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Table of Contents

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

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

Management Discussion and Analysis

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

 Air Force Core Values ................................................................................................................................................... 1

 Air Force Critical Capabilities ...................................................................................................................................... 2

 Air Force Goals ............................................................................................................................................................. 2

 Air Force in Action – FY 2008 ...................................................................................................................................... 3

 Reinvigorate the Air Force Nuclear Enterprise ................................................................................................. 3

 Partner With The Joint and Coalition Team to Win Today’s Fight .................................................................. 3

 Develop and Care for Airmen and Their Families .......................................................................................... 4

 Modernize Our Aging Air and Space Inventories ........................................................................................... 4

 Acquisition Excellence .................................................................................................................................... 4

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

 Air Force Major Management Initiatives ...................................................................................................................... 9

 Energy and Environmental Focus ..................................................................................................................... 9

 Personnel Services Delivery ........................................................................................................................... 11

 eLog21 ........................................................................................................................................................... 11

 Air Force Resources .................................................................................................................................................... 12

 Air Force Financial Management Evolution ............................................................................................................... 13

 CFO Compliance ............................................................................................................................................ 13

 Financial Services Transformation ................................................................................................................. 13

 Internal Controls ............................................................................................................................................ 13

 Continuous Improvement .............................................................................................................................. 14

Air Force General Fund

 Appropriations ............................................................................................................................................................. 15

 Current and Future Financial Systems - DEAMS ....................................................................................................... 16

Air Force Working Capital Fund 

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

 Depot Management Activity Group ............................................................................................................................ 18

Financing the Fight .................................................................................................................................................................. 21

Financial Statements

 General Fund

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

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

 Required Supplementary Stewardship Information ...................................................................................... 73

 Required Supplementary Information ........................................................................................................... 81

 Audit Opinion ................................................................................................................................................ 89 

 Working Capital Fund

 Principal Statements ...................................................................................................................................... 99

 Notes to the Principal Statements ................................................................................................................ 105

 Required Supplementary Information ......................................................................................................... 129

 Audit Opinion .............................................................................................................................................. 131
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“ eople we e hungr for food 

fr edom. We were giving the both 

and they wer most grat ful ”

-Col ail H lver on, U AF (re ), 

the Berlin Airlift “C ndy omber” 

“ eople we e hungr for food 

fr edom. We were giving the both

and they wer most grat ful ”

-Col ail H lver on, U AF (re ),

the Berlin Airlift “C ndy omber”

“People were hungry for food and 

freedom. We were giving them both 

and they were most grateful.”

-Col. Gail Halverson, USAF (ret), 

the Berlin Airlift “Candy Bomber” 
African-Americans who flew fighter escorts for U.S. bombers during World War II. Airmen such as General “Chappie” James, General Benjamin Davis and many other heroes 

facing racism and discrimination at home demonstrated 

sheer undaunted courage serving their country in a time of 

war. Tuskegee Airmen painted the tails of their aircraft red 

to identify themselves thus becoming known as “Red Tails.” 

Their skill and performance became legendary to both Axis 

and Allied forces.

These are two examples of our rich history, and this legacy 

of successful mission accomplishment continues today as 

the USAF is engaged in its worldwide mission. That mission is: To fly, fight and win in Air, Space and Cyberspace. 

We executed the Berlin Airlift mission, we led the way in 

desegregating the military, we are carrying out our current 

mission, and we are committed to the accomplishment of 

future missions. We are always aware of our history and our 

vision: Lasting Heritage... Limitless Horizons.

The Air Force strategic framework consists of these 

elements:

Our Core Values are:

 Integrity First

 Service Before Self

 Excellence in All That We Do

For over 60 years, America has depended upon its 

Airmen to provide dominance in the air, space, and 

the emerging cyberspace domains. This continues 

the execution of our charter. We draw on a proud heritage 

beginning with our founding as a separate service over 

six decades ago. This year we celebrate another historic 

milestone: the 60th anniversary of mission accomplishment 

of our fi rst great challenge. In June 1948, the newly established United States Air Force (USAF) started the ultimately 

successful Berlin Airlift. This heroic effort by USAF Airmen ended the attempted strangulation of the people in the 

Western Sector of Berlin.

This year we also celebrate the 60th anniversary of 

the desegregation of the military. This was 

in no small part made possible by the 

Tuskegee Airmen, the 

group of brave 

Management Discussion and Analysis

st Berliners watch as a U.S. C-54 Skymaster delivers desperately 

needed supplies during the Berlin Airlift.

West Berliners watch as a U.S. C-54 Skymaster delivers desperately

A loadmaster and maintenance personnel conduct 

pre-fl ight checks on a C-17 Globemaster III before 

taking off from Pegasus White Ice Runway, Antarctica.

Air Force Heritage

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RAMITELLI, Italy -- Pilots of the 332nd Fighter Group, "Tuskegee 

Airmen," the elite, all-African American 332nd Fighter Group. From 

left to right, Lt. Dempsey W. Morgran, Lt. Carroll S. Woods, Lt. Robert 

H. Nelron, Jr., Capt. Andrew D. Turner, and Lt. Clarence P. Lester. 

Our Critical Capabilities are:

 Global Vigilance

 Global Reach

 Global Power

Our Goals are: 

 Foster Mutual Respect and Dignity

 Sustain Air, Space and Cyberspace Capabilities

 Provide Persistent Situational Awareness

 Develop Joint and Battle-Ready Airmen

 Improve the Total Force Quality of Life

 Achieve Open, Transparent Business Practices 

and a Clean Audit

 Foster Air Force Smart Operations for the 21st Century 

 (AFSO21)

One of the key enablers of our operational success, whether 

on the approaches into Berlin in 1948 or in the skies over 

Iraq and Afghanistan today, remains our Air Force Financial 

Management professionals from all components of the Total 

Force. They demonstrate their devotion to duty, capabilities, and innovation on a daily basis. They are meeting 

their challenge of providing transforming efficiencies at all 

echelons.

Highly requested as fi ghter escorts among bomber pilots, the Tuskegee Airmen earned the 

nickname “Red Tail Angels” among bomber crews. The airmen fl ew several different aircraft 

but are most identifi ed with the P-51.

“It is my deep conviction that we have 

reached a turning point in the long 

history of our efforts to guarantee a 

freedom and equality to all our 

citizens...and when I say all Americans, 

I mean all Americans.”

- President Harry S. Truman
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Management Discussion and Analysis

A Minuteman III intercontinental ballistic missile successfully 

launches from North Vandenberg AFB. The missile was configured 

with a National Nuclear Security Administration (NNSA) test 

assembly in which three unarmed re-entry vehicles traveled 

approximately 4,190 miles to their pre-determined targets.

Air Force in Action—FY 2008

America’s Air Force has been conducting combat operations 

since Operations Desert Shield / Desert Storm. These operations continue today in Iraq and Afghanistan and in supporting locations worldwide. The Air Force has remained 

committed to achieving our top priorities as a service:

 Reinvigorate the Air Force Nuclear Enterprise

 Partner with the Joint and Coalition Team to Win 

 Today’s Fight

 Develop and Care for Airmen and Their Families

 Modernize our Aging Air and Space Inventories

 Acquisition Excellence

Reinvigorate the Air Force Nuclear Enterprise

The U.S. nuclear deterrent mission capability forms the ultimate backdrop of our nation’s strategic defense—dissuading 

and deterring opponents while reassuring allies.

 The Air Force is responsible for two-thirds of America’s 

nuclear deterrent capability.

 We will bring what we are known for—precision and 

reliability—to this enterprise.

 The Secretary of the Air Force created the Air Force 

Nuclear Task Force to develop a strategic Roadmap for 

 rebuilding our nuclear enterprise, and we will be 

 aggressively taking action on its direction in FY 2009.

Partner with the Joint and Coalition Team 

to Win Today’s Fight

The Air Force is committed to winning the Global War on 

Terror. Our Airmen operate on a global scale every day. 

Today’s Air Force provides a range of capabilities for success in a variety of environments. Engagement in Operations IRAQI FREEDOM and ENDURING FREEDOM is 

but the tip of the iceberg, as Airmen deploy to other parts of 

the world in supporting operations as well. The Air Force 

also provides the aerial defense of our homeland by flight in 

support of Operation NOBLE EAGLE.

An A-10 Thunderbolt II aircraft moves into position to receive fuel 

from a KC-135 Stratotanker during a mission over Afghanistan. A-10s 

are highly accurate weapons-delivery platforms.

An A-10 Thunderbolt II aircraft moves into position to receive fuel 
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Develop and Care for Airmen 

and thei Families

We must prepare our Airmen for a future fraught with challenges, and foster their ability to learn, anticipate, and adapt. 

Our Airmen are our most precious resource, and taking care 

of them and their families will help maintain our competitive advantage. We are obligated to improve the quality of 

their lives, and those of Air Force families, so our Airmen 

can focus on continuing their extraordinary service to our 

nation. In part because of our care and concern for them 

through six decades of Air Force history, our Airmen have 

proven themselves in times of crisis—taking action, anytime, anywhere in defense of freedom.

Modernize Our Aging Air and Space 

Inventories

We must modernize our capabilities in air, space and 

cyberspace as we meet the challenges of the 21st Century. 

Recapitalizing our air superiority, strike, space, Intelligence, 

Surveillance and Reconnaissance (ISR), mobility and other 

systems will ensure we have the right equipment to deter 

or defeat future threats to our Nation. To that end our top 

acquisition priorities are: 

 The KC-X Tanker

 The CSAR-X Helicopter

 Modern space systems vital to our joint warfighters

 The F-35A Joint Strike Fighter

 A new bomber fielded by 2018

Acquisition Excellence

We are committed to establishing and enforcing standards 

for transparency in acquisition and other business processes 

that are commensurate with “best-in-class” public and 

private sector organizations. Transparency is essential to 

good governance, and good governance is vital to ensuring our Air Force can produce and field the systems with 

which we will fly and fight. We will continue to perfect 

the acquisition processes and procedures that promote good 

governance through transparency and adherence to regulatory guidance.

“Amid challenges, however, we have at 

least two constants: The high quality of 

Airmen attracted to military service; and 

their commitment to the core values of 

Integrity First, Service Before Self, and 

Excellence in All We Do.”

-Secretary of the Air Force Michael Donley 

The F-35 Joint Strike Fighter (JSF) “Lightning II” 

is a stealth supersonic 5th Generation, multirole fi hter designed, in specifi c variants, to 

replace aging aircraft across the joint forces.

Develop and Care for Airmen 

and their Families

Modernize Our Aging Air and Space

Inventories

The F-35 Joint Strike Fighter (JS

is a stealthy, supersonic 5th Gen

role fi ghter designed, in specific

replace aging aircraft across th

HOLLOMAN AIR FORCE BASE, N.M. - Maj. Brian Collins, greets his 

family after returning from Kunsan Air Base, South Korea.
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Management Discussion and Analysis

Air Force Structure

The command line of the Air Force fl ows from the President and the National Command Authority to the Secretary 

of Defense and the Department of the Air Force. The Air 

Force is headed by the Secretary of the Air Force (SECAF), 

with the Chief of Staff reporting to the Secretary. Immediately subordinate to the departmental headquarters are 

the Major Air Commands (MAJCOMs), Field Operating 

Agencies (FOAs), Direct Reporting Units (DRUs), and the 

Auxiliary. 

Major Air Commands

MAJCOMs are primarily of two types: operational and 

support. Within the operational commands, the divisions 

are generally defi ned according to purpose or location 

(e.g., combat, movement of people and supplies, or Pacifi c 

and European theaters). The support commands generally 

are organized according to function (e.g., logistic, support, or training) and are directly subordinate to Air Force 

Headquarters. A list of the MAJCOMs and their missions 

follows:

Air Combat Command (ACC)

Missions: Operate USAF bombers 

(active, Air National Guard, and Air 

Force Reserve Command); and USAF’s 

CONUS-based fi ghter and attack, 

reconnaissance, battle management, 

and command and control aircraft, and 

intelligence and surveillance systems. Provide combat 

airpower to America’s warfi ghting commands (CENTCOM, 

EUCOM, NORTHCOM, PACOM, and SOUTHCOM); 

nuclear, conventional, and information operations forces to 

United States Strategic Command (STRATCOM); and air 

defense forces to North American Aerospace Defense Command (NORAD).

Command Personnel: 151,000

Primary Aircraft Inventory includes: Bombers; Fighters; 

Intelligence, ISR, and Trainers

Assistant Secretary of the 

Air Force Secretariat Functions

Secretary of the Air Force

Undersecretary of the Air Force Undersecretary of the Air Force ndersecretary of the Air Force

Air Force Chief of Staff

Air Force Vice Chief of Staff

Air Force Major Commands Staff Functions Air Staff

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An F-15E Strike Eagle from the 391st Expeditionary Fighter Squadron 

pops flares during an aerial training dog fight.

An F-15E Strike Eagle from the 391st Expeditionary Fighter Squadron 
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Air Education and Training 

Command (AETC)

Missions: Recruit, train, and educate 

professional, expeditionary-minded 

Airmen to sustain the combat capability 

of America’s Air Force. Conduct joint, 

readiness, and Air Force security assistance training. Provide basic military training, initial and 

advanced technical training, fl ying training and professional 

military and degree-granting professional education.

Command Personnel: 83,000

Primary Aircraft Inventory includes: Trainers, Fighters, 

Transports, Helicopters, and Tankers

Air Force Materiel Command 

(AFMC)

Missions: Deliver war-winning expeditionary capabilities to the warfi ghter 

through development and transition of 

technology, professional acquisition 

management, and world-class sustainment of all Air Force weapons systems. Provide exacting 

test and evaluation of all weapons and supporting systems.

Command Personnel: 78,000

Primary Aircraft Inventory includes: Bombers, Fighters, 

Transports, Tankers, Helicopters and Trainers

Air Force Space Command 

(AFSPC)

Missions: Operate and test USAF 

intercontinental ballistic missile (ICBM) 

forces for STRATCOM; missile warning radars, sensors, and satellites; 

national space-launch facilities and 

operational boosters; worldwide space surveillance radars 

and optical systems; worldwide space environment systems; 

and position, navigation, and timing systems.

Command Personnel: 27,000

Primary Inventory includes: Missile Warning Systems, 

ICBMs, Satellite Systems, and Space Surveillance Systems

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A 38A lon pilot watches from the cockpit as another T-38 flies in 

formation during a local training mission.

A A T-38A Talon pilot watches from the cockpit as another T-38 flies in

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The Atlas V rocket with the Wideband Global SATCOM satellite rolls 

out in preparation for launch.

The Atlas V rocket with the Wideband Global SATCOM satellite rolls
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Management Discussion and Analysis

An Air Force MH-53M Pave Low from Air Force Special Operations 

performs "dust-out" training in Djibouti, Africa. 

An Air Force MH-53M Pave Low from Air Force Special Operations

Pacifi c Air Forces (PACAF)

Missions: Provide ready air and space 

power to promote U.S. interests in the 

Asia-Pacifi c region during peacetime, 

crisis, and war. 

Command Personnel: 43,000

Primary Aircraft Inventory includes: Fighters, Transports, 

and Tankers

U.S. Air Forces in Europe 

(USAFE)

Missions: Deliver airpower options to 

combatant commanders within the U.S. 

European Command Area of Responsibility. Plan, control, support and conduct joint, coalition NATO and warfighting headquarters operations in Europe, Asia and Africa 

based on taskings from the U.S. EUCOM Commander. 

Command Personnel: 32,000

Primary Aircraft Inventory includes: Fighters, Transports, 

and Tankers

Air Force Special Operations 

Command (AFSOC)

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

and rescue and delivering special operations power anytime, anywhere. 

AFSOC is the Air Force component 

of U.S. Special Operations Command, a unifi ed command. The command’s core missions include battlefi eld air 

operations; agile combat support; aviation foreign internal 

defense; information operations; precision aerospace fi res; 

psychological operations; specialized air mobility; specialized refueling; and intelligence, surveillance and reconnaissance.

Command Personnel: 13,000

Primary Aircraft Inventory includes: Special Operations 

Aircraft, Helicopters and Tankers

Air Mobility Command (AMC)

Missions: Provide rapid global mobility and sustainment through tactical and 

strategic airlift and aerial refueling for 

U.S. armed forces. Provide special duty 

and operational support aircraft and 

global humanitarian support.

Command Personnel: 136,000

Primary Aircraft Inventory includes: Transports, 

Helicopters, and Tankers

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Four miles above Iraq, a KC-135 Stratotanker connects with an F-16 

Fighting Falcon to offload more than 20,000 lbs. of fuel before 

resuming its close air support mission.
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Air Force Reserve Command 

(AFRC)

Missions: Support the active duty 

force. Serve in such missions as fi ghter, 

bomber, airlift, aerial port operations, 

aeromedical evacuation, aerial fi re fi ghting, weather reconnaissance, space operations, airborne air control, fl ying training, fl ight testing, 

and aerial spraying. Provide support and disaster relief in 

the United States and support national counterdrug efforts.

Command Personnel: 75,000

Primary Aircraft Inventory includes: Fighters, Transports, 

and Tankers

Air National Guard (ANG)

Missions: Provide combat capability 

to the warfi ghter and security for the 

homeland. Protect life and property and 

preserve peace, order, and public safety.

Command Personnel: 106,000

Primary Aircraft Inventory includes: Fighters, Transports, 

and Tankers

Field Operating Agency (FOA)

FOAs are subdivisions of the Air Force that carry out fi eld 

activities under the operational control of Headquarters 

U.S. Air Force functional managers. FOAs have the same 

administrative and organizational responsibilities as MAJCOMs. Examples of FOAs include the Air Force Audit 

Agency, Air Force Center for Environmental Excellence, Air 

Force Financial Services Center, Air Force Services Agency, 

and Air Force Weather Agency, among others.

Direct Reporting Unit (DRU)

DRUs are subdivisions of the Air Force that are directly 

subordinate to Headquarters Air Force, separate from any 

MAJCOM or FOA because of a unique mission, legal 

requirements or other factors. DRUs have the same 

administrative and organizational responsibilities as 

MAJCOMs. The DRUs are the Air Force 

Academy, Air Force District of Washington, 

and Air Force Operational Test 

and Evaluation Center.

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Auxiliary

An Air Force auxiliary is an organization 

created by statute that the Secretary of 

the Air Force may use to fulfi ll the Air 

Force’s non-combat programs and missions. The Civil Air Patrol (CAP) is the 

only current U.S. Air Force auxiliary.

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The Virginia Air National Guard’s 192nd Fighter Wing was the fi rst Air National Guard 

unit in the country to fl y the F-22 Raptor.

John Salvado Civil Air Patro 's director of operations, describes the 

image capabilities o e Airborne Rea me Cueing Hyperspectral 

Enhanced Reconnaissance system at the CAP National Operations 

Center at Maxwell Air Force Base, Ala. The system is used to 

conduct aerial surveys for rescue missions.

John Salvador, Civil Air Patro 's director of operations, describes the 

image capabilities of the Airborne Real Time Cueing Hyperspectral
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Management Discussion and Analysis

In FY 2008, the Air Force spent approximately $7 billion to 

fuel our aircraft fl eet and ground vehicles and provide utility 

services (primarily electricity and natural gas) to our bases. 

Much of the petroleum used to produce our aviation fuels 

originates from outside the United States, and it is in our interest to seek ways to reduce our dependence on foreign oil. 

Accordingly, we continue to research, test, and certify new 

technologies to displace our dependence on foreign oil with 

an alternative domestic fuel source. The Air Force is testing 

and certifying our entire inventory of aircraft for operations 

with a 50/50 synthetic Fischer-Tropsch fuel blend, and will 

complete this certifi cation by early 2011. To date, we have 

certifi ed the B-52, C-17 and B-1B fl eets to fl y using 50/50 

synthetic fuel blend, and we expect to complete certifi cation 

of the F-15, F-22 and KC-135 in FY 2009. It is our goal 

that by 2016, the Air Force will be prepared to cost competitively acquire 50% of the Air Force’s domestic aviation fuel 

requirement via a synthetic fuel blend in which the synthetic 

component is derived from domestic sources produced in 

a manner that is greener than fuels produced from conventional petroleum. We are also evaluating other, bio-based 

alternative jet fuels, where fuel is produced using biomass 

or non-food plant products.

Air Force Major Management Initiatives

The Air Force is justifi ably proud of how it plans to master 

current challenges as well as anticipate future requirements 

in an ever-changing world. The initiatives briefl y described 

below outline some of the Air Force responses to these challenges and how they will shape the future. 

Air Force Sustainable Operations: an Energy 

and Environmental Focus

In accordance with the Air Force heritage, our role as a catalyst for innovation places us in a unique position to provide 

leadership. In response to rising energy costs, energy security considerations, and international concerns regarding 

greenhouse gas emissions, we are implementing an energy 

strategy that consists of: reducing our overall demand for 

energy, increasing the supply of secure energy, and changing the Air Force culture to ensure that we accomplish these 

energy objectives while maintaining mission readiness. 

Our energy and environmental initiatives fi t into a larger 

construct of sustainable operations. Viewing the contribution of those initiatives through this construct provides a 

new way to see the effectiveness of our efforts. Air Force 

Operational Sustainability is recognizing the direct and 

indirect impacts of Air Force operations on resources 

and achieving better understanding of the full measure of 

resources needed in the present and the future to ensure the 

successful conduct of Air Force operations. This sustainability also includes taking action by planning, designing, and executing mission requirements in a manner that 

provides for the long-term sustainability of operations in the 

face of constrained resources.

Members of the 23rd Equipment Maintenance Squadron Aerospace 

Ground Equipment shop at Moody Air Force Base, Ga. use an electric 

vehicle for their daily duties instead of a fuel powered vehicle.

Members of the 23rd Equipment Maintenance Squadron Aerospace

Staff Sgt. Joe Wallis and Johnny Sniderhan reveal the 

Fischer-Tropsch synthetic fuel blend certification logo painted on the 

side of a B-52H Stratofortress at the certification ceremony at 

Edwards Air Force Base.

Staff Sgt. Joe Wallis and Johnny Sniderhan reveal the 

Fi h T h h i f l bl d ifi i l i d h
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The largest photovoltaic solar power plant in the United States 

is becoming a reality at Nellis Air Force Base.

is on fully implementing an Environmental Management 

System (EMS) approach at Air Force installations. The 

EMS approach allows us to identify aspects of Air Force 

operations where there is a potential environmental impact; 

prioritize those impacted or impacting operations for review, 

attention or investment; and seek continuous improvement 

opportunities that improve operational effi ciency or effectiveness while reducing environmental impacts. Our efforts 

to improve support for the mission through environmental 

excellence have garnered many accolades, including:

The Secretary of Defense recognized four Air Force 

bases through the 2008 Secretary of Defense Environmental Awards. The Air Force recipients included: Hill AFB, 

Utah, for its Environmental Quality Program based on 

individual and team achievements; Robins AFB, Georgia, for its Pollution Prevention Program as an Industrial 

Installation; Seymour Johnson AFB, North Carolina, for 

its Environmental Restoration Program as an installation; 

and Fairchild AFB, Washington, for its Environmental 

Excellence in Weapon System Acquisition. 

The Air Force received fi ve 2008 White House Closing

the Circle Awards or honorable mentions, which recognize the Federal workforce’s commitment to meeting the 

President’s directive to be good stewards of our nation’s 

natural resources. The Air Force award recipients include: Robins AFB, Georgia, which received an award in 

the Environmental Management Systems category and an 

The Air Force is also focused on aggressively implementing 

a strategy to generate or utilize renewable energy on bases 

with more solar, wind, and geothermal energy. We have 

been acknowledged as the largest purchaser of green power 

in the federal government over the past number of years, 

and third overall in the nation last year. Nellis AFB, Nevada, is an example of an installation with the resources and 

the need for a new energy direction. Nellis AFB engineers 

partnered with private industry and the local utility provider 

to be home to America’s largest photovoltaic solar array, 

which produces over 14 megawatts of clean, renewable 

energy. The system, which covers only underutilized land, 

reduces base utility costs by approximately $1 million per 

year and conserves funds to meet mission objectives.

Over the past two decades, the Air Force has strengthened 

its operational activities and programs to address an increasing universe of environmental laws, regulatory standards, 

and Executive Order mandates. Physical resource limitations, increasing local competition for those resources, regulatory restrictions, and other encroachment pressures are 

challenging the ability to meet current and emerging mission 

requirements. Through all this, the Air Force’s programmatic approach—structured around the four environmental “pillars” of compliance, restoration, conservation, and pollution 

prevention—provided an impressive record of responsiveness to regulation in a manner that has been aligned with the 

military mission, and strategic mission goals and objectives 

of the Air Force. Our most recent environmental focus 
Management Discussion and Analysis

honorable mention in the Green Purchasing category; and 

Vandenberg AFB, California for Waste Pollution Prevention. Robins AFB, Charleston AFB, South Carolina, and 

Fairchild AFB, Washington, received Honorable Mentions in the Green Purchasing, Environmental Management Systems, and the Alternative Fuel and Fuel Conservation in Transportation categories, respectively. 

The Air Force Aeronautical Systems Center and Air Force 

 Research Laboratory were awarded the 2007 Best of the 

Best: Stratospheric Ozone Protection Award by the U.S. 

 Environmental Protection Agency (EPA) for Leadership 

 in Aviation Halon Replacement and leadership in 

 international stratospheric ozone protection.

Air Force members and the Joint Strike Fighter Emissions 

 Test team won the EPA 2007 Climate Protection Award 

 for leadership in addressing air emissions from the Joint 

 Strike Fighter.

Personnel Services Delivery (PSD)

Another key initiative for the Air Force is PSD transformation which will help lead to a leaner, more effi cient force 

and provide more timely service delivery. The four major 

accomplishments of PSD will be:

Redesign of Personnel Services Processes—eliminates 

 unnecessary steps and approvals to speed up work and 

 reduce workload

Enhancement of Contact Center and Self Service 

 Capabilities—expands online and contact center options 

to make personnel inquiries and self-service transactions 

 available worldwide, 24/7

Recasting of Field Organizations and Career Field—shifts 

 personnelists’ focus from routine transactions to even 

 more valuable key advisory services for commanders 

 and leaders

Modernization of Architecture and Technology—puts the 

 right system in place to support and integrate Web-based 

 applications and enhanced call center capabilities

PSD provides a new personnel service delivery model which 

leverages the benefi ts of Web-based and call center-based 

services for many routine personnel actions previously done 

by a manpower-intensive, face-to-face network. PSD will 

be a supportable personnel system that will accomplish the 

Air Force-specifi c processes which will not be performed by 

the emerging Defense Integrated Military Human Resource 

System (DIMHRS). DIMHRS is the DoD-wide integrated 

personnel/pay system currently in development. It will 

incrementally replace many of the capabilities of current Air 

Force Military Personnel Services systems. 

The idea behind this transformation is to provide a convenient and secure way for Airmen to use any telephone or 

Internet-ready computer to conduct routine transactions 

and avoid waiting in lines, save time, and fi t their personnel business into their own schedule. PSD will result in 

accurate information available on a 24/7 basis. It also gives 

Airmen more direct control over career-affecting matters. 

PSD has a multi-phased fi elding with a goal of 85% of 

personnel transactions to be done through the Internet and 

10% to be accomplished over the phone. This will reverse 

the pre-PSD operation which had 85% of transactions being 

done face-to-face. PSD maximizes use of technology while 

saving personnel spaces and providing timely and accurate 

service to our Airmen worldwide.

Expeditionary Logistics for the 21st Century 

(eLog21)

eLog21 is the Air Force’s commitment to transform current 

logistics processes and deliver more effi cient and effective support to the warfi ghter. This ongoing transformation 

uses a holistic approach focused on changing processes 

fi rst, followed by organizational changes, all of which will 

be enabled by modern, integrated information technology 

systems. Some of the components of this initiative include 

Asset Marking and Tracking which improves visibility 

throughout the supply chain, and logistics data transformation which will improve data quality and reliability. The 

Air Force Working Capital Fund section has a description of 

other major components of eLog21.

nya Harris, of the Air Force Personnel Cente briefs visitors from 

the U.S. Department of State's Bureau of Human Resources on the 

various Web-based technologies employed at AFPC's 24-hour Air 

Force Contact Center.

Tonya Harris, of the Air Force Personnel Center, briefs visitors from 

the U S Department of State's Bureau of Human Resources on the

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ever in sustaining worldwide operations. These 

warriors make possible the successful accomplishment of Air Force missions.

 Systems: Modern weapons platforms that integrate air, 

space and cyber assets into an undefeatable force. 

- Air Force “systems” no longer mean only “manned 

aircraft.” Systems also include space launch 

vehicles; satellites; intelligence, surveillance and 

reconnaissance assets; unmanned aerial systems and 

the cohesive infrastructure to all Air Force systems. 

All Air Force systems are essential assets for Air 

Force people to accomplish the mission.

- Manned systems, however, are still vital: The 

average age of the active duty fl eet is over 23 years 

with some over 45 years; the average age of the 

Air Force Resources

The three vital resources to successful accomplishment of 

the Air Force mission are:

 Places: A network of bases that reflect the Air Force’s 

global competencies. The Air Force is a global force, 

 spanning facilities both in the United States and around 

 the world, as shown in map below.

 People: Trained, motivated, and dedicated. 

- The Air Force consists of over 493,000 military 

and civilian personnel. Aerospace power is a proven 

necessity for victory on land, sea, air, space, and 

cyberspace. The foundation for this is our people.

- The reserve component (Air Force Reserve and Air 

National Guard) has become more important than 
13

Management Discussion and Analysis

Air National Guard fl eet is almost 26 years; and the 

average age of the Air Force Reserve fl eet is over 

28 years. All of these are actively involved in the 

Global War on Terror and we owe it to both America 

and our Airmen to modernize these systems.

Air Force Financial Management Evolution

Air Force Financial Management (FM) is also based on 

people, processes, and systems. The examples that follow 

illustrate some of the ways the Air Force FM community is 

proactively meeting future challenges and improving 

compliance and effi ciency.

CFO Compliance

In 1990 the Chief Financial Offi cers Act 

was passed, ordering Federal agencies 

to centralize their fi nancial systems to 

better account for their spending. In 

1996, Congress passed the Federal 

Financial Management Improvement Act (FFMIA), enabling the 

advancement of Federal fi nancial 

management by requiring that 

Federal fi nancial management 

systems provide accurate, reliable, 

and timely fi nancial management 

information to the government’s 

managers. 

Financial Services Transformation

The Financial Services Transformation establishes 

an innovative new way to deliver fi nancial services to customers through an integrated end-to-end Financial Services 

Delivery Model (FSDM), providing superior customer service consistently across all geographies and theaters. The 

FSDM encompasses all areas of the FM organization from 

the base through the MAJCOMs to the Air Force Financial 

Services Center (AFFSC) at Ellsworth AFB, South Dakota, 

and all enabling technologies and processes that support 

how customers receive fi nancial services. This effort began 

with the consolidation of back-offi ce military pay and travel 

processing for 93 Active and Reserve bases into the AFFSC 

in September 2007. A 24/7 Contact Center is scheduled to 

open at the AFFSC in FY 2009. The future FSDM cohesively looks at all the elements that impact customers of 

FM fi nancial delivery and looks to optimize the operations 

including organization, process, people, and technology.

With the standup of the AFFSC, the FM Community is able 

to dramatically reduce face-to-face customer interaction and 

direct customers to self-service resources on the Air Force 

Portal or the Contact Center as the preferred option to initiate inquiries and transactions.

From the Comptroller Squadron through to the AFFSC, FM 

Personnel will have access to uniform processes, consistent roles, and a coordinated suite of resources. Customers 

receive the same answer whether they seek service online, 

at the AFFSC, or at their local Financial Service Offi ce. 

Across the FSDM, process effi ciencies are gained through 

centralization, benefi ting the customer through quicker, 

more accurate, and more consistent pay transactions. 

The fi rst phase of Web Self-Service (WSS) is 

targeted for initial operating capability in early 

FY 2009 and additional functionality and 

new customer resources will continue to 

emerge. WSS, found on the Air Force 

Portal, will provide FAQs, a searchable index of questions, and other 

tools designed to resolve pay and 

travel questions. Looking ahead, the 

AFFSC is designed for full integration with Air Force Personnel Center 

and Air Reserve Personnel Center 

on the same technology platform allowing full customer visibility between 

centers and a range of service options 

through a single point of entry.

The FSDM of the future includes the integration of several enabling technologies to reduce functional 

overlaps and speed up time to deliver Integrated Operations. 

The enabling technologies are designed to provide access 

to all customer service assets from a single point of entry, 

enabling increased continuity of service through all channels 

of delivery.

Internal Controls

Air Force Financial Management Transformation, however, 

must be based on management integrity. To this end, we 

have put in place robust internal controls. The objectives of 

the system of internal accounting and administrative control 

of the Department of the Air Force are to provide reasonable 

assurance that: 

 Obligations and costs comply with applicable law 

 Funds, property, and other assets are safeguarded against 

waste, loss, unauthorized use, and misappropriation 

 Revenues and expenditures applicable to Air Force 

operations are properly recorded and accounted for to 
14

lane fl owcharts, and analyzed existing internal controls 

for the required focus areas. Based on this year’s review 

effort, we identifi ed three new material weaknesses, along 

with nine existing material weaknesses that were briefed to 

the Air Force Senior Assessment Team and approved to be 

included in the Secretary’s Annual Statement of Assurance.

Continuous Improvement—AFSO21

During this time of reduced manpower and resources, Air 

Force Financial Management has taken action, by making Continuous Process Improvement (CPI) a priority. In 

2008, SAF/FM completed several process improvement 

projects, on multiple cross-functional FM processes. Some 

of these included Centrally Billed Accounts, Travel Voucher 

Processing, Station Gain, Unexecuted Budget Authority, and Voucher Balancing. The process improvements, 

along with other project action items such as changes to 

policy and enhanced training, saved the Air Force time and 

money. The Air Force Financial Management staff collaborated with various cross functional stakeholders, such 

as the Defense Finance and Accounting Service (DFAS), 

United States Transportation Command (USTRANSCOM), 

Air Force Acquisition (SAF/AQ), Air Force Installations 

and Mission Support (AF/A7), and the Air Force Reserve 

Command (AFRC). The focus on end-to-end processes and 

cross-functional collaboration proved essential to ensure 

the process improvements were thorough and had a positive 

impact on the entire value stream. 

In addition to leveraging AFSO21 tools and methods to 

conduct CPI and Lean events, SAF/FM is embedding continuous process improvement into its daily operations. We 

have developed Awareness Training to ensure that AFSO21 

and CPI are introduced at the Air Staff, MAJCOM, and 

fi eld levels. We take the opportunity to conduct AFSO21 

workshops at leadership conferences such as the FMA/

ALO World Wide Conference. FM leadership is committed to CPI concepts becoming intricate in the development 

of new business models. Organizations such as SAF/FMPI 

and FMB-BTO will continue to work to make continuous 

process improvement a way of life for Air Force Financial 

Management.

 permit the preparation of accounts and reliable financial 

 and statistical reports, and to maintain accountability 

 over the assets, including nonappropriated fund 

 activities 

 Programs and administrative and operating functions are 

efficiently and effectively carried out in accordance with 

 applicable law and management policy

 The internal control process emphasized prevention of 

waste, fraud, and mismanagement along with timely 

 correction of internal control weaknesses

Internal Control Program Accomplishments 

and Highlights

The Federal Managers’ Financial Integrity Act (FMFIA) 

implementation in the Air Force rests on a solid general 

control environment supported by positive endorsement 

from top management. FY 2008 was a year of strong internal control activity as our fi nancial managers continued to 

integrate their job oversight responsibilities with the internal 

control program’s evaluation procedures. Using pervasive 

technologies, MAJCOMs increased distribution of internal 

control information on their available Web sites.

 

During FY 2008, we continued to implement new program 

requirements directed in DoD Instruction 5010.40, Managers’ Internal Control Program Procedures, in response to 

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

Responsibility for Internal Control. The revised guidance 

included additional requirements to specifi cally address 

establishing and assessing internal controls over fi nancial 

statement reporting. It also required the establishment of a 

senior assessment team to provide direction and oversight 

for the assessments. 

The Offi ce of the Under Secretary of Defense/Comptroller 

(OUSD/C) directed that our review encompass specifi c key 

focus areas material to DoD and the effectiveness of key 

business process internal controls, which signifi cantly affect 

fi nancial reports. During this year, we documented the required processes, performed risk analysis, developed swim-
15

Management Discussion and Analysis

Air Force General Fund

as fl ying hours, depot maintenance, training, spare parts, 

and base operations. The FY 2008 appropriation supported 

84 installations, produced over 1,200 pilots and funded 

approximately 1.4 million fl ying hours while sustaining an 

aircraft fl eet of over 5,500 aircraft. 

PROCUREMENT

This appropriation provides for purchase of aircraft, missiles, vehicles, electronic and telecommunications equipment, satellite and launch equipment, base maintenance and 

support equipment, and investment-type spares. The FY 

2008 program supported the purchase of up to 177 aircraft 

including 20 F-22 Raptors.

 

RESEARCH, DEVELOPMENT, TEST AND 

EVALUATION

Provides funding for the research and development of next 

generation weapons and platforms and for the testing and 

evaluation of current prototypes and upgrades. The Air 

Force’s top acquisition priorities are the Tanker replacement; the Combat Search and Rescue Helicopter; new space 

systems for early warning, targeting, communications, and 

navigation; the F-35A Joint Strike Fighter; and the New 

Bomber. 

The General Fund is the fund into which all receipts of 

the United States Government are deposited, except 

those from specifi c sources required by law to be deposited into other designated funds and from which appropriations are made by Congress to carry on the general and 

ordinary operations of the Government. The Notes to the 

Principal Statements provide more detail on the appropriations. The major appropriations in the Air Force General 

Fund and their uses are: 

MILITARY PERSONNEL (MILPERS)

This appropriation provides funding for the care and feeding 

of our Airmen. It includes all direct military compensation 

for active duty, reserve, guard, and retired personnel including regular pay, allowances, and bonuses. Additionally, this 

appropriation funds all Permanent Change of Station (PCS) 

moves and supports a total force (active, reserve and guard) 

end strength of 502,800. 

OPERATIONS AND MAINTENANCE (O&M)

This appropriation funds key readiness programs critical to 

prepare forces for combat operations and other peacetime 

missions. These include day-to-day operating costs such 

As one of the Air Force’s top acquisition priorities 

offi cials are looking at proposals for a new strategic 

refueling aircraft, referred to as the KC-X, to replace 

the aging KC-135 Stratotanker.
16

MILITARY CONSTRUCTION (MILCON)

Includes any construction, development, conversion, or 

extension of any kind carried out with respect to a military 

installation. Typically this appropriation applies to any 

projects that exceed $1.5 million but can be applicable 

to projects exceeding a $750 thousand threshold. A subelement of this appropriation provides funding for family 

housing construction programs. The FY 2008 appropriation 

supported 86 Major and 4 Minor MILCON projects.

BASE REALIGNMENT AND CLOSURE 

(BRAC)

The law authorizes the BRAC accounts to fund one-time, 

nonrecurring costs that are a direct result of BRAC-directed 

base closure or realignment actions. Some costs do not 

qualify for BRAC funding as costs resulting from closure 

or realignment. The FY 2008 BRAC program was approximately $1.1 billion.

Current and Future Financial Systems—

DEAMS

Our systems enable us to maintain stewardship over the 

resources entrusted to us. The Defense Enterprise Accounting and Management System (DEAMS) is key to 

our current and future ability to manage the Air Force’s 

resources. DEAMS was launched in August 2003 as a joint 

initiative of the Air Force, U.S. Transportation Command 

(USTRANSCOM) and the DFAS under what is now the 

Defense Department’s Business Transformation Agency. 

The DEAMS mission is to support the Nation’s warfi ghters 

with timely, accurate, and reliable fi nancial information, enabling more effi cient and effective decision making by DoD 

managers. DEAMS is reengineering fi nancial management 

activities with a unifi ed enterprise architecture, standardized 

business rules and processes, and the fi rst implementation of 

the new Standard Financial Information Structure.

The Air Force is implementing DEAMS through a twoincrement development approach in fi ve spirals. Spiral 1 is 

a commitment accounting technology demonstration that includes USTRANSCOM; Headquarters, Air Mobility Command; and Air Force active duty, Air National Guard and Air 

Force Reserve tenant organizations on or associated with 

Scott AFB, Illinois. With our partners at USTRANSCOM 

and DFAS, we took a major step forward in 2008 with that 

successful deployment.

Spiral 2 will deploy in late 2009, taking the full Oracle IProcurement functionality to those same units. Increment 2 

will expand that capability to the remaining AMC bases and 

Army and Navy components of USTRANSCOM in Spiral 

3. DEAMS will then be fi elded to remaining MAJCOMs in 

two additional spirals over a period of three years. When 

fully fi elded throughout the Air Force, DEAMS will transform fi nancial management and set a new standard 

for effective and effi cient stewardship of our Nation’s 

Defense resources.

Secretary of the Air Force Michael Donley addresses an Airmen’s 

call audience during his visit to the 379th Air Expeditionary Wing. The 

secretary described his vision ahead for the Air Force, the challenges 

faced and the plan to move the Air Force into the future.

Secretary of the Air Force Michael Donley addresses an Airmen’s 

call audience during his visit to the 379th Air Expeditionary Wing The

A junior-enlisted multiplex under construction at Dover Air Force 

Base. At project completion in 2009, the 212 homes constructed in 

2004 - 2005 will be joined by 768 new homes.

A junior-enlisted multiplex under construction at Dover Air Force 

Base At project completion in 2009 the 212 homes constructed in
Management Discussion and Analysis

The SMAG consists of wholesale and retail operations. The 

Material Support Division (MSD) is the SMAG wholesale 

operation which is responsible for Air Force managed reparable and consumable spare parts. The SMAG retail operation is comprised of the General Support, Medical-Dental, 

and Air Force Academy Divisions. Although each division 

operates independently, all purchase large quantities of 

commodities that allows the Air Force to take advantage 

of economies of scale and achieve significant cost savings. 

The General Support Division (GSD) supports installation 

maintenance and administrative functions, field and depot 

maintenance of aircraft and other systems. The MedicalDental Division provides supplies and equipment required 

to support a robust health care system for Air Force active 

military, retirees and family members. This division manages the Air Force war reserve materiel (WRM) requirement 

of medical supplies and equipment which is vital to support 

forces in combat and contingency operations. The Air Force 

Academy Division finances the purchase of uniforms and 

uniform accessories for sale to over 4,000 cadets. 

AFMC manages MSD and GSD. The Air Force Medical 

Operations Agency manages the Medical-Dental Division, 

and the Air Force Academy’s Mission Support Group manages the Air Force Academy Division. The activities support more than 80 Air Force installations located throughout 

the world.

The Air Force Working Capital Fund (AFWCF) 

supports Air Force warfi ghters and operations via 

three major business areas that function as revolving 

funds, i.e., suppliers charge users for the goods and services 

provided. Air Force Materiel Command (AFMC) manages 

more than 90% of AFWCF revenue and expense activity 

for Supply Management and Depot Maintenance activities. 

These functions provide goods and services to the Air Force 

and DoD customers, as well as customers outside the DoD 

(e.g., local and foreign governments). Supply Management provides expedited repair, replenishment, and inventory control for spare parts and associated logistics support 

services to fulfi ll Air Force needs during war and peacetime. 

Depot Maintenance provides economical and responsive 

repair, overhaul, and modifi cation of aircraft, missiles, engines, other major end items, and associated components.

In FY 1998 the Air Force was appointed the Executive 

Agent for Transportation Working Capital Fund (TWCF) 

cash. Even though AFWCF manages TWCF’s cash, daily 

operations are managed by the United States Transportation 

Command. As a result, TWCF’s fi nancial statements are 

reported with other Defense Agencies. The AFWCF allows 

the Air Force to accomplish the following:

 Ensure readiness through reduced support costs, 

 stabilized rates, and responsive customer service

 Flexibility to respond to customer support needs in 

 real-world situations

 Focus management attention on net operating results, 

 including cost and performance

 Identify the total cost of providing support products and 

 services

 Establish strong customer/provider relationships

Supply Management Activity Group 

The Supply Management Activity Group (SMAG) provides 

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

spare parts. The SMAG manages approximately 1.6 million 

items including weapon systems spare parts, medical-dental 

supplies and equipment, and items used for non-weapon 

systems applications. The activity not only provides management of various inventories but also a wide range of logistics support services, to include requirements forecasting, 

item introduction, cataloging, provisioning, procurement, 

repair, technical support, data management, item disposal, 

distribution management, and transportation.

Air Force Working Capital Fund

Ai 

supplies at Spangdahlem Air Base, Germany. 

Ai

supplies at Spangdahlem Air Base Germany
18

SMAG Customer Support Performance 

Metrics

Mission Incapable (MICAP) and Customer Wait Time 

(CWT) metrics allow managers to assess quality of spares 

support provided and plan corrective action when needed. 

MICAP measures the number of hours a weapon system is 

not available due to non-availability of a spare part provided by MSD or GSD. CWT measures the average time 

elapsed between the customer demand and the delivery of 

a spare part to the customer, measured in days. MICAP 

hours for MSD managed items have improved significantly 

since 1999. MSD items accrued an average of five million 

MICAP hours during calendar year 2000. As of September 

2008, MSD MICAP hours are 1.3 million. CWT is a newer 

metric but has also shown a significant improvement. The 

monthly average CWT for MSD items during 2004 was 7.4 

days and has decreased to 5.8 days as of September 2008.

A KC-135R Stratotanker sits inside the Oklahoma Air Logistics Center, Okla., waiting for a full maintenance overhaul. The Oklahoma Air Logistics 

Center is the worldwide manager for a wide range of aircraft, engines, software, avionics and accessories components.

A KC-135R Stratotanker sits inside the Oklahoma Air Logistics Center, Okla., waiting for a full maintenance overhaul. The Oklahoma Air Logistics

Depot Maintenance Activity Group

The Depot Maintenance Activity Group (DMAG) repairs 

systems and spare parts that ensure readiness in peacetime 

and provide sustainment to combat forces in wartime. In 

peacetime, the Air Force enhances readiness by efficiently 

and economically repairing, overhauling, and modifying 

aircraft, engines, missiles, components, and software to 

meet customer demands. The depots have unique skills and 

equipment required to support and overhaul both new, complex components as well as aging weapon systems. 

A critical facet of the depots is that during wartime or 

contingencies, the Air Force can surge repair operations 

and realign capacity to support the warfighter’s immediate 

needs. DMAG is managed by AFMC and employs over 

21,000 personnel supporting four industrial locations. 

DMAG sites include:

Ogden Air Logistics Center (OO-ALC), Ogden, Utah

Oklahoma City Air Logistics Center (OC-ALC), Oklahoma City, Oklahoma

Warner Robins Air Logistics Center (WR-ALC), Warner 

Robins, Georgia

Aerospace Maintenance and Regeneration Group

(AMARG), Tucson, Arizona
19

Management Discussion and Analysis

DMAG Customer Support Performance 

Metrics

Due Date Performance and Quality Defect Rate metrics 

allow managers to assess production schedule and work 

quality. The Due Date Performance (ability of the depot 

to produce aircraft on the promised date) is 92% as of 

September 2008. The Quality Defect Rate (measures the 

number of production defects) is .23 defects per aircraft as 

of September 2008.

Air Force Working Capital Customers

AFWCF provides support to a variety of customers: Air 

Force Major Commands (including the Air National Guard 

and Air Force Reserve Command), the Army, the Navy, other WCFs, other government agencies, and foreign countries.

Air Force Working Capital Financial 

Performance Measures

AFWCF tracks several metrics to assess financial performance. These measures are designed to achieve accountability at the appropriate level and also measure compliance 

with AFWCF budget objectives.

AFWCF assesses financial performance using the Net 

Operating Result (NOR) of an activity. The NOR is the 

difference between revenue and expenses, i.e., a bottom-line 

profit and loss indicator. The NOR objective of an activity group is to break even over a two-year period. Actual 

NORs are compared to the budget targets. Budget targets 

are identified in financial performance plans and are used 

to measure results during execution reviews. Prices are 

established to achieve this objective by recovering or returning prior year losses or gains. Revenues are amounts earned 

as a result of normal operations and usually result from sale 

of, or reimbursements for, goods and services provided to 

DoD activities, other federal government agencies, and the 

public. Expenses are the resources used during an accounting period. Expenses occur from rendering services; acquiring, producing, or delivering goods; or carrying out other 

mission-related activities.

DoD cash management policy requires maintaining the 

minimum cash balance necessary to meet both operational 

requirements and disbursements in support of the capital 

investment program. Cash generated from operations is the 

primary means of maintaining adequate cash levels. Effective cash management is directly dependent on the availability of accurate and timely data on cash levels and operational results. Cash levels should be maintained to cover 7 to 10 

days of operational costs as well as cash adequate to meet 6 

months of capital disbursements.

Transformation Initiatives - eLog21

As introduced earlier, the eLog21 initiative is designed to 

bring logistics operations into the 21st century by modernizing processes and systems. As processes continue to improve, customers will receive the benefit of repaired weapon 

systems and spare parts at the right place, right time, and 

lowest cost. Two major initiatives included under the umbrella of e-Log21 are the Repair Network Transformation 

(RNT) and Global Logistics Support Center (GLSC).

The RNT establishes an enterprise-wide repair capability 

managed within a single supply chain. The GLSC is establishing an Air Force supply chain management capability 

that provides enterprise planning, global command and 

control, and a single focal point in support of logistics 

requirements.

Contract DMAG Closure

In FY 2003, the transition of contract depot maintenance out 

of the AFWCF began and completes at the end of FY 2008 

when the activity stops accepting new orders. This change 

brings the user and provider of contract depot maintenance 

services closer together and removes the AFWCF from its 

current role as the “middleman.” This action will allow the 

depot managers to dedicate their time and efforts to organic 

production.

Flying Hour Revenue Recognition

In FY 2006, customers requested MSD and GSD simplify 

the billing process for reparable and consumable spare parts 

required to perform their flying hour mission. Analysis 

“The enduring responsibility of the 

United States Air Force is to provide 

strategic deterrence for the Nation and 

fly, fight and win as an integral part of 

the Joint team.”

- Gen. Norton Schwartz
Maintenance on an F-16 Fighting Falcon at Balad Air Base, Iraq. The 

F-16 goes through an overhaul every 300 hours.

Maintenance on an F-16 Fighting Falcon at Balad Air Base, Iraq. The 

20

conducted by AFWCF analysts and flying hour customers 

determined a business model that would incorporate the 

customers’ main objective to buy flying hour time, not spare 

parts. The cost of a flying hour represents the average cost 

of reparable and consumable parts required to fly an aircraft 

for one hour. Beginning 1st Quarter, FY 2008 AFWCF 

implemented the billing process change from recognizing 

revenue and receivables from the sale of a spare part to 

recognizing them on a flying hour basis.

 

Billing Elimination 

In FY 2007 AFWCF began an initiative to eliminate billing 

transactions between MSD and DMAG. These activities still 

track assets and costs appropriately, but as of 1st Quarter FY 

2008 MSD no longer bills DMAG for materiel purchases 

and DMAG no longer bills MSD for repair services. This 

initiative streamlined business processes and eliminated 

non-value added financial transactions.

Expeditionary Combat Support System (ECSS) 

Blueprinting

ECSS enables the transformation of Air Force Logistics by 

replacing the majority of legacy logistics systems with a 

single solution set of business processes, software applications, and data. ECSS will provide timely, consistent, and 

accurate information to enhance operations. The result will 

be standardized business processes and tools across the entire enterprise, regardless of program or site. ECSS Process 

Area Blueprinting (Oct. 2007 - Jun. 2008) has defined how 

functions and capabilities of commercial software products and systems will support organizational and business 

needs. ECSS takes advantage of commercial best practices 

in driving end-to-end process designs and full integration of 

logistics activities.

Global War on Terrorism (GWOT) Support

The AFWCF is integral to the readiness and sustainability of 

Air Force weapon systems and the ability to deploy forces 

around the globe and across any theater in support of Global 

War on Terror operations and National Military Strategy 

requirements. Maintenance depots provide the equipment, 

skills, and repair services necessary to keep forces operating worldwide. Supply management activities procure and 

manage inventories of consumable and reparable spare parts 

required to keep all elements of the force structure mission 

ready. 

Directly or indirectly, AFWCF activities provide warfighters the key services needed to meet mission capability 

standards. For example, in 2008 GSD is procuring Individual Body Armor (IBA) and related equipment to protect 

warfighters. Additionally, the Medical-Dental Division’s 

War Reserve Material (WRM) program provides supplies 

and equipment vital to support forces in combat for the first 

60 days of a contingency operation, and provides basic force 

health protection to all deploying Air Force active, reserve, 

and guard personnel.

An F-15E Strike Eagle crew chief assigned to the 492nd Expeditionary 

Aircraft Maintenance Unit salutes the pilot prior to his flight from 

Bagram Airfield, Afghanistan.

An F-15E Strike Eagle crew chief assigned to the 492nd Expeditionary
21

 

We are a country at war with an enemy that is 

elusive and unconventional. The Air Force has 

been, and must expect to be, in combat for years 

to support this effort in innovative ways. This requires 

creative thinking and action, not just from operational 

forces but from all the forces that support them. We are also 

rightly expected to be good stewards of our nation’s—indeed 

our people’s—resources.

Air Force professional Financial Management personnel are 

making that happen. They know they are part of a larger 

Air Force but play a key role. They have streamlined pay 

information to make it easier for Airmen to access, they are 

effi ciently overseeing our fi nancial transactions, and they 

have dedicated themselves to support our warfi ghting forces. 

This applies across the board – deployed military and 

civilian – in supporting the national security goals of our 

country. They are indeed, “Financing the Fight.” 

Financing the Fight

21

23

Fiscal Year 2008

Annual Financial Statements
24

Limitations to the Financial Statements

Limitations to the Financial Statements

The principal fi nancial statements have been prepared to report the fi nancial position and results of operations of the entity, pursuant to the requirements of Title 31, United States Code, 

Section 3515 (b). While the statements have been prepared from the books and records of 

the entity, in accordance with Generally Accepted Accounting Principles for Federal entities and the formats prescribed by Offi ce of Management and Budget, the statements are in 

addition to the fi nancial reports used to monitor and control budgetary resources which are 

prepared from the same books and records. The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity.
25

The FY 2008 Department of the Air Force General Fund Principal Statements and related 

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

fi nancial information for individual activity groups and activities within the General Fund 

for the fi scal year ending September 30, 2008, and are presented on a comparative basis with 

information previously reported for the fi scal year ending September 30, 2007.

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

Statements:

Consolidated Balance Sheet

The Consolidated Balance Sheet presents as of September 30, 2008 and 2007 those resources 

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

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

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

difference (net position).

Consolidated Statement of Net Cost

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

for the years ended September 30, 2008 and 2007. The Air Force’s net cost of operations 

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

Force activities.

Consolidated Statement of Changes in Net Position

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

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

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

2008 and 2007.

Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources presents the budgetary resources available 

to the Air Force during FY 2008 and 2007, the status of these resources at September 30, 2008 

and 2007, and the outlay of budgetary resources for the years ended September 30, 2008 and 

2007.

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

pursuant to the requirements of the Chief Financial Offi cers Act of 1990, the Government 

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

A-136, “Financial Reporting Requirements.”

General Fund 

Principal Statements

Fiscal Year 2008
26 The accompanying notes are an integral part of these fi nancial statements.

General Fund

Principal Statements

Consolidated Balance Sheet - General Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008

Consolidated

2007

Consolidated

1. ASSETS (NOTE 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3) $ 92,909,909 $ 80,126,396

 2. Investments (Note 4) 874 823

 3. Accounts Receivable (Note 5) 271,020 388,823

 4. Other Assets (Note 6) 265,591 423,952

 5. Total Intragovernmental Assets $ 93,447,394 $ 80,939,994

 B. Cash and Other Monetary Assets (Note 7) 111,976 107,908

 C. Accounts Receivable, Net (Note 5) 502,182 545,796

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property, Net (Note 9) 46,906,666 46,335,059

 F. General Property, Plant and Equipment, Net (Note 10) 148,770,371 143,257,880

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 11,030,527 10,448,818

2. TOTAL ASSETS $ 300,769,116 $ 281,635,455

3. STEWARDSHIP PROPERTY, PLANT & EQUIPMENT (Note 10)

4. LIABILITIES (Note 11)

 A. Intragovernmental:

 1. Accounts Payable (Note 12) $ 2,002,120 $ 1,509,631

 2. Debt (Note 13) 0 0

 3. Other Liabilities (Note 15 & 16) 1,952,785 2,033,326

 4. Total Intragovernmental Liabilities $ 3,954,905 $ 3,542,957

 B. Accounts Payable (Note 12) 3,810,935 3,189,763

 C. Military Retirement and Other Federal 1,163,414 1,137,016

 Employment Benefi ts (Note 17) 

 D. Environmental and Disposal Liabilities (Note 14) 8,266,375 6,898,867

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 & Note 16) 6,379,597 6,081,496

5. TOTAL LIABILITIES $ 23,575,226 $ 20,850,099

6. COMMITMENTS AND CONTINGENCIES (NOTE 16)

7. NET POSITION

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

 B. Unexpended Appropriations - Other Funds 92,171,366 80,465,487

 C. Cumulative Results of Operations - Earmarked Funds 5,355 4,548

 D. Cumulative Results of Operations - Other Funds 185,017,169 180,315,321

8. TOTAL NET POSITION $ 277,193,890 $ 260,785,356

9. TOTAL LIABILITIES AND NET POSITION $ 300,769,116 $ 281,635,455
The accompanying notes are an integral part of these fi nancial statements. 27

General Fund

Principal Statements

Consolidated Statement of Net Cost - General Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008 

Consolidated

2007 

Consolidated

1. Program Costs (Note 18)

 A. Gross Costs $ 148,089,758 $ 142,462,370 

 B. (Less: Earned Revenue) -5,875,708 -5,715,540

 C. Net Program Costs $ 142,214,050 $ 136,746,830 

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ 142,214,050 $ 136,746,830 
28 The accompanying notes are an integral part of these fi nancial statements.

General Fund

Principal Statements

Consolidated Statement of Changes in Net Position - General Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008

Earmarked Funds

2008

All Other Funds

2008

Eliminations

CUMULATIVE RESULTS OF OPERATIONS

1. Beginning Balances $ 4,546 $ 180,315,323 $ 0

2. Prior Period Adjustments:

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

 B. Corrections of errors (+/-) 0 00

3. Beginning balances, as adjusted $ 4,546 $ 180,315,323 $ 0

4. Budgetary Financing Sources:

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

 B. Appropriations used 0 144,550,203 0

 C. Nonexchange revenue 1,088 0 0

 D. Donations and forfeitures of cash and cash equivalents 2,544 0 0

 E. Transfers-in/out without reimbursement (+/-) 0 88,000 0

 F. Other budgetary fi nancing sources 0 -157 0

5. Other Financing Sources: 

 A. Donations and forfeitures of property 0 0 0

 B. Transfers-in/out without reimbursement (+/-) 0 322,962 0

 C. Imputed fi nancing from costs absorbed by others 0 628,882 0

 D. Other (+/-) 0 1,323,183 0

6. Total Financing Sources $ 3,632 $ 146,913,073 $ 0

7. Net Cost of Operations (+/-) 2,823 142,211,227 0

8. Net Change $ 809 $ 4,701,846 $ 0

9. Cumulative Results of Operations $ 5,355 $ 185,017,169 $ 0

UNEXPENDED APPROPRIATIONS

10. Beginning Balances $ 0 $ 80,465,487 $ 0

11. Prior Period Adjustments:

 A. Changes in accounting principles 0 0 0

 B. Corrections of errors 0 00

12. Beginning balances, as adjusted $ 0 $ 80,465,487 $ 0

13. Budgetary Financing Sources:

 A. Appropriations received 0 156,788,176 0

 B. Appropriations transferred-in/out 0 2,662,362 0

 C. Other adjustments (rescissions, etc) 0 -3,194,456 0

 D. Appropriations used 0 -144,550,203 0

14. Total Budgetary Financing Sources 0 11,705,879 0

15. Unexpended Appropriations 0 92,171,366 0

16. Net Position $ 5,355 $ 277,188,535 $ 0
The accompanying notes are an integral part of these fi nancial statements. 29

General Fund

Principal Statements

2008

Consolidated

2007

Earmarked Funds

2007

All Other Funds

2007

Eliminations

2007 

Consolidated

$ 180,319,869 $ 4,540 $ 180,854,184 $ 0 $ 180,858,724

00 00 0

00 00 0

$ 180,319,869 $ 4,540 $ 180,854,184 $ 0 $ 180,858,724

00 00 0

144,550,203 0 136,203,035 0 136,203,035

1,088 928 5 0 933

2,544 1,843 0 0 1,843

88,000 0 282,000 0 282,000

-157 0 0 0 0

00 00 0

 322,962 0 261,389 0 261,389

 628,882 0 724,671 0 724,671

 1,323,183 0 -1,265,895 0 -1,265,895

$ 146,916,705 $ 2,771 $ 136,205,205 $ 0 $ 136,207,976

 142,214,050 2,765 136,744,066 0 136,746,831

$ 4,702,655 $ 6 $ -538,861 $ 0 $ -538,855

$ 185,022,524 $ 4,546 $ 180,315,323 $ 0 $ 180,319,869

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

00 00 0

00 00 0

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

156,788,176 0 147,671,923 0 147,671,923

2,662,362 0 579,271 0 579,271

-3,194,456 0 -1,769,006 0 -1,769,006

-144,550,203 0 -136,203,035 0 -136,203,035

11,705,879 0 10,279,153 0 10,279,153

 92,171,366 0 80,465,487 0 80,465,487

$ 277,193,890 $ 4,546 $ 260,780,810 $ 0 $ 260,785,356
30 The accompanying notes are an integral part of these fi nancial statements.

General Fund

Principal Statements

Combined Statement of Budgetary Resources - General Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008 

Combined

2007 

Combined

BUDGETARY FINANCING ACCOUNTS 

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 21,175,345 $ 17,112,927

2. Recoveries of prior year unpaid obligations 4,602,017 3,921,941

3. Budget authority

 A. Appropriation 156,791,805 147,674,697

 B. Borrowing authority 0 0

 C. Contract authority 0 0

 D. Spending authority from offsetting collections

 1. Earned

 a. Collected 10,464,416 10,237,677

 b. Change in receivables from Federal sources -354,080 -517,749

 2. Change in unfi lled customer orders

 a. Advance received -199,948 376,618

 b. Without advance from Federal sources 38,934 250,810

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

 4. Previously unavailable 0 0

 5. Expenditure transfers from trust funds 0 0

 E. Subtotal $ 166,741,127 $ 158,022,053

4. Nonexpenditure transfers, net, anticipated and actual 2,750,362 861,271

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -3,194,456 -1,769,006

7. Total Budgetary Resources $ 192,074,395 $ 178,149,186

STATUS OF BUDGETARY RESOURCES:

8. Obligations incurred:

 A. Direct $ 155,042,972 $ 146,524,833

 B. Reimbursable 10,354,532 10,449,009

 C. Subtotal $ 165,397,504 $ 156,973,842

9. Unobligated balance:

 A. Apportioned 24,139,914 18,573,839

 B. Exempt from apportionment 3,820 3,271

 C. Subtotal $ 24,143,734 $ 18,577,110

10. Unobligated balance not available 2,533,157 2,598,234

11. Total status of budgetary resources $ 192,074,395 $ 178,149,186

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 $ 60,933,360 $ 53,989,101

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

 October 1

-2,366,785 -2,633,723

 C. Total unpaid obligated balance $ 58,566,575 $ 51,355,378

13. Obligations incurred net (+/-) $ 165,397,504 $ 156,973,842

14. Less: Gross outlays -153,915,590 -146,107,640

15. Obligated balance transferred, net

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

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

 C. Total Unpaid obligated balance transferred, net $ 0 $ 0

16. Less: Recoveries of prior year unpaid obligations, actual $ -4,602,017 $ -3,921,941

17. Change in uncollected customer payments from Federal sources (+/-) 315,146 266,938

18. Obligated balance, net, end of period

 A. Unpaid obligations 67,813,257 60,933,360

 B. Less: Uncollected customer payments (+/-) from Federal sources (-) -2,051,639 -2,366,785

 C. Total, unpaid obligated balance, net, end of period 65,761,618 58,566,575

NET OUTLAYS

19. Net Outlays:

 A. Gross outlays $ 153,915,590 $ 146,107,640

 B. Less: Offsetting collections -10,264,468 -10,614,293

 C. Less: Distributed Offsetting receipts -201,497 -140,980

 D. Net Outlays $ 143,449,625 $ 135,352,367
31

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

statements.

General Fund 

Fiscal Year 2008

Notes to the Principal Statements
32

General Fund

Notes to the Principal Statements

Note 1. Signifi cant Accounting Policies

1.A. Basis of Presentation

These fi nancial statements have been prepared to report the fi nancial position and results of operations of the Air Force, as 

required by the Chief Financial Offi cers Act of 1990, expanded by the Government Management Reform Act of 1994, and 

other appropriate legislation. The fi nancial statements have been prepared from the books and records of the Air Force in 

accordance with the Department of Defense (DoD), Financial Management Regulation (FMR), Offi ce of Management and 

Budget (OMB) Circular A-136, “Financial Reporting Requirements,” and to the extent possible generally accepted accounting principles (GAAP). The accompanying fi nancial statements account for all resources for which the Air Force is responsible unless otherwise noted. 

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

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

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

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

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

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

The Air Force incorporates internal controls, reconciliations, management by exception reports, and other management control information into its accounting processes to establish reliability and relevance of the fi nancial information. When possible, the fi nancial statements are presented on the accrual basis of accounting, as required by federal accounting standards. 

The Air Force currently has twelve identifi ed fi nancial statement material weaknesses: (1) Financial Management Systems, 

(2) Intragovernmental Eliminations, (3) Unsupported Accounting Entries, (4) Fund Balance with Treasury, (5) Environmental Liabilities, (6) General Property, Plant, and Equipment, (7) Governmental Property and Material in Possession of Contractors, (8) Operating Materials and Supplies, (9) Statement of Net Cost, (10) Reconciliation of Net Cost of Operations to 

Budget, (11) Accounts Payable, and (12) Accounts Receivable. These fi ndings are being addressed with corrective actions 

in the Financial Improvement Plan.

1.B. Mission of the Reporting Entity 

The United States Air Force was created on September 18, 1947, by the National Security Act of 1947. The National Security Act Amendments of 1949 established DoD and made the Air Force a department within DoD. The overall mission of 

the Air Force is to fl y, fi ght and win...in air, space and cyberspace. 

1.C. Appropriations and Funds

The Air Force receives its appropriations and funds as general, trust, special, and deposit funds. The Air Force uses these 

appropriations and funds to execute its missions and subsequently report on resource usage. 

General funds are used for fi nancial transactions funded by congressional appropriations, including personnel, operation 

and maintenance, research and development, procurement, and military construction accounts.Trust funds contain receipts 

and expenditures of funds held in trust by the government for use in carrying out specifi c purposes or programs in accor-
33

General Fund

Notes to the Principal Statements

dance with the terms of the donor, trust agreement, or statute. Certain trust and special funds may be designated as earmarked funds. Earmarked funds are fi nanced by specifi cally identifi ed revenues, required by statute to be used for designated activities, benefi ts or purposes, and remain available over time. Earmarked funds also have a requirement to account 

for and report on the receipt, use and retention of revenues and other fi nancing sources that distinguish them from general 

revenues.

Special fund accounts are used to record government receipts reserved for a specifi c purpose.

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

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

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

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

obligations, outlays) is reported in the fi nancial statements of the parent entity. 

Exceptions to this general rule apply to specifi c funds for which OMB has directed that all activity be reported in the 

fi nancial statements of the child entity. Exceptions include all U.S. Treasury-Managed Trust Funds, Executive Offi ce of the 

President (EOP), and all other funds specifi cally designated by OMB. The Air Force is a party to allocation transfers as the 

child for EOP (Foreign Military Sales – Military Assistance Program) meeting OMB exception, however, the activities for 

this fund is reported separately from DoD fi nancial statements. In addition, the Air Force is a party to allocation transfers as 

the child for the Department of Agriculture. 

The Air Force allocates funds, as the parent, to the Department of Transportation. The accounts used to prepare the fi nancial statements are categorized as either entity or nonentity. The Air Force accounts consist of resources that are available 

for use in the operations of the entity. The Air Force is authorized to decide how to use resources in entity accounts or may 

be legally obligated to use these resources to meet entity obligations. Nonentity accounts, on the other hand, consist of assets that are held by an entity but that are not available for use in the operations of the entity. The following is a list of the 

major Air Force account numbers and titles (all accounts are entity accounts unless otherwise noted):

Air Force Account Number Title

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

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

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

57 * 0810 Environmental Restoration, Air Force

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

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

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

57 * 3010 Aircraft Procurement, Air Force

57 * 3011 Procurement of Ammunition, Air Force

57 * 3020 Missile Procurement, Air Force

57 * 3080 Other Procurement, Air Force

57 * 3300 Military Construction, Air Force

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

57 * 3500 Military Personnel, Air Force

57 * 3600 Research, Development, Testing, and Evaluation (RDT&E), AF
34

General Fund

Notes to the Principal Statements

57 * 3700 Personnel, Air Force Reserve

57 * 3730 Military Construction, Air Force Reserve

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

57 * 3830 Military Construction, Air National Guard

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

57 * 3850 Personnel, Air National Guard

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

57 X 8418 Air Force Cadet Fund

57 X 8928 Air Force General Gift Fund

57 * 3XXX (Incl Nonentity) Budget Clearing Accounts

57 * 6XXX (Nonentity) Deposit Fund Accounts

57 **** (Nonentity) Receipt Accounts

1.D. Basis of Accounting 

For FY 2008, the Air Force’s fi nancial management systems are unable to meet all of the requirements for full accrual 

accounting. Many of the Air Force’s fi nancial and nonfi nancial feeder systems and processes were designed and implemented prior to the issuance of GAAP for federal agencies. These systems were not designed to collect and record fi nancial 

information on the full accrual accounting basis as required by GAAP. Most of the Air Force’s (fi nancial and nonfi nancial) 

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

military pay and accounts payable are presented on the accrual basis of accounting on the fi nancial statements, as required 

by federal accounting standards.

The DoD has undertaken efforts to determine the actions required to bring its fi nancial and nonfi nancial feeder systems and 

processes into compliance with GAAP. One such action is the current revision of its accounting systems to record transactions based on the U.S. Standard General Ledger (USSGL). Until all of the Air Force’s fi nancial and nonfi nancial feeder 

systems and processes are updated to collect and report fi nancial information as required by GAAP, the Air Force’s fi nancial 

data will be derived from budgetary transactions (obligations), transactions from nonfi nancial feeder systems, and accruals 

made for major items such as payroll expenses, accounts payable, and environmental liabilities.

1.E. Revenues and Other Financing Sources 

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

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

agencies and the public. Full cost pricing is the Air Force’s standard policy for services provided as required by OMB 

Circular A-25, Transmittal Memorandum #1, User Charges. The Air Force recognizes revenue when earned within the 

constraints of current system capabilities. In some instances, revenue is recognized when bills are issued.

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

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

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

defense agreement, where U.S. troops are stationed, or where the U.S. fl eet is in a port.
35

General Fund

Notes to the Principal Statements

1.F. Recognition of Expenses

For fi nancial reporting purposes, DoD policy requires the recognition of operating expenses in the period incurred. However, because the Air Force’s fi nancial and nonfi nancial feeder systems were not designed to collect and record fi nancial 

information on the full accrual accounting basis, accruals are made for major items such as payroll expenses, accounts payable, environmental liabilities, and unbilled revenue. In the case of Operating Materials and Supplies (OM&S), operating 

expenses are generally recognized when the items are purchased. Efforts are underway to transition towards the consumption method for recognizing OM&S expenses. 

1.G. Accounting for Intragovernmental Activities 

Preparation of reliable fi nancial statements requires the elimination of transactions occurring among entities within DoD or 

between two or more federal agencies. However, the Air Force cannot accurately eliminate intragovernmental transactions 

by customer because the Air Force’s systems do not track at the transaction level. Generally, seller entities within DoD provide summary seller-side balances for revenue, accounts receivable, and unearned revenue to the buyer-side internal DoD 

accounting offi ces. In most cases the buyer-side records are adjusted to agree with DoD seller-side balances. IntraDoD 

balances are then eliminated. The volume of intragovernmental transactions is so large that after-the-fact reconciliations 

cannot be accomplished effectively with existing or foreseeable resources. The DoD is developing long-term system improvements to ensure accurate intragovernmental information, to include suffi cient up-front edits and controls eliminating 

the need for after-the-fact reconciliations.

The U.S. Treasury Financial Management Service is responsible for eliminating transactions between DoD and other federal agencies. The Treasury Financial Manual, Part 2 – Chapter 4700, “Agency Reporting Requirements for the Financial 

Report of the United States Government,” and the U.S. Treasury’s “Federal Intragovernmental Transactions Accounting 

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

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

and benefi t program transactions with the Offi ce of Personnel Management. 

The DoD’s proportionate share of public debt and related expenses of the Federal Government are not included. The Federal Government does not apportion debt and its related costs to federal agencies. The DoD’s fi nancial statements, therefore, 

do not report any portion of the public debt or interest thereon, nor do the statements report the source of public fi nancing 

whether from issuance of debt or tax revenues.

Financing for the construction of DoD facilities is obtained through appropriations. To the extent this fi nancing ultimately 

may have been obtained through the issuance of public debt, interest costs have not been capitalized since the U.S. Treasury 

does not allocate such interest costs to the benefi ting agencies.

1.H. Transactions with Foreign Governments and International Organizations 

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

provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, DoD has authority to sell defense 

articles and services to foreign countries and international organizations generally at no profi t or loss to the U.S. Government. Payment in U.S. dollars is required in advance. 
36

General Fund

Notes to the Principal Statements

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

The Air Force’s monetary resources are maintained in U.S. Treasury accounts. The disbursing offi ces of the Defense 

Finance and Accounting Service (DFAS), the Military Departments, the U.S. Army Corps of Engineers (USACE), and the 

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

adjustments worldwide. Each disbursing station prepares monthly reports to the U.S. Treasury on check issues, electronic 

fund transfers, interagency transfers, and deposits.

In addition, the DFAS sites and USACE Finance Center submit reports to the U.S. Treasury by appropriation on interagency 

transfers, collections received, and disbursements issued. The U.S. Treasury records these transactions to the applicable 

Fund Balance with Treasury (FBWT) account. The Air Force’s recorded balance in FBWT accounts and U.S Treasury’s 

FBWT accounts must balance monthly.

1.J. Foreign Currency 

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

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

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

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

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

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

handle the gains and losses from foreign currency transactions for fi ve general fund appropriations: operations and maintenance, military personnel, military construction, family housing operations and maintenance, and family housing construction. The gains and losses are computed as the variance between the exchange rate current at the date of payment and a 

budget rate established at the beginning of each fi scal year. Foreign currency fl uctuations related to other appropriations 

require adjustments to the original obligation amount at the time of payment. The Air Force does not separately identify 

currency fl uctuation transactions.

1.K. Accounts Receivable 

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

from other federal entities or from the public. The allowance for uncollectible for the Air Force entity receivables is computed based on the average annual write off over a fi ve year period. The DoD does not recognize an allowance for estimated uncollectible amounts from other federal agencies. Claims against other federal agencies are to be resolved between 

the agencies in accordance with dispute resolution procedures defi ned in the Intragovernmental Business Rules published in 

the Treasury Financial Manual.

1.L. Direct Loans and Loan Guarantees 

Not Applicable

1.M. Inventories and Related Property 

The Air Force manages only military or government specifi c materiel under normal conditions. Materiel is a unique term 

that relates to military force management, and includes all items (including self-propelled weapons, aircraft, etc., and 
37

General Fund

Notes to the Principal Statements

related spares, repair parts, and support equipment, but excluding real property, installations, and utilities) necessary to 

equip, operate, maintain, and support military activities without distinction as to its application for administrative or combat 

purposes. Items commonly used in and available from the commercial sector are not managed in the Air Force materiel 

management activities. The Air Force only holds materiel based on military need and support for contingencies.

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

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

price. The Air Force uses both the consumption method and the purchase method of accounting for OM&S. Items that 

are centrally managed and stored, such as ammunition and engines, are generally recorded using the consumption method 

and are reported on the Balance Sheet as OM&S. When current systems cannot fully support the consumption method, the 

Air Force uses the purchase method. Under this method, materiels and supplies are expensed when purchased. During FY 

2008, the Air Force expensed signifi cant amounts using the purchase method because the systems could not support the 

consumption method or management deemed that the item was in the hands of the end user. This is a material weakness 

for the DoD and long-term system corrections are in process. Once the proper systems are in place, these items will be accounted for under the consumption method of accounting.

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

OM&S rather than military equipment. 

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

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

presented in previous years as “Excess, Obsolete, and Unserviceable,” is included in the “Held for Use” or “Held for Repair” categories according to its condition.

The DoD does not attempt to account separately for “inventory held for sale” and “inventory held in reserve for future sale” 

based on SFFAS No. 3 defi nition, unless otherwise noted as it applies to OM&S. 

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

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

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

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

The Air Force invests in nonmarketable market-based U.S. Treasury securities. These are U.S. Treasury securities that are 

issued by the Bureau of Public Debt to federal agencies. They are not traded on any securities exchange but mirror the 

prices of particular U.S. Treasury securities traded in the government securities market.

1.O. General Property, Plant and Equipment 

The Air Force uses the estimated historical cost for valuing military equipment. The DoD identifi ed the universe of military 

equipment by accumulating information relating to program funding and associated military equipment, equipment useful 

life, program acquisitions, and disposals to establish a baseline. The military equipment baseline is updated using expenditure, acquisition and disposals information. 
38

General Fund

Notes to the Principal Statements

The Air Force’s General Property, Plant and Equipment (General (PP&E)) capitalization threshold is $100 thousand except 

for real property which is $20 thousand. The Air Force has implemented the $20 thousand real property threshold. The Air 

Force is currently using the capitalization threshold of $100 thousand for all General PP&E.

General PP&E assets are capitalized at historical acquisition cost when an asset has a useful life of two or more years and 

when the acquisition cost equals or exceeds the DoD capitalization threshold. The DoD also requires the capitalization 

of improvements to existing General PP&E assets if the improvements equal or exceed DoD capitalization threshold and 

extend the useful life or increase the size, effi ciency, or capacity of the asset. The DoD depreciates all General PP&E, other 

than land, on a straight-line basis. 

General PP&E previously capitalized at amounts below $100 thousand was written off General Fund fi nancial statements in 

FY 1998. 

When it is in the best interest of the government, the Air Force provides government property to contractors to complete 

contract work. The Air Force either owns or leases such property, or it is purchased directly by the contractor for the 

government based on contract terms. When the value of contractor-procured General PP&E exceeds DoD capitalization 

threshold, federal accounting standards require that it be reported on the Air Force’s Balance Sheet. 

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

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

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

DoD has issued new property accountability and reporting requirements that require Air Force to maintain, in their property 

systems, information on all property furnished to contractors. This action and other DoD proposed actions are structured to 

capture and report the information necessary for compliance with federal accounting standards. 

1.P. Advances and Prepayments 

When advances are permitted by law, legislative action, or presidential authorization, the DoD’s policy is to record advances and prepayments in accordance with GAAP. As such, payments made in advance of the receipt of goods and services are 

reported as an asset on the Balance Sheet. The DoD’s policy is to expense and/or properly classify assets when the related 

goods and services are received. The Air Force has not fully implemented this policy primarily due to system limitations.

1.Q. Leases 

Lease payments for the rental of operating facilities are classifi ed as either capital or operating leases. When a lease is 

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

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

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

costs paid to the lessor) or the asset’s fair market value. The discount rate for the present value calculation is either the lessor’s implicit interest rate or the government’s incremental borrowing rate at the inception of the lease. The Air Force as the 

lessee receives the use and possession of leased property, for example real estate, from a lessor in exchange for a payment 

of funds. An operating lease does not substantially transfer all the benefi ts and risk of ownership. Payments for operating 

leases are charged to expense over the lease term as it becomes payable.

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

Support Agreements. Future year projections use the Consumer Price Index (CPI) rather than the DoD infl ation factor. The 

CPI impacts increases to the leases, especially those at commercial lease sites. 
39

General Fund

Notes to the Principal Statements

1.R. Other Assets 

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

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

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

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

may provide fi nancing payments. Contract fi nancing payments are defi ned in the Federal Acquisition Regulations, Part 32, 

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

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

payments under certain cost-reimbursement contracts. 

Contract fi nancing payments do not include invoice payments, payments for partial deliveries, lease and rental payments, or 

progress payments based on a percentage or stage of completion, which the Defense Federal Acquisition Regulation Supplement authorizes only for construction of real property, shipbuilding, and ship conversion, alteration, or repair. Progress 

payments for real property and ships are reported as Construction in Progress. It is DoD‘s policy to record certain contract 

fi nancing payments as Other Assets.

1.S. Contingencies and Other Liabilities 

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

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

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

occur, a future loss is probable, and the loss amount can be reasonably estimated.

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

least a reasonable possibility of incurring a loss or additional losses. Examples of loss contingencies include the collectibility of receivables, pending, or threatened litigation, and possible claims and assessments. The Air Force’s risk of loss and 

resultant contingent liabilities arise from pending or threatened litigation or claims and assessments due to events such as 

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

Other liabilities arise as a result of anticipated disposal costs for Air Force assets. This type of liability has two components: nonenvironmental and environmental. Consistent with SFFAS No. 6, “Accounting for Property, Plant, and Equipment,” recognition of an anticipated environmental disposal liability begins when the asset is placed into service. Nonenvironmental disposal liabilities are recognized for assets when management decides to dispose of an asset based upon DoD’s 

policy, which is consistent with SFFAS No. 5, “Accounting for Liabilities of Federal Government.” The Air Force does not 

recognize contingent liabilities associated with nonenvironmental disposals due to immateriality.

1.T. Accrued Leave 

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

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

refl ects the current pay rates.
40

General Fund

Notes to the Principal Statements

1.U. Net Position 

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

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

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

been incurred. 

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

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

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

1.V. Treaties for Use of Foreign Bases 

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

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

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

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

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

environmental clean-up.

1.W. Comparative Data 

The Air Force’s fi nancial statements and notes are presented on a comparative basis.

1.X. Unexpended Obligations 

The Air Force obligates funds to provide goods and services for outstanding orders not yet delivered. Unless the title has 

passed, the fi nancial statements do not refl ect a liability for payment for goods and services not yet delivered. Unexpended 

obligations includes both obligations for which goods and services have been delivered (title passed) and a liability recognized, and obligations for which no delivery has occurred and no liability recognized. The balance of unexpended obligations appears immediately before net outlays in the Statement of Budgetary Resources, and is referred to as “Total, unpaid 

obligated balances, net, end of period.”

1.Y. Undistributed Disbursements and Collections

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

transaction level to a specifi c obligation, payable, or receivable in the activity fi eld records as opposed to those reported by 

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

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

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

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

applied to the entities’ accounts receivable balance.

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

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

other liabilities. 
41

General Fund

Notes to the Principal Statements

1.Z. Signifi cant Events 

Not Applicable

Note 2. Nonentity Assets

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Assets

 A. Fund Balance with Treasury $ 101,059 $ 94,844

 B. Accounts Receivable 1,430 2,376

 C. Total Intragovernmental Assets $ 102,489 $ 97,220

2. Nonfederal Assets

 A. Cash and Other Monetary Assets $ 111,976 $ 107,908

 B. Accounts Receivable 111,649 157,416

 C. Other Assets 183,444 186,025

 D. Total Nonfederal Assets $ 407,069 $ 451,349

3. Total Nonentity Assets $ 509,558 $ 548,569

4. Total Entity Assets 300,259,558 281,086,886

5. Total Assets $ 300,769,116 $ 281,635,455

Relevant Information for Comprehension

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

not available for the Air Force’s operations.

Intragovernmental Fund Balance with Treasury represents amounts in Air Force’s deposit fund and two suspense fund accounts (Uniformed Services Thrift Savings Plan Suspense and Thrift Savings Plan Suspense) that are not available for Air 

Force use. 

Intragovernmental Accounts Receivable and Nonfederal Accounts Receivable, when collected, go to the U.S. Treasury as 

miscellaneous receipts. The Nonfederal Accounts Receivable amount also includes interest receivables on aged debt. 

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

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

of the U.S. Treasury.

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

contracts with nonprofi t educational research institutions for experimental research and development work when several 

contracts or a series of contracts require fi nancing by advance payments.
42

General Fund

Notes to the Principal Statements

Note 3. Fund Balance with Treasury

As of September 30 2008 2007

(Amounts in thousands)

1. Fund Balances

 A. Appropriated Funds $ 92,800,590 $ 80,023,587

 B. Revolving Funds 0 0 

 C. Trust Funds 6,773 6,824

 D. Special Funds 1,487 1,140

 E. Other Fund Types 101,059 94,845

 F. Total Fund Balances $ 92,909,909 $ 80,126,396

2. Fund Balances Per Treasury Versus Agency

 A. Fund Balance per Treasury $ 94,578,060 $ 81,162,222

 B. Fund Balance per Air Force 92,909,909 80,126,396

3. Reconciling Amount $ 1,668,151 $ 1,035,826

Other Fund Types include balances in deposit fund, receipt accounts, and Thrift Saving Plan (TSP).

The Air Force shows a reconciling amount of $1.7 billion with U.S. Treasury, which is comprised of $1.6 billion in withdrawal from the FBWT in the cancelling appropriations on September 30, 2008. These funds are included in FBWT of U.S.

Treasury but are not included in the Air Force FBWT.

Status of Fund Balance with Treasury

As of September 30 2008 2007

(Amounts in thousands)

1. Unobligated Balance

 A. Available $ 24,143,734 $ 18,577,110

 B. Unavailable 2,533,156 2,598,234

2. Obligated Balance not yet Disbursed 67,813,258 60,933,360

3. Nonbudgetary FBWT 472,259 385,286

4. NonFBWT Budgetary Accounts -2,052,498 -2,367,594

5. Total $ 92,909,909 $ 80,126,396

The Status of Fund Balance with Treasury (FBWT) refl ects the budgetary resources to support the FBWT.

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

at fi scal year end that remain available only for obligation adjustments until the account is closed.
43

General Fund

Notes to the Principal Statements

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

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

account comprises the FBWT for suspense, deposit and receipt accounts.

NonFBWT Budgetary Accounts represent adjustments to budgetary accounts that do not affect FBWT. 

The items that comprise the amount reported as NonFBWT receipts are from nonentity receivables,

investments and discounts in U.S. Treasury securities, and unfi lled customer orders without

advances. This category reduces the Status of FBWT. 

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

Certain unobligated balances may be restricted to future use and are not apportioned for current use.

The Unobligated Balance unavailable of $2.5 billion is not available for new obligations because the

period for new obligations established by law has expired.
44

General Fund

Notes to the Principal Statements

Note 4. Investments and Related Interest

As of September 30

2008

Cost Amortization 

Method

Amortized 

(Premium) / 

Discount

Investments, 

Net

Market Value 

Disclosure

(Amounts in thousands)

1. Intragovernmental Securities

 A. Nonmarketable, Market-Based 

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

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

 3. US Army Corps of Engineers 0 0 0 0 

 4. Other Funds 868 -3 865 890 

 5. Total Nonmarketable, Market-Based $ 868 $ -3 $ 865 $ 890

B. Accrued Interest 9 9 9

C. Total Intragovernmental Securities $ 877 $ -3 $ 874 $ 899

2. Other Investments

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

As of September 30

2007

Cost Amortization 

Method

Amortized 

(Premium) / 

Discount

Investments, 

Net

Market Value 

Disclosure

(Amounts in thousands)

3. Intragovernmental Securities

 A. Nonmarketable, Market-Based 

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

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

 3. US Army Corps of Engineers 0 0 0 0 

 4. Other Funds 816 -1 815 820 

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

B. Accrued Interest 8 8 9

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

4. Other Investments

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

Relevant Information for Comprehension

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

The cash generated from earmarked funds are deposited in U.S. Treasury, which uses the cash for general Government 

purposes. The U.S. Treasury securities are issued to the earmarked funds as evidence of earmarked fund receipts. The U.S. 
45

General Fund

Notes to the Principal Statements

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

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

whole. For this reason, they do not represent an asset or a liability in the U.S. Governmentwide fi nancial statements. The 

U.S. Treasury securities provide Air Force with authority to draw upon U.S. Treasury to make future benefi t payments or 

other expenditures. When Air Force requires redemption of these securities, the Government fi nances the securities out 

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

curtailing other expenditures. This is the same way that the Government fi nances all other expenditures. 

Intragovernmental Securities (Other) primarily represents the Air Force Gift Fund investment in U.S. Treasury Securities.

Note 5. Accounts Receivable

As of September 30

2008 2007

Gross Amount 

Due

Allowance For 

Estimated 

Uncollectibles

Accounts 

Receivable, Net

Accounts 

Receivable, Net

(Amounts in thousands)

1. Intragovernmental Receivables $ 271,020 N/A $ 271,020 $ 388,823

2. Nonfederal Receivables (From the Public) $ 619,412 $ -117,230 $ 502,182 $ 545,796

3. Total Accounts Receivable $ 890,432 $ -117,230 $ 773,202 $ 934,619

Note 6. Other Assets

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Other Assets

 A. Advances and Prepayments $ 265,591 $ 423,952

 B. Other Assets 0 0 

 C. Total Intragovernmental Other Assets $ 265,591 $ 423,952

2. Nonfederal Other Assets

 A. Outstanding Contract Financing Payments $ 10,775,541 $ 10,183,088

 B. Advances and Prepayments 71,542 79,705

 C. Other Assets (With the Public) 183,444 186,025

 D. Total Nonfederal Other Assets $ 11,030,527 $ 10,448,818

3. Total Other Assets $ 11,296,118 $ 10,872,770

Relevant Information for Comprehension

Nonfederal Other Assets (With the Public) is comprised primarily of advance payment pool agreements with nonprofi t 

educational institutions. These agreements are funded under cost type contract procedures and are mainly for experimental 

research and development requirements. 
46

General Fund

Notes to the Principal Statements

Contract terms and conditions for certain types of contract fi nancing payments convey certain rights to the Air Force that 

protect the contract work from state or local taxation, liens or attachment by the contractor’s creditors, transfer of property, 

or disposition in bankruptcy; however, these rights should not be misconstrued to mean that ownership of the contractor’s 

work has transferred to the Government. The Government does not have the right to take the work, except as provided in 

contract clauses related to termination or acceptance; therefore, the Air Force is not obligated to make payment to the contractor until delivery and acceptance. 

The Outstanding Contract Financing Payments balance of $10.8 billion is comprised of $10.3 billion in contract fi nancing 

payments and an additional $533.2 million in estimated future payments that will be paid upon future delivery and Government acceptance of satisfactory products and services. (See additional discussion in Note 15, Other Liabilities).

Note 7. Cash and Other Monetary Assets

As of September 30 2008 2007

(Amounts in thousands)

1. Cash $ 93,046 $ 104,681

2. Foreign Currency 18,930 3,227

3. Other Monetary Assets 0 0 

4. Total Cash, Foreign Currency, & Other Monetary Assets $ 111,976 $ 107,908

Relevant Information for Comprehension

The amount reported as cash and foreign currency consists primarily of cash held by Disbursing Offi cers. The foreign currency amount reported is valued at U.S. Treasury’s prevailing exchange rate, which is the most favorable rate available to 

the Government for foreign exchange transactions. Foreign currency is primarily used to make vendor disbursements and 

to exchange U.S. dollars for military personnel.

Cash and foreign currency are nonentity assets and, as such, considered restricted assets that are held by the Air Force but 

are not available for use in its operations. These assets are held by the Air Force’s Disbursing Offi cers as agents of U.S. 

Treasury. The total balance of $112.0 million is restricted.

Note 8. Direct Loan and/or Loan Guarantee Programs

Not Applicable
47

General Fund

Notes to the Principal Statements

Note 9. Inventory and Related Property

As of September 30 2008 2007

(Amounts in thousands)

1. Inventory, Net $ 0 $ 0 

2. Operating Materiels & Supplies, Net 46,906,666 46,335,059

3. Stockpile Materiels, Net 0 0

4. Total $ 46,906,666 $ 46,335,059

Inventory, Net

Not Applicable

Operating Materials and Supplies, Net

As of September 30

2008 2007

OM&S Gross 

Value

Revaluation 

Allowance OM&S, Net OM&S, Net Valuation 

Method

(Amounts in thousands)

1. OM&S Categories

 A. Held for Use $ 35,828,669 $ 0 $ 35,828,669 $ 35,998,482 SP, LAC

 B. Held for Repair 11,077,997 0 11,077,997 10,336,577 SP, LAC

 C. Excess, Obsolete, and Unserviceable 1,904,436 -1,904,436 0 0 NRV

 D. Total $ 48,811,102 $ -1,904,436 $ 46,906,666 $ 46,335,059

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

SP = Standard Price O = Other

AC = Actual Cost

General Composition of OM&S

The Operating Materials and Supplies (OM&S) include weapon systems spares, ammunition, tactical missiles, aerial target 

drones, uninstalled aircraft and cruise missile engines, and uninstalled intercontinental ballistic missile motors.

In addition to the account balances shown in Note 9, the federal accounting standard requires disclosure of the amount of 

OM&S held for future use. Except for an immaterial amount of munitions, the Air Force is not holding any items for future 

use.

Restrictions on the Use of OM&S

The Air Force does not maintain any OM&S restricted assets.
48

General Fund

Notes to the Principal Statements

Decision Criteria for Identifying the Category to Which OM&S Items Are Assigned

The category Held for Use includes all materials available for issuance. OM&S classifi ed as such is marked within each 

supply or inventory system.

The category Held for Repair includes all economically reparable materials as defi ned by the Military Standard Transaction 

Reporting and Accounting Procedures Manual (DoD 4000.25-2-M).

The category Held as Excess, Obsolete, and Unserviceable includes all materials that managers determine to be more costly 

to repair than to replace. Items retained for management purposes which are beyond economic repair are coded “condemned.” These items are held until proper disposal can be made. The net value of these items is zero and they are shown 

as Excess, Obsolete, and Unserviceable. 

Changes in the Criteria for Identifying the Category to Which OM&S Items Are Assigned

The DoD’s approved methodology for determining historical cost is the Moving Average Cost (MAC). As of 3rd Quarter, 

FY 2007, Air Force has fully implemented MAC in three of the six systems used to report OM&S values into the accounting system. In two of the three remaining systems, the beginning inventory balances have been established, but the cost for 

the quantities on hand for each national stock number have not been validated. It is anticipated that a majority of the cost 

associated with the inventory balances in these two systems will be validated using MAC standards by December 31 2008. 

Validation of the beginning balance in the Combat Ammunitions System (CAS), which manages approximately 50% of all 

OM&S, is not scheduled to be completed until 1st Quarter, FY 2009.

Under current DoD policy, no allowance is made for serviceable, ready-to-issue, items (category Held for Use). An allowance equal to 100% of MAC or standard price, however, is made for the category Excess, Obsolete, and Unserviceable. This 

allowance results in a net book value of zero for items that have no intrinsic value to the Air Force. The category Held for 

Repair represents suspended, unserviceable (but reparable) items. Air Force will continue to report Held for Repair at MAC 

or standard price until Offi ce of the Secretary of Defense guidance is provided on how to compute an allowance for repair.

Operating Materiels and Supplies (OM&S) Value

The OM&S data reported on the fi nancial statements are derived from logistics systems designed for materiel management 

purposes. Some of these systems do not maintain the historical cost data necessary to comply with the valuation requirements of the Statement of Federal Financial Accounting Standards (SFFAS) No. 3, “Accounting for Inventory and Related 

Property.”

Items commonly used in and available from the commercial sector are not managed in the DoD materiel management activities. Further, unlike the commercial sector, the DoD operational cycles are based on national need and thereby are irregular. 

In addition, the military risks associated with stock-out positions (e.g., weapon systems that are not mission capable due to 

lack of supplies) are totally different from a commercial activities risk of losing sales. Therefore, DoD does not attempt to 

account separately for items held for current or future use.

In general, the Air Force uses the consumption method of accounting for OM&S, since OM&S is defi ned in SFFAS No. 3 as 

materiel that has not yet been issued to the end user. Once issued, the materiel is expensed. According to federal accounting 

standards, the consumption method of accounting should be used to account for OM&S unless: (1) the amount of OM&S is 

not signifi cant, (2) OM&S are in the hands of the end user for use in normal operations, or (3) it is cost benefi cial to expense 

OM&S when purchased (purchase method).
49

General Fund

Notes to the Principal Statements

Other Air Force Disclosures

In the past, the Air Force provided only minimal OM&S accounting data that can be used to prepare the fi nancial statements 

but has made considerable strides in improving the systems to provide actual transactions for completing the fi nancial 

statements. However, in some cases, the data provided still consists of only beginning and ending balances for each of the 

asset accounts Held for Use; Excess, Obsolete, Unserviceable; and Held for Repair. Without the required additional data 

(acquisitions, transfers in, amounts consumed, transfers out, trading partner data, etc.), DFAS can only report the net change 

between prior period ending balances and the values reported as current period ending balances.

Although the Air Force OM&S systems, in most cases, capture some trading partner data at the transaction level, no electronic interfaces exist between the Air Force OM&S feeder systems, the DFAS accounting systems, other DoD services, 

and other federal agencies for reporting the data for all items transferred in and out. Consequently, intragovernmental transactions (trading partner data) could not always be reconciled. The Air Force and DFAS are currently developing processes, 

methodologies and standard electronic interfaces that will allow intragovernmental transactions to be reported monthly into 

the Air Force accounting system.

Stockpile Materials, Net

Not Applicable
50

General Fund

Notes to the Principal Statements

Note 10. General PP&E, Net

As of September 30

2008 2007

Depreciation/ 

Amortization 

Method

Service Life Acquisition Value

(Accumulated 

Depreciation/ 

Amortization)

Net Book Value Prior FY Net 

Book Value

(Amounts in thousands)

1. Major Asset Classes

 A. Land N/A N/A $ 443,879 N/A $ 443,879 $ 437,150

 B. Buildings, Structures, and 

 Facilities

S/L 20 or 40 49,696,527 $ -28,272,596 21,423,931 20,624,376

 C. Leasehold Improvements S/L lease term 0 0 0 0 

 D. Software S/L 2-5 or 10 517,377 -163,801 353,576 435,089

 E. General Equipment S/L 5 or 10 36,802,784 -28,890,932 7,911,852 7,119,611

 F. Military Equipment S/L Various 257,051,494 -142,591,486 114,460,008 111,053,515

 G. Assets Under Capital Lease S/L lease term 393,002 -303,111 89,891 109,749

 H. Construction-in-Progress N/A N/A 4,087,234 N/A 4,087,234 3,478,390

 I. Other 0 0 0 0 

 J. Total General PP&E $ 348,992,297 $ -200,221,926 $ 148,770,371 $ 143,257,880

See Note 15 for additional information on Capital Leases

 

S/L = Straight Line N/A = Not Applicable

Relevant Information for Comprehension

General Property, Plant and Equipment (PP&E)

There are restrictions on the Air Force’s ability to dispose of real property (land and buildings) located outside the continental United States.

The Air Force estimates historical values for capitalized military equipment using departmental internal records.

Other Air Force Disclosures

The value of the Air Force’s General PP&E real property in the possession of contractors is included in the values reported 

for the major asset classes of Land and Buildings, Structures, and Facilities. The value of General PP&E personal property major asset class of Software and Equipment does not include all of the General PP&E above the DoD capitalization 

threshold in the possession of contractors. The Air Force does not report the value of equipment purchased directly by the 

contractor. The Government Accountability Offi ce, the Inspector General, DoD, and the Air Force are developing new policies and a contractor reporting process to capture General PP&E information for future reporting purposes in compliance 

with generally accepted accounting principles.
51

General Fund

Notes to the Principal Statements

Heritage Assets and Stewardship Land

The overall mission of Air Force is to fl y, fi ght and win in air, space and cyberspace, infl uence events, and advance U.S. 

interests across the full spectrum of military operations. As this mission has been executed, Air Force has become a largescale owner of historic buildings, structures, archaeological sites and artifacts, aircraft, other cultural resources, and stewardship land. The protection of the nation’s heritage assets and stewardship land is an important aspect of the Air Force’s 

mission. 

Heritage Assets and Stewardship Land are resources that protect, restore, enhance, modernize, preserve and sustain mission 

capability within the Air Force through effective planning and management of natural and cultural resources to guarantee 

access to air, land, and water. These assets are resources that are managed to provide multiple use activities for the public 

benefi t. This includes actions to comply with requirements such as federal laws, Executive Orders, policies, fi nal governing 

standards, and other binding agreements.

Heritage Assets consist of buildings and structures, archaeological sites, museum collection items (objects, not including 

fi ne art), and museum collection items (fi ne art). Stewardship Land consist of government owned land, state owned land, 

withdrawn public land, license and permitted land, public land, land easement, in-lease land, and foreign land. The Air 

Force has 7,592,000 acres of mission essential land under their administration. Stewardship decreased 108,000 acres in 

FY 2008 because of a change in category reporting requirement. Specifi cally, certain category codes are now reported as 

government owned land rather than withdrawn public land. Land purchased by the Air Force with the intent to construct 

buildings or facilities is considered General PP&E and is reported on the balance sheet. All stewardship land, as reported, 

is in acceptable condition, based on designated use.

Heritage Assets are PP&E of historical, natural, cultural, educational or artistic signifi cance (e.g. aesthetic); or with signifi -

cant architectural characteristics. Air Force policy is to promote and preserve indefi nitely the identifi able human, environmental or civic value of these assets.

Stewardship Land comprises land and land rights other than that acquired for or in connection with General PP&E, land 

acquired via the public domain, or land acquired at no cost. Air Force policy is to promote and preserve indefi nitely the 

identifi able human, environmental or civic value of such land. 

Buildings and Structures: The Air Force considers 4,959 buildings and structures on Air Force bases and sites to be 

heritage assets. In order to be considered a heritage asset, the building and/or facility must be listed, eligible, or potentially 

eligible for the National Register. These buildings and structures are maintained by each base’s civil engineering group as 

part of their overall responsibility.

Archaeological Sites: The Air Force has 1,930 archeological sites listed on or eligible for the National Register.

Museum Collection Items, Objects Not Including Fine Art: The Air Force has 117,134 museum collection items (not 

including fi ne art). During FY 2008, 4,009 objects have been added to the collection, primarily as a result of private donations or by being found on base.

Museum Collection Items, Fine Art: The Air Force has 9,370 fi ne art museum collections. During FY 2008, 111 paintings were received through donations. 
52

General Fund

Notes to the Principal Statements

Assets Under Capital Lease

As of September 30 2008 2007

(Amounts in thousands)

1. Entity as Lessee, Assets Under Capital Lease

 A. Land and Buildings $ 393,002 $ 405,988

 B. Equipment 0 0 

 C. Accumulated Amortization -303,111 -296,239

 D. Total Capital Leases $ 89,891 $ 109,749

Relevant Information for Comprehension

The Air Force is the lessee in eight capital leases for military housing acquired through the Section 801 Family Housing 

Program. The leases are capitalized and reported as an asset since their costs exceed the capitalization threshold of $100.0 

thousand. The net value of assets under capital leases are scheduled to expire by 4th Quarter, FY 2015. The Air Force is not 

acquiring any new capital leases. 

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Liabilities

 A. Accounts Payable $ 0 $ 0 

 B. Debt 0 0 

 C. Other 823,278 512,987

 D. Total Intragovernmental Liabilities $ 823,278 $ 512,987

2. Nonfederal Liabilities

 A. Accounts Payable $ 394,075 $ 234,292

 B. Military Retirement and Other Federal Employment Benefi ts 1,158,232 1,132,550

 C. Environmental Liabilities 7,519,475 6,093,809

 D. Other Liabilities 3,033,988 2,706,792

 E. Total Nonfederal Liabilities $ 12,105,770 $ 10,167,443

3. Total Liabilities Not Covered by Budgetary Resources $ 12,929,048 $ 10,680,430

4. Total Liabilities Covered by Budgetary Resources 10,646,178 10,169,668

5. Total Liabilities $ 23,575,226 $ 20,850,098

Information Related to Liabilities Not Covered by Budgetary Resources

Liabilities Not Covered by Budgetary Resources are liabilities for which congressional action is needed before budgetary 

resources can be provided. 

The material amounts and sensitive areas included in Total Liabilities Not Covered by Budgetary Resources are categorized 
53

General Fund

Notes to the Principal Statements

as not covered because there is no current or immediate appropriation available for liquidation. These liabilities will be 

included in future budget years as Liabilities Covered by Budgetary Resources. The Air Force fully expects to receive the 

necessary resources to cover these liabilities in future years. 

Other Intragovernmental Liabilities are primarily comprised of liabilities representing the amount of nonentity assets held 

in a general receipt account or other U.S. Treasury account symbol for transfers to other entities, and the amount of the 

Federal Employees’ Compensation Act (FECA) liability billed to the agency by Department of Labor for FECA payments 

made on the agency’s behalf.

Other Nonfederal Liabilities are primarily comprised of the amounts recorded for unpaid leave earned to which an employee is entitled upon separation and for contingent liabilities which are probable and measurable and will require resources 

funded from future years’ appropriations. 

 Military Retirement and Other Federal Employment Benefi ts not covered by budgetary resources are comprised of various 

employee actuarial liabilities not due and payable during the current fi scal year. These liabilities, totaling $1.2 billion, are 

primarily comprised of the amount recorded by employer agencies for the actuarial present value of future FECA benefi ts 

provided to Federal employees or their benefi ciaries as a result of work related deaths, disability, or occupational disease. 

Refer to Note 17, Military Retirement and Other Federal Employment Benefi ts, for additional details and disclosures.

Note 12. Accounts Payable

As of September 30

2008 2007

Accounts Payable Interest, Penalties, and 

Administrative Fees Total Total

(Amounts in thousands)

1. Intragovernmental Payables $ 2,002,120 $ N/A $ 2,002,120 $ 1,509,630

2. Nonfederal Payables (to the Public) 3,810,464 471 3,810,935 3,189,763

3. Total $ 5,812,584 $ 471 $ 5,813,055 $ 4,699,393

Relevant Information for Comprehension

The Air Force’s systems do not track intragovernmental transactions by customer at the transaction level. Therefore, internal DoD buyer-side balances are adjusted to agree with internal seller-side balances for revenue, accounts receivable, and 

unearned revenue. Accounts Payable were reviewed on a case-by-case basis and adjusted to accrue additional payables and 

expenses as appropriate. 

In FY 2007, the Air Force recognized accounts payable balances of the Mechanization of Contract Administration Services 

(MOCAS) system at gross value without reductions for partial and progress payments, and nonaccounts payable records. 

The overstated balances for FY 2007 were undeterminable due to system limitations; therefore no corrections have been 

made. Balances at FY 2008 are properly reported net of nonaccounts payable records, partial and progress payments of 

$179.9 million.

Note 13. Debt

Not Applicable 
54

General Fund

Notes to the Principal Statements

Note 14. Environmental Liabilities and Disposal Liabilities

As of September 30

2008 2007

Current Liability Noncurrent 

Liability Total Total

(Amounts in thousands)

1. Environmental Liabilities—Nonfederal

 A. Accrued Environmental Restoration Liabilities

 1. Active Installations—Installation Restoration Program

 (IRP) and Building Demolition and Debris Removal (BD/DR)

$ 524,720 $ 3,100,857 $ 3,625,577 $ 3,793,045

 2. Active Installations—Military Munitions Response Program 

 (MMRP)

22,849 1,369,593 1,392,442 1,397,049

 3. Formerly Used Defense Sites—IRP and BD/DR 0 0 0 0

 4. Formerly Used Defense Sites—MMRP 0 0 0 0

 B. Other Accrued Environmental Liabilities—Non BRAC

 1. Environmental Corrective Action 14,280 165,468 179,748 165,375

 2. Environmental Closure Requirements 21,750 1,108,139 1,129,889 87,363

 3. Environmental Response at Operational Ranges 0 0 0 0

 4. Asbestos 7,099 421,503 428,602 0

 5. Non-Military Equipment 1,637 27,079 28,716 0

 6. Other 00 00

 C. Base Realignment and Closure Installations

 1. Installation Restoration Program 120,961 1,281,047 1,402,008 1,442,601

 2. Military Munitions Response Program 177 2,221 2,398 3,520

 3. Environmental Corrective Action / Closure Requirements 2,137 35,783 37,920 9,915

 4. Asbestos 0 0 0 0

 5. Non-Military Equipment 0 0 0 0

 6. Other 00 00

 D. Environmental Disposal for Military Equipment / Weapons 

 Programs

 1. Nuclear Powered Military Equipment / Spent Nuclear Fuel 0 0 0 0

 2. Non-Nuclear Powered Military Equipment 217 38,858 39,075 0

 3. Other National Defense Weapons Systems 0 0 0 0

 4. Other 0 0 0 0

 E. Chemical Weapons Disposal Program

 1. Chemical Agents and Munitions Destruction (CAMD) 0 0 0 0

 2. CAMD Assembled Chemical Weapons Assessment 

 (ACWA)

00 00

 3. Other 00 00

2. Total Environmental Liabilities $ 715,827 $ 7,550,548 $ 8,266,375 $ 6,898,868

Other Information Related to Environmental Liabilities

An environmental liability is a probable and measurable future outfl ow or expenditure of resources that exist as of the fi nancial reporting date for environmental cleanup costs resulting from past transactions or events. The Air Force acknowledges 
55

General Fund

Notes to the Principal Statements

that liabilities can change for environmental cleanup costs to include (1) costs associated with environmental restoration of 

sites funded under the Air Force portion of the Defense Environmental Restorations Program (DERP), (2) corrective actions 

funded with other than DERP, Base Realignment and Closure (BRAC), and (3) environmental costs associated with future 

closure or disposal of facilities, equipment, asbestos, and weapon systems. These costs include researching and determining the existence of hazardous waste, removing, containing, and/or disposing of hazardous waste from property, or material 

and/or property that consist of hazardous waste at the time of shutdown or disposal of the asset. Cleanup costs may include, 

but are not limited to, decontamination, decommissioning, site restoration, site monitoring, closure, and post closure costs 

related to Air Force operations that result in hazardous waste.

Applicable Laws and Regulations for Cleanup Requirements 

The Air Force is required to clean up contamination resulting from past waste disposal practices, leaks, spills and other 

past activity, which has created a public human health or environmental risk. The Air Force does this in coordination with 

regulatory agencies, and if applicable, with other responsible parties. The Air Force is also required to recognize closure, 

post closure and disposal costs for its Property, Plant and Equipment (PP&E) and environmental corrective action costs for 

current operations. The Air Force is responsible for tracking and reporting all required environmental information related 

to environmental restoration and corrective action, closure and disposal costs of PP&E, and environmental costs related 

to BRAC actions that have taken place in prior years. Examples of relevant laws and regulations that are considered for 

discussion include:

(a) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 

(b) Superfund Amendments and Reauthorization Act (SARA)

(c) Clean Water Act (CWA)

(d) Clean Air Act (CAA)

(e) Resource Conservation and Recovery Act (RCRA)

(f) Toxic Substances Control Act (TSCA)

(g) Military Munitions Rule in 40 CFR 266.201, Defi nition of Solid Waste

The two laws with the majority of cost estimates for active environmental cleanup are CERCLA and RCRA. 

Types of Environmental Liabilities Identifi ed 

The Air Force has environmental liabilities to cover cleanup requirements for active installations: Installation Restoration 

Program (IRP), Building Demolition and Debris Removal (BD/DR), Military Munitions Response Program (MMRP), and 

Environmental Corrective Action (ECA). The Air Force also has environmental liabilities to cover cleanup requirements 

at BRAC installations. Finally, the Air Force has identifi ed environmental liabilities for closure and disposal of PP&E to 

include facilities, general equipment, asbestos, and weapon systems.

Methods for Assigning Estimated Total Cleanup Costs to Current Operating Periods

The Air Force uses engineering estimates and independently validated models to estimate environmental cleanup costs. The 

models are either developed within the Remedial Action Cost Engineering Requirements application, or a historic comparable project, a specifi c bid, or an independent government cost estimate is referenced for the current project. The Air Force 
56

General Fund

Notes to the Principal Statements

validates the models in accordance with DoD Instruction 5000.61 and primarily uses the models to estimate environmental 

cleanup costs based on data received during a preliminary assessment and initial site investigation. The Air Force primarily uses engineering estimates after obtaining data during the remedial investigation/feasibility phase of the environmental 

project. 

Once the environmental cleanup cost estimates are complete, Air Force will comply with accounting standards to assign 

costs to current operating periods for the unexpended obligations from prior periods and the future program. The Air Force 

Accrued Environmental Restoration Liabilities is accounted for as a totally self contained program. All direct and indirect 

costs of the program are captured and reported.

The Air Force has already expensed the costs for cleanup associated with General PP&E placed into service prior to 

October 1, 1997, unless the costs are intended to be recovered through user charges. If the costs are recovered through user 

charges, then the Air Force expenses the associated environmental cost systematically over the life of the asset. 

The accounting standards also require environmental liabilities are recognized for closure and disposal requirements. The 

Air Force has closure requirements or disposal liabilities at active installations. Closure and disposal liabilities for facilities (including landfi lls), asbestos, general equipment and weapon systems are estimated for the applicable inventory of real 

property, general equipment and weapon systems. The Air Force uses a set of historical disposal factors to estimate the environmental disposal liability for each asset and the estimated closure and monitoring cost for landfi lls. The current liability 

for these classes of assets is determined from the related disposal programs including the resources expected to be expended 

in the next year from prior and future budgets.

For General PP&E placed into service after September 30, 1997, the Air Force expenses the associated environmental costs 

systematically over the life of the asset. The Air Force expenses the full cost to clean up contamination for Stewardship 

PP&E at the time the asset is placed into service. 

The Air Force uses two methods for systematic recognition: physical capacity for operating landfi lls, and life expectancy in 

years for all other assets.

Nature of Estimates and the Disclosure of Information Regarding Possible Changes due to Infl ation, 

Defl ation, Technology, or Applicable Laws and Regulations

The Air Force is not aware of any pending changes to reported values of Environmental Liabilities. The Air Force does 

understand that liabilities can change in the future due to changes in laws, regulations, and changes in agreements with 

regulatory agencies.

Level of Uncertainty Regarding the Accounting Estimates used to Calculate the Reported Environmental Liabilities

Environmental liabilities for Air Force are based on accounting estimates which require certain judgments and assumptions 

to be made by management. The Air Force believes the estimates are reasonable based upon the information available at 

the time of calculation. Actual results may vary materially from the accounting estimates if agreements with regulatory 

agencies require remediation to a different degree than anticipated when the estimate was calculated. The liabilities can be 

further impacted if further investigation discovers contamination different from that which was known at the time of the 

estimate. The Air Force fi nancial statements would be affected to the extent there are material differences between these 

estimates and actual costs. There are areas in which management judgment in selecting any available alternative could 

produce a materially different result. 
57

General Fund

Notes to the Principal Statements

In addition to the liabilities reported above, the Air Force has the potential to incur costs for restoration initiatives in conjunction with returning overseas Defense facilities to host nations. The Air Force is unable to provide a reasonable estimate 

at this time because the extent of restoration required is not known. 

Environmental Disclosures

As of September 30 2008 2007

(Amounts in thousands)

A. The unrecognized portion of the estimated total cleanup costs associated with general 

property, plant, and equipment.

$ 363,012 $ 67,280

B. Changes in total cleanup costs due to changes in laws, regulations, and/or technology. 223,300 -12,662

C. Portion of the changes in estimated costs due to changes in laws and technology that is 

related to prior periods. -34,978 -4,357 

The unrecognized portion of the total cleanup is the estimated total cleanup cost less the amount that is recognized on the 

fi nancial statements. 

Changes in environmental regulations and cleanup standards resulted in a reduction of total cleanup costs.
58

General Fund

Notes to the Principal Statements

Note 15. Other Liabilities 

As of September 30

2008 2007

Current

Liability

Noncurrent

Liability Total Total

(Amounts in thousands)

1. Intragovernmental

 A. Advances from Others $ 694,789 $ 0 $ 694,789 $ 882,243

 B. Deposit Funds and Suspense Account Liabilities 371,200 0 371,200 290,441

 C. Disbursing Offi cer Cash 297,209 0 297,209 293,933

 D. Judgment Fund Liabilities 0 0 0 0

 E. FECA Reimbursement to the Department of Labor 130,059 171,153 301,212 295,090

 F. Custodial Liabilities 0 194,800 194,800 187,038

 G. Employer Contribution and Payroll Taxes Payable 63,176 0 63,176 53,138

 H. Other Liabilities 30,399 0 30,399 31,443

 I. Total Intragovernmental Other Liabilities $ 1,586,832 $ 365,953 $ 1,952,785 $ 2,033,326

2. Nonfederal

 A. Accrued Funded Payroll and Benefi ts $ 2,032,464 $ 0 $ 2,032,464 $ 2,066,760

 B. Advances from Others 136,825 0 136,825 9,980

 C. Deferred Credits 000 0

 D. Deposit Funds and Suspense Accounts 101,064 0 101,064 95,073

 E. Temporary Early Retirement Authority 000 0

 F. Nonenvironmental Disposal Liabilities

 1. Military Equipment (Nonnuclear) 000 0

 2. Excess/Obsolete Structures 000 0

 3. Conventional Munitions Disposal 000 0

 G. Accrued Unfunded Annual Leave 2,272,149 0 2,272,149 2,250,677

 H. Capital Lease Liability 0 130,091 130,091 157,725

 I. Contract Holdbacks 131,506 0 131,506 164,211

 J. Employer Contribution and Payroll Taxes Payable 297,742 0 297,742 286,014

 K. Contingent Liabilities 533,208 744,245 1,277,453 1,044,352

 L. Other Liabilities 303 0 303 6,704

 M. Total Nonfederal Other Liabilities $ 5,505,261 $ 874,336 $ 6,379,597 $ 6,081,496

3. Total Other Liabilities $ 7,092,093 $ 1,240,289 $ 8,332,382 $ 8,114,822

Relevant Information for Comprehension

The amount of Intragovernmental Other Liabilities represent Government contributions for employee benefi ts, unemployment compensation, education benefi ts, and custodial liabilities.
59

General Fund

Notes to the Principal Statements

The amount of Nonfederal Other Liabilities represent legal contingencies, employee benefi ts, and contract holdbacks.

Contingent Liabilities include $533.2 million in estimated future contract fi nancing payments that will be paid to contractors upon delivery and Government acceptance, $152.5 million in Contingent Liabilities nonfederal for open contractor 

claims greater than $100.0 thousand, and $591.7 million for claims and litigation against the Air Force handled by the Civil 

Law and Litigation Directorate. The nature and estimating methodology related to these liabilities are discussed further in 

Note 16. 

Contractor claims are updated annually because there are only marginal changes. 

Estimation Methodology 

The Air Force General Counsel, through legal determination assesses and categorizes all contingent legal liability cases 

that equal or exceed the materiality threshold set by Department of Defense Inspector General (DoDIG). For the remaining 

cases falling below the dollar materiality threshold set by DoDIG, they are considered in aggregate, if the total amount of 

the cases equal or exceed the established materiality threshold. 

The Air Force General Counsel also solicits case data through quarterly data calls from the Air Force JAC (Judge Advocate 

Civil Lawsuits and Litigation Directorate). Air Force fi nancial management personnel use the solicited case data which 

includes the current reporting year and each of the prior two years to estimate the amounts of probable and reasonably possible contingent liabilities.

Air Force fi nancial management personnel use a three year prior case analysis spreadsheet which was developed by the 

Air Force Audit Agency to calculate and estimate the amount of contingent liabilities (probable and reasonably possible) 

for reporting or disclosing in the quarterly fi nancial statements. In cases where Air Force General Counsel discloses that a 

judgment has been awarded against the Air Force, these amounts will be reported on the Balance Sheet and within this note. 
60

General Fund

Notes to the Principal Statements

Capital Lease Liability

As of September 30

2008

Asset Category

2007

Land and 

Buildings Equipment Other Total Total

(Amounts in thousands)

1. Future Payments Due

 A. 2008 $ 0 $ 0 $ 0 $ 0 $ 38,594

 B. 2009 38,478 0 0 38,478 38,478

 C. 2010 38,478 0 0 38,478 38,478

 D. 2011 36,786 0 0 36,786 36,786

 E. 2012 13,088 0 0 13,088 13,088

 F. 2013 9,462 0 0 9,462 0

 G. After 5 Years 17,376 0 0 17,376 26,838

 H. Total Future Lease Payments Due $ 153,668 $ 0 $ 0 $ 153,668 $ 192,262

 I. Less: Imputed Interest Executroy Costs 23,577 0 0 23,577 34,537

 J. Net Capital Lease Liability $ 130,091 $ 0 $ 0 $ 130,091 $ 157,725

2. Capital Lease Liabilities Covered by Budgetary Resources $ 112,801 $ 135,750

3. Capital Lease Liabilities Not Covered by Budgetary Resources $ 17,289 $ 21,975
61

General Fund

Notes to the Principal Statements

Note 16. Commitments and Contingencies

Relevant Information for Comprehension

The Air Force is a party in various administrative proceedings and legal actions, with claims that encompass environmental 

damage claims, equal opportunity matters, and contractual bid protests. We are not aware of any contingent liabilities for 

legal actions. 

The Air Force has accrued contingent liabilities for legal actions where our Offi ce of the General Counsel considers an adverse decision probable and the amount of loss is measurable. In the event of an adverse judgment against the Government, 

some of the liabilities may be payable from the Judgment Fund. The Air Force records Judgment Fund liabilities in Note 

12, “Accounts Payable,” and Note 15, “Other Liabilities.”

Contractor claims having a reasonably possible liability is estimated at $26.1 million. Claims and litigation from Civil Law 

having a reasonably possible liability is estimated at $3.3 billion. Neither past payments nor the current contingent liability 

estimate provides a basis for accurately projecting the results of any individual lawsuit or claim. Since monetary judgments 

paid to civil litigants come from a judgment fund administrated by U.S. Treasury, it is uncertain that claims will become a 

liability to the Air Force.

The amounts disclosed for litigation claims and assessments are fully supportable and agree with Air Force’s legal representation letters and management summary schedule.

The amount of undelivered orders for open contracts citing cancelled appropriations which remain unfi lled or unreconciled 

for which the Air Force may incur a contractual commitment for payment is $766.4 million.

The Air Force is a party in numerous individual contracts that contain clauses, such as price escalation, award fee payments, 

or dispute resolution, that may or may not result in a future outfl ow of expenditures. Currently, Air Force does not have a 

systemic process by which it captures or assesses these potential contingent liabilities; therefore, the amounts reported may 

not fairly present the Air Force’s contingent liabilities. 

The estimated probable liability amount of $1.3 billion was recognized in Note 15 as contingent liabilities.

The recognized contingent liability includes $533.2 million in estimated future contract fi nancing payments that will be paid 

to contractors upon delivery and Government acceptance. In accordance with contract terms, specifi c rights to the contractor’s work vests with the Government when a specifi c type of contract fi nancing payment is made. This action protects taxpayer funds in the event of contract nonperformance. These rights should not be misconstrued as the rights of ownership. 

The Air Force is under no obligation to pay the contractor for amounts greater than the amounts authorized in the contract 

until delivery and Government acceptance. Because it is probable that the contractor will complete its efforts and deliver a 

satisfactory product to the Air Force and the amount of potential future payments is estimable; the Air Force has recognized 

a contingent liability for estimated future payments, which are conditional pending delivery and Government acceptance.

The recognized contingent liability also includes the recorded estimated probable liability amount of $152.5 million for 

open contractor claims greater than $100.0 thousand. At this time, these claims are not in appeal or in litigation. In addition to the contractor claims under appeal and the open contractor claims for an amount greater than $100.0 thousand, the 

Air Force was party to numerous other contractor claims in amounts less than $100.0 thousand per claim. These claims 

are a routine part of the contracting business and are typically resolved through mutual agreement between the contracting 

offi cer 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 
62

General Fund

Notes to the Principal Statements

favor of the claimant. The potential liability arising from these claims in aggregate would not materially affect the operations or fi nancial condition of the Air Force. 

In addition, Air Force recognized the total estimated probable liability for claims and litigation against the Air Force handled by the Civil Law and Litigation Directorate, as of September 30, 2008, valued at $591.7 million included in Contingent Liabilities nonfederal. As of September 30, 2008, the Air Force was party to 16,787 claims and litigation actions. This 

liability dollar amount recorded in the fi nancial statements is an estimate based on the weighted average payout rate for the 

previous three years. There are only two types of cases where U.S. Treasury will seek reimbursements from the affected 

agency, the Contract Dispute Act cases and select Federal Government personnel disciplinary matters. 

The Air Force General Counsel developed the estimating methodology for the contingent liabilities recognized in Note 15. 

Through legal determination, the Air Force General Counsel assessed and categorized all contingent legal liability cases 

that equal or exceed the materiality threshold set by Department of Defense Inspector General (DoDIG). For the remaining 

cases falling below the dollar materiality threshold set by DoDIG, they are considered in aggregate, if the total amount of 

the cases equal or exceed the established materiality threshold.

The Air Force General Counsel also solicited case data through quarterly data calls from the Air Force JAC (Judge Advocate Civil Lawsuits and Litigation Directorate). Air Force fi nancial management personnel used the solicited case data 

which included the current reporting year and each of the prior two years to estimate the amounts of probable and reasonably possible contingent liabilities.

Air Force fi nancial management personnel used a three year prior case analysis spreadsheet which was developed by the 

Air Force Audit Agency to calculate and estimate the amount of contingent liabilities (probable and reasonably possible) 

for reporting or disclosing in the quarterly fi nancial statements. In cases where Air Force General Counsel disclosed that a 

judgement has been awarded against the Air Force, these amounts were reported on the Balance Sheet and within Note 15.
63

General Fund

Notes to the Principal Statements

Note 17. Military Retirement and Other Federal Employment Benefi ts

As of September 30

2008 2007

Liabilities

Assumed 

Interest 

Rate (%)

(Less: Assets 

Available to 

Pay Benefi ts)

Unfunded 

Liabilities Liabilities

(Amounts in thousands)

1. Pension and Health Actuarial Benefi ts

 A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0

 B. Military Retirement Health Benefi ts 0 0 0 0

 C. Military Medicare-Eligible Retiree Benefi ts 0 0 0 0

 D. Total Pension and Health Actuarial Benefi ts $ 0 $ 0 $ 0 $ 0

2. Other Actuarial Benefi ts

 A. FECA 1,158,232 0 1,158,232 1,132,550

 B. Voluntary Separation Incentive Programs 0 0 0 0

 C. DoD Education Benefi ts Fund 0 0 0 0

 D. Total Other Actuarial Benefi ts $ 1,158,232 $ 0 $ 1,158,232 $ 1,132,550

3. Other Federal Employment Benefi ts 5,182 -5,182 0 4,466

4. Total Military Retirement and Other Federal 

Employment Benefi ts: $ 1,163,414 $ -5,182 $ 1,158,232 $ 1,137,016

Relevant Information for Comprehension

The Federal Employees’ Compensation Act (FECA) liability is determined using a method that utilizes historical benefi t 

payment patterns to predict the ultimate payments. The projected annual benefi t payments are then discounted to present 

value using the Offi ce of Management and Budget’s economic assumptions for 10-year U.S. Treasury notes and bonds. 

Interest rate assumptions utilized for discounting were as follows:

2008

4.368% in Year 1

4.770% in Year 2

And thereafter

To adjust more specifi cally for the effects of infl ation on the liability for future workers’ compensation benefi ts, wage infl ation factors (Cost of Living Adjustments (COLAs)) and medical infl ation factors (Consumer Price Index Medical (CPIMs)) 

were applied to the calculation of projected future benefi ts. The actual rates for these factors for the charge back year 

(CBY) 2007 were also used to adjust the methodology’s historical payments to current year constant dollars.
64

General Fund

Notes to the Principal Statements

The compensation COLAs and CPIMs used in the projections for various CBYs were as follows:

CBY COLA CPIM

2008 3.03% 4.71%

2009 3.87% 4.01%

2010 2.73% 3.86%

2011 2.20% 3.87%

2012 2.23% 3.93%

2013 + 2.30% 3.93%

The model’s resulting projections were analyzed to ensure that the estimates were reliable. The analysis was based on four 

tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual incremental payments, (3) a comparison of the incremental 

paid losses per case (a measure of case-severity) in CBY 2007 to the average pattern observed during the most current three 

charge back years, and (4) a comparison of the estimated liability per case in the FY 2007 projection to the average pattern 

for the projections of the most recent three years.

The Air Force’s actuarial liability for workers’ compensation benefi ts is developed and provided by Department of Labor at 

the end of each fi scal year. There is no change on a quarterly basis. A comparison of 4th Quarter, FY 2008, and 4th Quarter, 

FY 2007, disclosed a minor change. 

Programs for which actuarial benefi ts are computed include FECA, the expected liability for death, disability, medical, and 

miscellaneous costs for approved compensation cases, plus a component for incurred but unreported claims. 

Other Federal Employment Benefi ts is comprised of additional post employment benefi ts due and payable to military personnel.

Note 18. General Disclosures Related to the Statement of Net Cost

Intragovernmental Costs and Exchange Revenue

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Costs $ 33,664,673 $ 30,577,467

2. Public Costs 114,425,085 111,884,904

3. Total Costs $ 148,089,758 $ 142,462,371

4. Intragovernmental Earned Revenue $ -4,937,405 $ -4,571,324

5. Public Earned Revenue -938,303 -1,144,216

6. Total Earned Revenue $ -5,875,708 $ -5,715,540

7. Net Cost of Operations $ 142,214,050 $ 136,746,831
65

General Fund

Notes to the Principal Statements

Relevant Information for Comprehension

Intragovernmental costs and revenue are related to transactions made between two reporting entities within the Federal 

Government.

Public costs and revenues are exchange transactions made between the reporting entity and a nonfederal entity. 

The Air Force’s systems do not track intragovernmental transactions by customer at the transaction level. Therefore, internal DoD buyer-side balances are adjusted to agree with internal seller-side balances for revenue. Expenses were adjusted 

by accruing additional accounts payable and expenses as appropriate. 

The Statement of Net Cost (SNC) represents the net cost of programs and organizations of the Federal Government supported by appropriations or other means. The intent of SNC is to provide gross and net cost information related to the 

amount of output or outcome for a given program or organization administered by a responsible reporting entity. The Air 

Force current processes and systems do not capture and report accumulated costs for major programs based upon the performance measures as required by the Government Performance and Results Act. The Air Force is in the process of reviewing 

available data and developing a cost reporting methodology as required by the Statement of Federal Financial Accounting 

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

The amounts presented in this statement are based on budgetary obligations, disbursements and collection transactions, as 

well as nonfi nancial feeder systems that were adjusted to record known accruals for major items such as; payroll expenses, 

accounts payable, and environmental liabilities and may not meet accounting standards.

The Air Force’s accounting systems do not capture information relative to heritage assets separately and distinctly from 

normal operations. 

Note 19. Disclosures Related to the Statement of Changes in Net Position

Relevant Information for Comprehension

The Appropriations Received line item on the Statement of Changes in Net Position (SCNP) differs from that reported on 

the Statement of Budgetary Resources (SBR) because Appropriations Received on SCNP does not include appropriated 

dedicated and earmarked receipts. Dedicated and earmarked receipts are accounted for as either nonexchange revenue or 

donations and forfeitures of cash and cash equivalents. This resulted in a $3.6 million difference due to additional resources 

included in the Appropriation Received on the SBR. Refer to Note 20 for additional details.

The eliminations column on SCNP will refl ect zero dollars. In the SCNP, all offsetting balances (i.e. transfers-in and 

transfers-out, revenues, and expense) for intradepartmental activity between earmarked and other (nonearmarked) funds 

are reported on the same lines. This results in an eliminations column, which appears to contain no balances. In reality, 

the column contains all appropriate elimination entries, but all net to zero within each respective line, except for intraentity 

imputed fi nancing costs. 
66

General Fund

Notes to the Principal Statements

Note 20. Disclosures Related to the Statement of Budgetary Resources

As of September 30 2008 2007

(Amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for Undelivered Orders at the End 

of the Period

$ 70,594,923 $ 64,119,346 

2. Available Borrowing and Contract Authority at the End of the Period 0 0 

Apportionment Categories

Funds are apportioned by three categories: (1) Category A is apportioned quarterly, (2) Category B is apportioned by activity or project, and (3) Exempt are funds not subject to apportionment. The amounts of direct and reimbursable obligations 

incurred are stated in the table. 

Category A Category B Exempt

Direct $86.9 billion $68.1 billion $2.1 million

Reimbursable $6.4 billion $4.0 billion $10.0 million

Intraentity Transactions

The Statement of Budgetary Resources (SBR) includes intraentity transactions because the statements are presented as 

combined.

Permanent Indefi nite Appropriations

Permanent indefi nite appropriations are as follows (reference Note 23 for additional information):

y Department of the Air Force General Gift Fund [10 USC 2601(b)]

y Wildlife Conservation Fund [16 USC 670(a)]

y Air Force Cadet Fund [37 USC 725(s)]

Legal limitations and time restrictions on the use of unobligated appropriation balances such as upward adjustments are 

provided under Public Law.

Appropriations Received

The Appropriations Received line item on the Statement of Changes in Net Position differs from that reported on SBR 

because Appropriations Received on the Statement of Changes in Net Position do not include dedicated appropriations and 

earmarked receipts. Dedicated appropriations and earmarked receipts are accounted for as either nonexchange revenue or 

donations and forfeitures of cash and cash equivalents. This resulted in a $3.6 million difference.
67

General Fund

Notes to the Principal Statements

Note 21. Reconciliation of Net Cost of Operations to Budget

As of September 30 2008 2007

(Amounts in thousands)

Resources Used to Finance Activities:

Budgetary Resources Obligated:

1. Obligations incurred $ 165,397,504 $ 156,973,842 

2. Less: Spending authority from offsetting collections and recoveries (-) -14,551,339 -14,269,297

3. Obligations net of offsetting collections and recoveries $ 150,846,165 $ 142,704,545

4. Less: Offsetting receipts (-) -201,497 -140,980

5. Net obligations $ 150,644,668 $ 142,563,565

Other Resources:

6. Donations and forfeitures of property 0 0 

7. Transfers in/out without reimbursement (+/-) 322,962 261,389 

8. Imputed fi nancing from costs absorbed by others 628,882 724,671 

9. Other (+/-) 1,323,184 -1,265,895 

10. Net other resources used to fi nance activities $ 2,275,028 $ -279,835

11. Total resources used to fi nance activities $ 152,919,696 $ 142,283,730

Resources Used to Finance Items not Part of the Net Cost of Operations:

12. Change in budgetary resources obligated for goods, services and benefi ts

 ordered but not yet provided:

 A. Undelivered Orders (-) $ -6,483,468 $ -7,144,892

 B. Unfi lled Customer Orders -161,014 627,428

13. Resources that fund expenses recognized in prior Periods (-) -86,602 -801,933

14. Budgetary offsetting collections and receipts that do not affect Net Cost of

 Operations

201,497 140,978

15. Resources that fi nance the acquisition of assets (-) -18,749,096 -15,504,535

16. Other resources or adjustments to net obligated resources that do not

 affect Net Cost of Operations: 

 A. Less: Trust or Special Fund Receipts Related to exchange in the

 Entity’s Budget (-)

0 0

 B. Other (+/-) -1,646,144 1,004,509

17. Total resources used to fi nance items not part of the Net Cost of 

Operations $ -26,924,827 $ -21,678,445

18. Total resources used to fi nance the Net Cost of Operations $ 125,994,869 $ 120,605,285

Components of the Net Cost of Operations that will not Require or 

Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future Period:

19. Increase in annual leave liability $ 75,316 $ 3,809

20. Increase in environmental and disposal liability 1,367,508 343,915

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

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

23. Other (+/-) 533,952 84,400

24. Total components of Net Cost of Operations that will Require or Generate $ 1,976,776 $ 432,124

 Resources in future periods

Components not Requiring or Generating Resources: 

25. Depreciation and amortization $ 11,551,854 $ 11,977,009

26. Revaluation of assets or liabilities (+/-) 4,323,066 1,429,657

27. Other (+/-)

 A. Trust Fund Exchange Revenue 0 0

 B. Cost of Goods Sold 0 0

 C. Operating Material and Supplies Used 22,597,444 25,927,617

 D. Other -24,229,959 -23,624,862

28. Total Components of Net Cost of Operations that will not Require or 

 Generate Resources

$ 14,242,405 $ 15,709,421

29. Total Components of Net Cost of Operations that will not Require or 

 Generate Resources in the current period $ 16,219,181 $ 16,141,545

30. Net Cost Operations $ 142,214,050 $ 136,746,830
68

General Fund

Notes to the Principal Statements

Relevant Information for Comprehension

Due to Air Force fi nancial system limitations, budgetary data is not in agreement with proprietary expenses and assets 

capitalized. An adjustment of $519.7 million was made to the note schedule, in the Other Components Not Requiring or 

Generating Resources category, to bring it into balance with the Statement of Net Cost. The difference between budgetary 

and proprietary data is a previously identifi ed defi ciency. 

The following note schedule lines are presented as combined instead of consolidated due to intraagency budgetary transactions not being eliminated: 

y Obligations Incurred

y Less: Spending Authority from Offsetting Collections and Recoveries

y Obligations Net of Offsetting Collections and Recoveries

y Less: Offsetting Receipts

y Net Obligations

y Undelivered Orders

y Unfi lled Customer Orders

Other Resources Used to Finance Activities consist of other gains and losses to adjust intragovernmental transfers in.

Other Resources Used to Finance Items Not Part of the Net Cost of Operations include adjustments to net obligated resources that do not affect the Net Cost of Operations such as net transfers in and transfers out without reimbursement, and 

other gains and losses to adjust intragovernmental transfers in. 

Other Components Requiring or Generating Resources in Future Period consist of expenses due to Air Force active military 

personnel, expenses of Operations and Maintenance, and for family housing expense.

Other Components not Requiring or Generating Resources include expense for Operations and Maintenance, Research 

Development Test and Evaluation, Military Construction, Family Housing, and Military Personnel Expense.

Note 22. Disclosures Related to Incidental Custodial Collections

The Air Force collected $23.4 million of incidental custodial revenues generated primarily from collection of accounts 

receivable in cancelled accounts. The Air Force distributed $23.4 million to the U.S. Treasury. 
69

General Fund

Notes to the Principal Statements

Note 23. Earmarked Funds

2008

BALANCE SHEET

As of September 30

Military 

Retirement Fund

Medicare Eligible 

Retiree Health Care 

Fund

Other Earmarked 

Funds Eliminations Total

(Amounts in thousands)

ASSETS

Fund balance with Treasury $ 0 $ 0 $ 8,260 $ 0 $ 8,260

Investments 0 0 874 0 874

Accounts and Interest Receivable 0 0 1 0 1

Other Assets 0 0 4 0 4

Total Assets $ 0 $ 0 $ 9,139 $ 0 $ 9,139

LIABILITIES AND NET POSITION

As of September 30

Military Retirement Benefi ts and Other 

Federal Employment Benefi ts

$ 0 $ 0 $ 0 $ 0 $ 0

Other Liabilities 0 0 3,784 0 3,784

Total Liabilities $ 0 $ 0 $ 3,784 $ 0 $ 3,784

Unexpended Appropriations $ 0 $ 0 $ 0 $ 0 $ 0

Cumulative Results of Operations 0 0 5,355 0 5,355

Total Liabilities and Net Position $ 0 $ 0 $ 9,139 $ 0 $ 9,139

STATEMENT OF NET COST

As of September 30

Program Costs $ 0 $ 0 $ 12,867 $ 0 $ 12,867

Less Earned Revenue 0 0 -10,044 0 -10,044

Net Program Costs $ 0 $ 0 $ 2,823 $ 0 $ 2,823

Less Earned Revenues Not Attributable 

to Programs 0 0 0 0 0

Net Cost of Operations $ 0 $ 0 $ 2,823 $ 0 $ 2,823

STATEMENT OF CHANGES IN NET 

POSITION

As of September 30

Net Position Beginning of the Period $ 0 $ 0 $ 4,549 $ 0 $ 4,549

Net Cost of Operations 0 0 2,823 0 2,823

Budgetary Financing Sources 0 0 3,629 0 3,629

Other Financing Sources 0 0 0 0 0

Change in Net Position $ 0 $ 0 $ 806 $ 0 $ 806

Net Position End of Period $ 0 $ 0 $ 5,355 $ 0 $ 5,355
70

General Fund

Notes to the Principal Statements

Earmarked Funds

Department of the Air Force General Gift Fund [10 USC 2601 (b)]

The Department of the Air Force General Gift Fund accepts, holds, and administers any gift, device, or bequest of real 

or personal property, made on the condition that it is used for the benefi t (or in connection with the establishment, maintenance, or operation) of a school, hospital, library, museum, or cemetery under the Air Force’s jurisdiction. The fund is 

available to such institutions or organizations subject to the terms of the gift, device, or bequest.

Conditional gifts are invested in U.S. Treasury securities, and any interest earned on these securities is added back into the 

fund.

Wildlife Conservation Fund [16 USC 670 (a)]

The Wildlife Conservation Fund provides for (1) the conservation and rehabilitation of natural resources on military installations, (2) the sustainable multipurpose use of the resources which include hunting, fi shing, trapping, and nonconsumptive uses, and (3) the public access to military installations to facilitate its use, subject to safety requirements and military 

security. The fund is available to carry out these programs and other such expenses that may be necessary for the purpose 

of the cited statute.

Consisting of both appropriated and nonappropriated funding, this fund gives installation commanders the authority to collect fees from the sale of hunting and fi shing permits.

Air Force Cadet Fund [37 USC 725 (s)]

The Air Force Cadet Fund is maintained for the benefi t of Air Force Academy cadets. Disbursements are made for the personal services of cadets such as laundry, arts, and athletics while collections are received from the same cadets at least equal 

to any disbursements made.

The Air Force Cadet Fund is classifi ed as a special fund, the Air Force General Gift Fund and Wildlife Conservation Fund 

are trust funds. All three funds utilize receipt and expenditure accounts in accounting for and reporting the funds.
71

General Fund

Notes to the Principal Statements

2007

BALANCE SHEET

As of September 30

Military 

Retirement Fund

Medicare Eligible 

Retiree Health Care 

Fund

Other Earmarked 

Funds Eliminations Total

(Amounts in thousands)

ASSETS

Fund balance with Treasury $ 0 $ 0 $ 7,964 $ 0 $ 7,964

Investments 0 0 823 0 823

Accounts and Interest Receivable 0 0 2 0 2

Other Assets 0 0 5 0 5

Total Assets $ 0 $ 0 $ 8,794 $ 0 $ 8,794

LIABILITIES AND NET POSITION

As of September 30

Military Retirement Benefi ts and Other 

Federal Employment Benefi ts

$ 0 $ 0 $ 0 $ 0 $ 0

Other Liabilities 0 0 4,246 -1,930 2,316

Total Liabilities $ 0 $ 0 $ 4,246 $ -1,930 $ 2,316

Unexpended Appropriations $ 0 $ 0 $ 0 $ 0 $ 0

Cumulative Results of Operations 0 0 4,548 0 4,548

Total Liabilities and Net Position $ 0 $ 0 $ 8,794 $ -1,930 $ 6,864

STATEMENT OF NET COST

As of September 30

Program Costs $ 0 $ 0 $ 16,632 $ 0 $ 16,632

Less Earned Revenue 0 0 -13,867 0 -13,867

Net Program Costs $ 0 $ 0 $ 2,765 $ 0 $ 2,765

Less Earned Revenues Not Attributable 

to Programs 0 0 0 0 0

Net Cost of Operations $ 0 $ 0 $ 2,765 $ 0 $ 2,765

STATEMENT OF CHANGES IN NET 

POSITION

As of September 30

Net Position Beginning of the Period $ 0 $ 0 $ 4,540 $ 0 $ 4,540

Net Cost of Operations 0 0 2,765 0 2,765

Budgetary Financing Sources 0 0 2,773 0 2,773

Other Financing Sources 0 0 0 0 0

Change in Net Position $ 0 $ 0 $ 8 $ 0 $ 8

Net Position End of Period $ 0 $ 0 $ 4,548 $ 0 $ 4,548
72

General Fund

Notes to the Principal Statements

Note 24. Other Disclosures 

As of September 30

2008

Asset Category

Land and Buildings Equipment Other Total

(Amounts in thousands)

1. ENTITY AS LESSEE-Operating Leases

Future Payments Due

Fiscal Year

2009 $ 55,633 $ 0 $ 103,258 $ 158,891

2010 46,580 0 108,421 155,001

2011 43,516 0 113,842 157,358

2012 44,386 0 119,535 163,921 

2013 46,180 0 125,511 171,691 

After 5 Years 49,006 0 131,787 180,793

Total Future Lease Payments Due $ 285,301 $ 0 $ 702,354 $ 987,655

Relevant Information for Comprehension

Leases in the land and buildings category include costs for operating leased housing facilities for the active Air Force in 

the United States and overseas. Section 801 Family Housing Program leases are not included in this category.

Other leases consist of Air Force vehicle leases from the General Services Administration and commercial lessors 

located in Europe, Southwest Asia, and the United States.

Note 25. Restatements

Not Applicable 
73

General Fund 

Fiscal Year 2008

Required Supplementary 

Stewardship Information
74

General Fund

Required Supplementary Stewardship Information

STEWARDSHIP INVESTMENTS

Stewardship investments are substantial investments made by DoD for the long-term benefi t of the nation and public, 

but are not physical assets owned by DoD. Stewardship investments include expenses incurred for federally fi nanced, 

but not federally owned, physical property (Nonfederal Physical Property) and federally fi nanced research and development (Research and Development). 

NONFEDERAL PHYSICAL PROPERTY 

Nonfederal Physical Property investments are expenses included in calculating net cost incurred by the reporting entity 

for the purchase, construction or major renovation of physical property owned by state and local governments. The expenses include the costs identifi ed for major additions, alterations and replacements, purchases of major equipment, and 

purchases or improvements of other nonfederal assets. In addition, Nonfederal Physical Property Investments include 

federally-owned physical property transferred to state and local governments.

NONFEDERAL PHYSICAL PROPERTY 

Yearly Investment in State and Local Governments

For the Current and Four Preceding Fiscal Years

(Amounts in millions)

Categories 2008 2007 2006 2005 2004

1. Transferred Assets:

 National Defense Mission Related

$ 0 $ 0 $ 0 $ 0 $0

2. Funded Assets:

 National Defense Mission Related

19.6 2.8 8.5 8.3 18.3

 Totals $ 19.6 $ 2.8 $ 8.5 $ 8.3 $ 18.3

The Air National Guard investments in Nonfederal Physical Property are strictly through the Military Construction 

Cooperative Agreements (MCCAs). These agreements involve the transfer of money only and allow joint participation 

with States, Counties, and Airport Authorities for construction or repair of airfi eld pavements and facilities required to 

support the fl ying mission assigned at these civilian airfi elds.

Investment values included in this report are based on Nonfederal Physical Property outlays (expenditures). Outlays are 

used because current DoD systems are unable to capture and summarize costs in accordance with the Federal GAAP 

requirements.

RESEARCH AND DEVELOPMENT

Research and Development investments are incurred in the search for new or refi ned knowledge and ideas, for the 

application or use of such knowledge, ideas for the development of new or improved products and processes, with the 

expectation of maintaining or increasing national economic productive capacity or yielding other future benefi ts.
75

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Required Supplementary Stewardship Information

INVESTMENTS IN RESEARCH AND DEVELOPMENT 

Yearly Investment in Research and Development

For the Current and Four Preceding Fiscal Years

(Amounts in millions)

Categories 2008 2007 2006 2005 2004

1. Basic Research $ 389 $ 383 $ 374 $ 373 $ 209

2. Applied Research 1,051 1,032 1,034 919 735

3. Development

 Advanced Technology Development 611 937 970 924 681

 Advanced Component Development and Prototypes 2,423 2,310 2,185 1,769 1,426

 System Development and Demonstration 3,654 4,094 4,572 4,332 4,390

 Research, Development, Test and Evaluation

 Management Support 1,323 1,286 1,381 1,125 890

 Operational Systems Development 12,459 11,481 11,579 11,021 10,861

4. Totals $ 21,910 $ 21,523 $ 22,095 $ 20,463 $ 19,192

Basic Research is the systematic study to gain knowledge or understanding of the fundamental aspects of phenomena and 

of observable facts without specifi c applications, processes, or products in mind. Basic Research includes scientifi c study 

and experimentation directed toward increasing fundamental knowledge and understanding in those fi elds of the physical, 

engineering, environmental, and life sciences related to long-term national security needs. Major outputs are scientifi c studies and research papers.

Applied Research is the systematic study to gain knowledge or understanding necessary for determining the means by 

which a recognized and specifi c need may be met. It is a systematic expansion and application of knowledge to develop 

useful materials, devices, systems, and methods. This research points toward specifi c military needs with a view toward 

developing and evaluating the feasibility and practicality of proposed solutions and determining their parameters. Major 

outputs are scientifi c studies, investigations, research papers, hardware components, software codes, and limited construction of, or part of, a weapon system, to include nonsystem specifi c development efforts.

Development takes what has been discovered or learned from basic and applied research and uses it to establish technological feasibility, assessment of operability, and production capability. Development is comprised of the following fi ve stages:

1. Advanced Technology Development includes development of subsystems and components plus efforts to integrate subsystems and components into system prototypes for fi eld experiments and/or tests in a simulated environment. It also 

includes concept and technology demonstrations of subsystems and components or system models. 

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 specifi c. Major outputs of Advanced Component Development and Prototypes are hardware 

and software components, or complete weapon systems, ready for operational and developmental testing and fi eld 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 fi nalized for 

complete operational and developmental testing.
76

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4. Research, Development, Test and Evaluation 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 fi scal years.

The following are representative program examples for each of the above major categories:

Basic Research: The Air Force, working with researchers at the University of California at San Diego, created an inexpensive sensor the size of a penny that detects bombs made with improvised peroxide explosive devices. The sensors are 

made using ultra thin fi lms and have a fast response time and sensitivity that enables them to detect even minute amounts of 

peroxide vapors in an environment. When peroxide is present, the fi lm made of cobalt shows a reduction in current, while 

the copper fi lms show an increase.

Air Force scientists have also demonstrated world-record performance of transparent transistors created from thin-fi lm 

nanocrystalline zinc oxide that can function undetected on clear surfaces, such as glass or plastic. A combination of high 

channel mobility, mechanical fl exibility, and high optical transparency at room temperature make the transparent transistors 

an excellent candidate to support a wide range of future Air Force electronics needs and applications.

Applied Research: The Air Force successfully developed and transitioned Automated Detection Identifi cation and Tracking of Deceptive Terrorist Activity (AUDIT) technology to numerous DoD and Intelligence Community (IC) users. A 

variant of this technology is being used by the Air Force to fi ght cyber terrorism and network attacks. AUDIT technology 

is also in use, or in evaluation for use, by the U.S. Special Operations Command, the Joint Improvised Explosive Device 

Defeat Organization, and the Department of Homeland Security – Cargo Border Protection, among others.

The Air Force is currently developing the Wafer Scale Signal Processor (WSSP) for applications where size, weight, and 

power are severely constrained, such as space applications. The WSSP has six processors per chip and provides the most 

fl oating point operations (one Giga Floating point Operation Per Second) per watt of power ever built for any application. 

Processors will be a part of the Air Force’s Plug-and-Play Satellite and are available for both satellite control and signal 

processing.

Advanced Technology Development: The Air Force developed and demonstrated a persistent electro-optical surveillance 

technology called AngelFire, which was deployed to Iraq in support of the United States Marine Corps in October 2007. 

Since then, it has operated continuously in a counter-improvised explosive device role. The Air Force is now developing 

the next phase of AngelFire which will include the addition of an infrared capability to provide nighttime coverage.

With its TacSat-2 program, the Air Force successfully demonstrated responsive space enabling technologies during its one 

year of mission operations. TacSat-2 served as the forerunner for speedy satellite production and launch, and direct theater 

operation. For payloads, TacSat-2 had tactical sensors, two innovative communication links, experimental solar arrays, star 

cameras, and propulsion systems, as well as payloads designed to answer basic scientifi c questions, such as how atmospheric density and radio frequency signal interference fl uctuates with local and remote environmental conditions. Another 

historic fi rst for TacSat-2 involved ground operators successfully tasking and receiving processed data within 90 minutes, 

with traceability to future turnaround times as short as ten minutes.
77

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Required Supplementary Stewardship Information

As part of efforts to reduce the U.S. military’s reliance on foreign energy sources, the Air Force completed certifi cation of 

an alternative jet fuel blend on the C-17 and B-1 aircraft as well as Air Force ground support equipment and vehicles in 

August 2008. The B-52 previously received certifi cation in August 2007. These certifi cations allow operational use of the 

Fischer-Tropsch (FT) and JP-8 fuel blend in these aircraft and support equipment and vehicles. The F-15, F-22 and KC-135 

aircraft fl ight tested the alternative jet fuel blend in August 2008. The F-22 and KC-135 also performed two aerial refuelings on the same sortie during these fl ight tests. This FT effort is part of the Pentagon’s Assured Fuel Initiative that seeks 

to convert coal, of which the United States has abundant reserves, into liquid fuel. The fuel is derived from refi ning natural 

gas under the FT process, which is named after its German inventors in the 1920’s. The Air Force plans to test and certify 

every airframe to fl y on this synthetic fuel blend by early 2011. The Air Force developed improved turbine engine lifemanagement tools that integrate state-of-the-art material analysis, enhanced non-destructive evaluation, and data management as a comprehensive life management system. Component cost avoidance is estimated to exceed $300 million for the 

F100/F110 engine series alone. 

The Air Force developed a custom-molded, noise-attenuating earplug that enables seamless voice communications to and 

from radios, while electronically passing all outside environmental sounds to the operator at safe levels. The Joint Unmanned Combat Air Systems (J-UCAS) program was terminated in December 2005. The two J-UCAS X-45A aircraft 

fl ew a total of 64 fl ights and performed limited demonstrations of precision weapon drops, multi-ship coordinated fl ights, 

and collaborative targeting technologies, illustrating the potential for future unmanned combat air systems development 

programs. The Air Force continued to advocate the Air Force Research Library (AFRL) Automated Air Refueling (AAR) 

program, which continues to make historic progress. The AAR program consists of a combination of simulation and fl ight 

tests in order to develop the appropriate requirements and system design for Unmanned Aerial Vehicle (UAV) refueling, 

which may also be applied to manned refueling. Phase I of the AAR demonstration program was completed with great 

success. In September 2007, the AAR Positions and Pathways Flight Test successfully demonstrated automated maneuvering with over 8 hours of hands-off formation fl ight, including movement from the observation position (off the wing of the 

tanker) to pre-contact position, to the contact position, and then back. February 2008 saw a successful four-ship CONOPs 

simulation involving Air Mobility Command operators in the loop. AFRL kicked off AAR Phase II in June 2008 by issuing 

solicitations for an overall Phase II integrating contractor and a Precision GPS developer; selection of the winning bidders 

is planned for 1st Quarter, FY 2009.

Demonstration and Validation (Advanced Component Development and Prototypes): The Air Force’s Advanced 

Component Development and Prototypes programs are comprised of system specifi c advanced technology integration 

efforts accomplished in an operational environment to help expedite transition from the effort. In FY 2004, the Air Force 

successfully demonstrated Fighter Aircraft Command and Control Enhancement (FACE). FACE provides an improved, 

beyond-line-of-sight (BLOS) command and control link with fi ghter aircraft by integrating Iridium telephone communications equipment with existing aircraft communications equipment. BLOS capability has traditionally been provided by 

low-density, high-demand airborne platforms acting as communications relays. FACE provides relief for these overworked 

assets, while allowing combatant commanders to maintain positive control of the battle space. FACE has been approved for 

deployment to Afghanistan through the Air Force’s Rapid Response Process, and has the potential for extensive use in virtually any area of responsibility, including Homeland Defense.

In FY 2005, the Air Force restructured and refocused the Space Radar (SR) program (formerly Space Based Radar) to address congressional concerns with technical risk, affordability, and DoD-IC integration. In January 2005 the Secretary of 

Defense and the Director of Central Intelligence signed a joint memo designating the SR program as the single space radar 

capability for the nation. In May 2007, the Deputy Secretary of Defense and the Principal Deputy Director of National 

Intelligence signed the Joint Radar Enterprise Memorandum, agreeing to a joint funding arrangement, acquisition strategy, 

and management structure. The details of this arrangement are being captured in the Joint Radar Enterprise Management 

Plan. The SR Initial Capabilities Document (ICD) was approved by the IC Mission Requirements Board (MRB) in De-
78

General Fund

Required Supplementary Stewardship Information

cember 2005 and the DoD Joint Requirements Oversight Council (JROC) in January 2006. The Capability Development 

Document is being prepared in parallel with the SR system concept of operations (CONOPS); both are on track for MRB 

and JROC approval in 1st Quarter, FY 2009. The SR program implemented a demonstration framework approach to system 

development. This approach will further technology maturity risk reduction and CONOPS experimentation through a mix 

of space, air, and land-based demonstration activities that will maximize existing assets. The SR program continues to 

make signifi cant advancement towards the System Requirements Review milestone. The SR program will provide day/

night, all-weather global surface moving target indications (MTI), SAR, and high-resolution terrain information (HRTI) 

capabilities from a space-based platform. Initial launch capability is planned for 4th Quarter, FY 2016. 

System Development and Demonstration: The F-35 Joint Strike Fighter (JSF) program is developing a family of strike 

fi ghter aircraft for the Air Force, Navy, Marine Corps and our allies, with maximum commonality among the variants to 

minimize life cycle costs. The Air Force Conventional Takeoff and Landing (CTOL) variant will be a multi-role, primary 

air-to-ground aircraft to replace the F-16 and A-10, and complement the F-22. While the F-22 will establish air dominance, 

the F-35 with its combination of stealth, large internal payloads and multi-spectral avionics will provide persistent stealth 

and precision engagement to future battle space. The F-35 is in the 7th year of a 13-year System Development and Demonstration (SDD) effort. Signifi cant program accomplishments in FY 2008 include:

y First fl ight of Short Takeoff and Vertical Landing (STOVL) variant on June 11, 2008

y Awarded Low Rate Initial Production (LRIP) Lot 2 contracts for 6 CTOLs on May 7, 2008 and 6 STOVLs on July 

22, 2008

y Two STOVL test aircraft were delivered

y Ten fl ight test aircraft [4 CTOLs, 3 STOVLs, and 3 Combat Vehicles (CVs)] and fi ve ground test aircraft (2 

CTOLs, 1 STOVL, and 2 CVs) are currently in assembly 

The Transformational Satellite Communications (TSAT) system will provide the essential capabilities required to enable the 

DoD’s vision for 21st century military operations. TSAT, which consists of a fi ve-satellite geosynchronous satellite constellation, network operations centers, and associated ground architecture, will establish global internet-like connectivity that 

is essential for U.S. and allied personnel to communicate as a joint networked force. It will also extend assured, protected 

communications connectivity to mobile forces in theater and vastly increase the overall capacity of our military satellite infrastructure. FY 2007 was proven to be a milestone year for TSAT. The program made excellent progress in demonstrating 

the maturity of its critical technology elements by successfully completing the third of three demonstrations at MIT Lincoln 

Laboratory (MIT/LL), testing each competing contractor’s proposed Laser Communications (or ‘lasercom’) and next-generation satellite processor/router (NGPR) equipment. The program also completed a successful four-week system design 

review (SDR), where the government assessed the viability of the architecture designs for each competing contractor on the 

satellite segment and on the TSAT Mission Operations System (TMOS) ground segment, whose contract was awarded in 

January 2006.

Based upon the extent and success of risk reduction efforts accomplished thus far on this program, TSAT is prepared to 

meet a Key Decision Point-B (KDP-B) milestone in order to gain Milestone Decision Authority (MDA) acceptance to proceed into the Preliminary Design Phase of the program’s acquisition cycle. In preparation for the KDP-B decision, several 

in-depth reviews were performed this summer on TSAT, including an Independent Program Assessment, an Independent 

Cost Evaluation, and a Technical Readiness Assessment. The underlying result of these detailed reviews was that the program structure, budgeting, and technical development are well defi ned, properly managed and mature enough to support the 

initiation of preliminary design activities. Additionally, in June 2007, the TSAT program released a Request for Proposals 
79

General Fund

Required Supplementary Stewardship Information

(RFP) on the space segment development contract. The Air Force is reviewing bids from multiple contractors. Based on an 

Authority to Proceed from MDA in November 2007, the TSAT program anticipates a contract award announcement as early 

as 1st Quarter, FY 2009. 

TSAT is extending its risk reduction efforts with a revised goal of a KDP-B review in October 2008. TSAT will award the 

space segment contract in FY 2009, starting its satellite design work and continuing the development of the TMOS segment. The launch of the fi rst TSAT is targeted for 3rd Quarter, FY 2018.

The MQ-1 Predator UAV program is developing the capability to instantaneously derive and disseminate Joint Direct Attack Munition (JDAM)-quality coordinates from the viewpoint of its electro-optical/infra-red (EO/IR) full motion video 

sensor. Sensor improvements include development of a precise attitude reference system coupled with an off-the-shelf 

two color eye-safe laser rangefi nder/designator plus development of an accurately timed metadata system. Aircraft will be 

modifi ed with a new guidance system incorporating differential GPS. Fielding is scheduled to begin in FY 2010. Followon development will provide instantaneous JDAM-quality data for all pixels within the EO/IR image. 

 In February 2008, the Global Hawk program greatly accelerated their fl ight test program to support warfi ghter requirements. On March 22, 2008, the Global Hawk Block 20/30 fl ight test program exceeded a 28-hour key performance parameter endurance threshold by fl ying a 33.1 hour fl ight test. The fi rst block of 30 aircraft was delivered to Edwards AFB in 

2008 to support developmental fl ight test. The fi rst fl ight with the Airborne Signals Intelligence Payload (ASIP) was fl own, 

issuing in the era of Multi-INT Global Hawk capability.

The Airborne Warning and Control System (AWACS) aircraft continues to modernize its mission capabilities to remain 

an effective airborne battle management and surveillance system for command and control of combat forces. The Block 

40/45 Upgrade improves the quality and timeliness of sensor data for shooters, improves combat identifi cation, supports a 

Single Integrated Air Picture (SIAP) through multi-sensor integration, improves the AWACS contribution to Time Critical 

Targeting via Data Link Infrastructure, improves electronic support measures processing, and enables more effective, faster 

upgrades via an open system, Ethernet-based architecture. Block 40/45 began SDD in 2003, and successfully concluded 

mission system testing in 2008. The Navigation Warfare (NAVWAR) effort satisfi es a Chairman Joint Chiefs of Staff 

Instruction for Global Positioning Satellite (GPS) users and incorporates new technology into the navigation sensor. The 

NAVWAR effort began SDD in 2006 and completed fl ight tests in 2008. Production and fi elding will follow in 2009. The 

Next Generation Identifi cation Friend or Foe (NGIFF) effort provides AWACS with a secure Mode 5 capability. NGIFF 

completed Risk Reduction efforts and commenced SDD in 2008.

Research, Development, Test and Evaluation Management Support: The Air Force’s Research, Development, Test and 

Evaluation (RDT&E) Management Support efforts include projects directed toward support of installation or operations 

required for general research and development use. The projects include test ranges, military construction, maintenance 

support of laboratories, operation and maintenance of test aircraft and ships, and studies and analyses in support of the research and development program. An example of Air Force RDT&E management support is the Major Test and Evaluation 

Investment program, which funds the planning, improvements and modernization for three national asset test centers having 

over $10 billion of unique test facilities/capabilities operated and maintained by the Air Force for the DoD test and evaluation missions, and available to others having a requirement for their unique capabilities. 

Many efforts are contained within the Air Force I&M program, but two examples are the Air Force Electronic Warfare 

Evaluation Simulator (AFEWES) Gateway Project that designed, built and integrated a gateway computer capability linking an AFEWES threat missile simulator into a distributed simulation network that will use test capabilities at locations 

outside the AFEWES. Adding this capability will provide customers with a high fi delity end-game evaluation capability. In 

addition, the Propulsion Consolidation and Streamlining project at Arnold Engineering Development Center AFB upgrades 
80

General Fund

Required Supplementary Stewardship Information

the Turbine Engine Test Facility Test Cell that contained antiquated and ineffi cient thrust stands, support systems, and 

control/monitoring equipment. This update will meet future test requirements by reducing operation and maintenance costs, 

improving facility systems’ reliability/availability, streamlining the test process, and mitigating single point failure impacts. 

Operational Systems Development: The Air Force’s operational system efforts include projects in support of development acquisition programs or upgrades in SDD. The F-22 Raptor program continued full rate production, and will maintain 

its role as the key enabler of joint air dominance through an incremental modernization program funded through Operational Systems Development activities. Over 127 aircraft have been delivered through end of FY 2008. The development 

program will enhance the air vehicle, engine, and training systems to improve F-22A weapons, communications, and Intelligence Surveillance Reconnaissance (ISR) capabilities to further enhance Global Strike capabilities. Increment 2 is now 

resident in delivered aircraft and represents the fi rst upgrade over initial operational capability. FY 2008 activities included 

development of the Increment 3 suite. A Critical Design Review (CDR) for Increment 3.1 focused on dramatically improving the F-22A Raptor’s Air-To-Ground attack capabilities with 4th generation synthetic aperture radar and on completing a 

new weapon, the Small Diameter Bomb. 

The Advanced Medium Range Air-to-Air Missile (AMRAAM) Phase 3 (AIM-120C-7) was approved for fi elding in December 2007. Production for this variant began in 4th Quarter, FY 2004, and will complete in 2nd Quarter, FY 2009. The AIM120C-7 provides a major upgrade over the AIM-120C-6 guidance section, particularly in the use of circular processor cards 

over previously used rectangular cards. These cards provide signifi cant space savings within the missile for added capability, in addition to providing greater processing power. 

AMRAAM Phase 4 (AIM-120D) builds on the AIM-120C-7 capability and is progressing. This new AIM-120D missile 

will add a GPS/INU and a 2-way Data Link to enhance accuracy and control, and thus, increase weapon effectiveness. In 

addition, the AIM-120D will have increased range and third party targeting which expands the High Off-boresight launch 

envelope. The SDD contract was awarded in December 2003. Captive fl ight testing has been initiated on the F/A-18C/D 

and F-15C/D. SDD is scheduled to complete in June 2009. Proof-of-design units and proof-of-manufacturing units are 

being used to support simulation/integration labs, production test equipment development, and ground and fl ight tests. Production for AIM-120D is scheduled to start in 2nd Quarter, FY 2009 and continue through FY 2024.

The Small Diameter Bomb II (SDB) program is a joint Air Force/Navy interest program that will fi ll a critical capability 

gap by providing stand-off, classifi cation and in-weather capability against moving targets. A 42-month Risk Reduction 

competition between two contractors commenced in May 2006 to mature critical technologies for an all-up-round design. 

Following the Risk Reduction Phase, a single contractor will be selected in 1st Quarter, FY 2010 to complete a 72-month 

SDD Phase. Milestone B is scheduled for 1st Quarter, FY 2010. Required Assets Available on the F-15E is planned for FY 

2014. The SDB II weapon program will retain the SDB I legacy capability against fi xed surface targets, improve GPS antijam capability and deny adversaries sanctuary of weather for moving targets.

The SDB I Focused Lethality Munition (FLM), a variant of SDB I, is a Joint Capabilities Technology Development (JCTD) 

program that effectively demonstrated the military utility for prosecuting high-value targets by generating near-fi eld blast 

effects in a high collateral risk environment. The FLM variant of SDB I has a composite-cased warhead with a Multiphase Blast Explosive to reduce fragmentation effects while increasing blast effects. The Military Utility Assessment was 

completed in June 2008 with positive feedback in all areas. The assessment supports FLM’s potential to fi ll a capability 

gap of engaging targets with 60 feet of collateral concerns. The FLM weapon consists of a low collateral damage warhead 

integrated into the SDB I weapon. This JCTD fully leveraged the SDB I program to facilitate rapid acquisition, with 50 

residual assets being delivered in March 2008. The FLM capability will increase combatant commanders’ strike options, 

particularly in an urban environment, while decreasing collateral damage risk. 
81

General Fund 

Fiscal Year 2008

Required Supplementary Information
82

General Fund

Required Supplementary Information

Statement of Disaggregated Budgetary Resources - General Fund

As of September 30, 2008 and 2007 ($ in thousands)

Other

Research, 

Development, 

Test & 

Evaluation

Operation and 

Maintenance

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 4,520 $ 3,875,739 $ 1,565,605

2. Recoveries of prior year unpaid obligations 111 570,699 2,363,569

3. Budget authority

 A. Appropriation 462,057 26,655,288 52,416,274

 B. Borrowing authority 00 0

 C. Contract authority 00 0

 D. Spending authority from offsetting collections

 1. Earned

 a. Collected 10,143 3,568,684 5,820,324

 b. Change in receivables from Federal sources 0 -51,949 -235,143

 2. Change in unfi lled customer orders

 a. Advance received 0 -170,791 30,198

 b. Without advance from Federal sources 0 -67,928 216,548

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

 4. Previously unavailable 0 0 0

 5. Expenditure transfers from trust funds 0 0 0

 E. Subtotal $ 472,200 $ 29,933,304 $ 58,248,201

4. Nonexpenditure transfers, net, anticipated and actual -456,154 151,073 731,793

5. Temporarily not available pursuant to Public Law 0 0 0

6. Permanently not available -2,274 -598,060 -1,038,794

7. Total Budgetary Resources $ 18,403 $ 33,932,755 $ 61,870,374

STATUS OF BUDGETARY RESOURCES:

8. Obligations incurred

 A. Direct $ 3,228 $ 25,145,863 $ 54,333,888

 B. Reimbursable 10,044 3,444,640 5,988,768

 C. Subtotal $ 13,272 $ 28,590,503 $ 60,322,656

9. Unobligated balance

 A. Apportioned 1,311 4,986,561 214,301

 B. Exempt from apportionment 3,820 0 0

 C. Subtotal $ 5,131 $ 4,986,561 $ 214,301

10. Unobligated balance not available 0 355,689 1,333,417

11. Total status of budgetary resources $ 18,403 $ 33,932,753 $ 61,870,374

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 $ 4,471 $ 9,380,793 $ 20,892,264

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

 forward, October 1 0 -808,018 -1,359,177

 C. Total unpaid obligated balance $ 4,471 $ 8,572,775 $ 19,533,087

13. Obligations incurred net (+/-) $ 13,272 $ 28,590,503 $ 60,322,656

14. Less: Gross outlays -13,427 -28,063,521 -55,746,575

15. Obligated balance transferred, net

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

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

 C. Total Unpaid obligated balance transferred, net $ 0 $ 0 $ 0

16. Less: Recoveries of prior year unpaid oblligations, actual $ -111 $ -570,699 $ -2,363,569

17. Change in uncollected customer payments from Federal sources (+/-) 0 119,878 18,595

18. Obligated balance, net, end of period

 A. Unpaid obligations 4,206 9,337,076 23,104,777

 B. Less: Uncollected customer payments (+/-) from Federal sources (-) 0 -688,140 -1,340,582

 C. Total, unpaid obligated balance, net, end of period 4,206 8,648,936 21,764,195

NET OUTLAYS:

19. Net Outlays

 A. Gross outlays $ 13,427 $ 28,063,521 $ 55,746,575

 B. Less: Offsetting collections -10,143 -3,397,892 -5,850,522

 C. Less: Distributed Offsetting receipts -201,497 0 0

 D. Net Outlays $ -198,213 $ 24,665,629 $ 49,896,053
83

General Fund

Required Supplementary Information

Procurement Military

Personnel

Military

Construction / 

Family Housing

2008

Combined

2007

Combined

$ 13,050,225 $ 253,422 $ 2,425,833 $ 21,175,345 $ 17,112,927

1,252,684 378,350 36,604 4,602,017 3,921,941

42,763,683 32,291,486 2,203,017 156,791,805 147,674,697

00 0 0 0

00 0 0 0

647,779 412,663 4,823 10,464,416 10,237,677

-14,896 -52,242 150 -354,080 -517,749

-61,690 0 2,336 -199,948 376,618

-109,656 -30 0 38,934 250,810

00 0 0 0

00 0 0 0

00 0 0 0

$ 43,225,220 $ 32,651,877 $ 2,210,326 $ 166,741,127 $ 158,022,053

2,338,151 18,833 -33,334 2,750,362 861,271

00 0 0 0

-1,338,251 -186,675 -30,402 -3,194,456 -1,769,006

$ 58,528,029 $ 33,115,807 $ 4,609,027 $ 192,074,395 $ 178,149,186

$ 40,960,204 $ 32,579,886 $ 2,019,902 $ 155,042,972 $ 146,524,833

537,059 374,016 5 10,354,532 10,449,009

$ 41,497,263 $ 32,953,902 $ 2,019,907 $ 165,397,504 $ 156,973,842

16,365,177 17,806 2,554,758 24,139,914 18,573,839

0 0 0 3,820 3,271

$ 16,365,177 $ 17,806 $ 2,554,758 $ 24,143,734 $ 18,577,110

665,590 144,099 34,362 2,533,157 2,598,234

$ 58,528,030 $ 33,115,807 $ 4,609,027 $ 192,074,395 $ 178,149,186

$ 25,362,483 $ 2,332,531 $ 2,960,818 $ 60,933,360 $ 53,989,101

-234,945 35,354 0 -2,366,785 -2,633,723

$ 25,127,538 $ 2,367,885 $ 2,960,818 $ 58,566,575 $ 51,355,378

$ 41,497,263 $ 32,953,903 $ 2,019,907 $ 165,397,504 $ 156,973,842

-35,409,095 -32,502,319 -2,180,654 -153,915,590 -146,107,640

00 0 0 0

00 0 0 0

$ 0 $ 0 $ 0 $ 0 $ 0

$ -1,252,684 $ -378,350 $ -36,604 $ -4,602,017 $ -3,921,941

124,552 52,272 -150 315,146 266,938

30,197,966 2,405,765 2,763,468 67,813,257 60,933,360

-110,393 87,626 -150 -2,051,639 -2,366,785

30,087,573 2,493,391 2,763,318 65,761,618 58,566,575

$ 35,409,095 $ 32,502,319 $ 2,180,654 $ 153,915,590 $ 146,107,640

-586,089 -412,663 -7,158 -10,264,468 -10,614,293

0 0 0 -201,497 -140,980

$ 34,823,006 $ 32,089,656 $ 2,173,496 $ 143,449,625 $ 135,352,367
84

General Fund

Required Supplementary Information

DISAGGREGATED STATEMENT OF BUDGETARY RESOURCES

The Air Force has performance measures based on missions and outputs. The Air Force, however, is unable to accumulate 

costs for major programs based on those performance measures, because its fi nancial processes and systems were not designed to collect and report this type of cost information. Until the processes and systems are upgraded, the Department will 

break out programs by major appropriation groupings.

STEWARDSHIP PLANT, PROPERTY, AND EQUIPMENT (PP&E)

HERITAGE ASSETS

For Fiscal Year Ended September 30, 2008

(a) (b) (c) (d) (e) (f)

Heritage Asset Categories Measurement 

Quantity As of 10/01/07 Additions Deletions As of 9/30/08

Buildings and Structures Each 4,091 868 0 4,959

Archeological Sites Sites 1,425 505 0 1,930

Museum Collection Items 

(Objects, Not Including Fine Art)

Each 113,210 4,009 85 117,134

Museum Collection Items 

(Fine Art)

Each 9,259 111 0 9,370

Heritage Assets are items of historical, natural, cultural, educational, or artistic signifi cance (e.g., aesthetic) or items with 

signifi cant architectural characteristics.

1. Buildings and Structures

 As of September 15, 2008, the Air Force considers 12,719 buildings and structures as National Register of Historic Places 

(NRHP) listed and eligible buildings and structures. Vast majorities of these are Capehart-Wherry Era (CWE) houses 

(7,760), which are subject to a recently completed nationwide Program Comment (with the Advisory Council on Historic 

Preservation) that allows the Air Force to demolish or otherwise remove all but three CWE houses from the Air Force Inventory. Disposition has begun, but is proceeding slowly, so large numbers of CWE Housing remain on the Air Force Real 

Property Index. These numbers decreased signifi cantly this year (3,068) and will continue to decrease in future years as 

CWE Housing is removed from the Air Force inventory or privatized. We do not consider CWE Housing as Heritage Assets 

for this Required Supplementary Information (RSI) report.

The Air Force has 4,959 non-CWE buildings and structures considered Heritage Assets. Of these, 1,314 are listed on NRHP 

and 3,552 are eligible for listing on NRHP. Since March 2007, Air Force has successfully completed three service-wide data 

calls to validate “Heritage Asset” information via populating the Automated Civil Engineer System-Real Property (ACESRP) database (i.e., Air Force’s Real Property Inventory). ACES-RP now designates/classifi es the historic status of heritage 

assets (~13,000 historic buildings, structures, and districts) and now meets requirements. The large increase in the number 

of historic properties (868 from FY 2007) is primarily due to improved data reporting and validations of historic property 

data in ACES-RP. ACES-RP was initially designed to identify only those heritage assets/historic properties that were nominated and formally listed on the NRHP. ACES-RP now contains validated heritage asset data for 12 Historic Status Codes. 

Installation Cultural Resource Managers (vice Real Property Managers) across the Air Force were trained to use ACESRP and successfully populate ACES-RP with data for the required additional 12 codes. The most recent round of historic 

property validations in ACES-RP is due to be completed by September 30, 2008. The cumulative effect of these validations 

has largely eliminated the previous, well-documented, disconnect between the Real Property and Cultural Resource com-
85

General Fund

Required Supplementary Information

munities concerning the number and classifi cation of “heritage assets”. Future annual reminders to Air Force installations 

will be conducted as part of the annual data call to fulfi ll a related requirement for archaeological sites. The later data call is 

sent out each January. Heritage Asset buildings and structures are maintained by each base civil engineering group and are 

considered to be in good condition. These buildings and structures are subject to National Historic Preservation Act Section 

106 review and consultation requirements whenever Air Force undertakings might affect their historic characteristics. Section 106 reviews ensure State Historic Preservation Offi cers, tribal, and other party concerns are taken into account when 

Air Force decides to adversely affect Heritage Asset buildings and structures.

2. Archaeological Sites 

The timing of this data call is such that Air Force cannot report year-end FY 2008 archaeological or historic building data 

at the end of FY 2008. Archaeological data reported herein are collected for the Annual Report to Congress on Federal 

Archaeological Activities, which is compiled by the Air Force Center for Engineering and the Environment from major 

command supplied data between January and March 2008. Historic building data, on the other hand, were compiled for this 

report through August 2008. We do not have, as of yet, databases that can provide nearly real-time data on archaeological 

historic assets, which is required to report up-to-date historic asset numbers at the end of the fi scal year. 

As of September 15, 2008, the Air Force has (as reported in the FY 2007 Annual Report to Congress on Federal Archaeological Activity, submitted March 31, 2008) 1,930 archaeological sites listed on or eligible for listing on the NRHP. The Air 

Force has 9,600 recorded but unevaluated archaeological sites, and 5,455 sites considered ineligible for the NRHP. A total 

of 16,985 archaeological sites have been reported thus far from Air Force lands. Eligible listed sites (aka “Heritage Assets”) 

are protected from vandalism and looting, and are maintained in good condition on Air Force installations. Heritage asset 

archaeological sites are subject to NRHP Section 106 review and consultation when affected by Air Force undertakings. 

Section 106 reviews ensure State Historic Preservation Offi cers, tribal, and other party concerns are taken into account 

when Air Force decides to adversely affect Heritage Asset archaeological sites. All Heritage Asset and unevaluated archaeological sites are managed to prevent signifi cant losses due to erosion and other natural causes.

The table shows 505 archaeological sites were added to the heritage asset list between FY 2007 and FY 2008. 

3. Museum Collection Items, Objects Not Including Fine Art

This represents the initial reporting of the number of objects which meet the criteria for historical property as defi ned in 

Air Force Instruction 84-103 and that have been evaluated, accessioned, and catalogued in the Air Force national historic 

collection. No adjustments to past years are required. The National Museum of the United States Air Force (NMUSAF) 

performs inherently governmental functions by fulfi lling statutory requirements properly delegated by the Secretary of the 

Air Force for management of the Air Force’s national historic collection. During FY 2008, 4,009 objects have been added to 

the collection, primarily as a result of private donations or by being found on base. One of the most signifi cant acquisitions 

was the transfer from the Smithsonian Institution of the oldest surviving combat veteran B-17D bomber (“The Swoose”). 

85 objects were deaccessioned from the collection as having been determined not to meet historic property criteria, in poor 

condition, or transferred to other agencies. The overall condition of the historic collection, which is primarily located at the 

NMUSAF, is very good as a result of both professional care from trained conservators and improved exhibit/storage conditions. The stewardship and condition of the national historic collection were determined to meet or exceed all established 

professional standards during the FY 2008 museum reaccreditation inspection of the NMUSAF by the American Association of Museums. As part of the NMUSAF’s collection management plans, the process of the accession and deaccession of 

objects is continuous. 
86

General Fund

Required Supplementary Information

4. Museum Collection Items, Fine Art

The art collection contains original oils, drawings, sketches and sculptures. Since the last report the Air Force Art Collection 

has received 111 newly donated paintings. These paintings were the direct result of the artists visiting bases and operations 

throughout Air Force.

The collection is maintained and kept in good condition. Each year during the annual inventory, Air Force Art Program Offi ce requests the condition of the paintings as well. Maintenance continues to be a constant.

STEWARDSHIP LAND

STEWARDSHIP LAND

For Fiscal Year Ended September 30, 2008

(in thousands of acres)

(a)

Facility Code

(b)

Facility Title

(c)

As of 10/01/07

(d)

Additions

(e)

Deletions

(f)

As of 9/30/08

9110 Governement Owned Land 1,508 0 7 1,501

9111 State Owned Land 0 0 0 0

9120 Withdrawn Public Land 7,593 0 1 7,592

9130 Licensed and Permitted Land 137 0 1 136

9140 Public Land 0 0 0 0

9210 Land Easement 178 0 6 172

9220 In-leased Land 44 48 0 92

9230 Foreign Land 308 0 18 290

Grand Total 9, 783

Total - All Lands 2,191

Total - Stewardship Lands 7,592

Stewardship Land is land rights owned by the Federal Government but not acquired for, or in connection with, items of 

General Property, Plant, and Equipment (PP&E). “Acquired for or in connection with” is defi ned as including land acquired 

with the intent to construct general PP&E and land acquired in combination with general PP&E. Without exception, all land 

provided to the Department from the public domain, or at no cost, shall be classifi ed as Stewardship Land, regardless of its 

use. 

The Air Force has 7,592,000 acres of mission-essential Stewardship Land under their administration. The beginning balance 

(FY 2007 RSI reported ending balance) decreased by 108,000 acres because ACES-RP categorized Stewardship Land differently from the table above. Specifi cally, certain category codes are now reported as Government Owned Land rather than 

Withdrawn Public Land. Land purchased by the Air Force with the intent to construct buildings or facilities is considered 

PP&E and is reported on the balance sheet. All stewardship land, as reported, is in acceptable condition, based on designated use. 
87

General Fund

Required Supplementary Information

REAL PROPERTY DEFERRED MAINTENANCE

REAL PROPERTY DEFERRED MAINTENANCE

For Fiscal Year Ended September 30, 2008

(Amounts in millions)

Property Type Current Fiscal Year (CFY)

1. Plant Replacement 

Value

2. Required Work (deferred

maintenance) 3. Percentage

1. Category 1: Buildings, Structures, and Utilities

 (Enduring Facilities)

$262,065 $17,906 7%

2. Category 2: Buildings, Structures, and Utilities 

 (Excess Facilities or Planned for Replacement) 

$22,476 $38 <1%

3. Category 3: Buildings, Structures, and Utilities 

 (Heritage Assets)

$10,596 $914 9%

Use of Q-Rating versus Facilities Sustainment Model (FSM) to refl ect Deferred Sustainment

The use of Q-Rating as a basis for calculated deferred maintenance is not prudent. The Service’s Q-Rating database has not 

suffi ciently matured compared with the FSM dataset.

At this stage of Q-Rating planning and development, facility Q-Ratings cannot be readily tied to actual obligations nor do 

they provide a consistent service-wide metric based on commercial standards.

Based on previous submissions, the use of FSM to benchmark facility requirements has proven itself in the Air Force Corporate Structure (AFCS) process by yielding data constancy and high fi delity. FSM can be linked to actual obligations, is 

consistent across the services, and uses commercial standards in its development, which provides the stability and credibility needed to defend program funding requirements in AFCS.

The inclusion of the “A” factor to represent “acceptable operating condition” is not currently valid. At this time, there is 

no dataset which can be used to underpin target Q-Rating percentages or to identify acceptable operating conditions for 

specifi c Air Force facilities.

At A=100%, the FY 2008 accumulated deferred sustainment based on Q-Ratings is $17.9 billion as noted above. Although 

a backlog of $17.9 billion obviously appears signifi cant, this considerably large requirement adds little value to AFCS 

decision-making process. From our experience, AFCS will immediately question such a large backlog if used to defend 

our budget shortfalls. Variable “A” factors would need to be developed to make the proposed deferred maintenance concept 

feasible. 

Strategically, the use of annual deferred sustainment maintenance based on FSM has already proven to be successful in 

defending our budgets through AFCS. In FY 2007, the annual deferred sustainment maintenance based on FSM was at a 

reasonable level of $385.0 million.
88

General Fund

Required Supplementary Information

MILITARY EQUIPMENT DEFERRED MAINTENANCE

For Fiscal Year Ended September 30, 2008

(Amounts in millions)

Major Categories

1. Aircraft $ 257

2. Automotive Equipment 0

3. Combat Vehicles 0

4. Construction Equipment 0

5. Electronics and Communications Systems 72

6. Missiles 18

7. Ships 0

8. Ordnance Weapons and Munitions 0

9. General Purpose Equipment 0

10. All Other Items Not Identifi ed to Above Categories 771

Total $ 1,118

The fi gures presented are projected deferred maintenance amounts for FY 2008 as reported in the FY 2010 Program Budget 

Review OP-30 budget exhibits. FY 2008 Global War on Terror Supplemental actual was not available. 

The fi gures include Active Air Force, Air National Guard and Air Force Reserve.
89

General Fund 

Fiscal Year 2008

Audit Opinion
90

General Fund

Audit Opinion
General Fund

Audit Opinion

91
92

General Fund

Audit Opinion
General Fund

Audit Opinion

93
94

General Fund

Audit Opinion
General Fund

Audit Opinion

95
General Fund

Audit Opinion

96
General Fund

Audit Opinion

97
98

General Fund

Audit Opinion
99

The FY 2008 Department of the Air Force Working Capital Fund Principal Statements and 

related notes are presented in the format prescribed by the Department of Defense Financial 

Management Regulation 7000.14-R, Volume 6B. The statements and related notes summarize 

fi nancial information for individual activity groups and activities within the Working Capital 

Fund for the fi scal year ending September 30, 2008, and are presented on a comparative basis 

with information previously reported for the fi scal year ending September 30, 2007.

The following statements comprise the Department of the Air Force Working Capital Fund 

Principal Statements:

Consolidated Balance Sheet

The Consolidated Balance Sheet presents as of September 30, 2008 and 2007 those resources 

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

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

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

difference (net position).

Consolidated Statement of Net Cost

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

for the years ended September 30, 2008 and 2007. The Air Force’s net cost of operations 

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

Force activities.

Consolidated Statement of Changes in Net Position

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

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

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

2008 and 2007.

Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources presents the budgetary resources available to the Air Force during FY 2008 and 2007, the status of these resources at September 

30, 2008 and 2007, and the outlay of budgetary resources for the years ended September 30, 

2008 and 2007.

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

pursuant to the requirements of the Chief Financial Offi cers Act of 1990, the Government 

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

A-136, “Financial Reporting Requirements.”

Working Capital Fund

Principal Statements

Fiscal Year 2008
100 The accompanying notes are an integral part of these fi nancial statements.

Working Capital Fund

Principal Statements

Consolidated Balance Sheet - Working Capital Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008 Consolidated 2007 Consolidated

1. ASSETS (Note 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3) $ 959,598 $ 1,287,399

 2. Investments (Note 4) 0 0

 3. Accounts Receivable (Note 5) 786,751 330,378

 4. Other Assets (Note 6) 618 1,248

 5. Total Intragovernmental Assets $ 1,746,967 $ 1,619,025

 B. Cash and Other Monetary Assets (Note 7) 0 0

 C. Accounts Receivable, Net (Note 5) 117,894 117,808

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property, Net (Note 9) 33,676,873 34,517,432

 F. General Property, Plant and Equipment, Net (Note 10) 1,164,386 1,091,070

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 388,677 319,462

2. TOTAL ASSETS $ 37,094,797 $ 37,664,797

3. STEWARDSHIP PROPERTY, PLANT & EQUIPMENT (Note 10)

4. LIABILITIES (Note 11)

 A. Intragovernmental:

 1. Accounts Payable (Note 12) $ 94,776 $ 117,965

 2. Debt (Note 13) 0 0

 3. Other Liabilities (Note 15 & 16) 86,302 135,036

 4. Total Intragovernmental Liabilities $ 181,078 $ 253,001

 B. Accounts Payable (Note 12) 817,558 946,756

 C. Military Retirement and Other 

 Federal Employment Benefi ts (Note 17)

217,337 228,900

 D. Environmental and Disposal Liabilities (Note 14) 0 0

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 & Note 16) 624,331 714,711

5. TOTAL LIABILITIES $ 1,840,304 $ 2,143,368

6. COMMITMENTS AND CONTINGENCIES (NOTE 16)

7. NET POSITION

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

 B. Unexpended Appropriations - Other Funds 1,248 4,558

 C. Cumulative Results of Operations - Earmarked Funds 0 0

 D. Cumulative Results of Operations - Other Funds 35,253,245 35,516,871

8. TOTAL NET POSITION $ 35,254,493 $ 35,521,429

9. TOTAL LIABILITIES AND NET POSITION $ 37,094,797 $ 37,664,797
The accompanying notes are an integral part of these fi nancial statements. 101

Working Capital Fund

Principal Statements

Consolidated Statement of Net Cost - Working Capital Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008 Consolidated 2007 Consolidated

1. Program Costs

 A. Gross Costs $ 10,494,182 $ 10,735,131

 B. (Less: Earned Revenue) -10,784,910 -10,431,762

 C. Net Program Costs $ -290,728 $ 303,369

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ -290,728 $ 303,369
102 The accompanying notes are an integral part of these fi nancial statements.

Working Capital Fund

Principal Statements

Consolidated Statement of Changes in Net Position - Working Capital Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008 

Earmarked Funds

2008 

All Other Funds

2008 

Eliminations

CUMULATIVE RESULTS OF OPERATIONS

1. Beginning Balances $ 0 $ 35,516,871 $ 0

2. Prior Period Adjustments

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

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

3. Beginning balances, as adjusted $ 0 $ 35,516,871 $ 0

4. Budgetary Financing Sources:

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

 B. Appropriations used 0 69,073 0

 C. Nonexchange revenue 0 0 0

 D. Donations and forfeitures of cash and cash equivalents 0 0 0

 E. Transfers-in/out without reimbursement (+/-) 0 -88,000 0

 F. Other budgetary fi nancing sources 0 0 0

5. Other Financing Sources

 A. Donations and forfeitures of property 0 0 0

 B. Transfers-in/out without reimbursement (+/-) 0 -47,477 0

 C. Imputed fi nancing from costs absorbed by others 0 144,150 0

 D. Other (+/-) 0 -632,100 0

6. Total Financing Sources $ 0 $ -554,354 $ 0

7. Net Cost of Operations (+/-) 0 -290,728 0

8. Net Change $ 0 $ -263,626 $ 0

9. Cumulative Results of Operations $ 0 $ 35,253,245 $ 0

UNEXPENDED APPROPRIATIONS

10. Beginning Balances $ 0 $ 4,558 $ 0

11. Prior Period Adjustments:

 A. Changes in accounting principles 0 0 0

 B. Corrections of errors 0 0 0

12. Beginning balances, as adjusted $ 0 $ 4,558 $ 0

13. Budgetary Financing Sources:

 A. Appropriations received 0 66,458 0

 B. Appropriations transferred-in/out 0 0 0

 C. Other adjustments (rescissions, etc) 0 -695 0

 D. Appropriations used 0 -69,073 0

14. Total Budgetary Financing Sources 0 -3,310 0

15. Unexpended Appropriations 0 1,248 0

16. Net Position $ 0 $ 35,254,493 $ 0
The accompanying notes are an integral part of these fi nancial statements. 103

Working Capital Fund

Principal Statements

2008 

Consolidated

2007 

Earmarked Funds

2007 

All Other Funds

2007

Eliminations

2007 

Consolidated

$ 35,516,871 $ 0 $ 35,992,114 $ 0 $ 35,992,114

0 0 0 00

0 0 0 00

$ 35,516,871 $ 0 $ 35,992,114 $ 0 $ 35,992,114

0 0 0 00

69,073 0 39,324 0 39,324

0 0 0 00

0 0 0 00

-88,000 0 -382,000 0 -382,000

0 0 0 0

0 0 0 00

-47,477 0 2,192 0 2,192

144,150 0 168,610 0 168,610

-632,100 0 0 0 0

$ -554,354 $ 0 $ -171,874 $ 0 $ -171,874

-290,728 0 303,369 0 303,369

$ -263,626 $ 0 $ -475,243 $ 0 $ -475,243

$ 35,253,245 $ 0 $ 35,516,871 $ 0 $ 35,516,871

$ 4,558 $ 0 $ 0 $ 0 $ 0

0 0 0 00

0 0 0 00

$ 4,558 $ 0 $ 0 $ 0 $ 0

66,458 0 44,054 0 44,054

0 0 0 00

-695 0 -172 0 -172

-69,073 0 -39,324 0 -39,324

-3,310 0 4,558 0 4,558

1,248 0 4,558 0 4,558

$ 35,254,493 $ 0 $ 35,521,429 $ 0 $ 35,521,429
104 The accompanying notes are an integral part of these fi nancial statements.

Working Capital Fund

Principal Statements

Combined Statement of Budgetary Resources - Working Capital Fund

As of September 30, 2008 and 2007 ($ in thousands)

2008 

Combined

2007 

Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 1,073,782 $ 925,137

2. Recoveries of prior year unpaid obligations 0 23,358

3. Budget authority

 A. Appropriation 66,458 44,054

 B. Borrowing authority 0 0

 C. Contract authority 6,633,730 9,804,575

 D. Spending authority from offsetting collections

 1. Earned

 a. Collected 11,677,265 14,106,630

 b. Change in receivables from Federal sources 407,049 -373,583

 2. Change in unfi lled customer orders

 a. Advance received -77,781 -40,165

 b. Without advance from Federal sources -241,364 230,560

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

 4. Previously unavailable 0 0

 5. Expenditure transfers from trust funds 0 0

 E. Subtotal $ 18,465,357 $ 23,772,071

4. Nonexpenditure transfers, net, anticipated and actual -88,000 -382,000

5. Temporarily not available pursuant to Public Law 0 0

6. Permanently not available -8,139,473 -9,162,481

7. Total Budgetary Resources $ 11,311,666 $ 15,176,085

STATUS OF BUDGETARY RESOURCES:

8. Obligations incurred:

 A. Direct $ 0 $ 0

 B. Reimbursable 10,968,071 14,102,303

 C. Subtotal $ 10,968,071 $ 14,102,303

9. Unobligated balance:

 A. Apportioned 343,595 1,073,782

 B. Exempt from apportionment 0 0

 C. Subtotal $ 343,595 $ 1,073,782

10. Unobligated balance not available 0 0

11. Total status of budgetary resources $ 11,311,666 $ 15,176,085

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 8,883,865 8,603,843

 B. Less: Uncollected customer payments from Federal sources, brought forward, October 1 $ -3,844,887 $ -3,987,910

 C. Total unpaid obligated balance $ 5,038,978 $ 4,615,933

13. Obligations incurred net (+/-) $ 10,968,071 $ 14,102,303

14. Less: Gross outlays -11,905,048 -13,798,923

15. Obligated balance transferred, net

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

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

 C. Total Unpaid obligated balance transferred, net $ 0 $ 0

16. Less: Recoveries of prior year unpaid obligations, actual $ 0 $ -23,358

17. Change in uncollected customer payments from Federal sources (+/-) -165,685 143,023

18. Obligated balance, net, end of period

 A. Unpaid obligations 7,946,888 8,883,865

 B. Less: Uncollected customer payments (+/-) from Federal sources (-) -4,010,572 -3,844,887

 C. Total, unpaid obligated balance, net, end of period 3,936,316 5,038,978

NET OUTLAYS

19. Net Outlays:

 A. Gross outlays $ 11,905,048 $ 13,798,923

 B. Less: Offsetting collections -11,599,484 -14,066,465

 C. Less: Distributed Offsetting receipts 0 0

 D. Total Net Outlays $ 305,564 $ -267,542
105

Notes to the fi nancial statements communicate information essential for fair presentation 

of the fi nancial statements that is not displayed on the face of the fi nancial statements.

Working Capital Fund 

Fiscal Year 2008

Notes to the Principal Statements
106

Working Capital Fund

Notes to the Principal Statements

Note 1. Signifi cant Accounting Policies

1.A. Basis of Presentation 

These fi nancial statements have been prepared to report the fi nancial position and results of operations of the Air Force 

Working Capital Fund (AFWCF), as required by the Chief Financial Offi cers Act of 1990, expanded by the Government 

Management Reform Act of 1994, and other appropriate legislation. The fi nancial statements have been prepared from the 

books and records of the AFWCF in accordance with the Department of Defense (DoD), Financial Management Regulation (FMR), the Offi ce of Management and Budget (OMB) Circular A-136, Financial Reporting Requirements, and to the 

extent possible generally accepted accounting principles (GAAP). The accompanying fi nancial statements account for all 

resources for which the AFWCF is responsible unless otherwise noted. 

The AFWCF is unable to fully implement all elements of GAAP and the OMB Circular A-136, due to limitations of its 

fi nancial and nonfi nancial management processes and systems that feed into the fi nancial statements. The AFWCF derives 

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

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

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

The AFWCF currently has eight auditor identifi ed fi nancial statement material weaknesses: (1) fi nancial and nonfi nancial feeder systems do not contain an adequate audit trail for the proprietary and budgetary accounts, (2) AFWCF may 

have material amounts of account adjustments that are not adequately supported, (3) AFWCF cannot accurately identify 

all intragovernmental transactions by customer, which is required for eliminations when preparing consolidated fi nancial 

statements, (4) the value of the AFWCF government furnished and contractor acquired materiel and equipment may not be 

accurately reported, (5) AFWCF General Property, Plant, and Equipment (PP&E) may not be accurately valued, (6) operating materials and supplies (OM&S) are not refl ected at historical cost, (7) cost of goods sold and work in progress are not 

recorded in accordance with the Statement of Federal Financial Accounting Standards (SFFAS) No. 3, “Accounting for 

Inventory and Related Property”, and (8) supply management systems do not provide suffi cient audit trails to confi rm and 

value the in transit inventory reported as part of inventory held for sale on the Consolidated Balance Sheet.

1.B. Mission of the Reporting Entity 

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

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

mission of the United States Air is to fl y, fi ght and win...in air, space and cyberspace. Our priorities are: (1) reinvigorate the 

Air Force nuclear enterprise, (2) partner with Joint and Coalition team to win today’s fi ght, (3) develop and care for Airmen 

and their families (4) modernize our aging air and space inventories, and (5) achieve acquisition excellence.

The stock and industrial revolving fund accounts were created by the “National Security Act of 1947,” as amended in 1949 

and codifi ed in United States Code 10 Section 2208. The revolving funds were established as a means to more effectively 

control the cost of work performed by DoD. The DoD began operating under the revolving fund concept July 1, 1951.

Since FY 2006, AFWCF operations consist of two major activity groups: Supply Management Activity Group (SMAG) 

and Depot Maintenance Activity Group (DMAG). All AFWCF SMAG and DMAG activities establish rates based on full 

cost recovery. If an operating loss or gain is incurred, the activity will make the appropriate adjustment in following year’s 

prices to recoup the loss or return the gain to their customers.
107

Working Capital Fund

Notes to the Principal Statements

The SMAG manages and fi nances the majority of Air Force supply requirements. Exceptions include an item fi nanced with 

a procurement appropriation or when fi nancing by other means has been deemed to be more economical and effi cient. A 

stock fund operates as a revolving fund replenishing inventories with funds received from sales to customers. 

There are four active business activities in SMAG: (1) Material Support Division (MSD), (2) General Support Division 

(GSD), (3) Medical-Dental Division, and (4) Air Force Academy Division.

A brief description is provided below for the four active SMAG business activities.

y MSD manages over 106 thousand depot level repair and unique consumable items to support Air Force weapon 

systems.

y GSD manages over 1.5 million consumable supply items, which support fi eld and depot maintenance of aircraft, 

ground and airborne communication, and electronic systems.

y Medical-Dental manages over 7 thousand different items, which are used to support medical and dental supply 

and equipment requirements.

y Air Force Academy manages the procurement of uniforms and uniform accessories for sale to cadets.

The DMAG repairs weapon systems and spare parts that ensure readiness in peacetime and provide sustainment to combat 

forces in wartime. In peacetime, the Air Force enhances readiness by effi ciently and economically repairing, overhauling, 

and modifying aircraft, engines, missiles, depot level reparables, and software to meet customer demands. Depots have 

unique skills and equipment required to support and overhaul both new, complex components as well as aging weapon 

systems. An extremely important facet of the depots is that during wartime or contingencies, the Air Force can surge repair 

operations and realign capacity to support the war fi ghters’ immediate needs. This is achieved by employing the unique 

strengths of organic (in-house) and contracted (contract) repair resources.

1.C. Appropriations and Funds 

The AFWCF receives its appropriations and funds as general and working capital (revolving) funds. The AFWCF uses 

these appropriations and funds to execute its missions and subsequently report on resource usage.

Working Capital Funds (WCF) received funding to establish an initial corpus through an appropriation or a transfer of resources from existing appropriations or funds. The corpus fi nances operations and transactions that fl ow through the fund. 

The WCF resources the goods and services sold to customers on a reimbursable basis and maintains the corpus. Reimbursable receipts fund future operations and generally are available in their entirety for use without further congressional action. 

At various times, Congress provides additional appropriations to supplement WCF as an infusion of cash when revenues are 

inadequate to cover costs within the corpus.

1.D. Basis of Accounting 

For FY 2008, the AFWCF’s fi nancial management systems are unable to meet all of the requirements for full accrual accounting. Many of the AFWCF’s fi nancial and nonfi nancial feeder systems and processes were designed and implemented 

prior to the issuance of GAAP for federal agencies. These systems were not designed to collect and record fi nancial information on the full accrual accounting basis as required by GAAP. Most of the AFWCF’s (fi nancial and nonfi nancial) legacy 

systems were designed to record information on a budgetary basis. 
108

Working Capital Fund

Notes to the Principal Statements

The DoD has undertaken efforts to determine the actions required to bring its fi nancial and nonfi nancial feeder systems 

and processes into compliance with GAAP. One such action is the current revision of its accounting systems to record 

transactions based on the U.S. Standard General Ledger (USSGL). Until all of AFWCF’s fi nancial and nonfi nancial feeder 

systems and processes are updated to collect and report fi nancial information as required by GAAP, the AFWCF’s fi nancial 

data will be derived from budgetary transactions (obligations, disbursements and collections), transactions from nonfi -

nancial feeder systems, and accruals made of major items such as payroll expenses, accounts payable, and environmental 

liabilities.

1.E. Revenues and Other Financing Sources 

Organic Depot Maintenance recognizes revenue according to the percentage-of-completion method. Contract Depot Maintenance recognizes revenue based on the number of units produced multiplied by the unit sales price which is recognized 

upon completion of the repair. Due to the closure of Contract Depot Maintenance in FY 2008, it is not cost-effective to 

implement system modifi cations to support the percentage-of-completion method. Supply Management recognizes revenue 

based on fl ying hours executed and the sale of inventory items.

1.F. Recognition of Expenses

For fi nancial reporting purposes, the DoD policy requires the recognition of operating expenses in the period incurred. 

However, because the AFWCF’s fi nancial and nonfi nancial feeder systems were not designed to collect and record fi nancial 

information on the full accrual accounting basis, accruals are made for major items such as payroll expenses, accounts payable, and unbilled revenue. In the case of OM&S, the consumption method is used.

1.G. Accounting for Intragovernmental Activities 

Preparation of reliable fi nancial statements requires the elimination of transactions occurring among entities within DoD or 

between two or more federal agencies. However, the AFWCF cannot accurately eliminate intragovernmental transactions 

by customer because the AFWCF’s systems do not track at the transaction level. Generally, seller entities within the DoD 

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

DoD accounting offi ces. In most cases, the buyer-side records are adjusted to agree with DoD seller-side balances. IntraDoD intragovernmental balances are then eliminated. The volume of intragovernmental transactions is so large that afterthe-fact reconciliation cannot be accomplished effectively with existing or foreseeable resources. The DoD is developing 

long-term system improvements to ensure accurate intragovernmental information, to include suffi cient upfront edits and 

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

The U.S. Treasury Financial Management Service is responsible for eliminating transactions between DoD and other federal agencies. The Treasury Financial Manual Part 2 – Chapter 4700, “Agency Reporting Requirements for the Financial 

Report of the United States Government,” and the U.S. Treasury’s “Federal Intragovernmental Transactions Accounting 

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

fully reconcile intragovernmental transactions with all federal partners, the AFWCF is able to reconcile balances pertaining 

to Federal Employees’ Compensation Act transactions with the Department of Labor and benefi t program transactions with 

the Offi ce of Personnel Management.

The DoD’s proportionate share of public debt and related expenses of the Federal Government is not included. The Federal 

Government does not apportion debt and its related costs to federal agencies. The DoD’s fi nancial statements, therefore, 

do not report any portion of the public debt or interest thereon, nor do the statements report the source of public fi nancing 

whether from issuance of debt or tax revenues.
109

Working Capital Fund

Notes to the Principal Statements

Financing for the construction of DoD facilities is obtained through appropriations. To the extent this fi nancing ultimately 

may have been obtained through the issuance of public debt, interest costs have not been capitalized since the U.S. Treasury 

does not allocate such interest costs to the benefi ting agencies.

1.H. Transactions with Foreign Governments and International Organizations 

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

provisions of the “Arms Export Control Act of 1976.” Under the provisions of the Act, DoD has authority to sell defense 

articles and services to foreign countries and international organizations generally at no profi t or loss to the U.S. Government. Payment in U.S. dollars is required in advance.

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

The AFWCF’s monetary resources are maintained in U.S. Treasury accounts. The disbursing offi ces of Defense Finance 

and Accounting Service (DFAS), the Military Departments, the U.S. Army Corps of Engineers (USACE), and the Department of State’s fi nancial service centers process the majority of AFWCF’s cash collections, disbursements, and adjustments 

worldwide. Each disbursing station prepares monthly reports to the U.S. Treasury on check issues, electronic fund transfers, interagency transfers, and deposits.

In addition, DFAS sites and the USACE Finance Center submit reports to the U.S. Treasury by appropriation on interagency 

transfers, collections received, and disbursements issued. The U.S. Treasury records these transactions to the applicable 

Fund Balance with Treasury (FBWT) account. The AFWCF’s recorded balance in the FBWT accounts and U.S. Treasury’s 

FBWT accounts must balance monthly.

1.J. Foreign Currency 

Not Applicable

1.K. Accounts Receivable 

As presented in the Balance Sheet, accounts receivable includes three categories: accounts, claims, and refunds receivable from other federal entities or from the public. Allowances for uncollectible accounts due from the public are based 

upon analysis of collection experience by fund type. The DoD does not recognize an allowance for estimated uncollectible amounts from other federal agencies. Claims against other federal agencies are to be resolved between the agencies in 

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

Financial Manual.

1.L. Direct Loans and Loan Guarantees 

Not Applicable

1.M. Inventories and Related Property 

The AFWCF values approximately 99% of its resale inventory using the moving average cost method. The AFWCF reports 

the remaining 1% of resale inventories at an approximation of historical cost using latest acquisition cost adjusted for 

holding gains and losses. The latest acquisition cost method is used because legacy inventory systems were designed for 

materiel management rather than accounting. Although these systems provide visibility and accountability over inventory 

items, they do not maintain historical cost data necessary to comply with SFFAS No. 3, “Accounting for Inventory and 
110

Working Capital Fund

Notes to the Principal Statements

Related Property.” Additionally, these systems cannot produce fi nancial transactions using the USSGL, as required by the 

Federal Financial Management Improvement Act of 1996 (P.L. 104-208). By utilizing new systems development processes, 

the AFWCF is continuing to transition the balance of the inventories to the moving average cost method. However, since 

the on-hand balances which were transitioned were not, for the most part, baselined to auditable historical cost, the reported 

values remain noncompliant with SFFAS No. 3 and GAAP.

The AFWCF manages only military or government specifi c materiel under normal conditions. Materiel is a unique term 

that relates to military force management, and includes all items (including ships, tanks, self-propelled weapons, aircraft, 

etc., and related spares, repair parts, and support equipment, but excluding real property, installations, and utilities) necessary to equip, operate, maintain, and support military activities without distinction as to its application for administrative or 

combat purposes. Items commonly used in and available from the commercial sector are not managed in AFWCF materiel management activities. Operational cycles are irregular and military risks associated with stock-out positions have no 

commercial parallel. The AFWCF holds materiel based on military need and support for contingencies. The DoD does not 

attempt to account separately for “inventory held for sale” and “inventory held in reserve for future sale” based on SFFAS 

No. 3 defi nitions, unless otherwise noted.

Related property includes OM&S which is valued at standard purchase price. The AFWCF uses the consumption method 

of accounting for OM&S. 

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

the potential scrap value; therefore, the net value of condemned materiel is zero. Potentially redistributed materiel, presented in previous years as “Excess, Obsolete, and Unserviceable,” is included in the “Held for Use” or “Held for Repair” 

categories according to its condition. 

Inventory available and purchased for resale includes consumable spare and repair parts and repairable items owned and 

managed by the AFWCF. This inventory is retained to support military or national contingencies. Inventory held for repair 

is damaged inventory that requires repair to make suitable for sale. Often, it is more economical to repair these inventory 

items rather than to procure these items. The AFWCF often relies on weapon systems and machinery that are no longer 

in production. As a result, the AFWCF supports a process that encourages the repair and rebuilding of certain items. This 

repair cycle is essential in maintaining a ready, mobile, and armed military force. Work in process balances include costs 

related to the production or servicing of items, including direct material, direct labor, applied overhead, and other direct 

costs. Work in process also includes the value of fi nished products or completed services that are yet to be placed in service 

and transferred to an asset account. Work in process includes munitions in production and depot maintenance work with its 

associated labor, applied overhead, and supplies used in the delivery of maintenance services.

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

Not Applicable

1.O. General Property, Plant and Equipment 

The DoD’s General Property, Plant & Equipment (General PP&E) capitalization threshold is $100 thousand except for real 

property which is $20 thousand. The AFWCF has not implemented the threshold for real property but expects to be fully 

compliant by FY 2010. AWCF is currently using the capitalization threshold of $100 thousand for all General PP&E. 

General PP&E assets are capitalized at historical acquisition cost when an asset has a useful life of two or more years, and 

when the acquisition cost equals or exceeds the DoD capitalization threshold. The DoD also requires the capitalization of 
111

Working Capital Fund

Notes to the Principal Statements

improvements to existing GPP&E assets if the improvements equal or exceed DoD capitalization threshold and extend the 

useful life or increase the size, effi ciency, or capacity of the asset. The DoD depreciates all GPP&E, other than land, on a 

straight-line basis. 

The WCF capitalizes all General PP&E used in the performance of their mission. These capitalized assets are categorized as 

General PP&E, whether or not it meets the defi nition of any other General PP&E categories.

When it is in the best interest of the government, AFWCF provides government property to contractors to complete contract 

work. The AFWCF either owns or leases such property, or it is purchased directly by the contractor for the government 

based on contract terms. When the value of contractor-procured General PP&E exceeds the DoD capitalization threshold, 

Federal accounting standards require that it be reported on the AFWCF’s Balance Sheet. 

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

provide appropriate General PP&E information for future fi nancial statement reporting purposes. Accordingly, AFWCF 

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

DoD has issued new property accountability and reporting requirements that require AFWCF to maintain, in their property 

systems, information on all property furnished to contractors. This action and other DoD proposed actions are structured to 

capture and report the information necessary for compliance with federal accounting standards.

1.P. Advances and Prepayments 

When advances are permitted by law, legislative action, or presidential authorization, the DoD’s policy is to record advances and prepayments in accordance with GAAP. As such, payments made in advance of the receipt of goods and services 

should be reported as an asset on the Balance Sheet. The DoD’s policy is to expense and/or properly classify assets when 

the related goods and services are received. The AFWCF has implemented this policy. 

1.Q. Leases 

Not Applicable 

1.R. Other Assets 

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

contract fi nancing payments that are not reported elsewhere on AFWCF’s Balance Sheet. 

The AFWCF conducts business with commercial contractors under two primary types of contracts: fi xed price and cost 

reimbursable. To alleviate the potential fi nancial burden on the contractor that long-term contracts can cause, AFWCF may 

provide fi nancing payments. Contract fi nancing payments are defi ned in the Federal Acquisition Regulations, Part 32, as 

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

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

payments under certain cost-reimbursement contracts.

Contract fi nancing payments do not include invoice payments, payments for partial deliveries, lease and rental payments, or 

progress payments based on a percentage or stage of completion, which the Defense Federal Acquisition Regulation Supplement authorizes only for construction of real property, shipbuilding, and ship conversion, alteration, or repair. Progress 

payments for real property and ships are reported as Construction in Progress. It is DoD policy to record certain contract 

fi nancing payments as Other Assets.
112

Working Capital Fund

Notes to the Principal Statements

1.S. Contingencies and Other Liabilities

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

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

events occur or fail to occur. The AFWCF recognizes contingent liabilities when past events or exchange transactions occur, a future loss is probable, and the loss amount can be reasonably estimated.

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

least a reasonable possibility of incurring a loss or additional losses. Examples of loss contingencies include the collectibility of receivables, pending or threatened litigation, and possible claims and assessments. The AFWCF’s risk of loss and 

resultant contingent liabilities arise from pending or threatened litigation or claims and assessments due to events such as 

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

1.T. Accrued Leave

The AFWCF reports as a liability civilian earned leave, except sick leave, that has been accrued and not used as of the 

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

current pay rates.

1.U. Net Position

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

Unexpended Appropriations represent the amounts of authority that are unobligated and have not been rescinded or withdrawn. Unexpended appropriations also represent amounts obligated for which legal liabilities for payments have not been 

incurred.

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

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

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

1.V. Treaties for Use of Foreign Bases

Not Applicable

1.W. Comparative Data

The AFWCF’s fi nancial statements and notes are presented on a comparative basis. 

1.X. Unexpended Obligations 

The AFWCF obligates funds to provide goods and services for outstanding orders not yet delivered. Unless the title has 

passed, the fi nancial statements do not refl ect liability for payment for goods and services not yet delivered. Unexpended 

obligations includes both obligations for which goods and services have been delivered (title passed) and a liability recognized, and obligations for which no delivery has occurred and no liability recognized. The balance of unexpended obligations appears immediately before net outlays in the Statement of Budgetary Resources, and is referred to as “Total, unpaid 

obligated balances, net, end of period.”
113

Working Capital Fund

Notes to the Principal Statements

1.Y. Undistributed Disbursements and Collections 

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

transaction level to a specifi c obligation, payable, or receivable in the activity fi eld records as opposed to those reported by 

the U.S. Treasury. These amounts should agree with the undistributed amounts reported on the monthly accounting reports. Intransit payments are those payments that have been made, but have not been recorded in the fund holder’s accounting records. These payments are applied to the entities’ outstanding accounts payable balance. Intransit collections are 

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

are also applied to the entities’ accounts receivable balance.

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

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

other liabilities.

1.Z. Signifi cant Events

Not Applicable

Note 2. Nonentity Assets

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Assets

 A. Fund Balance with Treasury $ 0 $ 0

 B. Accounts Receivable 0 0

 C. Total Intragovernmental Assets $ 0 $ 0

2. Nonfederal Assets

 A. Cash and Other Monetary Assets $ 0 $ 0

 B. Accounts Receivable 0 0

 C. Other Assets 0 0

 D. Total Nonfederal Assets $ 0 $ 0

3. Total Nonentity Assets $ 0 $ 0

4. Total Entity Assets 37,094,797 37,664,797

5. Total Assets $ 37,094,797 $ 37,664,797

Asset accounts are categorized as either entity or nonentity. Entity accounts consist of resources that are available for use in 

the operations of the entity. The AFWCF is authorized to decide how to use resources in entity accounts. The AFWCF may 

be legally obligated to use these resources to meet entity obligations.

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

not available for the AFWCF’s operations.

The AFWCF has no Nonentity Assets.
114

Working Capital Fund

Notes to the Principal Statements

Note 3. Fund Balance with Treasury

As of September 30 2008 2007

(Amounts in thousands)

1. Fund Balances

 A. Appropriated Funds $ 0 $ 0

 B. Revolving Funds 959,598 1,287,399

 C. Trust Funds 0 0

 D. Special Funds 0 0

 E. Other Fund Types 0 0

 F. Total Fund Balances $ 959,598 $ 1,287,399

2. Fund Balances Per Treasury Versus Agency

 A. Fund Balance per Treasury $ 1,384,148 $ 1,705,484

 B. Fund Balance per AFWCF 959,598 1,287,399

3. Reconciling Amount $ 424,550 $ 418,085

The reconciling amount represents $424.6 million for the United States Transportation Command (USTC), which is reported by the U.S. Treasury as part of the AFWCF. However, for the purposes of Audited Financial Statements (AFS), USTC is 

included with the Other Defense Organizations reporting which is separate from the AFWCF. Therefore, USTC funds are 

not included in the AFWCF AFS.

Status of Fund Balance with Treasury

As of September 30 2008 2007

(Amounts in thousands)

1. Unobligated Balance

 A. Available $ 343,595 $ 1,073,782

 B. Unavailable 0 0

2. Obligated Balance not yet Disbursed 7,946,888 8,883,865

3. Nonbudgetary FBWT 0 0

4. NonFBWT Budgetary Accounts -7,330,885 -8,670,248

5. Total $ 959,598 $ 1,287,399

The Status of Fund Balance with Treasury (FBWT) refl ects the budgetary resources to support the FBWT. 

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

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

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

Nonbudgetary FBWT includes entity and nonentity FBWT accounts which represent adjustments that do not have budgetary authority, such as unavailable receipt accounts or clearing accounts. AFWCF has no Nonbudgetary FBWT.
115

Working Capital Fund

Notes to the Principal Statements

NonFBWT Budgetary Accounts represent adjustments to budgetary accounts that do not affect FBWT such as contract authority, accounts receivable, as well as the unfi lled orders without advance from customers. This category reduces the Status 

of FBWT. 

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

balances may be restricted to future use and are not apportioned for current use. There are no restrictions on the Unobligated Balance.

Note 4. Investments and Related Interest

The AFWCF has no Investments and Related Interest.

Note 5. Accounts Receivable

As of September 30

2008 2007

Gross Amount Due

Allowance For

Estimated

Uncollectibles

Accounts 

Receivable, Net

Accounts 

Receivable, Net

(Amounts in thousands)

1. Intragovernmental Receivables $ 786,751 N/A $ 786,751 $ 330,378

2. Nonfederal Receivables (From the Public) 117,894 $ 0 117,894 117,808

3. Total Accounts Receivable $ 904,645 $ 0 $ 904,645 $ 448,186

Note 6. Other Assets

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Other Assets

 A. Advances and Prepayments $ 618 $ 1,248

 B. Other Assets 0 0

 C. Total Intragovernmental Other Assets $ 618 $ 1,248

2. Nonfederal Other Assets

 A. Outstanding Contract Financing Payments $ 148,718 $ 153,834

 B. Advances and Prepayments 57,987 13,051

 C. Other Assets (With the Public) 181,972 152,577

 D. Total Nonfederal Other Assets $ 388,677 $ 319,462

3. Total Other Assets $ 389,295 $ 320,710

Contract terms and conditions for certain types of contract fi nancing payments convey certain rights to the AFWCF that 

protect the contract work from state or local taxation, liens or attachment by the contractor’s creditors, transfer of property, 

or disposition in bankruptcy; however, these rights should not be misconstrued to mean that ownership of the contractor’s 
116

Working Capital Fund

Notes to the Principal Statements

work has transferred to the Government. The Government does not have the right to take the work, except as provided in 

contract clauses related to termination or acceptance, and the AFWCF is not obligated to make payment to the contractor 

until delivery and acceptance. 

The Contract Financing Payments balance of $148.7 million is comprised of $126.7 million in contract fi nancing payments 

and an additional $22.0 million in estimated future payments that will be paid to the contractor upon future delivery and 

Government acceptance of a satisfactory product. (See additional discussion in Note 15, Other Liabilities). 

The majority of the Nonfederal Other Assets – Other Assets (With the Public) balance is comprised of $182.0 million for 

Supply Management Activity Group’s assets returned to vendors for which credit is pending.

Note 7. Cash and Other Monetary Assets

The AFWCF has no Cash and Other Monetary Assets.

Note 8. Direct Loan and Loan Guarantees

The AFWCF has no Direct Loan and/or Loan Guarantee Programs.

Note 9. Inventory and Related Property

As of September 30 2008 2007

(Amounts in thousands)

1. Inventory, Net $ 33,483,296 $ 34,273,552

2. Operating Materiels & Supplies, Net 193,577 243,880

3. Stockpile Materiels, Net 0 0

4. Total $ 33,676,873 $ 34,517,432
117

Working Capital Fund

Notes to the Principal Statements

Inventory, Net

As of September 30

2008 2007

Inventory, 

Gross Value

Revaluation

Allowance Inventory, Net Inventory, Net Valuation

Method

(Amounts in thousands)

1. Inventory, Categories

 A. Available and Purchased for Resale $ 23,066,474 $ -10,479 $ 23,055,995 $ 23,861,178 LAC,MAC

 B. Held for Repair 14,439,808 -4,145,848 10,293,960 10,199,635 LAC,MAC

 C. Excess, Obsolete, and Unserviceable 472,249 -472,249 0 0 NRV

 D. Raw Materials 0 0 0 0 MAC,SP,LAC

 E. Work in Process 133,341 0 133,341 212,739 AC

 F. Total $ 38,111,872 $ -4,628,576 $ 33,483,296 $ 34,273,552

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

SP = Standard Price O = Other

AC = Actual Cost MAC = Moving Average Cost

General Composition of Inventory

Inventory includes weapon system consumable and reparable parts, base supply items, and medical-dental supplies. Inventory is tangible personal property that is held for sale or held for repair for eventual sale, in the process of production for 

sale, or to be consumed in the production of goods for sale or in the provision of services for a fee.

Restrictions

There are no restrictions on the use, sale, or disposition of inventory except for War Reserve Materiel and nuclear related 

spare parts.

Defi nitions

Inventory Available and Purchased for Resale includes consumable and reparable parts owned and managed by AFWCF.

Inventory Held for Repair is damaged inventory that requires repair to make it suitable for sale. Many of the inventory 

items are more economical to repair than to procure. In addition, because AFWCF often relies on weapon systems and machinery no longer in production, AFWCF supports a process that encourages the repair and rebuilding of certain items. This 

repair cycle is essential to maintaining a ready, mobile, and armed military force.

Excess, Obsolete, and Unserviceable inventory consists of obsolete, excess to requirements, or items that cannot be economically repaired and are awaiting disposal. 

Work in Process balances include costs related to the production or servicing of items, including direct material, direct 

labor, applied overhead, and other direct costs. Work in Process also includes the value of fi nished products or completed 

services pending the submission of bills to the customer. 
118

Working Capital Fund

Notes to the Principal Statements

Operating Materiel and Supplies, Net

As of September 30

2008 2007

OM&S

Gross Value

Revaluation

Allowance OM&S, Net OM&S, Net Valuation

Method

(Amounts in thousands)

1. OM&S Categories

 A. Held for Use $ 193,577 $ 0 $ 193,577 $ 243,880 SP, LAC, MAC

 B. Held for Repair 0 0 0 0 SP, LAC, MAC

 C. Excess, Obsolete, and Unserviceable 0 0 0 0 NRV

 D. Total $ 193,577 $ 0 $ 193,577 $ 243,880 

Legend for Valuation Methods:

Adjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses NRV = Net Realizable Value

SP = Standard Price O = Other

AC = Actual Cost MAC = Moving Average Cost

General Composition of Operating Materiels and Supplies

Operating Materiel and Supplies (OM&S) includes consumable parts and supplies used to remanufacture spare parts and 

repair weapons systems.

Restrictions

There are no restrictions on the use, sale, or disposition of OM&S.

Defi nition

Held for Use includes consumable parts and supplies.

Stockpile Materiels, Net

The AFWCF has no Stockpile Materiels.
119

Working Capital Fund

Notes to the Principal Statements

Note 10. General PP&E, Net

As of September 30

2008 2007

Depreciation/ 

Amortization 

Method

Service

Life

Acquisition

 Value

(Accumulated 

Depreciation/ 

Amortization)

Net Book Value Prior FY Net

Book Value

(Amounts in thousands)

1. Major Asset Classes

 A. Land N/A N/A $ 0 N/A $ 0 $ 0

 B. Buildings, Structures, and 

 Facilities

S/L 20 or 40 932,320 $ -673,436 258,884 254,668 

 C. Leasehold Improvements S/L lease 

term

0 000

 D. Software S/L 2-5 or 10 1,097,939 -831,623 266,316 288,623

 E. General Equipment S/L 5 or 10 2,157,924 -1,573,174 584,750 496,554

 F. Military Equipment S/L Various 0 0 0 0

 G. Assets Under Capital

 Lease

S/L lease 

term

0 000

 H. Construction-in- Progress N/A N/A 54,436 N/A 54,436 51,225

 I. Other 0 0 0 0

 J. Total General PP&E $ 4,242,619 $ -3,078,233 $ 1,164,386 $ 1,091,070

See Note 15 for additional information on Capital Leases

Legend for Valuation Methods:

S/L = Straight N/A = Not Applicable

AFWCF does not have any restrictions on the use or convertibility of General PP&E.

Assets Under Capital Lease

The AFWCF has no Assets Under Capital Lease.
120

Working Capital Fund

Notes to the Principal Statements

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Liabilities

 A. Accounts Payable $ 0 $ 0

 B. Debt 0 0

 C. Other 0 0

 D. Total Intragovernmental Liabilities $ 0 $ 0

2. Nonfederal Liabilities 

 A. Accounts Payable $ 0 $ 0

 B. Military Retirement and Other Federal Employment Benefi ts 217,337 228,900

 C. Environmental Liabilities 0 0

 D. Other Liabilities 28,376 28,376

 E. Total Nonfederal Liabilities $ 245,713 $ 257,276

3. Total Liabilities Not Covered by Budgetary Resources $ 245,713 $ 257,276

4. Total Liabilities Covered by Budgetary Resources 1,594,591 1,886,092

5. Total Liabilities $ 1,840,304 $ 2,143,368

Liabilities not covered by budgetary resources are liabilities for which Congressional action is needed before budgetary 

resources can be provided.

Military Retirement and Other Federal Employment Benefi ts not covered by budgetary resources are comprised of various 

employee actuarial liabilities not due and payable during the current fi scal year. These liabilities are primarily comprised 

of $217.3 million for Federal Employee’s Compensation Act. Refer to Note 17, Military Retirement and Other Federal 

Employment Benefi ts, for additional details and disclosures.

Nonfederal Other Liabilities includes $28.4 million in foreign government deposits. These deposits represent foreign 

governments buy in to a Cooperative Logistics Supply Support Agreement (CLSSA). Foreign governments provide funds to 

buy their respective share of inventory that is owned and managed by the Air Force. This liability is established to offset an 

asset that belongs to another entity (foreign government). If the CLSSA is closed, they receive either a cash reimbursement 

or spare parts if approved by State Department. Historically foreign governments always request cash reimbursement versus 

spare parts. As a result deposits are classifi ed as liabilities not covered by budgetary resources.
121

Working Capital Fund

Notes to the Principal Statements

Note 12. Accounts Payable

As of September 30

2008 2007

Accounts Payable

Interest, Penalties, 

and Administrative 

Fees

Total Total

(Amounts in thousands)

1. Intragovernmental Payables $ 94,776 N/A $ 94,776 $ 117,965

2. Nonfederal Payables (to the Public) 817,558 0 817,558 946,756

3. Total $ 912,334 $ 0 $ 912,334 $ 1,064,721

The AFWCF’s systems do not track intragovernmental transactions by customer at the transaction level. Therefore, internal 

DoD buyer-side balances are adjusted to agree with internal seller-side balances for revenue, accounts receivable, and unearned revenue. Accounts payable are adjusted by reclassifying amounts between federal and nonfederal accounts payable.

In FY 2007, the Department recognized accounts payable balances of the Mechanization of Contract Administration Services (MOCAS) system at gross value without reduction for partial, progress payments, and non-accounts payable records 

overstating accounts payable and expenses. The overstated balances for FY 2007 were undeterminable due to system 

limitations; therefore no corrections have been made. Balances at FY 2008 are properly reported net of non-account payable 

records, partial and progress payments of $14.7 million.

Note 13. Debt

The AFWCF has no Debt.

Note 14. Environmental Liabilities and Disposal Liabilities

The AFWCF has no Environmental Liabilities and Disposal Liabilities.
122

Working Capital Fund

Notes to the Principal Statements

Note 15. Other Liabilities 

As of September 30

2008 2007

Current Liability

Noncurrent 

Liability

Total Total

(Amounts in thousands)

1. Intragovernmental

 A. Advances from Others $ 74,062 $ 0 $ 74,062 $ 124,243

 B. Deposit Funds and Suspense Account Liabilities 0 0 0 0

 C. Disbursing Offi cer Cash 0 0 0 0

 D. Judgment Fund Liabilities 0 0 0 0

 E. FECA Reimbursement to the Department of Labor 0 0 0 0

 F. Custodial Liabilities 0 0 0 0

 G. Employer Contribution and Payroll Taxes Payable 12,240 0 12,240 10,793

 H. Other Liabilities 0 0 0 0

 I. Total Intragovernmental Other Liabilities $ 86,302 $ 0 $ 86,302 $ 135,036

2. Nonfederal

 A. Accrued Funded Payroll and Benefi ts $ 151,662 $ 0 $ 151,662 $ 141,206

 B. Advances from Others 24,926 0 24,926 26,115

 C. Deferred Credits 0 0 0 0

 D. Deposit Funds and Suspense Accounts 0 0 0 806

 E. Temporary Early Retirement Authority 0 0 0 0

 F. Nonenvironmental Disposal Liabilities 0 0 0 0

 1. Military Equipment (Nonnuclear) 0 0 0 0

 2. Excess/Obsolete Structures 0 0 0 0

 3. Conventional Munitions Disposal 0 0 0 0

 G. Accrued Unfunded Annual Leave 0 0 0 0

 H. Capital Lease Liability 0 0 0 0

 I. Contract Holdbacks 1,990 0 1,990 1,326

 J. Employer Contribution and Payroll Taxes Payable 0 0 0 5,635

 K. Contingent Liabilities 0 21,955 21,955 22,500

 L. Other Liabilities 423,798 0 423,798 517,929

 M.Total Nonfederal Other Liabilities $ 602,376 $ 21,955 $ 624,331 $ 714,711

3. Total Other Liabilities $ 688,678 $ 21,955 $ 710,633 $ 849,747

The majority of the Nonfederal Other Liabilities balance is comprised of $378.3 million for Contract Depot Maintenance 

Activity Group’s accrued material and labor liabilities. 

Contingent liabilities balance includes $22.0 million in estimated future contract fi nancing payments that will be paid to the 

contractor upon delivery and Government acceptance. In accordance with contract terms, specifi c rights to the contractor’s 

work vests with the Government when a specifi c type of contract fi nancing payment is made. This action protects taxpayer 

funds in the event of contract nonperformance. These rights should not be misconstrued as the rights of ownership. The 
123

Working Capital Fund

Notes to the Principal Statements

AFWCF is under no obligation to pay the contractor for amounts greater than the amounts authorized in the contract until 

delivery and Government acceptance. Because it is probable that the contractor will complete its efforts and deliver a 

satisfactory product to the AFWCF and the amount of potential future payments is estimable; the AFWCF has recognized a 

contingent liability for estimated future payments, which are conditional pending delivery and Government acceptance.

Capital Lease Liability 

The AFWCF has no Capital Lease Liability.

Note 16. Commitments and Contingencies

The AFWCF is a party in various administrative proceedings and legal actions, with claims including environmental damage claims, equal opportunity matters, and contractual bid protests. The AFWCF’s Offi ce of the General Counsel considers 

the possibility of the AFWCF sustaining any losses on these legal actions to be remote.

The AFWCF is a party in numerous individual contracts that contain clauses, such as price escalation, award fee payments, 

or dispute resolution, that may or may not result in a future outfl ow of expenditures. Currently, AFWCF does not have a 

process by which it captures or assesses these potential contingent liabilities; therefore no associated liabilities are 

recognized or disclosed.

Note 17. Military Retirement and Other Federal Employment Benefi ts

As of September 30

2008 2007

Liabilities Assumed Interest Rate (%)

Less: Assets 

Available to

Pay Benefi ts)

Unfunded 

Liabilities Liabilities

(Amounts in thousands)

1. Pension and Health Actuarial Benefi ts

 A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0

 B. Military Retirement Health Benefi ts 0 0 0 0

 C. Military Medicare-Eligible Retiree Benefi ts 0 0 0 0

 D. Total Pension and Health Actuarial Benefi ts $ 0 $ 0$ 0$ 0

2. Other Actuarial Benefi ts 

 A. FECA 217,337 $ 0 217,337 228,900

 B. Voluntary Separation Incentive Programs 0 0 0 0

 C. DoD Education Benefi ts Fund 0 0 0 0

 D. Total Other Actuarial Benefi ts $ 217,337 $ $ 217,337 $ 228,900

3. Other Federal Employment Benefi ts 0 0 0 0

4. Total Military Retirement and Other Federal 

 Employment Benefi ts $ 217,337 $ 0 $ 217,337 $ 228,900
124

Working Capital Fund

Notes to the Principal Statements

Federal Employees Compensation Act (FECA)

The AFWCF actuarial liability for workers’ compensation benefi ts is developed by the Department of Labor and is updated 

at the end of each fi scal year. The liability includes the estimated liability for death, disability, medical, and miscellaneous 

costs for approved compensation cases, plus a component for incurred but not reported claims. The liability is determined 

using a method that utilizes historical benefi t payment patterns related to a specifi c incurred period to predict the ultimate 

payments. The projected annual benefi t payments are discounted to present value using the Offi ce of Management and 

Budget’s (OMB’s) economic assumptions for 10-year Treasury notes and bonds. Cost of living adjustments (COLAs) and 

consumer price index medical (CPIM) factors are applied to the calculation of projected future benefi ts.

The liability for future workers’ compensation (FWC) benefi ts includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims. The 

liability is determined using a method that utilizes historical benefi t payment patterns related to a specifi c incurred period 

to predict the ultimate payments related to that period. Consistent with past practice, these projected annual benefi ts payments have been discounted to present value using the OMB’s economic assumptions for 10-year Treasury notes and bonds. 

Interest rate assumptions utilized for discounting were as follows:

2008

4.368% in Year 1

4.770% in Year 2,

and thereafter

To provide more specifi cally for the effects of infl ation on the liability for future workers’ compensation benefi ts, wage 

infl ation factors (COLAs) and medical infl ation factors (CPIMs) were applied to the calculation of projected future benefi ts. 

The actual rates for these factors for the charge back year (CBY) 2008 are used to adjust the methodology’s historical payments to current year constant dollars. 

The compensation COLAs and CPIMs used in the projections for various CBY were as follows:

CBY COLA CPIM

2008 3.03% 4.71% 

2009 3.87% 4.01% 

2010 2.73% 3.86% 

2011 2.20% 3.87% 

2012 2.23% 3.93% 

 2013+ 2.30% 3.93% 

The model’s resulting projections were analyzed to insure that the estimates were reliable. The analysis was based on four 

tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual incremental payments, (3) a comparison of the incremental 

paid losses per case (a measure of case-severity) in CBY 2008 to the average pattern observed during the most current three 

charge back years, and (4) a comparison of the estimated liability per case in the 2008 projection to the average pattern for 

the projections of the most recent three years. 
125

Working Capital Fund

Notes to the Principal Statements

Note 18. General Disclosures Related to the Statement of Net Cost

Intragovernmental Costs and Exchange Revenue

As of September 30 2008 2007

(Amounts in thousands)

1. Intragovernmental Costs $ 4,292,130 $ 3,956,343

2. Public Costs 6,202,052 6,778,788

3. Total costs $ 10,494,182 $ 10,735,131

4. Intragovernmental Earned Revenue $ -10,176,218 $ -9,697,266

5. Public Earned Revenue -608,692 -734,496

6. Total Earned Revenue $ -10,784,910 $ -10,431,762

7. Net Cost of Operations $ -290,728 $ 303,369

Intragovernmental costs and revenue are related to transactions made between two reporting entities within the Federal Government. 

Public costs and revenues are exchange transactions made between the reporting entity and a nonfederal entity.

The AFWCF’s systems do not track intergovernmental transactions by customer at the transaction level. Therefore, internal DoD 

buyer-side balances are adjusted to agree with internal seller-side balances for revenue. Expenses are adjusted by reclassifying amounts 

between federal and nonfederal expenses.

The Statement of Net Cost (SNC) represents the net cost of programs and organizations of the Federal Government supported by appropriations or other means. The intent of SNC is to provide gross and net cost information related to the amount of output or outcome 

for a given program or organization administered by a responsible reporting entity. The Department’s current processes and systems 

do not capture and report accumulated costs for major programs based upon the performance measures as required by the Government 

Performance and Results Act. The Department is in the process of reviewing available data and developing a cost reporting methodology as required by the Statement of Federal Financial Accounting Standards (SFFAS) No. 4, “Managerial Cost Accounting Concepts and 

Standards for Federal Government.”

The AFWCF records transactions on an accrual basis. The AFWCF may not have all the actual costs and revenues input into the system 

in time for reporting. Accrual estimates based upon budget information, historical data, and current data not yet input are made as required by generally accepted accounting principles. These estimates reverse as actual costs or revenues are recorded.

Note 19. Disclosures Related to the Statement of Changes in Net Position 

Statement of Changes in Net Position, Other Financing Sources, Other line is comprised of a $632.1 million write-off of 

in-transit inventory.

Note 20. Disclosures Related to the Statement of Budgetary Resources

As of September 30 2008 2007

(Amounts in thousands)

1. Net Amount of Budgetary Resources Obligated for Undelivered Orders at the End of the Period $ 6,596,132 $ 7,196,353

2. Available Borrowing and Contract Authority at the End of the Period 0 0

All of AFWCF obligations are reimbursable obligations in apportionment category B.

The Statement of Budgetary Resources (SBR) includes intraentity transactions because the statements are presented as combined.
126

Working Capital Fund

Notes to the Principal Statements

Note 21. Reconciliation of Net Cost of Operations to Budget

As of September 30 2008 2007

(Amounts in thousands)

Resources Used to Finance Activities:

Budgetary Resources Obligated:

1. Obligations incurred $ 10,968,071 $ 14,102,303

2. Less: Spending authority from offsetting collections and recoveries (-) -11,765,169 -13,946,800

3. Obligations net of offsetting collections and recoveries $ -797,098 $ 155,503

4. Less: Offsetting receipts (-) 0 0

5. Net obligations $ -797,098 $ 155,503

Other Resources:

6. Donations and forfeitures of property 0 0

7. Transfers in/out without reimbursement (+/-) -47,477 2,192

8. Imputed fi nancing from costs absorbed by others 144,150 168,610

9. Other (+/-) -632,100 0 

10. Net other resources used to fi nance activities $ -535,427 $ 70,802

11. Total resources used to fi nance activities $ -1,332,525 $ 326,305

Resources Used to Finance Items not Part of the Net Cost of Operations:

12. Change in budgetary resources obligated for goods, services and benefi ts ordered but not yet 

provided:

 A. Undelivered Orders (-) $ 600,220 $ -44,589

 B. Unfi lled Customer Orders -319,145 190,395

13. Resources that fund expenses recognized in prior Periods (-) -11,609 0

14. Budgetary offsetting collections and receipts that do not affect Net Cost of Operations 0 0

15. Resources that fi nance the acquisition of assets (-) -4,945,969 -5,376,572

16. Other resources or adjustments to net obligated resources that do not affect Net Cost of Options:

 A. Less: Trust or Special Fund Receipts Related to exchange in the Entity’s Budget (-) 0 0

 B. Other (+/-) 679,577 -2,192

17. Total resources used to fi nance items not part of the Net Cost of Operations $ -3,996,926 $ -5,232,958

18. Total resources used to fi nance the Net Cost of Operations $ -5,329,451 $ -4,906,653

Components of the Net Cost of Operations that will not Require or Generate Resources in the 

Current Period:

Components Requiring or Generating Resources in Future Period:

19. Increase in annual leave liability $ 0 $ 0

20. Increase in environmental and disposal liability 0 0

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

22. Increase in exchange revenue receivable from the public (-) 0 6

23. Other (+/-) 46 30,241

24. Total components of Net Cost of Operations that will Require or Generate Resources in future periods $ 46 $ 30,241

Components not Requiring or Generating Resources:

25. Depreciation and amortization 132,208 142,937

26. Revaluation of assets or liabilities (+/-) 844,543 1,893,247

27. Other (+/-)

 A. Trust Fund Exchange Revenue 0 0

 B. Cost of Goods Sold 5,888,617 5,331,747

 C. Operating Material and Supplies Used 0 0

 D. Other -1,826,691 -2,188,150

28. Total Components of Net Cost of Operations that will not Require or Generate Resources $ 5,038,677 $ 5,179,781

29. Total Components of Net Cost of Operations that will not Require or Generate Resources

 in the current period $ 5,038,723 $ 5,210,022

30. Net Cost of Operations $ -290,728 $ 303,369
127

Working Capital Fund

Notes to the Principal Statements

Due to the AFWCF’s fi nancial system limitations, budgetary data is not in agreement with proprietary expenses and assets 

capitalized. The difference between budgetary and proprietary data is a previously identifi ed defi ciency. 

Resources That Finance the Acquisition of Assets is adjusted in order to align the note schedule with the amount reported 

on the Statement of Net Cost. This adjustment is $256.2 million (absolute value).

The following schedule lines are presented as combined instead of consolidated due to intraagency budgetary transactions 

not being eliminated:

y Obligations Incurred

y Less: Spending Authority from Offsetting Collections and Recoveries

y Obligations Net of Offsetting Collections and Recoveries

y Less: Offsetting Receipts

y Net Obligations

y Undelivered Orders

y Unfi lled Customer Orders

Resources Used to Finance Activities, Other line is comprised of a $632.1 million write-off of in-transit inventory.

The majority of Other resources or adjustments to net obligated resources that do not affect Net Cost of Operations is comprised of a $632.1 million write-off of in-transit inventory. 

Components Requiring or Generating Resources in Future Periods, Other line is comprised of $46.2 thousand in Federal 

Employees Compensation Act (FECA). 

The majority of Other Components not Requiring or Generating Resources is comprised of ($5.1) billion of DMAG completed production projects and of $3.3 billion Supply Material Activity Group material to replace condemned and consumable parts required for depot production.

Note 22. Disclosures Related to Incidental Custodial Collections

The AFWCF has no Disclosures Related to Incidental Custodial Collections.

Note 23. Earmarked Funds

The AFWCF has no Earmarked Funds.

Note 24. Other Disclosures 

The AFWCF has no Other Disclosures.

Note 25. Restatements

The AFWCF has no Restatements of prior period adjustments for material errors.

129

Working Capital Fund 

Fiscal Year 2008

Required Supplementary Information
130

Working Capital Fund

Required Supplementary Information

Statement of Disaggregated Budgetary Resources - Working Capital Fund

As of September 30, 2008 and 2007 ($ in thousands)

Working

Capital Fund

2008

Combined

2007 

Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 1,073,782 $ 1,073,782 $ 925,137

2. Recoveries of prior year unpaid obligations 0 0 23,358

3. Budget authority

 A. Appropriation 66,458 66,458 44,054

 B. Borrowing authority 00 0

 C. Contract authority 6,633,730 6,633,730 9,804,575

 D. Spending authority from offsetting collections

 1. Earned

 a. Collected 11,677,264 11,677,265 14,106,630

 b. Change in receivables from Federal sources 407,049 407,049 -373,583

 2. Change in unfi lled customer orders

 a. Advance received -77,781 -77,781 -40,165

 b. Without advance from Federal sources -241,364 -241,364 230,560

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

 4. Previously unavailable 0 0 0

 5. Expenditure transfers from trust funds 0 0 0

 E. Subtotal $ 18,465,356 $ 18,465,357 $ 23,772,071

4. Nonexpenditure transfers, net, anticipated and actual -88,000 -88,000 -382,000

5. Temporarily not available pursuant to Public Law 0 0 0

6. Permanently not available -8,139,473 -8,139,473 -9,162,481

7. Total Budgetary Resources $ 11,311,665 $ 11,311,666 $ 15,176,085

STATUS OF BUDGETARY RESOURCES:

8. Obligations incurred

 A. Direct $ 0$ 0$ 0

 B. Reimbursable 10,968,070 10,968,071 14,102,303

 C. Subtotal $ 10,968,070 $ 10,968,071 $ 14,102,303

9. Unobligated balance

 A. Apportioned 343,595 343,595 1,073,782

 B. Exempt from apportionment 0 0 0

 C. Subtotal $ 343,595 $ 343,595 $ 1,073,782

10. Unobligated balance not available 0 0 0

11. Total status of budgetary resources $ 11,311,665 $ 11,311,666 $ 15,176,085

CHANGE IN OBLIGATED BALANCE:

12. Obligated balance, net

 A. Unpaid obligations, brought forward, October 1 $ 8,883,865 $ 8,883,865 $ 8,603,843

 B. Less: Uncollected customer payments from Federal sources,

 brought forward, October 1 

-3,844,887 -3,844,887 -3,987,910

 C. Total unpaid obligated balance $ 5,038,978 $ 5,038,978 $ 4,615,933

13. Obligations incurred net (+/-) $ 10,968,070 $ 10,968,071 $ 14,102,303

14. Less: Gross outlays -11,905,048 -11,905,048 -13,798,923

15. Obligated balance transferred, net

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

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

 C. Total Unpaid obligated balance transferred, net $ 0 $ 0 $ 0

16. Less: Recoveries of prior year unpaid oblligations, actual $ 0 $ 0 $ -23,358

17. Change in uncollected customer payments from Federal sources (+/-) -165,685 -165,685 143,023

18. Obligated balance, net, end of period

 A. Unpaid obligations 7,946,887 7,946,888 8,883,865

 B. Less: Uncollected customer payments (+/-) from Federal sources -4,010,572 -4,010,572 -3,844,887

 C. Total, unpaid obligated balance, net, end of period 3,936,315 3,936,316 5,038,978

NET OUTLAYS:

19. Net Outlays

 A. Gross outlays $ 11,905,048 $ 11,905,048 $ 13,798,923

 B. Less: Offsetting collections -11,599,484 -11,599,484 -14,066,465

 C. Less: Distributed Offsetting receipts 0 0 0

 D. Net Outlays $ 305,564 $ 305,564 $ -267,542
131

Working Capital Fund 

Fiscal Year 2008

Audit Opinion
132

Working Capital Fund

Audit Opinion
Working Capital Fund

Audit Opinion

133
134

Working Capital Fund

Audit Opinion
Working Capital Fund

Audit Opinion

135
136

Working Capital Fund

Audit Opinion
Working Capital Fund

Audit Opinion

137
138

Working Capital Fund

Audit Opinion