from logistics systems designed for material management purposes. These systems do not maintain the historical cost data necessary to comply with the valuation

requirements of the Statement of Federal Financial Accounting Standards (SFFAS) No. 3, “Accounting for Inventory

and Related Property.” In addition, while these logistics systems provide management information on the accountability and visibility over OM&S items, they do not directly support the categorization of OM&S as held for use, held in

reserve for future use, held for repair, or excess, obsolete, and unserviceable. The DoD manages only military- or

government-specific material under normal circumstances. Material includes material held due to operational

economies. Similarly, material held for use includes material held due to a managerial determination that is should be

retained to support departmental contingencies. All OM&S assets are valued at standard price, with an allowance for

“Excess, Obsolete, and Unserviceable.”

Items commonly used in and available from the commercial sector are not managed in the DoD material management

activities. Further, unlike the commercial sector, the Department’s operational cycles, based on national need, are

irregular. In addition, the military risks associated with stock-out positions (e.g., weapon systems that are not mission

capable due to lack of supplies) are totally different from a commercial activity’s risk of losing sales. Therefore, the

Department does not attempt to account separately for items held for current or future use.

For the most part, the Air Force is using the consumption method of accounting for OM&S, since OM&S is defined in

the SFFAS 

No. 3 as material which has not yet been issued to the end user. Once issued, the material is expensed. As stated

above, current financial and logistics systems cannot fully support the consumption method. According to Federal

accounting standards, the consumption method of accounting should be used to account for OM&S unless (1) the

amount of OM&S is not significant, (2) OM&S are in the hands of the end-user for use in normal operations, or (3) it

is cost-beneficial to expense OM&S when purchased (purchase method).

Note Reference

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

and DoD policies governing inventory and related property.

For regulatory discussion on OM&S, see Department of Defense Financial Management Regulation, Volume 6B,

Chapter 10, see paragraph 101107.

Other Air Force Disclosures

The Air Force provided only minimal accounting data for OM&S that can be used to prepare the financial statements.

In most cases, the data provided consisted of only beginning and ending balances for each of the asset accounts “Held

for Use; Excess, Obsolete, Unserviceable; and Held for Repair. In other cases, the data provided consisted of only

beginning balances, and serviceable and unserviceable ending balances. Without the required additional data (acquisitions, transfers in, amounts consumed, transfers out, trading partner data, etc), DFAS could only report the “net

2003 Annual Financial Statement

59
change” between prior period ending balances and the values reported as current period ending balances. Although,

the required additional data is available in some Air Force supply systems, the DFAS general fund accounting system

was not developed to receive and translate the transaction codes to report the data. To correct this problem, DFAS is

making changes to some accounting systems, and implementing standard interfaces between the Air Force feeder systems and the accounting systems.

Although, the Air Force OM&S systems, in most cases, capture some trading partner data at the transaction-level,

there are no electronic interfaces between the Air Force OM&S feeder systems and DFAS accounting systems that

can be used to report the data for all items transferred to and from other DoD and Federal Agencies. Consequently,

intragovernmental transactions (trading partner data) could not be reconciled. The Air Force and DFAS are in the

process of developing processes, methodologies and standard electronic interfaces that will allow the intragovernmental transactions to be reported monthly to the General Accounting and Finance System - Rehost.

Note 9.C. Stockpile Materials, Net

Not applicable.

Note 10. General PP&E, Net

Other Information

Fluctuations

The Air Force in FY 2003, reported an estimated fair market value on land not acquired for, or in connection with

General PP&E. This stewardship land was then added to the General land category in error instead of being retained

in the Stewardship Land Category. The Air Force advised DFAS that this problem would be corrected in FY 2004.

Therefore, an adjustment will be made to the land category when reported by ACES, the real property system.

The Federal Accounting Standards Advisory Board issued Statement of Federal Financial Accounting Standards No.

23, Eliminating the Category National Defense Property, Plant and Equipment, in May 2003. This standard, which is

effective for accounting periods beginning after September 30, 2002, establishes Generally Accepted Accounting

Principles for valuing and reporting military equipment (e.g. aircraft, satellites, and intercontinental ballistic missiles) in

federal financial statements. The Standard requires the capitalization and depreciation of the cost of military equipment, including the cost of modifications and upgrades.

The Department has determined that it is not practicable at this time to accumulate from internal records the information necessary to value military equipment in accordance with generally accepted accounting principles, because

the Department is currently working to revise its accounting processes and systems to support the informational

United States Air Force 

60

As of September 30, 2003

Service Acquisition

Life Value

N/A N/A $ 416,975 $ N/A $ 416,975 $ 364,091

S/L 20 Or 40 40,887,338 (23,620,812) 17,266,526 16,274,354

S/L lease term 0 00 0

S/L 2-5 or 10 23,806 (24) 23,782 23,715

S/L 5 or 10 307,451,367 (215,084,060) 92,367,307 4,701,110

S/L 20 409,498 (221,473) 188,025 203,005

N/A N/A 2,523,416 N/A 2,523,416 2,679,945

99 0 99 932

$ 351,712,499 $ (238,926,369) $ 112,786,130 $ 24,247,152

[1] Note 15.B for additional information on Capital Leases

S/L = Straight Line N/A = Not Applicable

H. Other

I. Total General PP&E

Legend for Valuation Methods:

E. Equipment

F. Assets Under Capital Lease [1]

G. Construction-in-Progress

B. Buildings, Structures, Facilities

C. Leasehold Improvements

D. Software

1. Major Asset Classes:

A. Land

(Accumulated

Depreciation/

Amortization)

Net Book

Value

(Amounts in thousands)

Depreciation/

Amortization

Method

2002

Prior FY Net

Book Value
needs of management and compliance with generally accepted accounting principles. In the interim, the Department

will base the value of military equipment for financial statement presentation purposes on data provided by the

Bureau of Economic Analysis (BEA), Department of Commerce.

The data provided by BEA consists of investment and net book value data for 84 groups of equipment such as aircraft, ships, and combat vehicles. BEA uses Department budget data for equipment acquisitions and actual quantities

of equipment items delivered to calculate the Department’s annual investment in equipment, after recognizing any

equipment transfers or war losses. The Department adjusted BEA data to eliminate equipment items that are not

accounted for as military equipment such as spares, munitions, and inventory items, which are accounted for and

reported as Inventory and Related Property.

The value of the BEA data provided by the Department to the Air Force to be included in the financial statements for

the 4th Quarter 2003 amounted to approximately $292,420,000 thousand less accumulated depreciation of

$204,890,000 thousand for a net realized book value of $87,530,000 thousand. A prior period adjustment (not restated) was made to account for prior years military equipment acquisitions and depreciation plus an adjustment to

report current year acquisitions and depreciation expense.

The Other asset class on line 1.H. decreased by $833 thousand since September 2002. The Other category represents the timing in harvesting timber. The value of timber is only reported when there is a signed contract to cut the

timber and specifies an actual value for the timber to be cut. This value decreases during the year until new contracts

are established during the beginning of the next fiscal year. 

Relevant Information for Comprehension

Personal property in the Air Force consists of General Equipment, Automated Data Processing (ADP) hardware,

Medical Equipment, Special Tools and Test Equipment (ST/STE) and Military Equipment. 

Other Air Force Disclosures

The Air Force used FY 2002 ending data for Special Tools, Special Test Equipment (ST/STE) and for Medical

Equipment for the FY 2003 4th Quarter reports. The FY 2002 values were used because: a) the two systems previously used to report ST/STE have been turned off and are scheduled to be replaced by AFEMS by the end of FY

2003, and b) the MEDLOG system cannot provide a 4th Quarter FY 2003 update. This system is scheduled to be

replaced by the Department’s Medical Logistics Supply Support (DMLSS) system in FY 2004.

The Air Force used the 2nd Qtr 2003 ending balances to report the value of assets that had not passed the required

edit checks (missing historical cost, acquisition dates or serial numbers) and therefore had not been included in the

values reported by the Air Force Equipment Management System (AFEMS) for the 4th Quarter FY2003 reports. This

data was used because the processes previously established to report this data could not be relied on due to unexplained large fluctuations. The Air Force is currently working this “in suspense” data problem to assure that all assets

are properly recorded and depreciated by AFEMS for the audited financial statements at year end.

The value of the Air Force’s General PP&E real property in the possession of contractors is included in the values

reported above for the Major Asset Classes of Land and Buildings, Structures, and Facilities. The value of General

PP&E personal property (Major Asset Classes of Software and Equipment) does not include all of the General PP&E

above the DoD capitalization threshold in the possession of contractors. The net book amount of such property is

immaterial in relation to the total General PP&E net book value. In accordance with an approved strategy with the

OMB, the General Accounting Office and the Inspector General, DOD, the Department is developing new policies

and a contractor reporting process to capture General PP&E information for future reporting purposes for compliance with Generally Accepted Accounting Principles.

2003 Annual Financial Statement

61
Note Reference

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

and DoD policies governing General Property, Plant and Equipment (PP&E).

Note 10.A. Assets Under Capital Lease

Description of Lease Arrangements

The Air Force is the leasee in twelve capital leases. Eleven are for Military Family Housing acquired through Section

801 Family Housing Program, and one is for a piece of medical equipment. The leased items are capitalized and

reported as an asset when the costs of the items exceed the capitalization threshold. Leased items not meeting the

capitalization threshold are expensed. All leases prior to FY 1992 are funded on a fiscal year basis. This correlates to

six of the Military Family Housing Leases. 

Other Information

Not applicable.

Note 11. Liabilities Not Covered and Covered by Budgetary Resources

Other Information

Liabilities Not Covered and Covered by Budgetary Resources

Liabilities that are not considered covered by realized budgetary resources as of the Balance Sheet date. Budgetary

resources encompass the following:

United States Air Force 

62

As of September 30,

(Amounts in thousands)

1. Intra-governmental Liabilities:

A. Accounts Payable $ 1,413,940 $ 0 $ 1,413,940 $ 3,957

B. Debt 0 0 0 134

C. Environmental Liabilities 0 00 0

D. Other 924,648 699,256 1,623,904 609,275

E. Total Intra-governmental Liabilities $ 2,338,588 $ 699,256 $ 3,037,844 $ 613,366

2. Non-Federal Liabilities:

A. Accounts Payable $ 7,080,910 $ 0 $ 7,080,910 $ 0

B. Military Retirement Benefits and Other 

Employment-Related Actuarial Liabilities 0 1,262,268 1,262,268 1,211,045

C. Environmental Liabilities 549,849 7,560,554 8,110,403 8,454,564

D. Loan Guarantee Liability 0 00 0

E. Other Liabilities 1,598,648 2,922,241 4,520,889 2,454,562

F. Total Non-Federal Liabilities $ 9,229,407 $ 11,745,063 $ 20,974,470 $ 12,120,171

3. Total Liabilities: $ 11,567,995 $ 12,444,319 $ 24,012,314 $ 12,733,537

2003 2002

Covered by 

Budgetary 

Resources

Not Covered by 

Budgetary 

Resources

Total

Not Covered by 

Budgetary 

Resources

As of September 30,

(Amounts in thousands)

1. Entity as Lessee, Assets Under Capital Lease:

A. Land and Buildings $ 408,540 $ 408,540

B. Equipment 958 958

C. Other 0

D. Accumulated Amortization (221,473) (206,493)

E. Total Capital Leases $ 188,025 $ 203,005

2003 2002

0
■ New budget authority. 

■ Spending authority from offsetting collections (credited to an appropriation or fund account).

■ Recoveries of unexpired budget authority through downward adjustments of prior-year obligations.

■ Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances

during the year.

■ Borrowing authority or permanent indefinite appropriations, which have been enacted and signed into law as of

the Balance Sheet date, provided that the resources may be apportioned by the OMB without further action by

the Congress or without a contingency first having to be met.

Liabilities Covered by Budgetary Resources

Resources incurred by the reporting entity which are covered by realized budget resources as of the Balance Sheet

date. Budgetary resources encompass not only new budget authority, but also other resources available to cover liabilities for specified purposes in a given year. Available budgetary resources include the following:

■ New budget authority. 

■ Spending authority from offsetting collections (credited to an appropriation or fund account).

■ Recoveries of unexpired budget authority through downward adjustments of prior-year obligations.

■ Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances

during the year.

■ Borrowing authority or permanent indefinite appropriations, which have been enacted and signed into law as of

the Balance Sheet date, provided that the resources may be apportioned by the OMB without further action by

the Congress or without a contingency first having to be met.

Fluctuations and Abnormalities

Explanations for fluctuations are explained in the individual footnotes. See “Note Reference” section below for the

related footnotes.

Information Related to Liabilities Covered by Budgetary Resources

Other Liability Disclosures

Other Intragovernmental Liabilities Covered by Budgetary Resources consists of $145,290 thousand in advances from

others, $23,503 thousand in deposit fund liabilities, $449,282 thousand in resources payable to treasury relative to

cancelled accounts receivable, $273,536 thousand in Disbursing Officer cash liability, and $33,037 thousand in government contributions for employee benefits. 

Other Nonfederal Liabilities Covered by Budgetary Resources consists of $1,289,522 thousand in accrued payroll and

benefits liabilities for military and civilians, $5,143 thousand in Temporary Early Retirement Authority liabilities,

$206,764 thousand in capital lease liabilities, $68,038 thousand in advances from others, and $29,181 thousand in liabilities for deposit fund clearing accounts and undeposited collections. 

Information Related to Liabilities Not Covered by Budgetary Resources

Other Liability Disclosures

Other Intragovernmental Liabilities Not Covered by Budgetary Resources consists of $252,090 thousand in judgement fund liabilities, $304,751 thousand in Federal Employees Compensation Act (FECA) reimbursement to the

2003 Annual Financial Statement

63
Department of Labor (DoL), $27,488 thousand in unemployment compensation liabilities, $3,249 thousand in education benefit liabilities, and $111,677 thousand in custodial liabilities.

Other Nonfederal Liabilities Not Covered by Budgetary Resources consists of $445,939 thousand in accounts payable

cancelled appropriations, $76,569 thousand in nonenvironmental disposal liabilities, $57,037 thousand in capital lease

liabilities, $189,231 thousand in contingent liabilities, $2,152,620 thousand in accrued annual leave liabilities for military and civilians, and $845 thousand in accrued interest liability. 

Note Reference

For Additional Line Item discussion, see:

■ Note 12, Accounts Payable

■ Note 13, Debt

■ Note 14, Environmental Liabilities and Disposal Liabilities

■ Note 15, Other Liabilities

■ Note 16, Commitments and Contingencies

■ Note 17, Military Retirement Benefits and Other Employment Related Actuarial Liabilities

■ Note 21B, Disclosures Related to Problem Disbursements, Intransit Disbursements and Suspense/Budget

Clearing Accounts

Note 12. Accounts Payable

Other Information

Intragovernmental accounts payable consists of amounts owed to other federal agencies for goods or services

ordered and received but not yet paid. Interest, penalties, and administrative fees are not applicable to intragovernmental payables. Nonfederal Payables (to the Public) are payments to nonfederal governmental entities.

Other Information Related to Accounts Payable

Fluctuations

Intragovernmental accounts payable increased $289,206 thousand. This was directly affected by the elimination

process, which requires the accrual of accounts payables to agree with Air Force trading partner seller data. 

Comparison prior to eliminations:

Sep 2003 Sep 2002 $ Change

(in thousands) (in thousands) (in thousands)

Intragovernmental accounts payable

before eliminations $1,805,481 $2,015,462 $(209,981)

Less Intra Air Force eliminations $391,541 $890,728 $499,187

Total $1,413,940 $1,124,734 $289,206

United States Air Force 

64

As of September 30,

(Amounts in thousands)

1. Intra-governmental Payables: $ 1,413,940 N/A $ 1,413,940 $ 1,124,734

2. Non-Federal Payables (to the Public): $ 7,080,909 $ 0 $ 7,080,909 $ 6,206,966

3. Total $ 8,494,849 $ 0 $ 8,494,849 $ 7,331,700

Total

2003 2002

Accounts

Payable

Interest, Penalties,

and Administrative

Fees

Total
Accounts payable public increased by $873,944 thousand. Other Procurement—Air Force program entity reflects a

$283,528 thousand increase in public accounts payable, Aircraft Procurement—Air Force program entity reflects a

$520,041 thousand decrease in public accounts payable, Missile Procurement—Air Force program entity reflects a

$174,509 thousand increase in public accounts payable, Other Procurement—Air Force program reflects a $707,741

thousand increase in public accounts payable and Operations and Maintenance—Air Force program entity shows an

increase in public accounts payable of $498,421 thousand. The remaining $13,314 thousand increase is shared by a

number of other program entities. Over 90 percent of the $873,944 thousand increase can be attributed to classified

Air Force Special Programs. Further information regarding that portion is not available. 

Intragovernmental Eliminations

For the majority of intra-agency sales, the Air Force’s feeder and DFAS accounting systems do not capture trading

partner data at the transaction level in a manner that facilitates trading partner aggregations. Therefore, the Air Force

was unable to reconcile intragovernmental accounts payable to the related intragovernmental accounts receivable that

generated the payable. The DoD and Air Force intend to develop long-term systems improvements that will include

sufficient up-front edits and controls to eliminate the need for after-the-fact reconciliations. The volume of intragovernmental transactions is so large that after-the-fact reconciliation can not be accomplished with the existing or foreseeable resources.

The DoD summary level seller accounts receivables were compared to the Air Force accounts payable. An adjustment was posted to the Air Force accounts payable based on the comparison with the accounts receivable of the

DoD components providing goods or services to the Air Force. Positive differences were treated as unrecognized

accounts payable and in the case of the Air Force, accounts payable were adjusted upwards in the amount of

$986,462 thousand. 

Allocation of Undistributed Disbursements

The Department of Defense policy is to allocate supported undistributed disbursements between federal and nonfederal categories based on the percentage of Federal and Nonfederal accounts payable. Unsupported undistributed disbursements should be recorded in United States Standard General Ledger (USSGL) account 2120, Disbursements in

Transit. The Air Force followed this allocation policy.

Note Reference

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

and DoD policies governing accounting for Intragovernmental Activities.

Note 13. Debt

Other Information

Relevant Information for Comprehension

Fluctuation. Education benefits that are provided for certain involuntary and voluntary separatees are paid from the

DoD Education Benefit Fund. The Air Force portion of the unfunded interest liability for education benefits for FY

2003 Annual Financial Statement

65

As of September 30,

(Amounts in thousands)

Agency Debt:

Debt to Other Federal Agencies 0 0 134

Total Debt: $ 0 $ 0 $ $ 134

Classification of Debt:

Intragovernmental Total Debt $ $ 134 0

0

0

Balance Borrowings Balance

Ending

Balance

2003 2002

Beginning Net Ending
2003 of $67.2 thousand is now being reported as Other Intragovernmental Liabilities. For FY 2002, the unfunded

interest liability of $134.1 thousand was reported as Debt.

Note Reference

See Note Disclosure 1. G., Significant Accounting Policies, for additional discussion on financial reporting requirements and DoD policies governing accounting for Intragovernmental Activities, Public Debt.

Note 14. Environmental Liabilities and Disposal Liabilities

Other Information Related to Environmental Liabilities

Fluctuations

Accrued Environmental Restoration Costs (DERP funded) Active Installations - Environmental Restoration for Closed

Ranges increased $132,472 thousand, or 19 percent, from $705,700 thousand to $838,172 thousand as reported for

FY 2002 and FY 2003 respectively. This increase is a result of the identification of 19 additional areas.

Other Accrued Environmental Costs (Non-DERP funds) Active Installations - Environmental Corrective Action

increased $29,298 thousand, or 17 percent, from $175,043 thousand to $204,341 thousand as reported for FY 2002

and FY 2003 respectively. The total liability reported for September 30, 2002 was $175,043 thousand, however one

figure was inadvertently reported in actual dollars rather than thousands. Had total cost to complete been reported

correctly, the total liability would have been $169,800 thousand. The total liability for the non-DERP, Non-BRAC

cleanup results in a 19 percent increase from the corrected figure of $169,800 thousand as of September 30, 2002 to

$204,341 thousand as of September 30, 2003. The total change of $34,541 thousand is comprised of a decrease of

$18,418 thousand in expenditures, an increase of $2,348 thousand in revaluations, and an increase of $50,611 which

reflects identification of 168 new sites during FY 2003. The total number of non-DERP, non-BRAC cleanup sites grew

from 712 as of September 30, 2002 to 715 at September 30, 2003, which indicates that 165 sites were eliminated

during the fiscal year. 

United States Air Force 

66

As of September 30,

(Amounts in thousands)

Environmental Liabilities:

Non-Federal:

Accrued Environmental Restoration (DERP funded) Costs:

Active Installations—Environmental Restoration (ER) $ 384,307 $ 4,517,581 $ 4,901,888 $ 5,237,429

Active Installations—ER for Closed Ranges 0 838,172 838,172 705,700

Other Accrued Environmental Costs (Non-DERP funds)

Active Installations—Environmental Corrective Action 0 204,341 204,341 175,043

Active Installations—Environmental Closure Requirements 0 66,454 66,454 65,182

Base Realignment and Closure (BRAC)

BRAC Installations—Environmental Restoration (ER) 75,153 1,833,847 1,909,000 2,083,724

BRAC Installations—ER for Transferring Ranges 0 00 0

BRAC Installations—Environmental Corrective Action 5,139 134,817 139,956 136,198

Environmental Disposal for Weapons Systems Programs 

Other National Defense Weapons Systems 0 50,592 50,592 51,288

Total Non-Federal Environmental Liabilities: $ 464,599 $ 7,645,804 $ 8,110,403 $ 8,454,564

2003 2002

Current 

Liability

Noncurrent 

Liability Total Total
General Disclosures

Accrued Environmental Restoration Costs (DERP funded) Active Installations—Environmental Restoration and Other

Accrued Environmental Costs (Non-DERP funds) Active Installations—Environmental Corrective Action

Environmental cleanup liabilities are incurred in connection with the Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA) and the Resource Conservation and Recovery Act (RCRA). Cost estimates

are performed using the Remedial Action Cost Engineering and Requirements System (RACER) unless there is a historic comparable project, or there is a specific bid or independent government cost estimate for the project. The liability amount is composed of the sum of several stages of activity and not necessarily contained in a single estimate or

contract.

The change in environmental cleanup liability during a reporting period is comprised of revaluations of the cost-tocomplete cleanup of sites that existed at the beginning of the period plus the cost-to-complete cleanup for new sites

introduced during the reporting period, less amounts expensed in the program during the reporting period. The

beginning environmental cleanup liability plus the cost-to-complete new sites added during the period, plus or minus

changes in cost-to-complete estimates (revaluations) during the period is equal to the ending environmental cleanup

liability for the period. Because the Defense Environmental Restoration Program (DERP) is accounted for as a totally

self-contained program, all direct and indirect costs of the program are captured and reported.

Non-DERP non-Base Realignment and Closure (non-BRAC) environmental cleanup liabilities represent corrective

actions required under RCRA law. These environmental cleanup liabilities are estimated in the same manner as DERP

environmental cleanup liabilities. The change in non-DERP non-BRAC environmental cleanup liabilities during a

reporting period is comprised of revaluations of the cost-to-complete for sites that existed at the beginning of the

period plus the cost-to-complete for new sites added during the reporting period less amounts expensed during the

period. Because the non-DERP non-BRAC environmental cleanup activity is a part of general funding achieved using

3400 appropriation funds, there is no special accounting for the costs of the entire program. Therefore, the costs captured for the non-DERP non-BRAC environmental cleanup reflect only direct costs. Because this program was not

tracked and appropriated specifically there was no accounting specific to this program. Expense codes for this program were established in 1999 and implemented in fiscal year 2000. Therefore, the expense portion of the estimate

has no significant history. Because of the lack of expense history for the program, there is no reliable data for estimating the current portion of the non-DERP non-BRAC environmental cleanup liability. It is believed that the current portion of the environmental cleanup liability in this area is relatively small and not material in the classification of liabilities. Because the non-DERP non-BRAC environmental cleanup liabilities are only estimated between 1 July and 1

September of each year, there is no significant change other than at fiscal year end for non-DERP non-BRAC environmental liabilities. On less than an annual basis the only change to the liability estimate in this area is the amount

recorded as expensed during the reporting period.

Accrued Environmental Restoration Costs (DERP funded) Active Installations—Environmental Restorations for Closed

Ranges

The environmental cleanup of military ranges is governed by the “Military Munitions Rule” in 40 CFR 266.201.

Environmental cleanup liabilities on ranges refer only to munitions related activities. Other actions are captured under

the DERP, BRAC and non-DERP non-BRAC environmental cleanup categories. Additionally, environmental cleanup liabilities are reported only for closed ranges. The Air Force had 509 ranges at September 30, 2002 of which 268 are

considered operational ranges. The environmental cleanup liability is reported only for closed ranges that number 260

as of September 30, 2003 (236 closed, 18 transferred, 6 transferring). 

Environmental cleanup areas within a closed range are referred to as “munitions response areas” (MRAs). As studies

are done to find munitions related contamination on closed ranges the number of sites is expected to rise. At

September 30, 2002 there were 241 areas comprised of closed ranges that resulted in an estimated environmental

2003 Annual Financial Statement

67
cleanup liability of about $705,700 thousand and has increased to 260 areas with an estimated cost of $838,172 thousand at September 30, 2003. As investigations progress, the number of sites will increase to reflect specific areas of

polluted and non-polluted sites. The Air Force expects the number of sites reported to increase as pollution is discovered and sites are defined in areas less than the total boundary of the closed range. For example, one closed range of

100 acres may become three sites - one of five acres with pollution A, one of 15 acres with pollution B and the

remaining 80 acres with no pollution found. Thus, one closed range becomes three sites and each site has its own

cost-to-complete cleanup estimate. The sum of the individual site cost-to-complete cleanup becomes the environmental cleanup liability for closed ranges. Current policy is to investigate all closed ranges by the end of 2007. The

environmental cleanup for closed ranges is in its infancy and the total liability is expected to increase significantly over

the coming years as investigations progress.

Although there are no stated standards for the environmental cleanup of closed ranges, the Air Force has implemented the cleanup standards used by the Formerly Used Defense Site (FUDS) operation to determine a cost-to-complete for the environmental cleanup. Over time implementation of these standards of cleanup are highly likely to

change and are expected to vary significantly from site to site depending upon the specific site related terrain and

geology. For example, the standard cleanup levels for FUDS may not apply in the situation of a dense rain forest

because the standard would require the complete destruction of the forest to achieve the cleanup standards established. It is expected that there will be significant changes in the cleanup standards that eventually will be applied on a

case by case basis for munitions response requirements.

As investigations progress it is expected the environmental cleanup liability for closed ranges will increase materially.

The liability for environmental cleanup will reflect direct costs. Also, the lack of any history of expenses for the environmental cleanup will make it impossible to estimate current liabilities reliably for some time. 

Other Accrued Environmental Costs (Non-DERP funds) Active Installations—Environmental Closure Requirements

Environmental closure liabilities are incurred under RCRA with the cost-to-complete closure reported for RCRA permitted facilities. Cost estimates are prepared under assumptions of a “clean close” as defined in the RCRA law and

estimated using RACER in the absence of a specific contract cost or bid. The specific facilities reported cover permitted landfills, underground storage tanks (USTs) and treatment, storage and disposal facilities (TSDFs).

The current accounting system does not capture expenses of environmental closures. Therefore, environmental closure liabilities are reversed at the end of each year and replaced with the most recent cost-to-complete closure estimate. Disposal liabilities are presented as an accrued amount for the life of the RCRA permitted facilities and the total

liability is presented in the year end narrative. The accounting standard requires full cost be recognized for closure liability. Closure liabilities recognized by the Air Force cover only direct costs. There is no reliable cost accounting system to determine indirect closure costs. This is not considered material in the cost estimates because indirect costs

incurred would not happen for at least 20 years and in many cases far beyond 20 years. The present value of such

costs would be negligible in recognition of closure liabilities.

The environmental closure liability for landfills is based on the proportion of the landfill used as of the reporting date.

This estimate includes the cost of capping the fill, as well as, 30 years of monitoring required by Federal regulations.

Reporting of landfill closure liability is not in conformance with the accounting standard. The standard would recognize all future costs regardless of timing. The Air Force recognizes only the initial closure. A landfill cap typically

requires replacement every 20 to 40 years. An estimation of current costs based on all future costs, regardless of timing, would result in an infinite liability. This appears meaningless and not the intent of the standard. Therefore, the Air

Force reports only the cost of the initial cap required to close a landfill. The Air Force believes this reporting is more

meaningful. The present value of the future caps, those after the initial cap, would be negligible.

United States Air Force 

68
UST closure liabilities are based on an assumed life of 20 years and two years of monitoring with closure costs estimated for a “clean close.” “Clean close” is defined in the Federal regulations.

TSDF closure liabilities are based on an assumed life of 30 years. Disposal costs include two years of monitoring with

closure costs estimated for a “clean close.” “Clean close” is defined in the Federal regulations.

Base Realignment and Closure (BRAC) Installations—Environmental Restoration and Environmental Corrective Action

For FY 2003, the Air Force has estimated and reported its BRAC environmental future liabilities. The Air Force Real

Property Agency (AFRPA) estimates a $2,048,955 thousand total environmental liability as of September 30, 2003.

This amount includes all cleanup requirements to meet applicable laws and regulatory requirements and to transfer

property. However, this amount does not include Land Use Control/Institutional Control costs beyond system operations associated with property transfer. Cost estimates are assigned to current operating periods using the Remedial

Action Cost Engineering and Requirements System (RACER). 

Environmental Disposal for Weapons Systems Programs—Other National Defense Weapon Systems

The September 20, 2003 environmental disposal liability of $50,592 thousand in Other National Defense Weapon

Systems includes strategic and tactical active missiles, inactive missiles, and missile motors. The Air Force identified

$48,636 thousand in environmental liability for the disposal of the Minuteman III and Peacekeeper strategic missile

motors and $1,956 thousand for the disposal of tactical active and inactive missiles.

Reporting of Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United

States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We

believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information

available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments

and assumptions can affect the reported amounts of environmental liabilities as of the date of the financial statements.

Our financial statements would be affected to the extent there are material differences between these estimates and

actual results. In many cases, the accounting treatment of a particular transaction specifically is dictated by the

Department of Defense Financial Management Regulations and does not require management’s judgment in its application. There also are areas in which management judgment in selecting any available alternative could produce a

materially different result.

Other Air Force Disclosures

Other Accrued Environmental Costs (Non-DERP funds) Active Installations—Environmental Closure Requirements

The recognized closure liability for Resource Conservation and Recovery Act (RCRA) permitted facilities combine

treatment, storage, and disposal facilities (TSDFs) for hazardous waste, landfills, and underground storage tanks

(USTs) increased from $65,182 thousand to $66,454 thousand during fiscal year 2003. The total liability, however,

decreased significantly. The decrease in total liability was due to an incorrect figure reported at September 30, 2002.

The total closure liability for TSDF’s reported September 30, 2002 was $226,100 thousand. The total at September

30, 2003 is $13,400 thousand, significantly lower because two of last year’s figures inadvertently were reported in

actual dollars rather than thousands. Had total closure liability at September 30, 2002 been reported correctly, the

total TSDF liability only would have been $14,800 thousand. The components for the ending liability figures for FY

2002 and FY 2003 are shown below. The recognized liability is the amount reflected on the financial statements.

2003 Annual Financial Statement

69
FY 2003 FY 2002

(amounts in thousands) (amounts in thousands)

Total Recognized Total Recognized

TSDFs $13,400 $5,000 $226,100 $39,700

Landfills $132,100 $35,454 $80,000 $16,700

USTs $51,200 $26,000 $75,300 $8,782

Total $196,700 $66,454 $381,400 $65,182

The increase in recognized liability reflects reporting of additional USTs, and landfills not reported previously. Closure

liabilities reflect a continued refinement and re-evaluation of cost estimating procedures and data fidelity. More installations have implemented the validated, verified and accredited cost-estimating tool (RACER). Overall, TSDF and UST

liability decreased, and landfill closure liability increased due to the identification of three previously unreported landfills.

Note Reference

For regulatory discussion on “Environmental Liabilities,” see Department of Defense Financial Management

Regulation, Volume 6B, Chapter 10, Paragraph 1016. 

Note 15.A. Other Liabilities

Other Information Pertaining to Other Liabilities

Intragovernmental Fluctuations

The $68,553 thousand decrease in Advances from Others on Line 1.A. in comparison to 30 September 2002 is due to

the timing of the receipt and execution of orders which causes variations in the year-end balances. 

United States Air Force 

70

As of September 30,

(Amounts in thousands)

Intra-governmental:

Advances from Others $ 145,290 $ 0 $ 145,290 $ 213,843

Deposit Funds and Suspense Account Liabilities 23,503 0 23,503 15,596

Resources Payable to Treasury 0 0 0 1,006,978

Disbursing Officer Cash 273,536 0 273,536 265,295

Judgement Fund Liabilities 149,054 103,037 252,091 303,600

FECA Reimbursement to the Department of Labor 132,538 172,212 304,750 305,675

Other Liabilities 624,734 0 624,734 68,101

Total Intra-governmental Other Liabilities $ 1,348,655 $ 275,249 $ 1,623,904 $ 2,179,088

Non-Federal:

Accrued Funded Payroll and Benefits $ 1,289,522 $ 0 $ 1,289,522 $ 1,166,899

Advances from Others 68,038 0 68,038 93,234

Deposit Funds and Suspense Accounts 29,181 0 29,181 39,154

Temporary Early Retirement Authority 1,827 3,316 5,143 16,900

Nonenvironmental Disposal Liabilities:

Excess/Obsolete Structures 55,487 15,202 70,689 62,581

Conventional Munitions Disposal 0 5,880 5,880 0

Other 0 0 0 0

Accounts Payable—Cancelled Appropriations 358,656 87,282 445,938 452,919

Accrued Unfunded Annual Leave 2,152,620 0 2,152,620 1,674,276

Capital Lease Liability 31,458 232,344 263,802 279,418

Other Liabilities 845 189,231 190,076 201,806

Total Non-Federal Other Liabilities $ 3,987,634 $ 533,255 $ 4,520,889 $ 3,987,187

Total Other Liabilities: $ 5,336,289 $ 808,504 $ 6,144,793 $ 6,166,275

2002

Total

2003

Noncurrent 

Liability Total Current 

Liability
The deposit funds and suspense account liabilities on Line 1.C. increase of $7,907 thousand is related to

Intragovernmental Paying and Collection (IPAC) transactions that are initially posted to account 57 F 3885 and the

Military Thrift Saving Plan posted to account 57 F 3882. IPAC transactions are aged and monitored to ensure they are

cleared timely. The Military Thrift Saving Plan represents a timing difference as the National Finance Center post

amounts into each military member’s account.

The Resources Payable to Treasury on Line 1.D. decreased by $1,006,978 thousand due to the reclassification of cancelled authority for recording accounts receivables. DFAS-Denver was the only Center using USSGL 2970, Resources

Payable to Treasury, as the contra to receivables in cancelled accounts. Amount if collected will go to Treasury as miscellaneous receipts. This was the contra account provided to us to use when populating the CFO Reporting System

with posting logic. According to draft guidance from DFAS-Arlington, the accounting for expired and cancelled

authority for other than special and trust funds should be reported under USSGL 2990, Other Liabilities. USSGL 2990

cross walk to Other Liabilities on the Balance Sheet and Line 1.K. on Note 15A.

The $8,241 thousand increase in Disbursing Officer Cash on Line 1.E. is primarily attributed to war effort requirements in support of Operation Iraqi Freedom. 

Balances in Accounts Payable - Cancelled Appropriations on Line 1.G. for $220,667 thousand was reclassified from

federal to non-federal for elimination balancing. Cancelled accounts payable based on accounts receivable data

between trading partners within government if collected will go to the Treasury as miscellaneous receipts. Therefore,

you have to reclassify cancelled accounts payable to non-federal.

Judgement Fund liabilities of $252,091 thousand result from contractor claims under the Contract Disputes Act on Air

Force contracts that have been adjudicated by a court or a board in favor of the contractor. Initially, the Department

of the Treasury pays the monetary awards to the contractor. The Air Force must subsequently reimburse the

Treasury’s Judgement Fund for the amount that was paid to the contractors. The decrease during FY 2003 is due to

the Air Force paying approximately $52,509 thousand more to Treasury on debts owed than Treasury billed to the Air

Force in new debts.

No seller data was matched to Air Force closed account payables. Therefore, all cancelled accounts payables are

reported as public.

Other Liabilities

Other Liabilities includes unsupported undistributed collections which are recorded in United States Standard General

Ledger (USSGL) account 2400, Liability for Deposit Funds, Clearing Accounts, and Undeposited Collections.

The Other Liabilities on Line 1.K. increase of $525,901 thousand represents $33,037 thousand in government contribution of employee benefits, $27,489 thousand in other unfunded unemployment compensation liabilities. The reclassification of Resources Payable to Treasury increased by $449,288 thousand to report cancelled authority for recording accounts receivables appear in Other Liabilities.

Non-Federal Fluctuations

The increase of $122,623 thousand in accrued funded payroll and benefits from 30 September 2002 is due to the

increase in the number of military personnel when Air Force Reserve and Air National Guard military personnel were

activated in support of the war effort. 

The decrease of $25,196 thousand in Advances from Others on Line 2.B. is due to the timing of the receipt and execution of orders primarily from Non-Federal sources. 

The decrease of $9,973 thousand in deposit funds is associated with the timing difference as these deposit funds are

posted to 57 X 6*** account until paid after each quarter. Deposit funds are used as temporary accounts to hold

2003 Annual Financial Statement

71
amounts that eventually pay for state and local income taxes, savings bonds, charitable contributions, and employees’

organizational dues. 

The Temporary Early Retirement Authority (TERA) liabilities decrease of $11,757 thousand is due to the termination

of the program in FY 2002.

The Accounts Payable - Cancelled Appropriations on Line 2.I. decreased by $6,974 thousand. Amounts are reduced

as the liability is liquidated using current year funds. 

The increase of $478,344 thousand in the accrued unfunded annual leave is the result of increases in military and civilian leave balances. The increase in military leave is impacted by the activation of military personnel in support of the

war in Iraq, because the use of leave is restricted during a war. 

Nonenvironmental Disposal Liabilities - Excess/Obsolete Structures increased $8,108 thousand, or 13 percent, from

$62,581 thousand to $70,689 thousand as reported for FY 2002 and FY 2003 respectively. This change was in accordance with disposal plans directed by the Defense Reform Initiative Directive No. 36, dated May 5, 1998. 

Nonenvironmental Disposal Liabilities - Conventional Munitions Disposal increased $5,880 thousand. Previously, this

liability was only disclosed in the notes, but for FY 2003 it is included in the audited financial statements.

Other Liabilities

The amount of $190,076 thousand represents legal contingencies of $189,231 thousand and accrued interest liability

of $845 thousand. 

The recorded estimated probable liability amount of $25,183 thousand has been included in the accompanying financial statements for open contractor claims greater than $100,000 and neither under appeal nor in litigation. In addition

to the contractor claims under appeal and the open contractor claims for an amount greater than $100,000, the Air

Force was party to numerous other contractor claims in amounts less than $100,000 per claim. These claims are a

routine part of the contracting business and are typically resolved through mutual agreement between the contracting

officer and the contractor. Because of the routine nature of these claims, no requirement exists for a consolidated

tracking mechanism to record the amount of each claim, the number of open claims, or the probability of the claim

being settled in favor of the claimant. The potential liability arising from these claims in aggregate would not materially

affect the operations or financial condition of the Air Force. A reasonably possible liability is estimated at $9,447 thousand and is not included in the reported amount.

The total estimated probable liability for claims and litigation against the Air Force handled by the Civil Law and

Litigation Directorate, as of June 30, 2003, was valued at $153,358 thousand and has been included in the accompanying financial statements. As of Sept 30, 2003, the Air Force was party to 4,157 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 $244,739 thousand and is not included in the

reported amount. Neither past payments nor the current contingent liability estimate provides a basis for accurately

projecting the results of any individual lawsuit or claim. It is uncertain that claims will ever accrue to the Air Force. In

addition, many claims and lawsuits, even if successful, will not be paid out of Air Force Funds. Rather, judgements

over $100,000 are ordinarily paid from the Judgement Fund, not from Air Force accounts even though claims were

the result of Air Force operations. In many cases involving attorney fees, the amounts are not known until the last

appeal is concluded.

As of Sept 30, 2003, the Air Force was a party to 68 contract appeals before the Armed Services Board of Contract

Appeals (ASBCA). The probable amount of loss from contractor claims of $10,689 thousand has been included in the

financial statements. The contractor claims involve unique circumstances, which are considered by the ASBCA in forUnited States Air Force 

72
mulating decisions on the cases. Such claims are funded primarily from Air Force appropriations. A reasonably possible liability is estimated at $11,486 thousand and is not included in the reported amount.

Other Disclosures

Intragovernmental Reconciliation for Fiduciary Transactions with DoL and OPM

With respect to the major fiduciary balances with the OPM and the DoL, the Air Force was able to reconcile with the

OPM and the DoL. During these reconciliations immaterial differences were identified.

Note 15.B. Capital Lease Liability

Other Information

The Air Force is the leasee in twelve capital leases. Eleven are for family housing and one is for a piece of equipment.

Six of the military housing leases were awarded prior to FY 1992 and are funded on a FY basis.

Note 16. Commitments and Contingencies

Disclosures Related to Commitments and Contingencies

Relevant Information for Comprehension

The Commitments and Contingencies consist of the following reasonably possible liabilities:

Contractual Actions:

Contractor Claims $9,447 Thousand

Appeals before Armed Services Board of Contract Appeals (ASBCA) $11,486 Thousand

$20,933 Thousand

Claims and Litigation from Civil Law: $244,739 Thousand 

Total $265,672 Thousand

Note Reference

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

and DoD policies governing Contingencies and Other Liabilities.

2003 Annual Financial Statement

73

As of September 30,

1. Future Payments Due:

A. 2004 $ 45,433 $ 167 $ 0 $ 45,600 $ 45,600

B. 2005 45,433 42 0 45,475 45,600

C. 2006 45,152 0 0 45,152 45,433

D. 2007 42,056 0 0 42,056 45,152

E. 2008 38,978 0 0 38,978 42,056

F. After 5 Years 165,138 0 0 165,138 192,757

G. Total Future Lease Payments Due $ 382,190 $ 209 $ 0 $ 382,399 $ 416,598

H. Less: Imputed Interest Executory Costs 118,587 9 0 118,596 137,180

I. Net Capital Lease Liability $ 263,603 $ 200 $ 0 $ 263,803 $ 279,418

$ 299,510 $ 323,439

$ 82,679 $ 93,159

2003 2002

Asset Category

(Amounts in Thousands) Land and

Buildings Equipment Total Other Total

3. Capital Lease Liabilities Not Covered by Budgetary Resources:

2. Capital Lease Liabilities Covered by Budgetary Resources: 
Note 17. Military Retirement Benefits and Other Employment Related

Actuarial Liabilities

Military Retirement Pensions—Assumptions

The portion of the military retirement benefits actuarial liability applicable to the Department of the Air Force is

reported on the financial statements of the Military Retirement Fund.

Military Retirement Health Benefits—Assumptions

Health benefits are funded centrally at the DoD level. As such, the portion of the health benefits actuarial liability that

is applicable to the Air Force is reported only on the DoD Agency-wide financial statements.

Federal Employees’ Compensation Act (FECA)—Assumptions and Actuarial Cost Method

Used

The Air Force’s actuarial liability for workers’ compensation benefits is developed by the Department of Labor and

provided to the Air Force at the end of each fiscal year. The liability includes the expected liability for death, disability,

medical, and miscellaneous costs for approved compensation cases. The liability is determined using a method that

utilizes historical benefit payment patterns to predict the ultimate payments. The projected annual benefit payments

are then discounted to the present value using the OMB’s economic assumptions for 10-year U.S. Treasury notes and

bonds. Cost-of-living adjustments and medical inflation factors are also applied to the calculation of projected future

benefits. Interest rate assumptions utilized for discounting were as follows:

2003

3.84% in Year 1

4.35% 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 (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. These factors were also used to adjust the

methodology’s historical payments to current year constant dollars.

The compensation COLAs and CPIMs used in the projections for various charge back years (CBY) were as follows:

CBY COLA CPIM

2004 2.3% 3.21%

2005 2.00% 3.54%

2006 1.83% 3.64%

2007 1.97% 3.80%

2008+ 2.17% 3.92%

The model’s resulting projections were analyzed to insure that the estimates were reliable. The analysis was based on

two tests: (1) a comparison of the percentage change in the liability amount by agency to the percentage change in

United States Air Force 

74

(Amounts in Thousands)

FECA $ 1,262,267 $ 0 $ 1,262,267 $ 1,211,045

Total Military Retirement Benefits 

and Other Employment Related 

Actuarial Liabilities $ 1,262,267 $ 0 $ 1,262,267 $ 1,211,045

As of September 30, 2003

Assumed 

Interest 

Rate (%)

Unfunded 

Actuarial

Liability

2002

Actuarial Present 

Value of Projected 

Plan Benefits

Unfunded 

Actuarial 

Liability

(Less: Assets 

Available to 

Pay Benefits)
the actual payments, and (2) a comparison of the ratio of the estimated liability to the actual payment of the beginning

year calculated for the current projection to the liability-payment ratio calculated for the prior projection.

Note Reference

For regulatory discussion on “Military Retirement Benefits and Other Employment Related Actuarial Liabilities,” see

Department of Defense Financial Management Regulation, Volume 6B, Chapter 10, paragraph 1019.

Note 18. Unexpended Appropriations

Other Information Pertaining to Unexpended Appropriations

Fluctuations

Unexpended appropriation increased $11,198,466 thousand since EOY 2002. This increase is directly associated with

the increase in budget authority received by the Air Force for FY 2003 and the status of execution as a result of

Operation Iraqi Freedom.

Relevant Information for Comprehension

Unexpended obligations reported as a component of Unexpended Appropriations include both Undelivered OrdersUnpaid and Undelivered Orders-Paid only for direct appropriated funds. This amount is distinct from Change in

Amount of Goods, Services, and Benefits Ordered but Not Yet Received line of the Statement of Financing, which

includes the change during the fiscal year in unexpended obligations against budget authority from all sources.

Note 19.A. General Disclosures Related to the Statement of Net Cost

Disclosures Related to the Statement of Net Cost 

Statement of Net Cost

The Consolidated Statement of Net Cost (SoNC) in the federal government is unique because its principles are 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.

Reporting Entities

The amounts presented in the SoNC are based on obligations and disbursements and therefore may not in all cases

report actual accrued costs. The Air Force generally records transactions on a cash basis and not an accrual basis as is

required by the generally accepted accounting principles. Therefore, the Air Force systems do not capture actual

costs. As such, information presented in the SoNC is based on budgetary obligations, disbursements and collection

transactions, as well as non-financial feeder systems; then adjusted to record known accruals for major items such as

payroll expenses, accounts payable, and environmental liabilities.

Fluctuations and Abnormalities

The 23 percent increase in Intragovernmental Gross Cost and 36 percent in Public Net Costs is due to the 23 percent increase in Budget Authority as reflected on the Statement of Budgetary Resources. The increase is primarily tied

to supplemental funding for Global War on Terrorism.

2003 Annual Financial Statement

75

As of September 30,

(Amounts in Thousands)

1. Unexpended Appropriations:

A. Unobligated, Available $ 8,323,168 $ 5,272,785

B. Unobligated, Unavailable 1,571,907 1,185,935

C. Unexpended Obligations 40,847,242 33,085,130

D. Total Unexpended Appropriations $ 50,742,317 $ 39,543,850

2003 2002
The increase in Gross Cost with the Public can be attributed to the increase in depreciation expense resulting from

the inclusion of National Defense Property Plant and Equipment and an increase in real property depreciation as

reported in the Automated Civil Engineering System (ACES). Further, increased consumption of Operating Material

and Supplies such as munitions, and decreases in the value of Other General Property, Plant and Equipment assets

contributed to the change.

The increase in Intragovernmental and Public Earned Revenue can be attributed to an increase of 18 percent in reimbursable authority. Despite the fact that intragovernmental earned revenue increased 71 percent, as reflected on the

comparative Net Cost Statement, actual government revenue only increase by 8 percent. Intra-Air Force reimbursable activity decreased and reimbursable activity with other intragovernmental activities increased which resulted

in a 70 percent change in eliminations on the Air Force Net Cost statement.

Imputed Cost and Expenses for the Judgement Fund decreased in value by $22,705 thousand due to the number of

Air Force cases requiring payment by the U.S. Treasury.

The abnormal amount of intragovernmental net costs on the Consolidating Statement of Net Cost for Research,

Development, Test & Evaluation Program is attributable to intragovernmental revenue per Air Force seller side

records being higher than intragovernmental expenses in the Air Force accounting records. This situation existed

prior to adjustments for other seller side data. Further analysis of Air Force accounting data is required.

Note 19.B. Gross Cost and Earned Revenue by Budget Functional Classification

Not applicable.

Note 19.C. Gross Cost to Generate Intra-governmental Revenue and Earned

Revenue (Transactions with Other Federal-Non-DoD-Entities) by Budget

Functional Classification

Not applicable.

Note 19.D. Imputed Expenses

Other Information

Fluctuations

The Civilian Retirement imputed expense increased $60,958 thousand, or 32 percent, from $193,271 thousand to

$254,229 thousand as reported for FY 2002 and FY 2003 respectively. The major factors contributing to this fluctuation are an increase in the cost factors computed by the Office of Personnel Management (OPM), an increase in the

gross basic pay for the Federal Employees’ Retirement System (FERS), and a decrease in the employer contribution

rate for the Civil Service Retirement System (CSRS). For the first time, an imputed cost is recognized for FERS.

Information Related to Imputed Expenses

The total Civilian Retirement imputed expense of $254,229 thousand is comprised of $230,951 thousand for the Civil

Service Retirement System (CSRS) and $23,278 thousand for the Federal Employees’ Retirement System (FERS).

United States Air Force 

76

As of September 30,

(Amount in thousands)

Civilian (e.g.,CSRS/FERS) Retirement $ 254,229 $ 193,271

Civilian Health 338,180 340,583

Civilian Life Insurance 1,249 1,184

Judgment Fund 39,334 62,038

Total Imputed Expenses $ 632,992 $ 597,076

2003 2002
The imputed expenses are equal to the imputed revenue recognized on the Statement of Changes in Net Position

and disclosed in detail in Note 20.

Note 19.E. Benefit Program Expenses

Not applicable.

Note 19.F. Exchange Revenue

Disclosures Related to the Exchange Revenue

Exchange Revenue arises when a Government entity provides goods and services to the public or to another

Government for a price—”earned revenue.” Exchange revenue includes most user charges other than taxes, i.e., regulatory user charges.

Goods and services provided through reimbursable programs to the public or another U.S. Government entity (intraAir Force, intra-DoD or other federal entity) is provided at cost. Such reimbursable sales are reported as earned revenues. Costs are equal to the amount reported as earned. Since FY 2000 sales to the Foreign Military Trust Fund and

related cost of sales have been reclassified as nonfederal, transactions with the public, rather than intragovernmental

transactions as in years prior.

Note 19.G. Amounts for Foreign Military Sales (FMS) Program Procurements

from Contractors

Not applicable.

Note 19.H. Stewardship Assets

Disclosures Related to Stewardship Assets

Stewardship assets include Heritage Assets, Stewardship Land, Nonfederal Physical Property, and Investments in

Research and Development. The current year cost of acquiring, constructing, improving, reconstructing, or renovating

heritage assets; costs of acquiring stewardship land; and costs to prepare stewardship land for its intended use are

required to be recognized and disclosed in the SoNC or the notes if occurring. Such costs, if any, are not separately

identifiable and are not believed to be material.

Note 19.I. Intra-governmental Revenue and Expense

Disclosures Related to Intra-governmental Revenue and Expense

Intragovernmental Revenue

The Air Force’s accounting systems do not capture trading partner data at the transaction level in a manner that facilitates trading partner aggregations. Therefore, the Air Force was unable to reconcile intragovernmental revenue balances with its trading partners. The Department intends to develop long-term systems improvements that will include

sufficient up-front edits and controls to eliminate the need for after-the-fact reconciliations. The volume of intragovernmental transactions is so large that after-the-fact reconciliation can not be accomplished with the existing or foreseeable resources.

Intragovernmental Operating Expenses

The Air Force’s operating expenses were adjusted based on a comparison between the Air Force’s accounts payable

and the DoD summary level seller accounts receivables. An adjustment was posted to accounts payable and operating

expenses to reflect unrecognized accounts payable and operating expenses. The operating expenses of the Air Force

were adjusted upwards in the amount of $986,462 thousand.

2003 Annual Financial Statement

77
Note 19.J. Suborganization Program Costs

The Department of Defense (DoD) identifies programs based on the nine major appropriation groups provided by

the Congress. The Department is in the process of reviewing available data and attempting to develop a cost reporting methodology that fulfills the need for cost information required by SFFAS No. 4 to keep the financial statements

from becoming overly voluminous.

Until cost-allocating processes and expanded intra-DoD eliminating capabilities are incorporated into the accounting

processes, the usefulness of further suborganization-reported (major command) net costs is limited. This limitation is

the reason that no additional statements of suborganization costs at lower levels are presented with these statements. 

The DoD is unable to accumulate costs for major programs based on performance measures identified under

requirements of the Government Performance and Results Act because current financial processes and systems do

not capture and report this type of cost information. Until the processes and systems are upgraded, the DoD as a

whole will break out programs by major appropriation groupings.

The SoNC format requires reporting program costs by costs incurred with intragovernmental and public entities.

Although overall program costs are believed to be fairly stated, the cost allocations between intragovernmental and

public entities that were based on available vendor-type data may not be totally accurate.

Note 20. Disclosures Related to the Statement of Changes in Net Position

Other Information

Relevant Information for Comprehension

The Federal Accounting Standards Advisory Board issued Statement of Federal Financial Accounting Standards No.

23, Eliminating the Category National Defense Property, Plant and Equipment, in May 2003. This standard requires

the capitalization and depreciation of the cost of military equipment. This data was included in the statements through

a prior period adjustment.

Imputed Financing

The amounts remitted to OPM by and for employees covered by Civil Service Retirement System (CSRS), Federal

Employees’ Retirement System (FERS), Federal Employees’ Health Benefits Program (FEHB) and the Federal

United States Air Force 

78

As of September 30,

(Amounts in thousands) 

1. Prior Period Adjustments Increases 

(Decreases) to Net Position

Beginning Balance: 

A. Changes in Accounting Standards $ 122,475,076 $ 0 $ 0 $ 0

B. Errors and Omissions in Prior Year 

Accounting Reports 0 0 -31,869,730 0

C. Other Prior Period Adjustments 0 0 00

D. Total Prior Period Adjustments $ 122,475,076 $ 0 $ -31,869,730 $ 0

2. Imputed Financing:

A. Civilian CSRS/FERS Retirement $ 254,229 $ 0 $ 193,271 $ 0

B. Civilian Health 338,180 0 340,583 0

C. Civilian Life Insurance 1,249 0 1,184 0

D. Military Retirement Pension 0 0 00

E. Military Retirement Health 0 0 00

F. Judgment Fund 39,334 0 62,038 0

G. Total Imputed Financing $ 632,992 $ 0 $ 597,076 $ 0

Cumulative Results 

of Operations

2003

Unexpended 

Appropriations

2003

Cumulative Results 

of Operations

2002

Unexpended 

Appropriations

2002
Employee Group Life Insurance Program (FEGLI) do not fully cover the Government’s cost to provide these benefits.

An imputed cost is recognized as the difference between the Government’s cost of providing these benefits to the

employees and contributions made by and for them. The Office of Personnel Management (OPM) provides the cost

factors to DFAS for computation of imputed financing cost. The DFAS provides the costs to the Office of the Under

Secretary of Defense (Personnel and Readiness) (OUSD (P&R)) for validation. Approved imputed costs are provided

to the reporting components for inclusion in their financial statements.

The total Civilian Retirement imputed financing of $254,229 thousand is comprised of $230,951 thousand for Civil

Service Retirement System (CSRS) and $23,278 thousand for the Federal Employees’ Retirement System (FERS).

The imputed revenue is equal to the imputed expense recognized in the Statement of Net Cost and disclosed in

detail in Note 19D.

Note 21.A. Disclosures Related to the Statement of Budgetary Resources

Other Information

Fluctuations

Comparison of FY 2003 to FY 2002 Statement of Budgetary Resources not required for the year-end statements.

Other Information Related to the Statement of Budgetary Resources

The amount of direct obligations incurred and apportioned under category A is $73,187,072 thousand, category B is

$50,177,235 thousand, and exempt is $11,259 thousand. For reimbursable obligations incurred and apportioned category A is $5,244,197 thousand, category B is $2,975,642 thousand and exempt is $11,547 thousand.

Unexpended Obligations presented in the Statement of Budgetary Resources (SBR) includes Unexpended Obligations

for both direct and reimbursable funds. The Department has not fully implemented the U.S. Standard General Ledger

(USSGL) in all operational accounting systems.

The statement does not include any amounts for which the Department of Treasury is willing to accept corrections to

canceled appropriation amounts, in accordance with SFFAS Number 1. 

Adjustments in funds that are temporarily not available pursuant to Public Law, and those that are permanently not

available (included in the Adjustments line on the SBR), are not included in Spending Authority from Offsetting

Collections and Adjustments line of the SBR or the Spending Authority for Offsetting Collections and Adjustments line

of the Statement of Financing.

Due to accounting system deficiencies, the proper amount of intra agency eliminations for this statement cannot be

determined.

Accounting systems currently do not provide or capture data needed for obligations incurred and recoveries of prior

year obligations in accordance with OMB Circular A-11, “Instructions on Budget Execution” requirements. Although

DFAS Denver Center developed an alternative methodology to calculate these items, the auditors and DFAS Denver

Center concurs this methodology also distorts the obligation figures. As a result, the amount of distortion cannot be

reliably determined, and may or may not be material.

2003 Annual Financial Statement

79

As of September 30,

(Amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for

Undelivered Orders at the End of the Period $ 42,556,665 $ 34,775,371

2. Available Borrowing and Contract Authority at the End

of the Period 0 0

2003 2002
Disaggregated SBR are included in the Required Supplementary Information section of the statements. The abnormal

balance on line 15b of the disaggregated SBR is the current year correction of an erroneous collection reported during FY 2002. 

Note 21.B. Disclosures Related to Problem Disbursements, In-transit

Disbursements and Suspense/Budget Clearing Accounts

Other Information Related to Problem Disbursements and In-transit Disbursements

The Air Force has $20,248 thousand in problem disbursements and $1,111,274 thousand in in-transit disbursements

that represent disbursements of Air Force funds that have been reported by a disbursing station to the Department

of the Treasury but have not yet been precisely matched against the specific source obligation giving rise to the disbursements. For the most part, these payments have been made using available funds and based on valid receiving

reports for goods and services delivered under valid contracts. The problem disbursements and in-transit disbursements arise when the various contracting, disbursing, and accounting systems fail to match the data necessary to

properly account for the disbursement transactions in all applicable accounting systems. Defense Finance and

Accounting Service has efforts underway to improve the systems and to resolve all previous problem disbursements

and to process all in-transit disbursements. As of September 30, 2003, these efforts resulted in a $1,668,508.24

decrease in reported problem disbursements since September 2002; and in-transit disbursements have decreased by

$209,353,185.29. The amount over 120 days old for UMDs is $110,951.71 and NULOs is $475,000.67. The amount

over 180 days old for UMDs is $81,602.39, for NULOs is $409,206.41, and for In-transits is $12,204,352.07. The

absolute value of in-transit disbursements is $3,903,424,469.55.

Other Information Related to Suspense/Budget Clearing Accounts:

Air Force has made a concerted effort to reduce balances in the suspense and budget clearing accounts, and to establish an accurate and consistent use of these accounts. The information presented indicates the significant reductions

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

The increase in account F3875 from September FY 2002 to September FY 2003 is due to many variables. They are all

placed in various suspense accounts such as Agricultural/Grazing Leases and Withheld FICA/FITW Medicare Taxes for

Military that are collected in and released at various times. 

The decrease in account F3880 from September FY2002 to September FY 2003 is due to Recertified Check

Payments which are credits from Treasury for cancelled checks not yet being put back into the original appropriations

and 1081 completion. 

United States Air Force 

80

As of September 30,

Total Problem Disbursements

Absolute Unmatched Disbursements $ 23,300 $ 11,685 $ 7,813 $ (3,872)

Negative Unliquidated Obligations 22,722 10,232 12,436 2,204 

Total In-transit Disbursements, Net $ 2,271,948 $ 1,320,627 $ 1,111,274 $ (209,353)

Sep-01 Sep-02 Sep-03 (Decrease)/Increase 

from 2002 to 2003

(Amounts in thousands)

Account

F3875 $ 30,874 $ 398,084 $ (364,737) $ (762,821)

F3880 35 (62) (2,343) (2,281)

F3882 0 0 (16,526) (16,526)

F3885 (477,440) (193,678) 8,785 202,463 

F3886 5 0 0 0 

Total $ (446,526) $ 204,344 $ (374,821) $ (579,165)

Suspense/Budget Clearing Accounts, Net

Sep-01 Sep-02 Sep-03 (Decrease)/Increase
Suspense account F3882 began in 1st quarter of FY 2003 as the Military Thrift Saving Plan came into existence starting October 2002. The ($3,971) thousand represents a timing difference as the National Finance Center post

amounts into each member’s account. They are consolidated and posted to Treasury before the Air Force can post

the amounts in the military accounting system in the following month. 

The increase in account F3885 from September FY2002 to September FY 2003 is due to Intragovernmental Payment

and Collection (IPAC) transactions received during the last business day of the month. They are placed in a suspense

account until they can be researched and assigned a valid appropriation, which will fluctuated from each reporting

period depending upon the amount processed to the Treasury at that time.

Note 22. Disclosures Related to the Statement of Financing

Disclosures Related to the Statement of Financing

The objective of the Statement of Financing is to reconcile the difference between budgetary obligations and the net

cost of operations reported. It is presented as combined or combining statements rather than consolidated statements due to intragovernmental transactions not being eliminated. Due to the Department of the Air Force’s financial

system limitations, budgetary data is not in agreement with proprietary expenses and assets capitalized. Differences

between budgetary and proprietary data are a previously identified deficiency.

Note 1A and Note 1F provide additional detail.

Other Information Related to the Statement of Financing

Components Requiring or Generating Resources in the Future, Other, consists of $(6,980) thousand in closed year

payables, $(51,509) thousand in judgement fund liabilities, $(842) thousand in education benefits for involuntary separatees, $13,988 thousand in nonenvironmental disposal liabilities, $(5,942) thousand in capital lease liabilities,

$(12,046) thousand in contingent liabilities, $315 thousand in interest accrued liability, $51,223 thousand in changes in

actuarial liabilities, and $26,564 thousand in Federal Employees Compensation Act (FECA) reimbursement to the

Department of Labor. Components Not Requiring or Generating Resources, Other, consists of $1,984 thousand in

bad debt expense and $11,547,618 thousand in other expenses.

The components and amount of liabilities not covered by budgetary resources are disclosed in Note 11. Liabilities

Not Covered and Covered by Budgetary Resources.

Intra-entity transactions have not been eliminated because the statements are presented as combined and combining.

Budgetary data is not in agreement with Proprietary Expenses and Asset Capitalized. This causes a difference in Net

Cost between the Statement of Net Cost and the Statement of Financing. The amount on the Resources that finance

the acquisition of assets line has been adjusted $303,216 thousand to resolve differences. 

Note 23. Disclosures Related to the Statement of Custodial Activity

Not applicable.

2003 Annual Financial Statement

81
Note 24.A. Other Disclosures 

ENTITY AS LESSEE—Operating Leases

Fluctuations and Abnormalities

The increase in Operating Leases from FY 02 to FY 03 is due to an increase in the number of high cost leases entered

into by the Air Force.

Definitions

■ Lessee—A person or entity who receives the use and possession of leased property (e.g. real estate or equipment) from a lessor in exchange for a payment of funds. 

■ Operating Lease—A lease which does not transfer substantially all the benefits and risk of ownership. Payments

should be charged to expense over the lease term as it becomes payable.

Land and Buildings Leases consist of:

■ Description of Leases: The figures represent operating leased facilities in the U.S. and overseas applicable to

active Air Force, Air Force Reserve and Air Force National Guard.

Equipment Leases consist of :

■ Description of Leases: Operating leases for medical equipment are one year leases with four option years. Each

year, facilities must specifically exercise the option to continue the lease. The operating leases contain an option

to purchase allow the government to purchase the equipment a fair market value at the end of the lease period.

Other Leases consist of :

■ Description of Leases: Operating Leases for Motor Vehicles are essentially one year leases funded in appropriation 3400 (O&M). As the out year estimates indicate, Air Force expects to continue to reduce the level of owned

assets, while increasing the number of operational leases. Air Force will continue to displace commercial leases in

favor of IFMS (General Services Administration) leases because IFMS leases are typically more economical. 

Note 24.B. Other Disclosures 

Interest Payable: DFAS Columbus has accumulated prompt payment interest of approximately $845 thousand during

FY 2003 for Air Force contracts.

Undistributed Collections and Disbursements: Accounts receivable and payable are adjusted for undistributed collections and disbursements. These transactions represent the Air Force’s in-float (undistributed) collections and disbursements for transactions that were reported by a disbursing station but not recorded by the appropriate accountable station. Undistributed amounts are prorated by appropriation based on the percentage of distributed government and public receivables and payables.

United States Air Force 

82

As of September 30,

(Amounts in thousands)

B. Future Payments Due:

Fiscal Year

2004 $ 59 $ 1,263 $ 76 $ 1,398 $ 2,045

2005 75 558 106 739 1,582

2006 82 376 0 458 906

2007 87 0 0 87 538

2008 85 0 0 85 0

After 5 Years 87 0 0 87 0

Total Future Lease Payments Due $ 475 $ 2,197 $ 182 $ 2,854 $ 5,071

Land and 

Buildings

2003 2002

Equipment Other Total Total
Canceled Balances: All unliquidated balances associated with closed accounts have been canceled in accordance with

Public Law 101-510. Canceled accrued expenditures unpaid are reflected in the financial statements as unfunded liabilities. Canceled undelivered orders outstanding are not included in the financial statements; however, these orders

may result in future expenditures.

2003 Annual Financial Statement

83
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United States Air Force 

84
Consolidating and

Combining Statements

2003 Annual Financial Statement

General Funds

85
Consolidating Balance Sheet—General Funds

As of September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

86

 

Air Force 

Active 

Air Force 

Reserve 

Air National 

Guard

 ASSETS (Note 2) 

 Intragovernmental: 

 Fund Balance with Treasury (Note 3) 

 Entity $ 56,397,291 $ 1,050,436 $ 2,266,311

 Non-Entity Seized Iraqi Cash 0 0 0

 Non-Entity-Other 52,503 0 0

 Investments (Note 4) 712 0 0

 Accounts Receivable (Note 5) 704,929 61,054 166,987

 Other Assets (Note 6) 56 0 0

 Total Intragovernmental Assets $ 57,155,491 $ 1,111,490 $ 2,433,298

 Cash and Other Monetary Assets (Note 7) $ 147,926 $ 0 $ 0

 Accounts Receivable (Note 5) 746,348 9,264 16,888

 Loans Receivable (Note 8) 0 0 0

 Inventory and Related Property (Note 9) 46,990,655 726,348 4,098,828

 General Property, Plant and Equipment (Note 10) 108,020,196 1,022,240 3,743,694

 Investments (Note 4) 0 0 0

 Other Assets (Note 6) 9,872,418 4,613 35,120

 TOTAL ASSETS $ 222,933,034 $ 2,873,955 $ 10,327,828

 LIABILITIES (Note 11) 

 Intragovernmental: 

 Accounts Payable (Note 12) $ 640,199 $ 19,019 $ 92,223

 Debt (Note 13) 0 0 0

 Environmental Liabilities (Note 14) 0 0 0

 Other Liabilities (Note 15 & Note 16) 2,206,526 6,087 14,399

 Total Intragovernmental Liabilities $ 2,846,725 $ 25,106 $ 106,622

 Accounts Payable (Note 12) $ 6,665,407 $ 120,585 $ 300,195

 Military Retirement Benefits and Other 904,570 133,221 224,476

 Employment-Related Actuarial Liabilities (Note 17) 

 Environmental Liabilities (Note 14) 8,110,403 0 0

 Loan Guarantee Liability (Note 8) 0 0 0

 Other Liabilities (Note 15 and Note 16) 4,202,249 43,125 54,847

 Debt Held by Public 0 0 0

 TOTAL LIABILITIES $ 22,729,354 $ 322,037 $ 686,140

 NET POSITION 

 Unexpended Appropriations (Note 18) $ 48,066,969 $ 956,002 $ 2,046,631

 Cumulative Results of Operations 152,136,711 1,595,916 7,595,057

 TOTAL NET POSITION $ 200,203,680 $ 2,551,918 $ 9,641,688

 TOTAL LIABILITIES AND NET POSITION $ 222,933,034 $ 2,873,955 $ 10,327,828
2003 Annual Financial Statement

87

Component 

Level 

Combined 

Total Eliminations 

2003 

Consolidated 

2002 

Consolidated

$ 0 $ 59,714,038 $ 0 $ 59,714,038 $ 47,888,000

 0 0 0 0 0

 0 52,503 0 52,503 54,750

 0 712 0 712 708

 -391,541 541,429 0 541,429 443,154

 339,037 339,093 0 339,093 4,989

$ -52,504 $ 60,647,775 $ 0 $ 60,647,775 $ 48,391,601

$ 0 $ 147,926 $ 0 $ 147,926 $ 140,645

 0 772,500 0 772,500 1,017,910

 0 0 0 0 0

 0 51,815,831 0 51,815,831 28,817,564

 0 112,786,130 0 112,786,130 24,247,152

 0 0 0 0 0

 0 9,912,151 0 9,912,151 7,535,914

$ -52,504 $ 236,082,313 $ 0 $ 236,082,313 $ 110,150,786

$ 662,499 $ 1,413,940 $ 0 $ 1,413,940 $ 1,124,733

 0 0 0 0 134

 0 0 0 0 0

 -603,107 1,623,905 0 1,623,905 2,179,087

$ 59,392 $ 3,037,845 $ 0 $ 3,037,845 $ 3,303,954

$ -5,278 $ 7,080,909 $ 0 $ 7,080,909 $ 6,206,967

 0 1,262,267 0 1,262,267 1,211,045

 0 8,110,403 0 8,110,403 8,454,564

 0 0 0 0 0

 220,667 4,520,888 0 4,520,888 3,987,188

 0 0 0 0 0

$ 274,781 $ 24,012,312 $ 0 $ 24,012,312 $ 23,163,718

$ -327,285 $ 50,742,317 $ 0 $ 50,742,317 $ 39,543,850

 0 161,327,684 0 161,327,684 47,443,218

$ -327,285 $ 212,070,001 $ 0 $ 212,070,001 $ 86,987,068

$ -52,504 $ 236,082,313 $ 0 $ 236,082,313 $ 110,150,786
Consolidating Statement of Net Cost—General Funds

For the periods ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

88

 Air Force 

Active

Air Force 

Reserve

Air National 

Guard

 Program Costs 

A. Military Personnel

 Intragovernmental Gross Costs $ 360,388 $ 110,469 $ 249,508

 (Less: Intragovernmental Earned Revenue) -297,366 -5,494 -39,508

 Intragovernmental Net Costs $ 63,022 $ 104,975 $ 210,000

 Gross Costs With the Public 25,540,585 1,027,347 1,780,958

 (Less: Earned Revenue From the Public) -139,177 0 -8,119

 Net Costs With the Public $ 25,401,408 $ 1,027,347 $ 1,772,839

 Total Net Cost $ 25,464,430 $ 1,132,322 $ 1,982,839

B. Operation and Maintenance 0

 Intragovernmental Gross Costs $ 12,923,063 $ 680,161 $ 1,656,445

 (Less: Intragovernmental Earned Revenue) -2,674,604 -326,667 -729,686

 Intragovernmental Net Costs $ 10,248,459 $ 353,494 $ 926,759

 Gross Costs With the Public 22,872,197 1,465,636 3,233,746

 (Less: Earned Revenue From the Public) -420,864 -882 -103,463

 Net Costs With the Public $ 22,451,333 $ 1,464,754 $ 3,130,283

 Total Net Cost $ 32,699,792 $ 1,818,248 $ 4,057,042

C. Procurement 0

 Intragovernmental Gross Costs $ 2,669 $ 0 $ 0

 (Less: Intragovernmental Earned Revenue) -214,765 0 0

 Intragovernmental Net Costs $ -212,096 $ 0 $ 0

 Gross Costs With the Public 35,414,003 0 0

 (Less: Earned Revenue From the Public) -13,188 0 0

 Net Costs With the Public $ 35,400,815 $ 0 $ 0

 Total Net Cost $ 35,188,719 $ 0 $ 0

D. Research, Development, Test & Evaluation 0

 Intragovernmental Gross Costs $ 976,052 $ 0 $ 0

 (Less: Intragovernmental Earned Revenue) -2,356,078 0 0

 Intragovernmental Net Costs $ -1,380,026 $ 0 $ 0

 Gross Costs With the Public 19,273,993 0 0

 (Less: Earned Revenue From the Public) -138,222 0 0

 Net Costs With the Public $ 19,135,771 $ 0 $ 0

 Total Net Cost $ 17,755,745 $ 0 $ 0

E. Military Construction/Family Housing 0

 Intragovernmental Gross Costs $ 140,951 $ 715 $ 4,823

 (Less: Intragovernmental Earned Revenue) 0 0 0

 Intragovernmental Net Costs $ 140,951 $ 715 $ 4,823

 Gross Costs With the Public 1,042,131 31,856 166,872

 (Less: Earned Revenue From the Public) 0 0 0

 Net Costs With the Public $ 1,042,131 $ 31,856 $ 166,872

 Total Net Cost $ 1,183,082 $ 32,571 $ 171,695

F. Other 0

 Intragovernmental Gross Costs $ 12,548 $ 0 $ 0

 (Less: Intragovernmental Earned Revenue) -32 0 0

 Intragovernmental Net Costs $ 12,516 $ 0 $ 0

 Gross Costs With the Public 13,320 0 0

 (Less: Earned Revenue From the Public) -12,243 0 0

 Net Costs With the Public $ 1,077 $ 0 $ 0

 Total Net Cost $ 13,593 $ 0 $ 0

G. Total Program Costs 0

 Intragovernmental Gross Costs $ 14,415,671 $ 791,345 $ 1,910,776

 (Less: Intragovernmental Earned Revenue) -5,542,845 -332,161 -769,194

 Intragovernmental Net Costs $ 8,872,826 $ 459,184 $ 1,141,582

 Gross Costs With the Public 104,156,229 2,524,839 5,181,576

 (Less: Earned Revenue From the Public) -723,694 -882 -111,582

 Net Costs With the Public $ 103,432,535 $ 2,523,957 $ 5,069,994

 Total Net Cost $ 112,305,361 $ 2,983,141 $ 6,211,576

 Cost Not Assigned to Programs 0 0 0

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

 Net Cost of Operations $ 112,305,361 $ 2,983,141 $ 6,211,576

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.
2003 Annual Financial Statement

89

Component 

Level

Combined 

Total Eliminations 2003 Consolidated

2002 

Consolidated

$ 720,365 $ 0 $ 720,365 $ 3,873,097

 -342,368 0 -342,368 -152,854

$ 377,997 $ 0 $ 377,997 $ 3,720,243

 28,348,890 0 28,348,890 20,842,052

 -147,296 0 -147,296 -68,228

$ 28,201,594 $ 0 $ 28,201,594 $ 20,773,824

$ 28,579,591 $ 0 $ 28,579,591 $ 24,494,067

$ 15,259,669 $ 0 $ 15,259,669 $ 17,472,658

 -3,730,957 0 -3,730,957 -1,156,988

$ 11,528,712 $ 0 $ 11,528,712 $ 16,315,670

 27,571,579 0 27,571,579 19,969,078

 -525,209 0 -525,209 -481,777

$ 27,046,370 $ 0 $ 27,046,370 $ 19,487,301

$ 38,575,082 $ 0 $ 38,575,082 $ 35,802,971

$ 2,669 $ 0 $ 2,669 $ 321,717

 -214,765 0 -214,765 -153,067

$ -212,096 $ 0 $ -212,096 $ 168,650

 35,414,003 0 35,414,003 16,329,627

 -13,188 0 -13,188 -10,410

$ 35,400,815 $ 0 $ 35,400,815 $ 16,319,217

$ 35,188,719 $ 0 $ 35,188,719 $ 16,487,867

$ 976,052 $ 0 $ 976,052 $ 136,722

 -2,356,078 0 -2,356,078 -864,360

$ -1,380,026 $ 0 $ -1,380,026 $ -727,638

 19,273,993 0 19,273,993 15,364,865

 -138,222 0 -138,222 -113,063

$ 19,135,771 $ 0 $ 19,135,771 $ 15,251,802

$ 17,755,745 $ 0 $ 17,755,745 $ 14,524,164

$ 146,489 $ 0 $ 146,489 $ 4,164

 0 0 0 0

$ 146,489 $ 0 $ 146,489 $ 4,164

 1,240,859 0 1,240,859 417,431

 0 0 0 0

$ 1,240,859 $ 0 $ 1,240,859 $ 417,431

$ 1,387,348 $ 0 $ 1,387,348 $ 421,595

$ 9,728,872 $ 9,741,420 $ 0 $ 9,741,420 $ 12,354

 2,657,789 2,657,757 0 2,657,757 -55

$ 12,386,661 $ 12,399,177 $ 0 $ 12,399,177 $ 12,299

 -12,059,377 -12,046,057 0 -12,046,057 4,085

 0 -12,243 0 -12,243 -7,233

$ -12,059,377 $ -12,058,300 $ 0 $ -12,058,300 $ -3,148

$ 327,284 $ 340,877 $ 0 $ 340,877 $ 9,151

$ 9,728,872 $ 26,846,664 $ 0 $ 26,846,664 $ 21,820,712

 2,657,789 -3,986,411 0 -3,986,411 -2,327,324

$ 12,386,661 $ 22,860,253 $ 0 $ 22,860,253 $ 19,493,388

 -12,059,377 99,803,267 0 99,803,267 72,927,138

 0 -836,158 0 -836,158 -680,711

$ -12,059,377 $ 98,967,109 $ 0 $ 98,967,109 $ 72,246,427

$ 327,284 $ 121,827,362 $ 0 $ 121,827,362 $ 91,739,815

 0 0 0 0 0

 0 0 0 0 0

$ 327,284 $ 121,827,362 $ 0 $ 121,827,362 $ 91,739,815

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.
Consolidating Statement of Changes in Net Position—General Funds

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

90

 Air Force 

Active

Air Force 

Reserve

Air National 

Guard

CUMULATIVE RESULTS OF OPERATIONS 

Beginning Balances $ 43,431,324 $ 708,722 $ 3,303,172

Prior period adjustments (+/-) 118,827,668 611,906 3,035,502

Beginning Balances, as adjusted 162,258,992 1,320,628 6,338,674

Budgetary Financing Sources: 

Appropriations received 0 0 0

Appropriations transferred-in/out (+/-) 0 0 0

Other adjustments (rescissions, etc) (+/-) 0 0 0

Appropriations used 103,901,479 3,108,199 6,047,163

Nonexchange revenue 0 0 0

Donations and forfeitures of cash and cash equivalents 9,096 0 0

Transfers-in/out without reimbursement (+/-) 0 0 0

Other budgetary financing sources (+/-) 0 0 0

Other Financing Sources: 

Donations and forfeitures of property 0 0 0

Transfers-in/out without reimbursement (+/-) -2,360,484 150,229 1,420,795

Imputed financing from costs absorbed by others 632,990 0 0

Other (+/-) 0 0 0

Total Financing Sources 102,183,081 3,258,428 7,467,958

Net Cost of Operations (+/-) 112,305,361 2,983,141 6,211,576

Ending Balances $ 152,136,712 $ 1,595,915 $ 7,595,056

UNEXPENDED APPROPRIATIONS 

 Beginning Balances $ 37,257,950 $ 684,574 $ 1,601,326

 Prior period adjustments (+/-) 0 0 0

 Beginning Balances, as adjusted 37,257,950 684,574 1,601,326

 Budgetary Financing Sources: 

 Appropriations received 114,277,138 3,484,834 6,463,959

 Appropriations transferred-in/out (+/-) 2,135,606 -50,761 94,961

 Other adjustments (rescissions, etc) (+/-) -1,702,246 -54,446 -66,452

 Appropriations used -103,901,479 -3,108,199 -6,047,163

 Nonexchange revenue 0 0 0

 Donations and forfeitures of cash and cash equivalents 0 0 0

 Transfers-in/out without reimbursement (+/-) 0 0 0

 Other budgetary financing sources (+/-) 0 0 0

 Other Financing Sources: 

 Donations and forfeitures of property 0 0 0

 Transfers-in/out without reimbursement (+/-) 0 0 0

 Imputed financing from costs absorbed by others 0 0 0

 Other (+/-) 0 0 0

 Total Financing Sources 10,809,019 271,428 445,305

 Net Cost of Operations (+/-) 0 0 0

 Ending Balances $ 48,066,969 $ 956,002 $ 2,046,631

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.
2003 Annual Financial Statement

91

Component 

Level

Combined 

Total Eliminations

2003 

Consolidated

2002 

Consolidated

$ 0 $ 47,443,218 $ 0 $ 47,443,218 $ 70,732,397

 0 122,475,076 0 122,475,076 -31,869,730

 0 169,918,294 0 169,918,294 38,862,667

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 327,285 113,384,126 0 113,384,126 99,437,408

 0 0 0 0 0

 0 9,096 0 9,096 12,682

 0 0 0 0 0

 -678,772 -678,772 0 -678,772 246,474

 0 0 0 0 0

 678,772 -110,688 0 -110,688 26,728

 0 632,990 0 632,990 597,076

 0 0 0 0 0

 327,285 113,236,752 0 113,236,752 100,320,368

 327,284 121,827,362 0 121,827,362 91,739,815

$ 1 $ 161,327,684 $ 0 $ 161,327,684 $ 47,443,220

$ 0 $ 39,543,850 $ 0 $ 39,543,850 $ 39,006,789

 0 0 0 0 0

 0 39,543,850 0 39,543,850 39,006,789

 0 124,225,931 0 124,225,931 96,952,072

 0 2,179,806 0 2,179,806 5,084,803

 0 -1,823,144 0 -1,823,144 -2,062,406

 -327,285 -113,384,126 0 -113,384,126 -99,437,408

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 0 0 0 0 0

 -327,285 11,198,467 0 11,198,467 537,061

 0 0 0 0 0

$ -327,285 $ 50,742,317 $ 0 $ 50,742,317 $ 39,543,850

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.
Combining Statement of Budgetary Resources—General Funds

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

92

 Air Force 

Active

Air Force 

Reserve

BUDGETARY FINANCING ACCOUNTS 

BUDGETARY RESOURCES 

 Budget Authority: 

 Appropriations received $ 114,286,930 $ 3,484,834

 Borrowing authority 0 0

 Contract authority 0 0

 Net transfers (+/-) 1,844,015 -50,761

 Other 0 0

 Unobligated balance: 

 Beginning of period 5,679,549 113,745

 Net transfers, actual (+/-) 291,591 0

 Anticipated Transfers Balances 0 0

 Spending authority from offsetting collections: 

 Earned 0 0

 Collected 6,486,849 313,290

 Receivable from Federal sources -221,039 19,753

 Change in unfilled customer orders 0 0

 Advance received 213,488 0

 Without advance from Federal sources 471,878 0

 Anticipated for the rest of year, without advances 0 0

 Transfers from trust funds 0 0

 Subtotal 6,951,176 333,043

 Recoveries of prior year obligations 1,780,895 68,449

 Temporarily not available pursuant to Public Law 0 0

 Permanently not available -1,685,464 -54,446

 Total Budgetary Resources $ 129,148,692 $ 3,894,864

STATUS OF BUDGETARY RESOURCES 

 Obligations incurred: 

 Direct $ 113,494,306 $ 3,395,967

 Reimbursable 6,992,486 335,988

 Subtotal 120,486,792 3,731,955

 Unobligated balance: 

 Apportioned 8,118,892 44,182

 Exempt from apportionment 2,573 0

 Other available 0 0

 Unobligated Balances Not Available 540,435 118,727

 Total, Status of Budgetary Resources $ 129,148,692 $ 3,894,864

Relationship of Obligations to Outlays: 

 Obligated Balance, Net - beginning of period $ 39,649,646 $ 784,727

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

 Obligated Balance, Net - end of period: 

 Accounts receivable -941,384 -61,674

 Unfilled customer order from Federal sources -936,902 0

 Undelivered orders 40,783,010 788,290

 Accounts payable 8,848,157 160,912

 Outlays: 

 Disbursements 110,351,823 3,540,953

 Collections -6,700,337 -313,290

 Subtotal 103,651,486 3,227,663

 Less: Offsetting receipts -156,704 0

 Net Outlays $ 103,494,782 $ 3,227,663

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
2003 Annual Financial Statement

93

Air National 

Guard

Component 

Level

2003 

Combined

2002 

Combined

$ 6,463,959 $ 0 $ 124,235,723 $ 96,329,855

 0 0 0 0

 0 0 0 0

 94,961 0 1,888,215 4,954,597

 0 0 0 0

 273,216 0 6,066,510 7,203,289

 0 0 291,591 130,206

 0 0 0 0

 0 0 0 0

 1,002,408 0 7,802,547 6,551,584

 -121,632 0 -322,918 274,507

 0 0 0 0

 -23 0 213,465 106,478

 289 0 472,167 -1,182

 0 0 0 0

 0 0 0 0

 881,042 0 8,165,261 6,931,387

 106,615 0 1,955,959 1,051,593

 0 0 0 0

 -66,452 0 -1,806,362 -2,062,413

$ 7,753,341 $ 0 $ 140,796,897 $ 114,538,514

$ 6,485,293 $ 0 $ 123,375,566 $ 100,622,101

 902,912 0 8,231,386 7,849,904

 7,388,205 0 131,606,952 108,472,005

 157,521 0 8,320,595 5,268,178

 0 0 2,573 4,607

 -1 0 -1 -1

 207,616 0 866,778 793,725

$ 7,753,341 $ 0 $ 140,796,897 $ 114,538,514

$ 1,387,822 $ 0 $ 41,822,195 $ 37,049,171

 0 0 0 0

 -155,989 0 -1,159,047 -1,481,965

 -472 0 -937,374 -465,207

 1,646,108 -1,048,762 42,168,646 34,030,703

 411,529 1,048,762 10,469,360 9,738,663

 6,889,580 0 120,782,356 102,374,064

 -1,002,386 0 -8,016,013 -6,658,063

 5,887,194 0 112,766,343 95,716,001

 0 0 -156,704 -121,154

$ 5,887,194 $ 0 $ 112,609,639 $ 95,594,847

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
Combining Statement of Financing—General Funds

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

94

 Air Force 

Active

Air Force 

Reserve

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

Obligations incurred $ 120,486,792 $ 3,731,955

Less: Spending authority from offsetting collections -8,732,071 -401,492

 and recoveries (-) 

Obligations net of offsetting collections and recoveries 111,754,721 3,330,463

Less: Offsetting receipts (-) -156,704 0

Net obligations 111,598,017 3,330,463

Other Resources 

Donations and forfeitures of property 0 0

Transfers in/out without reimbursement (+/-) -2,360,484 150,229

Imputed financing from costs absorbed by others 632,992 0

Other (+/-) 0 0

Net other resources used to finance activities -1,727,492 150,229

Total resources used to finance activities 109,870,525 3,480,692

Resources Used to Finance Items not Part 

of the Net Cost of Operations 

Change in budgetary resources obligated for goods, 

services and benefits ordered but not yet provided 

Undelivered Orders (-) -8,150,890 -169,048

Unfilled Customer Orders 685,366 0

Resources that fund expenses recognized in prior periods 0 0

Budgetary offsetting collections and receipts that 9,106 0

do not affect net cost of operations 

Resources that finance the acquisition of assets -18,839,045 -164,394

Other resources or adjustments to net obligated resources 

 that do not affect net cost of operations 

 Less: Trust or Special Fund Receipts Related to Exchange in the 0 0

Other (+/-) 2,360,484 -150,229

Total resources used to finance items not -23,934,979 -483,671

part of the net cost of operations 

Total resources used to finance the net cost of operations 85,935,546 2,997,021

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 Periods: 

Increase in annual leave liability 469,832 7,374

Increase in environmental and disposal liability -344,161 0

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

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

Other (+/-) 1,955 4,801

Total components of Net Cost of Operations that 127,626 12,175

will require or generate resources in future periods 

Components not Requiring or Generating Resources: 

Depreciation and amortization 12,874,631 78,154

Revaluation of assets or liabilities (+/-) 1,607,548 -22,448

Other (+/-) 11,760,010 -81,761

Total components of Net Cost of Operations that 26,242,189 -26,055

 will not require or generate resources 

Total components of net cost of operations that 26,369,815 -13,880

 will not require or generate resources in the current period 

Net Cost of Operations 112,305,361 2,983,141

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.
2003 Annual Financial Statement

95

Air National 

Guard

Component 

Level

2003 

Combined

2002 

Combined

$ 7,388,205 $ 0 $ 131,606,952 $ 108,472,005

 -987,658 0 -10,121,221 -7,982,980

 6,400,547 0 121,485,731 100,489,025

 0 0 -156,704 -121,154

 6,400,547 0 121,329,027 100,367,871

 0 0 0 0

 1,420,795 678,772 -110,688 26,727

 0 0 632,992 597,076

 0 0 0 0

 1,420,795 678,772 522,304 623,803

 7,821,342 678,772 121,851,331 100,991,674

 -338,490 327,285 -8,331,143 -2,222,784

 267 0 685,633 105,295

 0 0 0 -651,941

 0 0 9,106 0

 -117,274 0 -19,120,713 -10,859,967

 0 0 0 0

 -1,420,795 -678,772 110,688 0

 -1,876,292 -351,487 -26,646,429 -13,629,397

 5,945,050 327,285 95,204,902 87,362,277

 1,135 0 478,341 -71,316

 0 0 -344,161 1,117,408

 0 0 0 0

 0 0 0 0

 8,014 0 14,770 73,202

 9,149 0 148,950 1,119,294

 330,079 0 13,282,864 1,795,095

 55,943 0 1,641,043 3,715,480

 -128,646 0 11,549,603 -2,252,331

 257,376 0 26,473,510 3,258,244

 266,525 0 26,622,460 4,377,538

 6,211,575 327,285 121,827,362 91,739,815

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

96
Required Supplementary

Stewardship Information

2003 Annual Financial Statement

General Funds

97
This page intentionally left blank.

United States Air Force 

98
National Defense Property, Plant and Equipment

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

Standards No. 6 to require the capitalization and Depreciation of military equipment (formerly National Defense

Property, Plant and Equipment/ND PP&E) for fiscal years (FY) 2003 and beyond and encouraged early implementation.

1. Museums 

The Air Force Museum, located at Wright-Patterson Air Force Base, Ohio, houses the main collection of historical

artifacts that are registered as historical property in the USAF Museum System. The other 17 Air Force museums are

considered Air Force Field Museums or Heritage Centers, which also contain items of historical interest; some however, are specific to the general locality. 

All remaining museums and Heritage Centers are reported in acceptable condition. 

2. Monuments and Memorials

The memorials and monuments reported above, except for 28, are all located at the Air Force Academy in the Air

Gardens and Honor Court. Most of these monuments and memorials honor specific individuals or cadet wings for

various accomplishments. The remaining 28 memorials, all with costs that exceed $100,000, are located on various

Air Force bases throughout the United States. All are reported in acceptable condition.

3. Cemeteries

The Air Force has administrative and curatorial responsibilities for 39 cemeteries on its bases. The cemeteries are

maintained by the bases and are in good condition. 

4. Archeological Sites

As of 30 September 2003, the AF has 1,685 archeological sites listed on or eligible for the National Register. The AF

has 9,779 potentially eligible archeological sites, and 2,464 non-eligible archaeological sites, neither are listed on this

report. The numbers of archaeological sites will increase yearly as the AF completes surveys in compliance with the

National Historic Preservation Act. The number of archaeological sites on AF managed lands is reported each year in

the Report to Congress on Federal Archaeological Activities (FY02 report submitted March 03). The identified sites

are maintained in an acceptable condition.

5. Buildings and Structures

The Air Force currently considers 4,074 buildings and structures as heritage assets. Most of these buildings and structures are considered Multi-use Heritage Assets, and as such, have been reported as general Property, plant and equipment on the Balance Sheet. The buildings and structures are maintained by each base civil engineering group and are

considered to be in good condition. 

2003 Annual Financial Statement

99

Measurement 

Quantities

As of 

10/01/02 Additions Deletions As of9/30/03

 Museums Each 18 0 0 18

 Monuments & Memorials Each 151 0 0 151

 Cemeteries Sites 39 0 0 39

 Archeological Sites Sites 1,685 0 0 1,685

 Buildings & Structures Each 4,074 0 0 4,074

 Major Collections Each 4 0 0 4

Heritage Assets

For Fiscal Year Ended September 2003
6. Major Collections

The Air Force has 4 significant or major collections consisting of: (a) the Air Force Art Collection, and (b) three collections at the Air Force Academy containing historical items and memorabilia as well as distinctive works of art. The

curators for all major collections reported the contents to be in good condition. They further added that almost all of

the materials are protected in an environment suitable for long-term storage. The overall condition of the collections

in the museums is good; items are displayed and protected in accordance with the standards of Air Force Instruction

84-103, USAF Museum System.

The Air Force has 7,728 acres of mission-essential land under their administration. Lands purchased by the Air Force

with the intent to construct buildings or facilities are considered general PP&E and are reported on the balance sheet.

All stewardship lands, as reported, are in acceptable condition, based on designated use.

The Air National Guard investments in non-federal physical property are strictly through the Military Construction

Cooperative Agreements (MCCAs). These agreements involve the transfer of money only and allow joint participation with States, Counties, and Airport Authorities for construction or repair of airfield pavements and facilities

required to support the flying mission assigned at these civilian airfields

Investment values included in this report are based on Nonfederal Physical Property outlays (expenditures). Outlays

are used because current DoD systems are unable to capture and summarize costs in accordance with the Federal

Accounting Standards requirements. 

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.

United States Air Force 

100

(a)

Land Use

(b)

As of 10/01/02

(c)

Additions

(d)

Deletions

(e)

As of 9/30/03

1. Mission 7,728 0 0 7,728

2. Parks and Historic Sites - -

Totals 7,728 0 0 7,728

Stewardship Land

For Fiscal Year Ended September 2003 (Acres in Thousands)

Categories FY 1999 FY 2000 FY 2001 FY 2002 FY 2003

Funded Assets: 

National Defense Mission Related $16.60 $6.80 $20.20 $21.30 $11.31 

Total $16.60 $6.80 $20.20 $21.30 $11.31 

For Fiscal Years 1999 through FY 2003 ($ in millions)

Yearly Investment in State and Local Governments

Nonfederal Physical Property

Categories FY 1999 FY 2000 FY 2001 FY 2002 2003

1. Basic Research $187 $206 $203 $208 $141 

2. Applied Research 543 577 637 666 510

3. Development

Advanced Technology Development 456 554 545 492 399

Advanced Component Development and Prototypes 1,101 899 1,237 884 1,065

System Development and Demonstration 4,296 4,251 3,279 3,194 2,903

Research, Development, Test and Evaluation

Management Support 1,034 768 777 769 597

Operational Systems Development 6,647 7,096 7,295 7,225 7,864

Totals $14,264 $14,351 $13,973 $13,438 $13,479 

Investments in Research and Development

Yearly Investment in Research and Development

For Fiscal Years 1999 through 2003 ($ in millions)
Applied Research is the systematic study to gain knowledge or understanding necessary for determining the means

by which a recognized and specific need may be met. It is the practical application of such knowledge or understanding for the purpose of meeting a recognized need. This research points toward specific military needs with a view

toward developing and evaluating the feasibility and practicability of proposed solutions and determining their parameters. Major outputs are scientific studies, investigations, and research papers, hardware components, software codes,

and limited construction of, or part of, a weapon system to include nonsystem specific development efforts.

Development takes what has been discovered or learned from basic and applied research and uses it to establish

technological feasibility, assessment of operability, and production capability. Development is comprised of five stages

defined below:

1. Advanced Technology Development is the systematic use of the knowledge or understanding gained from research

directed toward proof of technological feasibility and assessment of operational and producibility rather than the

development of hardware for service use. Employs demonstration activities intended to prove or test a technology or

method.

2. Advanced Component Development and Prototypes evaluates integrated technologies in as realistic an operating

environment as possible to assess the performance or cost reduction potential of advanced technology. Programs in

this phase are generally system specific. Major outputs of Advanced Component Development and Prototypes are

hardware and software components, or complete weapon systems, ready for operational and developmental testing

and field use. 

3. System Development and Demonstration concludes the program or project and prepares it for production. It consists primarily of preproduction efforts, such as logistics and repair studies. Major outputs are weapon systems finalized for complete operational and developmental testing..

4. RDT&E Management Support is support for installations and operations for general research and development use.

This category includes costs associated with test ranges, military construction maintenance support for laboratories,

operations and maintenance of test aircraft and ships, and studies and analysis in support of the R&D program.

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 two representative program examples for each of the above major categories:

Basic Research—The Air Force’s (AF) Basic Research program funded basic scientific disciplines that are core to

developing future warfighting capabilities. Funding was provided to twelve different scientific project areas. These

focused on atmospherics, biological sciences, chemistry, electronics, fluid mechanics, human performance, materials,

mathematical and computer sciences, physics, propulsion, space sciences, and structures. (1) One example is the

development of technology that could be the breakthrough for a new generation of computers (quantum computers).

The AF Research Lab (AFRL) demonstrated the ability to stop light and release it again without losing any of its original characteristics. This development could lead to a breakthrough in nonlinear optics with applications from telecommunications to imaging, which could be useful in designing ultra-sensitive optical switches. (2) Another example, AFRL

researchers developed a new mathematical theory that would result in a new radar wave that would aid in rapid and

accurate target identification through foliage and beneath soil, better than any radar currently in use.

Applied Research—The AF’s Applied Research program is developing technologies to support the air and space

force of the future. Technology developments are focused in those areas that are essential to these warfighting capabilities. This investment strategy allows the AF to focus on those military-relevant technologies that are not being

developed by industry. (1) One example is the F119 turbine engine case redesign using a new casting process, with a

predicted lifecycle cost savings of 35 percent. The redesign makes extensive use of thin-wall castings in place of the

2003 Annual Financial Statement

101
existing complex, multi-walled, and diffusion-bonded sheet metal assemblies. The AF is now looking at this technology

for use on other aircraft engines. Example two, AFRL recently achieved a milestone in wireless Internet communications with the first commercial installation of the Space Communications Protocol Standards (SCPS) transport gateway over National Aeronautics and Space Administration’s Advanced Communications Technology Satellite. The SCPS

transport gateway offers up to several times the bandwidth utilization efficiency of the well-known internet protocols. 

Advanced Technology Development—The AF’s Advanced Technology Development program demonstrates, in a

realistic operational environment, integrated sets of technology to prove military worth and utility. The first example

was the AF and the Defense Advanced Research Projects Agency accomplishing the first Unmanned Combat Air

Vehicle (UCAV) flight. This successful flight test demonstrated the command and control links between the aircraft

and a mission-oriented ground station. Secondly, AFRL also demonstrated a 330 Gigahertz detector that operates at

frequencies billions of times faster than the blink of an eye. This technology will be used to produce compact solidstate circuits operating at Terahertz frequencies. Likely technology application would be to enable a new generation

of sensors to enhance homeland security.

Demonstration and Validation—The AF’s Advanced Component Development and Prototypes (ACD&EP) programs are comprised of system specific advanced technology integration efforts accomplished in an operational environment to help expedite transition from the laboratory to operational use. Example of the AF’s Demonstration and

Validation effort is: The Command and Control System - Consolidated (CCS-C) program. The CCS-C will replace the

aging S-Band Command and Control Segment (CCS) that is currently used for the command and control of Military

Satellite Communications satellites (MILSATCOM) by the 50th Space Wing (50SW) at Schriever AFB. The CCS-C system selected will drastically reduce the sustainment costs that would have been needed to maintain the aging CCS

and offers tremendous enhancements to ease our satellite operators’ workload, enabling accurate and efficient control of MILSATCOM satellites. The system is scheduled to take over command and control of MILSATCOM satellites

at the end of fiscal year 2004. In FY03, the AF awarded contracts for development of Transformational

Communications Architecture and approved the program acquisition strategy and architecture. The Transformational

Satcom Program (TSAT) will develop key technologies such as laser communications, internet-like communications

protocols, and methods of dynamically allocating communications among users. The ultimate goal is a FY10 first

launch of a transformational satellite. 

Engineering and Manufacturing Development—The AF’s System Demonstration and Engineering Development

(SD&ED) efforts are development projects which have not received approval for full-production. Examples of AF

EMD efforts are: (1) The Space Based Infrared System Increment 1 Mission Control Station (MCS) achieved initial

operational capability on 18 December 2001. The MCS consolidates Defense Support Program operations at Buckley

AFB, Colorado, reducing manpower by 58 percent and operations and maintenance costs by 25 percent. Subsequent

upgrades to the MCS throughout fiscal year 2002 resulted in closure of the Air-Land Enhanced Reconnaissance and

Targeting ALERT ground station on 25 September 2002, consolidating all space-based strategic and theater missile

warning operations, realizing additional manpower and Operations and Maintenance funds savings. (2) Another example, The Fighter/Attack (F/A)-22 Program is developing the next generation air dominance fighter designed to penetrate enemy airspace and achieve a first look, first kill capability against multiple targets. The F/A-22’s combination of

stealth, supercruise, maneuverability, and integrated avionics, coupled with improved supportability, represents an

exponential leap in warfighting capabilities and allows for the full realization of operational concepts that are vital to

the 21st century Air Force. The F/A-22 will replace the F-15C as the frontline USAF air superiority fighter with initial

operational capability planned for December 2005. The F/A-22 has been in Engineering and Manufacturing

Development (EMD) since 1991 and is currently meeting or exceeding all Key Performance Parameters. Significant

program accomplishments in fiscal year 2002 include:

■ Continued 2nd full-scale airframe lifetime fatigue test

■ Initiated avionics software Block 3.1.2 FT-3 flight testing

United States Air Force 

102
■ Completed multiple supersonic AMRAAM and AIM-9 missile shots

■ Exceeded 2000 flight test missions, logging in over 4100 hours on the EMD aircraft fleet

The F-35 Joint Strike Fighter (JSF) program is developing a family of strike fighter aircraft for the Air Force, Navy,

Marine Corps and our allies, with maximum commonality among the variants to minimize life cycle costs. The AF

Conventional Takeoff and Landing (CTOL) variant will be a multi-role, primary air-to-ground aircraft to replace the F16 and A-10 and complement the F/A-22. While the F/A-22 will establish air dominance, the F-35-with its combination of stealth, large internal payloads and multi-spectral avionics-will provide persistent stealth and precision engagement to the future battlespace. The F-35 has been in System Development and Demonstration since 2001 and is currently meeting or exceeding all Key Performance Parameters. In fiscal year 2003, the program completed the Air

System Preliminary Design Review and the Pratt & Whitney F135 Engine Critical Design Review and continued

General Electric’s development of a second, interchangeable engine (F136) for competition in production.

Additionally, the program continued the International Commonality Effort to identify an ORD compliant configuration

for international partners that maximizes commonality with the US baseline program consistent with National

Disclosure Policy. The B-1B Defensive System Upgrade Program (DSUP) was canceled in December 2002 due to

repeated cost and schedule over-runs. However, the AF continued to improve the B-1B’s effectiveness through integration of new computers and advanced conventional weapons. Combined Developmental and Operational Testing

(DT/OT) for the new computers completed in July, and dedicated operational testing completed in December 2002.

Testing showed the computers met or exceeded all Key Performance Parameters and they were approved for full

rate production in April 2003. Combined DT/OT flight test for the integration of JSOW and JASSM onto the B-1

began in September 2003 and is scheduled to complete in April 2004.

Research, Development, Test and Evaluation Management Support—The Air Force’s Research, Development,

Test and Evaluation (RDT&E) Management Support efforts include projects directed toward support of installation or

operations required for general research and development use. Included would be test ranges, military construction,

maintenance support of laboratories, operation and maintenance of test aircraft and ships, and studies and analysis in

support of the research and development program. Example of AF 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 AF 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 this program, but two examples are the Propulsion Wind Tunnel

Upgrade at Arnold Engineering Development Center. This effort replaces outdated data acquisition, processing, and

control systems and drive motors. The second is the Threat Simulator Development program, which supports many

of the AF electronic Warfare Test Processes. Current projects focus on improved Low Radar Cross Section threat

modeling and simulation, and enhanced infrared and radio frequency countermeasures testing. 

Operational Systems Development—The AF’s operational system efforts include projects in support of development acquisition programs or upgrades in System Demonstration and Development (SDD). Examples of operational

systems development are: (1) AIM9X Sidewinder project, which improves seeker performance, infrared countercountermeasures, and kinematics of the AIM-9M short range air-to-air missile. AIM-9X regains short, within visual

range (WVR) first-shot, first-kill capability for the U.S. warfighter. Test and Evaluation efforts have been positive, 18 of

19 successful guided launches with 10 direct hits to target drones. Other notable accomplishments include completion of flight test activities, such as, Operations/Operational Evaluation (OPEVAL) and Developmental Test (DT) assist.

Low Rate Initial Production (LRIP 3) contract was awarded November 2002. (2) Another example of Operational

Systems Development is the Airborne Warning and Control System (AWACS) Block 40/45 system upgrade. Block

40/45 replaces the 1970’s vintage mission computer system with an open system, LAN-based architecture. It also

incorporates Multi-Sensor Integration of on-board and off-board sensors into a real-time database allowing for a “single target-single track” to be displayed to the operator and transmitted to the shooter. Block 40/45 also incorporates

2003 Annual Financial Statement

103
an improved Data Link Infrastructure that decreases the latency of data link transmissions for high priority targets,

thus allowing targets to be transmitted quickly to the shooter. This upgrade improves machine-to-machine interfaces

that ultimately compress the kill chain timeline and postures the system to more easily integrate future modifications

and support. These future modifications will support horizontal integration and network centric operations. Initial

System Development and Design began this year. The first of a series of planned upgrades to the B-2 Spirit Bomber

entered flight test in FY03. This bundled package of capability includes the upgraded, or “Smart” Bomb Rack

Assembly; ability to drop the 500 lb Joint Direct Attack Munition (JDAM) Mark 82; ability to drop the Enhanced

Guided Bomb Unit-28 (EGBU-28) bunker buster; and addition of improved voice and data communication via integration of a programmable UHF satellite communication terminal. Incorporation of this upgraded package into the fleet

will begin in FY04. Development of an extended range variant of the Wind Corrected Munitions Dispenser (WCMDER) was initiated in FY03. The project extends the range and improves the accuracy of WCMD by adding a wing kit

and integrating GPS into the tail kit for CBU-105 (anti-armor targets) and CBU-103 (soft and area targets) dispensers.

Th Air Force Space program achieved nine successful launches of military satellites, utilizing Titan and Delta to launch

Milstar-5 and -6, GPS IIR-8 and -9, DSCS A3 and B6, Coriolis, NOAA-M, and NROL-19. USAF launch ranges successfully supported 23 military, civil and commercial launches, and EELV completed three successful Atlas V launches and

three successful Delta IV launches.

United States Air Force 

104
Required

Supplementary

Information

2003 Annual Financial Statement

General Funds

105
Disaggregated Statement of Budgetary Resources—General Funds

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

106

BUDGETARY RESOURCES 

1. Budget Authority: 

 1a. Appropriations received $ 399,564,874 $ 19,041,149,000 $ 43,189,230,000

 1b. Borrowing authority 0 0 0

 1c. Contract authority 0 0 0

 1d. Net transfers (+/-) -387,587,000 23,596,000 1,112,746,000

 1e. Other 0 0 0

2. Unobligated balance: 

 2a. Beginning of period 4,778,098 1,444,010,253 746,222,986

 2b. Net transfers, actual (+/-) 0 7,000,000 184,836,000

 2c. Anticipated Transfers balances 0 0 0

3. Spending authority from offsetting collections: 

 3a. Earned 0 0 0

 1. Collected 11,312,448 2,563,027,895 4,591,770,723

 2. Receivable from Federal sources 234,914 -68,727,346 -335,605,805

 3b. Change in unfilled customer orders 0 0 0

 1. Advance received 0 153,420,819 54,810,939

 2. Without advance from Federal sources 0 39,310,033 403,302,336

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

 3d. Transfers from trust funds 0 0 0

 3e. Subtotal 11,547,363 2,687,031,401 4,714,278,193

4. Recoveries of prior year obligations 26,197 99,801,336 788,941,102

5. Temporarily not available pursuant to Public Law 0 0 0

6. Permanently not available -2,186,000 -295,743,692 -620,909,907

7. Total Budgetary Resources $ 26,143,532 $ 23,006,844,298 $ 50,115,344,375

STATUS OF BUDGETARY RESOURCES 

8. Obligations incurred: 

 8a. Direct 11,809,663 18,282,333,179 44,420,505,233

 8b. Reimbursable 11,547,363 2,718,067,428 4,834,930,030

 8c. Subtotal 23,357,026 21,000,400,607 49,255,435,263

9. Unobligated balance: 

 9a. Apportioned 213,601 2,312,001,788 171,120,994

 9b. Exempt from apportionment 2,572,906 0 0

 9c. Other available 0 0 0

10. Unobligated Balances Not Available 0 -305,558,097 688,788,117

11. Total, Status of Budgetary Resources $ 26,143,532 $ 23,006,844,298 $ 50,115,344,375

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS: 

12. Obligated Balance, Net - beginning of period $ 8,058,878 $ 6,210,426,030 $ 12,614,633,349

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

14. Obligated Balance, Net ? end of period: 

 14a. Accounts receivable -234,914 -240,872,139 -786,074,916

 14b. Unfilled customer order from Federal sources 0 -339,927,258 -472,284,834

 14c. Undelivered orders -1,047,997,865 6,224,217,313 16,920,847,061

 14d. Accounts payable 1,050,526,755 1,510,066,910 2,594,840,283

15. Outlays: 

 15a. Disbursements 28,860,816 19,986,957,789 42,756,103,384

 15b. Collections -11,312,448 -2,716,448,714 -4,646,581,662

 15c. Subtotal 17,548,368 17,270,509,075 38,109,521,722

16. Less: Offsetting receipts 0 0 0

17. Net Outlays $ 17,548,368 $ 17,270,509,075 $ 38,109,521,722

Other

Research, 

Development, 

Test & Evaluation

Operation and 

Maintenance
2003 Annual Financial Statement

107

$ 30,739,027,000 $ 28,677,742,000 $ 2,189,010,000 $ 124,235,722,874 $ 96,329,854,921

 0 0 0 0 0

 0 0 0 0 0

 1,077,290,000 54,570,000 7,600,000 1,888,215,000 4,954,597,000

 0 0 0 0 0

 2,908,146,800 216,460,937 746,890,059 6,066,509,133 7,203,288,054

 17,694,000 101,608,000 -19,547,000 291,591,000 130,206,000

 0 0 0 0 0

 0 0 0 0 0

 229,694,234 406,742,497 -559 7,802,547,239 6,551,584,842

 -1,741,207 82,920,940 559 -322,917,945 274,506,845

 0 0 0 0 0

 5,233,523 0 0 213,465,280 106,478,088

 29,554,309 747 0 472,167,425 -1,182,191

 0 0 0 0 0

 0 0 0 0 0

 262,740,858 489,664,184 0 8,165,261,999 6,931,387,585

 671,985,212 377,282,497 17,922,574 1,955,958,918 1,051,592,829

 0 0 0 0 0

 -688,241,154 -175,867,192 -23,414,244 -1,806,362,189 -2,062,412,391

$ 34,988,642,715 $ 29,741,460,426 $ 2,918,461,389 $ 140,796,896,734 $ 114,538,513,999

 29,965,006,333 28,766,565,641 1,929,345,600 123,375,565,648 100,622,100,944

 257,575,095 409,266,531 0 8,231,386,446 7,849,903,922

 30,222,581,427 29,175,832,171 1,929,345,600 131,606,952,094 108,472,004,866

 4,698,913,752 159,372,832 978,971,015 8,320,593,982 5,268,177,863

 0 0 0 2,572,906 4,607,151

 0 0 0 0 0

 67,147,535 406,255,423 10,144,774 866,777,752 793,724,119

$ 34,988,642,715 $ 29,741,460,426 $ 2,918,461,389 $ 140,796,896,734 $ 114,538,513,999

$ 18,536,934,036 $ 2,280,250,252 $ 2,171,892,392 $ 41,822,194,937 $ 37,049,171,607

 0 0 0 0 0

 -45,908,669 -85,956,683 0 -1,159,047,321 -1,481,965,266

 -125,161,726 -747 0 -937,374,565 -465,207,140

 17,700,256,155 22,564,017 2,348,758,955 42,168,645,636 34,030,703,207

 3,036,758,243 2,212,109,777 65,057,419 10,469,359,386 9,738,664,136

 27,493,773,148 28,847,161,876 1,669,498,485 120,782,355,498 102,374,064,052

 -234,927,756 -406,742,497 559 -8,016,012,519 -6,658,062,931

 27,258,845,391 28,440,419,379 1,669,499,043 112,766,342,979 95,716,001,121

 0 -156,703,544 0 -156,703,544 -121,153,981

$ 27,258,845,391 $ 28,283,715,836 $ 1,669,499,043 $ 112,609,639,435 $ 95,594,847,140

Military

Construction/

Procurement Military Personnel Family Housing 2003 Combined 2002 Combined
Notes

1. FY03 O&M Sustainment Required is based on Facilities Sustainment Model (FSM) 03 Total Force (Air Force Active,

Air National Guard, and Air Force Reserve) requirements (per request of OUSD(AT&L) to use draft DoD Financial

Management Regulation, Volume 6B, Chapter 12, dated Oct 2003) less the MILPERS contribution (49%).

2. Obligations and expenditures for the RDT&E Sustainment and Restoration & Modernization (SRM) funding are not

available for FY03. Beginning in FY04, RDT&E SRM funding will be managed under two new Program Elements

(65976F; 65978F). Prior to FY04, obligation and expenditure data was not separately tracked for SRM and was executed within a much larger Test Support Program Element. Real Property Deferred Sustainment information will be

incorporated into the FY04 Annual Statement.

3. The table above does not include NAF sustainment funding information because the systems are not able to capture the requested data on the NAF program. AF/ILERP will work with AFSVA and AF/ILVF counterparts to include

the requested information for the FY04 Financial Statement.

Notes

1. MFH Deferred Sustainment is based upon a combination of historical expenditures for day-to-day maintenance and

condition assessment surveys for MFH real property maintenance by contract. These requirements are part of the

1999 Family Housing Master Plan.

2. Reasons For Deferred Sustainment Change (O&M) Over 10% FY03-02

a. FY01 O&M Sustainment Actuals were estimated, using the FY01 methodology, at 85 percent of the total of all

maintenance, repair, and minor construction. FY02 Sustainment requirements were programmed based on 1% of AF

plant replacement value however, the FY02 O&M sustainment requirement used to determine the Deferred

Sustainment trend was based (per request of OUSD(AT&L) to use draft DoD Financial Management Regulation,

Volume 6B, Chapter 12, dated June 2002) on FSM 04 requirements, deflated to FY02. FY03 O&M Sustainment

Required uses a different baseline/methodology (see note 1, Tab 12-3) from FY01 and FY02. Comparing the Deferred

Sustainment amounts for these three years as shown in Table 12-4 is an “apples to oranges” comparison, and may be

largely irrelevant from a statistical perspective since three different methodologies/baselines were used. 

b. O&M Sustainment was initially underfunded for FY02 due primarily to a Program Budget Decision which redirected some Sustainment funds to other Air Force readiness requirements.

United States Air Force 

108

Property Type Required Actual Difference

Buildings and Structures (O&M) 1,795,325 1,537,513 $257,812 

Buildings and Structures (MFH) 608,550 398,209 210,341

Total $2,403,875 $1,935,722 $468,153 

Annual Sustainment FY 2003

General Property, Plant, and Equipment

Real Property Deferred Sustainment Tables

As of September 30, 2003 ($ in thousands)

Property Type FY 2001 FY 2002 FY 2003

Buildings and Structures (O&M) 128,740 592,629 257,812

Buildings and Structures (MFH) 239,730 215,999 210,341

Total $368,470 $808,628 $468,153 

Annual Deferred Sustainment Trend
Notes

1. The Air Force does not maintain data on the cost to C1 for all facilities. The Installations’ Readiness Report (IRR)

highlights cost to C2 but that does not include the total AF backlog. FY03 and FY02 R&M requirements for Table 12-5

were therefore estimated based upon an estimated Air Force backlog. This includes the total R&M Operation and

Maintenance (O&M) requirement projected for each year and non-Military Family Housing (MFH) and MFH MILCON

requirements to C2 from the FY02 and FY01 IRRs, respectively. FY02 IRR Costs to C2 breakdown is: $12.5B MILCON, $5.1B for Family Housing, and $2.9B for Transportation Working Capital Fund, Defense Logistics Agency, NonAppropriated Funds, RDT&E (Research, Development, Test, and Evaluation), Medical, other non-O&M facilities (note:

this information is not included in FY02 submission). The total FY03 O&M R&M backlog is $7.9B. All R&M MILCON

numbers include new footprint because the available data does not allow distinguishing between new footprint and

existing footprint.

2. Reasons For Change Over 10% FY03-02

a. FY03 Submission includes $2.9B of “other” facility costs to C2; this information was not included in FY02 submission.

b. FY03 O&M R&M requirements ($7.9B) increased 27% over FY02 ($6.3B). 

Real Property Condition Information

The readiness of Air Force facilities is assessed using the IRR. The IRR assigns C-ratings ranging from C-4 (worst) to

C-1 (best) facilities aggregated in nine facility classes. The FY02 IRR identified that 66 percent of Air Force facility

classes were rated C-4 or C-3 (i.e. below minimal acceptable performance).

2003 Annual Financial Statement

109

Property Type FY 2001 FY 2002 Change

Buildings, Structures, and Utilities $21,000,000 28,400,000 $7,400,000 

Restoration and Modernization Requirements
The figures presented are actual deferred maintenance amounts for FY03. The figures include Active Air Force, Air

National Guard, and the Air Force Reserve.

United States Air Force 

110

Aircraft $2,000

Other Weapons Systems 131,843

Total $133,843

National Defense Property, Plant, and Equipment 

Deferred Maintenance Amounts

As of September 30, 2003 (Amounts in Thousands)
2003 Annual Financial Statement

111

Schedule, Part A

DoD Intra-governmental Asset Balances

($ in thousands)

Treasury 

Index

Fund

Balance with

Treasury

Accounts 

Receivable

Loans 

Receivable Investments Other

Executive Office of the President 11 $6,111

Department of Agriculture 12 $1,217

Department of Commerce 13 $848

Department of the Interior 14 $2,685

Department of Justice 15 $7,984

Navy General Fund 17 $18,746

United States Postal Service 18 $135

Department of State 19 $39,821

Department of the Treasury 20 $59,766,541 $1,467 $712

Army General Fund 21 $19,122 $1,482

Office of Personnel Management 24 $1

Social Security Administration 28 $59

Nuclear Regulatory Commission 31 $80

Department of Veterans Affairs 36 $534

General Service Administration 47 $831

National Science Foundation 49 $26,390

Central Intelligence Agency 56 $41

Federal Emergency Management Agency 58 $62

Environmental Protection Agency 68 $72

Department of Transportation 69 $26,856

Agency for International Development 72 $9,009

Department of Health and Human Services 75 $20

National Aeronautics and Space Administration 80 $8,841

National Archives and Records Administration 88 $25

Department of Energy 89 $8,348

Department of Education 91 $115

US Army Corps of Engineers 96 $148

Other Defense Organizations General Funds 97 $103,136

Other Defense Organizations Working Capital Funds 97-4930 $183,757 $17,039

Army Working Capital Fund 97-4930.001 $643

Navy Working Capital Fund 97-4930.002 $236 $133

Air Force Working Capital Fund 97-4930.003 $74,731 $319,796

Totals might not match reports TOTAL $59,766,541 $541,428 $0 $712 $339,093
United States Air Force 

112

Schedule, Part B

DoD Intra-governmental Entity Liabilities

($ in thousands) 

Treasury 

Index 

Accounts 

Payable

Debts/

Borrowings 

from Other 

Agencies Other 

Department of Commerce 13 $637

Department of the Interior 14 $1

Department of Justice 15 $0

Department of Labor 16 $332,239

Navy General Fund 17 $16,940 $6,006

Department of the Treasury 20 $1,110,583

Army General Fund 21 $183,527 $3,434

Office of Personnel Management 24 $33,037

Social Security Administration 28 $71

General Service Administration 47 $779

Department of Transportation 69 $851

National Aeronautics and Space Administration 80 $8,250

Department of Energy 89 $84,336

US Army Corps of Engineers 96 $1,619 $0

Other Defense Organizations General Funds 97 $135,329 $0 $43,675

Other Defense Organizations Working Capital Funds 97-4930 $534,212 $4

Army Working Capital Fund 97-4930.001 $4,453

Navy Working Capital Fund 97-4930.002 $10,108

Air Force Working Capital Fund 97-4930.003 $527,751

Totals might not match reports TOTAL $1,413,939 $0 $1,623,903
2003 Annual Financial Statement

113

Schedule, Part C

DoD Intra-governmental Revenue and Related Costs

($ in thousands)

Treasury 

Index

Earned 

Revenue

Executive Office of the President 11 $9,489

Department of Agriculture 12 $12

Department of Commerce 13 $11,492

Department of the Interior 14 $1,131

Department of Justice 15 $39,319

Navy General Fund 17 $222,803

United States Postal Service 18 $352

Department of State 19 $29,439

Department of the Treasury 20 $213,243

Army General Fund 21 $219,632

Social Security Administration 28 $2,305

Nuclear Regulatory Commission 31 $223

Department of Veterans Affairs 36 $569

General Service Administration 47 $6,663

National Science Foundation 49 $70,000

Central Intelligence Agency 56 $414

Federal Emergency Management Agency 58 $136

Environmental Protection Agency 68 $367

Department of Transportation 69 $131,989

Agency for International Development 72 $17,636

Department of Health and Human Services 75 $91

National Aeronautics and Space Administration 80 $143,058

Department of Housing and Urban Development 86 $4

National Archives and Records Administration 88 $25

Department of Energy 89 $30,340

Department of Education 91 $425

US Army Corps of Engineers 96 $425

Other Defense Organizations General Funds 97 $1,325,903

Other Defense Organizations Working Capital Funds 97-4930 $1,185,854

Army Working Capital Fund 97-4930.001 $285

Navy Working Capital Fund 97-4930.002 $15,359

Air Force Working Capital Fund 97-4930.003 $332,273

DoD Medicare-Eligible Retiree Health Care Fund $178,829

Total might not match reports TOTAL $4,190,085

Schedule, Part E

DoD Intra-governmental Non-exchange Revenues

($ in thousands)

Treasury 

Index

Transfers

In 

Transfers

Out

Unidentifiable Federal Agency Entity (Other than DoD entities) 0 $0

Navy General Fund 17 $6,589

Army General Fund 21 $108,474

US Army Corps of Engineers 96 $1

Other Defense Organizations General Funds 97 $11,212

Other Defense Organizations Working Capital Funds 97-4930 $2,731 $93,918

Air Force Working Capital Fund 97-4930.003 $85,097 $748

Totals might not match reports TOTAL $99,041 $209,729
United States Air Force 

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General Funds

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Principal Statements

2003 Annual Financial Statement

Working Capital Funds

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Consolidated Balance Sheet—Working Capital Fund

As of September 30, 2003 and 2002 ($ in thousands)

2003 Annual Financial Statement

127

 2003 

Consolidated

2002 

Consolidated

1. ASSETS (Note 2) 

 A. Intragovernmental: 

 1. Fund Balance with Treasury (Note 3) 

 a. Entity $ 732,842 $ 463,312

 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) 605,077 628,025

 4. Other Assets (Note 6) 3 0

 5. Total Intragovernmental Assets $ 1,337,922 $ 1,091,337

 B. Cash and Other Monetary Assets (Note 7) $ 0 $ 4

 C. Accounts Receivable (Note 5) 167,764 15,847

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property (Note 9) 11,154,540 13,991,959

 F. General Property, Plant and Equipment (Note 10) 1,329,629 1,320,809

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 380,362 530,335

2. TOTAL ASSETS $ 14,370,217 $ 16,950,291

3. LIABILITIES (Note 11) 

 A. Intragovernmental: 

 1. Accounts Payable (Note 12) $ 231,725 $ 154,696

 2. Debt (Note 13) 0 0

 3. Environmental Liabilities (Note 14) 0 0

 4. Other Liabilities (Note 15 & Note 16) 345,437 11,384

 5. Total Intragovernmental Liabilities $ 577,162 $ 166,080

 B. Accounts Payable (Note 12) $ 88,984 $ 1,791,467

 C. Military Retirement Benefits and Other Employment-Related 275,132 247,750

 Actuarial Liabilities (Note 17) 

 D. Environmental Liabilities (Note 14) 0 0

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 & Note 16) 1,891,851 3,151,129

 G. Debt Held by Public (Note 13) 0 0

4. TOTAL LIABILITIES $ 2,833,129 $ 5,356,426

5. NET POSITION 

 A. Unexpended Appropriations (Note 18) $ 0 $ 0

 B. Cumulative Results of Operations 11,537,088 11,593,865

6. TOTAL NET POSITION $ 11,537,088 $ 11,593,865

7. TOTAL LIABILITIES AND NET POSITION $ 14,370,217 $ 16,950,291

The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Net Cost—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

128

 2003 

Consolidated

2002 

Consolidated

1. Program Costs 

 A. Intragovernmental Gross Costs $ 5,448,310 $ 4,864,103

 B. (Less: Intragovernmental Earned Revenue) -13,317,788 -10,907,401

 C. Intragovernmental Net Costs $ -7,869,478 $ -6,043,298

 D. Gross Costs With the Public 8,224,828 5,367,308

 E. (Less: Earned Revenue From the Public) -393,889 -308,024

 F. Net Costs With the Public $ 7,830,939 $ 5,059,284

 G. Total Net Cost $ -38,539 $ -984,014

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ -38,539 $ -984,014

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.
Consolidated Statement of Changes in Net Position—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

2003 Annual Financial Statement

129

 2003 

Consolidated

2002 

Consolidated

CUMULATIVE RESULTS OF OPERATIONS 

1. Beginning Balances $ 11,593,865 $ 8,784,032

2. Prior period adjustments (+/-) -55,128 1,628,844

3. Beginning Balances, as adjusted 11,538,737 10,412,876

4. Budgetary Financing Sources: 

 4.A. Appropriations received 0 0

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

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

 4.D. Appropriations used 23,956 32,886

 4.E. Nonexchange revenue 0 0

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

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

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

5. Other Financing Sources: 

 5.A. Donations and forfeitures of property 0 0

 5.B. Transfers-in/out without reimbursement (+/-) -209,350 36,886

 5.C. Imputed financing from costs absorbed by others 145,206 127,203

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

6. Total Financing Sources -40,188 196,975

7. Net Cost of Operations (+/-) -38,539 -984,014

8. Ending Balances $ 11,537,088 $ 11,593,865

UNEXPENDED APPROPRIATIONS 

1. Beginning Balances $ 0$ 0

2. Prior period adjustments (+/-) 0 0

3. Beginning Balances, as adjusted 0 0

4. Budgetary Financing Sources: 

 4.A. Appropriations received 23956 32886

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

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

 4.D. Appropriations used -23956 -32886

 4.E. Nonexchange revenue 0 0

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

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

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

5. Other Financing Sources: 

 5.A. Donations and forfeitures of property 0 0

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

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

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

6. Total Financing Sources 0 0

7. Net Cost of Operations (+/-) 0 0

8. Ending Balances $ 0$ 0

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.
Combined Statement of Budgetary Resources—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

130

 2003 

Combined

2002 

Combined

BUDGETARY FINANCING ACCOUNTS 

BUDGETARY RESOURCES 

1. Budget Authority: 

 1a. Appropriations received $ 23,956 $ 32,886

 1b. Borrowing authority 0 0

 1c. Contract authority -35,575 362,674

 1d. Net transfers (+/-) 0 0

 1e. Other 0 0

2. Unobligated balance: 

 2a. Beginning of period 305,847 191,172

 2b. Net transfers, actual (+/-) -125,000 78,000

 2c. Anticipated Transfers balances 0 0

3. Spending authority from offsetting collections: 

 3a. Earned 0 0

 1. Collected 17,643,264 15,835,543

 2. Receivable from Federal sources 83,803 102,158

 3b. Change in unfilled customer orders 0 0

 1. Advance received -371,890 -262,178

 2. Without advance from Federal sources 200,583 591,243

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

 3d. Transfers from trust funds 0 0

 3e. Subtotal 17,555,760 16,266,766

4. Recoveries of prior year obligations 2,027 0

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -119,535 -140,972

7. Total Budgetary Resources $ 17,607,480 $ 16,790,526

STATUS OF BUDGETARY RESOURCES 

8. Obligations incurred:

 8a. Direct $ 23,956 $ 32,886

 8b. Reimbursable 16,976,393 16,451,794

 8c. Subtotal 17,000,349 16,484,680

9. Unobligated balance: 

 9a. Apportioned 607,132 305,848

 9b. Exempt from apportionment 0 0

 9c. Other available -1 -2

10. Unobligated Balances Not Available 0 0

11. Total, Status of Budgetary Resources $ 17,607,480 $ 16,790,526

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS: 

12. Obligated Balance, Net - beginning of period $ 3,504,176 $ 3,490,438

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

14. Obligated Balance, Net - end of period: 

 14a. Accounts receivable -1,145,183 -1,061,380

 14b. Unfilled customer order from Federal sources -3,999,386 -3,798,802

 14c. Undelivered orders 6,166,726 5,698,622

 14d. Accounts payable 2,295,155 2,665,736

15. Outlays: 

 15a. Disbursements 16,900,798 15,777,541

 15b. Collections -17,271,374 -15,573,364

 15c. Subtotal -370,576 204,177

16. Less: Offsetting receipts 0 0

17. Net Outlays $ -370,576 $ 204,177

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
Combined Statement of Financing—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

2003 Annual Financial Statement

131

 2003 

Combined

2002 

Combined

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

1. Obligations incurred $ 17,000,349 $ 16,484,680

2. Less: Spending authority from offsetting collections -17,557,786 -16,266,764

 and recoveries (-) 

3. Obligations net of offsetting collections and recoveries -557,437 217,916

4. Less: Offsetting receipts (-) 0 0

5. Net obligations -557,437 217,916

Other Resources 

6. Donations and forfeitures of property 0 0

7. Transfers in/out without reimbursement (+/-) -209,350 0

8. Imputed financing from costs absorbed by others 145,206 127,203

9. Other (+/-) 0 -3

10. Net other resources used to finance activities -64,144 127,200

11. Total resources used to finance activities -621,581 345,116

Resources Used to Finance Items not Part 

of the Net Cost of Operations 

12. Change in budgetary resources obligated for goods, 

 services and benefits ordered but not yet provided 

 12a. Undelivered Orders (-) -468,106 -385,929

 12b. Unfilled Customer Orders -171,307 329,064

13. Resources that fund expenses recognized in prior periods 0 0

14. Budgetary offsetting collections and receipts that 0 0

 do not affect net cost of operations 

15. Resources that finance the acquisition of assets 1,006,802 -1,402,468

16. Other resources or adjustments to net obligated resources 

 that do not affect net cost of operations 

 16a. Less: Trust or Special Fund Receipts Related to Exchange in the 0 0

 16b. Other (+/-) 0 0

17. Total resources used to finance items not 367,389 -1,459,333

 part of the net cost of operations 

18. Total resources used to finance the net cost of operations -254,192 -1,114,217

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 Periods: 

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 from the the public (-) 0 0

23. Other (+/-) 27,382 5,613

24. Total components of Net Cost of Operations that 27,382 5,613

 will require or generate resources in future periods 

Components not Requiring or Generating Resources: 

25. Depreciation and amortization 185,805 124,590

26. Revaluation of assets or liabilities (+/-) 2,466 0

27. Other (+/-) 0 0

28. Total components of Net Cost of Operations that 188,271 124,590

 will not require or generate resources 

29. Total components of net cost of operations that 215,653 130,203

 will not require or generate resources in the current period 

30. Net Cost of Operations -38,539 -984,014

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

132
Footnotes to the

Principal Statements

2003 Annual Financial Statement

Working Capital Funds

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134
Note 1. Significant Accounting Policies

1.A. Basis of Presentation

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

States Air Force Working Capital Fund (AFWCF), as required by the “Chief Financial Officers (CFO) Act of 1990,”

expanded by the “Government Management Reform Act (GMRA) of 1994,” and other appropriate legislation. The

financial statements have been prepared from the books and records of the Air Force WCF in accordance with

“Department of Defense Financial Management Regulation (DoDFMR),” the Office of Management and Budget

(OMB) Bulletin No. 01-09, “Form and Content of Agency Financial Statements” and to the extent possible Federal

Generally Accepted Accounting Principles (GAAP). The accompanying financial statements account for all resources

for which the AFWCF is responsible except that information relative to classified assets, programs, and operations.

This information has been excluded from the statements or otherwise aggregated and reported in such a manner that

is no longer considered classified. The AFWCF’s financial statements are in addition to the financial reports that are

prepared by the United States Air Force pursuant to OMB directives to monitor and control the Air Force’s use of

budgetary resources.

The AFWCF is unable to implement all elements of Federal GAAP and the OMB Bulletin No. 01-09, due to limitations of its financial management processes and systems, including non-financial feeder systems and processes.

Reported values and information for the AFWCF’s major asset and liability categories are derived largely from nonfinancial feeder systems, such as inventory systems and logistic systems. These systems were designed to support

reporting requirements focusing on maintaining accountability over assets and reporting the status of federal appropriations, rather than preparing financial statements in accordance with Federal GAAP. The AFWCF continues to implement process and system improvements addressing the limitations of its financial and non-financial feeder systems. A

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

The AFWCF continues to enter material amounts of unsupported accounting entries. Financial and non-financial feeder systems continue to lack sufficient customer identification necessary to accurately process eliminations. The issue

has been addressed as part of the Air Force plan for gaining a favorable opinion by FY 2007. This was also disclosed in

the DoD Agency wide Note 1.

1.B. Mission of the Reporting Entity

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

Security Act Amendments of 1949 established the Department of Defense (DoD) and made the Air Force a department within DoD. The overall mission of the DoD is to organize, train and equip armed forces to deter aggression

and if necessary, defeat aggressors of the United States and its allies. The overall mission of the Air Force is to defend

the United States through control and exploitation of air and space. 

The stock and industrial revolving fund accounts were created by the National Security Act of 1947, as amended in

1949 and codified in Title 10, U.S.C., Section 2208. The revolving funds were established as a means to more effectively control the cost of work performed by DoD. The DoD began operating under the revolving fund concept as

early as July 1, 1951.

1.C. Appropriations and Funds

The Air Force’s funds are divided into the general, working capital (revolving funds), trust, special, and deposit funds.

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

Working Capital Funds receive their initial working capital through an appropriation or a transfer of resources from

existing appropriations or funds, and use those capital resources to finance the initial cost of products and services.

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135
Financial resources to replenish the initial working capital and to permit continuing operations are generated by the

acceptance of customer orders. The Defense Working Capital Fund (DCWF) operates with financial principles that

provide improved cost visibility and accountability to enhance business management and improve the decision making

process. The activities provide goods and services on a reimbursable basis. Receipts derived from operations generally

are available in their entirety for use without further congressional action.

Air Force systems are not transaction driven for budgetary accounts. Therefore, in some cases proprietary and statistical accounts are used to develop the Report on Budget Execution (SF133) and Statement of Budgetary Resources

for reporting budgetary data. 

Supply Management

The Air Force Stock Funds were established within the DoD under 10 U.S.C. 2208, as described in DoD Financial

Management Regulation 7000.14-R, to finance inventories of supplies. Most inventories of supplies are financed by use

of a stock fund. Exceptions include an item financed with a procurement appropriation or when financing by other

means has been deemed to be more economical and efficient. A stock fund operates as a revolving fund acquiring

inventories with funds received from prior sales to customers.

There are four active business activities in the Supply Management Activity Group (SMAG). They are Materiel Support

Division (MSD), General Support Division (GSD), Medical-Dental Division and Academy Division. In FY 2001 the

Fuels Division was taken over by the Defense Energy Support Center, therefore all activity within the Fuels Division is

residual. Troop Support is also a residual activity.

Depot Maintenance

The Air Force Depot Maintenance Activity Group (DMAG) performs manufacturing, development and test work as

well as aviation maintenance. Primarily supporting Air Force organizations, DMAG also supports other DoD components, government agencies, and foreign governments. The DMAG environment is rapidly changing. Weapons systems

embodying new material and technologies require new maintenance processes, while improvements in reliability

reduce the frequency of maintenance for many items. The net result requires flexibility in addressing both wartime

and peacetime workload changes. The DMAG achieves this flexibility by employing the unique strengths of organic

(in-house) and contractor repair resources.

Transportation

The unique transportation responsibilities of the Air Mobility Command (AMC) include the executive travel mission

and operation of other operational support aircraft, the air weather service, AMC training, AMC base operations,

tanker operations, and other miscellaneous AMC functions. The Air Force Transportation Defense Business

Operations Fund (DBOF) was established during FY 1993 and discontinued in FY 1995 in accordance with the DWCF

improvement plan. Only residual accounting remains.

Information Services

Air Force Central Design Activities

The Air Force Central Design Activities (CDAs) provide software design, development, maintenance and technical

support services. As of October 1, 1995, the Air Force CDA business area was transferred to DBOF. This transfer

expanded the Information Services Business Area in compliance with Program Budgeting Decision (PBD) 433.

Transfer procedures were set forth in a DFAS-Arlington memo dated May 3, 1995. The Central Design Activities

include the Standard Systems Group and the Materiel Systems Group. Prior to this transfer the CDAs were funded by

Air Force Operations and Maintenance funds. 

United States Air Force 

136
United States Transportation Command (USTC)

For AFS purposes only, USTC is not included with the Air Force Working Capital Funds. The Office of the Under

Secretary Defense, Chief Financial Officer, directed FY 1999, that USTC will be reported with the Other Defense

Organizations Working Capital Fund Consolidated statements, submitted by DFAS-Indianapolis. However, USTC

remains part of the Air Force budget operations for all other financial reporting.

Air Force Working Capital Fund Component

The purpose of the Air Force Component Activity is to provide an activity within the AFWCF to record transactions

that cannot be identified to a specific business area. The January 21, 1997 memorandum “Policy and Procedures for

Cash Management Working Capital Funds (DWCF)” established the “Component Level Adjustment” column.

Additional DFAS-Arlington memorandums provided specific and detailed instructions and procedures to maintain

accountability for fund balances with Treasury. 

Operations of the activities within the AFWCF are based on policies and procedures that include: 

(1) Funding Authority. Prior to FY 1992, industrial fund activities were not issued funding documents. Activities

now receive obligation authority for customer orders from the Air Force Deputy Assistant Secretary, Budget

(SAF/FMB). The total costs that can be incurred are a function of the cost goals applied to the actual customer funded

workload. 

(2) Minor Construction Funding. Minor construction projects that cost $100,000 or more, but less than $300,000,

are funded through a separate section of the capital budget, and depreciated over a 20 year period.

(3) Software Development Costs. Policy and procedures have been changed to move the development costs of

new software that meets capitalization requirements to the capital budget. Software is to be amortized after release.

(4) Capital Budgeting. Activity group budgets are segregated into operating and capital budgets. Any investment in

equipment, software, minor construction and other management improvements that meet capitalization requirements

are funded through the capital budget and the cost is depreciated or amortized over the relevant life cycle.

(5) Asset Capitalization and Depreciation. The assets of the industrial and stock funds were transferred to the

DBOF and subsequently to the AFWCF. Capital assets, excluding land, which exceed a unit cost of $100,000 or more

are subject to depreciation. In addition, capital assets previously capitalized using the established thresholds for prior

years will continue to be depreciated if depreciation was being recorded prior to the increase to the $100,000

threshold.

(6) Rates and Prices. All Air Force activity groups within the WCF are expected to set their rates and prices based

upon full cost recovery, ensuring that cost reductions made by an activity will be passed on to the customers. Rates

and prices normally will not change during the year of execution, but occasionally change based on certain world situations. If there is a need for a price change in Depot Maintenance, the authority is requested from HQ Air Force

Material Command. 

The FY 2003 AFWCF operations encompass three activity groups: Supply Management, Depot Maintenance and

Information Services. These activity groups use their resources to finance the initial cost of products or services for

activities of the United States Government, primarily those of the DoD. Work is generated by the acceptance of customer orders from ordering activities.

1.D. Basis of Accounting

The AFWCF generally records transactions on an accrual accounting basis as is required by Federal GAAP. However,

some of the Air Force’s financial and non-financial feeder systems and processes are not designed to collect and

record financial information on the full accrual accounting basis. The AFWCF has undertaken efforts to determine the

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137
actions required to bring all of its financial and non-financial feeder systems and processes in compliance with all elements of Federal GAAP. One such action is the current revision of its accounting systems to record transactions based

on the United States Government Standard General Ledger (USSGL). Until such time that all of the processes are

updated to collect and report financial information as required by Federal GAAP, some of the AFWCF’s financial data

will be based on budgetary transactions (obligations, disbursements, and collections) and non-financial feeder systems.

For example, most of information presented on the Statement of Net Cost is based on accrued costs. However,

some of this information is based on obligations and disbursements.

Under the accrual method revenues are recognized when earned and expenses are recognized when incurred, without regard to receipt or payment of cash. Budgetary accounting is accomplished through unique general ledger

accounts to facilitate compliance with legal and internal control requirements associated with the use of federal funds.

However, the cash basis of accounting may be followed if the reported activity and amounts are not materially significant. In addition to the accrual basis of accounting, Depot Maintenance also uses the full absorption accounting principal. During FY 1996, DFAS-DE, SAF/FMB, and OSD/FM jointly agreed on the use of this principal by Depot

Maintenance. This principal requires that overhead costs such as depreciation and bad debt expenses are included in

the cost of services sold. The effect of known intra-fund transactions is eliminated.

The Air Force uses several service unique general ledger structures plus data converted from the Defense Business

Management System (DBMS). The financial statements depicted are derived from supply, maintenance and accounting

records, utilizing the Air Force service and DBMS unique general ledger structures. The activity groups’ general

ledger accounts are “cross-walked” to the USSGL chart of accounts to produce the financial statements.

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

Air Force is in the process of reviewing available data and attempting to develop a cost reporting methodology that

balances the need for cost information required by the SFFAS No. 4, “Managerial Cost Accounting Concepts and

Standards for the Federal Government,” with the need to keep the financial statements from becoming overly voluminous.

The asset accounts used to prepare the statements are categorized as either entity or nonentity. Entity assets consist

of resources that the agency has the authority to use, or where management is legally obligated to use funds to meet

entity obligations. Nonentity assets are assets that are held by an entity that are not available for use in the operations

of the entity. 

Material disclosures are provided at Note 10.

1.E. Revenues and Other Financing Sources

The Under Secretary of Defense (Comptroller) directed, per memorandum dated January 1992, all of the services to

use the percentage of completion accounting method to recognize revenue and expenses. The DoD 7000.14-R,

Financial Management Regulation, Chapter 11B, January 1995, also prescribes this method of accounting.

Each working capital activity group recognizes revenue in the following manner:

Supply Management

Air Force Supply Management revenue is recognized at the time of sale under constructive delivery terms (normally

when an item is released from inventory or delivered to the customer). Foreign Military Sales transactions also

require proof of shipment before revenue is recognized. Generally, Supply Management’s revenue consists of sales at

standard prices less sales returns. Sales of Materiel Support Division items are at exchange price. The Medical-Dental

division and the Air Force Academy Store add surcharges to their billings rather than include a surcharge in the standard price. Intra-division Supply Management sales have been eliminated. Cash discounts and interfund retail stock

loss allowances are reported as additional revenue.

United States Air Force 

138
Depot Maintenance

Revenue recognition for Organic DMAG is the percentage of completion method now that the Depot Maintenance

Accounting and Production System (DMAPS) is fully operational at all three ALCs. 

Revenue recognition for the Contract DMAG is based on the number of units produced times the Unit Sales Price

(USP) and does not recognize IRR at this time. Contract DMAG is scheduled to close at the end of FY 2004.

Information Services.

The Information Services Activity Group (ISAG), as a service type organization, recognizes revenue in one of two

ways based on the service level agreement between the customer and the provider. ISAG uses the either the completed contract method or the percentage of completion method.

1.F. Recognition of Expenses

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

incurred. However, because the Air Force’s financial and non-financial feeder systems were not designed to collect

and record financial information on the full accrual accounting basis, accrual adjustments are made for major items

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

assets are not recognized as expenses in the AFWCF’s operations until depreciated in the case of property, plant and

equipment (PP&E) or consumed in the case of operating materials and supplies (OM&S). Certain expenses, such as

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

expenses were adjusted as a result of the elimination of balances between the DoD Components. Net increases or

decreases in unexpended appropriations are recognized as a change in net position. See Note 19.I Intragovernmental

expenses and revenue for disclosure of adjustment amounts.

1.G. Accounting for Intra-governmental Activities

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

the federal government as a whole. Therefore, these financial statements do not reflect the results of all financial decisions applicable to the Air Force as though the agency was a stand-alone entity.

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

Debt issued by the federal government and the related costs are not apportioned to the federal agencies. The Air

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

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

Financing for the construction of the DoD facilities is obtained through budget appropriations. To the extent this

financing ultimately may have been obtained through the issuance of public debt, interest costs have not been capitalized since the Department of the Treasury does not allocate such interest costs to the benefiting agencies.

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

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

Additionally, employees and personnel covered by FERS and MRS also have varying coverage under Social Security.

The AFWCF funds a portion of the civilian and military pensions. Reporting civilian pension information under the

CSRS and FERS retirement systems is the responsibility of the Office of Personnel Management (OPM). The AFWCF

recognizes an imputed expense for the portion of civilian employee pensions and other retirement benefits funded by

the OPM in the Statement of Net Cost, and recognizes corresponding imputed revenue in the Statement of Changes

in Net Position.

To prepare reliable financial statements, transactions occurring between components or activities within the DoD or

between two or more federal agencies must be eliminated. However, the Air Force, as well as the rest of the federal

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139
government, cannot accurately identify all intragovernmental transactions by customer. The Defense Finance and

Accounting Service (DFAS) is responsible for eliminating transactions between the components or activities of the

AFWCF. For FY 1999 and beyond, seller entities within the Department provided summary seller-side balances for

revenue, accounts receivable, and unearned revenue to the buyer-side internal DoD accounting offices. In most cases,

the buyer-side records have been adjusted to recognize unrecorded costs and accounts payable. Intra DoD intragovernmental balances were then eliminated.

The Department of the Treasury Financial Management Service (FMS) is responsible for eliminating transactions

between the Department and other federal agencies. In September 2000, the FMS issued the “Federal Intra-governmental Transactions Accounting Policies and Procedures Guide.” The Department of Defense was not able to fully

implement the policies and procedures in this guide related to reconciling intra-governmental assets, liabilities, revenues, and expenses for non-fiduciary transactions. The Air Force was able to implement the policies and procedures

contained in the “Intra-governmental Fiduciary Transactions Accounting Guide,” as updated by the “Federal Intra-governmental Transactions Accounting Policies and Procedures Guide,” for reconciling intragovernmental transactions

pertaining to investments in federal securities, borrowings from the United States (U.S.) Treasury and the Federal

Financing Bank, Federal Employees’ Compensation Act transactions with the Department of Labor (DoL), and benefit

program transactions with the OPM.

1.H. Transactions with Foreign Governments and International Organizations

Each year, the DoD Components sell defense articles and services to foreign governments and international organizations, primarily under the provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, the

AFWCF has authority to sell defense articles and services to foreign countries and international organizations, generally at no profit or loss to the U.S. Government. Customers may be required to make payments in advance.

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

The AFWCF’s financial resources are maintained in U.S. Treasury accounts. The majority of cash collections, disbursements, and adjustments are processed worldwide at the Defense Finance and Accounting Service (DFAS), Military

Services and U.S. Army Corps of Engineers (USACE) disbursing stations, as well as the Department of State financial

service centers. Each disbursing station prepares monthly reports that provide information to the U.S. Treasury on

check issues, electronic funds transfers, interagency transfers and deposits.

In addition, the DFAS sites and the USACE Finance Center submit reports to the Department of the Treasury, by

appropriation, on interagency transfers, collections received, and disbursements issued. The Department of the

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

the Treasury’s system. Differences between the AFWCF’s recorded balance in the FBWT account and Treasury’s

FBWT sometimes result and are subsequently reconciled.

Fund Balances with Treasury are maintained at the AFWCF corporate business area today. In 1992, when the Defense

Business Operating Fund was established, the FBWT was moved from the Air Force level to the Department of

Defense level. In 1996, the DWCF was established and the FBWT was moved back to the Air Force level. However,

allocations of FBWT were at a lower level than the level transferred out. The cash balance had been maintained at 10

days worth of cash, but what was allocated back was 3 days worth of cash. The days are based on the average of cash

needed to pay vendors. The fund has been “under funded” since that time. 

Material disclosures are provided at Note 3. Differences are caused by in-transit disbursements and unmatched disbursements, which are not recorded in the accounting offices’ detail-level records.

1.J. Foreign Currency

Not applicable.

United States Air Force 

140
1.K. Accounts Receivable

As presented on the Balance Sheet, accounts receivable includes accounts receivables, claims receivables, and refunds

receivable from other Federal entities or from non-federal entities. Allowances for loss on accounts receivable due

from non-federal entities are based upon analysis of collection experience by fund type. The AFWCF does not recognize an allowance for loss on accounts receivable amounts from another Federal agency. Claims against another federal agency are to be resolved between the agencies. If the claim cannot be resolved by the agencies involved, it should

be referred to the General Accounting Office. Only Supply Management allows for allowance for loss accounts receivable based upon analysis of historical data from prior year accounts receivable balances, write-offs, and collection

policy.

Material disclosures are provided at Note 5.

1.L. Loans Receivable. As Applicable.

Not applicable.

1.M. Inventories and Related Property

Inventory data is maintained in logistics systems designed for material management purposes. Inventories are reported at approximate historical cost based on Latest Acquisition Cost (LAC), adjusted for holding gains and losses. The

AFWCF uses the LAC method because its inventory systems were designed for material management rather than

financial reporting. These systems provide accountability and visibility over inventory items. They do not maintain the

historical cost data necessary to comply with the SSFAS No. 3, “Accounting for Inventory and Related Property.” Nor

can they directly produce financial transactions using the United States Government Standard General Ledger

(USSGL), as required by the Federal Management Improvement Act of 1996 (P.L. 104-208). These logistics systems

support the categorization of inventory as: held for sale, held in reserve for future sale, or excess, obsolete, and

unserviceable, yet the business practices in the supply community do not use these categories. The categories were

identified based on guidance in the DoDFMR Volume 11B. Additionally, past audit results have led to uncertainties

about the completeness and existence of the inventory quantities used to derive the balances reported in the financial

statements. 

Approximately 60% of the General Support Division is managed in the Standard Base Supply System using a Moving

Average Cost for the value of the inventory. This change was effective October 2000. The remaining 40% of the GSD

inventory is managed in the Stock Control and Distribution System using the LAC method for valuation. Within the

Materiel Support Division, inventory is valued at either LAC or carcass. Carcass value is calculated within the pricing

system.

Only the Supply Management Activity Group maintains inventories. Gains and losses resulting from valuation changes

for inventory items are recognized and reported in the Statement of Net Cost and included in the calculation of cost

of goods sold. To calculate the allowances for gain or loss on inventories, an inventory worksheet is prepared monthly

for each fund code within the Supply Management Activity Group. 

SFFAS No. 3 distinguishes between “Inventory held for sale” and “Inventory held in reserve for future sale.” There is

no management or valuation difference between the two USSGL accounts. Further, the DoD manages only military or

government specific material under normal conditions. Items commonly used in and available from the commercial

sector are not managed in the DoD material management activities. Operational cycles are irregular, and the military

risks associated with stock-out positions have no commercial parallel. The AFWCF holds material based on military

need and support for contingencies. Therefore, the AFWCF does not attempt to account separately for items held

for “current” or “future” sale.

2003 Annual Financial Statement

141
Related property includes operating materials and supplies (OM&S) and stockpile materials. The OM&S including

munitions not held for sale are valued at standard purchase price. The department uses the consumption method of

accounting for OM&S for the most part, expensing material when it is issued to the end user. Where current systems

cannot fully support the consumption method, the AFWCF uses the purchase method, expensed when purchased.

For FY 2003, the AFWCF reported significant amounts using the purchase method either because the systems could

not support the consumption method or because management deems that the item is in the hands of the end user.

The AFWCF implemented a new policy in FY 2002 to account for condemned material (only) as “Excess, Obsolete,

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

the potential scrap value. Potentially re-distributable material, presented in previous years as “Excess, Obsolete, and

Unserviceable,” is now included in “Held for Use” or “Held for Repair” categories according to its condition.

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

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

Not applicable.

1.O. General Property, Plant and Equipment

General property, plant, and equipment (PP&E) assets are capitalized at historical acquisition cost plus capitalized

improvements, when an asset has a useful life of two or more years, and when the acquisition cost equals or exceeds

the DoD capitalization threshold of $100,000. Also, improvement costs over the DoD capitalization threshold of

$100,000 for General PP&E are required to be capitalized. All General PP&E, other than land, is depreciated using

the straight-line method. Land is not depreciated.

Prior to FY 1996, General PP&E with an acquisition cost of $15,000, $25,000, and $50,000 for FYs 1993, 1994, and

1995 respectively, and an estimated useful life of 2 or more years was capitalized. These assets remain capitalized and

are reported on WCF financial statements. General PP&E previously capitalized at amounts below $100,000 were

written off General Fund financial statements in FY 1998.

When it is in the best interest of the government, the Air Force provides government property necessary to complete contract work to contractors. Such property is either owned or leased by the Air Force, or purchased directly

by the contractor for the government based on contract terms. When the value of contractor procured General

PP&E exceeds the DoD capitalization threshold, the items should be included in the value of General PP&E reported

on the Air Force’s Balance Sheet. The AFWCF recently completed a study that indicates that the value of General

PP&E that meets the capitalization requirement and is in the possession of contractors is not material to the

Department’s financial statements. Regardless, the AFWCF is developing new policies and a contractor reporting

process that will provide appropriate General PP&E information for future financial statement reporting purposes.

Accordingly, the Air Force currently reports only the government property in the possession of contractors that is

maintained in the Air Force’s property systems.

For entities operating as business type activities (WCFs), all PP&E used in the performance of their mission is categorized as General PP&E, whether or not it meets the definition of any other PP&E categories. National Defense PP&E,

Heritage Assets and Stewardship Land owned or maintained on a WCF installation are reported in the Supplemental

Stewardship Report of the applicable military department. 

Material disclosures are provided at Note 10.

United States Air Force 

142
1.P. Advances and Prepayments

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

an asset on the Balance Sheet. Advances and prepayments are recognized as expenditures and expenses when the

related goods and services are received. 

1.Q. Leases

Not applicable.

1.R. Other Assets

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

cost reimbursable. To alleviate the potential financial burden on the contractor that these long-term contracts can

cause, the AFWCF provides financing payments. One type of financing payment that the AFWCF makes is for real

property, and is based upon a percentage of completion. In accordance with SFFAS No 1., “Accounting for Selected

Assets and Liabilities,” such payments are treated as construction in process and are reported on the General PP&E

line and in Note 10, General PP&E, Net. In addition, based on the provision of the Federal Acquisition Regulations,

the AFWCF makes financing payments under fixed price contracts that are not based on a percentage of completion.

The AFWCF reports these financing payments as advances or prepayments in the “ Other Assets” line item. The

AFWCF treats these payments as advances or prepayments because the AFWCF becomes liable only after the contractor delivers the goods in conformance with the contract terms. If the contractor does not deliver a satisfactory

product, the AFWCF is not obligated to reimburse the contractor for its costs, and the contractor is liable to repay

the AFWCF for the full amount of the advance. The AFWCF has completed a review of all applicable federal accounting standards, applicable public laws on contract financing, Federal Acquisition Regulation Parts 32, 49, and 52 and the

OMB guidance in Code 5 of Federal Regulations Part 1315, “Prompt Payment.” The AFWCF has concluded that

SFFAS No. 1 does not fully or adequately address the subject of progress payment accounting and is considering what

further action is appropriate.

1.S. Contingencies and Other Liabilities

The SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” defines a contingency as an existing condition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss to the AFWCF. The

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

liability when a past event or exchange transaction has occurred, a future loss is probable and the amount of loss can

be reasonably estimated. Financial statement reporting is limited to disclosure when conditions for liability recognition

do not exist, but there is at least a reasonable possibility that a loss or an additional loss will be incurred. Examples of

loss contingencies include the collectibility of receivables, pending or threatened litigation, possible claims and assessments. The AFWCF’s loss contingencies arising are events such as aircraft, ship and vehicle accidents, medical malpractice, property or environmental damages, and contractual disputes.

1.T. Accrued Leave

Civilian annual leave and military leave that have been accrued and not used as of the balance sheet date are reported

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

1.U. Net Position

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

represent amounts of authority, which are unobligated and have not been rescinded or withdrawn, and amounts obligated but for which legal liabilities for payments have not been incurred.

Cumulative results of operations for the AFWCF represent the excess of revenues over expenses, less refunds to customers, and returns to the U.S. Treasury since fund inception.

2003 Annual Financial Statement

143
1.V. Treaties for Use of Foreign Bases

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

obtained through various international treaties and agreements negotiated by the Department of State. The DoD capital assets located overseas are purchased with appropriated funds, however the host country retains the title to the

land and any improvements. Generally, treaty terms allow the DoD Components continued use of these properties

until the treaties expire. These fixed assets are subject to loss in the event treaties are not renewed or the AFWCF

does not reach agreements that allow for the continued use. Therefore, in the event treaties or other agreements are

terminated and the use of foreign bases is not allowed the losses will be recorded for the value of any nonretrievable

capital assets. Negotiations between the United States and the host country determine the amount to be paid the

United States for such capital investments.

1.W. Comparative Data

Beginning in FY 2001, the AFWCF has presented the current and previous year’s financial data for comparative purposes. This data is presented in the financial statements, as well as in the notes to the principal statements.

1.X. Unexpended Obligations

The AFWCF records obligations for goods and services that have been ordered but not yet received. No liability for

payment has been established in the financial statements because goods/services have yet to be delivered.

Note 2. Nonentity and Entity Assets

Asset accounts are categorized either as entity or nonentity. Entity accounts consist of resources that the agency has

the authority to use, or when management is legally obligated to use funds to meet entity obligations. Nonentity

accounts are assets that are held by an entity, but are not available for use in the operations of the entity. 

Note Reference

For additional line item discussion, see Note 3, Fund Balance with Treasury; Note 4, Investments; Note 5, Accounts

Receivable; Note 6, Other Assets; Note 7, Cash and Other Monetary Assets; Note 8, Direct Loans and Loan

Guarantees Assets; Note 9, Inventory and Related Property; Note 10, General PP&E, Net; and Note 23, Disclosures

Related to the Statement of Custodial Activity.

For regulatory discussion on Nonentity and Entity Assets, see Department of Defense Financial Management

Regulation, Volume 6B, Chapter 10, paragraph 1004.

United States Air Force 

144

`

As of September 30,

(Amounts in thousands)

1. Intra-governmental Assets:

A. Fund Balance with Treasury $ 0 $ 732,842 $ 732,842 $

B. Investments 000

C. Accounts Receivable 0 605,077 605,077

D. Other Assets 033

E. Total Intra-governmental Assets $ 0 $ 1,337,922 $ 1,337,922 $

2. Non-Federal Assets:

A. Cash and Other Monetary Assets $ 0$ 0 $ 0 $

B. Accounts Receivable 0 167,764 167,764

C. Loans Receivable 000

D. Inventory & Related Property 0 11,154,540 11,154,540

E. General Property, Plant and Equipment 0 1,329,629 1,329,629

F. Other Assets 0 380,362 380,362

G. Total Non-Federal Assets $ 0 $ 13,032,295 $ 13,032,295 $

3. Total Assets: $ 0 $ 14,370,217 $ 14,370,217 $

2003 2002

Nonentity Entity Total

0

0

0

0

0

0

0

0

0

0

0

0

0
Note 3. Fund Balance with Treasury

Explanation of Reconciliation Amount

The reconciling amount on line 2C above represents $1,742,203.1 thousand for the United States Transportation

Command (USTC) which is reported by Treasury as part of the Air Force Working Capital Fund. For AFS purposes,

the amount for USTC is included in the Other Defense Organizations (ODO) Fund Balance. 

Other Information Related to Fund Balance with Treasury: 

Fluctuations and Abnormalities

The Supply Management (SMAG) and Depot Maintenance (DMAG) Activity Groups account for the $269,532.0 thousand increase in fund balance with treasury (FBwT). 

SMAG—FBwT increased $234,526.1 thousand which can be attributed to a direct reimbursement for the cost of the

war effort and the implementation of a 10 percent surcharge for the Material Support Division.

DMAG—FBwT increased $43,128.6 thousand which can be attributed to the Defense Industrial Fund Management

System (DIFMS) implementation, in which revenue is recognized and billings are processed more timely. 

Note Reference

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

and DoD policies governing Funds with the U.S Treasury.

Note 4. Investments

Not applicable.

Note 5. Accounts Receivable

Other Information

Fluctuations

Non-federal receivables increased $151,916.6 thousand, or 958.65 percent. The increase is due to a change in classification of receivables due from foreign governments in the Supply Management Activity Group (SMAG). Prior to FY

2003 Annual Financial Statement

145

As of September 30,

(Amounts in thousands)

1. Fund Balances:

A. Appropriated Funds $ 0$ 0

B. Revolving Funds 732,842 463,312

C. Trust Funds 0 0

D. Other Fund Types 0 0

E. Total Fund Balances $ 732,842 $ 463,312

2. Fund Balances Per Treasury Versus Agency:

A. Fund Balance per Treasury $ 2,475,046 $ 1,323,257

B. Fund Balance per AFWCF 732,842 463,312

C. Reconciling Amount $ 1,742,204 $ 859,945

2003 2002

As of September 30,

(Amounts in thousands)

1. Intra-governmental Receivables: $ 605,077 N/A $ 605,077 $ 628,025 

2. Non-Federal Receivables (From the Public): $ 167,842 $ (78) $ 167,764 $ 15,847 

3. Total Accounts Receivable: $ 772,919 $ (78) $ 772,841 $ 643,872 

2003 2002

Accounts 

Receivable, Net

Accounts 

Receivable, 

Net

Allowance For 

Estimated 

Uncollectibles

Gross 

Amount Due
2003, the receivables were treated as other assets, until a determination could be made on the actual amount that

would be collected. In FY 2003, an additional $116,271.0 thousand was classified as public receivables. Remaining

increases can be attributed to normal business operations and are within expected fluctuation ranges.

Information Related to Accounts Receivables

Allowance Method

SMAG uses an allowance method for non-federal receivables which is based on historical data. Depot Maintenance

and Information Services generally use the direct write-off method for uncollectible accounts.

Allocation of Undistributed Collections

The Department of Defense policy is to allocate supported undistributed collections between federal and non-federal

categories based on the percentage of federal and nonfederal accounts receivable. Unsupported undistributed collections are recorded in United States Standard General Ledger (USSGL) account 2400, liability for deposit funds, clearing accounts, and undeposited collections. The AFWCF followed this allocation procedure, applying $17,631.7 thousand in undistributed collections to accounts receivable.

Elimination Adjustments

Accounts receivable within the AFWCF have been eliminated for statement presentation purposes. The total value of

the receivables that were eliminated on these financial statements is $436,312.1 thousand.

The Air Force accounting systems do not capture trading partner data at the transaction level in a manner that facilitates trading partner aggregations. Therefore, the Air Force was unable to reconcile intra-governmental accounts

receivable balances with its trading partners. Through the ongoing Business Management Modernization Program

(BMMP), the Department intends to develop long-term systems improvements that will capture the data necessary to

perform reconciliations.

Receivables over 180 Days

The Air Force has $11,819.3 thousand government receivables over 180 days, and $13,783.1 thousand public receivables. Processes have been implemented to closely monitor the delinquent receivables, and to refer them to the

appropriate entity for resolution.

Note Reference

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

and DoD policies governing Accounts Receivable.

United States Air Force 

146
Note 6. Other Assets

Other Information Related to Other Assets: 

Fluctuations and Abnormalities

Intragovernmental advances and prepayments increased $2.6 thousand. Accruals were processed to agree with

unearned revenue reported by trading partners.

Total non-federal other assets decreased $149,973.8 thousand. This decrease was mainly caused by a reclassification

of other assets to accounts receivable involving receivables due from foreign governments in the Supply Management

Activity Group (SMAG). The total amount reclassified represents a $98,390.0 thousand decrease from FY 2002. In

addition, there was a decrease of $44,643.0 thousand in assets returns to vendors. The decrease is attributable to

improvements in processing these items in a more timely manner. The remaining decrease is supported by acceptable

decreases in advances and prepayments to contractors.

Non-Federal Other Assets (Line 2)

Note Reference

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

and DoD policies governing Other Assets.

2003 Annual Financial Statement

147

As of September 30,

(Amounts in thousands)

1. Intra-governmental Other Assets:

A. Advances and Prepayments 3 $ 0

B. Other Assets 0 0

C. Total Intra-governmental Other Assets $ 3 $ 0

2. Non-Federal Other Assets:

A. Outstanding Contract Financing Payments $ 0 $ 0

B. Other Assets (With the Public) 380,362 530,335

C. Total Non-Federal Other Assets $ 380,362 $ 530,335

3. Total Other Assets: $ 380,365 $ 530,335

2003 2002

$

Types of Asset 2003 2002

SMAG - Advances and Prepayments to Contractors 128,304 $122,516 

DMAG - Advances and Prepayments to Contractors $38,899 $53,099 

SMAG - Other assets accounts receivable - deliveries suspense $98,524 

SMAG - Air Force assets - other DoD foreign military sales (depot) ($134)

SMAG - Other assets returns to vendors pending credit $211,688 $256,330 

SMAG - Uncollected overhead

DMAG - Unallocated labor and materials $1,471 

Total Non-Federal Other Assets $380,362 $530,335 

Non-Federal Other Assets (in Thousands)
Note 7. Cash and Other Monetary Assets

Other Information Pertaining to Entity Cash and Other Monetary Assets

Definitions

Cash—The total of cash resources under the control of the Working Capital Fund, which included coin, paper currency, purchased foreign currency, negotiable instruments, and amounts on deposit in banks and other financial institutions. Cash available for agency use should include petty cash funds and cash held in revolving funds which will not

be transferred into the U.S Government General Fund.

Foreign Currency—consists the total U.S dollar equivalent of non-purchased foreign currencies held in foreign currency fund accounts. Non-purchased foreign currency is limited to the Treasury Index 97X7000 fund account (formerly called FT accounts).

Other Monetary Assets—included gold, special drawing rights, and U.S Reserve in the International Monetary

Fund. This category is principally for use by the Department of Treasury.

Fluctuations

The amount shown for FY 2002 represents undeposited collections in the ISAG area. Amounts can vary each period

but total value is immaterial.

Note Reference

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

and DoD policies governing Foreign Currency.

For regulatory discussion on Other Assets, see Department of Defense Financial Management Regulation, Volume 6B,

Chapter 10, paragraph 1009.

Note 8. Direct Loan and/or Loan Guarantee Programs

Not applicable.

Note 9. Inventory and Related Property

United States Air Force 

148

As of September 30,

(Amounts in thousands)

1. Cash $ 0$ 4

2. Foreign Currency (non-purchased) 0 0

3. Other Monetary Assets 0 0

4. Total Cash, Foreign Currency, and Other Monetary Assets $ 0$ 4

2003 2002

As of September 30,

(Amounts in thousands)

1. Inventory, Net (Note 9.A.) $ 10,499,179 $ 12,846,841

2. Operating Materials & Supplies, Net (Note 9.B.) 655,361 1,145,118

3. Stockpile Materials, Net (Note 9.C.) 0 0

4. Total $ 11,154,540 $ 13,991,959

2003 2002
Note 9.A. Inventory, Net

Restrictions of Inventory Use, Sale, or Disposition

There are no restrictions on the use, sale, or disposition of inventory except in the following situations: 

(1) Distributions without reimbursement are made when authorized by DoD directives; 

(2) War Reserve Material includes fuels and subsistence items that are considered restricted; and 

(3) Inventory, with the exception of safety stocks, may be sold to foreign, state and local governments, private parties, and contractors in accordance with current policies and guidance or at the direction of the President.

Other Information

Fluctuations

Inventory Available and Purchased for Resale decreased $1,856,335.0 thousand due to an increase in the revaluation

allowance in the Supply Management Activity Group. The allowance is a computation which is based on costs associated with inventory. Since more inventory was sold in FY 2003 to support the war effort, more costs were incurred,

which resulted in an increase in the allowance ratio of overall costs to ending inventory value. 

Work in process (WIP) decreased $593,205.0 thousand. WIP for contract DMAG decreased 445,989.5 thousand, due

to the phase out of contract DMAG operations. The remaining $147,215.5 thousand decrease is due to the implementation of DIFMS and the change in revenue recognition to the percentage of completion method, and the

increased activity and completion of jobs in support of the war effort.

General Composition of Inventory

Inventory includes spare and repair parts, clothing and textiles, fuels, and ammunition. Inventory is tangible personal

property that is 

(1) Held for sale, or held for repair for eventual sale;

(2) In the process of production for sale; or

(3) To be consumed in the production of goods for sale or in the provision of services for a fee. 

“Inventory held for repair” is damaged material that requires repair to make it usable. “Excess inventory” is condemned material that must be retained for management purposes. The category “held for sale” includes all issuable

material. The category “held for repair” includes all economically reparable material. “Work in process” includes

depot maintenance work with its associated labor, applied overhead, and supplies used in the delivery of maintenance

2003 Annual Financial Statement

149

As of September 30,

Inventory, 

Net

Valuation 

Method

(Amounts in thousands)

1. Inventory Categories:

A. Available and Purchased for Resale $ 23,956,088 $ (17,357,254) 6,598,834 $ 8,455,169 LAC/O

B. Held for Repair 11,374,820 (8,168,120) 3,206,700 3,104,822 LAC/O

C. Excess, Obsolete, and Unserviceable 0 0 0 0 

D. Raw Materials 0 0 0 0 

E. Work in Process 693,645 0 693,645 1,286,850 AC

F. Total $ 36,024,553 $ (25,525,374) 10,499,179 $ 12,846,841 

SP = Standard Price

AC = Actual Cost

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

O = Other

Inventory, Gross 

Value

Revaluation 

Allowance Inventory, Net

2003 2002
services. The USSGL does not include a separate work in process account unrelated to sales. Inventory is assigned to

categories based on guidance in the DoDFRM Volume 11B.

Note Reference

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

and DoD policies governing Inventory and related Property.

Note 9.B. Operating Materials and Supplies, Net

Other Information

Fluctuations

SMAG reclassified $314M from OM&S to inventory due to a cross-walk error from the prior years.

The remaining decline in the balance of the OM&S is attributable to DMAG. DMAG is currently phasing out contracts

causing inventory to be liquidated at a greater rate than replenishment. This trend should continue as more contracts

are closed.

General Composition of Operating Materials and Supplies

Operating materials and supplies includes spare and repair parts. The Operating Materials & Supplies (OM&S) data

reported on the financial statements are derived from logistics systems designed for material management purposes,

i.e. accountability and visibility. The reported balances from these systems are not recorded at historical cost, in conformance with the valuation requirements in the Statement of Federal Financial Accounting Standard (SFFAS) No. 3,

“Accounting for Inventory and Related Property.” Instead the Air Force uses standard price to value its operating

materials and supplies without computing unrealized holding gains or losses. Furthermore, past audit results have led

to uncertainties pertaining to the completeness and existence of the OM&S quantities used to derive the balances

reported in the financial statements.

For the most part, DMAG is using the consumption method of accounting for OM&S, since OM&S is defined in the

SFFAS No. 3 as material which has not yet been issued to the end user. Once issued, the material is expensed. As

stated above, current financial and logistics systems cannot fully support the consumption method. According to federal accounting standards, the consumption method of accounting should be used to account for OM&S unless: (1)

the amount of OM&S is not significant, (2) OM&S are in the hands of the end user for use in normal operations, or

(3) it is cost-beneficial to expense OM&S when purchased (purchase method). The DoD, in consultation with its auditors, is: (1) developing specific criteria for determining when OM&S amounts are not significant for the purpose of

using the consumption method, (2) developing functional requirements for feeder systems to support the consumption method, and (3) identifying feeder systems that are used to manage OM&S items, and (4) developing plans to

revise those systems to support the consumption method. For FY 2003, the department reported significant amounts

United States Air Force 

150

As of September 30,

Valuation 

Method

(Amounts in thousands)

1. OM&S Categories:

A. Held for Use $ 655,361 $ 0 $ 655,361 $ 1,145,118 O

B. Held for Repair 0 0 0 0 

C. Excess, Obsolete, and Unserviceable 0 0 0 0 

D. Total $ 655,361 $ 0 $ 655,361 $ 1,145,118

SP = Standard Price

AC = Actual Cost

O = Other

2003 2002

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable 

OM&S,

Gross Value

Revaluation 

Allowance

OM&S,

Net 

OM&S,

Net
using the purchase method either because the systems could not support the consumption method or because management deems that the item is in the hands of the end user.

Note Reference

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

and DoD policies governing Inventory and related Property.

Note 9.C. Stockpile Materials, Net

Not applicable.

Note 10. General PP&E, Net

Other Information

Fluctuations and Abnormalities

Software increased $509,999.8 thousand due to a reclassification of equipment and construction in progress in the

Supply Management Activity Group. Software costs had been erroneously coded to other asset classifications prior to

FY 2003. Offsetting decreases of $313,425.2 thousand and $192,772.7 are reflected in the equipment and construction in progress categories. 

Other PP&E increased in FY 2003 based on a transfer of automated data processing (ADP) equipment from the

Ogden Air Logistics Center (ALC) to the Oklahoma City and Warner Robbins ALCs.

Information Related to General PP&E, Net

In Fiscal Year 2003, real property reported by the Automated Civil Engineering System (ACES), and personal property

reported by the Air Force Equipment Management System (AFEMS) and the Information Processing Management

System (IPMS) has not been validated and reconciled to reported figures received from the field activities by DFAS.

However, the Depot Maintenance ALCs and Aerospace Maintenance and Regeneration Center (AMARC) use the

Automated Civil Engineer System (ACES) to capture the costs of real property based on preponderance of use for

each building. They use the straight-line method for recording depreciation maintained on spreadsheets vice the

ACES schedule. The accounting entries are recorded directly into the field level trial balances. 

Any WCF Special Tools and Special Test equipment in the possession and control of the Air Force are reported in the

Air Force General Funds financial statements.

The value of Air Force General PP&E real property in the possession of contractors is included in the value reported

above for the Major Asset Classes of Land and Buildings, Structures, and Facilities. The value of General PP&E personal property (Major Asset Classes of Software and Equipment) does not include all of the General PP&E above the

2003 Annual Financial Statement

151

As of September 30,

Depreciation/ 

Amortization 

Method

Service

Life

(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 40 791,355 $ (555,551) 235,804 259,557 

C. Leasehold Improvements S/L lease term 0 0 0 0 

D. Software S/L 2-5 or 10 942,877 (133,025) 809,852 299,852 

E. Equipment S/L 5 or 10 1,971,847 (1,744,530) 227,317 540,743 

F. Assets Under Capital Lease [1] S/L lease term 0 0 0 0 

G. Construction-in-Progress N/A N/A 27,884 N/A 27,884 220,657 

H. Other 28,772 0 28,772 0 

I. Total General PP&E $ 3,762,735 $ (2,433,106) $ 1,329,629 $ 1,320,809 

Legend for Valuation Methods:

2003 2002

S/L = Straight Line N/A = Not Applicable

[1] Note 15.B for additional information on Capital Leases

Acquisition

Value

Prior FY Net 

Book Value

(Accumulated 

Depreciation/

Amortization)

Net Book

Value
DoD capitalization threshold in the possession of contractors. The net book amount of such property is immaterial in

relation to the total General PP&E net book value. In accordance with an approved strategy with the Office of

Management and Budget, the General Accounting Office and the Inspector General, DOD, is developing new policies

and a contractor reporting process to capture General PP&E information for future reporting purposes for compliance with federal-wide accounting standards.

Past audit results have identified uncertainties as to whether all General PP&E assets in the possession or control

(existence) of the Department’s are properly and accurately recorded in the system (completeness).

Note Reference

See Note Disclosure 1. N., Significant Accounting Policies, for additional discussion on financial reporting requirements and DoD policies governing General Property, Plant and Equipment (PP&E).

Note 10.A. Assets Under Capital Lease

Not applicable.

Note 11. Liabilities Not Covered and Covered by Budgetary Resources

Other Information

Fluctuations and Abnormalities

The amounts recorded on Line 2B represent the Federal Employees Compensation Act (FECA) actuarial liabilities

provided by the Department of Labor. The increase is due to rising cost factors used in the actuarial computation.

Definitions

Liabilities Not Covered and Covered by Budgetary Resources

Liabilities that are not considered covered by realized budgetary resources as of the Balance Sheet date. Budgetary

resources encompass the following:

■ New budget authority.

■ Spending authority from offsetting collections (credited to an appropriation or fund account).

■ Recoveries of unexpired budget authority through downward adjustments of prior-year obligations.

United States Air Force 

152

As of September 30,

(Amounts in thousands)

1. Intra-governmental Liabilities:

A. Accounts Payable $ 231,725 $ 0 $ 231,725 $ 0

B. Debt 0 0 0 0

C. Environmental Liabilities 0 0 0 0

D. Other 345,437 0 345,437 0

E. Total Intra-governmental Liabilities $ 577,162 $ 0 $ 577,162 $ 0

2. Non-Federal Liabilities:

A. Accounts Payable $ 88,984 $ 0 $ 88,984 $ 0

B. Military Retirement Benefits and Other 

Employment-Related Actuarial Liabilities 0 275,132 275,132 247,750

C. Environmental Liabilities 0 0 0 0

D. Loan Guarantee Liability 0 0 0 0

E. Other Liabilities 1,891,851 0 1,891,851 0

F. Total Non-Federal Liabilities $ 1,980,835 $ 275,132 $ 2,255,967 $ 247,750

3. Total Liabilities: $ 2,557,997 $ 275,132 $ 2,833,129 $ 247,750

2003 2002

Covered by 

Budgetary 

Resources

Not Covered by 

Budgetary 

Resources

Total
■ Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances

during the year.

■ Borrowing authority or permanent indefinite appropriations, which have been enacted and signed into law as of

the Balance Sheet date, provided that the resources may be apportioned by the OMB without further action by

the Congress or without a contingency first having to be met.

Liabilities Covered by Budgetary Resources

Resources incurred by the reporting entity which are covered by realized budget resources as of the Balance Sheet

date. Budgetary resources encompass not only new budget authority, but also other resources available to cover liabilities for specified purposes in a given year. Available budgetary resources include the following:

■ New budget authority.

■ Spending authority from offsetting collections (credited to an appropriation or fund account).

■ Recoveries of unexpired budget authority through downward adjustments of prior-year obligations.

■ Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances

during the year.

■ Borrowing authority or permanent indefinite appropriations, which have been enacted and signed into law as of

the balance sheet date, provided that the resources may be apportioned by the OMB without further action by

the Congress or without a contingency first having to be met.

Note Reference

For Additional Line Item discussion, see:

■ Note 8, Direct Loans and/or Loan Guarantee Programs

■ Note 12, Accounts Payable

■ Note 13, Liabilities Not Covered and Covered by Budgetary Resources

■ Note 14, Environmental Restoration Liabilities and Environmental Disposal Liabilities

■ Note 15, Other Liabilities

■ Note 16, Commitments and Contingencies

■ Note 17, Military Retirement Benefits and Other Employment Related

Note 12. Accounts Payable

2003 Annual Financial Statement

153

As of September 30,

(Amounts in thousands)

1. Intra-governmental Payables: $ 231,725 N/A $ 231,725 $ 154,696

2. Non-Federal Payables (to the Public): $ 88,984 $ 0 $ 88,984 $ 1,791,467

3. Total $ 320,709 $ 0 $ 320,709 $ 1,946,163

2003

Total Total Accounts

Payable

Interest,

Penalties, and

Administrative

Fees

2002
Other Information

Definition

Intra-governmental accounts payable consists of amounts owed to other federal agencies for goods of services

ordered and received but not yet paid. Interest, penalties and administrative fees are not applicable to intragovernmental payables. Non-federal payables (to the public) are payments to nonfederal entities. 

Fluctuations and Abnormalities

Intragovernmental payables increased $77,032 thousand from FY2002, a 50 percent increase. This increase can be

attributed to the Depot Maintenance Activity Group with the war effort. 

Non-federal payables decreased $1,702,484 thousand from FY2002, which is a 95 percent decrease. A change in

elimination procedures was the cause of the decrease. In prior years, non-federal payables needed to be accrued as

an offset to federal expenses to match seller reported revenue data from Defense Logistic Agency (DLA) at the fund

code level. By processing the elimination adjustments at the consolidated activity group level, the large accrual was

not necessary.

Total payables on the 1307 report decreased by $71,824 thousand. The Depot Maintenance Activity Group (DMAG)

payables increased by $171,770 thousand, which was attributed to increased expenses supporting the war effort.

Supply Management Activity Group (SMAG) had an offsetting decrease of $243,594 thousand which is primarily due

to credits processed in MSD for erroneous prior year expenses. 

The fuels division of SMAG had an abnormal payable balance which is the result of undistributed disbursements that

exceed accounts payables. Once the undistributed amounts are resolved, the abnormal will be corrected. The abnormal balances were offset by payable balances at the consolidated business activity level, therefore no accrual was necessary. 

Undistributed Disbursements

Undistributed disbursements are the difference between disbursements/collections recorded 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 via the reconciled DD1329 and DD1400. The total undistributed disbursement amounts displayed in this

note should agree with the undistributed amounts reported on accounting reports (SF 133/(M) 1002/(M) 1307).

Intransit payments are payments that have been made for other agencies or entities that have not been recorded in

their accounting records. These payments are applied to each entity’s outstanding accounts payable balance at yearend. Accounts payable were adjusted downward in the amount of $580,943 thousand for these payments. 

Allocation of Undistributed Disbursements

The Department of Defense (DoD) policy is to allocate supported undistributed disbursements between federal and

non-federal categories based on the percentage of federal and non-federal accounts payable. Unsupported undistributed disbursements should be netted against unsupported undistributed collections and recorded in United States

Standard General Ledger (USSGL) account 2120, disbursements in transit. The Air Force Working Capital Fund

(AFWCF) followed this allocation policy. 

Intragovernmental Eliminations

For the majority of intra-agency sales, the AFWCF accounting systems do not capture trading partner data at the

transaction level in a manner that facilitates trading partner aggregations. Therefore, the AFWCF was unable to reconcile intragovernmental accounts payable to the related intragovernmental accounts receivable that generated the

payable. For the 4th Quarter, elimination adjustments were made at the consolidated business activity level instead of

at the fund code level, which resulted in less distortion of the actual payable amounts.

United States Air Force 

154
The DoD intends to develop long-term systems improvements that will include sufficient up-front edits and controls

to eliminate the need for after-the-fact reconciliations. The volume of intragovernmental transactions is so large that

after-the-fact reconciliations cannot be accomplished with the existing or foreseeable resources.

Note Reference

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

and DoD policies governing accounting for Intragovernmental Activities.

Note 13. Debt

Not applicable.

Note 14. Environmental Liabilities and Disposal Liabilities

Not applicable.

Note 15.A. Other Liabilities

Other Information Pertaining to Other Liabilities

Fluctuations and Abnormalities

Intra-governmental advances from others increased $337,547.0 thousand. With the implementation of DIFMS in FY

2003, DMAG changed its procedures on revenue recognition from the incremental revenue recognition (IRR) to the

percentage of completion method, resulting in advances being recorded versus progress billings. The explanation of

Line 2.M has further information of the variance.

Other intra-governmental liabilities decreased $3,406.0 thousand. These liabilities represent employee benefits that

are payable to the Office of Personnel Management. Liabilities fluctuate based on staffing levels and participation in

benefit programs by employees.

Non-federal advances from others increased $4,472.8 thousand. As with advances from others, the DMAG change in

revenue recognition is the source of the increase.

The fluctuation represents unsupported undistributed collections, for which guidance was issued to reclassify to

deposit funds and suspense accounts. The amount is abnormal as there is more support for the undistributed collections than the amount of undistributed recorded in the general ledger.

2003 Annual Financial Statement

155

As of September 30,

(Amounts in thousands)

Intra-governmental:

Advances from Others $ 339,303 $ 0 $ 339,303 $ 1,755

Other Liabilities 6,134 0 6,134 9,629

Total Intra-governmental Other Liabilities $ 345,437 $ 0 $ 345,437 $ 11,384

As of September 30,

(Amount in Thousands)

Non-Federal:

Accrued Funded Payroll and Benefits $ 161,111 $ 0 $ 161,111 $ 147,659

Advances from Others 5,542 0 5,542 1,070

Deposit Funds and Deposit Funds and 

Suspense Accounts -22 -22 0

Other Liabilities 1,725,220 0 1,725,220 3,002,398

Total Non-Federal Other Liabilities $ 1,891,851 $ 0 $ 1,891,851 $ 3,151,127

Total Other Liabilities: $ 2,237,288 $ 0 $ 2,237,288 $ 3,162,511

2003 2002

Current 

Liability

Noncurrent 

Liability Total Total

Total

2003 2002

Current 

Liability

Noncurrent 

Liability Total
Non-federal other liabilities decreased $1,277,180.4 thousand. This decrease is attributable to the following factors:

■ Progress billings of $915,608.0 thousand are no longer recorded due to the change in revenue recognition by

DMAG. The new method, advances, are lower than the FY 2002 progress billings due to a $386,000.0 thousand

decrease attributable to Contract DMAG being removed from the Air Force Working Capital Fund, and

$209,771.8 thousand in eliminations with SMAG. 

■ Work in process for DMAG decreased $342,265.0 thousand which is attributable to Contract DMAG being

removed from the Air Force Working Capital Fund. The reduction in contracts has resulted in a decline in material, labor and overhead costs and accruals.

■ Future Purchases from Foreign Military Sales in SMAG has decreased $19,076.0 thousand.

Information Related to Other Liabilities

The SMAG Other Liabilities related to Foreign Military Sales arrive from money that various countries have deposited

with the SMAG as a buy-in on future purchases they plan to make under the foreign military sales program. These

funds are considered a liability as the funds are returned if the countries do not make future purchases. Revenue is

not recognized on these transactions until the purchase takes place.

The Component Other Liabilities is related to an abnormal Non-Federal Accounts Receivable amount. The amount

was abnormal because of Undistributed Collections. FACTS I will not accept an abnormal balance in Non-Federal

Accounts Receivable, therefore the amount was reclassified as a Non-Federal Other Liability. 

Note Reference

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

and DoD policies governing Contingencies and Other Liabilities.

Note 15.B. Capital Lease Liability

Not applicable.

Note 16. Commitments and Contingencies

Not applicable.

United States Air Force 

156

FY 2003 FY 2002

DMAG- Progress Billings 0 $915,608 

DMAG - WIP Accrued Expenses 1,616,599 1,958,864

SMAG - Contract Holdbacks 0 272

SMAG - Future Purchase - Foreign Military Sales 73,151 $92,227 

ISAG - Misc liabilities 1 0

Component - Reclass of Abnormal Public Accounts Receivable 35,469 35,427

Total $1,725,220 $3,002,398
Note 17. Military Retirement Benefits and Other Employment Related

Actuarial Liabilities

Other Information Pertaining to Military Retirement Benefits and Other EmploymentRelated Actuarial Liabilities

Fluctuations and Abnormalities

The increase is due to rising cost factors used in the actuarial computation.

Federal Employee’s Compensation Act (FECA)

The Air Force Working Capital Fund’s actuarial liability for workers’ compensation benefits is developed by the

Department of Labor and provided to the Air Force at the end of each fiscal year. The liability includes the expected

liability for death, disability, medical, and miscellaneous costs for approved compensation cases. The liability is determined using a method that utilizes historical benefit payment patterns related to predict the ultimate payments. The

projected annual benefit payments are then discounted to the present value using the OMB’ economic assumptions

for 10-year Treasury notes and bonds. Cost-of-living adjustments and medical inflation factors are also applied to the

calculation of projected future benefits. 

Interest rate assumptions utilized for discounting are as follows:

2001 2002 2003

5.21% in year 1 5.20% in year 1 3.84% in year 1

5.21% in year 2 5.20% in year 2 4.35% in year 2

and thereafter and thereafter and thereafter

To provide more specifically for the effects of inflation on the liability for workers’ compensation benefits wage inflation factors (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. These factors were also used to adjust the

methodology’s historical payments to current year constant dollars.

The compensation COLAs and CPIMs used in the projections for various charge back years (CBY) are as follows:

CBY COLA CPIM

2004 2.3% 3.21%

2005 2.00% 3.54%

2006 1.83 3.64%

2007 1.97% 3.80%

2008+ 2.17% 3.92%

The model’s resulting projections were analyzed to insure that the estimates were reliable. The analysis was based on

two tests: (1) a comparison of the percentage change in the liability amount by agency to the percentage change in

2003 Annual Financial Statement

157

As of September 30,

Assumed 

Interest 

Rate (%)

(Amounts in Thousands)

FECA $ 275,132 $ 0 $ 275,132 $ 247,750

Total Other $ 275,132 $ 0 $ 275,132 $ 247,750

Total Military Retirement Benefits 

and Other Employment Related 

Actuarial Liabilities: $ 275,132 $ 0 $ 275,132 $ 247,750

Actuarial Present 

Value of Projected 

Plan Benefits

2003 2002

(Less: Assets 

Available to Pay 

Benefits)

Unfunded 

Actuarial

Liability

Unfunded 

Actuarial 

Liability
actual payments, and (2) a comparison of the ratio of the estimated liability to the actual payment of the beginning

year calculated for the current projection to the liability-payment ration calculated for the prior projection.

Note Reference

For regulatory discussion on “Military Retirement Benefits and Other Employment Related Actuarial Liabilities,” see

Department of Defense Financial Management Regulation, Volume 6B, Chapter 10, paragraph 1019.

Note 18. Unexpended Appropriations

Not applicable.

Note 19.A. General Disclosures Related to the Statement of Net Cost

Fluctuations and Abnormalities

Intragovernmental Gross Costs

Intragovernmental gross costs increased by $584,207.4 thousand, or 12.01 percent. Of the $584,207 thousand

increase, $248,989 thousand is attributed to the Depot Maintenance Activity Group (DMAG) and the accelerated cost

recognition implemented by the Defense Industrial Financial Management System (DIFMS) in FY 2003. DMAG moved

from a revenue/cost recognition methodology based upon units completed (FY 2002) to a percentage of completion

methodology (2003). Supply Management Activity Group (SMAG) increased by $278,741 thousand. The largest portion of the SMAG increase is in the Material Support Division (MSD) supporting the war effort and an increase in the

repair budget accounts. Information Services Activity Group (ISAG) increased by $56,477 thousand, which is solely

due to adjustments made to balance to their intragovernmental seller side trading partners elimination transactions. 

The 1307 costs increased by $998,007.0 thousand or 11.82 percent. There is a difference of ($413,800) thousand

between the increases in the financial statement and 1307 which is attributed to ($206,296.0) thousand in intraentity

transactions eliminated within the AFWCF, and ($207,504.0) thousand in AFS adjustments reversing prior year elimination accruals necessary to match data reported by trading partners.

Intragovernmental Earned Revenue

Intragovernmental earned revenue increased by $2,410,387.4 thousand, or 22.10 percent. DMAG increased

$778,662.6 thousand which is attributed to a sales rate increase of 26 percent. The overall revenue increase is only

21 percent as in FY 2002 DMAG received a surcharge reimbursement. In addition, the implementation of DIFMS also

resulted in faster revenue recognition under the percentage of completion method. SMAG’s increase of $1,611,183.9

thousand is attributed to increased revenues in support of the war effort. ISAG increased $20,540.8 thousand, which

is an acceptable variance at 5 percent. Eliminations within the AFWCF total $5,422,205.9 thousand.

Gross Costs With the Public

Public costs increased by $2,857,519.0 thousand, or 53.24 percent. 1307 costs increased by $5,221,774.0 thousand,

which is 85.89 percent. The difference between the increases is attributed to $2,253,998.0 thousand in AFS adjustments to include elimination entries that were necessary to match data reported by trading partners in the two periods reported and reclassification of prior period adjustments. The cost of war effort was also a driver for the

increases.

Earned Revenue from the Public

Earned revenue from the public increased $85,865.2 thousand, or 27.88%. DMAG increased $71,548.6 thousand,

due to the war effort. SMAG increased $35,021.2 thousand due to increased activity to support the war effort. ISAG

decreased $19,884.5 thousand which is attributed to FY 2002 revenues reclassed to match to waived entities.

Transportation decreased $820.1 thousand which was a FY2002 prior period adjustment reclassified to revenue.

United States Air Force 

158
Information Related to the Statement of Net Cost

Statement of Net Cost

The Consolidated Statement of Net Cost (SoNC) in the federal government is unique because it’s principles are driven on understanding the net cost and/or organizations that the federal government supports through appropriations

or other means. This statement provides gross and net cost information that can be related to the amount of output

or outcome for a given program and/or organization administered by a responsible reporting entity.

Working Capital Funds

While the Air Force Working Capital Funds (WCFs) generally record transactions on an accrual basis as is required by

generally accepted accounting principles, the systems do not always capture actual costs. Information presented on

the Statement of Net Cost (SoNC) is primarily based on budgetary obligation, disbursements, or collection transactions, as well as information from non-financial feeder systems.

Note 19.B. Gross Cost and Earned Revenue by Budget Functional Classification

Not applicable.

Note 19.C. Gross Cost to Generate Intra-governmental Revenue and Earned

Revenue (Transactions with Other Federal-Non-DoD-Entities) by Budget

Functional Classification

Relevant Information for Comprehension

The Department’s accounting systems do not capture cost data in a manner that enables the Department to determine if the cost was incurred to generate intragovernmental revenue. Therefore, the Department was unable to

complete this note. The Department is in the process of upgrading its financial and feeder systems and will be

addressing this issue. Additionally, the identification of intragovernmental revenue and expenses is a government-wide

problem. The OMB and the Department of the Treasury have efforts underway to develop government-wide guidance to enable accurate reporting of intragovernmental transactions. OMB and the Department of the Treasury have

efforts underway to develop government-wide guidance to enable accurate reporting of intragovernmental transactions.

Note 19.D. Imputed Expenses 

Other Information

Fluctuations and Abnormalities

The increase in imputed expenses can be attributed to rising cost of employee benefit programs.

Note 19.E. Benefit Program Expenses 

Not applicable.

2003 Annual Financial Statement

159

As of September 30,

(Amount in thousands)

1. Civilian (e.g.,CSRS/FERS) Retirement $ 64,298 $ 48,268

2. Civilian Health 80,667 78,711

3. Civilian Life Insurance 241 224

4. Military Retirement Pension 0 0

5. Military Retirement Health 0 0

6. Judgment Fund 0 0

7. Total Imputed Expenses $ 145,206 $ 127,203

2003 2002
Note 19.F. Exchange Revenue

Definition

Exchange Revenue—arises when a Government entity provides goods and services to the public or to another

Government entity for a price—”earned revenue.” Exchange revenue included most user charges other than taxes,

i.e., regulatory user charges.

Note 19.G. Amounts for Foreign Military Sales (FMS) Program Procurements

from Contractors

Not applicable.

Note 19.H. Stewardship Assets

Not applicable.

Note 19.I. Intra-governmental Revenue and Expense

Information Related to Intragovernmental Revenue and Expense

Intragovernmental Revenue

The AFWCF’s accounting system do not capture trading partner data at the transaction level in a manner that facilitates trading partner aggregations. Therefore, the AFWCF was unable to reconcile intragovernmental revenue balances with its trading partners. The Department intends to develop long-term systems improvements that will include

sufficient up-front client edits and controls to eliminate the need for after-the-fact reconciliations. The volume of

intragovernmental transactions is so large that such reconciliations cannot be accomplished with the existing or foreseeable resources.

Intragovernmental Operating Expenses

The AFWCF’s operating expenses were adjusted based on a comparison between the AFWCF’s accounts payable

and the DoD summary level seller accounts receivables. An adjustment was posted to accounts payable and operating

expenses to reflect unrecognized accounts payable and operating expenses. The operating expenses of the AFWCF

were adjusted upward in the amount of $207,504.0 thousand.

Note 19.J. Suborganization Program Costs

Not applicable.

United States Air Force 

160
Note 20. Disclosures Related to the Statement of Changes in Net Position

Other Information

Information Related to the Statement of Changes in Net Position

Prior Period Adjustments. The Defense Industrial Fund Management System, a CFO-compliant, transaction-driven

system, was implemented in FY 2003 at the Warner-Robins and Oklahoma City Air Logistic Centers. During implementation, a review of the balance in the legacy system, which was a non-transaction driven, noncompliant system,

revealed that corrections were required to the legacy balances to reflect accurate balances as supported by DIFMS.

The adjustments were processed as a prior period adjustment, and the following statement lines were impacted:

Intragovernmental Accounts Receivable - Decrease (90,236)

Public Accounts Receivable - Decrease (1,446)

Inventory and Related Property - Increase 437,709

General Property, Plant and Equipment - Decrease (11,507)

Other Assets - Decrease (11,451)

Intragovernmental Accounts Payable - Increase (65,522)

Intragovernmental Other Liabilities - Increase (312,934)

Public Accounts Payable - Decrease 656

Public Other Liabilities - Increase (6,496)

Intragovernmental Earned Revenue - Increase (43,329)

Intragovernmental Gross Costs - Increase 5,425

Gross Costs with the Public - Decrease 44,003

Prior Period Adjustment Total (55,128)

Imputed Financing

The amounts remitted to Office of Personnel Management (OPM) by and for employees covered by the Civil Service

Retirement System (CSRS), Federal Employee Retirement System (FERS), Federal Employees Health Benefits

Program (FEHB) and the Federal Employee Group Life Insurance Program (FEGLI) do not fully cover the

Government’s cost to provide these benefits. An imputed cost is recognized as the difference between the

Government’s cost of providing these benefits to the employees and contributions made by and for them. The OPM

provides the cost factors to DFAS for computation of imputed financing cost. The DFAS provides the costs to the

Office of the Under Secretary of Defense (Personnel and Readiness) (OUSD(P&R)) for validation. Approved imputed

costs are provided to the reporting components for inclusion in their financial statements.

2003 Annual Financial Statement

161

As of September 30,

(Amounts in thousands) 

Prior Period Adjustments Increases 

(Decreases) to Net Position

Beginning Balance:

Errors and Omissions in Prior Year 

Accounting Reports $ -55,128 $ 0 $ 0 $ 0

Other Prior Period Adjustments 0 0 1,628,844 0 

Total Prior Period Adjustments $ -55,128 $ 0 $ 1,628,844 $ 0 

Imputed Financing:

Civilian CSRS/FERS Retirement $ 64,298 $ 0 $ 48,268 $ 0 

Civilian Health 80,667 0 78,711 0 

Civilian Life Insurance 241 0 224 0 

Total Imputed Financing $ 145,206 $ 0 $ 127,203 $ 0 

Unexpended 

Appropriations 

2002

Cumulative 

Results of 

Operations 

2003

Unexpended 

Appropriations 

2003

Cumulative 

Results of 

Operations

2003
Note 21.A. Disclosures Related to the Statement of Budgetary Resources

Other Information

Information Related to the Statement of Budgetary Resources

Intra-entity Transactions. The Statement of Budgetary Resources (SBR) does not include intra-entity transactions

because the statements are presented as combined and combining.

Apportionment Categories. OMB Bulletin No. 01-09, section 9.27, specifically requires disclosure of the amount of

direct and reimbursable obligations incurred against amounts apportioned under categories A, B and exempt from

apportionment. This disclosure should agree with the aggregate of the related information as included in each reporting entity’s SF 133 and lines 8A and 8B in the SBR.

Undelivered Orders. Undelivered orders presented in the SBR includes undelivered orders-unpaid for both direct

and reimbursable funds.

Spending Authority from Offsetting Collections. Adjustments in funds that are temporarily not available pursuant

to Public Law, and those that are permanently not available (included in the “Adjustments” line on the SBR), are not

included in the “Spending Authority from Offsetting Collections and Adjustments” line on the SBR or the “Spending

Authority for Offsetting Collections and Adjustments” line on the Statement of Financing.

Other Information. The prior year (FY 2002) total for line 2, Available Borrowing and Contract Authority at the

End of Period, has increased by $362,674 thousand since the FY 2002 published statements and footnotes. This

increase is due to a mapping change for this line within DDRS to include general ledger account 4131, Current Year

Contract Authority Realized.

Note 21.B. Disclosures Related to Problem Disbursements, In-transit

Disbursements and Suspense/Budget Clearing Accounts

For 4th Quarter, FY 2003, the Air Force Working Capital Fund (AFWCF) has $2,813 thousand in unmatched disbursements UMDs) which is an increase of $265 thousand since 4th Quarter, FY 2002. A UMD occurs when a payment is

not matched to a corresponding obligation in the accounting system. Absolute value is the sum of the positive values

of debit and credit transactions without regard to the sign. 

The AFWCF reported $6,498 thousand in negative unliquidated obligations (NULOs), which is a decrease of $5,118

thousand since 4th Quarter, FY2002. A NULO 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 problem disbursements represent the absolute value of the AFWCF funds that have been reported by a disbursing station to the

Department of Treasury, but have not yet been precisely matched against the specific source obligation that gave rise

United States Air Force 

162

As of September 30,

(Amounts in thousands)

1. Total Problem Disbursements

A. Absolute Unmatched Disbursements $ 4,115 $ 2,548 $ 2,813 $ 265 

B. Negative Unliquidated Obligations 16,153 11,616 6,498 (5,118)

2. Total In-transit Disbursements, Net $ 606,436 $ 537,627 $ 464,049 $ (73,578)

Sep 2001 Sep 2002 Sep 2003

(Decrease)/

Increase from 

2002 to 2003

As of September 30,

(Amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for

Undelivered Orders at the End of the Period $ 6,166,726 $ 5,698,622

2. Available Borrowing and Contract Authority at the End

of the Period 3,191,601 1,807,646

2003 2002
to the disbursements. These payments have been made using available funds and based on valid receiving reports for

goods and services delivered under valid contracts. 

For 4th Quarter, FY 2003, the AFWCF reported $464,049 in aged in-transit disbursements, which is a decrease of

$73,579 thousand since 4th Quarter, FY 2002. The in-transits represent the net 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.

Note 22. Disclosures Related to the Statement of Financing

Other Disclosures

The objective of the Statement of Financing is to reconcile the difference between budgetary obligations and the net

cost of operations reported. It is presented as combined or combining statements rather than consolidated statements due to intragovernmental transactions not being eliminated. Due to the AFWCF’s financial system limitations,

budgetary data is not in agreement with proprietary expenses and assets capitalized. Differences between budgetary

and proprietary data are a previously identified deficiency.

Note 1A and Note 1F provide additional detail.

Other Information Related to the Statement of Financing

Statement of Financing Adjustments. Budgetary data is not in agreement with Proprietary Expenses and Assets

Capitalized. This causes a difference in Net Cost between the Statement of Net Cost and the Statement of Financing.

On the Statement of Financing Line 15, Resources that finance the acquisition of assets is adjusted in order to align

the amount of net cost on the Statement of Financing with the amount reported on the Statement of Net Cost. Line

15 was adjusted by $1,061,929.7 thousand to balance the report.

Note 23. Disclosures Related to the Statement of Custodial Activity

Not applicable.

Note 24.A. Other Disclosures

Undistributed Collections and Disbursements

Timing differences often occur between Treasury recording cash transactions and the field recording transactions in

the general ledger. The differences are accounted for in the undistributed collection and disbursements accounts,

which offset accounts receivable and accounts payable in the accounting records. Undistributed amounts are reconciled monthly to ensure that they are fully supported. With the exception of the Materiel Support Division, all of the

undistributed transactions are 100% supported. 

Various categories make up the total undistributed. Intransit items and uncleared interfund transactions represent the

majority of the undistributed. The intransit category consists of transactions that are paid/collected by one entity on

behalf of another entity. The transaction is recorded at Treasury in the month of occurrence, however it generally

takes 30-60 days to be distributed to the accountable entity. Interfund transactions are intragovernmental no check

drawn transactions that are generated by the billing activity at end of month. They are then transmitted to a central

location to be distributed to the accountable entity. Since this is an end of month process, the accountable entity does

not receive the data until the next month. Recons and suspense are also a category of undistributed. Recons are created when the cumulative disbursements and collections reported by the field entities on monthly reports do not

equal cumulative amounts generated from current month transactions. When differences occur between the fieldlevel weekly and monthly reports, the amount is suspensed until out of balances can be researched and corrected in

subsequent months. The suspense category may also contain amounts that are not supported by voucher data, but

2003 Annual Financial Statement

163
have been reported to Treasury. Once again, this is researched and corrected. Other miscellaneous posting errors can

contribute to undistributed balances, which are identified monthly and corrected at the appropriate location.

The Materiel Support Division currently has an unsupported balance of $34,800 thousand. The unsupported balance

has been stabilized for the most part. The accountability for this appropriation was previously shared between

Denver and Columbus. Denver took over accountability for the entire appropriation in March FY 2003. This will

bring all of the supporting information into Denver systems and will allow complete reconciliation once the transition

is complete. Information Services Activity Group currently has an unsupported balance of $218 thousand, which is

also stabilized. Performance measurements are in place to ensure timely processing of Air Force Working Capital

Funds transactions.

United States Air Force 

164
Consolidating and

Combining Statements

2003 Annual Financial Statement

Working Capital Funds

165
Consolidating Balance Sheet—Working Capital Fund

As of September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

166

 

Depot 

Maintenance 

Supply 

Management 

Information 

Services

 ASSETS (Note 2) 

 Intragovernmental: 

 Fund Balance with Treasury (Note 3) 

 Entity $ 352,628 $ 326,850 $ 50,410

 Non-Entity Seized Iraqi Cash 0 0 0

 Non-Entity-Other 0 0 0

 Investments (Note 4) 0 0 0

 Accounts Receivable (Note 5) 595,133 389,651 54,066

 Other Assets (Note 6) 0 209,775 0

 Total Intragovernmental Assets $ 947,761 $ 926,276 $ 104,476

 Cash and Other Monetary Assets (Note 7) $ 0 $ 0 $ 0

 Accounts Receivable (Note 5) 36,522 130,617 8

 Loans Receivable (Note 8) 0 0 0

 Inventory and Related Property (Note 9) 1,349,006 9,805,534 0

 General Property, Plant and Equipment (Note 10) 1,099,329 197,308 32,985

 Investments (Note 4) 0 0 0

 Other Assets (Note 6) 40,370 339,992 0

 TOTAL ASSETS $ 3,472,988 $ 11,399,727 $ 137,469

 LIABILITIES (Note 11) 

 Intragovernmental: 

 Accounts Payable (Note 12) $ 294,323 $ 369,217 $ 1,959

 Debt (Note 13) 0 0 0

 Environmental Liabilities (Note 14) 0 0 0

 Other Liabilities (Note 15 & Note 16) 554,365 525 319

 Total Intragovernmental Liabilities $ 848,688 $ 369,742 $ 2,278

 Accounts Payable (Note 12) $ 20,605 $ 46,559 $ 153,196

 Military Retirement Benefits and Other 239,080 24,173 11,879

 Employment-Related Actuarial Liabilities (Note 17) 

 Environmental Liabilities (Note 14) 0 0 0

 Loan Guarantee Liability (Note 8) 0 0 0

 Other Liabilities (Note 15 and Note 16) 1,755,146 91,249 9,987

 Debt Held by Public 0 0 0

 TOTAL LIABILITIES $ 2,863,519 $ 531,723 $ 177,340

 NET POSITION 

 Unexpended Appropriations (Note 18) $ 0 $ 0 $ 0

 Cumulative Results of Operations 609,469 10,868,004 -39,871

 TOTAL NET POSITION $ 609,469 $ 10,868,004 $ -39,871

 TOTAL LIABILITIES AND NET POSITION $ 3,472,988 $ 11,399,727 $ 137,469

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
2003 Annual Financial Statement

167

 Transportation 

Component 

Level 

Combined

Total Eliminations 

2003

Consolidated 

2002

Consolidated

$ 9,929 $ -6,975 $ 732,842 $ 0 $ 732,842 $ 463,312

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 -1 1,038,849 433,772 605,077 628,025

 0 0 209,775 209,772 3 0

$ 9,929 $ -6,976 $ 1,981,466 $ 643,544 $ 1,337,922 $ 1,091,337

$ 0$ 0$ 0$ 0$ 0$ 4

 617 0 167,764 0 167,764 15,847

 0 0 0 0 0 0

 0 0 11,154,540 0 11,154,540 13,991,959

 7 0 1,329,629 0 1,329,629 1,320,809

 0 0 0 0 0 0

 0 0 380,362 0 380,362 530,335

$ 10,553 $ -6,976 $ 15,013,761 $ 643,544 $ 14,370,217 $ 16,950,291

$ -1 $ -1 $ 665,497 $ 433,772 $ 231,725 $ 154,696

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 555,209 209,772 345,437 11,384

$ -1 $ -1 $ 1,220,706 $ 643,544 $ 577,162 $ 166,080

$ 1,982 $ -133,358 $ 88,984 $ 0 $ 88,984 $ 1,791,467

 0 0 275,132 0 275,132 247,750

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 35,469 1,891,851 0 1,891,851 3,151,129

 0 0 0 0 0 0

$ 1,981 $ -97,890 $ 3,476,673 $ 643,544 $ 2,833,129 $ 5,356,426

$ 0$ 0$ 0$ 0$ 0$ 0

 8,572 90,914 11,537,088 0 11,537,088 11,593,865

$ 8,572 $ 90,914 $ 11,537,088 $ 0 $ 11,537,088 $ 11,593,865

$ 10,553 $ -6,976 $ 15,013,761 $ 643,544 $ 14,370,217 $ 16,950,291

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
Consolidating Statement of Net Cost—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

168

 Combined

Total Eliminations

2003

Consolidated

2002

Consolidated

 Program Costs 

B. Component Level

 Intragovernmental Gross Costs $ 0 $ 0 $ 0 $ 0

 (Less: Intragovernmental Earned Revenue) 0 0 0 0

 Intragovernmental Net Costs $ 0 $ 0 $ 0 $ 0

 Gross Costs With the Public 0 0 0 -2,474

 (Less: Earned Revenue From the Public) 0 0 0 0

 Net Costs With the Public $ 0 $ 0 $ 0 $ -2,474

 Total Net Cost $ 0 $ 0 $ 0 $ -2,474

C. Depot Maintenance 0

 Intragovernmental Gross Costs $ 3,565,894 $ 2,366,965 $ 1,198,929 $ 949,940

 (Less: Intragovernmental Earned Revenue) -7,543,191 -2,889,488 -4,653,703 -3,875,040

 Intragovernmental Net Costs $ -3,977,297 $ -522,523 $ -3,454,774 $ -2,925,100

 Gross Costs With the Public 4,291,719 0 4,291,719 2,989,168

 (Less: Earned Revenue From the Public) -199,659 0 -199,659 -128,110

 Net Costs With the Public $ 4,092,060 $ 0 $ 4,092,060 $ 2,861,058

 Total Net Cost $ 114,763 $ -522,523 $ 637,286 $ -64,042

D. Information Services

 Intragovernmental Gross Costs $ 83,905 $ 94 $ 83,811 $ 27,334

 (Less: Intragovernmental Earned Revenue) -646,329 -170,792 -475,537 -454,996

 Intragovernmental Net Costs $ -562,424 $ -170,698 $ -391,726 $ -427,662

 Gross Costs With the Public 589,886 0 589,886 609,888

 (Less: Earned Revenue From the Public) 0 0 0 -19,885

 Net Costs With the Public $ 589,886 $ 0 $ 589,886 $ 590,003

 Total Net Cost $ 27,462 $ -170,698 $ 198,160 $ 162,341

E. Supply Management

 Intragovernmental Gross Costs $ 7,190,323 $ 3,024,753 $ 4,165,570 $ 3,886,829

 (Less: Intragovernmental Earned Revenue) -10,520,079 -2,331,531 -8,188,548 -6,577,365

 Intragovernmental Net Costs $ -3,329,756 $ 693,222 $ -4,022,978 $ -2,690,536

 Gross Costs With the Public 3,343,049 0 3,343,049 1,770,726

 (Less: Earned Revenue From the Public) -194,230 0 -194,230 -159,209

 Net Costs With the Public $ 3,148,819 $ 0 $ 3,148,819 $ 1,611,517

 Total Net Cost $ -180,937 $ 693,222 $ -874,159 $ -1,079,019

F. Transportation

 Intragovernmental Gross Costs $ 0 $ 0 $ 0 $ 0

 (Less: Intragovernmental Earned Revenue) 0 0 0 0

 Intragovernmental Net Costs $ 0 $ 0 $ 0 $ 0

 Gross Costs With the Public 174 0 174 0

 (Less: Earned Revenue From the Public) 0 0 0 -820

 Net Costs With the Public $ 174 $ 0 $ 174 $ -820

 Total Net Cost $ 174 $ 0 $ 174 $ -820

G. Total Program Costs

 Intragovernmental Gross Costs $ 10,840,122 $ 5,391,812 $ 5,448,310 $ 4,864,103

 (Less: Intragovernmental Earned Revenue) -18,709,599 -5,391,811 -13,317,788 -10,907,401

 Intragovernmental Net Costs $ -7,869,477 $ 1 $ -7,869,478 $ -6,043,298

 Gross Costs With the Public 8,224,828 0 8,224,828 5,367,308

 (Less: Earned Revenue From the Public) -393,889 0 -393,889 -308,024

 Net Costs With the Public $ 7,830,939 $ 0 $ 7,830,939 $ 5,059,284

 Total Net Cost $ -38,538 $ 1 $ -38,539 $ -984,014

 Cost Not Assigned to Programs 0 0 0 0

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

 Net Cost of Operations $ -38,538 $ 1 $ -38,539 $ -984,014

The accompanying notes are an integral part of the financial statements. See notes 1 and 19.
This page intentionally left blank.

2003 Annual Financial Statement

169
Consolidating Statement of Changes in Net Position—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

170

 

Depot 

Maintenance 

Supply 

Management 

Information 

Services

CUMULATIVE RESULTS OF OPERATIONS 

Beginning Balances $ 656,546 $ 10,858,068 $ -20,611

Prior period adjustments (+/-) -55,128 0 0

Beginning Balances, as adjusted 601,418 10,858,068 -20,611

Budgetary Financing Sources: 

Appropriations received 0 0 0

Appropriations transferred-in/out (+/-) 0 0 0

Other adjustments (rescissions, etc) (+/-) 0 0 0

Appropriations used 0 23,956 0

Nonexchange revenue 0 0 0

Donations and forfeitures of cash and cash equivalents 0 0 0

Transfers-in/out without reimbursement (+/-) 0 0 0

Other budgetary financing sources (+/-) 0 0 0

Other Financing Sources: 

Donations and forfeitures of property 0 0 0

Transfers-in/out without reimbursement (+/-) 151 -209,299 0

Imputed financing from costs absorbed by others 122,662 14,341 8,203

Other (+/-) 0 0 0

Total Financing Sources 122,813 -171,002 8,203

Net Cost of Operations (+/-) 114,763 -180,937 27,462

Ending Balances $ 609,468 $ 10,868,003 $ -39,870

UNEXPENDED APPROPRIATIONS 

 Beginning Balances $ 0$ 0$ 0

 Prior period adjustments (+/-) 0 0 0

 Beginning Balances, as adjusted 0 0 0

 Budgetary Financing Sources: 

 Appropriations received 0 23,956 0

 Appropriations transferred-in/out (+/-) 0 0 0

 Other adjustments (rescissions, etc) (+/-) 0 0 0

 Appropriations used 0 -23,956 0

 Nonexchange revenue 0 0 0

 Donations and forfeitures of cash and cash equivalents 0 0 0

 Transfers-in/out without reimbursement (+/-) 0 0 0

 Other budgetary financing sources (+/-) 0 0 0

 Other Financing Sources: 

 Donations and forfeitures of property 0 0 0

 Transfers-in/out without reimbursement (+/-) 0 0 0

 Imputed financing from costs absorbed by others 0 0 0

 Other (+/-) 0 0 0

 Total Financing Sources 0 0 0

 Net Cost of Operations (+/-) 0 0 0

 Ending Balances $ 0$ 0$ 0

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.
2003 Annual Financial Statement

171

 Transportation 

Component 

Level 

Combined

Total Eliminations 

2003

Consolidated 

2002

Consolidated

$ 8,948 $ 90,914 $ 11,593,865 $ 0 $ 11,593,865 $ 8,784,032

 0 0 -55,128 0 -55,128 1,628,844

 8,948 90,914 11,538,737 0 11,538,737 10,412,876

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 23,956 0 23,956 32,886

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 -202 0 -209,350 0 -209,350 36,886

 0 0 145,206 0 145,206 127,203

 0 0 0 0 0 0

 -202 0 -40,188 0 -40,188 196,975

 174 0 -38,538 1 -38,539 -984,014

$ 8,572 $ 90,914 $ 11,537,087 $ -1 $ 11,537,088 $ 11,593,865

$ 0$ 0$ 0$ 0$ 0$ 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 23,956 0 23,956 32,886

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 -23,956 0 -23,956 -32,886

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

 0 0 0 0 0 0

$ 0$ 0$ 0$ 0$ 0$ 0

The accompanying notes are an integral part of the financial statements. See notes 1 and 20.
Combining Statement of Budgetary Resources—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

172

 

Depot 

Maintenance 

Supply 

Management 

Information 

Services

BUDGETARY FINANCING ACCOUNTS 

BUDGETARY RESOURCES 

 Budget Authority: 

 Appropriations received $ 0 $ 23,956 $ 0

 Borrowing authority 0 0 0

 Contract authority 0 -35,575 0

 Net transfers (+/-) 0 0 0

 Other 0 0 0

 Unobligated balance: 

 Beginning of period 174,357 29,286 6,238

 Net transfers, actual (+/-) 0 -125,000 0

 Anticipated Transfers Balances 0 0 0

 Spending authority from offsetting collections: 

 Earned 0 0 0

 Collected 7,020,961 9,963,296 658,964

 Receivable from Federal sources 41,836 44,236 -2,226

 Change in unfilled customer orders 0 0 0

 Advance received -371,890 0 0

 Without advance from Federal sources 154,056 -38,787 85,314

 Anticipated for the rest of year, without advances 0 0 0

 Transfers from trust funds 0 0 0

 Subtotal 6,844,963 9,968,745 742,052

 Recoveries of prior year obligations 0 0 0

 Temporarily not available pursuant to Public Law 0 0 0

 Permanently not available -26,754 -89,737 -1,930

 Total Budgetary Resources $ 6,992,566 $ 9,771,675 $ 746,360

STATUS OF BUDGETARY RESOURCES 

 Obligations incurred: 

 Direct $ 0 $ 23,956 $ 0

 Reimbursable 6,508,703 9,738,727 728,963

 Subtotal 6,508,703 9,762,683 728,963

 Unobligated balance: 

 Apportioned 483,863 8,992 17,397

 Exempt from apportionment 0 0 0

 Other available 0 0 0

 Unobligated Balances Not Available 0 0 0

 Total, Status of Budgetary Resources $ 6,992,566 $ 9,771,675 $ 746,360

Relationship of Obligations to Outlays: 

 Obligated Balance, Net - beginning of period $ 289,032 $ 3,248,388 $ 47,534

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

 Obligated Balance, Net - end of period: 

 Accounts receivable -631,481 -493,518 -55,036

 Unfilled customer order from Federal sources -2,596,113 -1,112,046 -291,227

 Undelivered orders 1,180,365 4,766,480 217,283

 Accounts payable 2,043,128 216,980 166,423

 Outlays: 

 Disbursements 6,605,942 9,627,726 655,967

 Collections -6,649,071 -9,963,296 -658,964

 Subtotal -43,129 -335,570 -2,997

 Less: Offsetting receipts 0 0 0

 Net Outlays $ -43,129 $ -335,570 $ -2,997

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
2003 Annual Financial Statement

173

 Transportation 

Component 

Level 

2003

Combined 

2002

Combined

$ 0 $ 0 $ 23,956 $ 32,886

 0 0 0 0

 0 0 -35,575 362,674

 0 0 0 0

 0 0 0 0

 5,053 90,913 305,847 191,172

 0 0 -125,000 78,000

 0 0 0 0

 0 0 0 0

 0 43 17,643,264 15,835,543

 0 -43 83,803 102,158

 0 0 0 0

 0 0 -371,890 -262,178

 0 0 200,583 591,243

 0 0 0 0

 0 0 0 0

 0 0 17,555,760 16,266,766

 2,027 0 2,027 0

 0 0 0 0

 -1,114 0 -119,535 -140,972

$ 5,966 $ 90,913 $ 17,607,480 $ 16,790,526

$ 0 $ 0 $ 23,956 $ 32,886

 0 0 16,976,393 16,451,794

 0 0 17,000,349 16,484,680

 5,966 90,914 607,132 305,848

 0 0 0 0

 0 -1 -1 -2

 0 0 0 0

$ 5,966 $ 90,913 $ 17,607,480 $ 16,790,526

$ 6,163 $ -86,941 $ 3,504,176 $ 3,490,438

 0 0 0 0

 -617 35,469 -1,145,183 -1,061,380

 0 0 -3,999,386 -3,798,802

 2,598 0 6,166,726 5,698,622

 1,982 -133,358 2,295,155 2,665,736

 173 10,990 16,900,798 15,777,541

 0 -43 -17,271,374 -15,573,364

 173 10,947 -370,576 204,177

 0 0 0 0

$ 173 $ 10,947 $ -370,576 $ 204,177

The accompanying notes are an integral part of the financial statements. See notes 1 and 21.
Combining Statement of Financing—Working Capital Fund

For the years ended September 30, 2003 and 2002 ($ in thousands)

United States Air Force 

174

 

Depot 

Maintenance 

Supply 

Management 

Information 

Services

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

Obligations incurred $ 6,508,703 $ 9,762,683 $ 728,963

Less: Spending authority from offsetting collections -6,844,963 -9,968,744 -742,052

 and recoveries (-) 

Obligations net of offsetting collections and recoveries -336,260 -206,061 -13,089

Less: Offsetting receipts (-) 0 0 0

Net obligations -336,260 -206,061 -13,089

Other Resources 

Donations and forfeitures of property 0 0 0

Transfers in/out without reimbursement (+/-) 151 -209,299 0

Imputed financing from costs absorbed by others 122,662 14,341 8,203

Other (+/-) 0 0 0

Net other resources used to finance activities 122,813 -194,958 8,203

Total resources used to finance activities -213,447 -401,019 -4,886

Resources Used to Finance Items not Part 

of the Net Cost of Operations 

Change in budgetary resources obligated for goods, 

services and benefits ordered but not yet provided 

Undelivered Orders (-) -31,073 -385,843 -53,398

Unfilled Customer Orders -217,834 -38,787 85,314

Resources that fund expenses recognized in prior periods 0 0 0

Budgetary offsetting collections and receipts that 0 0 0

do not affect net cost of operations 

Resources that finance the acquisition of assets 456,690 557,994 -8,077

Other resources or adjustments to net obligated resources 

 that do not affect net cost of operations 

 Less: Trust or Special Fund Receipts Related to Exchange in the 0 0 0

Other (+/-) 0 0 0

Total resources used to finance items not 207,783 133,364 23,839

part of the net cost of operations 

Total resources used to finance the net cost of operations -5,664 -267,655 18,953

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 Periods: 

Increase in annual leave liability 0 0 0

Increase in environmental and disposal liability 0 0 0

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

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

Other (+/-) 24,751 1,749 882

Total components of Net Cost of Operations that 24,751 1,749 882

will require or generate resources in future periods 

Components not Requiring or Generating Resources: 

Depreciation and amortization 93,210 84,967 7,628

Revaluation of assets or liabilities (+/-) 2,466 0 0

Other (+/-) 0 0 0

Total components of Net Cost of Operations that 95,676 84,967 7,628

 will not require or generate resources 

Total components of net cost of operations that 120,427 86,716 8,510

 will not require or generate resources in the current period 

Net Cost of Operations 114,763 -180,939 27,463

The accompanying notes are an integral part of the financial statements. See notes 1 and 22.
2003 Annual Financial Statement

175

 Transportation 

Component 

Level 

2003

Combined 

2002

Combined

$ 0 $ 0 $ 17,000,349 $ 16,484,680

 -2,027 0 -17,557,786 -16,266,764

 -2,027 0 -557,437 217,916

 0 0 0 0

 -2,027 0 -557,437 217,916

 0 0 0 0

 -202 0 -209,350 0

 0 0 145,206 127,203

 0 0 0 -3

 -202 0 -64,144 127,200

 -2,229 0 -621,581 345,116

 2,208 0 -468,106 -385,929

 0 0 -171,307 329,064

 0 0 0 0

 0 0 0 0

 195 0 1,006,802 -1,402,468

 0 0 0 0

 0 0 0 0

 2,403 0 367,389 -1,459,333

 174 0 -254,192 -1,114,217

 0 0 0 0

 0 0 0 0

 0 0 0 0

 0 0 0 0

 0 0 27,382 5,613

 0 0 27,382 5,613

 0 0 185,805 124,590

 0 0 2,466 0

 0 0 0 0

 0 0 188,271 124,590

 0 0 215,653 130,203

 174 0 -38,539 -984,014

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

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Schedule, Part A

DoD Intra-governmental Asset Balances

($ in thousands)

Treasury 

Index

Fund Balance 

with Treasury

Accounts 

Receivable

Loans 

Receivable Investments Other

Executive Office of the President 11 $22

Department of Agriculture 12 $4

Department of Commerce 13 $2

Department of the Interior 14 $0

Department of Justice 15 $315

Navy General Fund 17 $10,240

Department of State 19 $19

Department of the Treasury 20 $732,843 $410

Army General Fund 21 $2,317

General Service Administration 47 $432

National Science Foundation 49 $9

Air Force General Fund 57 $527,751

Department of Transportation 69 $500

National Aeronautics and Space Administration 80 $1,210

US Army Corps of Engineers 96 $5

Other Defense Organizations General Funds 97 $33,667

Other Defense Organizations Working Capital Funds 97-4930 $14,200

Army Working Capital Fund 97-4930.001 $412 $3

Navy Working Capital Fund 97-4930.002 $12,118

Homeland Security $1,447

Totals might not match reports TOTAL $732,843 $605,080 $0 $0 $3

Schedule, Part B

DoD Intra-governmental Entity Liabilities

($ in thousands)

Treasury 

Index

Accounts 

Payable 

Debts/

Borrowings 

from Other 

Agencies Other 

Department of Justice 15 $0

Navy General Fund 17 $4,974 $7,422

Department of State 19 $1

Department of the Treasury 20 $9

Army General Fund 21 $1,484 $47

Office of Personnel Management 24 $6,134

Air Force General Fund 57 $74,731 $319,796

National Aeronautics and Space Administration 80 $171

Other Defense Organizations General Funds 97 $2,356 $103

Other Defense Organizations Working Capital Funds 97-4930 $131,204 $665

Army Working Capital Fund 97-4930.001 $12,655 $299

Navy Working Capital Fund 97-4930.002 $4,323 $9,458

Homeland Security $1,331

Totals might not match reports TOTAL $231,727 $0 $345,436
United States Air Force 

180

Schedule, Part C

DoD Intra-governmental Revenue and Related Costs

($ in thousands)

Treasury 

Index

Earned 

Revenue

Executive Office of the President 11 $232

Department of Agriculture 12 $3

Department of the Interior 14 $18

Department of Justice 15 $3,165

Navy General Fund 17 $143,724

Department of State 19 $181

Department of the Treasury 20 $358

Army General Fund 21 $26,647

General Service Administration 47 $241

National Science Foundation 49 $35

Air Force General Fund 57 $11,231,839

Department of Transportation 69 $2,072

Small Business Administration 73 $1

National Aeronautics and Space Administration 80 $5,162

Department of Energy 89 $3

US Army Corps of Engineers 96 $10

Other Defense Organizations General Funds 97 $1,154,307

Other Defense Organizations Working Capital Funds 97-4930 $411,066

Army Working Capital Fund 97-4930.001 $18,338

Navy Working Capital Fund 97-4930.002 $302,046

Homeland Security $18,339

Totals might not match reports TOTAL $13,317,787

Schedule, Part E

DoD Intra-governmental non-exchange revenues

($ in thousands)

Treasury 

Index

Transfers

In 

Transfers

Out 

Air Force General Fund 57 $748 $85,097

Other Defense Organizations Working Capital Funds 97-4930 $125,000

Totals might not match reports TOTAL $748 $210,097
Audit Opinion

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The U.S. Air Force Annual Financial Statement is available for viewing on the Internet at

www.saffm.hq.af.mil/FMP/cfo.html. 2

United States Air Force

Annual Financial Statement