Financing the Fight

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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, Financial Management and Comptroller . . . . . .iii

Management Discussion and Analysis

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

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

Major Command (MAJCOM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Quality People/Force Shaping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Transforming Nonappropriated Fund (NAF) Business Operations . . . . . . . . . . . . . . . . . . . . . .5

Personnel Service Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Operational Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Financial Management Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Air Force Working Capital Fund Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Supply Management Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Depot Maintenance Activity Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Financing the Fight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Financial Statements

General Fund

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

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

Consolidating and Combining Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67

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

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99

Working Capital Fund

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107

Footnotes to the Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113

Consolidating and Combining Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155

Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159
SECRETARY OF THE AIR FORCE

WASHINGTON DC

November 2006

Message from the

Secretary of the Air Force

I am proud to report that in Fiscal Year 2006 the Airmen of the United States Air Force responded with 

distinction to the many challenges our nation faced. Whether in the Global War on Terrorism, in defending our

homeland, in humanitarian and peacekeeping operations, or in ensuring the readiness of the world's greatest air,

space, and cyberspace power, our nation's Airmen performed magnificently. 

Our financial management team remains a key enabler of these Air Force efforts. As proud stewards of the

country's resources, they are confidently entrusted with our Air Force finances. Those resources allow us to

accomplish our mission - to deliver sovereign options for the defense of the United States of America and its

global interests - to fly and fight in air, space and cyberspace. 

Through Air Force Smart Operations for the Twenty-First Century, we have focused our efforts to more 

efficiently accomplish our mission, support our people, and modernize our force. 

Our expeditionary fighting forces, centered on the Air and Space Expeditionary Force, provide the foundation 

for our operations. We continue to closely align the active duty Air Force, Air National Guard, and Air Force

Reserve with Total Force initiatives to enhance our overall capability, and as recent developments illustrate, we

are fully engaged as a Total Force in the Global War on Terrorism. 

We have also remained focused on caring for and developing our Airmen - our most valuable resource. 

They face tremendous challenges, and in FY2006 we continued seeking ways to maintain and improve their 

training as well as personal and professional development.

Modernizing our aircraft inventory, which is the oldest in Air Force history, will allow our Service to maintain 

its technological advantage and build a portfolio of military capabilities needed to deliver sovereign options to 

the nation. 

Our financial management team is also focused on transforming to deliver improved service, better information

reliability, integration and visibility in our financial management processes. These financial statements illustrate 

the success of the Air Force over the past year, as well as specific financial management accomplishments. 

The publication of our financial statements complies with the requirement set out in the Chief Financial Officers

Act, and this financial information addresses both our General Fund and Working Capital Fund activities. 

The service of our financial managers remains nothing short of outstanding – "Financing the fight," while providing

stellar contributions to America's air, space and cyberspace capability.

ii

United States Air Force

Michael W. Wynne
DEPARTMENT OF THE AIR FORCE

WASHINGTON DC

OFFICE OF THE ASSISTANT SECRETARY

November 2006

Message from the 

Assistant Secretary of the Air Force,

Financial Management and Comptroller

I share the confidence and pride expressed by the Air Force Secretary in our financial management 

professionals. In Fiscal Year 2006, we continued our support to ongoing Global War on Terrorism operations

throughout the world, responded to natural disasters, and continued to improve our financial processes, 

systems and personnel.

The FY2006 Air Force Financial Statement reflects the wise investment America has made in its Air Force. 

It includes a Management Discussion and Analysis section that more precisely illuminates Air Force efforts and

contributions. It fulfills the requirements of the Chief Financial Officers Act, documents the expenditures

devoted to our General Fund and Working Capital Fund, and reviews performance measures established as

part of the Government Performance and Results Act.

Financial management plays a key role in fulfilling the Air Force mission, improving that support and 

conforming to the law is at the center of the Air Force financial management transformation. Our 

Financial Management Vision is to:

• Become a partner in strategic Air Force decisions.

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

• Make processes efficient and effective to produce accurate and relevant financial information.

• Reduce our cost structure by employing leading-edge technologies that continuously streamline 

financial management processes and increase capabilities.

• Provide our customers with world-class financial services.

Our financial management team members are accomplishing these goals while stressing accountability, 

visibility and the highest-quality management skills available anywhere. This remains our top priority.

We continue to make progress toward achieving financial information integrity. This year we begin validating

individual lines on our financial statement. One of the critical steps in this effort will be to thoroughly evaluate

the information comprising our Fund Balance with Treasury and our Cash and Other Monetary Assets entries

as major steps toward a complete and accurate presentation of our financial information.

We will never forget that we are financing the world's finest air and space power and that we have the obligation

to be good stewards of the resources entrusted to us. Air Force financial management professionals have met

that obligation, and will continue to do so, as we proudly preserve–your strategic partners ...“financing the fight!”

iii

2006 Annual Financial Statement

1

Air Force in Action

The Air Force vision of “Lasting 

Heritage...Limitless Horizon” encapsulates how America’s Airmen have 

created the world’s—and history’s—

greatest air, space, and cyberspace

power. In FY2006, this power was

used around the globe to face, and 

prepare for, mission requirements

across the full spectrum of conflict.

Our first priority is to maintain our

national focus on winning the Global

War on Terrorism (GWOT). In

FY2006, the Air Force continues to be

a part of a joint and coalition team with

the Army, Navy, Marine Corps, Coast

Guard, and our allies. Whether flying

fighters, conducting space operations,

operating unmanned aerial vehicles or

maintaining vigilance over the Homeland, all of America’s Airmen, no matter

their specialty, contribute to this mission. They have performed tremendously, and in many cases heroically, in

defending both our freedom and the

freedom of others. 

In defending our country, our Airmen

continue countless hours of surveillance and remain on constant alert,

ensuring that our airspace is protected

while our people stand ready for whatever missions may come their way,

including humanitarian relief and rescue

operations. 

To provide the foundation for these

vital capabilities, the Secretary of the

Air Force and the Chief of Staff of the

Air Force have highlighted two additional USAF priorities. The first of

these is Developing and Caring for Airmen. As the Air Force Posture Statement 2006 explains, “we must manage

our force to ensure the Air Force is

properly sized, shaped, and organized,

to meet the global challenges of today

and tomorrow.” We are also undertaking innovative recruiting and retention

efforts, military housing, and new management systems for personnel actions

and civilian employment.

Another element of this foundation is

Maintenance, Modernization, and Recapitalization of Air Force systems – essentially transforming the way we do business. In some cases, the Air Force is

planning to use older aircraft with system

upgrades to extend service life. Bearing

in mind the Air Force is dealing with

service life extensions, we are also moving to bring newer systems to the field,

including the F-22A Raptor, unmanned

aerial vehicles and intelligence, surveillance and reconnaissance aircraft. 

In this report, you will also read how

our financial management community

supports Air Force missions and initiatives worldwide. All three goals – winning the GWOT, taking care of our

people, and recapitalizing our force –

are critical to maintaining Air Force

capabilities in the service of the nation. 

Looking into the future at how we will

accomplish these three goals, we are

taking a number of bold steps. In order

to respond swiftly, flexibly and decisively to asymmetric, irregular, and emerging threats, we have embarked on a

bold new initiative known as Air Force

Smart Operations for the 21st Century

(AFSO21). This will allow our Airmen

to respond to everything from major

conflicts to humanitarian relief. Our

Airmen are doing this with remarkable

success, despite dealing with the oldest

inventory of aircraft in the storied history of both the Army Air Corps and

the Air Force.

2006 Annual Financial Statement

Management Discussion and Analysis
2

United States Air Force

Underpinning all of this are our

financial management professionals, both military and civilian.

Their attention to detail, expertise,

and professionalism ensures excellent Air Force stewardship of the

nation’s resources. They are

indeed “Financing the Fight.” 

Air Force Organizations

The command line of the Air

Force flows from the President to

the Secretary of Defense and then

to 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, Field Operating

Agencies (FOAs), Direct Reporting

Units (DRUs), and the Auxiliary. 

Major Command (MAJCOM)

Major Air Commands are divided

primarily between two types:

operational and support. Within

the operational commands, the

divisions are generally defined

according to purpose or location

(e.g., combat, movement of people and supplies, Pacific 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. The MAJCOMs are:

AIR COMBAT COMMAND (ACC)

Mission - Operate USAF bombers

(active and Air National Guard and

Air Force Reserve Command);

USAF’s CONUS-based fighter and

attack, reconnaissance, battle management, and command and control aircraft and intelligence and

surveillance systems. Provide

combat airpower to America’s

warfighting commands (Central

European, Northern, Pacific, and

Southern). 

Provide nuclear, conventional, 

and information operations forces

to United States Strategic Command (STRATCOM). Provide air

defense forces to North American

Aerospace Defense Command

(NORAD). 

AIR EDUCATION AND TRAINING

COMMAND (AETC)

Mission - Recruit, train, and educate professional, expeditionaryminded airmen to sustain the combat capability of America’s Air

Force. Conduct joint, readiness,

and Air Force security assistance

training.

AIR FORCE MATERIEL COMMAND

(AFMC)

Mission - Deliver war-winning

expeditionary capabilities to the

warfighter through development

and transition of technology, professional acquisition management,

and world-class sustainment of all

Air Force weapons systems.

AIR FORCE SPACE COMMAND

(AFSPC)

Mission - Operate and test USAF

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.

AIR FORCE SPECIAL OPERATIONS

COMMAND (AFSOC)

Mission - Serve as America’s 

specialized airpower, providing 

combat search and rescue, and

delivering special power anytime,

anywhere. Also tasked with:

shaping the battlefield; information

operations; precision engagement;
3

mobility; agile combat support;

aerospace interface; and recovery

operations. 

AIR MOBILITY COMMAND (AMC)

Mission - 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.

PACIFIC AIR FORCES (PACAF) 

Mission - Provide ready air and

space power to promote U.S.

interests in the Asia-Pacific region

during peacetime, crisis, and war. 

US AIR FORCES IN EUROPE 

(USAFE)

Mission - Provide the joint force

commander rapidly deployable

expeditionary aerospace forces.

Plan, conduct, coordinate, and support air and space operations to

achieve U.S. national and North

Atlantic Treaty Organization

(NATO) objectives based on U.S.

European Command (EUCOM)

taskings. Support U.S. military

plans and operations in Europe, the

Mediterranean, the Middle East,

and Africa.

AIR RESERVE COMMAND (AFRC)

Mission - Support the active duty

force. Serve in such missions as

fighter, bomber, airlift, aerial port

operations, aeromedical evacuation,

aerial fire fighting, weather reconnaissance, space operations, airborne air control, flying training,

flight testing, and aerial spraying.

Provide support and disaster relief

in the U.S., and support national

counterdrug efforts.

AIR NATIONAL GUARD (ANG)

Mission - Provide combat capability

to the warfighter and security for

the homeland. Protect life and

property and preserve peace,

order, and public safety.

FIELD OPERATING AGENCY (FOA)

A FOA is a subdivision of the Air

Force, directly subordinate to a

Headquarters Air Force functional

manager. An FOA performs field

activities beyond the scope of any

of the major commands. The

activities are specialized or associated with an Air Force-wide mission and do not include functions

performed in management headquarters, unless specifically directed by a Department of Defense

(DoD) authority. Examples of the

total thirty-two FOAs are the Air

Force Audit Agency, Air Force

Communications Agency, Air

Force Cost Analysis Agency, Air

Force Services Agency, and Air

Force Weather Agency. 

DIRECT REPORTING UNIT (DRU)

A DRU is a subdivision of the Air

Force, directly subordinate to

Headquarters Air Force. A DRU

performs a mission that does not fit 

into any of the MAJCOMs. A DRU

has many of the same administrative and organizational responsibilities as a MAJCOM. The five DRUs

are the Air Force Academy, Air

Force Studies and Analysis Agency,

Air Force Doctrine Center, Air

Force District of Washington, and

Air Force Operational Test and

Evaluation Center.

AUXILIARY

An Air Force auxiliary is an 

organization created by statute

that the Secretary of the Air

Force may use to fulfill the 

Air Force’s noncombat programs

and missions. The Civil Air 

Patrol (CAP) is the only U.S. Air

Force auxiliary to date.

This Management Discussion and

Analysis includes both the Air

Force General Fund and Working

2006 Annual Financial Statement
4

United States Air Force

Capital Fund, descriptions of functional areas these funds support,

and how they are used to further

Air Force capabilities for the

nation. The Air Force Financial

Statement also satisfies provisions

of the Chief Financial Officers

(CFO) Act.

General Fund

Quality People/Force

Shaping

The beginning of FY2006 saw the

Air Force reach its goal of reducing

manning below 360,000 in order

to fall below authorized endstrength. Although the Air Force

was below overall end-strength,

the forces mix between officer and

enlisted was unbalanced. Overage in officers resulted in the Air

Force paying more in personnel

costs than planned, which

stretched an already thin budget. 

To address these imbalances, the

FY2006 Force Shaping Program

involved a variety of programs to

ensure the Air Force could make

the required reductions while

maintaining the right skills and

experience mix to accomplish

today’s mission, as well 

as future missions. 

The Air Force accessed approximately 31,000 enlisted personnel

and 4,200 officers for FY2006.

This was an increase of about

12,000 enlisted accessions and a

decrease of more than 600 officer

accessions over the previous year,

as the Air Force worked to balance the force. It is critical to mission accomplishment to have the

right person, in the right position,

at the right time, which is achieved

through balancing the force.

To reduce officer overages, the

SECAF authorized the establishment of annual Force Shaping

Boards (FSBs). The purpose of the

FY2006 FSB was to reduce officer

overages by identifying eligible officers for separation while, at the

same time, balancing career fields

and officer commissioned yeargroups. Prior to establishment of

the FSBs, eligible officers were

offered voluntary options to transition to other forms of service, in

and out of the Air Force. For

example, officers could move from

active duty to vacancies in the

Reserve and Air National Guard

under the PALACE CHASE program, and to the Army under the 

“Blue to Green” program. The Air

Force also waived most active duty

service commitments to allow personnel to separate early. 

In addition to the FSB, the Air

Force also provided incentives to

those eligible to retire, such as

reducing from three years to two

years the time in grade required

for colonels and lieutenant

colonels to retire. A liberal separation policy was also instituted to

encourage officers serving in overage skills to leave, by waiving

active duty service commitments

incurred for education, recent

assignments, and other administrative actions. Officers (colonel and

below) were also allowed to

request retirement more than 

12 months from their originally

requested date. The FY2006

National Defense Authorization

Act (NDAA) provided legislation

allowing officers to retire with only

8 years of commissioned service

instead of 10 years, provided they

attained at least 20 years of active
5

service. These programs allowed

Airmen inclined to leave or retire

to do so quickly and easily. 

The Air Force also force shaped

the enlisted force through the

FY2006 Noncommissioned Officer

Retraining Program (NCORP),

which retrained 964 personnel

from 30 overage Air Force Speciality Codes (AFSCs) into those with

a shortage. The results equated to

an overall achievement rate of 95

percent of the Air Staff’s target

goal – the best since the program’s

inception and an amazing improvement over the previous year’s 69

percent achievement. The Career

Job Reservation (CJR) program

helped rebalance the junior enlisted

force as they entered their second

enlistment. All Airmen were

required to obtain a CJR in one of

the 146 AFSCs in order to re-enlist.

In 17 AFSCs that had significant

overages, CJRs were limited to the

number needed to sustain the

career fields at their optimal manning. Airmen from these AFSCs

who did not obtain CJRs had the

choice of applying to retrain into

one of the shortage AFSCs or leaving the Air Force. Using this tool

helped improve by 17 percent the

imbalances in the 17 AFSCs where

CJRs constrained the number of

people entering a second enlistment.

The Air Force continues to judiciously control spending for Selective Reenlistment Bonuses (SRBs).

SRBs are an additional financial

incentive used to encourage enlisted Airmen in select AFSCs with

between 17 months and 14 years

of service to remain on active duty.

The FY2006 NDAA set the maximum payment an Airman can

receive for an enlistment through

the SRB program to $90,000;

however, the Air Force’s retention

rate has not demanded implementing this option. The maximum payment in the Air Force

remains $60,000. SRBs are set by

AFSC on a sliding scale. The average SRB payment to Airmen in

FY2004 was $10,700. In FY2004,

the Air Force removed 82 AFSCs

from the list of those eligible for

SRBs, leaving 62 AFSCs. In March

2005, that list was reduced further,

leaving only 32 AFSCs with this

financial incentive. This reduction

saved the Air Force $102.7 million.

In May 2006, the Air Force further

revised the SRB List to include 37

AFSCs. Coupled with the savings/efficiencies gained from previous year’s SRB reductions and the

newly developed SRB modeling

capabilities, the Air Force can

more effectively target the SRBs to

human capital capability shortages

in our warfighting specialties. 

Together these programs and policies helped shape the Air Force by

improving imbalances between

many enlisted AFSCs and retaining

the right Airmen with the right

skills. The Air Force will continue

to devise programs to ensure the

human capital is available to provide the needed mission capability. 

Transforming 

Nonappropriated Fund

(NAF) Business Operations

Air Force Services is transforming

NAF business processes through

Nonappropriated Funds Transformation (NAF-T), a four-phased,

multi-year initiative to improve

financial management capabilities

and leverage technology to eliminate non-value added business

processes.

Air Force Services is transforming

NAF accounting and payroll

processes through the continued

building of a NAF Shared Services

Center (SSC) in San Antonio,

Texas. This follows the trend in the

commercial sector where decentralized activities are moved to

one location to achieve economies 

2006 Annual Financial Statement
6

United States Air Force

of scale and increases in productivity. This initiative will have a

positive impact on the management, control, and reporting of all

Air Force NAF activities by

streamlining the information flow

and reducing operating costs 

in the worldwide $1.2 billion 

NAF operation.

Personnel Service Delivery

In remarks made on 10 September

2001, the Secretary of Defense

declared war on the Pentagon’s

bureaucratic processes and challenged us all to “wage an all-out

campaign to shift Pentagon

resources from bureaucracy to the

battlefield, from tail to the tooth.”

The Secretary went on to say: “To

compete, we need to bring the

Department of Defense the human

resources practices that have already

transformed the private sector.”

With that challenge, several initiatives were launched to “transform

the way the Department works 

and what it works on.”

To execute these new initiatives,

the Deputy Chief of Staff for Manpower and Personnel established

the Personnel Service Delivery

(PSD) Transformation program in

order to better serve the force.

This program is a multi-year effort

designed to dramatically transform

the processes, organizations, and

technology by which the Air Force

delivers personnel services to the

Total Force-Active Duty, Guard,

Reserve, and civilians. The focus

of the transformation is on the

development and implementation

of a new Service Delivery Model

(SDM). This new model will

improve the efficiency and quality

of transaction and inquiry services

through the re-engineering, centralization, and automation of

processes. The SDM will also

allow Personnel professionals to

focus on providing an enhanced

level of strategic advisory services

to commanders and leaders within

their respective organizations.

The PSD Transformation vision is

to transform Air Force Personnel

to focus on the strategic delivery

of the right people, to the right

place, at the right time. The endstate goal for the program is to

transition the primary interface

with customers, such that 85 percent of personnel transactions/

inquiries are conducted through

self-service (Web and interactive

voice response), 10 percent

through the contact center

(phone, chat, email, etc.), and only

5 percent through face-to-face

means. The PSD concept enabled

the release of 1,500 authorizations,

creating a $382.4 million savings

between FY2006 and FY2010 that

is being re-capitalized into the personnel transformation effort.

Operational Performance

The Air Force must retain, maintain, and operate around the

world 24 hours a day, 7 days a

week. This is how we accomplish

air supremacy, protecting American ground commanders and

troops from significant air threats.

Americans fighting on the ground

have not been significantly

attacked by fixed-wing or rotarywing aircraft in more than 50

years, but this is not something

we can take for granted. A key

part of this training and preparation is the President’s Budget (PB)

Air Force Flying Hour Program.

The Air Force Flying Hour Program was developed to provide

training opportunities to prepare
7

units to support their warfighting

mission. Execution of the FY2005

PB Flying Hour Program was 100.5

percent. As of 31 August 2006,

execution was 97.1 percent, and is

projected to exceed the PB for the

full year. Flying Hour Program

execution addresses the execution

of the Active Air Force Congressionally funded O&M hours. Incrementally funded contingency support hours, Transportation Working Capital Fund hours, foreign

nation reimbursable training hours,

Special Operations hours, and

RDT&E hours are not included.

The execution of the Flying Hour

Program can be impacted by contingency operations support, maintenance issues, aircraft flight operations suspensions, aircraft delivery

delays, weapons system retirements, and approved program

changes. Though the execution of

the Flying Hour Program does not

define unit readiness, it can be a

forward indicator of possible

readiness issues. The MAJCOMs

determine the reasons for execution deviation and required 

courses of action. These evaluations provide insight to possible

future-year requirements.

Weapon System

Performance Metrics

The Air Force uses a variety of

metrics to gauge the performance

of its weapon systems and 

organizations. They are the

barometers for measuring 

the effectiveness of our organizational structures, our training,

manpower and equipment 

levels, quality of spare parts, 

maintenance actions, and a variety

of other indicators of our ability to

provide mission-ready weapons

systems to the warfighter. Chief

among these performance metrics

are Mission Capable rates, NonMission Capable rates, Cannibalization rates, and engine and 

supply measures.

Mission Capable Rates

Mission Capable (MC) rates are

perhaps the best-known yardstick

for measuring the readiness of Air

Force aircraft. MC rates reflect the

percentage of aircraft, by fleet,

capable of performing at least one

of their assigned missions. The

FY2006 aggregate MC rate as of

31 July 2006 is 78.7 percent, an

increase from the FY2005 rate of

78.3 percent, and is based on a

combined MC rate of A/OA-10,

B-1, B-2, B-52, C-130, C-141, C-5,

C-17, E-3, E-8, F-15, F-15E, F-16,

F-117, HC-130, KC-10, KC-135,

HH-60, RC-135, RQ-1, T-1, T-6,

T-37, T-38, and U-2 aircraft. 

MC rates categorized into Fighter,

Bomber, Tanker/Airlift, and Other

are drawn from the aggregate 

fleet above.

Non-Mission Capable Rates

Total Non-Mission Capable for

Maintenance (TNMCM) rate 

is a measure of a maintenance

organization’s ability to fix 

aircraft quickly and accurately;

Total Non-Mission Capable for

Supply (TNMCS) measures spare

parts availability.

2006 Annual Financial Statement

Mission Capable Rates

78.3 77.2

66.4

74.8

85.2

78.7 77.1

67.3

75.2

86

0

10

20

30

40

50

60

70

80

90

100

Aggregate Fighter Bomber Tanker/Airlift Other

Percent

FY05

FY06

Rates as of 31 July 06
8

United States Air Force

The FY2006 aggregate fleet 

TNMCM rate, as of 31 July 2006,

decreased from 18.1 percent to

17.9 percent. The FY2006 

TNMCS rate as of 31 July 2006

decreased from 8.2 percent to 

7.9 percent, representing the 

seventh consecutive year of

improving supply rates, and the

lowest TNMCS rate since FY1994.

Other Key Metrics

Air Force weapon system performance measures for FY2006

provide a snapshot of the tremendous efforts of the logistics community to provide and support

combat-capable forces that are

organized, trained and equipped to

provide efficient and effective

combat and combat support

efforts across the full spectrum of

military operations.

Cannibalization (CANN) rates

reflect the number of cannibalization actions that occur per 100 sorties for a particular weapon system.

The FY2006 aggregate rate of 3.6

CANNs per 100 sorties, as of

31 July 2006, is a decrease from 

the FY2005 rate of 4.2 and 

represents the lowest CANN 

rate since FY1994.

The Engine Non-Mission CapableSupply (ENMCS) rate for all Air

Force engines improved as the

rate dropped to 3.6 percent, the

lowest rate in the past eight years.

Engine-time-on-wing (ETOW)

rates have improved by slightly

over one percent each year for

Fighter, Bomber, and Tanker/

Airlift fleets over the past two

years. Investments in engine

modifications, spare parts, and

reliability-centered maintenance

have continued to pay quality 

dividends for our engine fleet

throughout FY2006.

Aircraft MC rates are but one

indicator of enhanced weapon 

system readiness. Programmed

depot maintenance and fleet modernization activities are critical to

maintaining mission-ready aircraft.

The Air Force strives to make

continual improvements in business practices designed to

increase the efficiency and effectiveness of our depot maintenance programs. As of

31 July 2006, the total number of

aircraft in depot for FY2006 was

525, continuing the downward

trend in depot-possessed aircraft.

Financial Management

Transformation

Air Force Financial Management

(FM) envisions an Air Force operating at peak effectiveness and efficiency with every dollar striking the correct balance among supporting the

mission, maintaining the infrastructure, and taking care of our people.

We achieve that vision by providing

Air Force leaders with accurate, relevant, and timely information to

make the right strategic choices

while making existing operations

more effective and efficient. In addition, we see Airmen resolving pay

issues without a trip to the Finance
9

Office, but retaining access to

face-to-face support when needed. 

In recent years, we created a

roadmap that translates our vision

into concrete, actionable, and

measurable steps. It integrates

ongoing transformation initiatives

into strategy and communicates

priorities, focuses efforts, and

serves as a filter to help determine

where to invest time, people, 

and resources. 

The strategic goals outlined in the

plan are:

1. Become a partner in strategic

Air Force decisions.

2. Recruit, prepare, and retain a

well-trained and highly educated

professional team for today and

tomorrow.

3. Make processes efficient and

effective to produce accurate

and relevant financial information complemented by sophisticated decision support.

4. Reduce our cost structure by

employing leading-edge technologies that continuously streamline

financial management processes

and increase capabilities.

5. Provide our customers with

world-class financial services. 

To better achieve these goals, 

FM is transforming its services, 

systems, and people.

Services Transformation: 

We will transition from primarily

processing and responding to routine transactions and place more

emphasis on analytical decision

support activities while streamlining financial procedures. 

Systems Transformation: 

We will modernize systems to 

provide more robust capabilities

that will reduce man-hours and

costs of completing transactions. 

People: 

We will continue to develop our

force through innovative training,

self-study, and developmental

assignments. 

Transformation is our catalyst to

achieving the FM vision. In 2006,

through our FM operational framework, we enacted Six Lanes of

Transformation:

• Financial Services Transformation will consolidate back-office

travel and pay processing into a

centralized Central Processing

Center (CPC). The goal is to

transition into a 3-tier customer

service concept to include a

24x7 Call Center, online 

services, and face-to-face support, allowing customers to get

financial help anytime, anywhere

in the world. This Air Force

Finance Services Center

(AFFSC) will be operational in

October 2008.

• Financial Advisor Transformation

will provide enhanced analytical

decision support and financial

advice to commanders. This

includes realigning resources to

provide enhanced budget, cost,

and accounting services to the

unit. This improved trusted

advisor role, referred to as the

Financial Advisor, will debut in

June 2007. 

• Analytical Capability Transformation’s vision of the Center of

Expertise (CoE) is to provide

expert, on-demand, specialized

financial analysis support for

decisions to Air Force installa2006 Annual Financial Statement
10

United States Air Force

tions and Major Commands.

The types of analytic efforts that

the CoE will provide include

advice/analysis for resource allocation, economic analyses, business case analyses, as well as

specialized analytical efforts (i.e.,

mission changes, support agreements, privatization, A-76, etc.).

• Combat Comptroller Transformation will determine how the

21st Century FM community

prepares and deploys to support

the warfighter. Deliverables

include launch of a Community

of Practice used to share deployment information to ensure we

maintain a robust capability to

meet our wartime requirements,

as well as test and implement

the E-44, a handheld tool used

to automate processes in

deployed environments. 

• Education, Training, and Development Transformation created

Web-based training guides to

support the realignment of the

budget and accounting liaison

functions; developed an induction course for the CoE; and

supported the other transformation lanes by providing the

necessary training and ensuring

FM professionals have the 

necessary skills to perform 

their duties in the transformed

environment. 

• Budget Operation Transformation will create a world-class

enterprise in the Headquarters

Air Force Budget operation by

strategically allocating

resources, re-engineering

processes, and building continuous cultural improvements. 

Transformation accomplishments

in FY2006 included:

• The site selection for the

AFFSC was approved and officially announced as Ellsworth

AFB in South Dakota. The 

center will be home to shared

services of more than 600 pay

and travel professionals, and

will service the Air Force

warfighters’ financial needs. 

It will open in October 2007.

• The accounting and budget functions were realigned at all active

and reserve bases to provide

one-stop shopping for all

accounting, budgeting, and 

decision support for their 

customers and commanders. 

• 18 April 2006 marked the grand

opening of the FM Center of

Expertise. At full capacity, the

CoE will deliver support to

installation and MAJCOM

comptroller staff, and clear and

unbiased analysis to installation

and MAJCOM financial management customers, as well as

expert training to improve 

analytical skills for making

resource allocation decisions.

The CoE will be fully operational in FY2007.

• The Combat Comptroller team

has provided electronic tools

and a website for one-stop

shopping for all deployment

needs. The Combat Comptroller Community of Practice was

launched in late April 2006 and

has already received more than

1,300 hits. The E-44 handheld

device will be deployed in the

fall of 2006 in an effort to make
11

financial transactions while

deployed easier and more 

efficient.

• The Education, Training, and

Development team held the

First Decision Support Course

in April 2006. Additionally,

modern Web-based courses 

are being built to support the

opening of the AFFSC.

Air Force Working

Capital Fund Overview

Air Force Materiel Command

(AFMC) supports Air Force

warfighters and operations via

major business areas that operate

as revolving funds, i.e., providers

charge users for the goods and

services provided. AFMC

accounts for more than 93 percent

of Air Force Working Capital Fund

(WCF) revenue and expense activity (excluding the Transportation

WCF, which is managed by the

United States Transportation Command). The AFMC-managed WCF

consists of two functions: Supply

Management and Depot Maintenance. These functions, referred

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

Force and Department of Defense

(DoD) customers as well as customers outside the DoD (e.g.,

local and foreign governments).

Supply Management provides managers expedited repair, replenishment, and inventory control for

spare parts and associated logistics

support services to fulfill Air Force

needs during war and peacetime.

Depot Maintenance provides 

economical and responsive repair,

overhaul and modification of 

aircraft, missiles, engines, 

other major end items, and 

associated components. The

Information Services business 

area was decapitalized beginning 

1 October 2005 (FY2006) and

became an appropriated activity

that no longer operates under 

the WCF.

WCFs allow the Air Force to

accomplish the following:

• Ensure readiness through

reduced support costs, 

stabilized rates, and 

customer service.

• Provide flexibility to adjust 

customer support needs in

response to real-world 

situations. 

• Focus management attention

on net results, including costs

and performance.

• Identify the total cost of 

providing support products 

and services.

• Establish strong customer/

provider relationships.

Supply Management

Activity Group 

The Supply Management Activity

Group (SMAG) provides policy,

guidance and resources to meet

Air Force needs for spare parts.

SMAG manages approximately two

million items including weapon systems spare parts, medical/dental

supplies, and equipment and items

used for non-weapon systems

applications. Materiel procured

from vendors held in inventory is

for sale to authorized customers.

SMAG consists of four divisions:

Material Support Division (MSD),

General Support Division (GSD),

Medical/Dental Division, and United States Air Force Academy

Cadet Issue Division. AFMC 

manages MSD and GSD. Headquarters United States Air Force

manages the Medical/Dental 

2006 Annual Financial Statement
12

United States Air Force

Division and Air Force Academy

Cadet Issue Division. 

MSD is responsible for Air Forcemanaged, depot-level reparable

spare parts and some consumable

spares. The principal products of

MSD are serviceable spare parts

and assemblies unique to Air Force

weapon systems.

The retail operations of the WCF

are comprised of the General Support, Medical/ Dental, and United

States Air Force Academy Divisions. Although each division

operates independently, all purchase large quantities of commodities in order to sell small quantities

directly to the ultimate consumer

(supporting the warfighter). Large

bulk buys allow the Air Force to

take advantage of economies of

scale and achieve significant cost

savings. Additionally, each division

concentrates its efforts in a specific

area of expertise. 

The GSD items support installation

maintenance and administrative

functions, field and depot maintenance of aircraft, and other systems. GSD supports more than

150 Air Force installations

throughout the world.

The Surgeon General of the Air

Force is responsible for the overall

management of the Medical/Dental

Division. This peacetime operating

authority provides the effective

support necessary to maintain

established norms in the health care

of USAF active military, retirees,

and family members. The war

reserve materiel (WRM) requirement of this division is to provide

medical supplies and equipment

vital to support forces in combat

and contingency operations.

The United States Air Force Academy Cadet Issue Division finances

the purchase of uniforms, uniform

accessories, and computers for

sale to cadets. The division’s 

customer base includes more than

4,000 cadets who receive distinctive uniforms procured from a

number of domestic manufacturing

contractors.

Customers, Products, and

Services

In addition to the management of

various inventories, SMAG provides a wide range of logistics 

support services, including requirements forecasting, item introduction, cataloging, provisioning, 

procurement, repair, technical 

support, data management, item

disposal, distribution management,

and transportation. SMAG 

provides this support to a variety

of customers. The SMAG supply

business also provides initial 

provisioning support to the Air

Force Acquisition Executive.

SMAG Transformation

Initiatives

SMAG is implementing a major

redesign of the spares supply

process through a set of initiatives

designed to improve support to

the warfighter. These initiatives

will result in a fundamental reshaping of the internal management

processes and data systems used

on a daily basis to buy, repair, and

distribute the thousands of different items needed to maintain

weapon systems in a mission capable status. Four primary initiatives

address key areas of opportunity

within the spares process: 

• Purchasing and Supply Chain

Management (PSCM) - adapts

commercial best practices to
13

integrate purchasing and supply

processes into a single, customer-centric, end-to-end

process that provides the right

item in the right quantity and

quality, on time, and at a 

reasonable cost. 

• Weapon System Supply Chain

Management - a customer-facing

proactive initiative that seeks to

improve processes and leverage

savings achieved by PSCM

strategies, while retaining ultimate focus on specific platforms

operated by thewarfighter.

• Logistics Enterprise Architecture

- an initiative to develop a single

authoritative strategic map of

future logistics business practices, systems, and organizations. This single authoritative

source defines operations and

systems models, aligns business

and IT initiatives, and provides a

vehicle to ensure transformation

coordination across the Air

Force and outside the Air Force.

• Advanced Planning System -

aims to improve the process of

translating warfighter needs into

executable logistics system support plans and schedules. By

emphasizing collaboration with

customers and suppliers, it

seeks to optimize activities and

resources across the Air Force

supply chain. 

Customer Support

Performance Measures

Mission Capable (MICAP) and Customer Wait Time (CWT) measures

allow managers to assess quality of

spares support provided and plan

corrective action when needed.

MICAP is defined as the status of a

weapon system as determined by

its ability to accomplish its assigned

mission. MICAP hours are

accrued in a given month for items

affecting mission capability that are

on backorder to an AFMC source

of supply. For every day during

the month the requisition is

unfilled, 24 hours are assigned to

the requisition. CWT measures

the average time elapsed between

customer order and satisfaction of

that order, including the wait time

– expressed in days – between the

retail supply issue or backorder

from the source of supply and then

subsequent delivery to the base

customer. MICAP hours have

improved significantly since 1999.

MSD items accrued an average of

five million monthly MICAP hours

during calendar year 2000. That

number dropped to 1.3 million

hours for the 12-month period

ending in April 2006. CWT is a

newer metric but has also shown 

a significant improvement. The

monthly average CWT during

FY2004 was 7.4 days and has been

six days through the first eight

months of FY2006.

Financial Performance

Measures

SMAG measures financial performance based on the Net Operating

Result (NOR) for MSD and

GSD.The NOR is the difference

between revenue and expenses,

i.e., a bottom-line profit and loss

indicator. The NOR objective of

an activity group is to break even

over the budget cycle. Setting

rates that effectively offset prior

year net profit or loss and break

2006 Annual Financial Statement
14

United States Air Force

even for new activity in the ratesetting year accomplishes this

objective. Revenues are amounts

earned as a result of normal operations and usually result from sale

of, or reimbursements for, goods

and services provided to DoD

activities, other federal government agencies and the public.

Expenses are the use of resources

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

occur from rendering services;

acquiring, producing or delivering

goods; or carrying out other mission-related activities. The result

is being able to provide needed

goods and services to customers

and generating the revenue to sustain continued operations within

the activity.

Depot Maintenance

Activity Group

The Depot Maintenance Activity

Group (DMAG) ensures successful

management and execution of comprehensive depot maintenance programs for Air Force-managed equipment in accordance with existing

Air Force guidance. In peacetime,

DMAG enhances readiness by efficiently and economically repairing,

overhauling, and modifying aircraft,

engines, missiles, components and

software to meet warfighter

demands. During wartime or contingencies, the group shifts to surge

repair operations and to realign

capacity to support the warfighter’s

immediate needs.

Customers, Products and

Services

DMAG provides major overhaul

and repair of systems and spare

parts while striving to meet or

exceed required standards for

quality, timeliness and cost. Both

AFMC depots and contract operations accomplish these goals. 

DMAG has two principal objectives. The first objective is to

provide organic depot repair

capability for fielded and emerging

weapon systems, so that warfighters have mission-essential equipment. Secondly, DMAG’s intent is

to ensure the ability to rapidly 

respond to those warfighter

requirements driven by contingency operations. 

To accomplish this, short- and longterm strategies must be used. The

depot maintenance strategic plan

guides the DMAG to have the right

workload capacity and capability to

meet depot maintenance in:

(a) peacetime support, (b) surge,

and (c) core requirements. To

better support the services that

DMAG provides to its customers,

an integrated suite of systems,

Depot Maintenance Accounting

and Production Systems (DMAPS),

provides improved financial, production, and material functionality

in support of the warfighter’s

needs for quality organic depot

maintenance. This includes

improved financial management

support/ tools and reporting for

organic depot maintenance activities, including substantial compliance with legislative requirements,

such as the CFO Act. 

DMAG supports a variety of customers including Air Force Major

Commands, Air National Guard 
15

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

Military Sales, and Non-DoD 

customers. Additionally, DMAG

provides storage, reclamation, and

regeneration for equipment not

currently used by the military 

services. This work is done at 

the Aerospace Maintenance and

Regeneration Center at DavisMonthan AFB, Arizona. Contract

depot maintenance is transitioning

from the Air Force WCF to be

financed directly by the using 

commands, SMAG, and other 

customers. 

Transformation Initiatives

Air Force Smart Operations for

the 21st Century (AFSO21) is the

overarching process improvement

initiative now encompassing all

transformation efforts. Process

improvement activities have

reduced flow days and backlogs,

and avoided costs, thus increasing

equipment availability to the

warfighter and reducing operating 

costs in support of Expeditionary

Logistics for the 21st Century

(eLog21) goals. These ongoing

efforts have been recognized

throughout DoD and industry and

will no doubt continue to be in 

the future.

Awards and recognitions include: 

• 2005 Public Sector Shingo Prize

for Excellence in Manufacturing

• Warner Robins ALC, the C-5

Planned Depot Maintenance,

Gold “winner”

• Oklahoma City ALC, the 

KC-135 Planned Depot 

Maintenance, Silver “winner”

• Ogden ALC, the F-16 

Common Configuration 

Implementation Program, 

Silver “winner”

• Ogden ALC, the F-16 Pylon

Shop, Silver “winner”

• 2005 DoD Lean Recognition

Award for Depot/Center 

Level Maintenance Organizational Excellence

• 2006 Franz Edelman Award 

for Achievement in Operations

Research

Customer Support

Performance Measures

Customer Support performance

measures for DMAG consist primarily of production performance

measures that are used to assess

cost, schedule, and quality of the

DMAG output. These are designed 

to achieve accountability at the

appropriate depot maintenance level, the Depot Maintenance Manager.

Customer Support performance

measures monitor progress toward

DMAG goals. 

The Due Date Performance (ability of the depot to produce aircraft

on time and on schedule) is currently exceeding the new standard

of 95 percent, holding at 98 percent as of May 2006. The depot

performance of Air Logistics 

Centers (ALCs) continues to 

have a direct impact on the

warfighter's ability to meet 

worldwide missions.

Financial Performance

Measures

Financial performance measures

assess the financial performance of

the DMAG. These measures are

designed to achieve accountability

at the appropriate level and also

measure compliance with DMAG

budget objectives. Budget objectives are identified in each ALC’s

2006 Annual Financial Statement
16

United States Air Force

financial performance plan used to

measure results during execution.

Cash Management

DoD cash management policy recommends maintaining the minimum cash balance necessary to

meet both operational requirements and disbursements in support of the capital program. Cash

generated from operations is the

primary means of maintaining adequate cash levels. 

Effective cash management is

directly dependent on the availability of accurate and timely data on

cash levels and operational results. 

Cash levels should be maintained

to cover at least 7 to 10 days of

operational costs, as well as cash

adequate to meet six months of

capital disbursements.

Cash management efforts continue

to focus on analyzing data and

developing tools to identify

changes in cash and forecast future

needs. Monthly, AFMC prepares a

statement of sources and uses of

cash, which is used to identify

areas of increases and decreases,

to monitor performance.

Financing the Fight 

America’s Airmen performed brilliantly in FY2006, delivering decisive air supremacy and combat

power as well as much-needed

humanitarian support. Our country can count on our Airmen to

continue these and other missions 

into the future. Our Airmen, and

indeed the country, deserve our

best as we achieve the strategic

vision, and attain transparency at

all levels (financial, business practices, data, systems, and processes). We are your strategic partners, acknowledged leaders in the

field of financial and management

information, working together to

meet the needs of our nation in

time of war and in time of peace.

Financial management will be a

vital component of on-going operations, able to meet any need

required, and the Air Force's financial management professionals will

continue to support them with

top-tier, world-class service -

always there when needed, always

ready to help finance the fight!
17

2006 Annual Financial Statement

Annual Financial Statements

Fiscal Year 2006
18

United States Air Force

Limitations to the Financial Statements

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

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

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

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

reports used to monitor and control budgetary resources, which are prepared from the same books and records. 

To the extent possible, the financial statements have been prepared in accordance with federal accounting standards. At times, the Department is unable to implement all elements of the standards due to financial management systems limitations. The Department continues to implement system improvements to address these limitations. There are other instances when the Department’s application of the accounting standards is different from

the auditor’s application of the standards. In those situations, the Department has reviewed the intent of the standard and applied it in a manner that management believes fulfills that intent. 

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

provides resources to do so. 

The Federal Accounting Standards Advisory Board (FASAB) amended the Statement of Federal Financial Accounting Standard No. 6 to require the capitalization and depreciation of military equipment (formerly known as

National Defense Property, Plant and Equipment) for fiscal years (FY) 2004 and beyond, and encouraged early

implementation. Accordingly, the Department began the process of developing and reporting values for these

assets in notes to the Balance Sheet, beginning in FY 2003.
19

2006 Annual Financial Statement

Principal Statements

General Fund
20

United States Air Force

2006

Consolidated

2005 Consolidated

Restated

1. ASSETS (Note 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3)

 a. Entity $ 68,767,178 $ 62,272,967

 b. Nonentity Seized Iraqi Cash 0 0

 c. Nonentity - Other 80,989 77,275

 2. Investments (Note 4) 722 717

 3. Accounts Receivable (Note 5) 665,672 653,589

 4. Other Assets (Note 6) 454,968 427,989

 5. Total Intragovernmental Assets $ 69,969,529 $ 63,432,537

 B. Cash and Other Monetary Assets (Note 7) $ 114,779 $ 151,844

 C. Accounts Receivable, Net (Note 5) 1,041,746 1,028,310

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property, Net (Note 9) 48,584,335 47,169,013

 F. General Property, Plant and Equipment, Net (Note 10) 141,861,111 142,955,380

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 11,379,126 11,179,041

2. TOTAL ASSETS $ 272,950,626 $ 265,916,125

3. LIABILITIES (Note 11)

 A. Intragovernmental:

 1. Accounts Payable (Note 12) $ 1,425,771 $ 1,651,904

 2. Debt (Note 13) 0 0

 3. Other Liabilities (Note 15 & 16) 2,258,259 1,589,867

 4. Total Intragovernmental Liabilities $ 3,684,030 $ 3,241,771

 B. Accounts Payable (Note 12) $ 4,269,732 $ 5,851,184

 C. Military Retirement and Other Federal 1,143,748 1,147,437

 Employment Benefits (Note 17)

 D. Environmental and Disposal Liabilities (Note 14) 6,554,952 7,126,178

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 and Note 16) 6,253,108 4,179,504

4. TOTAL LIABILITIES $ 21,905,570 $ 21,546,075

5. NET POSITION

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

 B. Unexpended Appropriations - Other Funds 70,186,333 63,716,637

 C. Cumulative Results of Operations - Earmarked Funds 4,540 0

 D. Cumulative Results of Operations - Other Funds 180,854,183 180,653,413

6. TOTAL NET POSITION $ 251,045,056 $ 244,370,050

7. TOTAL LIABILITIES AND NET POSITION $ 272,950,626 $ 265,916,125

Consolidated Balance Sheet—General Fund

As of September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
21

2006 Annual Financial Statement

2006

Consolidated

2005

Consolidated

1. Program Costs

 A. Gross Costs $ 142,378,997 $ 129,381,974

 B. (Less: Earned Revenue) -5,320,847 -5,087,578

 C. Net Program Costs $ 137,058,150 $ 124,294,397

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ 137,058,150 $ 124,294,397

Consolidated Statement of Net Cost—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
22

United States Air Force

Earmarked

Funds

All Other

Funds Eliminations

2006

Consolidated

2005

Consolidated

CUMULATIVE RESULTS OF OPERATIONS

1. Beginning Balances $ 5,451 $ 161,338,650  0 $ 161,344,101 $ 168,982,135

2. Prior Period Adjustments:

 2a. Changes in accounting principles (+/-) 0 0 0 0 0

 2b. Corrections of errors (+/-) 0 19,309,311 0 19,309,311 19,309,311

3. Beginning balances, as adjusted 5,451 180,647,961 0 180,653,412 188,291,446

4. Budgetary Financing Sources: 0 00 00

 4a. Appropriations received 0 0 0 0 0

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

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

 4d. Appropriations used -1,251 132,720,187 0 132,718,936 114,969,992

 4e. Nonexchange revenue 877 0 0 877 920

 4f. Donations and forfeitures of cash and cash equivalents 1,779 0 0 1,779 1,860

 4g. Transfers-in/out without reimbursement (+/-) 0 106,784 0 106,784 967,200

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

5. Other Financing Sources:

 5a. Donations and forfeitures of property 0 0 0 0 0

 5b. Transfers-in/out without reimbursement (+/-) 0 46,239 0 46,239 -25,648

 5c. Imputed financing from costs absorbed by others 0 698,815 0 698,815 742,039

 5d. Other (+/-) 0 3,690,030 0 3,690,030 0

6. Total Financing Sources 1,405 137,262,055 0 137,263,460 116,656,363

7. Net Cost of Operations (+/-) 2,316 137,055,834 0 137,058,150 124,294,396

8. Net Change -911 206,221 0 205,310 -7,638,033

9. Ending Balances 4,540 180,854,182 0 180,858,722 180,653,413

UNEXPENDED APPROPRIATIONS

1. Beginning Balances $ -1,251 $ 63,717,889  0 $ 63,716,638 $ 49,660,670

2. Prior Period Adjustments:

 2a. Changes in accounting principles (+/-) 0 0 0 0 0

 2b. Corrections of errors (+/-) 0 0 0 0 0

3. Beginning balances, as adjusted -1,251 63,717,889 0 63,716,638 49,660,670

4. Budgetary Financing Sources:

 4a. Appropriations received 0 139,764,959 0 139,764,959 128,888,188

 4b. Appropriations transferred-in/out (+/-) 0 2,469,906 0 2,469,906 1,631,239

 4c. Other adjustments (rescissions, etc) (+/-) 0 -3,046,233 0 -3,046,233 -1,493,468

 4d. Appropriations used 1,251 -132,720,187 0 -132,718,936 -114,969,992

 4e. Nonexchange revenue 0 0 0 0 0

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

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

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

5. Other Financing Sources:

 5a. Donations and forfeitures of property 0 0 0 0 0

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

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

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

6. Total Financing Sources 1,251 6,468,445 0 6,469,696 14,055,967

7. Net Cost of Operations (+/-) 0 00 00

8. Net Change 1,251 6,468,445 0 6,469,696 14,055,967

9. Ending Balances $ 0 $ 70,186,334 0 $ 70,186,334 $ 63,716,637

Consolidated Statement of Changes in Net Position—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
23

2006 Annual Financial Statement

2006 

Combined

2005

Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1    

2. Recoveries of prior year unpaid obligations  

3. Budget authority

 3a. Appropriation  

 3b. Borrowing authority  

 3c. Contract authority  

4. Spending authority from offsetting collections

 4a. Earned

 1. Collected  

 2. Change in receivables from Federal sources  

 4b. Change in unfilled customer orders

 1. Advance received  

 2. Without advance from Federal sources  

 4c. Anticipated for rest of year, without advances  

 4d. Previously unavailable  

 4e. Expenditure transfers from trust funds  

 4f. Subtotal  

5. Nonexpenditure transfers, net, anticipated and actual  

6. Temporarily not available pursuant to Public Law  

7. Permanently not available  

8. Total Budgetary Resources    

STATUS OF BUGETARY RESOURCES:

9. Obligations incurred:

 9a. Direct    

 9b. Reimbursable  

 9c. Subtotal  

10. Unobligated balance:

 10a. Apportioned  

 10b. Exempt from apportionment  

 10c. Subtotal  

11. Unobligated balance not available  

12. Total Status of Budgetary Resources    

CHANGE IN OBLIGATED BALANCE:

NET OUTLAYS:

13. Obligated balance, Net

 13a. Unpaid obligations, brought forward, October 1  

 13b. Less: Uncollected customer payments    

 from Federal sources, brought forward, October 1

 13c. Total unpaid obligated balance  

 13d. Obligations incurred net (+/-)    

14. Less: Gross outlays  

15. Obligated balance transferred, net

 15a. Actual transfers, unpaid obligations (+/-)  

 15b. Actual transfers, uncollected customer  

 payments from Federal sources (+/-)

16. Total Unpaid obligated balance transferred, net  

17. Less: Recoveries of prior year unpaid obligations, actual  

 Change in uncollected customer  

 payments from Federal sources (+/-)

18. Obligated balance, net, end of period

 18a. Unpaid obligations  

 18b. Less: Uncollected customer payments  

 from Federal sources

 18c. Total, unpaid obligated balance, net, end of period  

19. Net Outlays:

 19a. Gross outlays  

 19b. Less: Offsetting collections  

 19c. Less: Distributed Offsetting receipts  

20. Net Outlays    

Combined Statement of Budgetary Resources—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
24

United States Air Force

2006

Consolidated

2005

Consolidated

Resources Used to Finance Activities:

Budgetary Resources Obligated

1. Obligations incurred $ 145,600,996 $ 137,137,979

2. Less: Spending authority from offsetting collections and recoveries -10,409,644 -11,104,884

3. Obligations net of offsetting collections and recoveries 135,191,352 126,033,095

4. Less: Offsetting receipts -185,423 -123,202

5. Net obligations 135,005,929 125,909,893

Other Resources

6. Donations and forfeitures of property 0 0

7. Transfers in/out without reimbursement (+/-) 46,240 -25,648

8. Imputed financing from costs absorbed by others 698,814 742,039

9. Other (+/-) 3,690,030 0

10. Net other resources used to finance activities 4,435,084 716,391

11. Total resources used to finance activities $ 139,441,013 $ 126,626,284

Resources Used to Finance Items not Part of the Net Cost of Operations

12. Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

 12a. Undelivered Orders (-) -2,386,909 -11,681,780

 12b. Unfilled Customer Orders -197,170 738,214

13. Resources that fund expenses recognized in prior periods -898,944 -606,526

14. Budgetary offsetting collections and receipts that do not affect net cost of operations 185,423 123,202

15. Resources that finance the acquisition of assets -17,411,172 -18,029,608

16. Other resources or adjustments to net obligated resources

 that do not affect net cost of operations

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

 exchange in the Entity's Budget 0 0

 16b. Other (+/-) -3,736,270 25,648

17. Total resources used to finance items not part of the net cost of operations $ -24,445,042 $ -29,430,850

18. Total resources used to finance the net cost of operations $ 114,995,971 $ 97,195,434

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 491,847 81,024

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 0

23. Other (+/-) 610,486 13,659

24. Total components of Net Cost of Operations that

 will require or generate resources in future periods 1,102,333 94,683

Components not Requiring or Generating Resources:

25. Depreciation and amortization 16,091,380 11,743,098

26. Revaluation of assets or liabilities (+/-) 569,339 787,835

27. Other (+/-)

 27a. Trust Fund Exchange Revenue 0 0

 27b. Cost of Goods Sold 0 0

 27c. Operating Material & Supplies Used 13,272,303 2,037,758

 27d. Other -8,973,176 12,435,587

28. Total components of Net Cost of Operations that will not require or generate resources 20,959,846 27,004,278

29. Total components of net cost of operations that

 will not require or generate resources in the current period $ 22,062,179 $ 27,098,961

30. Net Cost of Operations $ 137,058,150 $ 124,294,395

Consolidated Statement of Financing—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
25

2006 Annual Financial Statement

Footnotes to the 

Principal Statements

General Fund
26

United States Air Force

This page intentionally left blank.
27

Note 1. Significant Accounting Policies

1.A. Basis of Presentation 

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

Force, as required by the "Chief Financial Officers Act of 1990," expanded by the "Government Management

Reform Act of 1994," and other appropriate legislation. The financial statements have been prepared from the

books and records of the Air Force in accordance with the "DoD Financial Management Regulation," Office of

Management and Budget (OMB) Circular A-136, Financial Reporting Requirements, and to the extent possible

generally accepted accounting principles (GAAP). The accompanying financial statements account for all

resources for which the Air Force is responsible. Information relative to classified assets, programs, and operations is 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 the Office of Management and Budget

Circular A-136, due to process and system limitations for both financial and non-financial management, which

feeds into the financial statements. The Air Force derives its reported values and information for major asset and

liability categories, largely from non-financial systems, such as inventory and logistic systems. These systems were

designed to support reporting requirements for maintaining accountability over assets and reporting the status of

Federal appropriations rather than preparing financial statements in accordance with GAAP. 

The Air Force currently has two auditor identified financial statement material weaknesses: (1) financial and nonfinancial feeder systems do not contain an adequate audit trail and other systems controls for the proprietary and

budgetary accounts, and (2) intragovernmental transaction cannot be accurately identified by the customer, which is

required for eliminations when preparing consolidated financial statements. In addition, with the implementation of

the Office of Management and Budget (OMB) Circular A-123, Management's Responsibility for Internal Controls,

Appendix A, Internal Controls Over Financial Reporting (ICOFR), the Air Force identified two additional material

weaknesses: (1) Military Equipment Valuation, the Air Force is unable to report the value of its current military

equipment assets in a consistent and accurate manner on the financial statements, and (2) Real Property Valuation,

the Air Force is unable to report the value of its current real property assets in a consistent and accurate manner on

the financial statements. The Air Force also identified one reportable condition with the Environmental Liabilities

reporting process. These findings are being addressed with corrective actions in the Financial Improvement Plan.

1.B. Mission of the Reporting Entity

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

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

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

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

on the accrual basis of accounting, as required by federal accounting standards.

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

accounts consist of resources that are available for use in the operations of the entity. The Air Force is authorized to decide how to use resources in entity accounts or may be legally obligated to use these resources to meet

entity obligations. 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 Air Force account numbers and titles

(all accounts are entity accounts unless otherwise noted):

2006 Annual Financial Statement
28

United States Air Force

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

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.C. Appropriations and Funds 

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

and deposit funds. The Air Force uses these appropriations and funds to execute their missions and report on

resource usage. 

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

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

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

related footnotes.

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

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

• Special funds account for Air Force receipts reserved for specific purposes.
29

• Deposit funds are generally used to (1) account for unidentified remittances or (2) hold assets for which the Air

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

• Earmarked funds are financed by specifically identified revenues that are required by statute to be used for designated activities, benefits or purposes, and remain available over time. Earmarked funds also have a requirement to account for and report on the receipt, use, and retention of revenues and other financing sources that

distinguish them from general revenues.

1.D. Basis of Accounting

For FY 2006, the Air Force's financial management systems are unable to meet all of the requirements for full

accrual accounting. Many of the Air Force's financial and non-financial feeder systems and processes were

designed and implemented prior to the issuance of GAAP for federal agencies. These systems were not designed

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

Air Force's legacy systems were designed to record information on a budgetary basis.

The Department has undertaken efforts to determine the actions required to bring its financial and non-financial

feeder systems and processes into compliance with GAAP. One such action is the current initiative to revise Air

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

Until all of the Air Force's financial and non-financial feeder systems and processes are updated to collect and

report financial information as required by GAAP, the Air Force's financial data will be based on budgetary transactions (obligations, disbursements, and collections), transactions from non-financial feeder systems, and adjustments for known accruals of major items such as payroll expenses, accounts payable, and environmental liabilities.

In addition, the DoD identifies program costs based upon the major appropriation groups provided by Congress.

Current processes and systems do not capture and report accumulated costs for major programs based upon the

performance measures as required by the "Government Performance and Results Act (GPRA)." The DoD is in

the process of reviewing available data and attempting to develop a cost reporting methodology that balances the

need for cost information required by the Statement of Federal Financial Accounting Standards (SFFAS) No. 4,

"Managerial Cost Accounting Concepts and Standards for the Federal Government," with the need to keep the

financial statements from being overly voluminous. 

1.E. Revenues and Other Financing Sources

The Air Force receives congressional appropriations as financing sources for general funds on either an annual or

multi-year 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 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. The Air Force recognizes revenue when earned within the constraints of current system capabilities. In other instances, revenue is recognized when bills are issued.

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

security in amounts reported in the Statement of Net Cost and the Statement of Financing. The U.S. has cost

sharing agreements with other countries. Examples include countries where there is a mutual or reciprocal

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

2006 Annual Financial Statement
30

United States Air Force

1.F. Recognition of Expenses

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

However, because the Air Force's financial and non-financial feeder systems were not designed to collect and record

financial information on the full accrual accounting basis, accrual adjustments are made for major items such as payroll expenses, accounts payable, environmental liabilities, and unbilled revenue. The Air Force's expenditures for

capital and other long-term assets are recognized as operating expenses based on depreciation. In the case of

Operating Materials and Supplies (OM&S), operating expenses are generally recognized when the items are purchased. Efforts are underway to migrate towards the consumption method for recognizing OM&S expenses.

1.G. Accounting for Intragovernmental Activities

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

the DoD or between two or more federal agencies. However, the Air Force cannot accurately identify most of

its intragovernmental transactions by customer because the Air Force's systems do not track buyer and seller data

needed to match related transactions. Seller entities within the DoD provided summary seller-side balances for

revenue, accounts receivable, and unearned revenue to the buyer-side internal DoD accounting offices. In most

cases, the buyer-side records are adjusted to agree with DoD seller-side balances. Intra-DoD intragovernmental

balances are then eliminated. The Air Force properly eliminates the revenue results from intra-DoD sales of capitalized assets. The DoD is developing long-term system improvements that will include sufficient up-front edits

and controls to eliminate the need for after-the-fact reconciliations. The volume of intragovernmental transactions is so large that after-the-fact reconciliations cannot be accomplished effectively with existing or foreseeable

resources.

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

between the 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 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, borrowings

from the U.S. Treasury and the Federal Financing Bank, Federal Employees' Compensation Act transactions with

the Department of Labor (DOL), and benefit program transactions with the Office of Personnel Management

(OPM). 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

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

Financing for the construction of DoD facilities is obtained through appropriations. This financing ultimately may

have been obtained through the issuance of public debt. The interest costs have not been capitalized since the

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

1.H. Transactions with Foreign Governments and International Organizations

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

under the provisions of the "Arms Export Control Act of 1976." Under the provisions of the Act, the DoD has

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

profit or loss to the U.S. Government. Payment is required in advance.
31

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

The Air Force's monetary financial resources are maintained in U.S. Treasury accounts. The disbursing offices of

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

(USACE), and the Department of State's financial service centers process the majority of the Air Force's cash collections, disbursements, and adjustments worldwide. Each disbursing station prepares monthly reports that provide information to the U.S. Treasury on check issues, electronic fund transfers, interagency transfers, and deposits.

In addition, the DFAS sites and the USACE Finance Center submit appropriation reports to the Department of

the Treasury on interagency transfers, collections received, and disbursements issued. The Department of the

Treasury records this information to the applicable Fund Balance with Treasury (FBWT) account. Differences

sometimes occur between the Air Force's recorded balance in the FBWT accounts and Treasury's FBWT accounts

and are subsequently reconciled.

1.J. Foreign Currency

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

instruments, and amounts held for deposit in banks and other financial institutions. Foreign currency consists of

the total U.S. dollar equivalent of both purchased and nonpurchased foreign currencies held in foreign currency

fund accounts.

The majority of cash and all foreign currency is classified as nonentity and, therefore, is restricted. Amounts

reported consist primarily of cash and foreign currency held by Disbursing Officers to carry out their paying, collecting, and foreign currency accommodation exchange missions. 

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

account to handle the gains and losses from foreign currency transactions for five general fund appropriations

(operations and maintenance, military personnel, military construction, family housing operations and maintenance, and family housing construction). The gains and losses are computed as the variance between the

exchange rate current at the date of payment and a budget rate established at the beginning of each fiscal year.

Foreign currency fluctuations related to other appropriations require adjustments to the original obligation

amount at the time of payment. The Air Force does not separately identify currency fluctuations. 

1.K. Accounts Receivable

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

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

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

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

between the agencies (per Code of Federal Regulations 4 CFR 101).

The allowance for Air Force entity receivables is computed each quarter based on the average percent of writeoffs to outstanding public accounts receivable for the last five years. For closed years receivables and deferred

debts in litigation, an allowance rate of 50% is used. Interest allowance is calculated using an average percent of

write-offs to outstanding public accounts receivable over a five year period starting with FY 2001 data. 

1.L. Direct Loans and Loan Guarantees

Not applicable.

2006 Annual Financial Statement
32

United States Air Force

1.M. Inventories and Related Property

Most of the Air Force's inventories are currently reported 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 the SFFAS No. 3, "Accounting for Inventory and Related Property." Additionally, these systems cannot produce financial transactions using the USSGL, as required by the Federal Financial Management Improvement Act

of 1996 (P.L. 104-208). By utilizing new systems development processes, the Air Force has transitioned, and is

continuing to transition, the inventory to the moving average cost method. Approximately 32% of the Air Force

inventory value is now being reported from systems that have transitioned to moving average cost functionality.

However, since the on-hand balances which transitioned were not, for the most part, baselined to auditable historical cost, the reported values remain noncompliant with SFFAS 3 and GAAP.

Related property includes operating materials and supplies (OM&S) and stockpile materials. The OM&S, including

munitions not held for sale, are valued at standard purchase price. The DoD uses both the consumption method

and the purchase method of accounting for OM&S. Items that are centrally managed and stored, such as ammunitions and engines, are generally recorded using the consumption method and are reported on the Balance Sheet

as OM&S. 

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

categorized as OM&S rather than military equipment. 

The Air Force recognizes condemned material as "Excess, Obsolete, and Unserviceable." The cost of disposal is

greater than the potential scrap value; therefore, the net value of condemned material is zero. Potentially redistributed material, presented in previous years as "Excess, Obsolete, and Unserviceable," is included in the "Held

for Use" or "Held for Repair" categories according to its condition.

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 amortize into interest income over the term of the investment using the effective interest

rate method or another method obtaining similar results. The Air Force's intent is to hold investments to maturity, unless they are needed to finance claims or otherwise sustain operations. Consequently, a provision is not

made for unrealized gains or losses on these securities. Related earnings are allocated to appropriate Air Force

activities to be used in accordance with the directions of the donor.

The Air Force invests in nonmarketable securities. The two types of nonmarketable securities are par value and

market-based intragovernmental securities. The Bureau of Public Debt issues nonmarketable par value intragovernmental securities. Nonmarketable, market-based intragovernmental securities mimic marketable securities,

but are not publicly traded.

1.O. General Property, Plant and Equipment

The Department is moving away from a standard capitalization threshold for all categories (e.g. real property, military

equipment, etc.) of General Property Plant and Equipment (PP&E) to one that is specific for each individual category.
33

The capitalization threshold was revised from $100,000 to $20,000 for real property. The current $100,000 capitalization threshold remains unchanged for the remaining General PP&E categories.

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

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

$100,000. The DoD also requires capitalization of improvement costs over the DoD capitalization threshold of

$100,000 for General PP&E. The DoD depreciates all General PP&E, other than land, on a straight-line basis.

Prior to FY 1996, General PP&E was capitalized if it had an acquisition cost of $15,000, $25,000, and $50,000 for fiscal

years 1993, 1994, and 1995, respectively, and an estimated useful life of two or more years. General PP&E previously

capitalized at amounts below $100,000 were written off from the General Fund financial statements in FY 1998. 

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

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

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

exceeds the DoD capitalization threshold, it must be reported on the Air Force's Balance Sheet.

The DoD is developing new policies and a contractor reporting process that will provide appropriate General

PP&E information for future financial statement reporting purposes. Accordingly, the Air Force reports only government property in the possession of contractors that is maintained in the Air Force's property systems. The

DoD has issued new property accountability and reporting requirements that require Air Force Components to

maintain, in their property systems, information on all property furnished to contractors. This action which

should be implemented by the end of FY 2009 is structured to capture and report the information necessary for

compliance with Federal accounting standards.

The SFFAS No. 23, "Eliminating the Category National Defense Property, Plant, and Equipment," establishes generally accepted accounting principles for valuing and reporting military equipment (e.g. ships, aircraft, combat

vehicles, weapons) in federal financial statements. The Standard provided for the use of estimated historical cost

for valuing military equipment if obtaining actual historical cost information is not practical. The Department used

Bureau of Economic Analysis (BEA) to calculate the value of the military equipment for reporting periods from

October 1, 2002 through March 31, 2006. 

Effective 3rd Quarter, FY 2006, the Department replaced the BEA estimation methodology with an estimation

methodology for military equipment based on Department internal records. The Department initially identified

the universe of military equipment by accumulating information relating to program funding and associated military equipment, equipment useful life, program acquisitions and disposals to create a baseline. The military equipment baseline is updated using expenditure information, and information related to acquisition and disposals. 

1.P. Advances and Prepayments

The Air Force records payments in advance of the receipt of goods and services as advances or prepayments and

reports them as assets on the Balance Sheet. The Air Force recognizes advances and prepayments as expenses

when it receives the related goods and services. 

1.Q. Leases

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

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

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

2006 Annual Financial Statement
34

United States Air Force

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 governmental's incremental borrowing rate at the inception of the lease. The Air Force, as the lessee of real estate or

equipment, will receive the use and possession of leased property from a lessor in exchange for a payment of

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

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

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

bills, and Interservice Support Agreements. Future year projections use the Consumer Price Index (CPI), rather

than the DoD inflation factor. The CPI impacts increases to the leases, especially those at commercial lease sites.

Equipment leases have a variety of lease terms which are not expected to be renewed upon expiration. Other

operating leases are generally one year leases. The Air Force expects to continue to reduce the level of owned

assets while increasing the number of leased assets. The Air Force will strive to displace commercial leases with

more economical GSA leases.

1.R. Other Assets 

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

and cost reimbursable. To alleviate the potential financial burden on the contractor that long-term contracts can

cause, the Air Force provides financing payments. One type of financing payment that the Air Force makes for

real property is based upon a percentage of completion. In accordance with the SFFAS No. 1, "Accounting for

Selected Assets and Liabilities," such payments are treated as construction-in-process and are reported on the

General PP&E line on the Balance Sheet and in the related note.

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

contract financing payments, that are not reported elsewhere on the Department's Balance Sheet.

Contract financing payments are defined in the Federal Acquisition Regulations (FAR), Part 32, as authorized disbursements of monies to a contractor prior to acceptance of supplies or services by the Government. These

payments are designed to alleviate the potential financial burden on contractors performing on certain long-term

contracts and facilitate competition for defense contracts. Contract financing payments clauses are incorporated

in the contract terms and conditions and may include advance payments, performance-based payments, commercial advance and interim payments, progress payments based on cost, and interim payments under certain costreimbursement contracts. Contract financing payments do not include invoice payments, payments for partial

deliveries, lease and rental payments, or progress payments based on a percentage or stage of completion, which

the Defense Federal Acquisitions Regulations Supplement (DFARS) 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 in Note 10.

1.S. Contingencies and Other Liabilities 

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

"Recognition of Contingent Liabilities Arising from Litigation," defines a contingency as an existing condition, situation,

or set of circumstances that involves an uncertainty as to possible gain or loss. The uncertainty will be resolved

when one or more future events occur or fail to occur. The Air Force recognizes contingent liabilities when past

events or exchange transactions occur, a future loss is probable, and the loss amount can be reasonably estimated.
35

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

where there is at least a reasonable possibility that a loss or additional loss will be incurred. Examples of loss contingencies include the collectibility of receivables, pending or threatened litigation, and possible claims and assessments. The Air Force's loss contingencies arise as a result of pending or threatened litigation or claims; and

assessments that occur due to events such as aircraft and vehicle accidents, medical malpractice, property or

environmental damages, and contract disputes.

Other liabilities arise as a result of anticipated disposal costs for the Air Force's assets. This type of liability has

two components: non-environmental 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. Non-environmental disposal liabilities are recognized for assets when management

decides to dispose of an asset based upon the DoD's policy, which is consistent with SFFAS No. 5, "Accounting

for Liabilities of Federal Government." 

1.T. Accrued Leave

The Air Force reports as liabilities military leave and civilian earned leave except sick leave that has been accrued

and not used as of the Balance Sheet date. Sick leave is expensed as taken. The liability reported at the end of

the accounting period reflects 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 not obligated 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 between expenses and losses and financing sources

(including appropriations, revenue, and gains) since the inception of an activity. Beginning with FY 1998, the

cumulative results also include donations and transfer in and out of assets without reimbursement.

1.V. Treaties for Use of Foreign Bases 

The Air Force has the use of land, buildings, and other facilities that are located overseas and that have been

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

Force purchases overseas capital assets with appropriated funds, but 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 non-retrievable capital assets. This takes place after negotiations between

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

1.W. Comparative Data 

Financial statement fluctuations greater than 2% of total assets on the Balance Sheet or 10% from the previous

period presented are explained within the notes to the financial statements.

1.X. Unexpended Obligations

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

2006 Annual Financial Statement
36

United States Air Force

1.Y. Undistributed Disbursements and Collections 

Undistributed disbursements and collections represent the difference between disbursements and collections

matched at the transaction level to a specific obligation, payable, or receivable in the activity field records as

opposed to those reported by the U.S. Treasury. These amounts should agree with the undistributed amounts

reported on the departmental accounting reports. In-transit payments are those payments that have been made

to other agencies or entities that have not been recorded in their 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 federal and nonfederal accounts payable and accounts receivable.

Unsupported undistributed disbursements are recorded in accounts payable. Unsupported undistributed collections are recorded in other liabilities. The Air Force follows DoD policy.

Note 2. Nonentity Assets

Fluctuations

Total nonentity assets increased by $446.3 million (86%) primarily due to a $439.3 million increase in nonfederal

accounts receivable. In the past, DFAS-DE erroneously reported public accounts receivable in receipt and

deposit accounts as entity. DFAS-DE corrected the error during 3rd Quarter, FY 2006. These receivables are

now correctly recorded as nonentity in accordance with the classification of accounts as entity versus nonentity in

DoDFMR, Volume 6B, Attachment 20A.

Relevant Information for Comprehension

Nonentity assets are assets held by an entity but are not available for use in the operations of the entity.

Nonfederal other assets are advances to contractors. The Nonentity Fund Balance with Treasury asset class represents amounts in Air Force's deposit fund and two suspense fund accounts (Uniformed Services Thrift Savings

Plan Suspense and Thrift Savings Plan Suspense) that are not available for Air Force use. Nonentity Accounts

Receivable, when collected, goes to the Department of the Treasury as miscellaneous receipts. The Nonentity

As of September 30

($ in thousands)

1. Intragovernmental Assets

 A. Fund Balance with Treasury $ 80,989 $ 77,276

 B. Accounts Receivable 2,715 2,354

 C. Total Intragovernmental Assets $ 83,704 $ 79,630

2. Nonfederal Assets

 A. Cash and Other Monetary Assets $ 114,779 $ 151,844

 B. Accounts Receivable 568,289 128,943

 C. Other Assets 196,826 156,872

 D. Total Nonfederal Assets $ 879,894 $ 437,659

3. Total Nonentity Assets $ 963,598 $ 517,289

4. Total Entity Assets $ 271,987,028 $ 265,398,836

5. Total Assets $ 272,950,626 $ 265,916,125

2006 2005
37

Nonfederal Accounts Receivable amount also includes interest receivables on aged debt. Nonentity Cash and

Other Monetary Assets represent disbursing officers' cash and undeposited collections as reported on the

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

Other nonfederal assets consist of advances to contractors as part of the advance payment pool agreements with

the Massachusetts Institute of Technology and other nonprofit institutions. These agreements are used for the

financing of cost-type contracts with nonprofit educational or research institutions for experimental or research

and development work when several contracts or a series of contracts require financing by advance payments.

Note 3. Fund Balance with Treasury

Fluctuations

Total fund balances increased $6.5 billion (10%) primarily due to a capital infusion in the amount of $9.6 billion

received on June 15, 2006 from the supplemental appropriation act for defense to support Global War on

Terrorism and Hurricane Recovery. Of the $9.6 billion, $5.0 billion was multi-year and operations and maintenance appropriations that could not be disbursed in the current fiscal year due to the late receipt of funding.

Reconciling Amount

The Air Force shows a reconciling amount of $1.1 billion with the Department of the Treasury which is comprised of:

• $929.9 million in withdrawal of the FBWT in the canceling appropriations at September 30, 2006. These funds

are included in FBWT per Treasury but are not included in FBWT per Air Force. 

• $170.1 million in withdrawal of the FBWT for unavailable receipt accounts at September 30, 2006. These

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

• $16.8 million in allocation transfers from the Department of Agriculture and the Foreign Military Sales - Military

Assistance Program. An allocation transfer occurs when the Treasury appropriates funds to one federal entity,

which then transfers the authority to execute its funds to another federal entity. These funds are included in

the fund balance with Treasury (FBWT) per Treasury, but are not included in the FBWT per Air Force.

• $4.7 million in allocation transfers to the Department of Transportation. These funds are included in FBWT

per Air Force but are not included in FBWT per Treasury.

As of September 30

($ in thousands)

1. Fund Balances

 A. Appropriated Funds $ 68,762,362 $ 62,293,567

 B. Revolving Funds 0 0

 C. Trust Funds 3,944 4,134

 D. Special Funds 872 789

 E. Other Fund Types 80,989 51,752

 F. Total Fund Balances $ 68,848,167 $ 62,350,242

2. Fund Balances Per Treasury Versus Agency

 A. Fund Balance per Treasury $ 69,960,267 $ 63,268,814

 B. Fund Balance per Air Force -68,848,167 -62,350,242

3. Reconciling Amount $ 1,112,100 $ 918,572

2006 2005

2006 Annual Financial Statement
38

United States Air Force

Status of Fund Balance with Treasury

Fluctuations

Total status of Fund Balance with Treasury increased $6.5 billion (10%) primarily due to a $3.2 billion increase in

the unobligated balance available. This increase is due a capital infusion of $9.6 billion received on June 15, 2006

from the supplemental appropriation act for defense to support Global War on Terrorism and Hurricane

Recovery. Most of the $2.8 billion of multi-year appropriations, included in the supplemental, were not obligated

prior to the end of FY 2006. In addition, obligated balance not yet disbursed increased $2.2 billion as a result of

the late receipt of the $9.6 billion supplemental. The late receipt resulted in Air Force obligating the single year

appropriations during FY 2006 but was unable to disburse all of the obligations during the current fiscal year.

Relevant Information for Comprehension

The Status of Fund Balance with Treasury consists of unobligated and obligated balances. These balances reflect

the budgetary authority remaining for disbursements against current or future obligations. In addition, the Status

includes various accounts that affect either budgetary reporting or Fund Balance with Treasury, but not both.

Unobligated Balance represents the cumulative amount of budgetary authority that has not been set aside to cover

outstanding obligations. Unobligated Balance is classified as available or unavailable and is associated with appropriations expiring at fiscal year end that remain available only for obligation adjustments until the account is closed.

Obligated Balance not yet Disbursed represents funds that have been obligated for goods that have not been

received or services that have not been performed.

Non-Budgetary Fund Balance with Treasury (FBWT) includes entity and nonentity Fund Balance with Treasury

accounts which do not have budgetary authority, such as unavailable receipt accounts or clearing accounts.

Non-FBWT Budgetary Accounts include budgetary accounts that do not affect Fund Balance with Treasury, such

as contract authority, borrowing authority, and investment accounts. This category reduces the Status of Fund

Balance with Treasury.

Although funds have been appropriated, $2.1 billion of these funds are not available for obligation because the

period for obligation established by law has lapsed.

($ in thousands)

1. Unobligated Balance

 A. Available $ 15,001,790 $ 11,760,100

 B. Unavailable 2,111,136 1,246,109

2. Obligated Balance not yet Disbursed $ 53,989,101 $ 51,840,781

3. Non-Budgetary FBWT $ 380,571 $ 339,456

4. Non-FBWT Budgetary Accounts $ -2,634,431 $ -2,836,206

5. Total $ 68,848,167 $ 62,350,240

As of September 30 2006 2005
39

Disclosures Related to Suspense/Budget Clearing Accounts

Fluctuations

Total suspense/budget clearing accounts increased $42.7 million (15%) due to a $26.0 million increase in

Disbursing Officer Suspense and an $11.6 million increase in Interfund/IPAC Suspense. The increase in the

Disbursing Officer Suspense account is the result of an increase in federal income tax being withheld and not yet

disbursed for civilian and military due to increases in Internal Revenue Service withholding rates during FY 2006.

The change in the Interfund/IPAC Suspense account can be attributed to a decrease in the amount of intragovernmental payments and collections in suspense. In April 2006, the DFAS Transaction Interface Module was implemented (DTIM-IPAC). DTIM-IPAC has greatly reduced the time transactions remain in suspense thereby reducing the amount and dollar value of transactions that are in the Interfund/IPAC Suspense account.

Relevant Information for Comprehension

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

The F3875 suspense clearing accounts represents the Disbursing Officer's (DO) suspense. Account F3885 represents the Interfund/IPAC suspense. Account F3886 represents the (payroll) Thrift Savings Plan suspense. These

three suspense accounts temporarily hold collections or disbursements until they can be assigned or identified to

a valid appropriation.

The F3880 suspense account represents the balance of Treasury checks that (1) have either been lost by the

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

Treasury and need to be transferred to the original appropriation.

The F3882 suspense account was established for the Uniformed Services Thrift Savings Plan in FY 2002. The

amounts in this account represent a timing difference between the posting of the Thrift Savings Plan deductions by the

National Finance Center and the posting of these amounts in the military accounting systems in the following month.

($ in thousands)

 Account

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

 F3875 – Disbursing Officer Suspense -357,705 336,053 362,040

 F3880 – Lost or Cancelled Treasury Checks -3,803 691 553

 F3882 – Uniformed Services Thrift Savings Plan Suspense -20,956 25,523 30,802

 F3885 – Interfund/IPAC Suspense 14,989 -74,564 -63,012

 F3886 – Thrift Savings Plan Suspense 0 0 0

 Total $ -367,475 $ 287,703 $ 330,383 $

11,552

0

42,680

0

25,987

-138

5,279

(Decrease)/Increase 

from FY 

2005 - 2006

2004 2005 2006

As of September 30

2006 Annual Financial Statement
40

United States Air Force

Disclosures Related to Problem Disbursements and In-Transit Disbursements

Fluctuations

The Air Force had a $242.8 million decrease in problem disbursements and a $165.2 million decrease in in-transits. The Defense Finance and Accounting Service has efforts underway to improve the systems, to resolve all

previous problem disbursements, and to process all in-transits in a timely manner. The amount of unmatched disbursements (UMDs) over 180 days is $0, negative unliquidated disbursements (NULOs) is $0, and in-transits is

$2.1 million. The amount of UMDs over 120 days old is $0, NULOs is $0 and in-transits is $3.0 million. The current absolute value of in-transits is $1.3 billion.

The decrease of $240.9 million (88%) in UMDs and the $1.9 million (23%) decrease in NULOs can be attributed

to an increase in the rate of automated posting of disbursements since September 2005, utilizing the DFAS

Transaction Interface Module.

The decrease in in-transits of $165.2 million (21%) can be attributed to a decrease in Interfund activity and a

decrease in intraservice (Air Force for Air Force) disbursement activity 4th Quarter, FY 2006. Fluctuations are

driven by the cyclical nature of Interfund and cross disbursement activities.

Relevant Information for Comprehension

The Air Force is reporting $1.5 million of in-transit disbursements pertaining to the International Military

Education and Training (IMET) appropriation. The Air Force has no problem disbursements directly related to

Foreign Military Sales.

There are no discrepancies between amounts reported in the problem disbursement metric furnished to DFAS

Arlington and the schedule above.

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

Department of the Treasury which have not yet been precisely matched against the specific source obligation.

The problem disbursement arises when the various contracting, disbursing, and accounting systems fail to match

the data necessary to properly account for the transaction in all the applicable accounting systems.

A UMD occurs when a payment is not matched to a corresponding obligation in the accounting system. Absolute

value is the sum of the positive values of debit and credit transactions without regard to the sign (plus or minus).

A NULO occurs when a payment is made against a valid obligation, but the payment is greater than the amount

of the obligation recorded in the official accounting system. These payments have been made using available

funds and are based on valid receiving reports for goods and services delivered under valid contracts.

The in-transits represent the net value of disbursements and collections made by a DoD disbursing activity on

behalf of an accountable activity and have not been posted to the accounting system.

($ in thousands)

1. Total Problem Disbursements, Absolute Value

 A. Unmatched Disbursements (UMDs) $ 161,630 $ 272,972 $ 32,063 $

 B. Negative Unliquidated Obligations (NULO) 9,792 8,209 6,291

2. Total In-transit Disbursements, Net $ 1,065,326 $ 776,544 $ 611,372 $

-240,909

-1,918

-165,172

(Decrease)/Increase 

from FY

2005-2006

2006

As of September 30

2004 2005
41

2006 Annual Financial Statement

Note 4. Investments and Related Interest

Relevant Information for Comprehension

The Federal Government does not set aside assets to pay future benefits or other expenditures associated with

earmarked funds. The cash receipts collected from the public for an earmarked fund are deposited in the U.S.

Treasury, which uses the cash for general Government purposes. Treasury securities are issued to the Air Force

as evidence of its receipts. Treasury securities are an asset to the Air Force and a liability to the U.S. Treasury.

Because the Air Force and the U.S. Treasury are both parts of the 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 financial statements. U.S. Treasury securities provide the Air Force with

authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures. When the Air

Force requires redemption of these securities to make expenditures, the Government finances those expenditures 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 finances all other

expenditures.

Note 5. Accounts Receivable

($ in thousands)

1. Intragovernmental Receivables $ 665,672 N/A $ 665,672 $ 653,589

2. Nonfederal Receivables 

 (From the Public) $ 1,189,271 $ -147,525 $ 1,041,746 $ 1,028,310

3. Total Accounts Receivable $ 1,854,943 $ -147,525 $ 1,707,418 $ 1,681,899

As of September 30 2006 2005

Gross Amount 

Due

Allowance For 

Estimated 

Uncollectibles

Accounts 

Receivable, Net

Accounts 

Receivable, Net

($ in thousands)

1. Intragovernmental Securities

 A. Nonmarketable, Market Based $ 710 $ 0 $ 710 $ 705

 B. Accrued Interest 7 7 7

 C. Total Intragovernmental Securities $ 717 $ 0 $ 717 $ 712

2. Other Investments

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

As of September 30

Amortized

(Premium)/Discount

2005

Cost Amortization

Method

Investments

 Net

Market Value

Disclosure

($ in thousands)

1. Intragovernmental Securities

 A. Nonmarketable, Market Based $ 713 $ 1 $ 714 $ 712

 B. Accrued Interest 8 8 8

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

2. Other Investments

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

As of September 30

Amortized

(Premium)/Discount

2006

Cost Amortization

Method

Investments

 Net

Market Value

Disclosure
42

United States Air Force

Relevant Information for Comprehension

As presented on the Consolidated Balance Sheet, accounts receivable include reimbursements receivable and

refunds receivable such as out-of-service debts (amounts owed by former service members) and contractor

debts. It also includes net interest receivables per DoDFMR Vol. 6B guidance. Canceled accounts receivable are

reported as nonentity receivables because these amounts are deposited into a Treasury Department miscellaneous receipt account when collected. Reconciliation between Treasury Report on Receivables (TROR) Due

from the Public and the Balance Sheet was accomplished. This reconciliation is performed to ensure that the

financial statements are in agreement with the receivable amount reported to the Department of the Treasury.

The difference between accounts receivable on the Balance Sheet and TROR Due from the Public include the

allowance for estimated uncollectible of $147.5 million, unsupported collections in transit in the amount of $1.1

million, and undistributed collections of $358.5 thousand. Undistributed collections are prorated between public

and intragovernmental receivables based on a percentage calculated from receivable amounts represented on the

Balance Sheet. 

Aged Accounts Receivable

For nondelinquent, noncurrent accounts receivables, the Air Force currently has 26 claims in the amount of $5.7

million, which are currently being negotiated. These amounts are reported by the Air Force in the Operation and

Maintenance appropriation classified program. As a result, additional information on these cases is not available.

Throughout the year, follow-up is made by the Air Force on these cases.

Delinquent receivables as a result of transactions arising within DoD or other federal agencies are being collected

through the Intergovernmental Payment and Collection System (IPAC) in accordance with trading partner agreements. For receivables without valid supporting documentation, DFAS-DE is working with the Air Force to

($ in thousands)

CATEGORY

Nondelinquent

 Current $ 1,085,891 $ 193,635 $ 1,360,677 $ 247,651

 Noncurrent 5,725 0 0 0

Delinquent

 1 to 30 days $ 34,155 $ 6,010 $ 7,167 $ 6,242

 31 to 60 days 122,543 4,677 5,836 3,369

 61 to 90 days 28,469 6,744 22,661 7,735

 91 to 180 days 64,611 21,217 14,723 7,214

 181 days to 1 year 55,201 41,513 25,834 21,965

 Greater than 1 year and less 

 than or equal to 2 years

 Greater than 2 years and less

 than or equal to 6 years

 Greater than 6 years and less

 than or equal to 10 years

 Greater than 10 years 0 17,702 0 17,115

Subtotal $ 1,410,177 $ 1,189,365 $ 1,437,370 $ 1,180,503

 Less Supported Undistributed Collections -665 -94 -7,439 -1,841

 Less Eliminations -743,840 0 -776,342 0

 Less Other 0 0 0 -36

Total $ 665,672 $ 1,189,271 $ 653,589 $ 1,178,626

0 179,819 0 177,244

6,437 705,483 36 30,232

7,145 12,565 436 661,736

As of September 30 2006 2005

Intragovernmental Nonfederal Intragovernmental Nonfederal
43

obtain documentation to support an IPAC collection. If supporting documentation is not available, the original

entry will be reversed.

DFAS-DE has a new initiative to develop a front end edit system to help validate reimbursable data before it is

loaded into the accounting system. DFAS-DE is also strengthening guidance relative to the elimination of unsupported reimbursable transactions and is providing training to Air Force customers.

Demand letters are sent to nonfederal debtors once the payment becomes 30 days delinquent in accordance

with the procedures outlined in the Concept of Operations for Managing Accounts Receivables. The delinquencies for the Air Force consist primarily of debts that have been turned over to the Contract Debt System (CDS)

and the Defense Debt Management System (DDMS) for resolution.

Note 6. Other Assets

Relevant Information for Comprehension

Other Assets (With the Public) (line 2B) is comprised primarily of advances to contractors as part of advance payment pool agreements with the Massachusetts Institute of Technology and other nonprofit institutions and travel

advances. The advance payment pool agreements are used for the financing of cost type contracts with nonprofit

educational or research institutions for experimental or research and development work when several contracts

or a series of contracts require financing by advance payments.

Contract terms and conditions for certain types of contract financing payments convey certain rights to the

Department that protect the contract work from state or local taxation, liens or attachment by the contractor's

creditors, transfer of property, or disposition in bankruptcy; however, these rights should not be misconstrued

to mean that ownership of the contractor's work has transferred to the Government. The government does

not have the right to take the work, except as provided in contract clauses related to termination or acceptance, and the Department is not obligated to make payment to the contractor until delivery and acceptance of a

satisfactory product.

The Contract Financing Payment balance of $11.1 billion is comprised of $9.9 billion in contract financing payments and an additional $1.2 billion in estimated future funded payments that will be paid to the contractor

upon future delivery and Government acceptance of a satisfactory product. (See additional discussion in Note

15, Other Liabilities).

As of September 30

($ in thousands)

1. Intragovernmental Other Assets

 A. Advances and Prepayments $ 454,968 $ 427,989

 B. Other Assets 0 0

 C. Total Intragovernmental Other Assets $ 454,968 $ 427,989

2. Nonfederal Other Assets

 A. Outstanding Contract Financing Payments $ 11,098,138 $ 10,919,137

 B. Other Assets (With the Public) 280,988 259,904

 C. Total Nonfederal Other Assets $ 11,379,126 $ 11,179,041

3. Total Other Assets $ 11,834,094 $ 11,607,030

2006 2005

2006 Annual Financial Statement
44

United States Air Force

Note 7. Cash and Other Monetary Assets

Fluctuations

Overall total cash, foreign currency, & other monetary assets (line 3) decreased by $37.1 million (24%) primarily

due to a $37.3 million decrease in cash (line 1). The decrease is attributed to the increased utilization of the

International Treasury Service (ITS.gov) for payments to foreign vendors in U.S. dollars. DFAS-DE sends U.S. dollars directly to the Federal Reserve Bank of New York. The Federal Reserve Bank disburses funds directly to foreign vendors resulting in a reduced need for U.S. dollars at Air Force disbursing locations. ITS.gov began a

phased implementation during the 2nd Quarter, FY 2005. 

Relevant Information for Comprehension

The amount reported as cash and foreign currency consists primarily of cash held by disbursing officers. The foreign currency amount reported is valued at the Department of Treasury's prevailing exchange rate, which is the

most favorable rate available to the U.S. Government for foreign exchange transactions. Foreign currency is used

to make disbursements and exchange U.S. dollars for military personnel.

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

Air Force but not available for use in its operations. These assets are held by the Air Force's disbursing officers as

agents of the Treasury. The total balance of $114.8 million is restricted.

Note 8. Direct Loan and/or Loan Guarantee Programs

Direct Loan and/or Loan Guarantee Programs - The entity operates the following direct loan and/or 

Loan guarantee program(s):

• Military Housing Privatization Initiative

• Armament Retooling & Manufacturing Support Initiative

Note 9. Inventory and Related Property

As of September 30

($ in thousands)

1. Inventory, Net $ 0$ 0

2. Operating Materials & Supplies, Net 48,584,335 47,169,013

3. Stockpile Materials, Net 0 0

4. Total $ 48,584,335 $ 47,169,013

2006 2005

As of September 30

($ in thousands)

1. Cash $ 111,641 $ 148,938

2. Foreign Currency 3,138 2,906

3. Total Cash, Foreign Currency, & Other Monetary Assets $ 114,779 $ 151,844

2006 2005
45

Operating Materials and Supplies, Net

Information related to OM&S

General Composition of OM&S

Operating Materials and Supplies (OM&S) include weapon systems, spare and repair parts, ammunition, tactical missiles, centrally managed spare aircraft engines, and uninstalled cruise and 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.

Some munitions included in OM&S are restricted to use. Restricted munitions are items that cannot be expected

to meet performance requirements under all conditions. They are only used in emergency combat situations in

which no other suitable munitions are immediately available.

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 classified as such is marked within

each supply or inventory system with condition codes A-D.

The category "Held as Excess, Obsolete, and Unserviceable" includes all material that managers determine to be

more costly to repair than to replace. Items retained for management purposes, which are beyond economic

repair are coded "condemned." The net value of these items is zero and they are shown as Excess, Obsolete,

and Unserviceable and assigned condition codes H, P, S, or V.

The Category Held for Repair relates to impaired assets and includes all other condition codes as defined by the

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

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

As stated above, the category Held for Use includes all material available for issuance, and the category Held for

Repair includes all economically reparable material. Before FY 2002, the Department of Defense (DoD) categorized

potentially redistributable material, regardless of condition, as Excess, Obsolete, and Unserviceable.

To date, the Air Force has partially implemented a moving average cost (MAC) valuation process within four systems

in an effort to report the value of OM&S at historical cost, which is the DoD-approved costing methodology.

As of September 30

($ in thousands)

1. OM&S Categories

 A. Held for Use $ 37,448,202 $ $ 37,448,202 $ 36,317,706 SP, LAC

 B. Held for Repair 11,136,133 11,136,133 10,851,307 SP, LAC

 C. Excess, Obsolete, and Unserviceable 1,263,059 0 0 NRV

 D. Total $ 49,847,394 $ $ 48,584,335 $ 47,169,013

SP = Standard Price O = Other

AC = Actual Cost

-1,263,059

Legend for Valuation Methods:

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

0

0

-1,263,059

Valuation 

Method

2006 2005

OM&S

Gross Value

Revaluation 

Allowance OM&S, Net OM&S, Net

2006 Annual Financial Statement
46

United States Air Force

(Three of the four systems had its beginning balance validated). Most OM&S assets are in systems not yet converted

to MAC and therefore are still valued at standard price with an allowance for Excess, Obsolete, and Unserviceable.

Under current DoD policy, no allowance is made for serviceable ready-to-issue items (category Held for Use).

An allowance equal to 100% of standard price, however, is made for the category Excess, Obsolete, and

Unserviceable. This allowance results in a net book value of zero, which is considered appropriate in the case of

items coded as condemned that have no intrinsic value to the Air Force. The category Held for Repair represents suspended, unserviceable (but reparable) items which have a value to the Air Force but whose value is less

than that of the Held for Use items and greater than that of the Excess, Obsolete and Unserviceable items. To

date, the Office of the Secretary of Defense is currently developing guidance for computing an allowance for the

Held for Repair category. As a result, Air Force continues to report Held for Repair at full standard price.

Government-Furnished Material (GFM) and Contractor-Acquired Material (CAM)

The value of some of the Air Force's GFM and CAM in the hands of contractors is not included in the OM&S values reported above. The DoD is presently reviewing its process for reporting these amounts in an effort to

determine the appropriate accounting treatment and the best method to collect and report required information

quarterly without duplicating information already in other logistics systems.

Operating Materials and Supplies (OM&S) Value

The OM&S data reported on the financial statements are derived from logistics systems designed for material

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 material 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 activity's risk of losing sales.

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

In general, the Air Force is using the consumption method of accounting for OM&S, since OM&S is defined in the

SFFAS No. 3 as material that has not yet been issued to the end user. Once issued, the material is expensed.

According to federal accounting standards, the consumption method of accounting should be used to account for

OM&S unless (1) the amount of OM&S is not significant, (2) OM&S are in the hands of the end user for use in

normal operations, or (3) it is cost beneficial to expense OM&S when purchased (purchase method).

Other Air Force Disclosures

In the past, the Air Force provided only minimal OM&S accounting data that could be used to prepare the financial statements but has made considerable strides in improving the systems to provide actual transactions for

completing the financial statements. However, in some cases, the data provided still consists of only beginning

and ending balances for each of the asset accounts Held for Use; Excess, Obsolete, Unserviceable; and Held for

Repair. Without the required additional data (acquisitions, transfers in, amounts consumed, transfers out, trading

partner data, etc.), the Defense Finance and Accounting Service (DFAS) could only report the net change

between prior period ending balances and the values reported as current period ending balances.
47

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 to the General Accounting and Finance System - Rehost.

Note 10. General PP&E, Net

Relevant Information for Comprehension

The Air Force changed its method of valuing military equipment in 3rd Quarter, FY 2006. Previously, military

equipment was valued using Bureau of Economic Analysis (BEA) data. Beginning 3rd Quarter, FY 2006, military

equipment is valued based on internal records. The value of military equipment for the 4th Quarter, FY 2005 was

restated from $92.3 billion to $111.6 billion for comparative purposes using the new valuation method. See Note

19 for further disclosures.

For 4th Quarter, FY 2006, military equipment is valued at $111.2 billion based on internal records. Under the

previously used BEA valuation methodology, this equipment would have been valued at $95.0 billion.

There are restrictions on the Air Force's ability to dispose of real property (land and buildings) located outside the

continental United States.

Other Air Force Disclosures

Included in the net book value of general equipment for 4th Quarter, FY 2006 reports, the Air Force used some

FY 2002 ending data for Special Tools and Special Test Equipment (ST/STE) but did use actual data for the B-2 aircraft. The FY 2002 values were still being used for all other ST/STE because the two systems previously used to

report ST/STE have been turned off and at least 80% of the dollar value is scheduled to be replaced by Air Force

Equipment Management System (AFEMS) in FY 2007. The net book value of ST/STE for the 4th Quarter, FY

2006 remains unchanged at $170.3 million, which is immaterial to the balance of general equipment.

As of September 30

($ in thousands)

1. Major Asset Classes

 A. Land N/A N/A $ 440,350 N/A $ 440,350 $ 432,911

 B. Buildings, Structures, and Facilities 20 or 40 46,075,786 $ -26,234,571 19,841,215 18,916,942

 C. Leasehold Improvements S/L lease term 0 0 0 0

 D. Software S/L 2-5 or 10 794,601 -307,616 486,985 344,561

 E. General Equipment S/L 5 or 10 30,298,895 -23,829,906 6,468,989 6,808,603

 F. Military Equipment S/L Various 235,060,495 -123,829,675 111,230,820 111,579,312

 G. Assets Under Capital Lease S/L lease term 453,481 -328,319 125,162 151,598

 H. Construction-in-Progress N/A N/A 3,267,590 N/A 3,267,590 4,721,453

 I. Other 0 00 0

2. Total General PP&E $ 316,391,198 $ -174,530,087 $ 141,861,111 $ 142,955,380

Service 

Life

Acquisition 

Value

Net Book

Value

Prior FY Net 

Book Value

2006 2005

Depreciation/ 

Amortization 

Method

(Accumulated 

Depreciation/ 

Amortization)

Legend for Valuation Methods:

[1] Note 15 for additional information on Capital Leases

S/L = Straight Line N/A = Not Applicable

2006 Annual Financial Statement
48

United States Air Force

The value of the Air Force's General PP&E real property in the possession of contractors is included in the values

reported above for the Major Asset Classes of Land and Buildings, Structures, and Facilities. The value of General

PP&E personal property (Major Asset Classes of Software and Equipment) does not include all of the General

PP&E above the DoD capitalization threshold in the possession of contractors. The net book amount of such

property is immaterial in relation to the total General PP&E net book value. The Government Accountability

Office, the Inspector General, DoD, and the Air Force are developing new policies and a contractor-reporting

process to capture General PP&E information for future reporting purposes in compliance with GAAP.

Heritage Assets

Heritage Assets and Stewardship Land are resources that protect, restore, enhance, modernize, preserve and

sustain mission capability within the Air Force through effective planning and management of natural and cultural

resources to guarantee access to air, land, and waters. These assets are resources that are managed to provide

multiple-use activities for the public benefit. This includes actions to comply with requirements such as Federal

Laws, Executive Orders, DoD policies, final governing standards and other binding agreements.

Heritage Assets, within the Air Force, consists of buildings and structures, museums, major collections, monuments and memorials, archeological sites and cemeteries, while Stewardship Land consist mainly of mission essential (donated, public domain, executive order) land. The Air Force, with minor exceptions, uses most of the

buildings and structures as part of their every day activities and includes them on the balance sheet as multi-use

heritage assets (capitalized and depreciated). The mission essential stewardship land is used for many different

activities including general base operations, training sites, bombing ranges, recreation, and timber production.

Buildings and Structures: The Air Force considers 4,548 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.

Museums: The Air Force Museum System consists of 14 museums with the major museum located at WrightPatterson Air Force Base, Ohio. It houses the main collection of historical artifacts. 13 museums are considered

Air Force Field Museums or Heritage Centers, which also contain items of historical interest, some of which are

specific to the general locality. The 14th museum belongs to the Air National Guard. The Air Force also has several heritage centers that are no longer considered museums.

Major Collections: The Air Force has four significant collections consisting of the Air Force art collection and

three collections located at the Air Force Academy. Included in these collections are historical items and memorabilia as well as distinctive works of art.

Cemeteries: The Air Force has administrative and curatorial responsibilities for 39 cemeteries on its active

duty bases.

Archeological Sites: The Air Force has 1,514 archeological sites listed on or eligible for the National Register. 
49

Assets Under Capital Lease

Fluctuations

The total capital leases decrease of $26.4 million (17%) is due to the current year increase in accumulated amortization. The Air Force is not acquiring new capital leases; therefore, the change in amortization will continue to

decrease the net value of assets under capital lease.

Relevant Information for Comprehension

The Air Force is the lessee in ten capital leases. These leases are for military family housing acquired through

Section 801 Family Housing Program. The leased items are capitalized and reported as an asset when their costs

exceed the capitalization threshold. Leased items not meeting this threshold are expensed. All leases originating

prior to FY 1992 are funded on a fiscal year basis. Six of the current military family housing leases originated

before FY 1992.

Note 11. Liabilities Not Covered by Budgetary Resources

As of September 30

($ in thousands)

1. Intragovernmental Liabilities

 A. Accounts Payable $ 0 $ 0

 B. Debt 0 0

 C. Other 971,752 491,562

 D. Total Intragovernmental Liabilities $ 971,752 $ 491,562

2. Nonfederal Liabilities

 A. Accounts Payable $ 185,457 $ 232,672

 B. Military Retirement and Other Federal Employment Benefits 1,123,322 1,147,437

 C. Environmental Liabilities 5,787,360 6,376,345

 D. Other Liabilities 3,494,673 2,835,261

 E. Total Nonfederal Liabilities $ 10,590,812 $ 10,591,715

3. Total Liabilities Not Covered by Budgetary Resources $ 11,562,564 $ 11,083,277

4. Total Liabilities Covered by Budgetary Resources $ 10,343,006 $ 10,462,797

5. Total Liabilities $ 21,905,570 $ 21,546,074

2006 2005

($ in thousands)

1. Entity as Lessee, Assets Under Capital Lease

 A. Land and Buildings $ 453,481 $ 453,481

 B. Equipment 0 0

 C. Accumulated Amortization -328,319 -301,883

 D. Total Capital Leases $ 125,162 $ 151,598

As of September 30 2006 2005

2006 Annual Financial Statement
50

United States Air Force

Information Related to Liabilities Not Covered by Budgetary Resources: Other 

Liability Disclosures

Other Intragovernmental Liabilities Not Covered by Budgetary Resources consists of Federal Employees'

Compensation Act (FECA) liability to the Department of Labor, unemployment compensation, and custodial liabilities.

Military Retirement and Other Federal Employment Benefits consist of actuarial FECA liability.

Other Nonfederal Liabilities Not Covered by Budgetary Resources consists of capital lease liabilities, contingent

liabilities, and accrued annual leave liabilities for military and civilians.

Note 12. Accounts Payable

Fluctuations

Intragovernmental accounts payable decreased by $226.1 million (14%) primarily due to less business with the

Department of Transportation, the General Service Administration, and the National Aeronautics and Space

Administration. Air Force reported a $168.3 million net decrease in payables to the Department of

Transportation, the General Service Administration, and the National Aeronautics and Space Administration from

4th Quarter, FY 2005 to 4th Quarter, FY 2006. 

Nonfederal payables decreased by $1.6 billion (27%) primarily in aircraft procurement. In FY 2005, production

of the F-22, C-17, C-130J, and Predator aircraft was increased to meet additional requirements. In FY 2006, production was reduced back to normal operating levels. 

Note 13. Debt

Not applicable

As of September 30

($ in thousands)

1. Intragovernmental Payables $ 1,425,771 N/A $ 1,425,771 $ 1,651,905

2. Nonfederal Payables (to the Public) $ 4,269,732 $ 0 $ 4,269,732 $ 5,851,184

3. Total $ 5,695,503 $ 0 $ 5,695,503 $ 7,503,089

2006 2005

Accounts

Payable

Interest, 

Penalties, and 

Administrative Fees 

Total Total
51

Note 14. Environmental Liabilities and Disposal Liabilities

Other Categories Disclosure

The amount reported for Base Realignment and Closure (BRAC) - Other in FY 2005 was reclassified into the

Installation Restoration Program (IRP) line for 4th Quarter, FY 2006 to better reflect the distribution of management and manpower estimates and to be consistent with DoD policy. All future management and manpower

estimates will be reported in the IRP and Environmental Corrective Action/Closure Requirements lines.

($ in thousands) 2006 2005

Other Accrued Environmental Costs - Other

 Total $0 $0

Base Realignment and Closure - Other

 Manpower services at BRAC installations and headquarters offices. $0 $230,842 

 Total $0 $230,842

Environmental Disposal for Weapons Systems Programs - Other

 Total $0 $0 

$0 $0 

Others Category Disclosure Comparative Table

($ 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) $ 397,341 $ 3,241,240 $ 3,638,581 $ 4,006,627

 2. Active Installations—Military Munitions Response Program 

 (MMRP) 15,545 1,378,160 1,393,705 1,344,856

 3. Formerly Used Defense Sites—IRP and BD/DR 0 0 0 0

 4. Formerly Used Defense Sites—MMRP 0 0 0 0

 B. Other Accrued Environmental Liabilities—Active Installations

 1. Environmental Corrective Action 0 136,910 136,910 138,378

 2. Environmental Closure Requirements 4,429 95,052 99,481 51,655

 3. Environmental Response at Operational Ranges 0 0 0 0

 4. Other 00 0 0

 C. Base Realignment and Closure (BRAC)

 1. Installation Restoration Program 124,812 1,080,060 1,204,872 1,201,444

 2. Military Munitions Response Program 0 0 0 0

 3. Environmental Corrective Action / Closure Requirements 8,432 72,971 81,403 152,376

 4. Other 0 0 0 230,842

 D. Environmental Disposal for Weapons Systems Programs 

 1. Nuclear Powered Aircraft Carriers 0 0 0 0

 2. Nuclear Powered Submarines 0 0 0 0

 3. Other Nuclear Powered Ships 0 0 0 0

 4. Other National Defense Weapons Systems 0 0 0 0

 5. Chemical Weapons Disposal Program 0 0 0 0

 6. Other 00 0 0

2. Total Environmental Liabilities $ 550,559 $ 6,004,393 $ 6,554,952 $ 7,126,178

As of September 30 2006 2005

Current

Liability

Noncurrent

Liability Total Total

2006 Annual Financial Statement
52

United States Air Force

Environmental Disclosures

The unrecognized portion of the estimated total cleanup costs associated with general property, plant, and equipment decreased by $48.5 million (32%) due to the normal management lifecycle of landfills maintained by the Air

Force. Closure liabilities are recognized by multiplying the percentage used of the total capacity of the landfills.

Since Air Force has not placed any new landfills into service in FY 2006, the percentage and dollar amount of used

and recognized increases and the percentage and dollar amount of unused and unrecognized decreases.

There are no values for the estimated cleanup costs associated with general property, plant, and equipment

placed into service during each fiscal year since the Air Force has not placed any new assets with environmental

closure requirements (i.e., landfills) into service in FY 2005 and FY 2006. As of FY 2005, the Air Force no longer

recognizes the costs of closure for Underground Storage Tanks (USTs) and Treatment, Storage, and Disposal

Facilities (TSDFs) as environmental liabilities. The Air Force does not plan to abandon these facilities and therefore has no liability to be recognized in the financial statements. The Resource Conservation and Recovery Act

(RCRA) states that the cleanup of a UST facility takes place only when the tank is abandoned for 12 consecutive

months. 

The changes in total cleanup costs due to changes in laws, regulations, and/or technology decreased by $44.9 million (112,328%). The change represents an increased improvement in the method used to report information.

The FY 2005 information was based on a manual data call. Air Force built an automated process to track and

report FY 2006 information.

There is no value assigned to the changes in estimated costs due to changes in laws and technology related to

prior periods for FY 2006. The data collected for total changes in cost estimates is due to changes in laws, regulations, and technologies were changes that occurred during FY 2006.

2006

($ in thousands)

A. Amount of operating and capital expenditures used to

 remediate legacy waste. Legacy wastes are the 

 remediation efforts covered by IRP, MMRP, and BD/DR 

 regardless of funding source.

$ 357,074 $ 374,635

B. The unrecognized portion of the estimated total cleanup 

 costs associated with general property, plant, and 

 equipment.

$ 103,690 $ 152,145

C. The estimated cleanup costs associated with general 

 property, plant, and equipment placed into service

 during each fiscal year. 

$ 0$ 0

D. Changes in total cleanup costs due to changes in laws, 

 regulations, and/or technology. $ -44,891 $ 40

E. Portion of the changes in estimated costs due to 

 changes in laws and technology that is related to prior 

 periods. 

$ 0 $ 0

As of September 30 2005
53

Other Information Related to Environmental Liabilities

Applicable Laws and Regulations of Cleanup Requirements 

The Air Force is required to clean-up contamination resulting from past waste disposal practices, leaks, spills and

other past activity, which has created a public health or environmental risk. The Air Force does this in coordination with regulatory agencies, and if applicable, with other responsible parties, and current property owners. The

Air Force is also required to recognize closure and post-closure costs for its General Property, Plant and

Equipment (PP&E) and environmental corrective action costs for current operations. The Air Force is responsible

for tracking and reporting all required environmental information related to environmental restoration costs,

other accrued environmental costs, disposal costs of weapons systems, and environmental costs related to BRAC

actions that have taken place in prior years. Examples of relevant laws and regulations that are considered for

discussion, as applicable, include, but are not limited to:

(a) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)

(b) Clean Water Act

(c) Clean Air Act

(d) Resource Conversation and Recovery Act (RCRA)

(e) Toxic Substances Control Act (TSCA)

(f) Other

The two laws with the vast majority of cost estimates for active environmental cleanup are CERCLA and RCRA.

The "Other" classification is reserved to capture all other laws and regulations that are considered for discussion.

For example, when environmental cleanup requirements are subject to individual state and/or local laws and regulations, the "Other" classification is used in the Air Force management system as an attribute of the cleanup.

Methods for Assigning Total Cleanup Costs to Current Operating Periods

The Air Force uses engineering estimates and independently validated models to estimate environmental cleanup

costs. The models are either contained within the Remedial Action Cost Engineering Requirements (RACER)

application, or a historic comparable project, a specific bid, or an independent government cost estimate is referenced for the current project. The Air Force validates the models in accordance with DoD Instruction 5000.61

and primarily uses the models to estimate the cleanup costs based on data received during a preliminary assessment and initial site investigation. The Air Force primarily uses engineering estimates after obtaining extensive

data during the remedial investigation/feasibility phase of the environmental project. Once the environmental

cleanup cost estimates are complete, the Air Force complies with accounting standards to assign costs to current

operating periods. Because the Accrued Environmental Restoration Liabilities is accounted for as a totally selfcontained 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 expensed that portion of the asset that has passed since the

General PP&E was placed into service and is systematically recognizing the remaining cost over the life of the

assets. For General PP&E placed into service after September 30, 1997, the Air Force expenses the associated

environmental costs systematically over the life of the asset. The Air Force expenses the full cost to cleanup contamination for Stewardship PP&E at the time the asset is placed into service. The Air Force uses the physical

capacity for operating landfills method for systematic recognition.

2006 Annual Financial Statement
54

United States Air Force

Types of Environmental Liabilities Identified 

The Air Force has cleanup requirements for the Defense Environmental Restoration Program (DERP) sites at

active installations, BRAC installations, and sites at active installations that are not covered by the DERP. The Air

Force is required to cleanup DERP and sites not covered by the DERP in coordination with regulatory agencies,

other responsible parties, and current property owners.

The environmental cleanup of military ranges is governed by the Military Munitions Rule in 40 CFR 266.201.

Environmental cleanup liabilities on ranges refer to munitions related activities. Environmental cleanup areas within a closed range are referred to as Munitions Response Areas (MRAs). As studies are done to find munitionsrelated contamination on closed ranges, the number of sites is expected to rise. As investigations progress, the

number of sites will increase to reflect specific areas of pollution. The Air Force expects the number of sites

reported to increase as pollution is discovered and sites are defined in areas less than the total boundary of the

closed range.

The accounting standard requires full cost be recognized for closure requirements. The Air Force has closure

requirements or disposal liabilities at active installations. Disposal liabilities are presented as an accrued amount

for the life of the landfill. The total liability for FY 2006 is $202.0 million which includes: 

$99.5 million recognized in the FY 2006 financial statements. The environmental closure liability for landfills is

based on the proportion of the landfill used as of the reporting date. This estimate includes the cost of capping

(closing) the landfill, as well as 30 years of monitoring required by federal regulations.

Nature of Estimates and the Disclosure of Information Regarding Possible Changes due to Inflation,

Deflation, Technology, or Applicable Laws and Regulations

The Air Force is not aware of any pending changes to reported values of reported Environmental Liabilities. The

Air Force does understand that the liabilities can change in the future due to changes in laws and regulations,

changes in agreements with regulatory agencies, and advances in technology.

Level of Uncertainty Regarding the Accounting Estimates used to Calculate the Reported

Environmental Liabilities

Environmental liabilities for the Air Force are based on accounting estimates which require certain judgments and

assumptions to be made by management. The Air Force believes the estimates are reasonable based upon the

information available at the time of their calculation. Actual results may vary materially from the accounting estimates if agreements with regulatory agencies require remediation to a different degree than anticipated when calculating the estimates. The liabilities can be further impacted if further investigation of the environmental sites

discovers contamination different than known at the time of the estimates.

Air Force financial statements would be affected to the extent there are material differences between these estimates and actual results. There are areas in which management judgment in selecting any available alternative

could produce a materially different result.

Included in the Accrued Environmental Restoration Liability for September 30, 2006, are 27 engineering sites that

represent building demolition and debris removal totaling $56.5 million.
55

Other Disclosures 

Other Accrued Environmental Liabilities - Environmental Corrective Actions

Because the Other Accrued, non-BRAC environmental cleanup activity is part of general funding achieved using

Air Force Operation and Maintenance appropriated funds, there is no special accounting for the costs of the

cleanup program. Therefore, the costs captured for the Other Accrued, non-BRAC environmental cleanup

reflect only direct costs. Because this program was not tracked and appropriated specifically, there was no

accounting specific to this program. It is believed that the current portion of the environmental cleanup liability in

this area is relatively small and not material in the classification of liabilities.

Other Accrued Environmental Liabilities - Environmental Closure Requirements

Closure liabilities recognized by the Air Force cover only direct costs. No cost accounting exists to determine

indirect closure costs. Costs incurred in periods greater than 30 years into the future are considered immaterial.

The present value of such costs would be negligible in recognition of closure liabilities if such recognition were

not on a current cost basis.

Reporting of landfill closure liability is not in conformance with the accounting standard. The standard would recognize all future costs regardless of timing. The Air Force recognizes only the initial closure. A landfill cap typically requires replacement every 30 to 40 years. An estimation of current costs based on all future costs, regardless of timing, would result in an infinite liability. The Air Force, therefore, reports only the cost of the initial cap

required to close a landfill.

Environmental Restoration for Overseas Bases

In addition to the liabilities reported above, the Air Force has the potential to incur costs for restoration initiatives

in conjunction with returning overseas Defense facilities to host nations. The Air Force is unable to provide a

reasonable estimate at this time because the extent of restoration required is not known.

2006 Annual Financial Statement
56

United States Air Force

Note 15. Other Liabilities 

Fluctuations

Total intragovernmental other liabilities increased $668.4 million (42%) primarily due to a $481.4 million increase

in other liabilities. The increase is primarily due to custodial liabilities. In the past, DFAS-DE erroneously reported public accounts receivables in the receipt and deposit fund accounts as entity. DFAS-DE corrected the error

during 3rd Quarter, FY 2006 in accordance with the classification of accounts as entity versus nonentity in

DoDFMR, Volume 6B, Attachment 20A. The correct classification of a receivable as nonentity results in the

recognition of a corresponding custodial liability.

Total nonfederal other liabilities increased $2.1 billion (50%) primarily due to a $1.7 billion increase in other liabilities. The increase is due to the new DoD reporting requirement to record the estimated future contract financing payment that will be paid to contractors upon delivery and Government acceptance of a satisfactory product.

This new requirement was implemented in the 4th Quarter, FY 2006.

Relevant Information for Comprehension

The amount of Intragovernmental Other Liabilities represents government contributions for employee benefits,

unemployment compensation, education benefits, and custodial liabilities.

The amount of Nonfederal Other Liabilities represents legal contingencies, employee benefits, and contract holdbacks.

The Air Force has no delinquent amounts due to Department of Labor for Federal Employees' Compensation

Act (FECA).

($ in thousands)

1. Intragovernmental

 A. Advances from Others $ 622,200 $ 0 $ 622,200 $ 573,687

 B. Deposit Funds and Suspense Account Liabilities 299,582 0 299,582 167,899

 C. Disbursing Officer Cash 311,604 0 311,604 304,148

 D. Judgment Fund Liabilities 0 0 0 0

 E. FECA Reimbursement to the Department of Labor 124,516 165,899 290,415 291,104

 F. Other Liabilities 734,458 0 734,458 253,029

 G. Total Intragovernmental Other Liabilities $ 2,092,360 $ 165,899 $ 2,258,259 $ 1,589,867

2. Nonfederal

 A. Accrued Funded Payroll and Benefits $ 965,802 $ 0 $ 965,802 $ 877,966

 B. Advances from Others 31,769 0 31,769 67,773

 C. Deferred Credits 0 0 0 0

 D. Deposit Funds and Suspense Accounts 79,865 0 79,865 171,514

 E. Temporary Early Retirement Authority 130 0 130 677

 F. Non-environmental Disposal Liabilities

 (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 2,839,835 0 2,839,835 2,351,814

 H. Capital Lease Liability 0 188,119 188,119 265,543

 I. Other Liabilities 1,524,515 623,073 2,147,588 444,217

 J. Total Nonfederal Other Liabilities $ 5,441,916 $ 811,192 $ 6,253,108 $ 4,179,504

3. Total Other Liabilities $ 7,534,276 $ 977,091 $ 8,511,367 $ 5,769,371

As of September 30 2006 2005

Current 

Liability

Noncurrent 

Liability Total Total
57

Contingent Liabilities balance includes $1.2 billion in estimated future contract financing payments that will be paid

to the contractor upon delivery and Government acceptance of a satisfactory product. In accordance with contract terms, specific rights to the contractor's work vests with the Government when a specific type of contract

financing payments is made, thereby, protecting taxpayer funds in the event of contract nonperformance. These

rights should not be misconstrued as the rights of ownership. The Department is under no obligation to pay the

contractor for amounts greater than the amounts authorized in the contract until delivery and Government

acceptance of a satisfactory product. Because it is probable that the contractor will complete its efforts and deliver a satisfactory product to the Department and the amount of potential future payments are estimable; the

Department has recognized a contingent liability for estimated future payments, which are conditional pending

delivery and Government acceptance of a satisfactory product.

The recorded estimated probable liability amount of $25.0 million is included in other liabilities nonfederal for

open contractor claims greater than $100.0 thousand. At this junction, these claims are not in appeal or in litigation. In addition to the contractor claims under appeal and the open contractor claims for an amount greater

than $100.0 thousand, the Air Force was party to numerous other contractor claims in amounts less than $100.0

thousand per claim. These claims are a routine part of the contracting business and are typically resolved through

mutual agreement between the contracting officer and the contractor. Because of the routine nature of these

claims, no requirement exists for a consolidated tracking mechanism to record the amount of each claim, the

number of open claims, or the probability of the claim being settled in favor of the claimant. The potential liability

arising from these claims in aggregate would not materially affect the operations or financial condition of the Air

Force. A reasonably possible liability is estimated at $47.9 million and is not included in the reported amount and

is disclosed in Note 16.

The total estimated probable liability for claims and litigation against the Air Force handled by the Civil Law and

Litigation Directorate, as of September 30, 2006, was valued at $443.8 million and is included in other liabilities

nonfederal. As of September 30, 2006, the Air Force was party to 19,254 claims and litigation actions. This liability dollar amount recorded in the financial statements is an estimate based on the weighted average payout rate

for the previous three years. A reasonably possible liability is estimated at $204.9 million and is not included in

the reported amount and disclosed in Note 16. Neither past payments nor the current contingent liability estimate provides a basis for accurately projecting the results of any individual lawsuit or claim. It is uncertain that

claims will ever accrue to the Air Force. In addition, many claims and lawsuits, even if successful, will not be paid

out of Air Force Funds.

As of September 30, 2006, the Air Force was party to 77 contract appeals before the Armed Services Board of

Contract Appeals (ASBCA). The probable amount of loss from contractor claims of $154.2 million is included in

other liabilities nonfederal. The contractor claims involve unique circumstances, which are considered by the

ASBCA in formulating decisions on the cases. Such claims are funded primarily from Air Force appropriations. A

reasonably possible liability is estimated at $486.6 million and is not included in the reported amount and disclosed in Note 16. 

2006 Annual Financial Statement
58

United States Air Force

Capital Lease Liability

Note 16. Commitments and Contingencies

Relevant Information for Comprehension

The Air Force is a party in various administrative proceedings and legal actions, with claims including environmental damage claims, equal opportunity matters, and contractual bid protests. The Air Force has accrued contingent

liabilities for legal actions where the Air Force Office of the General Counsel considers an adverse decision probable and the amount of loss is measurable. In the event of an adverse judgment against the Government, some of

the liabilities may be payable from the Judgment Fund. The Air Force records Judgment Fund liabilities in Note

12 "Accounts Payable."

The Commitments and Contingencies consist of the following reasonably possible liabilities:

($ in Millions)

Contractual Actions:

Contractor Claims $ 47.9 

Appeals before Armed Services Board of Contract Appeals (ASBCA) 486.6

Claims and Litigation from Civil Law 204.9 

Total $ 739.4

The amounts disclosed for litigations claims and assessments are fully supportable and agree with the Air Force's

legal representation letters and management summary schedule.

The amount of undelivered orders for open contracts citing cancelled appropriations which remain unfilled or

unreconciled for which the Air Force may incur a contractual commitment for payment is $1.4 billion.

The Air Force is not aware of any amounts for contractual arrangements such as fixed price contracts with escalation, price redetermination, or incentive clauses; contract authorizing variations in quantities; and contracts where

allowable interest may become payable based on contractors’ claims under "Dispute" clause contained in contracts.

As of September 30

($ in thousands)

1. Future Payments Due

 A. 2006 $ 0 $ 0 $ 0 $ 0 $ 42,973

 B. 2007 39,878 0 0 39,878 39,878

 C. 2008 38,594 0 0 38,594 38,594

 D. 2009 38,478 0 0 38,478 38,478

 E. 2010 38,478 0 0 38,478 38,478

 F. 2011 36,786 0 0 36,786 0

 G. After 5 Years 43,520 0 0 43,520 128,881

 H. Total Future Lease Payments Due $ 235,734 $ 0 $ 0 $ 235,734 $ 327,282

 I. Less: Imputed Interest Executory Costs 47,615 0 0 47,615 61,738

 J. Net Capital Lease Liability $ 188,119 $ 0 $ 0 $ 188,119 $ 265,544

$ 158,472 $ 42,973

3. Capital Lease Liabilities Not Covered by Budgetary Resources $ 29,647 $ 222,570

2. Capital Lease Liabilities Covered by Budgetary Resources 

Other Total Total Land and

Buildings Equipment

2006 2005

Asset Category
59

Note 17. Military Retirement and Other Federal Employment Benefits

Relevant Information for Comprehension

Federal Employees' Compensation Act (FECA)

The Air Force's actuarial liability for workers' compensation benefits is developed and provided by the

Department of Labor (DOL) at the end of each fiscal year. The total liability for 4th Quarter, FY 2006 is 

$1.1 billion, which is a change of $24.1 million (2%) in comparison to 4th Quarter, FY 2005, and includes the

expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a

component for incurred but unreported claims.

The liability is determined using a method that utilizes historical benefit payment patterns to predict the ultimate

payments. The projected annual benefit payments are then discounted to the present value using the Office of

Management and Budget's (OMB's) economic assumptions for 10-year U.S. Treasury notes and bonds. Interest

rate assumptions utilized for discounting are as follows:

2006

5.170% in Year 1

5.313% in Year 2 and thereafter

To adjust more specifically for the effects of inflation on the liability for future workers' compensation benefits,

wage inflation factors (cost of living adjustments or COLAs) and medical inflation factors (consumer price index

medical or CPIMs) were applied to the calculation of projected future benefits. The actual rates for these factors

for the charge back year (CBY) 2006 were also used to adjust the methodology's historical payments to current

year constant dollars.

The compensation COLAs and CPIMs used in the projections for various CBYs were as follows:

2006 2007 2008 2009 2010+

COLA 3.50% 3.13% 2.40% 2.40% 2.43%

CPIM 4.00% 4.01% 4.01% 4.01% 4.09%

As of September 30

Assumed 

Interest 

Rate (%)

($ in thousands)

1. Pension and Health Actuarial Benefits

 A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0

 B. Military Retirement Health Benefits 0 0 0 0

 C. Military Medicare-Eligible Retiree Benefits 0 0 0 0

 D. Total Pension and Health Actuarial Benefits $ 0 $ 0 $ 0 $ 0

2. Other Actuarial Benefits

 A. FECA $ 1,123,323 $ 0 $ 1,123,323 $ 1,147,437

 B. Voluntary Separation Incentive Programs 0 0 0 0

 C. DoD Education Benefits Fund 0 0 0 0

 D. Total Other Actuarial Benefits $ 1,123,323 $ 0 $ 1,123,323 $ 1,147,437

3. Other Federal Employment Benefits $ 20,425 $ -20,425 $ 0 $ 0

$ -20,425 $ 1,123,323 $ 1,147,437

4. Total Military Retirement and Other Federal

 Employment Benefits: $ 1,143,748

2006 2005

Present Value

of Benefits

(Less: Assets

Available to

Pay Benefits)

Unfunded

Liability

Present Value 

of Benefits

2006 Annual Financial Statement
60

United States Air Force

The model's resulting projections were analyzed to insure that the estimates were reliable. The analysis was

based on four tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual incremental payments, (3)

a comparison of the incremental paid loses per case (a measure of case-severity) in CBY 2006 to the average pattern observed during the most current three charge back years, and (4) a comparison of the estimated liability

per case in the 2006 projection to the average pattern for the projections of the most recent three years.

Other Federal Employment Benefits

Other Federal Employment Benefits represent liabilities for Servicemembers' Group Life Insurance (SGLI) and

death gratuities payable to the beneficiaries of military members.

Note 18. General Disclosures Related to the Statement of Net Cost

Intragovernmental Costs and Exchange Revenue

Fluctuations

Total costs increased $13.0 billion (10%) primarily due to a $12.2 billion increase in public costs. The increase

resulted from the additional expenses in FY 2006 to address the hurricanes in the Gulf of Mexico and the Global

War on Terrorism (GWOT). 

Relevant Information for Comprehension

The Air Force recorded a prior period adjustment due to a change in the methodology for reporting of military

equipment. The FY 2005 restatement impacts the value of general property, plant, and equipment and associated

accumulated depreciation reported on the balance sheet. The Department has determined that developing the

prior year value for the depreciation expense is cost-prohibitive, and thus has elected not to restate the

Statement of Net Cost.

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 Statement of Net Cost is unique because its principles are driven on understanding the net cost of programs

and/or organizations that the Federal Government supports through appropriations or by other means. This

statement provides gross and net cost information that can be related to the amount of output or outcome for a

given program and/or organization administered by a responsible reporting entity.

($ in thousands)

1. Intragovernmental Costs $ 30,656,499 $ 29,845,742

2. Public Costs 111,722,498 99,536,232

3. Total Costs $ 142,378,997 $ 129,381,974

4. Intragovernmental Earned Revenue $ -4,493,654 $ -4,207,648

5. Public Earned Revenue -827,193 -879,930

6. Total Earned Revenue $ -5,320,847 $ -5,087,578

7. Net Cost of Operations $ 137,058,150 $ 124,294,396

As of September 30 2006 2005
61

The amounts presented in this statement are based on obligations and disbursements and, thus, may not report

actual accrued costs in all cases and may not meet accounting standards. As such, the information presented is

based on budgetary obligations, disbursements, and collection transactions, as well as non-financial feeder systems, adjusted to record known accruals for major items such as payroll expenses, accounts payable, and environmental liabilities.

The cost of acquiring, constructing, improving, reconstructing, or renovating heritage assets is $2.3 million in FY 2006.

Note 19. Disclosures Related to the Statement of Changes in Net Position

Abnormalities

The Statement of Changes in Net Position includes the following abnormal balances:

Cumulative Results of Operations

Appropriations used - Earmarked Funds $-1,251,498

Unexpended Appropriations

Appropriations used - Earmarked Funds $1,251,498

DFAS-DE caused the abnormal balances by establishing incorrect posting logic for the US Standard General

Ledger (USSGL) in the General Accounting and Finance System - Rehost (GAFS-R). Prior to the 4th Quarter, FY

2005, GAFS-R erroneously updated unexpended appropriations used and expended appropriations for the earmarked funds. DFAS-DE corrected the posting logic in the 4th Quarter, FY 2005, but did not reverse the previous fiscal years transactions until 1st Quarter, FY 2006. In FY 2007, these balances will be corrected and no

longer reported on the Statement of Net Position.

Relevant Information for Comprehension

Errors and Omissions in Prior Year Accounting Reports

The Air Force recorded a $19.3 billion prior period adjustment due to a change in the methodology for reporting

of military equipment, resulting in a $19.3 billion restatement for FY 2005. The FY 2005 restatement impacts the

value of general property, plant, and equipment and associated accumulated depreciation reported on the Balance

Sheet. The Department has determined that developing the prior year value for the depreciation expense is

cost-prohibitive, and thus has elected not to restate the Statement of Net Cost.

As of September 30

($ in thousands)

1. Prior Period Adjustments Increases (Decreases) to Net 

 Position Beginning Balance

 A. Changes in Accounting Standards $ 0 $ 0 $ 0 $ 0

 B. Errors and Omissions in Prior Year Accounting Reports 19,309,311 0 19,309,311 0

 C. Total Prior Period Adjustments $ 19,309,311 $ 0 $ 19,309,311 $ 0

2. Imputed Financing

 A. Civilian CSRS/FERS Retirement $ 230,498 $ 0 $ 236,321 $ 0

 B. Civilian Health 454,584 0 427,569 0

 C. Civilian Life Insurance 1,481 0 1,398 0

 D. Judgment Fund 12,252 0 76,751 0

 E. Intra-Entity 0 0 0 0

 F. Total Imputed Financing $ 698,815 $ 0 $ 742,039 $ 0

2006 2005

Cumulative Results 

of Operations

Unexpended 

Appropriations

Cumulative Results 

of Operations

Unexpended

Appropriations

2006 Annual Financial Statement
62

United States Air Force

In accordance with Statement of Federal Financial Accounting Standards (SFFAS) No. 23, Eliminating the Category

National Defense Property, Plant, and Equipment, the Department reported military equipment values in the

financial statements beginning in FY 2003. As an interim measure, while the Department worked to develop its

military equipment baseline from internal records, the military equipment values reported were based on information obtained from the Bureau of Economic Analysis (BEA).

Effective 3rd Quarter, FY 2006, the Department replaced the BEA estimation methodology with a valuation

based on internal Departmental records. During the process of establishing a baseline, we discovered that the

BEA estimates had failed to consider disposals, thresholds, and construction in process. While an estimation

methodology is acceptable per SFFAS 23, due to the nature of the BEA omissions, we consider that the method

we previously used was not compliant with Generally Accepted Accounting Principles (GAAP), and thus have

treated the adjustment as correction of a material error.

Imputed Financing

The amounts remitted to the Office of Personnel Management (OPM) by and for employees covered by the Civil

Service Retirement System (CSRS), the Federal Employees' Retirement System (FERS), the Federal Employees

Health Benefits Program (FEHB), and the Federal Employees Group Life Insurance Program (FEGLI) do not fully

cover the U.S. Government's cost to provide these benefits. The financial statements recognized an imputed cost

as the difference between the Government's cost of providing these benefits to the employees and contributions

made by and for them. OPM provides the cost factors to Defense Finance and Accounting Service (DFAS) for

computation of imputed financing cost. DFAS provides the costs to the Office of the Under Secretary of Defense

(Personnel and Readiness) (OUSD [P&R]) for validation. After validation, OUSD (P&R) provides the imputed

costs to the reporting components for inclusion in their financial statements.

For the Judgment Fund, the Air Force recognizes liabilities and expenses when unfavorable litigation outcomes are

probable and the amounts can be estimated. The Treasury provides the dollar amount of the imputed financing.

The Treasury based the imputed financing on the amount the Judgment Fund is expected to pay for settlements.

Appropriations Received

Appropriations Received on the Statement of Change in Net Position does not agree with Appropriations

Received on the Statement of Budgetary Resources due to differences between proprietary and budgetary

accounting concepts and reporting requirements. This difference totals $2.7 million.

Note 20. Disclosures Related to the Statement of Budgetary Resources

As of September 30

($ in thousands)

1. Net Amount of Budgetary Resources Obligated 

 for Undelivered Orders at the End of the Period $ 56,974,233 $ 54,587,501

2. Available Borrowing and Contract Authority at the End of the Period 0 0

2006 2005
63

Apportionment Categories

Funds are apportioned by three categories: (1) category A is apportioned at the quarterly level, (2) category B is

apportioned by activity or project, and (3) exempt are funds not subject to apportionment. The amount of direct

obligations incurred and apportioned under category A is $78.9 billion, category B is $57.6 billion, and exempt is

$1.8 million. For reimbursable obligations incurred and apportioned, category A is $5.9 billion, category B is $3.3

billion, and exempt is $11.8 million.

Relevant Information for Comprehension

Intra-entity transactions have not been eliminated because the financial statements are presented as combined 

and combining. Permanent indefinite appropriations are the Wildlife Conservation Fund [16 USC 670 (b)] and the

Department of the Air Force General Gift Fund [10 USC 2601 (b)]. Reference Note 23 for additional information.

There are no legal arrangements affecting the use of unobligated balances of budget authority. Capital infusion in

the amount of $13.9 billion was received during FY 2006 from the Supplemental Appropriation Act for Defense -

The Global War on Terror and Hurricane Recovery (P.L. 109-234).

Note 21. Disclosures Related to the Statement of Financing

The objective of the Statement of Financing is to reconcile the difference between budgetary obligations and the

net cost of operations reported.

Due to limitations in the Department of the Air Force's financial systems, budgetary data is not in agreement with

proprietary expenses and assets capitalized. Differences between budgetary and proprietary data constitute a

previously identified deficiency.

No adjustment was made to bring the Statement of Financing into balance with the Statement of Net Cost.

The following Statement of Financing lines are presented as combined instead of consolidated due to intraagency

budgetary transactions not being eliminated:

• Obligations Incurred

• Less: Spending Authority from Offsetting Collections and Recoveries

• Obligations Net of Offsetting Collections and Recoveries

• Less: Offsetting Receipts

• Net Obligations

• Undelivered Orders

• Unfilled Customer Orders

Other Resources, Other consists of other gains and losses to adjust intragovernmental transfers in. Other

resources or adjustments to net obligated resources that do not affect net cost of operations, Other consists of

net transfers in and transfers out without reimbursement and other gains and losses to adjust intragovernmental

transfers in. Components Requiring or Generating Resources in Future Period, Other consists of increases to

future funded expenses. Components Not Requiring or Generating Resources, Other consists of cost capitalization offset and other expenses not requiring budgetary resources.

2006 Annual Financial Statement
64

United States Air Force

The Air Force's allocation transfers do not create a reconciling item on the transferor's or recipient's Statement of

Financing.

Components requiring or generating resources in future periods are costs not funded in the period the costs are

incurred. The expense and the corresponding liability are recognized in the current period but the budgetary

resource will not be provided until a subsequent period. The amount of liabilities not covered by budgetary

resources for 4th Quarter, FY 2006 is $11.6 billion. In general, the changes in liabilities not covered by budgetary

resources as shown on the Balance Sheet are reflected on the Statement of Financing. Differences are a result of

custodial liabilities, unfunded capital lease liabilities, and environmental liabilities covered by unobligated budgetary

resources.

Note 22. Disclosures Related to the Statement of Custodial Activity

Not applicable.

Note 23. Earmarked Funds

BALANCE SHEET

As of September 30

($ in thousands)

ASSETS

Fund Balance with Treasury $ 0 $ 0 $ 4,816 $ 0 $ 4,816

Investments 0 0 722 0 722

Accounts and Interest Receivable 0 0 284 0 284

Other Assets 0 0 6 0 6

Total Assets $ 0 $ 0 $ 5,828 $ 0 $ 5,828

LIABILITIES and NET POSITION

As of September 30

Military Retirement Benefits and Other Federal 

Employment Benefits $ 0 $ 0 $ 0$ 0$ 0

Other Liabilities 0 0 1,288 -1,288 0

Unexpended Appropriations 0 0 0 0 0

Cumulative Results of Operations 0 0 4,540 0 4,540

Total Liabilities and Net Position $ 0 $ 0 $ 5,828 $ -1,288 $ 4,540

STATEMENT OF NET COST

As of September 30

Program Costs $ 0 $ 0 $ 14,835 $ 0 $ 14,835

Less Earned Revenue 0 0 -12,519 0 -12,519

Net Program Costs $ 0 $ 0 $ 2,316 $ 0 $ 2,316

Less Earned Revenues Not Attributable to Programs 00 0 0 0

Net Cost of Operations $ 0 $ 0 $ 2,316 $ 0 $ 2,316

STATEMENT OF CHANGES IN NET POSITION

As of September 30

Net Position Beginning of the Period $ 0 $ 0 $ 4,200 $ 0 $ 4,200

Net Cost of Operations 0 0 2,316 0 2,316

Budgetary Financing Sources 0 0 2,656 0 2,656

Other Financing Sources 0 0 0 0 0

Change in Net Position $ 0 $ 0 $ 340 $ 0 $ 340

Net Position End of Period $ 0 $ 0 $ 4,540 $ 0 $ 4,540

MRF MERHCF Total

Other 

Earmarked 

Funds

Eliminations
65

2006 Annual Financial Statement

Department of the Air Force General Gift Fund (10 USC 2601 (b)

The Department of the Air Force General Gift Fund accepts, holds, and administers any gift, device, or bequest of

real or personal property, made on the condition that it is used for the benefit (or in connection with the establishment, maintenance, or operation) of a school, hospital, library, museum, or cemetery under the Air Force's jurisdiction. The fund is available to such institutions or organizations - subject to the terms of the gift, device, or bequest.

Conditional gifts are invested in U.S. Treasury securities, and any interest earned on these securities is added back

into the fund.

Wildlife Conservation Fund (16 USC 670 (b))

The Wildlife Conservation Fund provides for (1) the conservation and rehabilitation of natural resources on military installations; (2) the sustainable multipurpose use of the resources which include hunting, fishing, trapping,

and nonconsumptive uses; and (3) the public access to military installations to facilitate its use - subject to safety

requirements and military security. The fund is available to carry out these programs and other such expenses

that may be necessary for the purpose of the cited statute.

Consisting of both appropriated and nonappropriated funding, this fund gives installation commanders the authority to collect fees from the sale of hunting and fishing permits.

Air Force Cadet Fund (37 USC 725 (s))

The Air Force Cadet Fund is maintained for the benefit of Air Force Academy cadets. Disbursements are made

for the personal services of cadets such as laundry, arts, and athletics while collections are received from the

same cadets at least equal to any disbursements made.

Relevant Information for Comprehension

No legislation exists that significantly changes the purpose of an earmarked fund or redirects a material portion of

the accumulated balance of an earmarked fund.

The Total Earmarked Funds column is shown as consolidated. All intra-DoD activity between earmarked funds

and non-earmarked funds has been eliminated from this column, which causes assets to not equal liabilities and

net position.

Note 24. Other Disclosures 

($ in thousands)

1. ENTITY AS LEASEE-Operating Leases

Future Payments Due

Fiscal Year

2007 $ 65,538 $ 0 $ 123,726 $ 189,264

2008 60,167 0 127,437 187,604

2009 56,064 0 131,260 187,324

2010 51,000 0 135,198 186,198

2011 72,078 0 139,254 211,332

After 5 Years 66,960 0 143,432 210,392

Total Future Lease Payments Due $ 371,807 $ 0 $ 800,307 $ 1,172,114

As of September 30

Land and Buildings Equipment Other Total

2006

Asset Category
66

United States Air Force

Relevant Information for Comprehension

Leases in the land and buildings category include costs for operating leased housing facilities in the U.S. and overseas for the active Air Force.

The Air Force has no leases in the equipment category and does not anticipate any in the future.

Other leases consist of vehicle leases. The Air Force leases vehicles in three major geographic regions (stateside,

Europe, and Southwest Asia) and from two types of lessors, the General Service Administration (GSA) and 

commercial lessors.
67

2006 Annual Financial Statement

Consolidating and

Combining Statements

General Fund 
68

United States Air Force

Air Force

Active

Air Force

Reserve

Air National

Guard

1. ASSETS (Note 2)

A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3)

 a. Entity $ 65,780,012 $ 958,933 $ 2,028,233

 b. Nonentity Seized Iraqi Cash 0 0 0

 c. Nonentity - Other 80,989 0 0

 2. Investments (Note 4) 722 0 0

 3. Accounts Receivable (Note 5) 1,128,138 111,283 170,092

 4. Other Assets (Note 6) 38 0 0

 5. Total Intragovernmental Assets $ 66,989,899 $ 1,070,216 $ 2,198,325

B. Cash and Other Monetary Assets (Note 7) $ 114,779 $ 0 $ 0

C. Accounts Receivable, Net (Note 5) 1,015,683 9,425 16,638

D. Loans Receivable (Note 8) 0 0 0

E. Inventory and Related Property, Net (Note 9) 47,147,046 98,984 1,338,305

F. General Property, Plant and Equipment, Net (Note 10) 137,923,115 946,193 2,991,803

G. Investments (Note 4) 0 0 0

H. Other Assets (Note 6) 11,351,763 6,269 21,094

2. TOTAL ASSETS $ 264,542,285 $ 2,131,087 $ 6,566,165

3. LIABILITIES (Note 11)

A. Intragovernmental:

 1. Accounts Payable (Note 12) $ 702,167 $ 26,230 $ 73,024

 2. Debt (Note 13) 0 0 0

 3. Other Liabilities (Note 15 & 16) 2,638,269 1,372 923

 4. Total Intragovernmental Liabilities $ 3,340,436 $ 27,602 $ 73,947

B. Accounts Payable (Note 12) $ 4,042,852 $ 79,033 $ 108,840

C. Military Retirement and Other Federal 826,321 118,222 199,205

 Employment Benefits (Note 17)

D. Environmental and Disposal Liabilities (Note 14) 6,554,952 0 0

E. Loan Guarantee Liability (Note 8) 0 0 0

F. Other Liabilities (Note 15 and Note 16) 5,955,603 115,611 181,894

4. TOTAL LIABILITIES $ 20,720,164 $ 340,468 $ 563,886

5. NET POSITION

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

B. Unexpended Appropriations - Other Funds 67,980,181 880,943 1,895,172

C. Cumulative Results of Operations - Earmarked Funds 4,540 0 0

D. Cumulative Results of Operations - Other Funds 175,837,400 909,676 4,107,107

6. TOTAL NET POSITION $ 243,822,121 $ 1,790,619 $ 6,002,279

7. TOTAL LIABILITIES AND NET POSITION $ 264,542,285 $ 2,131,087 $ 6,566,165

Consolidating Balance Sheet—General Fund

As of September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
69

Component

Level

Combined

Total Eliminations

2006

Consolidated

2005 Consolidated

Restated

$ 0 $ 68,767,178 $ 0 $ 68,767,178 $ 62,272,967

00000

0 80,989 0 80,989 77,275

0 722 0 722 717

-743,841 665,672 0 665,672 653,589

454,930 454,968 0 454,968 427,989

$ -288,911 $ 69,969,529 $ 0 $ 69,969,529 $ 63,432,537

$ 0 $ 114,779 $ 0 $ 114,779 $ 151,844

0 1,041,746 0 1,041,746 1,028,310

00000

0 48,584,335 0 48,584,335 47,169,013

0 141,861,111 0 141,861,111 142,955,380

00000

0 11,379,126 0 11,379,126 11,179,041

$ -288,911 $ 272,950,626 $ 0 $ 272,950,626 $ 265,916,125

$ 624,350 $ 1,425,771 $ 0 $ 1,425,771 $ 1,651,904

00000

-382,305 2,258,259 0 2,258,259 1,589,867

$ 242,045 $ 3,684,030 $ 0 $ 3,684,030 $ 3,241,771

$ 39,007 $ 4,269,732 $ 0 $ 4,269,732 $ 5,851,184

0 1,143,748 0 1,143,748 1,147,437

0 6,554,952 0 6,554,952 7,126,178

00000

0 6,253,108 0 6,253,108 4,179,504

$ 281,052 $ 21,905,570 $ 0 $ 21,905,570 $ 21,546,075

$ 0$ 0$ 0$ 0$ 0

-569,963 70,186,333 0 70,186,333 63,716,637

0 4,540 0 4,540 0

0 180,854,183 0 180,854,183 180,653,413

$ -569,963 $ 251,045,056 $ 0 $ 251,045,056 $ 244,370,050

$ -288,911 $ 272,950,626 $ 0 $ 272,950,626 $ 265,916,125

2006 Annual Financial Statement
70

United States Air Force

Air Force

 Active

Air Force

Reserve

Air National

Guard

1. Program Costs

A. Military Personnel

 1. Gross Costs $ 27,251,264 $ 1,487,489 $ 2,885,836

 2. (Less: Earned Revenue) -313,642 -5,980 -33,030

 3. Net Program Costs $ 26,937,622 $ 1,481,509 $ 2,852,806

B. Operation and Maintenance

 1. Gross Costs $ 43,289,289 $ 3,264,430 $ 6,671,632

 2. (Less: Earned Revenue) -4,243,713 -365,940 -839,532

 3. Net Program Costs $ 39,045,576 $ 2,898,490 $ 5,832,100

C. Procurement

 1. Gross Costs $ 34,227,618 $ 0 $ 0

 2. (Less: Earned Revenue) -307,269 0 0

 3. Net Program Costs $ 33,920,349 $ 0 $ 0

D. Research, Development, Test & Evaluation

 1. Gross Costs $ 23,881,915 $ 0 $ 0

 2. (Less: Earned Revenue) -3,062,745 0 0

 3. Net Program Costs $ 20,819,170 $ 0 $ 0

E. Military Construction/Family Housing

 1. Gross Costs $ 2,714,499 $ 107,946 $ 214,321

 2. (Less: Earned Revenue) -467 0 0

 3. Net Program Costs $ 2,714,032 $ 107,946 $ 214,321

F. Other

 1. Gross Costs $ 409,131 $ 0 $ 0

 2. (Less: Earned Revenue) -12,737 0 0

 3. Net Program Costs $ 396,394 $ 0 $ 0

G. Total Program Costs

 1. Gross Costs $ 131,773,716 $ 4,859,865 $ 9,771,789

 2. (Less: Earned Revenue) -7,940,573 -371,920 -872,562

 3. Net Program Costs $ 123,833,143 $ 4,487,945 $ 8,899,227

2. Cost Not Assigned to Programs 000

3. (Less: Earned Revenue Not Attributable to Programs) 000

4. Net Cost of Operations $ 123,833,143 $ 4,487,945 $ 8,899,227

Consolidating Statement of Net Cost—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
71

2006 Annual Financial Statement

Component

Level

Combined

Total Eliminations

2006

Consolidated

2005

Consolidated

$ 31,624,589 $ 0 $ 31,624,589 $ 30,439,626

-352,652 0 -352,652 -412,333

$ 31,271,937 $ 0 $ 31,271,937 $ 30,027,293

$ 53,225,351 $ 0 $ 53,225,351 $ 51,130,908

-5,449,185 0 -5,449,185 -4,979,392

$ 47,776,166 $ 0 $ 47,776,166 $ 46,151,516

$ 34,227,618 $ 0 $ 34,227,618 $ 30,102,668

-307,269 0 -307,269 -409,050

$ 33,920,349 $ 0 $ 33,920,349 $ 29,693,618

$ 23,881,915 $ 0 $ 23,881,915 $ 23,481,095

-3,062,745 0 -3,062,745 -3,335,195

$ 20,819,170 $ 0 $ 20,819,170 $ 20,145,900

$ 3,036,766 $ 0 $ 3,036,766 $ 196,667

-467 0 -467 1,168

$ 3,036,299 $ 0 $ 3,036,299 $ 197,835

$ -4,026,373 $ -3,617,242 $ 0 $ -3,617,242 $ -5,968,990

3,864,208 3,851,471 0 3,851,471 4,047,225

$ -162,165 $ 234,229 $ 0 $ 234,229 $ -1,921,765

$ -4,026,373 $ 142,378,997 $ 0 $ 142,378,997 $ 129,381,974

3,864,208 -5,320,847 0 -5,320,847 -5,087,577

$ -162,165 $ 137,058,150 $ 0 $ 137,058,150 $ 124,294,397

00000

00000

$ -162,165 $ 137,058,150 $ 0 $ 137,058,150 $ 124,294,397
72

United States Air Force

Air Force

Active

Air Force

Reserve

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 12,315,048 $ 223,806

2. Recoveries of prior year unpaid obligations 1,278,697 103,489

3. Budget authority

 3a. Appropriation 127,698,816 4,187,758

 3b. Borrowing authority 0 0

 3c. Contract authority 0 0

4. Spending authority from offsetting collections

 4a. Earned

 1. Collected 8,064,516 307,942

 2. Change in receivables from Federal sources -153,113 64,003

 4b. Change in unfilled customer orders

 1. Advance received -94,677 0

 2. Without advance from Federal sources -101,970 125

 4c. Anticipated for rest of year, without advances 0 0

 4d. Previously unavailable 0 0

 4e. Expenditure transfers from trust funds 0 0

 4f. Subtotal 135,413,572 4,559,828

5. Nonexpenditure transfers, net, anticipated and actual 2,302,571 -37,205

6. Temporarily not available pursuant to Public Law 0 0

7. Permanently not available -2,800,010 -89,081

8. Total Budgetary Resources $ 148,509,878 $ 4,760,837

STATUS OF BUDGETARY RESOURCES:

9. Obligations incurred:

 9a. Direct $ 124,191,781 $ 4,161,954

 9b. Reimbursable 7,874,286 408,314

 9c. Subtotal 132,066,067 4,570,268

10. Unobligated balance:

 10a. Apportioned 14,791,609 48,988

 10b. Exempt from apportionment 3,174 0

 10c. Subtotal 14,794,783 48,988

11. Unobligated balance not available 1,649,028 141,581

12. Total Status of Budgetary Resources $ 148,509,878 $ 4,760,837

CHANGE IN OBLIGATED BALANCE:

NET OUTLAYS:

13. Obligated balance, Net

 13a. Unpaid obligations, brought forward, October 1 49,444,390 879,413

 13b. Less: Uncollected customer payments $ -2,592,595 $ -52,108

 from Federal sources, brought forward, October 1

 13c. Total unpaid obligated balance 46,851,795 827,305

 13d. Obligations incurred net (+/-) $ 132,066,066 $ 4,570,268

14. Less: Gross outlays -128,856,921 -4,461,592

15. Obligated balance transferred, net

 15a. Actual transfers, unpaid obligations (+/-) 0 0

 15b. Actual transfers, uncollected customer 0 0

 payments from Federal sources (+/-)

16. Total Unpaid obligated balance transferred, net 0 0

17. Less: Recoveries of prior year unpaid obligations, actual -1,278,697 -103,489

 Change in uncollected customer 255,083 -64,127

 payments from Federal sources (+/-)

18. Obligated balance, net, end of period

 18a. Unpaid obligations 51,374,838 884,600

 18b. Less: Uncollected customer payments

 from Federal sources -2,337,512 -116,235

 18c. Total, unpaid obligated balance, net, end of period 49,037,326 768,365

19. Net Outlays:

 19a. Gross outlays 128,856,921 4,461,592

 19b. Less: Offsetting collections -7,969,838 -307,942

 19c. Less: Distributed Offsetting receipts -185,423 0

20. Net Outlays $ 120,701,660 $ 4,153,650

Combining Statement of Budgetary Resources—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
73

2006 Annual Financial Statement

Air National

Guard

Component

Level

2006 

Combined

2005

Combined

$ 467,354 $ 0 $ 13,006,208 $ 9,043,364

68,720 0 1,450,906 1,300,191

7,881,036 0 139,767,610 128,890,968

0 00 0

0 00 0

882,732 0 9,255,190 8,923,532

-10,169 0 -99,279 142,948

0 0 -94,677 349,671

-648 0 -102,493 388,543

0 00 0

0 00 0

0 00 0

8,752,951 0 148,726,351 138,695,662

311,324 0 2,576,690 2,598,439

0 00 0

-157,142 0 -3,046,233 -1,493,468

$ 9,443,207 $ 0 $ 162,713,922 $ 150,144,188

$ 8,085,811 $ 0 $ 136,439,546 $ 124,689,424

878,849 0 9,161,449 12,448,555

8,964,660 0 145,600,995 137,137,979

158,019 0 14,998,616 11,756,881

0 0 3,174 3,218

158,019 0 15,001,790 11,760,099

320,528 0 2,111,137 1,246,110

$ 9,443,207 $ 0 $ 162,713,922 $ 150,144,188

1,516,978 0 51,840,781 53,808,139

$ -190,794 $ 0 $ -2,835,497 $ -2,304,006

1,326,184 0 49,005,284 51,504,133

$ 8,964,661 $ 0 $ 145,600,995 $ 137,137,979

-8,683,256 0 -142,001,769 -137,805,147

0 00 0

0 00 0

0 00 0

-68,720 0 -1,450,906 -1,300,191

10,817 0 201,773 -531,490

1,729,663 0 53,989,101 51,840,781

-179,976 0 -2,633,723 -2,835,497

1,549,687 0 51,355,378 49,005,284

8,683,256 0 142,001,769 137,805,147

-882,732 0 -9,160,512 -9,273,203

0 0 -185,423 -123,202

$ 7,800,524 $ 0 $ 132,655,834 $ 128,408,742
74

United States Air Force

Air Force

Active

Air Force

Reserve

Air National

Guard

Resources Used to Finance Activities:

Budgetary Resources Obligated

1. Obligations incurred $ 132,066,067 $ 4,570,268 $ 8,964,661

2. Less: Spending authority from offsetting collections and recoveries (-) -8,993,450 -475,559 -940,635

3. Obligations net of offsetting collections and recoveries 123,072,617 4,094,709 8,024,026

4. Less: Offsetting receipts (-) -185,423 0 0

5. Net obligations 122,887,194 4,094,709 8,024,026

Other Resources

6. Donations and forfeitures of property 0 0 0

7. Transfers in/out without reimbursement (+/-) 3,833,935 49,264 -146,929

8. Imputed financing from costs absorbed by others 698,814 0 0

9. Other (+/-) 000

10. Net other resources used to finance activities 4,532,749 49,264 -146,929

11. Total resources used to finance activities $ 127,419,943 $ 4,143,973 $ 7,877,097

Resources Used to Finance Items not Part

of the Net Cost of Operations

12. Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

 12a. Undelivered Orders (-) -2,011,669 -6,994 -206,081

 12b. Unfilled Customer Orders -196,647 125 -648

13. Resources that fund expenses recognized in prior periods -884,679 -4,340 -9,925

14. Budgetary offsetting collections and receipts that do not affect 185,423 0 0

15. Resources that finance the acquisition of assets -17,216,050 -15,022 -180,100

16. Other resources or adjustments to net obligated resources that do not affect

 net cost of operations

 16a. Less: Trust or Special Fund Receipts Related to exchange in the Entity's Budget 0 0 0

 16b. Other (+/-) -3,833,935 -49,264 146,929

17. Total resources used to finance items not part of the net cost of operations $ -23,957,557 $ -75,495 $ -249,825

18. Total resources used to finance the net cost of operations $ 103,462,386 $ 4,068,478 $ 7,627,272

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 491,847 0 0

20. Increase in environmental and disposal liability 0 0 0

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

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

23. Other (+/-) 610,250 236 0

24. Total components of Net Cost of Operations that

 will require or generate resources in future periods 1,102,097 236 0

Components not Requiring or Generating Resources:

25. Depreciation and amortization 15,792,824 46,327 252,229

26. Revaluation of assets or liabilities (+/-) 431,256 24,483 113,600

27. Other (+/-)

 27a. Trust Fund Exchange Revenue 000

 27b. Cost of Goods Sold 000

 27c. Operating Material & Supplies Used 13,184,372 10,511 77,420

 27d. Other -10,139,794 337,911 828,707

28. Total components of Net Cost of Operations that will not require or generate resources 19,268,658 419,232 1,271,956

29. Total components of net cost of operations that will not 

 require or generate resources in the current period $ 20,370,755 $ 419,468 $ 1,271,956

30. Net Cost of Operations $ 123,833,141 $ 4,487,946 $ 8,899,228

Consolidating Statement of Financing—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
75

2006 Annual Financial Statement

Component

Level

Combined

Total Eliminations

2006

Consolidated

2005

Consolidated

$ 0 $ 145,600,996 $ 0 $ 145,600,996 $ 137,137,979

0 -10,409,644 0 -10,409,644 -11,104,884

0 135,191,352 0 135,191,352 126,033,095

0 -185,423 0 -185,423 -123,202

0 135,005,929 0 135,005,929 125,909,894

00000

-3,690,030 46,240 0 46,240 -25,648

0 698,814 0 698,814 742,039

3,690,030 3,690,030 0 3,690,030 0

0 4,435,084 0 4,435,084 716,391

$ 0 $ 139,441,013 $ 0 $ 139,441,013 $ 126,626,284

-162,165 -2,386,909 0 -2,386,909 -11,681,780

0 -197,170 0 -197,170 738,214

0 -898,944 0 -898,944 -606,526

0 185,423 0 185,423 123,202

0 -17,411,172 0 -17,411,172 -18,029,608

00000

0 -3,736,270 0 -3,736,270 25,648

$ -162,165 $ -24,445,042 $ 0 $ -24,445,042 $ -29,430,850

$ -162,165 $ 114,995,971 $ 0 $ 114,995,971 $ 97,195,434

0 491,847 0 491,847 81,024

00000

00000

00000

0 610,486 0 610,486 13,659

0 1,102,333 0 1,102,333 94,683

0 16,091,380 0 16,091,380 11,743,098

0 569,339 0 569,339 787,835

00000

00000

0 13,272,303 0 13,272,303 2,037,758

0 -8,973,176 0 -8,973,176 12,435,587

0 20,959,846 0 20,959,846 27,004,278

$ 0 $ 22,062,179 $ 0 $ 22,062,179 $ 27,098,961

$ -162,165 $ 137,058,150 $ 0 $ 137,058,150 $ 124,294,395
76

United States Air Force

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77

2006 Annual Financial Statement

Required Supplementary

Stewardship Information

General Fund
78

United States Air Force

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79

Narrative Statement

The Air National Guard investments in nonfederal physical property are strictly through the Military Construction

Cooperative Agreements (MCCAs). These agreements involve the transfer of money only and allow joint participation with States, Counties, and Airport Authorities for construction or repair of airfield pavements and facilities

required to support the flying mission assigned at these civilian airfields.

Investment values included in this report are based on Nonfederal Physical Property outlays (expenditures).

Outlays are used because current DoD systems are unable to capture and summarize costs in accordance with

the Federal Accounting Standards requirements. 

Basic Research is the systematic study to gain knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications, processes, or products in mind. Basic Research

involves the gathering of a fuller knowledge or understanding of the subject under study. Major outputs are 

scientific studies and research papers.

Applied Research is the systematic study to gain knowledge or understanding necessary for determining the

means by which a recognized and specific need may be met. It is the practical application of such knowledge or

understanding for the purpose of meeting a recognized need. This research points toward specific military needs

with a view toward developing and evaluating the feasibility and practicability of proposed solutions and determining their parameters. Major outputs are scientific studies, investigations, and research papers, hardware components, software codes, and limited construction of, or part of, a weapon system to include nonsystem specific

development efforts.

Categories FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

1. Basic Research $205 $220 $209 $287 $334 

2. Applied Research 658 735 805 805 939

3. Development

 Advanced Technology Development 559 545 681 966 901

 Advanced Component Development And Prototypes 4,640 4,385 1,426 1,897 1,985

 System Development and Demonstration 3,509 4,341 4,390 4,179 4,172

 Research, Development, Test and Evaluation

 Management Support 824 880 890 824 1,271

 Operational Systems Development 7,103 7,571 10,361 10,083 9,622

4. Totals $17,498 $18,677 $18,762 $19,041 $19,224 

INVESTMENTS IN RESEARCH AND DEVELOPMENT

Yearly Investment in Research and Development

For Fiscal Years 2002 through 2006 

($ in Millions)

Categories FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

Funded Assets:

 National Defense Mission Related $21.30 $11.31 $18.30 $8.30 $8.50 

 Total $21.30 $11.31 $18.30 $8.30 $8.50 

NON-FEDERAL PHYSICAL PROPERTY

Yearly Investment in State and Local Governments

For Fiscal Years 2002 through 2006

($ in Millions)

2006 Annual Financial Statement
80

United States Air Force

Development takes what has been discovered or learned from basic and applied research and uses it to establish

technological feasibility, assessment of operability, and production capability. Development is comprised of five

stages defined below:

1. Advanced Technology Development is the systematic use of the knowledge or understanding gained from

research directed toward proof of technological feasibility and assessment of operational and producibility

rather than the development of hardware for service use. Employs demonstration activities intended to prove

or test a technology or method.

2. Advanced Component Development and Prototypes evaluates integrated technologies in as realistic an operating environment as possible to assess the performance or cost reduction potential of advanced technology.

Programs in this phase are generally system specific. Major outputs of Advanced Component Development

and Prototypes are hardware and software components, or complete weapon systems, ready for operational

and developmental testing and field use. 

3. System Development and Demonstration concludes the program or project and prepares it for production. It

consists primarily of preproduction efforts, such as logistics and repair studies. Major outputs are weapon systems finalized for complete operational and developmental testing.

4. RDT&E Management Support is support for installations and operations for general research and development

use. This category includes costs associated with test ranges, military construction maintenance support for

laboratories, operations and maintenance of test aircraft and ships, and studies and analysis in support of the

R&D program.

5. Operational Systems Development is concerned with development projects in support of programs or

upgrades still in engineering and manufacturing development, which have received approval for production, for

which production funds have been budgeted in subsequent fiscal years.

The following are representative program examples for each of the above major stages:

Basic Research - A team of Air Force-supported basic researchers has discovered a new diagnostic technique

called Radar Resonant Enhanced Multi-Photo Ionization (Radar REMPI) for measuring plasmas and hypersonic

flows. The technique is based on scattering microwave radiation from a small laser-induced ionization region in a

flowing gas, combusting zone or plasma, and is capable of measuring at any point of the hypersonic flow without

causing any intrusion on the flow that could negatively impact the accuracy of the measurements. The research

conducted by the team is both computational and experimental and involves working at hypersonic speeds.

Better understanding of hypersonic flows is critical for designing more efficient high-speed vehicles.

The Air Force supported basic researchers have successfully proved experimentally the existence of a class of

materials (metamaterials) that possess a negative refractive index that was predicted theoretically in 1968. All

known materials have positive refractive index: however according to the experimental results, it is possible to

make an artificial metamaterial that has a negative refractive index, without violating the laws of Physics. The

experiment was conducted in a microwave wavelength region, but notionally, an electromagnetic wave (such as a

beam of light) will be bent in the opposite way in a metamaterial, for an example. This scientific discovery could

potentially lead to a higher-resolution imaging and smaller and lighter electromagnetic devises for military sensing

and communication.
81

Applied Research - An Air Force Research Laboratory (AFRL) bio-sensor, consisting of aptamers combined with

metallic nanoparticles and fluorescing quantum dots, was demonstrated for detection and identification of biological threat agents.

Researchers at the AFRL demonstrated a Logistics Fuel Processor (LFP). The processor would permit the user of

a reliable and easily operated fuel cell power system as an alternative to current Mobile Electric Power (MEP)

units for ground based power applications.

Air Force is investing in concept studies and technologies to suppress enemy activity in high threat areas with airdelivered, network centric, persistent munitions capable of defeating the entire spectrum of ground mobile targets.

Developed the first-ever broadband, laser-based proactive infrared countermeasure (PIRCM) system; integrating

complex self-protection functions into a single set of electro-optical (EO) sensors. This PIRCM system can

detect, identify, locate, target and counter threats from EO/infrared sensors and missile seekers prior to missile

launch or sensor activation.

The Air Force is developing information technologies to support the Air, Space, and Cyberspace forces of the

future. Development of the Commander's Predictive Environment is underway, whose goal is to explore and

develop capabilities that will enable commanders to anticipate and shape the battlespace. This environment is

designed to anticipate the strengths, capabilities and vulnerabilities of the adversary and neutrals, as well as, the

Blue Forces. Utilizing these attributes, possible courses of action (COAs) are developed with the goal of determining plausible "future states" to which a Commander can then select to shape and control the battlespace.

Developed Accelerated Insertion of Materials techniques to investigate the plastic deformation of metallic crystals

at a nanometer scale. This work is building towards the capability to accelerate production of new designer metals, which contain unique material properties (high strength, higher temperature, increased durability, etc.) for

critical Air Force needs.

Advanced Technology Development - Demonstrated a suspended two telescope relay mirror system by redirecting a beam from a ground-based laser illuminating the first telescope to a distant target by aiming the first telescope at the ground based laser and the second at the target. This technology can significantly increase the range of

high energy lasers by reducing the path through the atmosphere, and also allows non-line-of-sight targeting. 

Completed development of first ever immersive and distributed environment for joint terminal attack and control

training and rehearsal. The distributed environment is a benchmark for meeting Joint Operational Requirements

Document (JORD) requirements for mission area training across Services.

The Air Force Research Laboratory in cooperation with industry have successfully developed and demonstrated a

durable composite C-17 main landing gear (MLG) door. As a result of the Composites Affordability Initiative

(CAI) C-17 technology transition demonstration program, the MLG door features stitched preforms, vacuum

assisted resin transfer molding and an improved design.

The Air Force Research Laboratory is developing and testing low collateral damage munitions for engaging and

prosecuting targets in urban environments. Technologies developed in this activity will benefit Focused Lethality

Multiphase Blast Explosive MBX (JCTD). 

The Air Force successfully completed demonstration of a lightweight, low profile, low-cost, X-band Active

Electronically Steered Array (AESA). The AESA integrates Synthetic Aperture Radar (SAR) and Ground Moving

2006 Annual Financial Statement
82

United States Air Force

Target Indicator (GMT) functions while providing night/all-weather situational awareness and highly accurate targeting data to decrease the timeline in acquiring time critical targets.

The Air Force Research Laboratory demonstrated a new concept, called the Master Caution Panel (MCP). This

program continuously monitors status of critical Air and Space Operations Center (AOC) information systems,

correlates system failures against the battle rhythm of the AOC and user needs, and provides the "right info" to

the "right person" at the "right time" enabling rapid understanding of any impact to the AOC mission. These tests

were highly successful and MCP has been integrated into the AOCs Theater Battle Management Core Systems.

One revolutionary area of research ongoing in the Air Force Research Laboratory focuses on the X-51A, a hypersonic test platform that strives to demonstrate the HyTech hydrocarbon-fueled scramjet in flight using waverider

airframe technologies from the Defense Advanced Research Projects Agency Affordable Rapid Response Missile

Demonstrator (ARRMD) program. The program will use an existing ATACMS booster to accelerate the air vehicle from B-52 launch (40,000 ft. at Mach 0.8) to Mach 4.5 to Mach 5 at which time the flight vehicle will separate

from the booster and the scramjet engine will then start and accelerate the vehicle to between Mach 6.5 and

Mach 7. This game-changing technology looks to propel the Air Force to all new heights, potentially providing

new methods for space access and improving our rapid response capabilities. Test flights are scheduled to begin

in FY 2009. 

As part of efforts to reduce the U.S. military's reliance on foreign energy sources, the Air Force conducted its

first-ever flight test of an alternative jet fuel on September 19, 2006, at Edwards AFB, California. During the mission, two of the eight engines of a B-52H Stratofortress bomber aircraft successfully ran on a fuel comprised of a

50-50 blend of conventional oil-based jet fuel and a Fischer-Tropsch fuel derived from natural gas. The aircraft's

six remaining engines burned traditional JP-8 jet fuel during the flight. This Fischer-Tropsch experiment is part of

the Pentagon's Assured Fuel Initiative that seeks to convert coal, of which the United States has in abundant

reserves, into liquid fuel (Defense Daily, June 8, 2006). The fuel derived from refining natural gas under the

Fischer-Tropsch process, which is named after its German inventors of the 1920s. 

The Air Force developed improved turbine engine life-management tools that integrate state-of-the-art material

analysis, enhanced non-destructive evaluation, and data management as a comprehensive life management system.

Component cost avoidance is estimated to exceed $300 million for the F100/F110 engine series alone (extends

life for 8000 to 12000 TACs). 

The Air Force's Advanced Technology Development program demonstrates, in a realistic operational environment, integrated sets of technology to prove military worth and utility. AFRL demonstrated a 330 Gigahertz

detector that operates at frequencies billions of times faster than the blink of an eye. This technology will be

used to produce compact solid-state circuits operating at Terahertz frequencies. Likely technology application

would be to enable a new generation of sensors to enhance homeland security. The Air Force also completed

the final transition of the very successful Laser Infrared Countermeasures Fly-out Experiment demonstration with

a final risk reduction live fire missile test at Tonopah National Test Range, Nevada. This test showed conclusively

that Closed Loop Infrared Countermeasures jamming techniques provide a robust capability against a wide variety

of infrared missiles, including proliferated Man Portable Air Defense Systems.

The Air Force also 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 JUCAS X-45A aircraft flew a total of 64 flights and performed limited demonstrations of precision weapon drops,
83

multi-ship coordinated flight, and collaborative targeting technologies, illustrating the potential for future

unmanned combat air systems development programs. The Air force continued to advocate the AFRL

Automated Air Refueling (AAR) program. On August 16, 2006 the AFRL AAR program achieved a historic milestone by demonstrating the ability of a Learjet (surrogate unmanned air system) to automatically maintain precision position keeping behind a KC-135 through all of the aerial refueling positions including the contact position. 

The SPIRITT Advanced Technology Demonstration (ATD) will develop a day, high altitude, hyperspectral imaging

reconnaissance sensor testbed to address U-2/Global Hawk limitations in detecting and identifying camouflaged,

concealed, and other difficult targets. The SPIRITT ATD developed an HIS sensor integrated with a high resolution daytime imaging sensor and successfully flight tested the system on a NASA WB-57 aircraft against simulated

targets in CONUS as well as in an engineering demonstration capacity on a high-visibility OCONUS deployment.

The sensor system supported a real-time on-board processing capability for rapid precision targeting. It also supported full data recording for longer term Measurement and Signature Intelligence (MASINT) exploitation for

intelligence community target of interest.

The Air Force continues development of technologies to protect US Space assets from the continued worldwide

development, deployment, and employment of foreign space and counterspace systems.

Demonstration and Validation (Advanced Component Development and Prototypes) - The Air Force's

Advanced Component Development and Prototypes (ACD&EP) programs are comprised of system specific

advanced technology integration efforts accomplished in an operational environment to help expedite transition

from the effort: In FY 2004 the Air Force successfully demonstrated Fighter Aircraft Command and Control

Enhancement (FACE). FACE provides an improved, beyond-line-of-sight (BLOS) command and control link with

fighter aircraft by integrating Iridium telephone communications equipment with existing aircraft communications

equipment. BLOS capability has traditionally been provided by low-density, high-demand airborne platforms acting as communications relays. FACE provides relief for these overworked assets, while allowing combatant commanders to maintain positive control of the battle space. FACE, which has been approved for deployment to

Afghanistan through the Air Force's Rapid Response Process, has the potential for extensive use in virtually any

Area of Responsibility, including Homeland Defense.

In FY 2005, two small responsive launch vehicles were matured to Critical Design Review (CDR) and beyond

capability, with the Space-X launch Vehicle conducting a series of demonstration flights to mature components

hardware and system integrity. An initial launch was conducted, unsuccessfully, in March 2006. A Return-toFlight demonstration is planned for November 2006. The launch of Tactical Satellite-1 (TACSAT-1) is also scheduled to occur on a Space-X Falcon-1 vehicle in April 2007. The hypersonic test vehicle effort continues to mature

constituent hypersonic technologies in the areas of aerodynamic, thermal protection, communications, and guidance, navigation and accuracy, moving towards two flight demonstrations, which are scheduled in FY 2009. The

goal of this technology demonstration program is to demonstrate and validate key technologies leading to residual

capability and follow-on operational systems.

In FY 2005, the Air Force restructured and refocused the Space Radar (SR) program (formerly Space Base Radar)

to address congressional concerns with technical risk, affordability, and DoD-Intelligence Community (IC) integration. In January 2005, the Secretary of Defense (SECDEF) and the Director of Central intelligence (DCI) signed a

joint memo designating the SR program as the single space radar capability for the nation. The Undersecretary of

the Air Force appointed a two-star general as SR System Program Director (SPD) and Program Executive Officer

(PEO), and moved the SR Integrated Program Office (IPO) from Los Angeles, CA to Chantilly, VA in order to foster greater synergy with the IC. The SR program implemented a demonstration framework approach to system

2006 Annual Financial Statement
84

United States Air Force

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 will provide day/night, all-weather global surface moving target indications (MTI), synthetic aperture

radar (SAR) and high-resolution terrain information (HRTI) capabilities from a space-based platform. Initial launch

capability is planned for FY 2015. 

System Development and Demonstration - The Air Force's System Development & Demonstration (SDD)

efforts are development projects which have not received approval for full-production. In FY 2006, the F-22

Raptor program closed out Engineering and Manufacturing Development (EMD) and is now in Full Rate

Production. The Air Combat Command at Langley AFB, Virginia, achieved Initial Operational Capability (IOC) in

December 2005. In closing out EMD in June 2006, the F-22 program completed the full-scale airframe structural

fatigue testing and analysis, completed support and test of the flight test engines, and completed integration of the

Operational Flight Program (OFP) software in the Avionics Integration lab for future software development and

support efforts. The successful conclusion of EMD laid the foundation for future F-22 Raptor enhancements

under the current incremental modernization strategy.

The F-35 Joint Strike Fighter (JSF) program is developing a family of strike fighter aircraft for the Air Force, Navy,

Marine Corps and our allies, with maximum commonality among the variants to minimize life cycle costs. The Air

Force Conventional Takeoff and Landing (CTOL) variant will be a multi-role, primary air-to-ground aircraft to

replace the F-16 and A-10 and complement the F-22. While the F-22 will establish air dominance, the F-35---with

its combination of stealth, large internal payloads and multi-spectral avionics---will provide persistent stealth and

precision engagement to the future battlespace. The F-35 is in the 5th year of a 12-year System Development

and Demonstration (SDD) effort. Significant program accomplishments in FY 2006 include: 

• Assembly, power on, and first engine run of the first CTOL aircraft

• Completed Critical Design Reviews (CDRs) for CTOL and Short Takeoff and Vertical landing (STOVL variants 

• Awarded long lead contracts for Low Rate initial Production (LRIP) Lot 1 (f CTOL aircraft) in April 2006 to 

Lockheed Martin ($94M) and Pratt & Whitney ($23M)

• Began component assembly of 5 STOVLs and 2 additional CTOLs 

The Multi-Platform - Radar Technology Insertion Program is being developed for the Global Hawk and E-10 programs as an interoperable platform-independent Ground Moving Target Indicator (GMTI), Synthetic Aperture

Radar (SAR) imaging, and Air Moving Target Indicator (AMTI) system-of-systems capable of providing dynamic

support to operations. MP-RTIP development is on cost and on schedule, while continuing to build upon previous years' achievements by completing a Design Readiness Review in preparation for System Demonstration. As

of September 2006, MP-RTIP has completed developmental fabrication of three Global Hawk radar developmental units and completed three of sixteen aperture components, with six other in various stages of build, on the

first E-10 developmental units. The Global Hawk MP-RTIP variant achieved successful first flight in September

2006 beginning developmental testing onboard a Proteus test vehicle and remains on track to begin Global Hawk

testing in 2008 with production deliveries projected for 2010. Additionally, the E-10 MP-RTIP promises will

enhance the mission areas of air and surface surveillance and tracking with faster revisit rates, increased resolution, simultaneous tracking and SAR imaging, as well as, cruise missile defense capability on the E-10A variant.

The program's continued schedule delivery for the Global Hawk program ensures next generation radar technology on time to the Warfighter.
85

The Theater Battle Management Core System (TBMCS) develops force-level and wing-level command, control,

and intelligence systems to support the operational functions of the joint Forces Air Component Commander.

TBMCS has been designated the Joint System of Record for Air Tasking Order/Airspace Control Order generation within the Department of Defense. The system has shown its flexibility by successful employments in support of the Global War on Terror (OIF, OEF, ONE) as well as in support of humanitarian relief efforts (Tsunami

Relief, and hurricanes Katrina and Rita Relief). TBMCS generated over 65,000 sorties for OIF/OEF in FY 2006

alone and over 409,000 sorties total since the start of these operations. TBMCS Spiral 1.1.3 successfully passed

test and was released to the field, providing numerous system improvements such as greater and faster access to

air battle management information.

In FY 2006, in an effort to reduce overall program risk, the Department of Defense restructured the TSAT program to block delivery approach. This strategy reduces the risk in the product development phase by implementing a more incremental fielding approach that reduces the complexity/capacity of the two driving technologies (i.e., lasercom and next-generation processor router) on the first two satellites (Block A). Capacities for the

remaining three satellites (Block B) are higher, resulting in a constellation that meets all Key Performance

Parameter requirements. Additionally, the program is funded at a higher cost confidence level (CL) vice prior

50/50% cost CL. The TSAT program is conducting rigorous risk reduction and system definition activities during

the competitive development phase. The program completed two key risk reduction milestones during late 2005

and early 2006. These successful laser communication and advanced processor demonstrations involved multiple

agencies and contractor teams. The first milestone involved competing teams, one led by Lockheed

Martin/Northrop Grumman and the other Boeing/Ball Aerospace. The teams completed the second of three

planned laser Communication (or 'lasercom') tests using an independent Government testbed, referred to as the

Optical Standards Validation Suite (OSVS), located at MIT Lincoln Laboratory (MIT/LL). At the same time, competing teams, one led by Lockheed martin/Northrop Grumman and the other by Boeing/Harris, completed the

first of three planned interoperability demonstrations between their TSAT next generation satellite

processor/router (NGPR) equipment and MIT/LL's TSAT reference ground terminal. The TSAT program is making excellent progress and is on track to demonstrate key technology maturity and integration milestones. In

January 2006, the single TSAT Mission Operations System (ITMOS) contract was awarded. Awarding the TMOS

contract decreases TSAT program risk by providing an integrating construct for network architecture and design

and allows the contractor to begin work on formal network interface definitions and specifications. The ultimate

goal is a FY 2014 first launch of TSAT.

The Air Force has developed and deployed to CENTCOM a prototype designed to detect and report interference on satellite communications channels. The prototype was successfully demonstrated during Joint

Expeditionary Force Experiment 2004 (JEFX 04). Operational lessons learned from this prototype are being

incorporated into a formal acquisition program called Rapid Attack Identification Detection Reporting System

(RAIDRS). This is a defensive counterspace program. The first spiral of RAIDRS will provide: Detection,

Characterization, Geolocation, and Reporting of SATCOM Electromagnetic Interference (EMI) for designated

channels in the C, X, and Ku frequency bands.

Research, Development, Test and Evaluation Management Support - The Air Force's Research,

Development, Test and Evaluation (RDT&E) Management Support efforts include projects directed toward support of installation or operations required for general research and development use. Included would be test

ranges, military construction, maintenance support of laboratories, operation and maintenance of test aircraft and

ships, and studies and analyses in support of the research and development program. Example of Air Force

RDT&E management support is: The Major Test and Evaluation Investment program, which funds the planning,

2006 Annual Financial Statement
86

United States Air Force

improvements and modernization for three national asset test centers having over $10 billion of unique test facilities/capabilities operated and maintained by the Air Force for the Department of Defense (DoD) test and evaluation missions, and available to others having a requirement for their unique capabilities. The test capabilities and

facilities are operated and maintained by the Air Force for the DoD test and evaluation missions, and are available

to others having a requirement for their unique capabilities. Many efforts are contained within the AF I&M program, but two examples are the Scene Characterization & Reconstruction for Advanced Munitions (SCRAM), at

the AAC Eglin AFB, replaces and/or upgrades multi-spectral measurement system sensors and provides higher

spatial and spectral resolution in the UV, visual, IR, MMW, and RF bands. SCRAM also enables high-speed data

acquisition and recording needed to support these advanced capability sensor. SCRAM enhances the distributed

test connectivity between ground-test and open-air-ranges and assist in the development of realistic and dynamic

weapons systems simulation. In addition, the Modeling & Simulation Test & Evaluation Resources (MASTER) program, at AFFTC Edwards AFB and AEDC Arnold AFB, provides a collaborative capability with respect to database information storage and retrieval. These capabilities provide engineering data connectivity with respect to

modeling & simulation, ground-test and flight-test environment conditions.

Operational Systems Development - The Air Force's operational system efforts include projects in support of

development acquisition programs or upgrades in System Demonstration and Development (SDD). The F-22

Raptor program is in full rate production on the world's only 5th generation production line and it will maintain its

role as the key enabler of joint air dominance through an incremental modernization program funded through

Operational Systems Development activities. 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 represents the first upgrade over IOC capabilities and FY 2006 activities included start of Increment 2 flight test of avionics improvements in displays and

chaff processing, expanded datalink testing between multiple flights of aircraft, and planning activities for flight test

of JDAM in an expanded envelope. Increment 3 activities included completion of a Preliminary Design Review

(RPDR) for Increment 3.1 which will focus on dramatically improving the F-22A Raptor's Air-To-Ground attack

capabilities with 4th generation synthetic aperture radar and a new weapon (the Small Diameter Bomb). Finally, a

system Design Review (SDR) for the Enhanced Stores management System (ESMS) was completed in FY 2006

which lays the foundation for integration of advanced weapons in future Increments. 

The advanced Medium Range Air-to-Air Missile (AMRAAM) Phase 3 (AIM-120C-7 effort completed System

Demonstrations and Development (SDD) in May 2004 and has begun Operation Test (OT). Production units for

this variant began in the 4th Quarter FY 2004 and will complete in the 2nd Quarter FY 2009. The AIM-120C-7

provides a major upgrade over the AIM-120C-6 guidance section, particularly the use of circular processor cards

over previously used rectangular cards. These cards provide significant space savings within the missile for added

capability in addition to providing greater processing power.

AMRAAM Phase 4 (AIM-120D) builds on the AIM-120C-7 capability and is progressing. This new AIM-120D missile will add a GPS/INU and a 2-way Data Link to enhance accuracy and control, and thus, increasing weapon

effectiveness. In addition, the AIM-120D will have increased range and third party targeting which expands the

HOBS launch envelope. The SDD contract was awarded in December 2003 and initial systems integration testing

of the Proof of Design (POD) missile began in September 2005. Nine POD missiles have been produced to date.

These are active in laboratory, ground and flight testing. 

The Joint Direct Attack Munition Program completed the SAASM/Anti-Jam 27 month effort that commenced in

FY 2003. SAASM/AJ capability decreases vulnerability to crypto compromise and spoofing as well as enhanced
87

anti-jam performance. All JDAMS delivered in Lot 9 (starting in FY 2006) and beyond will be SAASM capable.

The 9,000 JDAMs delivered in Lot 9 will also be AJ capable. Future AJ quantities will be determined by ACC and

AF/XOR. 

The Small Diameter Bomb I (SDB I) program will increase the number of kills per platform or sortie (x4) while

achieving required effects by improving accuracy and reducing collateral damage over current inventory weapons.

SDB I is an incremental development weapon program that entered low rate initial production in FY 2005. The

first Increment of SDB I will attack fixed and stationary targets using anti-jam/SAASM Inertial Navigation System

(INS)/Global Positioning Satellite (GPS) aided by a very wide area differential GPS solution and standoff capability.

The program has successfully completed the IOT&E phase of twenty f Seamless Verification in July 2006. The

program met Required Assets Available (RAA) in time to not only meet RAA requirements, but also a real-world

operational deployment. The SDB will provide transformational capability to the Air Force by increasing loadout

per weapon station on multiple platforms, reducing sorties and minimizing collateral damage.

The Joint Surveillance Target Attack Radar system (Joint STARS) Interim Capability for Airborne Networking

(ICAN) program provides a low-cost interim Internet Protocol net-centric capability on joint STARS. A product

of Northrop Grumman and the Air Force Research Laboratory, ICAN uses COTS software to tie into existing

Joint STARS radios and antennas. ICAN enables SIPRNet connectivity to airborne and fixed/mobile users for collaboration via standard test chat as well as email and web-browser functionality. The fleet modifications were

first implemented on deployed aircraft and in-theater ground stations, with IOC declared on March 30, 2006.

Installs have continued on the rest of the fleet and are projected to be completed by March 2007.

ICAN on Joint STARS aircraft allows command and control of surveillance operations and time sensitive targeting

in support of ground forces engaging enemy units. By enabling participation in secured text chat sessions, ICAN

allows Joint STARS operators to rapidly collaborate with reconnaissance platform operators, strike aircraft pilots,

and ground force combatants. Joint STARS operators exploit ICAN's large footprint to track the movements of

enemy units in concert with other sensors. When the enemy stops moving, Joint STARS operators use ICAN to

rapidly direct shooters to locate and destroy their targets. ICAN has become an integral tool for synchronizing

the effects of airpower and ground forces to achieve warfighter objectives.

The Air Force Space program achieved four successful launches of military satellites, utilizing Titan, Atlas, and

Delta to launch NROL-23, NROL-16, GPS IIR-13, DSP-22 and GPS IIR-14. 

The Air Force continues to develop the Family of Advanced Beyond Line of Sight Terminals (FAB-T) to provide

robust, secure, strategic and tactical global communications for nuclear and conventional forces. This family of terminals will provide transformational communications via connectivity to Advanced EHF satellites (AEHF),

Wideband Gapfiller Satellites (WGS), and the future Transformational Satellite Communications System (TSAT).

Future increments of this terminal will provide laser communications in conjunction with optical capabilities on

TSAT to deliver data in excess of one GB per second, as well as a new multi-band antenna that will enable aircraft

to have simultaneous connectivity to multiple satellites via a phased array construct. This capability will allow the

Air Force to reduce the costs of integrating multiple antennas to communicate with different satellite constellations.

In FY 2004, the Air Force conducted a successful Preliminary Design Review for the Space Based Space

Surveillance (SBSS) pathfinder satellite. The SBSS pathfinder program will design, build, launch and operate this

single satellite with a visible sensor payload, as well as build and operate a ground segment to support initial satellite operations. The SBSS Pathfinder will detect and track objects in Earth's orbit, contributing to timely space situation awareness, and is scheduled to launch in late 2009.

2006 Annual Financial Statement
88

United States Air Force

In FY 2006, the Air Force successfully completed the source selection and contract award for a Non-developmental Item (NDI) Ground Multi-band Terminal (GMT). GMT provides the warfighter a wideband tactical terminal to support full spectrum operations from humanitarian/disaster relief to Major Theater War (MTW) by delivering Air Tasking Order (ATO), unmanned aerial vehicle video, voice, intelligence, command and control and

other data products. Each GMT provides wideband SATCOM connectivity up to 104 Mbps via 4 bands (Ka, Ku,

X and C) over military Wideband Gapfiller Satellite (WGS) and commercial SATCOM systems. The Air Force

procured 2 terminals in FY 2006 to use for testing and will award a full rate production contract in FY 2007. The

Air Force will procure a total of 141 GMT terminals. These terminals will replace existing 20+ year old wideband SATCOM terminals and reduce the airlift footprint by 75%.

In FY 2005, the Air Force conducted a successful Preliminary Design Review for the Space Based Space Surveillance

(SBSS) Block 10 system. The SBSS Block 10 program will design, build, launch and operate a satellite system with a

visible sensor payload, as well as build and operate a ground segment to support initial satellite operations. The

SBSS Pathfinder will detect and track objects in Earth's orbit, contributing to timely space situation awareness, and is

scheduled to launch in late 2009. Technical progress continued in FY 2006 with testing and refinement of the

change-coupled devices, mirrors, ground system software, and other pathfinder system components.

The first Counter Communications System was delivered to the Air Force Space command (AFSPC) in

December 2003 and AFSPC declared initial capability on September 24, 2004, after two additional systems were

delivered. AFSPC continues development of strap on capability via Pods. Additional capability against future

technology developments will be delivered with block 20. The Counter Communications System is operated by

the 76th Space Control Squadron at Peterson AFB, Colorado, and is a transportable ground-based system that

denies adversary satellite communications through reversible, not-destructive methods.

We successfully completed initial operational test and evaluation on the Safety Enhanced Reentry Vehicle (SERV)

program. Also, the rest of the SERV flight test program (1 flight) was finished. The SERV program allows the

Minuteman III system to use the Mk21 reentry vehicle, originally developed for the recently retired Peacekeeper

missile. The Mk21 has the most modern safety features of any such weapon in the DoD inventory. 
89

2006 Annual Financial Statement

Required Supplementary

Information

General Fund
90

United States Air Force

Other

Research, Development, 

Test & Evaluation

Operation and 

Maintenance

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 3,837 $ 2,741,912 $ 1,099,819

2. Recoveries of prior year unpaid obligations 0 221,255 684,917

3. Budget authority

 3a. Appropriation 409,112 22,407,229 46,808,346

 3b. Borrowing authority 0 00

 3c. Contract authority 0 00

4. Spending authority from offsetting collections

 4a. Earned

 1. Collected 12,758 3,164,551 5,383,335

 2. Change in receivables from Federal sources -21 -101,806 58,849

 4b. Change in unfilled customer orders

 1. Advance received 0 -84,490 -40,502

 2. Without Advance from Federal sources 0 -107,194 14,202

 4c. Anticipated for rest of year, without advances 0 00

 4d. Previously unavailable 0 00

 4e. Expenditure transfers from trust funds 0 00

 4f. Subtotal 421,849 25,278,290 52,224,230

5. Non-expenditure transfers, net, anticipated and actual -401,461 244,066 1,174,277

6. Temporarily not available pursuant to Public Law 0 00

7. Permanently not available -5,000 -501,171 -973,798

8. Total Budgetary Resources $ 19,225 $ 27,984,352 $ 54,209,445

STATUS OF BUDGETARY RESOURCES:

9. Obligations incurred:

 9a. Direct $ 2,608 $ 21,385,080 $ 47,384,824

 9b. Reimbursable 12,519 2,940,679 5,520,594

 9c. Subtotal 15,127 24,325,759 52,905,418

10. Unobligated balance:

 10a. Apportioned 925 3,314,921 306,495

 10b. Exempt from apportionment 3,174 0 0

 10c. Subtotal 4,099 3,314,921 306,495

11. Unobligated balance not available 0 343,672 997,530

12. Total Status of Budgetary Resources $ 19,226 $ 27,984,352 $ 54,209,443

CHANGE IN OBLIGATED BALANCE:

NET OUTLAYS:

13. Obligated balance, Net

 13a. Unpaid obligations, brought forward, October 1 1,813 7,883,106 17,592,744

 13b. Less: Uncollected customer payments $ -21 $ -974,712 $ -1,585,971

 from Federal sources, brought forward, October 1

 13c. Total unpaid obligated balance 1,792 6,908,394 16,006,773

 13d. Obligations incurred net (+/-) $ 15,127 $ 24,325,758 $ 52,905,419

14. Less: Gross outlays -15,297 -23,949,855 -50,787,686

15. Obligated balance transferred, net

 15a. Actual transfers, unpaid obligations (+/-) 0 00

 15b. Actual transfers, uncollected customer 0 00

 payments from Federal sources (+/-)

16. Total Unpaid obligated balance transferred, net 0 00

17. Less: Recoveries of prior year unpaid obligations, actual 0 -221,255 -684,917

 Change in uncollected customer 21 209,000 -73,050

 payments from Federal sources (+/-)

18. Obligated balance, net, end of period

 18a. Unpaid obligations 1,643 8,037,755 19,025,559

 18b. Less: Uncollected customer payments

 from Federal sources 0 -765,712 -1,659,021

 18c. Total, unpaid obligated balance, net, end of period 1,643 7,272,043 17,366,538

19. Net Outlays:

 19a. Gross outlays 15,297 23,949,855 50,787,686

 19b. Less: Offsetting collections -12,758 -3,080,061 -5,342,833

 19c. Less: Distributed Offsetting receipts -185,423 0 0

20. Net Outlays $ -182,884 $ 20,869,794 $ 45,444,853

Disaggregated Statement of Budgetary Resources—General Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
91

2006 Annual Financial Statement

Procurement

Military 

Personnel

Military Construction/

Family Housing

2006

Combined

2005

Combined

$ 7,285,635 $ 403,345 $ 1,471,659 $ 13,006,208 $ 9,043,364

367,105 174,573 3,056 1,450,906 1,300,191

35,518,858 31,315,236 3,308,829 139,767,610 128,890,968

0 0 00 0

0 0 00 0

279,125 414,953 468 9,255,190 8,923,532

5,971 -62,272 0 -99,279 142,948

30,784 0 -468 -94,677 349,671

-9,499 -3 0 -102,493 388,543

0 0 00 0

0 0 00 0

0 0 00 0

35,825,239 31,667,914 3,308,829 148,726,351 138,695,662

1,088,747 474,174 -3,113 2,576,690 2,598,439

0 0 00 0

-943,251 -445,485 -177,527 -3,046,233 -1,493,468

$ 43,623,475 $ 32,274,521 $ 4,602,904 $ 162,713,922 $ 150,144,188

$ 33,475,546 $ 31,500,600 $ 2,690,889 $ 136,439,546 $ 124,689,424

334,790 352,867 0 9,161,449 12,448,555

33,810,336 31,853,467 2,690,889 145,600,995 137,137,979

9,378,822 99,975 1,897,479 14,998,616 11,756,881

0 0 0 3,174 3,218

9,378,822 99,975 1,897,479 15,001,790 11,760,099

434,317 321,080 14,537 2,111,137 1,246,110

$ 43,623,475 $ 32,274,522 $ 4,602,905 $ 162,713,922 $ 150,144,188

23,239,976 807,544 2,315,598 51,840,781 53,808,139

$ -235,478 $ -39,316 $ 0 $ -2,835,497 $ -2,304,006

23,004,498 768,228 2,315,598 49,005,284 51,504,133

$ 33,810,336 $ 31,853,467 $ 2,690,889 $ 145,600,995 $ 137,137,979

-33,790,912 -31,657,215 -1,800,804 -142,001,769 -137,805,147

0 0 00 0

0 0 00 0

0 0 00 0

-367,105 -174,573 -3,056 -1,450,906 -1,300,191

3,528 62,275 0 201,773 -531,490

22,892,295 829,223 3,202,626 53,989,101 51,840,781

-231,950 22,959 0 -2,633,723 -2,835,497

22,660,345 852,182 3,202,626 51,355,378 49,005,284

33,790,912 31,657,215 1,800,804 142,001,769 137,805,147

-309,908 -414,953 0 -9,160,512 -9,273,203

0 0 0 -185,423 -123,202

$ 33,481,004 $ 31,242,262 $ 1,800,804 $ 132,655,834 $ 128,408,742
92

United States Air Force

Narrative Statement:

1. Museums 

The National Museum of the United States Air Force (NMUSAF), located at Wright-Patterson Air Force Base,

Ohio, is the services' single, authorized national museum. This museum has a professionally-qualified staff and is

responsible to the Secretary of the Air Force for the management and stewardship of the historical collection.

The NMUSAF houses the main collection of historical artifacts that are registered as historical property of the

USAF Museum System. The other 12 reported museums are defined as Air Force Field Museums and are operated by their respective major commands (MAJCOMs). While they are responsible for Air Force Historical

Property on loan from the NMUSAF, they have been limited in both their scope and capabilities. 

The MAJCOMs also operate at various base locations small heritage centers and historical exhibits, which are limited in capabilities and are neither manned nor resourced at professional museum levels. These five activities are

no longer defined as museums by the NMUSAF or by their respective MAJCOMs. 

The Air National Guard continues to report one old munitions storage vault, dating back to the Horse Artillery

days as their only museum. This storage vault is the only building remaining of a number that use to be at this

location. All Air Force and Air National Guard museums are reported in acceptable condition. 

2. Monuments and Memorials

The memorials and monuments reported above, except for 28, are all located at the Air Force Academy in the

Air Gardens and Honor Court. Most of these monuments and memorials honor specific individuals or cadet

wings for various accomplishments. The remaining 28 Air Force memorials, all with costs that exceed $100,000,

are located on various Air Force bases throughout the United States. All are reported in acceptable condition. 

3. Cemeteries 

The Air Force has administrative and curatorial responsibilities for 39 cemeteries on its Active Duty bases. The

cemeteries are maintained by the bases and are in good condition. 

4. Archeological Sites

As of 30 September 2006, the Air Force has (as reported in the FY 2005 Annual Report to Congress on Federal

Archaeological Activity, submitted 30 March 2006) 1,514 archeological sites listed on or eligible for the National

Register. The Air Force has 10,015 recorded but unevaluated (AKA "potentially eligible") archeological sites, and

4,593 sites, considered not eligible for the Register. A total of 16,122 archeological sites have been reported so

Measurement

Quantities

As of

10/1/2005 Additions Deletions As of9/30/2006

Museums Each 19 0 5 14

Monuments & Memorials Each 244 0 0 244

Cemeteries Sites 39 0 0 39

Archeological Sites Sites 1,685 0 171 1,514

Buildings & Structures Each 6,153 0 1,605 4,548

Major Collections Each 4 0 0 4

HERITAGE ASSETS

As of September 30, 2006
93

far from Air Force lands. Eligible and listed sites (AKA "heritage assets") are maintained in an acceptable condition

on Air Force installations.

The table shows a total of 171 archaeological sites were removed from the heritage asset list between FY 2005

and FY 2006, even though the number of archaeological sites increased by 958 (15,164 in FY 2005 to 16,122 in

FY 2006). The reduction in eligible sites is a result of (a) more accurate reporting by installations after the FY

2005 audit; (b) corrections of site number data reported by a few installations in previous Annual reports; (c) the

destruction of several dozen sites after thorough Section 106 review by construction and other Air Force grounddisturbing projects; (d) determination that some previously considered-eligible sites were no longer eligible; and

(e) the consolidation of previously separated, but adjacent sites into fewer larger sites (primarily at Tyndall and

Lackland AFBs) during reevaluation projects. 

5. Buildings and Structures

As of 28 September 2006, the Air Force considers 4,548 buildings and structures as heritage assets (listed and eligible buildings/structures). Most are considered Multi-use Heritage Assets, and as such, are reported as general

property, plant, and equipment on the Balance Sheet. These buildings and structures are maintained by each base

civil engineering group and are considered to be in good condition. 

The decrease from last year's report total by 1,605 buildings is due to several factors, including: (a) more accurate

reporting in FY 2006 because of the FY 2005 audit; (b) refining the definition of heritage assets in regard to historic buildings and structures ("heritage asset" is not commonly used for historic properties in the Air Force

Cultural Resources management community, and the definitions do not overlap completely). Unlike previous

additions of this report, only buildings/structures listed on or determined eligible for listing on the National

Register are considered as heritage assets. In past reports, installations included data on those buildings/structures considered "potentially eligible" (not yet evaluated) as heritage assets because they must be managed as eligible until evaluated; (c) because the Air Force has developed much better data on historical housing than we've

had in the past, and solved several past problems, such as occasionally counting out-buildings (e.g. garages) as separate assets instead of part of the historic house itself (primarily because garages and carports often have separate

building numbers on installations), and differentiating between "units" and "buildings" where confusion arose for

multi-dwelling buildings (e.g. duplexes/multiplexes); (d) completing evaluations of many buildings in the National

Historic Preservation Act 50+ year old category that were considered likely eligible, but which evaluation

showed were not eligible; (e) many Capehart-Wherry Era housing units have been demolished or marked for

demolition under the Advisory Council for Historic Preservation Program Comment signed in August 2006 (some

buildings that were previously considered eligible); and (f) many installations have privatized their military housing,

resulting in some historic assets being removed from the Air Force inventory. 

6. Major Collections

The Air Force has four significant or major collections consisting of: (a) the Air Force Art Collection, and (b) three

collections, at the Air Force Academy containing historical items and memorabilia, as well as, distinctive works of

art. The curators for all major collections reported the contents to be in good condition. They further added that

almost all of the materials are protected in an environment suitable for long-term storage. The overall condition

of the collections in the museums is good; items are displayed and protected in accordance with the standards of

Air Force Instruction 84-103, USAF Museum System.

2006 Annual Financial Statement
94

United States Air Force

The Air Force has approximately 7,705,000 acres of mission-essential Stewardship Land under their administration. The beginning balance was (FY 2005 Ending Balance) was adjusted by 19,000 acres due to an unsupported

previous year's balance that has remained on the above schedule since FY 2002. During this period of time, various transactions have occurred that decreased the number of acres by approximately 19,000 acres. Lands purchased by the Air Force with the intent to construct buildings or facilities are considered general plant, property,

and equipment (PP&E) and are reported on the balance sheet. All stewardship lands, as reported, are in acceptable condition, based on designated use. 

Notes: 

1. FY 2006 O&M Sustainment Required is based on Facilities Sustainment Model (FSM 6.1) per business rule

direction of OSD (AT&L).

2. FY 2006 O&M Sustainment Appropriated amount is the FY 2006 PB plus subsidies and MILPERS contribution

(49% of MILPAY), does not include Supplemental funding for Contingencies and Storms, and include post-PB

Congressional Marks.

3. FY 2006 O&M Sustainment Actuals are from the CRIS database, DBT perspective, 30 September 2006. The

numbers are not certified DFAS numbers and are subject to change. Certified numbers for FY 2006 obligations are not expected until late October/early November 2006. 

4. FY 2006 O&M Sustainment Difference is the sustainment required, minus the Actual, which equals our

deferred facility maintenance submission.

5. Military Family Housing (MFH) annual sustainment requirements are based upon data reflected in the 2002

Family Housing Master Plan. These requirements are further refined based upon a combination of historical

expenditures for day-to-day maintenance and condition assessment surveys for MFH real property maintenance by contract, and take into account programmatic changes such as housing privatization initiatives. 

Property Type 1. Required 2. Appropriated 3. Executed 4. Difference

Buildings, Structures and Utilities 2,440,231 2,294,138 1,949,749 490,482

Annual Sustainment FY 2006

GENERAL PROPERTY, PLANT, AND EQUIPMENT 

REAL PROPERTY DEFERRED ANNUAL SUSTAINMENT AND RESTORATION TABLES

As of September 30, 2006 ($ in thousands)

(a)

Land Use

(d)

Deletions

1. Mission 4

2. Parks & Historic Sites 0

Totals 0

0

7,709 0 7,705

0 0

7,709 0 7,705

(e)

As of 9/30/2006

(c)

Additions

(b)

As of 10/1/2005

STEWARDSHIP LAND

As of September 30, 2006

(Acres in Thousands)
95

6. RDT&E Sustainment appropriated and actual obligated includes Congressional Marks and does not include

Emergency Hurricane supplemental funding. 

Notes: 

1. RDT&E Sustainment funding obligations and expenditures are not available prior to FY 2004;

appropriation/program element structure did not facilitate an accurate determination of this number. 

The figures presented are actual deferred maintenance amounts for FY 2006.

The figures include Active Air Force, Air National Guard and the Air Force Reserve.

(a) (b)

Major Type

1. Aircraft $30,894 

2. Engines 25,769

3. Missiles

4. Software 97,011

5. Other Major End Items 4,241

6. Non-MSD Exchangeables 980

7. Area Base Maintenance

8. Storage

Total $158,895 

MILITARY EQUIPMENT

DEFERRED MAINTENANCE AMOUNTS

Deferred Maintenance Amounts

As of September 30, 2006 ($ in thousands)

Property Type FY 2003 FY 2004 FY 2005 FY 2006

Buildings, Structures and Utilities 417,112 550,966 590,579 490,482

Annual Deferred Sustainment Trend

2006 Annual Financial Statement
96

United States Air Force

Required Supplemental Information - Part A

AT57 - Air Force General Fund

Schedule, Part A DoD Intragovernmental Asset Balances.

($ in Thousands)

Treasury Index: Fund Balance 

with Treasury

Accounts

Receivable

Loans

Receivable Investments Other

Executive Office of the President 11 $77

Department of Agriculture 12 $807

Department of Commerce 13 $295 $10,447

Department of the Interior 14 $4,326 $117,384

Department of Justice 15 $4,575 $6,224

Department of Labor 16 $43

Navy General Fund 17 $44,066

United States Postal Service 18 $260

Department of State 19 $25,992

Department of the Treasury 20 $68,848,167 $834 $722

Army General Fund 21 $20,239 $660

Office of Personnel Management 24 $111 $57,778

Social Security Administration 28 $1

Library of Congress 3 $7

Nuclear Regulatory Commission 31 $111

Department of Veterans Affairs 36 $511 $273

Government Printing Office 4 $0

General Service Administration 47 $425 $2,954

National Science Foundation 49 $636 $5,411

General Accounting Office 5 $4

Central Intelligence Agency 56 $289

Environmental Protection Agency 68 $37 $9,880

Department of Transportation 69 $286 $1,296

Homeland Security 70 $41,997 $15,552

Agency for International Development 72 $5,606

Small Business Administration 73 $162

Department of Health and Human Services 75 $40

National Aeronautics and Space Administration 80 $11,295 $15,327

National Archives and Records Administration 88 $25

Department of Energy 89 $9,876 $4,412

Department of Education 91 $40

US Army Corps of Engineers 96 $32

Other Defense Organizations General Funds 97 $103,344 $0

Other Defense Organizations Working Capital Funds 97-4930 $320,047 $46,720

Army Working Capital Fund 97-4930.001 $6

Navy Working Capital Fund 97-4930.002 $1,219 $3

Air Force Working Capital Fund 97-4930.003 $68,208 $160,484
97

2006 Annual Financial Statement

Required Supplemental Information - Part B

AT57 - Air Force General Fund

Schedule, Part B DoD Intragovernmental entity liabilities.

($ in Thousands)

Treasury

Index:

 Accounts

 Payable

Debts/Borrowings

From Other Agencies Other

Department of Agriculture 12 $330

Department of Commerce 13 $2,031 $19

Department of the Interior 14 $4,560

Department of Justice 15 $2,598 $8,639

Department of Labor 16 $318,407

Navy General Fund 17 $13,973 $184,167

United States Postal Service 18 $8,717 $1

Department of State 19 $1,641

Department of the Treasury 20 $3,027 $209

Army General Fund 21 $34,964 $56,502

Office of Personnel Management 24 $52,959

Federal Communications Commission 27 $143

Social Security Administration 28 $2

Nuclear Regulatory Commission 31 $60

Department of Veterans Affairs 36 $8,621

General Service Administration 47 $176,672 $24

National Science Foundation 49 $1,902

Tennessee Valley Authority 64 $3,065

Environmental Protection Agency 68 $2,022

Department of Transportation 69 $6,771 $0

Homeland Security 70 $15,670

Agency for International Development 72 $76

Small Business Administration 73 $216

Department of Health and Human Services 75 $430

National Aeronautics and Space Administration 80 $36,346 $14

Department of Energy 89 $26,889 $2,460

Department of Education 91 $83

US Army Corps of Engineers 96 $941

Other Defense Organizations General Funds 97 $11,606 $363,639

Other Defense Organizations Working Capital Funds 97-4930 $707,244 $5,361

Army Working Capital Fund 97-4930.001 $5,039

Navy Working Capital Fund 97-4930.002 $22,079

Air Force Working Capital Fund 97-4930.003 $328,052 $451

The General Fund of the Treasury 99 $1,265,409
98

United States Air Force

Required Supplemental Information - Part E

AT57 - Air Force General Fund

($ in Thousands)

Treasury Index:

Navy General Fund 17 $123

Army General Fund 21 $26,738

US Army Corps of Engineers 96 $0

Other Defense Organizations General Funds 97 $72,335 $0

Other Defense Organizations Working Capital Funds 97-4930 $766

Air Force Working Capital Fund 97-4930.003 $106,784

Transfers In Transfers Out

Required Supplemental Information - Part C

AT57 - Air Force General Fund

Schedule, Part C DoD Intragovernmental revenue and related costs.

($ in Thousands)

Treasury Index: Earned Revenue

Department of Agriculture 12 $2,559

Department of Commerce 13 $899

Department of the Interior 14 $3,888

Department of Justice 15 $34,192

Department of Labor 16 $105

Navy General Fund 17 $152,921

United States Postal Service 18 $5,554

Department of State 19 $44,015

Department of the Treasury 20 $31,866

Army General Fund 21 $147,417

Office of Personnel Management 24 $189

Library of Congress 3 $47

Nuclear Regulatory Commission 31 $187

Department of Veterans Affairs 36 $971

Government Printing Office 4 $2

General Service Administration 47 $1,526

National Science Foundation 49 $57,639

General Accounting Office 5 $31

Central Intelligence Agency 56 $848

Environmental Protection Agency 68 $197

Department of Transportation 69 $3,284

Homeland Security 70 $108,489

Agency for International Development 72 $16,334

Department of Health and Human Services 75 $25

National Aeronautics and Space Administration 80 $71,223

National Archives and Records Administration 88 $500

Department of Energy 89 $39,629

Department of Education 91 $201

US Army Corps of Engineers 96 $1,702

Other Defense Organizations General Funds 97 $1,661,075

Other Defense Organizations Working Capital Funds 97-4930 $1,475,013

Army Working Capital Fund 97-4930.001 $0

Navy Working Capital Fund 97-4930.002 $17,396

Air Force Working Capital Fund 97-4930.003 $355,614

Military Retirement Fund 97-8097 $0

DoD Medicare-Eligible Retiree Health Care Fund $201,012
99

2006 Annual Financial Statement

Audit Opinion

General Fund 
100

United States Air Force
101

2006 Annual Financial Statement
102

United States Air Force
103

2006 Annual Financial Statement
104

United States Air Force
105

2006 Annual Financial Statement
106

United States Air Force
107

2006 Annual Financial Statement

Principal Statements

Working Capital Fund
108

United States Air Force

2006

Consolidated

2005

Consolidated

1. ASSETS (Note 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3)

 a. Entity $ 1,357,976 $ 1,164,223

 b. Nonentity Seized Iraqi Cash 0 0

 c. Nonentity-Other 0 0

 2. Investments (Note 4) 0 0

 3. Accounts Receivable (Note 5) 420,073 510,560

 4. Other Assets (Note 6) 5,218 48,515

 5. Total Intragovernmental Assets $ 1,783,267 $ 1,723,298

 B. Cash and Other Monetary Assets (Note 7) $ 0 $ 0

 C. Accounts Receivable, Net (Note 5) 232,314 219,929

 D. Loans Receivable (Note 8) 0 0

 E. Inventory and Related Property, Net (Note 9) 34,530,876 32,701,689

 F. General Property, Plant and Equipment, Net (Note 10) 1,169,165 1,205,556

 G. Investments (Note 4) 0 0

 H. Other Assets (Note 6) 541,143 440,337

2. TOTAL ASSETS $ 38,256,765 $ 36,290,809

3. LIABILITIES (Note 11)

 A. Intragovernmental:

 1. Accounts Payable (Note 12) $ 171,623 $ 199,650

 2. Debt (Note 13) 0 0

 3. Other Liabilities (Note 15 & 16) 174,216 146,538

 4. Total Intragovernmental Liabilities $ 345,839 $ 346,188

 B. Accounts Payable (Note 12) $ 494,347 $ 546,739

 C. Military Retirement and Other Federal 227,035 233,713

 Employment Benefits (Note 17)

 D. Environmental and Disposal Liabilities (Note 14) 0 0

 E. Loan Guarantee Liability (Note 8) 0 0

 F. Other Liabilities (Note 15 and Note 16) 1,197,430 1,389,331

4. TOTAL LIABILITIES $ 2,264,651 $ 2,515,971

5. NET POSITION

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

 B. Unexpended Appropriations - Other Funds 0 0

 C. Cumulative Results of Operations - Earmarked Funds 0 0

 D. Cumulative Results of Operations - Other Funds 35,992,114 33,774,838

6. TOTAL NET POSITION $ 35,992,114 $ 33,774,838

7. TOTAL LIABILITIES AND NET POSITION $ 38,256,765 $ 36,290,809

Consolidated Balance Sheet—Working Capital Fund

As of September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
109

2006 Annual Financial Statement

2006

Consolidated

2005

Consolidated

1. Program Costs

 A. Gross Costs $ 8,671,960 $ 10,514,194

 B. (Less: Earned Revenue) -10,783,023 -11,414,946

 C. Net Program Costs $ -2,111,063 $ -900,752

2. Cost Not Assigned to Programs 0 0

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

4. Net Cost of Operations $ -2,111,063 $ -900,752

Consolidated Statement of Net Cost—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
110

United States Air Force

Earmarked

Funds

All Other

Funds Eliminations

2006

Consolidated

2005

Consolidated

CUMULATIVE RESULTS OF OPERATIONS

1. Beginning Balances $ 0 $ 33,774,838 $ 0 $ 33,774,838 $ 21,890,390

2. Prior Period Adjustments:

 2a. Changes in accounting principles (+/-) 0 0 0 0 3,632,598

 2b. Corrections of errors (+/-) 0 0 0 0 7,256,576

3. Beginning balances, as adjusted 0 33,774,838 0 33,774,838 32,779,564

4. Budgetary Financing Sources: 00 0 0 0

 4a. Appropriations received 0 0 0 0 0

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

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

 4d. Appropriations used 0 48,389 0 48,389 0

 4e. Nonexchange revenue 0 0 0 0 0

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

 4g. Transfers-in/out without reimbursement (+/-) 0 -106,784 0 -106,784 -73,911

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

5. Other Financing Sources:

 5a. Donations and forfeitures of property 0 0 0 0 0

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

 5c. Imputed financing from costs absorbed by others 0 164,609 0 164,609 168,434

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

6. Total Financing Sources 0 106,214 0 106,214 94,523

7. Net Cost of Operations (+/-) 0 -2,111,062 0 -2,111,062 -900,751

8. Net Change 0 2,217,276 0 2,217,276 995,274

9. Ending Balances $ 0 $ 35,992,114 $ 0 $ 35,992,114 $ 33,774,838

UNEXPENDED APPROPRIATIONS

1. Beginning Balances $ 0$ 0 $ 0 $ 0 $ 0

2. Prior Period Adjustments:

 2a. Changes in accounting principles (+/-) 0 0 0 0 0

 2b. Corrections of errors (+/-) 0 0 0 0 0

3. Beginning balances, as adjusted 00 0 0 0

4. Budgetary Financing Sources:

 4a. Appropriations received 0 48,577 0 48,577 0

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

 4c. Other adjustments (rescissions, etc) (+/-) 0 -188 0 -188 0

 4d. Appropriations used 0 -48,389 0 -48,389 0

 4e. Nonexchange revenue 0 0 0 0 0

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

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

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

5. Other Financing Sources:

 5a. Donations and forfeitures of property 0 0 0 0 0

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

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

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

6. Total Financing Sources 00 0 0 0

7. Net Cost of Operations (+/-) 00 0 0 0

8. Net Change 00 0 0 0

9. Ending Balances $ $ 0 $ 0 0$ 0$ 0

Consolidated Statement of Changes in Net Position—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
111

2006 Annual Financial Statement

2006 

Combined

2005

Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 292,678 $ 134,440

2. Recoveries of prior year unpaid obligations 79,238 4

3. Budget authority

 3a. Appropriation 48,577 0

 3b. Borrowing authority 0 0

 3c. Contract authority 9,857,832 9,744,293

4. Spending authority from offsetting collections

 4a. Earned

 1. Collected 15,953,188 16,559,412

 2. Change in receivables from Federal sources -43,158 50,393

 4b. Change in unfilled customer orders

 1. Advance received 10,419 -121,421

 2. Without advance from Federal sources -936,323 692,744

 4c. Anticipated for rest of year, without advances 0 0

 4d. Previously unavailable 0 0

 4e. Expenditure transfers from trust funds 0 0

 4f. Subtotal 24,890,535 26,925,421

5. Non-expenditure transfers, net, anticipated and actual -106,784 -73,911

6. Temporarily not available pursuant to Public Law 0 0

7. Permanently not available -8,457,316 -10,801,211

8. Total Budgetary Resources $ 16,698,351 $ 16,184,743

Status of Budgetary Resources:

9. Obligations incurred:

 9a. Direct $ 0$ 0

 9b. Reimbursable 15,773,214 15,892,064

 9c. Subtotal 15,773,214 15,892,064

10. Unobligated balance:

 10a. Apportioned 925,137 292,678

 10b. Exempt from apportionment 0 0

 10c. Subtotal 925,137 292,678

11. Unobligated balance not available 0 1

12. Total Status of Budgetary Resources $ 16,698,351 $ 16,184,743

CHANGE IN OBLIGATED BALANCE:

NET OUTLAYS:

13. Obligated balance, Net

 13a. Unpaid obligations, brought forward, October 1 8,621,328 8,980,235

 13b. Less: Uncollected customer payments $ -4,967,392 $ -4,224,253

 from Federal sources, brought forward, October 1

 13c. Total unpaid obligated balance 3,653,936 4,755,982

 13d. Obligations incurred net (+/-) $ 15,773,214 $ 15,892,064

14. Less: Gross outlays -15,711,459 -16,250,968

15. Obligated balance transferred, net

 15a. Actual transfers, unpaid obligations (+/-) 0 0

 15b. Actual transfers, uncollected customer 0 0

 payments from Federal sources (+/-)

16. Total Unpaid obligated balance transferred, net 0 0

17. Less: Recoveries of prior year unpaid obligations, actual -79,238 -4

 Change in uncollected customer 979,482 -743,137

 payments from Federal sources (+/-)

18. Obligated balance, net, end of period

 18a. Unpaid obligations 8,603,843 8,621,328

 18b. Less: Uncollected customer payments

 from Federal sources -3,987,910 -4,967,392

 18c. Total, unpaid obligated balance, net, end of period 4,615,933 3,653,936

19. Net Outlays:

 19a. Gross outlays 15,711,459 16,250,968

 19b. Less: Offsetting collections -15,963,606 -16,437,991

 19c. Less: Distributed Offsetting receipts 0 0

20. Net Outlays $ -252,147 $ -187,023

Combined Statement of Budgetary Resources—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
112

United States Air Force

2006

Consolidated

2005

Consolidated

Resources Used to Finance Activities:

Budgetary Resources Obligated

1. Obligations incurred $ 15,773,214 $ 15,892,064

2. Less: Spending authority from offsetting collections and recoveries -15,063,364 -17,181,132

3. Obligations net of offsetting collections and recoveries 709,850 -1,289,068

4. Less: Offsetting receipts 0 0

5. Net obligations 709,850 -1,289,068

Other Resources

6. Donations and forfeitures of property 0 0

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

8. Imputed financing from costs absorbed by others 164,609 168,434

9. Other (+/-) 0 0

10. Net other resources used to finance activities 164,609 168,434

11. Total resources used to finance activities $ 874,459 $ -1,120,634

 Resources Used to Finance Items not Part of the Net Cost of Operations

12. Change in budgetary resources obligated for goods, services and benefits 

 ordered but not yet provided

 12a. Undelivered Orders (-) -214,214 180,293

 12b. Unfilled Customer Orders -925,904 571,323

13. Resources that fund expenses recognized in prior periods -7,923 -5,775

14. Budgetary offsetting collections and receipts that do not affect net cost of operations 0 0

15. Resources that finance the acquisition of assets -4,988,458 -5,376,780

16. Other resources or adjustments to net obligated resources that do not 

 affect net cost of operations

 16a. Less: Trust or Special Fund Receipts Related to exchange in the Entity's Budget 0 0

 16b. Other (+/-) 0 0

17. Total resources used to finance items not part of the net cost of operations $ -6,136,499 $ -4,630,939

18. Total resources used to finance the net cost of operations $ -5,262,040 $ -5,751,573

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 (-) 6 0

23. Other (+/-) 1,244 5,961

24. Total components of Net Cost of Operations that will require or generate 

 resources in future periods 1,250 5,961

Components not Requiring or Generating Resources:

25. Depreciation and amortization 166,193 190,703

26. Revaluation of assets or liabilities (+/-) 849,401 3,193

27. Other (+/-)

 27a. Trust Fund Exchange Revenue 0 0

 27b. Cost of Goods Sold 5,130,847 5,026,640

 27c. Operating Material & Supplies Used 0 416,094

 27d. Other -2,996,714 -791,770

28. Total components of Net Cost of Operations that will not require or generate resources 3,149,727 4,844,860

29. Total components of net cost of operations that 

 will not require or generate resources in the current period $ 3,150,977 $ 4,850,821

30. Net Cost of Operations $ -2,111,063 $ -900,752

Consolidated Statement of Financing—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
113

2006 Annual Financial Statement

Footnotes to the 

Principal Statements

Working Capital Fund
114

United States Air Force

Note 1. Significant Accounting Policies

1.A. Basis of Presentation 

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

States Air Force Working Capital Fund (AFWCF), as required by the "Chief Financial Officers (CFO) Act of 1990,"

expanded by the "Government Management Reform Act (GMRA) of 1994," and other appropriate legislation.

The financial statements have been prepared from the books and records of AFWCF in accordance with the

"Department of Defense Financial Management Regulation (DoDFMR)," the Office of Management and Budget

(OMB) Circular A-136, Financial Reporting Requirements, and to the extent possible generally accepted accounting principles (GAAP). The accompanying financial statements account for all resources for which AFWCF is

responsible. The AFWCF's financial statements are in addition to the monthly financial reports that are prepared

by the United States Air Force pursuant to OMB directives to monitor and control the Air Force's use of budgetary resources.

The AFWCF is unable to fully implement all elements of GAAP and OMB Circular A-136, due to limitations of

using non-financial feeder systems and processes that feed into the financial statements. The AFWCF derives its

reported values and information for major asset and liability categories largely from non-financial feeder systems,

such as inventory systems and logistic systems. These systems were designed to support reporting requirements

for maintaining accountability over assets and reporting the status of federal appropriations, rather than preparing

financial statements in accordance with GAAP. The AFWCF currently has several material departures from GAAP.

The five primary auditor-identified financial statement material weaknesses are: (1) financial and non-financial

feeder systems do not contain an adequate audit trail for the proprietary and budgetary accounts; (2) the Defense

Finance and Accounting Service (DFAS) cannot accurately identify all intergovernmental transactions by customer,

which is required for eliminations when preparing consolidated financial statements; (3) operating materials and

supplies are not reflected at historical cost; (4) the problem disbursement and in-transit disbursements that have

been reported by a disbursing station to the Department of Treasury have not been precisely matched against

specific source obligations; this condition adversely affects the Balance Sheet line item for fund balance with treasury, and (5) adjustments for undistributed disbursements and collections are not supported at the detail level,

which precludes expressing an opinion on accounts payable and accounts receivable.

The AFWCF continues to implement process and system improvements addressing these limitations, many of

which are detailed below. 

1.B. Mission of the Reporting Entity

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

National Security Act Amendments of 1949 established the Department of Defense (DoD) and made the Air

Force a department within DoD. The overall mission of DoD is to organize, train, and equip armed forces to

deter aggression and, if necessary, defeat aggressors of the United States and its allies. The overall mission of the

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

fly and fight in air, space, and cyberspace. Our priorities are: 1) win the Global War on Terror; 2) develop and

care for our airmen, and 3) modernize and recapitalize our aircraft and equipment.

The stock and industrial revolving fund accounts were created by the National Security Act of 1947, as amended

in 1949 and codified in United States Code 10 USC 2208. The revolving funds were established as a means to
115

more effectively control the cost of work performed by DoD. The DoD began operating under the revolving

fund concept as early as July 1, 1951.

1.C. Appropriations and Funds 

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

deposit funds. The Air Force uses these appropriations and funds to execute mission requirements and report on

resource usage.

Working Capital Funds (WCF) receive their initial funding through an appropriation or a transfer of resources

from existing appropriations or funds and uses those capital resources to finance the initial startup. The WCF

activities provide goods and services to customers on a reimbursable basis. Reimbursable receipts fund ongoing

operations and generally are available in their entirety for use without further congressional action.

Air Force systems are not transaction driven for budgetary accounts. Therefore, in some cases proprietary and

statistical accounts are used to develop the Report on Budget Execution (SF133) and Statement of Budgetary

Resources for reporting budgetary data. 

The FY 2006 AFWCF operations consist of two major activity groups: Supply Management and Depot

Maintenance. Prior to FY 2006, there was a third activity group called Information Services Activity Group

(ISAG). ISAG was removed from the Air Force Working Capital Fund at the end of FY 2005. In FY 2006, the

remaining unfilled customer orders and balance sheet accounts are being liquidated in preparation for account

closure in FY 2007.

Supply Management

The Air Force Stock Funds were established within the DoD under 10 U.S.C. 2208, as described in DoD 7000.14-R,

Financial Management Regulation, to finance supply inventories. The majority of Air Force supply requirements are

financed and managed within the stock fund. Exceptions include an item financed with a procurement appropriation

or when financing by other means has been deemed to be more economical and efficient. A stock fund operates as

a revolving fund replenishing inventories with funds received from sales to customers.

There are four active business activities in the Supply Management Activity Group (SMAG): 1) Materiel Support

Division (MSD); 2) General Support Division (GSD); 3) Medical-Dental Division, and 4) Air Force Academy

Division. The Fuels Division and Troop Support Division were closed prior to FY 2001. The residual accounts for

these two divisions are in the process of being closed by end of FY 2007.

A brief description is provided below for the four active business activities.

Wholesale Supply

• MSD manages over 130 thousand depot-level repairables and consumable items, for which the Air Force is the

Inventory Control Point, which are used to maintain weapon systems.

Retail Supply

• GSD manages over 1.5 million different supply items, which support field and depot maintenance of aircraft,

ground and airborne communication and electronic systems.

• Medical-Dental manages over seven thousand different items, which are used to support medical and dental

supply requirements

• Air Force Academy finances the purchase of uniforms and uniform accessories for sale to cadets.

2006 Annual Financial Statement
116

United States Air Force

Depot Maintenance

The Air Force 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, depot-level

reparables, and software to meet customer demands. Depots have unique skills and equipment required to support and overhaul both new, complex components as well as aging weapon systems. An extremely important

facet of the depots is that during wartime or contingencies, the Air Force can surge repair operations and realign

capacity to support the war-fighters' immediate needs. This is achieved by employing the unique strengths of

organic (in-house) and contracted (contract) repair resources.

Air Force Working Capital Fund Component

The purpose of the Air Force Component Activity is to provide an activity within AFWCF to record transactions

that cannot be identified to a specific business area. The January 21, 1997 memorandum "Policy and Procedures

for Cash Management Working Capital Funds (DWCF)" established the "Component-Level Adjustment" column.

The Component account's primary activities involve fund balance transactions and are minimal in both number of

transaction and dollar values.

Additional Defense Finance and Accounting Service (DFAS)-Arlington memorandums provided specific and

detailed instructions and procedures to maintain accountability for fund balance with treasury. 

Business Operations

Operations of the activities within the AFWCF are based on policies and procedures that include funds management. The AFWCF receives two fund types: operating authority and capital authority. These two fund types are

received on a funding document. 

(1) Operating Authority:

Funding is used for the daily recurring business operating expenses incurred to produce the service or supply

items being demanded. 

(2) Capital Program Authority:

Funding is used to procure investment items. These items are classified into four categories: 1) Equipment; 2)

Software; 3) Hardware, and 4) Minor Construction. Procured items must be greater than $100,000 and provide

more than one year of service. These items are currently depreciated over the expected life of the asset.

All AFWCF groups establish rates and prices for full cost recovery. If an operating loss or gain is incurred, the

activity will make the appropriate adjustment in following year prices to recoup the loss or return the gain to

their customers. 

1.D. Basis of Accounting

For FY 2006, AFWCF's financial management systems are unable to meet all of the requirements for full accrual

accounting. Many of AFWCF's financial and non-financial feeder systems and processes were designed and implemented prior to the issuance of GAAP for federal agencies. These systems were not designed to collect and

record financial information on the full accrual accounting basis as required by GAAP. Most of AFWCF's legacy

systems were designed to record information on a proprietary basis. 
117

The AFWCF has undertaken efforts to determine the actions required to bring its financial and non-financial 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 United States Standard General Ledger (USSGL). Until all of

AFWCF's financial and non-financial feeder systems and processes are updated to collect and report financial

information as required by GAAP, the AFWCF's financial data will be based on budgetary transactions (obligations,

disbursements, and collections), transactions from non-financial feeder systems, and adjustments for known

accruals of major items such as payroll expenses, accounts payable, and environmental liabilities.

In addition, AFWCF identifies program costs based upon the major appropriation groups provided by Congress.

Current processes and systems do not capture and report accumulated costs for major programs based upon the

performance measures as required by the Government Performance and Results Act (GPRA). The AFWCF is in

the process of reviewing available data and attempting to develop a cost reporting methodology that balances the

need for cost information required by the Statement of Federal Financial Accounting Standards (SFFAS) No. 4,

"Managerial Cost Accounting Concepts and Standards for the Federal Government," with the need to keep the

financial statements from being overly voluminous.

1.E. Revenues and Other Financing Sources

Each working capital activity group recognizes revenue in the following manner:

Supply Management

Supply Management activities recognize revenue from the sale of inventory items and receipt of direct reimbursement for the purchase of customer requested initial and readiness spares. Revenue from the sale of inventory is

recognized at the time of sale. Revenue from the receipt of direct reimbursements is recognized upon receipt

from the General Fund. 

Depot Maintenance

Depot Maintenance (Organic) activities recognize revenue according to the percentage of completion method.

Depot Maintenance (Contract) activities recognize revenue based on the number of units produced times the

Unit Sales Price (USP) which is recognized upon completion of the repair. Due to the anticipated closure of contract activity in FY 2010, it is not cost-effective to implement system modifications to support the percentage of

completion method.

The AFWCF does not include non-monetary support provided by U.S. allies for common defense and mutual

security in amounts reported in the Statement of Net Cost and the Statement of Financing. The U.S. has cost

sharing agreements with other countries. Examples include countries where there is a mutual or reciprocal

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

1.F. Recognition of Expenses

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

incurred. However, because the Air Force's financial and non-financial feeder systems were not designed to

collect and record financial information on the full accrual accounting basis, accrual adjustments are made for

major items such as payroll expenses, accounts payable, environmental liabilities, and unbilled revenue. The Air

Force expenditures for capital and other long-term assets are recognized as operating expenses based on

depreciation. In the case of Operating Materials and Supplies (OM&S), operating expenses are generally recog2006 Annual Financial Statement
118

United States Air Force

nized when the items are purchased. Efforts are underway to migrate towards the consumption method for

recognizing OM&S expenses.

Under the accrual method revenues are recognized when earned and expenses are recognized when incurred,

without regard to receipt or payment of cash. Budgetary accounting is accomplished through unique general

ledger accounts to facilitate compliance with legal and internal control requirements associated with the use of

federal funds. In addition to the accrual basis of accounting, Depot Maintenance also uses the full absorption

accounting principal. During FY 1996, the Defense Finance and Accounting Service-Denver Center (DFAS-DE);

Secretary of the Air Force, Deputy Assistant Secretary Budget (SAF/FMB); and the Office of the Secretary of

Defense, Financial Management (OSD/FM) jointly agreed on the use of this principal by Depot Maintenance. This

principal requires that overhead costs, such as depreciation and bad debt expenses, are included in the cost of

services sold. 

1.G. Accounting for Intragovernmental Activities

The Air Force, as an agency of the federal government, interacts with and is dependent upon the financial activities of the federal government as a whole. Therefore, these financial statements do not reflect the results of all

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

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

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

(MRS). Additionally, civilian employees covered by FERS and military personnel covered by MRS receive varying

coverage under Social Security. The AFWCF funds a portion of the civilian and military pensions. Reporting civilian pension information under the CSRS and FERS retirement systems is the responsibility of the Office of

Personnel Management (OPM). The AFWCF recognizes an imputed expense for the portion of civilian employee

pensions and other retirement benefits funded by OPM in the Statement of Net Cost, and recognizes corresponding imputed revenue in the Statement of Changes in Net Position.

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

DoD or between two or more federal agencies. However, AFWCF cannot accurately identify most of its

intragovernmental transactions by customer because the Air Force's systems do not track buyer and seller data

needed to match related transactions. Seller entities within DoD provided summary seller-side balances for revenue, accounts receivable, and unearned revenue to the buyer-side internal DoD accounting offices. In most

cases, the buyer-side records are adjusted to agree with DoD seller-side balances, intra-DoD balances are then

eliminated. The AFWCF properly eliminates the revenue results from intra-DoD sales of capitalized assets. The

DoD is developing long-term system improvements that will include sufficient process checks and controls to

eliminate the need for after-the-fact reconciliations. The volume of intragovernmental transactions is so large that

after-the-fact reconciliation cannot be accomplished effectively with existing or foreseeable resources. 

The Department of the Treasury Financial Management Service (FMS) 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 Treasury's "Federal

Intragovernmental Transactions Accounting Policy Guide," provide guidance for reporting and reconciling intragovernmental balances. While AFWCF is unable to fully reconcile intragovernmental transactions with all federal

partners, AFWCF is able to reconcile balances pertaining to investments in federal securities, borrowings from

the U.S. Treasury and the Federal Financing Bank, Federal Employees' Compensation Act transactions with the

Department of Labor (DOL), and benefit program transactions with the Office of Personnel Management (OPM).
119

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 financial

statements, therefore, do not report any portion of the public debt or interest thereon, nor do the statements

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

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

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

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

1.H. Transactions with Foreign Governments and International Organizations

Each year, AFWCF sells spare parts and maintenance services to foreign governments and international organizations under the provisions of the "Arms Export Control Act of 1976." Under the provisions of the Act, the DoD

has authority to sell defense articles and services to foreign countries and international organizations, generally at

no profit or loss to the U.S. Government. Payment is required in advance. 

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

The AFWCF's monetary financial resources are maintained in U.S. Treasury accounts. The disbursing offices of

DFAS, the Military Services, the U.S. Army Corps of Engineers (USACE), and the Department of State's financial

service centers process the majority of the AFWCF's cash collections, disbursements, and adjustments worldwide. Each disbursing station prepares monthly reports that provide information to the U.S. Treasury on check

issues, electronic fund transfers, interagency transfers, and deposits.

In addition, the DFAS sites and the USACE Finance Center submit reports to the Department of the Treasury, by

appropriation, on interagency transfers, collections received, and disbursements issued. The Department of the

Treasury records this information to the applicable fund balance with treasury (FBWT) account. Differences

between AFWCF's recorded balance in the FBWT accounts and Treasury's FBWT accounts sometimes result and

are subsequently reconciled. 

1.J. Foreign Currency

Not applicable.

1.K. Accounts Receivable

As presented on the Balance Sheet, accounts receivable includes accounts receivable, claims receivable, 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 (per Code of Federal Regulations 4 CFR 101). 

The AFWCF maintains an aging schedule of receivables. Aging allows for the management of collection action.

The receivables are considered delinquent if not received within 30 days from date of invoice or notice of payment due, unless different terms are specified by contract or other agreements. Interest, penalty and administrative charges are calculated on delinquent accounts from the public in accordance with 31 USC 3717. Allowances

for uncollectible accounts due from the public are based upon analysis of collection experience by fund type.

2006 Annual Financial Statement
120

United States Air Force

1.L. Direct Loans and Loan Guarantees

Not applicable.

1.M. Inventories and Related Property

Inventory for AFWCF is all held in SMAG except for work-in-process inventory, which is in the Depot

Management Activity Group. Prior to FY 2004, SMAG inventory was reported at approximate historical cost

based on Latest Acquisition Cost (LAC), adjusted for holding gains and losses. During FY 2004 and 2005, 99% of

SMAG inventory changed from the LAC method to the Moving Average Cost (MAC) method of valuation. This

allowed SMAG to comply with the SFFAS No. 3, "Accounting for Inventory and Related Property," for that percentage of the inventory. The conversion to MAC included programming changes for the SMAG accounting system to convert from the Air Force General Ledger (AFGL) to the USSGL for supply accounting. 

Under the LAC method of inventory valuation, gains and losses resulting from valuation changes for inventory

items were recognized and reported in the Statement of Net Cost and included in the calculation of cost of

goods sold. To calculate the allowances for gain or loss on inventories, DFAS-DE prepared an inventory worksheet monthly for each fund code within SMAG. SFFAS No. 3, "Accounting for Inventory and Related Property,"

directs that using a historical cost valuation method does not require an allowance for holding gains and losses.

Additionally, SFFAS No. 3 provides for either the direct or allowance method to be used in valuing inventory held

for repair. Therefore, the change to a historical costing method also included the elimination of the allowance for

holding gains and losses, revaluation of all inventories to a historical basis, and the creation of an allowance for

repairs. The implementation of MAC for SMAG inventories in FY 2004 and 2005 eliminated the need for the

gains and losses allowance account for that portion of the inventory and has been credited against a prior period.

Inventory held for repair is now valued at MAC, with an allowance for repair equal to the latest repair cost, to

account for spares requiring repair.

The AFWCF manages only military or government specific materiel under normal conditions. Items commonly

used that are available from the commercial sector are not managed in AFWCF materiel management activities.

Operational cycles are irregular, and the military risks associated with stock-out positions have no commercial

parallel. The AFWCF holds materiel based on military need and support for contingencies. Therefore, DoD

does not attempt to account separately for "inventory held for sale" and "inventory held in reserve for future sale"

based on SFFAS No. 3 definitions.

Related property includes operating materials and supplies (OM&S). The OM&S are valued at standard purchase

price. The DoD 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, AFWCF uses the purchase method. Under this method, materials and supplies are

expensed when purchased. The AFWCF expenses significant amounts using the purchase method because the

systems could not support the consumption method or management deemed that the item was in the hands of

the end user.

The AFWCF determined that the recurring high dollar value of OM&S in need of repair is material to the financial

statements and requires a separate reporting category. Many high-dollar items, such as aircraft engines, are categorized as OM&S rather than military equipment.
121

The AFWCF recognizes condemned material as "Excess, Obsolete, and Unserviceable." The cost of disposal is

greater than the potential scrap value; therefore, the net value of condemned material is zero. Potentially redistributed material, presented in previous years as "Excess, Obsolete, and Unserviceable," is included in the "Held

for Use" or "Held for Repair" categories according to its condition. 

Past audits identified uncertainties about completeness and existence of reported values of inventory. Inventory

available and purchased for resale includes consumable spare and reparable items owned and managed by

AFWCF. This inventory is retained to support military or national contingencies. Inventory held for repair is

damaged inventory that requires repair to make suitable for sale. It is more economical to repair than to procure

these inventory items. Because AFWCF often relies on weapon systems and machinery that are no longer in production, AFWCF supports a process that encourages the repair and rebuilding of certain items. This repair cycle

is essential in maintaining a ready, mobile, and armed military force. Work in process balances include costs related to the production or servicing of items, including direct material, direct labor, applied overhead, and other

direct costs. Work in process also includes the value of finished products or completed services pending the submission of bills to the customer. The work in process designation may also be used to accumulate the amount

paid to a contractor under cost reimbursable contracts, including the amount withheld from payment to ensure

performance, and the amount paid to other government plants for accrued costs of end items of material

ordered but not delivered. Depot maintenance work in process includes 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 Department is moving away from a standard capitalization threshold for all categories (e.g. real property, military equipment, etc.) of General Property, Plant and Equipment (PP&E) to one that is specific for each individual

category. The Under Secretary of Defense Comptroller issued a memorandum dated March 13, 2006 regarding a

"Capitalization Threshold Policy for Real Property". This memorandum revised the Department's capitalization

threshold from $100,000 to $20,000 in order to meet the Department's audit readiness objective to capitalize

99% of all real property expenses. All entities are required to update records and fully implement the new policy

no later than March 31, 2008. The AFWCF is in the process of implementing this revised policy. The PP&E

assets are capitalized at historical acquisition cost plus capitalized improvements when an asset has a useful life of

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

also requires capitalization of improvements over DoD capitalization threshold of $100,000 for PP&E. The DoD

depreciates all PP&E, other than land, on a straight-line basis. Minor construction projects that cost $100,000 or

more, but less than $300,000, are funded through a separate section of the capital budget, and depreciated over a

20-year period. 

Prior to FY 1996, General PP&E was capitalized if it had an acquisition cost of $15,000, $25,000, and $50,000

for FY 1993, 1994, and 1995, respectively, and an estimated useful life of two or more years. General PP&E

previously capitalized at amounts below $100,000 were written off General Fund financial statements in FY

1998. No adjustment was made for WCF assets. These assets remain capitalized and reported on WCF financial statements. 

2006 Annual Financial Statement
122

United States Air Force

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

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

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

exceeds the DoD capitalization threshold, it must be reported on the Air Force's Balance Sheet. 

The DoD is developing new policies and a contractor reporting process that will provide appropriate General

PP&E information for future financial statement reporting purposes. Accordingly, the Air Force reports only government property in the possession of contractors that is maintained in the Air Force's property systems. The

DoD has issued new property accountability and reporting requirements that require Air Force components to

maintain, in their property systems, information on all property furnished to contractors. This action and other

DoD-proposed actions are structured to capture and report the information necessary for compliance with

Federal accounting standards.

1.P. Advances and Prepayments

The AFWCF records payments in advance of the receipt of goods and services as advances or prepayments and

reports them as assets on the Balance Sheet. The AFWCF recognizes advances and prepayments as expenses

when it receives the related goods and services.

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

contract financing payments, that are not reported elsewhere on the Department's Balance Sheet. 

Contract financing payments are defined in the Federal Acquisition Regulations (FAR), Part 32, as authorized disbursements of monies to a contractor prior to acceptance of supplies or services by the Government. These

payments are designed to alleviate the potential financial burden on contractors performing on certain long-term

contracts and facilitate competition for defense contracts. Contract financing payments clauses are incorporated

in the contract terms and conditions and may include advance payments, performance-based payments, commercial advance and interim payments, progress payments based on cost, and interim payments under certain costreimbursement contracts. Contract financing payments do not include invoice payments, payments for partial

deliveries, lease and rental payments, or progress payments based on a percentage or stage of completion, which

the Defense Federal Acquisitions Regulations Supplement (DFARS) 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 in Note 10.

The Federal Acquisition Regulation allows the AFWCF to make financing payments under fixed price contracts.

The AFWCF reports these financing payments as "Other Assets" because AFWCF becomes liable only after the

contractor delivers the goods in conformance with the contract terms. If the contractor does not deliver a satisfactory product, AFWCF is not obligated to reimburse the contractor for its costs and the contractor is liable to

repay AFWCF for the full amount of the advance.
123

1.S. Contingencies and Other Liabilities 

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

"Recognition of Contingent Liabilities Arising from Litigation," defines a contingency as an existing condition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss. The uncertainty will be

resolved when one or more future events occur or fail to occur. The AFWCF recognizes contingent liabilities

when past events or exchange transactions occur, a future loss is probable, and the loss amount can be reasonably

estimated.

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

there is at least a reasonable possibility of incurring a loss or additional losses. Examples of loss contingencies

include the collectibility of receivables, pending or threatened litigation, and possible claims and assessments. The

AFWCF's loss contingencies arise as a result of pending or threatened litigation or claims and assessments that

occur 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 liabilities civilian annual leave and military leave that has been accrued and not used as of

the Balance Sheet date. The liability reported at the end of the accounting period reflects the current pay rates. 

1.U. Net Position

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

Unexpended appropriations represent 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 financing sources (including appropriations, revenue, and gains). Beginning with FY 1998, the

cumulative results also include donations and transfer in and out of assets without reimbursement.

1.V. Treaties for Use of Foreign Bases 

The AFWCF has the use of the land, building, and other overseas facilities that are obtained through various international treaties and agreements negotiated by the Department of State. The AFWCF purchases capital assets

overseas with appropriated funds; however, the host country retains title to land and improvements. Generally,

treaty terms allow AFWCF 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 non-retrievable capital assets. This takes place after negotiations between the U.S. and the host

country have determined the amount to be paid the U.S. for such capital investments. 

1.W. Comparative Data 

Financial statement fluctuations greater than 2% of total assets on the Balance Sheet or 10% from the previous

period presented are explained within the notes to the financial statements.

2006 Annual Financial Statement
124

United States Air Force

1.X. Unexpended Obligations 

The AFWCF obligates funds to provide goods and services for outstanding orders not yet delivered. The financial

statements do not reflect this liability for payment for goods and services not yet delivered. 

1.Y. Undistributed Disbursements and Collections 

Undistributed disbursements and collections represent the difference between disbursements and collections

matched at the transaction level to a specific obligation, payable, or receivable in the activity field records as

opposed to those reported by the U.S. Treasury. These amounts should agree with the undistributed amounts

reported on the departmental accounting reports. In-transit payments are those payments that have been made

to other agencies or entities that have not been recorded in their 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 federal and nonfederal accounts payable and accounts receivable.

Unsupported undistributed disbursements are recorded in accounts payable. Unsupported undistributed collections are recorded in other liabilities. The AFWCF follows this procedure.

Note 2. Nonentity Assets

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 Air Force is authorized to decide how to use resources in entity

accounts. The Air Force may be legally obligated to use these resources to meet entity obligations. Nonentity

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

The Air Force Working Capital Fund has no Nonentity Assets.

As of September 30

($ 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 $ 38,256,765 $ 36,290,809

5. Total Assets $ 38,256,765 $ 36,290,809

2006 2005
125

Note 3. Fund Balance with Treasury

The reconciling amount on line 3 above represents $23.0 million for the United States Transportation Command

(USTC), which is reported at the Department of the Treasury as part of the Air Force Working Capital Fund

(AFWCF). However, for the purposes of Audited Financial Statements (AFS), USTC is included with the Other

Defense Organizations (ODO) reporting, which is separate from the AFWCF. Therefore, USTC cash is not

included on the AFWCF AFS statements.

Fluctuations

The $193.8 million (17%) increase in the Fund Balance with Treasury (FBWT) is primarily due to a $181.0 million

increase in the Organic Depot Maintenance Activity Group (DMAG). All three of the Air Logistic Centers (ALC)

contributed to this increase and the details are as follows:

Organic DMAG at Warner Robins Air Logistic Center had a $84.7 million increase in FBWT due to a 4% increase

in customer orders during FY 2006. 

Organic DMAG at Oklahoma City Air Logistic Center had a $56.5 million increase in FBWT due to decreased

material consumption during FY 2006. Material costs were substantially below forecast due to decreased material being used in engine repair activities. 

Organic DMAG at Ogden Air Logistic Center had a $39.8 million increase in FBWT due to changes in workload

during FY 2006. This change in workload caused a decrease in the material required for missile repair. 

Status of Fund Balance with Treasury

($ in thousands)

1. Unobligated Balance

 A. Available $ 925,139 $ 292,680

 B. Unavailable 0 0

2. Obligated Balance not yet Disbursed $ 8,603,843 $ 8,621,327

3. Non-budgetary FBWT $ 0 $ 0

4. Non-FBWT Budgetary Accounts $ -8,171,006 $ -7,749,784

5. Total $ 1,357,976 $ 1,164,223

As of September 30 2006 2005

As of September 30

($ in thousands)

1. Fund Balances

 A. Appropriated Funds $ 0 $ 0

 B. Revolving Funds 1,357,976 1,164,223

 C. Trust Funds 0 0

 D. Special Funds 0 0

 E. Other Fund Types 0 0

 F. Total Fund Balances $ 1,357,976 $ 1,164,223

2. Fund Balances Per Treasury Versus Agency

 A. Fund Balance per Treasury $ 1,380,931 $ 1,038,596

 B. Fund Balance per AFWCF 1,357,976 1,164,223

3. Reconciling Amount $ 22,955 $ -125,627

2006 2005

2006 Annual Financial Statement
126

United States Air Force

Fluctuations

The $632.5 million (316%) increase in the Available Unobligated Balance is a result of DMAG operations which

generated resources in excess of the liabilities. The cash increase was described above. In addition, Contract

DMAG had a concerted effort to clean up accrued liabilities, further improving the available resource balance.

The $193.8 million (17%) increase in the total Status of Fund Balance with Treasury is the result of an increase in

resources in DMAG. This increase can be attributed to the increase in cash discussed above. 

Status of Fund Balance with Treasury consists of unobligated and obligated balances. These balances reflect the

budgetary authority remaining for disbursements against current or future obligations. In addition, the status

includes various accounts that affect either budgetary reporting or Fund Balance with Treasury, but not both. 

Unobligated Balance represents the cumulative amount of budgetary authority that has not been set aside to

cover outstanding obligations. Unobligated Balance is classified as available or unavailable and is associated with

appropriations expiring at fiscal year end that remain available only for obligation adjustments until the account is

closed. There are no restrictions on the Unobligated Balance.

Obligated Balance not yet Disbursed represents funds that have been obligated for goods that have not been

received or services that have not been performed. 

Non-Budgetary Fund Balance with Treasury (FBWT) includes entity and nonentity Fund Balance with Treasury

accounts which do not have budgetary authority, such as unavailable receipt accounts or clearing accounts. 

Non-FBWT Budgetary Accounts include budgetary accounts that do not affect Fund Balance with Treasury, such

as contract authority, borrowing authority and investment accounts. This category reduces the Status of Fund

Balance with Treasury.

Disclosures Related to Suspense/Budget Clearing Accounts

Disclosures Related to Problem Disbursements and In-Transit Disbursements

As of September 30

($ in thousands)

 1. Total Problem Disbursements, Absolute Value

 A. Unmatched Disbursements (UMDs) $ 4,713 $ 60,443 $ 8,377 $

 B. Negative Unliquidated Obligations (NULO) 4,255 2,405 717

 2. Total In-transit Disbursements, Net $ 415,522 $ 346,640 $ 189,863 $

FY 2005 to 2006

2004 2005 2006

(Decrease)/

Increase from 

-156,777

-52,066

-1,688

($ in thousands)

Account

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

F3875 – Disbursing Officer Suspense 00 0

F3880 – Lost or Cancelled Treasury Checks 00 0

F3882 – Uniformed Services Thrift Savings Plan Suspense 00 0

F3885 – Interfund/IPAC Suspense 00 0

F3886 – Thrift Savings Plan Suspense 00 0

Total $ 0 $ 0 $ 0$

0

0

0

0

0

0

0

2005 2006 As of September 30 2004

(Decrease)/

Increase from 

FY 2005 - 2006
127

A UMD occurs when a payment is not matched to a corresponding obligation in the accounting system. Absolute

value is the sum of the positive values of debit and credit transactions without regard to the sign (plus or minus).

A NULO occurs when a payment is made against a valid obligation, but the payment is greater than the amount

of the obligation recorded in the official accounting system. These payments have been made using available

funds and are based on valid receiving reports for goods and services delivered under valid contracts.

The In-transit Disbursements, Net represent the net value of disbursements and collections made by a DOD disbursing activity on behalf of an accountable activity and have not been posted to the accounting system.

Fluctuations

The AFWCF had a $53.8 million decrease in problem disbursements and a $156.8 million decrease in in-transits.

The decrease in in-transits of $156.8 million can be attributed to an accounting station merger which reduced

intraservice (Air Force to Air Force) disbursement activity.

The decrease of $52.1 million in UMDs and the $1.7 million in NULOs can be attributed to a 25% increase in the

rate of automated posting of disbursements since May 2005 when various system enhancements (e.g. DFAS

Transaction Interface Module) were implemented. During implementation phase in FY 2005, a backlog developed

compared to FY 2004.

The AFWCF has no problem disbursements related to Foreign Military Sales. In addition, there are no discrepancies between the amounts reported and the problem disbursement metric.

Note 4. Investments and Related Interest

Not Applicable.

Note 5. Accounts Receivable

Fluctuations

The Air Force Working Capital Fund (AFWCF) had a $90.5 million (18%) decrease in Intragovernmental

Receivables. Of the decrease, $65.4 million is due to Information Services Activity Group discontinuing operations in September 2005. During FY 2006, remaining unfilled customer orders and balance sheet accounts are

being liquidated in preparation for account closure in FY 2007.

($ in thousands)

1. Intragovernmental Receivables $ 420,073 N/A $ 420,073 $ 510,560

2. Nonfederal Receivables (From the Public) $ 232,314 $ 0 $ 232,314 $ 219,929

3. Total Accounts Receivable $ 652,387 $ 0 $ 652,387 $ 730,489

As of September 30 2006 2005

Gross Amount 

Due

Allowance For 

Estimated 

Uncollectibles

Accounts 

Receivable, Net

Accounts 

Receivable, Net

2006 Annual Financial Statement
128

United States Air Force

Information Related to Accounts Receivables

Allocation of Undistributed Collections

The Department of Defense (DoD) policy is to allocate supported undistributed collections between federal and

nonfederal categories based on the percentage of federal and nonfederal accounts receivable. Unsupported

undistributed collections are recorded in United States Standard General Ledger (USSGL) account 2400, Liability

For Deposit Funds, Clearing Accounts, and Undeposited Collections. The AFWCF followed this allocation procedure, applying $467.3 thousand in undistributed collections to accounts receivable and recording $805.7 thousand

of unsupported undistributed to USSGL account 2400.

Elimination Adjustments

Accounts receivable within the AFWCF have been eliminated for statement presentation purposes. The total

value of the receivables that were eliminated on these financial statements is $312.6 million.

Aged Accounts Receivable

The AFWCF currently has no nondelinquent receivables over 30 days. The FY 2005 noncurrent amount was

reported in error and should have been included with delinquent receivables.

Delinquent accounts receivables are referred to either Columbus Contract Debt Collection Office or the Defense

Debt Management System at the Defense Finance and Accounting Service - Denver for collection action.

($ in thousands)

CATEGORY

Nondelinquent

 Current $ 727,179 $ 220,312 $ 838,289 $ 205,913

 Noncurrent 0 0 138 0

Delinquent

 1 to 30 days $ 624 $ 436 $ -797 $ 372

 31 to 60 days 2,353 264 343 366

 61 to 90 days 2,323 936 -304 181

 91 to 180 days -521 718 741 556

 181 days to 1 year 129 3,656 -44 9,116

 Greater than 1 year and less 

 than or equal to 2 years

 Greater than 2 years and less

 than or equal to 6 years

 Greater than 6 years and less

 than or equal to 10 years

 Greater than 10 years 0 3 0 3

Subtotal $ 733,123 $ 232,375 $ 842,928 $ 219,661

 Less Supported Undistributed Collections -467 0 332 277

 Less Eliminations -312,643 0 -332,709 0

 Less Other 60 -61 9 -9

Total $ 420,073 $ 232,314 $ 510,560 $ 219,929

2006 2005

Intragovernmental Nonfederal Intragovernmental Nonfederal

1,023 5,274 4,556 2,224

13 651 6 799

0 125 0 131

As of September 30
129

All abnormal amounts in the above schedule are due to accounting posting errors in accounts receivable subsidiary ledgers. All prior year errors have been corrected and the $520.5 thousand in the 91-180 day category

was corrected in October 2006.

The "Other" Line represents intragovernmental receivables that were incorrectly reported on the monthly report

on receivables as public.

Note 6. Other Assets

Fluctuations and Abnormalities

Intragovernmental other assets 

The $43.3 million (89%) decrease to Intragovernmental Other Assets is primarily due to an advance that was

recorded in error in September 2005. The Air Force General Fund recorded an advance from Depot

Maintenance Activity Group (DMAG) for $47.9 million. The correction was processed and the advance was

reversed in the Air Force Working Capital Fund (AFWCF) in October 2005.

Nonfederal other assets 

Nonfederal Other Assets increased $100.8 million (23%). Outstanding Contract Financing Payments increased

$177.5 million which was offset by a decrease in Other Assets (With the Public) of $76.6 million.

Contract terms and conditions for certain types of contract financing payments convey certain rights to the

Department that protect the contract work from state or local taxation, liens or attachment by the contractor's

creditors, transfer of property, or disposition in bankruptcy; however, these rights should not be misconstrued to

mean that ownership of the contractor's work has transferred to the Government. The government does not

have the right to take the work, except as provided in contract clauses related to termination or acceptance, and

the Department is not obligated to make payment to the contractor until delivery and acceptance of a satisfactory

product. 

Outstanding Contract Financing Payments increased $177.5 million. The contract financing payment balance of

$177.5 million is comprised of $139.8 million in contract financing payments and an additional $37.7 million in

estimated future funded payments that will be paid to the contractor upon future delivery and Government

acceptance of a satisfactory product (See additional discussion in Note 15, Other Liabilities). 

The increase of $139.8 million is due to a reclassification of other assets that occurred for the first time in the

2nd Quarter, FY 2006. A portion of the AFWCF advances were determined to be financing payments on long

As of September 30

($ in thousands)

1. Intragovernmental Other Assets

 A. Advances and Prepayments $ 5,218 $ 48,515

 B. Other Assets 0 0

 C. Total Intragovernmental Other Assets $ 5,218 $ 48,515

2. Nonfederal Other Assets

 A. Outstanding Contract Financing Payments $ 177,481 $ 0

 B. Other Assets (With the Public) 363,662 440,337

 C. Total Nonfederal Other Assets $ 541,143 $ 440,337

3. Total Other Assets $ 546,361 $ 488,852

2006 2005

2006 Annual Financial Statement
130

United States Air Force

term contracts. For reporting periods prior to 2nd Quarter, 2006 they were reflected as Other Assets (With

the Public). The $37.7 million increase in estimated future funded payments is due to guidance issued in the

4th Quarter 2006, by the Office of the Under Secretary of Defense, Comptroller to recognize a contingent liability for the estimated future contract financing payments that will be paid to the contractor upon delivery 

and Government acceptance of a satisfactory product. Based on the new requirement, there was no accrual

for FY 2005.

Other Assets (With the Public) had a decrease of $76.6 million, which is the result of three events. The composition of Other Assets (With the Public) is reflected in the schedule below.

Line 2.B. Nonfederal Other Assets - Other Assets (With the Public)

The first event is an increase of $65.0 million in the Supply Management Activity Group (SMAG) advances to contractors for intransit inventory. This increase is the result of a systematic issue within the Financial Inventory

Accounting and Billing System (FIABS). When FIABS was converted to Standard General Ledger Programming in

October of 2003, intransit inventory was split so that the portion of inventory that had already been billed but not

received was recorded as an advance to contractors. The advances values have been slowly increasing since

October 2004, and it is believed that the system is not computing and updating the billed not received values correctly. To properly identify the valid amounts, hard copy source documents are being reconciled with an expected completion date of 1st Quarter, FY 2007. 

The second event is the reclassification of contract financing payments as discussed in the table on page 1, Line

2A under Non Federal Other Assets. This reclassification resulted in a decrease of $167.9 million, which was the

4th Quarter, FY 2005 outstanding advances amounts. 

The third event is an increase of $25.1 million in SMAG returns awaiting the vendor to process a credit. The main

contributor to this increase was shipments not credited for the Material Support Division in the amount of $27.7 million. Prior to FY 2006 these could not be validated due to the limited availability of transaction level detail. In 1st

Quarter, FY 2006 a reconciliation/validation tool was implemented resulting in accurate balances in FY 2006.

Note 7. Cash and Other Monetary Assets

Not Applicable.

Types of Asset

As of September 30

($ in thousands)

2006 2005

Advances - 

 SMAG - Advances and Prepayments to Contractors $214,798 $149,759 

 SMAG – Contract Financing Payments 0 167,896

Total Advances 214,798 317,655

Other Assets - 

 SMAG - Other assets returns to vendors pending credit 147,218 122,167

 DMAG – Unallocated labor and materials 1,646 515

Total Other Assets 148,864 122,682

Total Nonfederal Other Assets $363,662 $440,337 
131

Note 8. Direct Loan and/or Loan Guarantee Programs

Direct Loan and/or Loan Guarantee Programs - The entity operates the following direct loan and/or 

Loan guarantee program(s):

Military Housing Privatization Initiative

Armament Retooling & Manufacturing Support Initiative

Note 9. Inventory and Related Property

Inventory, Net

Fluctuations

Net Inventory increased $1.9 billion (6%) primarily due to a $1.0 billion increase in the Material Support Division

(MSD) and a $673.6 million increase in the General Support Division (GSD) within the Supply Management

Activity Group. 

Available and purchase for resale increased $1.3 billion primarily due to MSD physical inventory counts and GSD

reconciling inventory transfers between storage facilities. During 2006, physical inventory counts and inspections

identified $410 million of MSD inventory not recorded in accounting records. Due to a significant decrease in

GSD's inventory value when compared to FY 2004, a reconciliation of inventory transfers between storage facilities was conducted in FY 2006. The analysis determined inventory transfers were being adjusted incorrectly

resulting in $660 million of inventory not being recorded. In August 2006, the reconciliation was completed and a

journal voucher was processed to correct the value of GSD inventory.

($ in thousands)

1. Inventory Categories

 A. Available and Purchased for Resale $ 23,973,248 $ -9,942 $ 23,963,306 $ 22,702,208 LAC, MAC

 B. Held for Repair 14,131,014 -4,222,717 9,908,297 9,372,433 LAC, MAC

 C. Excess, Obsolete, and Unserviceable 826,866 -826,866 0 0 NRV

 D. Raw Materials 0 0 0 0 MAC, SP, LAC

 E. Work in Process 298,945 0 298,945 244,416 AC

F. Total $ 39,230,073 $ -5,059,525 $ 34,170,548 $ 32,319,057

2006 2005

Inventory,

Net

Inventory,

Net

Revaluation

Allowance

MAC = Moving Average Cost

SP = Standard Price

AC = Actual Cost

Legend for Valuation Methods: Legend for Valuation Methods:

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

O = Other

Valuation

Method

Inventory, 

Gross Value

As of September 30

As of September 30

($ in thousands)

1. Inventory, Net $ 34,170,548 $ 32,319,057

2. Operating Materials & Supplies, Net 360,328 382,632

3. Stockpile Materials, Net 0 0

4. Total $ 34,530,876 $ 32,701,689

2006 2005

2006 Annual Financial Statement
132

United States Air Force

Held for repair increased $535.9 million due to MSD physical inventory counts and spare parts being pulled from

retired aircraft in FY 2006. The physical inventory counts and inspections identified $295 million of inventory not

recorded in accounting records. Parts reclamation was conducted on retired C-5 aircraft, effectively returning

$236 million of parts to inventory.

The Depot Maintenance Activity Group (DMAG) increased $54.5 million in Work in Progress (WIP). In FY 2006,

Contract DMAG had a $44 million increase in WIP due to ongoing reconciliation efforts to accurately reflect

account balances in preparation for Contract DMAG closure in FY 2010.

There are no restrictions on the use, sale, or disposition of inventory except in the following situations: 

1) Distributions without reimbursement are made when authorized by Department of Defense (DoD) directives.

2) War Reserve Material includes fuels and subsistence items that are considered restricted.

3) Inventory, with the exception of safety stocks, may be sold to foreign, state and local governments, private parties, and contractors in accordance with current policies and guidance or at the direction of the President.

Definitions

Inventory available and purchased for resale includes consumable spare and repair parts as well as repairable

items owned and managed by the Department. Material available and purchased for resale includes material held

due to a managerial determination that it should be retained to support military or national contingencies. 

Inventory held for repair is damaged inventory that requires repair to make it suitable for sale. Many of the inventory

items are more economical to repair than to procure. In addition, because the Department often relies on weapon

systems and machinery no longer in production, the Department supports a process that encourages the repair and

rebuilding of certain items. This repair cycle is essential to maintaining a ready, mobile, and armed military force.

Excess, obsolete, and unserviceable inventory consists of scrap materials or items that cannot be economically

repaired and are awaiting disposal. Potentially reusable material, presented in previous years as excess, obsolete,

and unserviceable, is included in the held for use or held for repair categories, according to its condition.

Work in process balances include costs related to the production or servicing of items, including direct material,

direct labor, applied overhead, and other direct costs. Work in process also includes the value of finished products or completed services pending the submission of bills to the customer. The work in process designation may

also be used to accumulate the amount paid to a contractor under cost-reimbursable contracts, including the

amount withheld from payment to ensure performance and the amount paid to other government plants for

accrued costs of end-items of material ordered but not delivered.

General Composition of Inventory

Inventory includes spare and repair parts, clothing and textiles, fuels, and ammunition. Inventory is tangible personal property that is (1) held for sale or held for repair for eventual sale, (2) in the process of production for

sale, or (3) to be consumed in the production of goods for sale or in the provision of services for a fee. 

The category inventory held for repair consists of damaged material that requires repair to make it usable.

Excess inventory is condemned material that must be retained for management purposes. The category held for

sale includes all issuable material. The category held for repair includes all economically reparable material. Work

in process includes depot maintenance work with its associated labor, applied overhead, and supplies used in the

delivery of maintenance services. The U.S. Standard General Ledger does not include a separate work in process
133

account unrelated to sales. Inventory is assigned to categories based on guidance in the DoD Financial

Management Regulation, Volume 11B.

Operating Materials and Supplies, Net

General Composition of Operating Materials and Supplies

OM&S include spare and repair parts. The OM&S data reported on the financial statements are derived from

logistics systems designed for material management purposes, i.e. accountability and visibility. The reported balances from these systems are not recorded at historical cost, in conformance with the valuation requirements in

the Statement of Federal Financial Accounting Standard (SFFAS) No. 3, "Accounting for Inventory and Related

Property." Instead, the Air Force uses standard price to value OM&S without computing unrealized holding gains

or losses. Furthermore, past audit results have led to uncertainties pertaining to the completeness and existence

of the OM&S quantities used to derive the balances reported in the financial statements.

For the most part, DMAG uses the consumption method of accounting for OM&S, since OM&S is defined in the

SFFAS No. 3 as material which has not yet been issued to the end user. Once issued, the material is expensed.

As stated above, current financial and logistics systems cannot fully support the consumption method. According

to federal accounting standards, the consumption method of accounting should be used to account for OM&S

unless (1) the amount of OM&S is not significant, (2) OM&S are in the hands of the end user for use in normal

operations, or (3) it is cost-beneficial to expense OM&S when purchased (purchase method). The DoD, in consultation with its auditors, is (1) developing specific criteria for determining when OM&S amounts are not significant for the purpose of using the consumption method, (2) developing functional requirements for feeder systems

to support the consumption method, (3) identifying feeder systems that are used to manage OM&S items, and (4)

developing plans to revise those systems to support the consumption method. The department reported significant amounts using the purchase method either because the systems could not support the consumption method

or because management deems that the item is in the hands of the end user.

There are no restrictions on the use of OM&S.

As of September 30

($ in thousands)

1. OM&S Categories

 A. Held for Use $ 360,328 $ 0 $ 360,328 $ 382,632 SP, LAC

 B. Held for Repair 0 0 0 0 SP, LAC

 C. Excess, Obsolete, and Unserviceable 0 0 0 0 NRV

 D. Total $ 360,328 $ 0 $ 360,328 $ 382,632

SP = Standard Price O = Other

AC = Actual Cost

Legend for Valuation Methods:

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

Valuation 

Method

2006 2005

OM&S

Gross Value

Revaluation 

Allowance OM&S, Net OM&S, Net

2006 Annual Financial Statement
134

United States Air Force

Stockpile Materials, Net

The Air Force Working Capital Fund has no Stockpile Materials.

Note 10. General PP&E, Net

Information Related to General PP&E, Net

Real property reported by the Automated Civil Engineering System (ACES), equipment reported by the Air

Force Equipment Management System (AFEMS) and Information Processing Management System (IPMS) have

not been validated and reconciled. The Depot Maintenance Air Logistic Centers (ALC) and Aerospace

Maintenance and Regeneration Center (AMARC) use ACES to capture the costs of real property based on preponderance of use for each building. The ALC's and AMARC use the straight-line method for recording depreciation maintained on spreadsheets in place of the ACES schedule. The accounting entries are recorded directly

into the field-level trial balances. 

The value of Air Force General PP&E in the possession of contractors is included in the value reported above for

the Major Asset Classes of Land and Buildings, Structures, and Facilities. The value of General PP&E (Major Asset

Classes of Software and Equipment) does not include all of the General PP&E in the possession of contractors

that is above the Department of Defense (DoD) capitalization threshold. The net book amount of such property

is immaterial in relation to the total General PP&E net book value. In accordance with a strategy approved by the

Office of Management and Budget, the Government Accountability Office, and the DoD Inspector General, DoD

($ 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 40 896,080 $ -577,350 318,730 313,956

 C. Leasehold Improvements S/L lease term 0 0 0 0

 D. Software S/L 2-5 or 10 1,045,037 -739,755 305,282 342,075

 E. General Equipment S/L 5 or 10 2,081,890 -1,579,536 502,354 511,315

 F. Military Equipment S/L Various 0 0 0 0

 G. Assets Under Capital Lease S/L lease term 0 0 0 0

 H. Construction-in-Progress N/A N/A 42,799 N/A 42,799 38,210

 I. Other 00 0 0

2. Total General PP&E $ 4,065,806 $ -2,896,641 $ 1,169,165 $ 1,205,556

[1] Note 15 for additional information on Capital Leases

Legend for Valuation Methods:

S/L = Straight Line N/A = Not Applicable

2006 2005

Depreciation/ 

Amortization 

Method

(Accumulated 

Depreciation/ 

Amortization)

Service 

Life

Acquisition 

Value

Net Book 

Value

Prior FY Net 

Book Value

As of September 30

As of September 30

($ in thousands) (m(

1. Stockpile Materials Categories

 A. Held for Sale $ 0 $ 0 $ 0 $ 0 AC, LCM

 B. Held in Reserve for Future Sale 0 0 0 0 AC, LCM

 C. Total $ 0$ 0 $ 0 $ 0

LAC = Latest Acquisition Cost

SP = Standard Price

AC = Actual Cost O = Other

Legend for Valuation Methods:

NRV = Net Realizable Value

LCM = Lower of Cost or Market

Allowance

for Gains (Losses)

Stockpile

Materials Amount

Stockpile 

Materials, Net

Valuation 

Method

2006 2005

Stockpile

Materials, Net
135

is developing new policies and a contractor-reporting process to capture General PP&E information for future

reporting purposes in compliance with generally accepted accounting practices.

Past audit results have identified uncertainties as to whether all General PP&E assets in the possession or control

(existence) of the Department are properly and accurately recorded in the system (completeness).

There are no restrictions on the use or convertibility of General PP&E. 

Note 11. Liabilities Not Covered by Budgetary Resources

Information Related to Liabilities Not Covered by Budgetary Resources

Line 2.B. represents the Actuarial Federal Employee Compensation future liabilities as provided annually by the

Department of Labor.

Note 12. Accounts Payable

Fluctuations and Abnormalities

Intragovernmental payables decreased by $28.0 million (14%). This decrease is primarily due to a $27.1 million

decrease in Contract Depot Maintenance Activity Group (CDMAG) at Ogden Air Logistic Center (OO-ALC).

This decrease is due to an adjustment processed in July of 2006 to correct an erroneous account balance. During

FY 2006, OO-ALC began an effort to reconcile the accounts payable subsidiary ledger to the trial balance. The

analysis specifically identified $34.0 million in month end disbursement reconciliation adjustments that were

As of September 30

($ in thousands)

1. Intragovernmental Payables $ 171,623 $ N/A $ 171,623 $ 199,650

2. Nonfederal Payables (to the Public) 494,347 0 494,347 546,739

3. Total $ 665,970 $ 0 $ 665,970 $ 746,389

2006 2005

Accounts 

Payable

Interest, Penalties, 

and Administrative 

Fees

Total Total

As of September 30

($ in thousands)

1. Intragovernmental Liabilities

 A. Accounts Payable $ 0 $ 0

 B. Debt 0 0

 C. Other 0 0

 D. Total Intragovernmental Liabilities $ 0 $ 0

2. Nonfederal Liabilities

 A. Accounts Payable $ 0 $ 0

 B. Military Retirement and Other Federal Employment Benefits 227,035 233,713

 C. Environmental Liabilities 0 0

 D. Other Liabilities 0 0

 E. Total Nonfederal Liabilities $ 227,035 $ 233,713

3. Total Liabilities Not Covered by Budgetary Resources $ 227,035 $ 233,713

4. Total Liabilities Covered by Budgetary Resources $ 2,037,616 $ 2,282,258

5. Total Liabilities $ 2,264,651 $ 2,515,971

2006 2005

2006 Annual Financial Statement
136

United States Air Force

processed in FY 2005 that erroneously reduced an other liability account in lieu of accounts payable. An adjustment was processed in July of 2006 to correct the error, resulting in an overall decrease in Ogden's

Intragovernmental Accounts Payable. 

Public payables decreased $52.4 million (10%), which was primarily due to three events.

The first event was a $153.6 million decrease in the Information Services Activity Group (ISAG). At the end of FY

2005, ISAG discontinued activity operations. During FY 2006, remaining unfilled customer orders and balance

sheet accounts are being liquidated in preparation for account closure in FY 2007.

The second event was a $125.4 million increase due to the write-off of unsupported undistributed disbursements in September 2006 based upon the Office of Secretary of Defense Comptroller guidance directing stabilized unsupported amounts should be written off. Undistributed disbursements are treated as an offset to

accounts payable. 

The third event was a $21.2 million decrease in public payables in the General Support Division (GSD) which was

caused by an adjustment processed in July of 2006. In a review of the nonfederal payables, it was determined

that transactions for the Defense Logistic Centers had erroneously updated the nonfederal accounts payable in

lieu of the intragovernmental accounts payable. These erroneous transactions were properly recorded in

intragovernmental payables in July of 2006, resulting in the decrease in nonfederal payables.

Undistributed Disbursements

Undistributed disbursements consist of the difference between (1) disbursements/collections recorded at the

transaction level to a specific obligation, payable, or receivable in the activity field records, and (2) those disbursements/collections reported by the U.S. Treasury. In-transit payments are payments that have been made for

other agencies or entities that have not been recorded in their accounting records. These payments are applied

to each entity's outstanding accounts payable balance at year-end. Accounts payable were adjusted downward in

the amount of $166.9 million for these payments. 

Allocation of Undistributed Disbursements

The Department of Defense (DoD) policy is to allocate supported undistributed disbursements between

intragovernmental and nonfederal categories based on the percentage of intragovernmental and nonfederal

accounts payable. Unsupported undistributed disbursements should be recorded in U.S. Standard General

Ledger account (USSGLA) 2120, Disbursements in Transit. The AFWCF followed this allocation policy reporting

$14.5 million in USSGLA 2120. 

Note 13. Debt

Not Applicable.

Note 14. Environmental Liabilities and Disposal Liabilities

Not Applicable.
137

Note 15. Other Liabilities

Fluctuations and Abnormalities

Intragovernmental Other Liabilities increased $27.7 million (19%) due to the following events:

The Intragovernmental Advances from Others increased $27.4 million (20%) which is caused by a $28.0 million

increase in the Depot Maintenance Activity Group (DMAG). In FY 2006 progress billings increased $15.1 million

at Oklahoma City and $14.5 million at the Ogden Air Logistic Centers as a result of increased customer orders

within their respective Contract DMAG programs. 

Nonfederal Other Liabilities decreased $191.9 million (14%) due to the following events:

Accrued Funded Payroll and Benefits increased $18.2 million (14%) due to increases in DMAG benefits in 

FY 2006. Benefits are increasing due to increased contributions to Federal Employee Retirement System (FERS)

and Thrift Saving Plan. This trend is expected to continue as Civil Service Retirement System workers retire and

are replaced with employees enrolled in FERS.

Advances from Others decreased $3.4 million (39%) due to the continued reduction in the backlog of DMAG

advances. The backlog occurred in FY 2004 with the implementation of the Defense Industrial Fund Financial

Management System (DIFMS). DIFMS was not designed to bill private party billings at a fixed price, thus resulting

in an increase in the advances account throughout all of FY 2004. A systems release was installed to correct the

report during the first quarter of FY 2005 so current private party bills could be processed. However, the release

did not provide functionality to process the older contracts and a backlog continued to exist in the account

throughout FY 2005. This backlog has been steadily worked off and the account is now at a normal balance.

($ in thousands)

1. Intragovernmental

 A. Advances from Others $ 163,617 $ 0 $ 163,617 $ 136,241

 B. Deposit Funds and Suspense Account Liabilities 0 0 0 0

 C. Disbursing Officer Cash 0 0 0 0

 D. Judgment Fund Liabilities 0 0 0 0

 E. FECA Reimbursement to the Department of Labor 0 0 0 0

 F. Other Liabilities 10,599 0 10,599 10,297

 G. Total Intragovernmental Other Liabilities $ 174,216 $ 0 $ 174,216 $ 146,538

2. Nonfederal

 A. Accrued Funded Payroll and Benefits $ 147,711 $ 0 $ 147,711 $ 129,479

 B. Advances from Others 5,215 0 5,215 8,570

 C. Deferred Credits 0 0 0 0

 D. Deposit Funds and Suspense Accounts 806 0 806 54,771

 E. Temporary Early Retirement Authority 0 0 0 0

 F. Non-environmental Disposal Liabilities

 (1) Military Equipment (Nonnuclear) 0 0 0 0

 (2) Excess/Obsolete Structures 0 0 0 0

 (3) Conventional Munitions Disposal 0 0 0 0

 G. Accrued Unfunded Annual Leave 0 0 0 0

 H. Capital Lease Liability 0 0 0 0

 I. Other Liabilities 1,006,017 37,681 1,043,698 1,196,511

 J. Total Nonfederal Other Liabilities $ 1,159,749 $ 37,681 $ 1,197,430 $ 1,389,331

3. Total Other Liabilities $ 1,333,965 $ 37,681 $ 1,371,646 $ 1,535,869

As of September 30 2006 2005

Current 

Liability

Noncurrent 

Liability Total Total

2006 Annual Financial Statement
138

United States Air Force

Deposits Funds and Suspense Accounts decreased $54.0 million (99%) was due to write-off of unsupported

undistributed collections in September 2006 based upon the Office of the Secretary of Defense Comptroller guidance directing stabilized unsupported amounts should be written off. 

Other Liabilities decreased $152.8 million (13%) as follows:

Information Related to Other Liabilities

The DMAG accrued expenses decreased $193.8 million. In FY 2006 Contract DMAG had a net change of $202.6

million in accrued expenses due to the reconciliation of production complete contracts. This reconciliation effort

will continue to decrease accrued liabilities in preparation for Contract DMAG closure in FY 2010.

The Supply Management Activity Group (SMAG) future purchase - foreign military sales consist of money that

various countries have deposited with the SMAG as a buy-in on future purchases they plan to make under the

foreign military sales program. These funds are considered a liability as the funds are returned if the countries do

not make future purchases. Revenue is not recognized on these transactions until the purchase takes place.

The Mechanization of Contract Administration Services (MOCAS)/Contract Financing Payments include $37.7

million in estimated future contract financing payments that will be paid to the contractor upon delivery and

Government acceptance of a satisfactory product. In accordance with contract terms, specific rights to the contractor's work vests with the Government when a specific type of contract financing payments is made, thereby

protecting taxpayer funds in the event of contract nonperformance. These rights should not be misconstrued as

the rights of ownership. The Department is under no obligation to pay the contractor for amounts greater than

the amounts authorized in the contract until delivery and Government acceptance of a satisfactory product.

Since it is probable that the contractor will complete its efforts and deliver a satisfactory product to the

Department and the amount of potential future payment are estimable; the Department has recognized a contingent liability for estimated future payments, which are conditional pending delivery and Government acceptance of a satisfactory product.

Note 16. Commitments and Contingencies

Not Applicable.

($ in thousands)

As of September 30 FY 2006 FY 2005

Misc. Liabilities 239 500

DMAG – WIP Accrued Expenses 967,461 1,161,308

SMAG – Future Purchase - Foreign Military Sales 28,376 28,377

SMAG – Other Accrued Liabilities 9,941 6,326

MOCAS/Contract Financing Payments 37,681 0

Total 1,043,698 1,196,511

$

$ $

$
139

Note 17. Military Retirement and Other Federal Employment Benefits

Military Retirement Pensions

The Air Force Working Capital has no Military Retirement Pensions.

Military Retirement Health Benefits

The Air Force Working Capital Fund has no Military Retirement Health Benefits

Federal Employees Compensation Act (FECA)

The Air Force Working Capital Fund's (AFWCF) actuarial liability for workers' compensation benefits is developed by the Department of Labor and provided to the AFWCF at the end of each fiscal year. The FECA is not

related to and should not be misinterpreted to represent the Federal Unemployment Compensation Act. The

liability includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims. The liability is determined using a

method that utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments. The projected annual benefit payments have been discounted to present value using the

Office of Management and Budget's (OMB's) economic assumptions for 10-year Treasury notes and bonds.

Cost-of-living adjustments and medical inflation factors are also applied to the calculation of projected future

benefits.

The liability for future workers' compensation (FWC) benefits includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not

reported claims. The liability is determined using a method that utilizes historical benefit payment patterns

related to a specific incurred period to predict the ultimate payments related to that period. Consistent with

past practice, these projected annual benefits payments have been discounted to present value using the 

Assumed 

Interest Rate 

(%)

($ in thousands)

1. Pension and Health Actuarial Benefits

 A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0

 B. Military Retirement Health Benefits 0 0 0 0

 C. Military Medicare-Eligible Retiree Benefits 0 0 0 0

 D. Total Pension and Health Actuarial Benefits $ 0 $ 0$ 0 $ 0

2. Other Actuarial Benefits

 A. FECA $ 227,035 $ 0 $ 227,035 $ 233,713

 B. Voluntary Separation Incentive Programs 0 0 0 0

 C. DoD Education Benefits Fund 0 0 0 0

 D. Total Other Actuarial Benefits $ 227,035 $ 0 $ 227,035 $ 233,713

3. Other Federal Employment Benefits $ 0 $ 0 $ 0 $ 0

2006 2005

Present Value of 

Benefits

(Less: Assets 

Available to Pay 

Benefits)

Unfunded

Liability

Present Value 

of Benefits

4. Total Military Retirement and Other Federal

 Employment Benefits: $ 227,035 $ 0 $ 227,035 $ 233,713

As of September 30

2006 Annual Financial Statement
140

United States Air Force

OMB's economic assumptions for 10-year Treasury notes and bonds. Interest rate assumptions utilized for discounting were as follows:

2006

5.170% in Year 1

5.313% in Year 2

And thereafter

To provide more specifically for the effects of inflation on the liability for future workers' compensation benefits,

wage inflation factors (cost of living adjustments or COLAs) and medical inflation factors (consumer price index

medical or CPIMs) were applied to the calculation of projected future benefits. The actual rates for these factors

for the charge back year (CBY) 2006 were also used to adjust the methodology's historical payments to current

year constant dollars.

The compensation COLAs and CPIMs used in the projections for various charge back years (CBY) were as 

follows:

CBY COLA CPIM

2006 3.50% 4.00%

2007 3.13% 4.01%

2008 2.40% 4.01%

2009 2.40% 4.013%

2010+ 2.43% 4.09%

The model's resulting projections were analyzed to insure that the estimates were reliable. The analysis was

based on four tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a comparison of the percentage change in the liability amount by agency to the percentage change in the actual incremental payments, (3)

a comparison of the incremental paid loses per case (a measure of case-severity) in CBY 2006 to the average pattern observed during the most current three charge back years, and (4) a comparison of the estimated liability

per case in the 2006 projection to the average pattern for the projections of the most recent three years.

Note 18. General Disclosures Related to the Statement of Net Cost

Intragovernmental Costs and Exchange Revenue

($ in thousands)

1. Intragovernmental Costs $ 4,748,892 $ 5,312,717

2. Public Costs 3,923,068 5,201,477

3. Total Costs $ 8,671,960 $ 10,514,194

4. Intragovernmental Earned Revenue $ -10,105,650 $ -10,643,243

5. Public Earned Revenue -677,373 -771,703

6. Total Earned Revenue $ -10,783,023 $ -11,414,946

7. Net Cost of Operations $ -2,111,063 $ -900,752

As of September 30 2006 2005
141

Fluctuations and Abnormalities

Gross Costs

Gross Costs had a decrease of $1.8 billion (18%). 

Intragovernmental Costs decreased by $563.8 million due to the following events.

$141.3 million decrease is attributed to an error in the revenues reported by the Army Working Capital Fund in

FY 2005. During the last two quarters of FY 2005, Tobyhanna Army Depot implemented a new accounting system and they believe the numbers provided were overstated due to system implementation problems. The FY

2006 amounts provided were verified by the Tobyhanna Army Depot as correct.

$39.1 million decrease in the Information Services Activity Group (ISAG) was due to the removal of ISAG from

the Air Force Working Capital Fund (AFWCF) at the end of FY 2005. In FY 2006, no new customer orders were

started. Remaining unfilled customer orders and balance sheet accounts are being liquidated in preparation for

account closure in FY 2007.

The remaining decrease of $383.4 million is primarily due to a reduction in revenues reported by the Defense

Logistics Agency (DLA). AFWCF purchases, both inventory and services such as transportation, storage and warehouse issues/receipts from DLA. Due to trading partner eliminations, AFWCF is required to balance with DLA's

revenue. In comparison to FY 2005, The Air Force has purchased the same level of services and inventory for

resale in FY 2006. After a review of the FY 2006 business events, AFWCF does not agree with DLA's reported

revenue reduction and a reconciliation will be performed in the 1st quarter of FY 2007.

Public Costs had a $1.3 billion decrease primarily due to a $636.5 million decrease in the General Support

Division (GSD) and $522.4 million decrease in the ISAG. 

The GSD decrease is due to a $660 million reported net gain under Public Costs. In FY 2006, an accounting

adjustment was processed to correct erroneous inventory transfers processed in FY 2005. Due to significant

inventory decreases in comparison to the FY 2004 inventory value, GSD conducted a reconciliation of inventory

transfers between storage facilities in FY 2006. The analysis determined inventory transfers were being adjusted

incorrectly resulting in $660 million of inventory not being recorded. In August 2006, the reconciliation was completed and a journal voucher was processed to correct the value of GSD inventory. Gains are processed as an

offset within the loss account within the Supply Management Activity Group, thus are included in Gross Costs. 

The ISAG decrease was due to the removal of ISAG from the AFWCF as discussed above.

Information Related to the Statement of Net Cost (SoNC)

The Consolidated SoNC in the Federal Government is unique because its principles are based on understanding

the net cost and/or organizations that the Federal Government supports through appropriations or other means.

This statement provides gross and net cost information that can be related to the amount of output or outcome

for a given program and/or organization administered by a responsible reporting entity.

2006 Annual Financial Statement
142

United States Air Force

While the AFWCF generally records transactions on an accrual basis as is required by generally accepted accounting principles, the systems do not always capture actual costs. Information presented on the SoNC is primarily

based on budgetary obligations, disbursements, or collection transactions, as well as information from non-financial feeder systems.

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.

Note 19. Disclosures Related to the Statement of Changes in Net Position

Information Related to the Statement of Changes in Net Position

Prior Period Adjustments

The prior period adjustment during FY 2005 was due to the change in the Material Support Division inventory

valuation methodology. The Latest Acquisition Cost in the Standard Base Supply System was converted to

Moving Average Cost historical cost basis valuation which does not require an allowance for gains and losses.

The conversion created a prior period adjustment of approximately $10.8 billion for the elimination of the

allowance for gains and losses, the establishment of an allowance for repairs and the revaluation of the inventory.

Imputed Financing

The amounts remitted to the Office of Personnel Management (OPM) by and for employees covered by the Civil

Service Retirement System, Federal Employee Retirement System, Federal Employees Health Benefits program,

and the Federal Employee Group Life Insurance program do not fully cover the Government's cost to provide

these benefits. An imputed cost is recognized as the difference between the Government's cost of providing

these benefits to the employees and contributions made by and for them. OPM provides the cost factors to the

Defense Finance and Accounting Service (DFAS) for computation of imputed financing cost. DFAS provides the

costs to OUSD (Personnel and Readiness) for validation. Approved imputed costs are provided to the reporting

components for inclusion in their financial statements.

($ in thousands)

1. Prior Period Adjustments Increases (Decreases) to Net Position

 Beginning Balance

 A. Changes in Accounting Standards $ 0 $ 0 $ 3,632,598 $ 0

 B. Errors and Omissions in Prior Year Accounting Reports 0 0 7,256,576 0

 C. Total Prior Period Adjustments $ 0 $ 0 $ 10,889,174 $ 0

2. Imputed Financing

 A. Civilian CSRS/FERS Retirement $ 55,234 $ 0 $ 62,192 $ 0

 B. Civilian Health 109,111 0 105,973 0

 C. Civilian Life Insurance 264 0 269 0

 D. Judgment Fund 000 0

 E. Intraentity 000 0

 F. Total Imputed Financing $ 164,609 $ 0 $ 168,434 $ 0

2006 2005

Cumulative Results 

of Operations

Unexpended 

Appropriations

Cumulative Results 

of Operations

Unexpended

Appropriations

As of September 30
143

Note 20. Disclosures Related to the Statement of Budgetary Resources

Information Related to the Statement of Budgetary Resources

Intra-entity Transactions

The Statement of Budgetary Resources (SBR) does not eliminate intra-entity transactions because the statements

are presented as combined and combining.

Apportionment Categories

Office of Management and Budget Circular A-136, specifically requires disclosure of the amount of direct and

reimbursable obligations incurred against amounts apportioned under categories A, B, and exempt from apportionment. This disclosure should agree with the aggregate of the related information as included in each reporting entity's SF 133 and in the SBR, lines 8A and 8B. There are no Category A direct or reimbursable obligations.

Category B reimbursable obligations total $15.8 billion. There are no category B direct or exempt obligations.

Undelivered Orders

Undelivered orders presented in the SBR includes undelivered orders-unpaid for both direct and reimbursable

funds.

Spending Authority from Offsetting Collections

Adjustments in funds that are temporarily not available pursuant to Public Law, and those that are permanently

not available (included in the "Adjustments" line on the SBR), are not included in the "Spending Authority from

Offsetting Collections and Adjustments" line on the SBR or the "Spending Authority for Offsetting Collections and

Adjustments" line on the Statement of Financing.

Appropriations Received

The Medical Dental Division of Supply Management received a Congressional appropriation of $43.3 million in

February 2006 to maintain War Readiness Materials. Of this amount, $43.3 million has been obligated as of

September 30, 2006.

Note 21. Disclosures Related to the Statement of Financing

The objective of the Statement of Financing is to reconcile the difference between budgetary obligations and the

net cost of operations reported. Due to the Department of the Air Force's financial system limitations, budgetary

data is not in agreement with proprietary expenses and assets capitalized. Differences between budgetary and

proprietary data constitutes a previously identified deficiency. 

As of September 30

($ in thousands)

1. Net Amount of Budgetary Resources Obligated for Undelivered Orders

 at the End of the Period $ 7,151,764 $ 6,937,550

2. Available Borrowing and Contract Authority at the End of the Period 4,183,095 2,782,392

2006 2005

2006 Annual Financial Statement
144

United States Air Force

Other Information Related to the Statement of Financing

Budgetary data is not in agreement with Proprietary Expenses and Assets Capitalized. This causes a difference in

net cost between the Statement of Net Cost (SoNC) and the Statement of Financing. "Resources that finance the

acquisition of assets" is adjusted in order to align the amount of net cost on the Statement of Financing with the

amount reported on the (SoNC). This adjustment was $148.3 million, absolute value.

The following Statement of Financing lines are presented as combined instead of consolidated due to interagency

budgetary transactions not being eliminated:

• Obligations Incurred

• Less: Spending Authority from Offsetting Collections and Recoveries

• Obligations Net of Offsetting Collections and Recoveries

• Less: Offsetting Receipts

• Net Obligations

• Undelivered Orders

• Unfilled Customer Orders

Other "Resources Used to Finance Items not Part of the Net Cost of Operations" includes asset transfers out

from the Air Force Working Capital Fund (AFWCF). At the end of FY 2005, ISAG discontinued activity operations. During FY 2006, remaining unfilled customer orders and balance sheet accounts are being liquidated in

preparation for account closure in FY 2007. In FY 2006, the Information Services Activity Group transferred general equipment to the Air Force General Funds. "Other" resources that do not affect net cost consists of applied

overhead and adjustments to inventory held for repair valuation accounts.

Amounts reported for "Exchange revenue receivable from public" represent a change in public receivables, which

does not have a relationship to liabilities not covered by budgetary resources.

The value for "Other" reported under "Components Requiring or Generating Resources in Future Period" is the

amount for Federal Employees Compensation Act.

The value for "Other" reported under "Components Not Requiring or Generating Resources in Future Period" are

applied overhead, bad debt expense and expenses not requiring budgetary resources.

Note 22. Disclosures Related to the Statement of Custodial Activity

Not Applicable.

Note 23. Earmarked Funds

Not Applicable.

Note 24. Other Disclosures 

Not Applicable.
145

2006 Annual Financial Statement

Consolidating and 

Combining Statements

Working Capital Fund
146

United States Air Force

Depot 

Maintenance

Supply 

Management

Information 

Services

1. ASSETS (Note 2)

 A. Intragovernmental:

 1. Fund Balance with Treasury (Note 3)

 a. Entity $ 795,976 $ 562,841 $ -15,781

 b. Nonentity Seized Iraqi Cash 0 0 0

 c. Nonentity-Other 0 0 0

 2. Investments (Note 4) 0 0 0

 3. Accounts Receivable (Note 5) 326,882 400,078 -7,367

 4. Other Assets (Note 6) 5,186 81,352 25

 5. Total Intragovernmental Assets $ 1,128,044 $ 1,044,271 $ -23,123

 B. Cash and Other Monetary Assets (Note 7) $ 0 $ 0 $ 0

 C. Accounts Receivable, Net (Note 5) 12,042 220,264 8

 D. Loans Receivable (Note 8) 0 0 0

 E. Inventory and Related Property, Net (Note 9) 659,272 33,871,604 0

 F. General Property, Plant and Equipment, Net (Note 10) 1,035,725 112,945 20,495

 G. Investments (Note 4) 0 0 0

 H. Other Assets (Note 6) 27,273 513,870 0

2. TOTAL ASSETS $ 2,862,356 $ 35,762,954 $ -2,620

3. LIABILITIES (Note 11)

 A. Intragovernmental:

 1. Accounts Payable (Note 12) $ 247,946 $ 223,092 $ 104

 2. Debt (Note 13) 0 0 0

 3. Other Liabilities (Note 15 & 16) 254,462 1,099 0

 4. Total Intragovernmental Liabilities $ 502,408 $ 224,191 $ 104

 B. Accounts Payable (Note 12) $ 48,203 $ 428,942 $ 3,122

 C. Military Retirement and Other Federal 203,425 23,601 9

 Employment Benefits (Note 17)

 D. Environmental and Disposal Liabilities (Note 14) 0 0 0

 E. Loan Guarantee Liability (Note 8) 0 0 0

 F. Other Liabilities (Note 15 and Note 16) 1,113,355 82,955 261

4. TOTAL LIABILITIES $ 1,867,391 $ 759,689 $ 3,496

5. NET POSITION

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

 B. Unexpended Appropriations - Other Funds 0 0 0

 C. Cumulative Results of Operations - Earmarked Funds 0 0 0

 D. Cumulative Results of Operations - Other Funds 994,965 35,003,265 -6,116

6. TOTAL NET POSITION $ 994,965 $ 35,003,265 $ -6,116

7. TOTAL LIABILITIES AND NET POSITION $ 2,862,356 $ 35,762,954 $ -2,620

Consolidating Balance Sheet—Working Capital Fund

As of September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
147

Component

 Level

Combined 

Total Eliminations

2006 

Consolidated

2005 

Consolidated

$ 14,940 $ 1,357,976 $ 0 $ 1,357,976 $ 1,164,223

00000

00000

00000

-1 719,592 299,519 420,073 510,560

0 86,563 81,345 5,218 48,515

$ 14,939 $ 2,164,131 $ 380,864 $ 1,783,267 $ 1,723,298

$ 0$ 0$ 0$ 0$ 0

0 232,314 0 232,314 219,929

00000

0 34,530,876 0 34,530,876 32,701,689

0 1,169,165 0 1,169,165 1,205,556

00000

0 541,143 0 541,143 440,337

$ 14,939 $ 38,637,629 $ 380,864 $ 38,256,765 $ 36,290,809

$ 0 $ 471,142 $ 299,519 $ 171,623 $ 199,650

00000

0 255,561 81,345 174,216 146,538

$ 0 $ 726,703 $ 380,864 $ 345,839 $ 346,188

$ 14,080 $ 494,347 $ 0 $ 494,347 $ 546,739

0 227,035 0 227,035 233,713

00000

00000

859 1,197,430 0 1,197,430 1,389,331

$ 14,939 $ 2,645,515 $ 380,864 $ 2,264,651 $ 2,515,971

$ 0$ 0$ 0$ 0$ 0

00000

00000

0 35,992,114 0 35,992,114 33,774,838

$ 0 $ 35,992,114 $ 0 $ 35,992,114 $ 33,774,838

$ 14,939 $ 38,637,629 $ 380,864 $ 38,256,765 $ 36,290,809

2006 Annual Financial Statement
148

United States Air Force

Combined

Total Eliminations

2006

Consolidated

2005

Consolidated

1. Program Costs

 A. Component Level

 1. Gross Costs $ 0 $ 0 $ 0 $ -10,166

 2. (Less: Earned Revenue) 90,914 0 90,914 0

 3. Net Program Costs $ 90,914 $ 0 $ 90,914 $ -10,166

 B. Depot Maintenance

 1. Gross Costs $ 6,090,124 $ 2,384,852 $ 3,705,272 $ 4,046,962

 2. (Less: Earned Revenue) -6,292,446 -2,643,203 -3,649,243 -3,832,693

 3. Net Program Costs $ -202,322 $ -258,351 $ 56,029 $ 214,269

 C. Information Services

 1. Gross Costs $ 164,747 $ 2 $ 164,745 $ 726,191

 2. (Less: Earned Revenue) -177,882 -38,979 -138,903 -608,187

 3. Net Program Costs $ -13,135 $ -38,977 $ 25,842 $ 118,004

 D. Supply Management

 1. Gross Costs $ 7,482,364 $ 2,680,471 $ 4,801,893 $ 5,751,130

 2. (Less: Earned Revenue) -9,467,887 -2,383,143 -7,084,744 -6,974,066

 3. Net Program Costs $ -1,985,523 $ 297,328 $ -2,282,851 $ -1,222,936

 E. Transportation

 1. Gross Costs $ 50 $ 0 $ 50 $ 77

 2. (Less: Earned Revenue) -1,047 0 -1,047 0

 3. Net Program Costs $ -997 $ 0 $ -997 $ 77

 F. Total Program Costs

 1. Gross Costs $ 13,737,285 $ 5,065,325 $ 8,671,960 $ 10,514,194

 2. (Less: Earned Revenue) -15,848,348 -5,065,325 -10,783,023 -11,414,946

 3. Net Program Costs $ -2,111,063 $ 0 $ -2,111,063 $ -900,752

2. Cost Not Assigned to Programs 000 0

3. (Less: Earned Revenue Not Attributable to Programs) 000 0

4. Net Cost of Operations $ -2,111,063 $ 0 $ -2,111,063 $ -900,752

Consolidating Statement of Net Cost—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
149

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2006 Annual Financial Statement
150

United States Air Force

Depot

Maintenance

Supply

Management

Information

Services

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 312,798 $ -61,554 $ -58,548

2. Recoveries of prior year unpaid obligations 0 2,397 75,221

3. Budget authority

 3a. Appropriation 1,000 47,577 0

 3b. Borrowing authority 000

 3c. Contract authority 226,498 9,631,334 0

4. Spending authority from offsetting collections

 4a. Earned

 1. Collected 6,252,321 9,438,497 262,384

 2. Change in receivables from Federal sources -26,793 34,018 -84,502

 4b. Change in unfilled customer orders

 1. Advance received 10,419 0 0

 2. Without advance from Federal sources 83,995 -790,879 -229,439

 4c. Anticipated for rest of year, without advances 000

 4d. Previously unavailable 000

 4e. Expenditure transfers from trust funds 000

 4f. Subtotal 6,547,440 18,360,547 -51,557

5. Nonexpenditure transfers, net, anticipated and actual -60,000 -49,054 12,342

6. Temporarily not available pursuant to Public Law 000

7. Permanently not available 205,170 -8,672,778 10,292

8. Total Budgetary Resources $ 7,005,408 $ 9,579,558 $ -12,250

STATUS OF BUDGETARY RESOURCES:

9. Obligations incurred:

 9a. Direct $ 0 $ 0$ 0

 9b. Reimbursable 6,077,689 9,569,890 0

 9c. Subtotal 6,077,689 9,569,890 0

10. Unobligated balance:

 10a. Apportioned 927,719 9,668 -12,250

 10b. Exempt from apportionment 000

 10c. Subtotal 927,719 9,668 -12,250

11. Unobligated balance not available 000

12. Total Status of Budgetary Resources $ 7,005,408 $ 9,579,558 $ -12,250

CHANGE IN OBLIGATED BALANCE:

NET OUTLAYS:

13. Obligated balance, Net

 13a. Unpaid obligations, brought forward, October 1 2,470,811 5,847,564 412,592

 13b. Less: Uncollected customer payments $ -2,369,490 $ -2,306,740 $ -326,140

 from Federal sources, brought forward, October 1

 13c. Total unpaid obligated balance 101,321 3,540,824 86,452

 13d. Obligations incurred net (+/-) $ 6,077,689 $ 9,569,890 $ 0

14. Less: Gross outlays -6,031,588 -9,350,873 -328,704

15. Obligated balance transferred, net

 15a. Actual transfers, unpaid obligations (+/-) 000

 15b. Actual transfers, uncollected customer 000

 payments from Federal sources (+/-)

16. Total Unpaid obligated balance transferred, net 000

17. Less: Recoveries of prior year unpaid obligations, actual 0 -2,397 -75,221

 Change in uncollected customer -57,202 756,861 313,942

 payments from Federal sources (+/-) 313,942

18. Obligated balance, net, end of period

 18a. Unpaid obligations 2,516,913 6,064,183 8,667

 18b. Less: Uncollected customer payments

 from Federal sources -2,426,693 -1,549,878 -12,198

 18c. Total, unpaid obligated balance, net, end of period 90,220 4,514,305 -3,531

19. Net Outlays:

 19a. Gross outlays 6,031,588 9,350,873 328,704

 19b. Less: Offsetting collections -6,262,739 -9,438,497 -262,385

 19c. Less: Distributed Offsetting receipts 000

20. Net Outlays $ -231,151 $ -87,624 $ 66,319

Combining Statement of Budgetary Resources—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
151

Transportation

Component

Level

2006 

Combined

2005

Combined

$ 9,068 $ 90,914 $ 292,678 $ 134,440

1,620 0 79,238 4

0 0 48,577 0

0 00 0

0 0 9,857,832 9,744,293

1 -15 15,953,188 16,559,412

-617 34,736 -43,158 50,393

0 0 10,419 -121,421

0 0 -936,323 692,744

0 00 0

0 00 0

0 00 0

-616 34,721 24,890,535 26,925,421

-10,072 0 -106,784 -73,911

0 00 0

0 0 -8,457,316 -10,801,211

$ 0 $ 125,635 $ 16,698,351 $ 16,184,743

$ 0 $ 0$ 0$ 0

0 125,635 15,773,214 15,892,064

0 125,635 15,773,214 15,892,064

0 0 925,137 292,678

0 00 0

0 0 925,137 292,678

0 00 1

$ 0 $ 125,635 $ 16,698,351 $ 16,184,743

1,685 -111,324 8,621,328 8,980,235

$ -617 $ 35,595 $ -4,967,392 $ -4,224,253

1,068 -75,729 3,653,936 4,755,982

$ 0 $ 125,635 $ 15,773,214 $ 15,892,064

-64 -230 -15,711,459 -16,250,968

0 00 0

0 00 0

0 00 0

-1,620 0 -79,238 -4

617 -34,736 979,482 -743,137

0 14,080 8,603,843 8,621,328

0 859 -3,987,910 -4,967,392

0 14,939 4,615,933 3,653,936

64 230 15,711,459 16,250,968

0 15 -15,963,606 -16,437,991

0 00 0

$ 64 $ 245 $ -252,147 $ -187,023

2006 Annual Financial Statement
152

United States Air Force

Depot

Maintenance

Supply

Management

Information

Services Transportation

Resources Used to Finance Activities:

Budgetary Resources Obligated

1. Obligations incurred $ 6,077,689 $ 9,569,890 $ 0 $ 0

2. Less: Spending authority from offsetting collections and recoveries -6,319,942 -8,684,033 -23,664 -1,004

3. Obligations net of offsetting collections and recoveries -242,253 885,857 -23,664 -1,004

4. Less: Offsetting receipts (-) 000 0

5. Net obligations -242,253 885,857 -23,664 -1,004

Other Resources

6. Donations and forfeitures of property 0 0 0 0

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

8. Imputed financing from costs absorbed by others 145,114 19,482 13 0

9. Other (+/-) 000 0

10. Net other resources used to finance activities 145,114 19,482 13 0

11. Total resources used to finance activities $ -97,139 $ 905,339 $ -23,651 $ -1,004

Resources Used to Finance Items not Part

of the Net Cost of Operations

12. Change in budgetary resources obligated for goods,

 services and benefits ordered but not yet provided

 12a. Undelivered Orders (-) -193,259 -259,993 239,038 0

 12b. Unfilled Customer Orders 94,414 -790,879 -229,439 0

13. Resources that fund expenses recognized in prior periods 0 0 -7,923 0

14. Budgetary offsetting collections and receipts that

 do not affect net cost of operations 000 0

15. Resources that finance the acquisition of assets -139,491 -4,854,112 5,145 0

16. Other resources or adjustments to net obligated resources

 that do not affect net cost of operations

 16a. Less: Trust or Special Fund Receipts Related to exchange in the Entity's Budget 0 0 0 0

 16b. Other (+/-) 000 0

17. Total resources used to finance items not part of the net cost of operations $ -238,336 $ -5,904,984 $ 6,821 $ 0

18. Total resources used to finance the net cost of operations $ -335,475 $ -4,999,645 $ -16,830 $ -1,004

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 000 0

20. Increase in environmental and disposal liability 0 0 0 0

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

22. Increase in exchange revenue receivable from the public (-) 6 0 0 0

23. Other (+/-) 859 385 0 0

24. Total components of Net Cost of Operations that

 will require or generate resources in future periods $ 865 $ 385 $ 0 $ 0

Components not Requiring or Generating Resources:

25. Depreciation and amortization 123,024 43,169 0 0

26. Revaluation of assets or liabilities (+/-) 21,367 824,330 3,697 7

27. Other (+/-)

 27a. Trust Fund Exchange Revenue 0 0 0 0

 27b. Cost of Goods Sold 5,130,847 0 0 0

 27c. Operating Material & Supplies Used 0 0 0 0

 27d. Other -5,142,950 2,146,238 0 0

28. Total components of Net Cost of Operations that will not require or generate resources 132,288 3,013,737 3,697 7

29. Total components of net cost of operations that

 will not require or generate resources in the current period $ 133,153 $ 3,014,122 $ 3,697 $ 7

30. Net Cost of Operations $ -202,322 $ -1,985,523 $ -13,133 $ -997

Consolidating Statement of Financing—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.
153

2006 Annual Financial Statement

Component

Level

Combined

Total

2006

Consolidated

2005

Consolidated

$ 125,635 $ 15,773,214 $ 15,773,214 $ 15,892,064

-34,721 -15,063,364 -15,063,364 -17,181,132

90,914 709,850 709,850 -1,289,068

000 0

90,914 709,850 709,850 -1,289,068

000 0

000 0

0 164,609 164,609 168,434

000 0

0 164,609 164,609 168,434

$ 90,914 $ 874,459 $ 874,459 $ -1,120,634

0 -214,214 -214,214 180,293

0 -925,904 -925,904 571,323

0 -7,923 -7,923 -5,775

000 0

0 -4,988,458 -4,988,458 -5,376,780

000 0

000 0

$ 0 $ -6,136,499 $ -6,136,499 $ -4,630,939

$ 90,914 $ -5,262,040 $ -5,262,040 $ -5,751,573

000 0

000 0

000 0

066 0

0 1,244 1,244 5,961

$ 0 $ 1,250 $ 1,250 $ 5,961

0 166,193 166,193 190,703

0 849,401 849,401 3,193

000 0

0 5,130,847 5,130,847 5,026,640

0 0 0 416,094

-2 -2,996,714 -2,996,714 -791,770

-2 3,149,727 3,149,727 4,844,860

$ -2 $ 3,150,977 $ 3,150,977 $ 4,850,821

$ 90,912 $ -2,111,063 $ -2,111,063 $ -900,752
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2006 Annual Financial Statement

Required Supplementary

Information

Working Capital Fund
Working Capital

Funds

2006

Combined

2005

Combined

BUDGETARY FINANCING ACCOUNTS

BUDGETARY RESOURCES:

1. Unobligated balance, brought forward, October 1 $ 292,679 $ 292,678 $ 134,440

2. Recoveries of prior year unpaid obligations 79,239 79,238 4

3. Budget authority

 3a. Appropriation 48,577 48,577 0

 3b. Borrowing authority 0 0 0

 3c. Contract authority 9,857,832 9,857,832 9,744,293

4. Spending authority from offsetting collections

 4a. Earned

 1. Collected 15,953,188 15,953,188 16,559,412

 2. Change in receivables from Federal sources -43,158 -43,158 50,393

 4b. Change in unfilled customer orders

 1. Advance received 10,419 10,419 -121,421

 2. Without Advance from Federal sources -936,323 -936,323 692,744

 4c. Anticipated for rest of year, without advances 0 0 0

 4d. Previously unavailable 0 0 0

 4e. Expenditure transfers from trust funds 0 0 0

 4f. Subtotal 24,890,535 24,890,535 26,925,421

5. Nonexpenditure transfers, net, anticipated and actual -106,784 -106,784 -73,911

6. Temporarily not available pursuant to Public Law 0 0 0

7. Permanently not available -8,457,316 -8,457,316 -10,801,211

8. Total Budgetary Resources $ 16,698,353 $ 16,698,351 $ 16,184,743

STATUS OF BUDGETARY RESOURCES:

9. Obligations incurred:

 9a. Direct $ 0 $ 0 $ 0

 9b. Reimbursable 15,773,214 15,773,214 15,892,064

 9c. Subtotal 15,773,214 15,773,214 15,892,064

10. Unobligated balance:

 10a. Apportioned 925,138 925,137 292,678

 10b. Exempt from apportionment 0 0 0

 10c. Subtotal 925,138 925,137 292,678

11. Unobligated balance not available 0 0 1

12. Total Status of Budgetary Resources $ 16,698,352 $ 16,698,351 $ 16,184,743

CHANGE IN OBLIGATED BALANCE:

NET OUTLAYS:

13. Obligated balance, Net

 13a. Unpaid obligations, brought forward, October 1 8,621,327 8,621,328 8,980,235

 13b. Less: Uncollected customer payments $ -4,967,391 $ -4,967,392 $ -4,224,253

 from Federal sources, brought forward, October 1

 13c. Total unpaid obligated balance 3,653,936 3,653,936 4,755,982

 13d. Obligations incurred net (+/-) $ 15,773,214 $ 15,773,214 $ 15,892,064

14. Less: Gross outlays -15,711,459 -15,711,459 -16,250,968

15. Obligated balance transferred, net

 15a. Actual transfers, unpaid obligations (+/-) 0 0 0

 15b. Actual transfers, uncollected customer 0 0 0

 payments from Federal sources (+/-)

16. Total Unpaid obligated balance transferred, net 0 0 0

17. Less: Recoveries of prior year unpaid obligations, actual -79,239 -79,238 -4

 Change in uncollected customer 979,481 979,482 -743,137

 payments from Federal sources (+/-)

18. Obligated balance, net, end of period

 18a. Unpaid obligations 8,603,843 8,603,843 8,621,328

 18b. Less: Uncollected customer payments (-)

 from Federal sources (-) -3,987,910 -3,987,910 -4,967,392

 18c. Total, unpaid obligated balance, net, end of period 4,615,933 4,615,933 3,653,936

19. Net Outlays:

 19a. Gross outlays 15,711,459 15,711,459 16,250,968

 19b. Less: Offsetting collections -15,963,607 -15,963,606 -16,437,991

 19c. Less: Distributed Offsetting receipts 0 0 0

20. Net Outlays $ -252,148 $ -252,147 $ -187,023

Disaggregated Statement of Budgetary Resources—Working Capital Fund

For the periods ended September 30, 2006 and 2005 ($ in Thousands)

The accompanying notes are an integral part of these financial statements.

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2006 Annual Financial Statement

Required Supplemental Information - Part B

AT97 - Air Force Working Capital Fund

Schedule, Part B DoD Intragovernmental entity liabilities.

($ in Thousands)

Treasury 

Index:

Debts/Borrowings 

From Other Agencies

Navy General Fund 17 $502

Army General Fund 21 $564 $202

Office of Personnel Management 24 $10,599

Air Force General Fund 57 $68,208 $160,484

Homeland Security 70 $966

Other Defense Organizations General Funds 97 $1

Other Defense Organizations Working Capital Funds 97-4930 $99,794 $1,965

Army Working Capital Fund 97-4930.001 $419

Navy Working Capital Fund 97-4930.002 $2,135

Accounts 

Payable Other

Required Supplemental Information - Part A

AT97 - Air Force Working Capital Fund

Schedule, Part A DoD Intragovernmental Asset Balances.

($ in Thousands)

Treasury 

Index:

Loans 

Receivable Investments

Department of Agriculture 12 $89

Department of Justice 15 $861

Navy General Fund 17 $5,802

Department of State 19 $8

Department of the Treasury 20 $1,357,975 $0

Army General Fund 21 $1,387

General Service Administration 47 $2,437

General Accounting Office 5 $6

Air Force General Fund 57 $328,052 $451

Homeland Security 70 $1,258

National Aeronautics and Space Administration 80 $292

Other Defense Organizations General Funds 97 $45,652

Other Defense Organizations Working Capital Funds 97-4930 $27,882 $4,768

Army Working Capital Fund 97-4930.001 $3,081

Navy Working Capital Fund 97-4930.002 $3,269

Accounts

Receivable Other Fund Balancewith Treasury
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Required Supplemental Information - Part E

AT97 - Air Force Working Capital Fund

($ in Thousands)

Treasury 

Index:

Transfers 

In

Air Force General Fund 57 $106,784

Transfers 

Out

Required Supplemental Information - Part C

AT97 - Air Force Working Capital Fund

Schedule, Part C DoD Intragovernmental revenue and related costs.

($ in Thousands)

Treasury 

Index:

Department of Agriculture 12 $495

Department of the Interior 14 $1

Department of Justice 15 $4,313

Navy General Fund 17 $70,262

Department of State 19 $102

Department of the Treasury 20 $0

Army General Fund 21 $25,342

General Service Administration 47 $83

National Science Foundation 49 $13

General Accounting Office 5 $8

Air Force General Fund 57 $8,236,112

Homeland Security 70 $8,859

National Aeronautics and Space Administration 80 $719

Other Defense Organizations General Funds 97 $1,267,624

Other Defense Organizations Working Capital Funds 97-4930 $381,644

Army Working Capital Fund 97-4930.001 $0

Navy Working Capital Fund 97-4930.002 $84,767

Earned 

Revenue
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2006 Annual Financial Statement

Audit Opinion

Working Capital Fund
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