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DEFENSE LOGISTICS AGENCYWORKING CAPITAL FUND

Chief Financial OfficerAnnual Financial Statement

Fiscal Year 1998

March 1, 1999

AMERICA’S LOGISTICSCOMBAT SUPPORT AGENCY

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will continue to benefit immensely by ourinitiatives – scarce resources can be diverted tomuch needed weapons systemsmodernization.

I believe you will find that the DLA financialstatements for FY 1998 represent the results ofsolid financial management, focused logisticalsupport to our Armed Forces, and efficient useof taxpayer dollars. I am committed tocontinuous improvements in financialmanagement processes and reporting.

LTG H. T. Glisson, USADirector, Defense Logistics Agency

ince its establishment as the Defense Supply Agency in 1961, DLA has supported every war, every major

contingency, and every theater of operationswhere our sailors, airmen, soldiers andmarines have been deployed. We have beeninstrumental in ensuring victory by America’sArmed Forces by providing required suppliesand services, around the clock, around theworld. DLA has received two unit citations,which attest to our focus and ethos asAmerica’s Logistics Combat Support Agency.

We are now entering a new century that willprovide the most significant period of changein our Armed Forces since World War II. Asmodern warfare increases in technologicalsophistication, speed, and complexity, logisticsand acquisition organizations must change tokeep pace. To remain relevant, DLA willreshape and refocus, applying the sameinnovation, teamwork, warfighter focus, selflessservice, and professionalism that has made usso successful during the past 37 years.

Our refocus and reshaping included revisitingthe DLA Strategic Plan during FY 1998. TheStrategic Plan defines our vision, mission,values, goals and objectives, and establishesmetrics to measure our progress. Itemphasizes our support of the Department ofDefense’s Joint Vision 2010 and its emphasison focused logistics. Most importantly, itprovides an enhanced framework for linkingfinancial and program performance, which willresult in more efficient and effective programdecisions as we move into the 21st century.

These statements reflect new business practicesthat DLA has implemented and which haveborne many accomplishments. The resultsreflect DLA’s commitment to increasedcustomer satisfaction, obtained throughimproved quality and lower costs. Ourinvestments in modern technologies andleveraging our buying power have beeninstrumental in reducing costs and improvingquality. Our customer, the warfighter, has and

MESSAGE FROM THE DIRECTOR

Director, Defense Logistics AgencyLieutenant General Henry T. Glisson

United States Army

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MESSAGE FROM THE COMPTROLLER

Comptroller, Defense Logistics AgencyLinda J. Furiga

am pleased to present the Fiscal Year 1998 Annual Financial Statements forthe Defense Logistics Agency Working

Capital Fund, prepared in accordance with theChief Financial Officers Act of 1990.

The preparation of these statements helps inthe evaluation of the effectiveness of ourfinancial systems and operations, and is anintegral part of my strategy for improvingfinancial management processes within DLA.

DLA has made significant improvements infinancial management and reporting, and weare working hard to implement initiatives toobtain an audit opinion on future statements.We have initiated studies on Property, Plantand Equipment and inventory reporting, anddeveloped plans of actions and milestones toaddress reporting concerns in these areas.These efforts have not only resulted inimproved FY 98 statements, but are helpingDLA to strengthen internal managementcontrols and improve business practices.

DLA has also significantly improved the linksbetween planning, programming, budgeting,financial results and performance goals. Theagency is committed to improving theselinkages so that performance is measured interms of both progress in meetingperformance goals and the costs associatedwith improved performance. Linking costs tohigher levels of performance will enable ourcustomers to make more informed decisionsand enable DLA to provide superior, best valuecustomer support.

Finally, I am pleased to report that theFY 98 Overview to these statements has beenimproved as well to provide enhancedinformation on agency goals, performancemeasures and accomplishments, all ofwhich are in direct support of the Agency’sstrategic plan.

DLA has an exemplary record of strongfinancial management, which has allowed usto return scarce, tax dollars to the warfighter tosupport readiness goals. As the Agency’sComptroller and Chief Financial Officer, I amproud of this achievement and committed toestablishing a strong financial reporting recordas well.

Linda J. FurigaComptroller, Defense Logistics Agency

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Table of Contents

Message from the Director i

Message from the Comptroller iii

Table of Contents v

Overview of the Principal Financial Statements 1

Introduction to the Defense Logistics Agency.................................................................. 3Performance

Supply Management .................................................................................................. 11Distribution ................................................................................................................ 19Reutilization and Marketing ....................................................................................... 25Information Services ................................................................................................... 31Automated Printing Service ....................................................................................... 35

Management’s Discussion and Analysis .......................................................................... 41

Principal Financial Statements 45

Consolidated Balance Sheet ........................................................................................... 47Consolidated Statement of Net Cost .............................................................................. 49Consolidating Statement of Net Cost ............................................................................. 50Consolidated Statement of Changes in Net Position ..................................................... 52Combined Statement of Budgetary Resources ............................................................... 53Combined Statement of Financing ................................................................................ 54

Notes to the Principal Financial Statements 55

Note 1 - Summary of Significant Accounting Policies ...................................................57Note 2 - Fund Balances with the Treasury ....................................................................61Note 3 - Accounts Receivable, Net ...............................................................................61Note 4 - Other Assets ....................................................................................................62Note 5 - Inventory and Related Property ......................................................................63Note 6 - General Property, Plant and Equipment, Net .................................................64Note 7 - Other Liabilities ...............................................................................................65Note 8 - Pensions and Other Actuarial Liabilities ..........................................................65Note 9 - Contingencies .................................................................................................66Note 10 - Disclosures Related to the Statement of Net Cost ...........................................66Note 11 - Deferred Maintenance on Property, Plant, and Equipment ............................66Note 12 - Disclosures Related to the Statement of Changes in Net Position ..................67Note 13 - Disclosures Related to the Statement of Budgetary Resources .......................68Note 14 - Disclosures Related to the Statement of Financing.........................................68Note 15 - Interagency Eliminations.................................................................................69Note 16 - Other Disclosures ............................................................................................70

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Required Supplementary Stewardship Information 71

National Defense Property Plant and Equipment ............................................................73Stewardship Land.............................................................................................................73Heritage Assets .................................................................................................................73Non-Federal Physical Property .........................................................................................73

Required Supplementary Information 75

Disaggregated Statement of Budgetary Resources ..........................................................76

Other Accompanying Information 79

Consolidating Balance Sheet ............................................................................................80Consolidating Statement of Changes in Net Position ......................................................82List of Appropriations, Funds, and Accounts Included in the Financial Statements ...........84

Auditors’ Opinion 85

Inspector General, Department of Defense Opinion Letter .............................................87

Table of Contents (Continued)

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Overview of the PrincipalFinancial Statements

Defense Logistics Agency - Defense Working Capital Fund

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Introduction to the DefenseLogistics Agency

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OVERVIEW OF THE DEFENSE LOGISTICS AGENCY

The Defense Logistics Agency is the logisticscombat support agency for the Department ofDefense. The DLA mission is to provideacquisition and focused logistics support toAmerica’s armed forces in peace andwar—around the clock, around the world. DLAprovides centralized management of consumablesupply items, supports surplus disposal programs,and provides contract administration services tothe Military Services, as well as federal, state, andlocal governments, and foreign militaryorganizations. Supported by a comprehensivestrategic plan, DLA is continually reengineeringand improving business practices to provideagile, integrated combat logistics solutions andlife cycle support to the warfighter.

OUR VISION…To be America’s logistics combat support agency…the warfighter’s choice for integrated life cyclesolutions through teamwork and partnership.

OUR ETHOS…We are warrior focused professionals, an integralpart of the joint warfighting team. We knowthat victory by America’s Armed Forces and thelives of service members depend on us. Theycan count on us to be there, every time,wherever they are, providing required logisticalsupport…around the world, around the clock.We make a difference. We are Team DLA. Weare proud!

ORGANIZATION

DLA accomplishes its mission through two majorsubordinate commands: the Defense LogisticsSupport Command (DLSC) and the DefenseContract Management Command (DCMC). Staffsupport is provided by the Defense AutomatedPrinting and Support Center and the Comptroller,

General Counsel, Corporate Administration, andChief Information offices. A secondary mission ofDLA is the Department of Defense printingprogram, which is accomplished by the DefenseAutomated Printing Service. The following chartdepicts the DLA organization.

DirectorDeputy Director

CorporateAdministration

Defense ContractManagement

Command

GeneralCounsel

Chief InformationOffice

InformationServices

DAPSAutomated

PrintingService

Defense LogisticsSupport Command

- Supply- Distribution- Reutilization & Marketing- Defense National Stockpile

Comptroller

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During FY98, DLA employed just over 43,000personnel and executed a total budget programof $14.8 billion. The Agency is financed throughAppropriations and the Defense Working CapitalFund (DWCF). DCMC is shown above for thepurposes of providing an overall view of themission, programs, and size of DLA. However,DCMC is funded through appropriations andtherefore, is reported in the DoD General Fundstatement.

Five DLA business areas that included in thesestatements and reported in the DWCF. They are:Supply Management, Distribution, Reutilization

and Marketing, Information Services, andAutomated Printing Service. The purpose of theDWCF is to create a customer-providerrelationship between the military operating forcesand support organizations, in order to improvethe delivery of support services while reducingthe cost of operations. The financial structure ofthe DWCF allows for identification of the fullcosts of support, measures performance to fosterefficiency and productivity improvements, andenables the customer to make economicalbuying decisions by providing timely andaccurate financial information to the decisionmaker to enhance the decision making process.

In FY98, DLA implemented a comprehensivestrategic plan that supports the Department ofDefense’s (DoD) Joint Vision 2010 (JV –2010),and emphasizes the tenet of “focused logistics,”one of the four critical operational concepts ofJV-2010. The tenet of focused logisticsemphasizes improved logistics processperformance, new technologies and businesspractices, improved information technology insupport of Service requirements, and identifiesand integrates highly successful logistics

DLA Strategic Goals

• Consistently provide responsive, best value supplies and services toour customers.

• Serve as a catalyst for the Revolution in Business Affairs andacquisition reform.

• Ensure our workforce is enabled to deliver and sustain world classperformance.

• Rapidly exploit technology to provide agile, responsive,interoperable solutions.

• Aggressively pursue partnerships with industry and our suppliers.

Agency Goals

initiatives. These concepts, which are set forth inthe Quadrennial Defense Review and the DoDLogistics Strategic Plan, are echoed in the DLAStrategic Plan.

The DLA Strategic Plan outlines our roadmap tothe future and establishes metrics to measure ourprogress. Each of the goals and supportingobjectives are implemented throughout the DLAbusiness areas to ensure that, by sharing acommon vision, we can continue our successes.

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Agency Objectives

Each strategic goal provides a series ofsupporting objectives, with targeted successdates ranging from FY99 to FY05. The DLAbusiness areas have strategies to support Agencygoals and objectives. Progress is reportedquarterly. Many of these strategies are tieddirectly to unique, business-area specific focusedlogistics efforts and will be addressed later infurther detail. However, objectives involving allbusiness areas are coordinated, tracked andreported by staff level organizations. Objectivesrelated to workforce development andinformation technology are well underway.

• Individual Development Plans: To achieveour goal of ensuring that the workforce isenabled to deliver and sustain world classperformance, we have established anobjective to develop individual training plansfor all employees by the end of FY99. TheAgency is identifying core competencies,researching private sector and governmentprograms on competency based trainingplans to develop the best approach tomaximizing resources.

• Training Investment: Another objective is toachieve a training investment level of at least1.5% of gross payroll cost, linked todocumented individual development plans,by FY00. This goal reflects private industrybenchmarks. DLA surpassed the interim goalfor FY98 and is on track to meet the FY00objective. Enhancements in configurationand tracking systems are being implementedto ensure accurate tracking and monitoringof training costs.

• Implementing our Information TechnologyStrategic Plan: Implementing the InformationTechnology (IT) Strategic Plan is one of theprimary objectives of the strategic goal torapidly exploit technology to provide agile,responsive, and interoperable solutions. TheChief Information Office is leading an ITManagement Team-chartered, cross-functional working group that is currentlyrefining the implementation objectives. TheIT Plan will be fully implemented by FY01,with substantial completion by FY99.

The objectives include developing outcomemeasures and targets, developing objectiveimplementation plans, establishing data

FY98 ProgressFY99 Goal% of Employees with IDPs

Individual Development Plans

100%

83%

FY98 ActualFY98 Goal

% of Training $ Per Payroll Costs

Training Investment

1.13%

1.21%

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collection procedures, and institutionalizingperformance measuring and reporting.When implemented, the IT Strategic Plan will:implement a client/server standards basedarchitecture; establish an IT capital planning

Year 2000 Issues

DLA began Year 2000 (Y2K) remediation of itssystems in 1996. As of December 31, 1998, 26of 33 mission critical systems have beenimplemented, which means that these 26systems have Y2K certification and are deployed.The remaining 7 mission critical systems will beimplemented between January and May 1999.DLA non-mission critical systems are scheduledfor implementation by March 1999.

DLA estimates a total cost of $43 million forremediation of systems, devices, and facilityitems, and additional costs of $38 million fortesting and supplier capability initiatives.

and investment control process; ensure ourworkforce has the current IT skills throughcontinuous IT education and training; andinstitutionalize a corporate systems life-cyclemanagement process.

An issue of risk to DLA is the ability of oursuppliers to continue to provide productsrequired by our customers. DLA is workingclosely with vendors and suppliers in assessingthe risk and testing systems to help ensure thatour system interfaces operate in a Y2K compliantinfrastructure.

DLA is currently testing Business Continuity andContingency Plans that can be used to sustainour mission in the event of a failure to any systemsupporting our critical logistics and procurementfunctions.

BUSINESS AREA MISSIONS

The DLA business areas included in the DWCFand reported herein are:

• Defense Logistics Support Commandincludes three business areas:

• The Supply Management business areaprovides customer support throughmanagement of logistics processes. Thisincludes inventory management ofconsumable items for both peacetimeand combat support, and technicalsupport to ensure product quality andproper pricing of materiel.

• The Distribution business area providesdistribution and storage of wholesale andretail materiel in support of customersworldwide. This includes receipt,storage, issue, packing, preservation andtransportation for over 5 millioncategories of consumable items used bythe warfighter.

• The Reutilization and Marketing businessarea supports reuse of excess and surplusproperty within the government andother authorized agencies. This businessarea is also responsible for disposal ofremaining property and hazardous wasteitems through sales and contractual vehicles.

• The Information Services business areaprovides software development andmaintenance, and technology andinfrastructure support through a singleCentral Design Activity. In addition, thebusiness area includes the DefenseAutomatic Addressing Systems Center, whichprovides transmission and routing of logisticstransactions throughout DoD.

• The Automated Printing Services businessarea provides printing, duplicating anddocument automation for DoD. The currentfocus is on the transition from hardcopy toelectronic-based documents management.

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DEFENSE LOGISTICS SUPPORT COMMAND

A significant portion of the DLA mission is achievedthrough the Defense Logistics SupportCommand (DLSC), which is one of DLA’s majorsubordinate commands. The newly formedDLSC fully integrates the functions of logisticsinformation, materiel management, distribution,and disposal. The DLSC mission is to providefocused logistics support to America’s ArmedForces. The Command manages DoD fuel, food,medical supplies, and clothing commodities, inaddition to 90% of the DoD consumable spareparts. The DLSC mission implements theDepartment of Defense Joint Vision 2010 byproviding logistics support to the warfighterthrough processes designed to implementfocused logistics, which is outlined in theDepartment of Defense Logistics Strategic Plan.The Department’s key logistics goals are to:

• Provide timely and responsive support towarfighters and other customers.

• Achieve maximum logistics productivity.

Some of the key objectives of the DoD LogisticsStrategic Plan, which are supported by DLA throughDLSC, include: Customer Satisfaction; LogisticsResponse Time; Reengineered Logistics BusinessProcesses; Significantly Reduced Logistics Costs to theCustomer; Modernize Selected Logistics Information;Competitive Sourcing; Inventory Reduction;Infrastructure Reduction/Capacity Utilization; VirtualInventory Control Point; and Skilled Logistics Workforce.The DLSC Long-Range Business Plan goals, whichare consistent with the DLA Strategic Plan goals,re-iterate these DoD principles. The DLSC Long-Range Business Plan contains 24 near-term objectiveswith quantifiable performance metrics targetedfor implementation between FY00 and FY05.The current near-term performance measures willbe addressed under each DLSC business area.

Three business areas within DLSC work togetherto provide integrated and focused logisticssupport: Supply Management, Distribution, andReutilization and Marketing.

DLA CENTER HEADQUATERS (DWCF BUSINESS AREAS)

1 Defense Supply Center Columbus2 Defense Supply Center Richmond3 Defense Industrial Supply Center4 Defense Supply Center Philadelphia5 Defense Energy Support Center6 Defense Distribution Center

7 Defense Reutilization and Marketing Service8 Defense Automated Addressing Center9 DLA Systems Design Center

10 Defense Logistics Information Service11 Defense Automated Printing Service12 Defense Logistics Agency

...Serving the Military ServicesAround the clock, Around the world...

7, 10

1, 9

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3, 4

5, 11, 12

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DLA Performance – SupplyManagement

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Overview

The Supply Management business area providesmateriel and services to support peacetime andcombat operations, combat preparedness, andhumanitarian aid. This includes integratedmateriel management of 4 million spare andrepair parts supporting over 1400 weaponsystems. Supply Management also providesmanagement of troop support items includingsubsistence, clothing and textiles, medicalsupplies, and the purchase and sale of over 100million barrels of fuel annually. Together these

commodities generated FY98 annual revenues of$13.0 billion, nearly 98% of which representedsales to the Military Services. Approximately9,800 personnel support the SupplyManagement business area.

The Supply Management business area operatesthrough four Defense Supply Centers located in;Columbus, OH; Richmond, VA; and two inPhiladelphia, PA; and the Defense EnergySupport Center in Ft. Belvoir, VA.

Mission

The mission of Supply Management is to providecustomer support through management oflogistics processes, to ensure that logisticssupport is provided to the Military Servicesworldwide at the right time, to the right place,and consistently at the best value in peacetime,emergency, and wartime scenarios. Our missionis dynamic as we continue to shift our approachin response to evolving changes in nationalpriorities, requirements of the Military Services,technology, and the commercial marketplace.The primary logistics functions include:

• Inventory management for bothpeacetime and combat support

• Transportation management (sharedwith the Distribution business area) forquick response in both normal andemergency situations

• Technical management, whichguarantees product quality and properpricing of materiel

• Procurement management, ensuringDoD gets the best value in procuringsupplies managed by DLA

• Obtain, manage and integrate, anddistribute logistics data and information

Goals

The long-term goals of the Supply Managementbusiness area are consistent with the goalscontained in the DLA Strategic Plan. Thesegoals will be achieved through a series ofsupporting strategies:

• Information technology will beleveraged to provide efficient integratedlogistics support

• Business practices will be continuallyimproved or reengineered to increaseefficiency

• Teamwork and partnerships will be usedto develop business relationshipsadvantageous to the customer

• Our workforce will continue to receivethe training needed to provide integratedsolutions for world class support

• Effective and efficient supplierrelationships will be leveraged to improveour buying power.

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FY98 Accomplishments

- Defense Supply Center Philadelphia initiatedthe Virtual Wartime Visibility (VWV), whichallows the Center to develop and accesscommercial market information to maintainvisibility over the War Reserve items neededto support the Military Services wartimefeeding plan. This plan will enhance theServices’ readiness and sustainability inemergency and wartime scenarios.

- Defense Supply Center Philadelphiaexpanded the Vendor Managed Inventory(VMI) Program, which provides the MilitaryServices with guaranteed access to over 600pharmaceuticals and ensures on-timemateriel availability to deploying units. Thisprogram also provides wartime sustainmentmateriel, which ensures adequate troopsupplies during contingency mobilization ordeployment, until the commercial industrialbase can adequately support expandedrequirements.

- Defense Industrial Supply Center initiated thePrime Vendor Program for facilitymaintenance which enables procurement ofsupplies related to Maintenance, Repair, andOperations (MRO) of facilities directly fromintegrated supply chain contractors. Thegoal is to leverage our buying powerthrough large contracts at discountedcommercial prices, and provide rapidresponse. The program allows DLA to meetthe customers need quickly and at lowerprices. It reduces the requirement forinventory stocks and results in reducedoverall maintenance supply supportinfrastructure costs.

- Defense Energy Support Center developedthe Service Station Initiative. This programwill result in significant savings inmaintenance, construction, andenvironmental restoration by usingcontractors to provide infrastructure andservices for fuel support. With limited military

construction funds and the increasedemphasis on outsourcing, this program aimsto reduce infrastructure costs associated withmaintaining military facilities and ensuringcompliance with environmental laws. Thepilot program began in FY98 at Fort Bragg, NC.

- Vice President Al Gore’s National Partnershipfor Reinventing Government (NPR)recognized two successful reinvention effortsin Supply Management business practiceswith Hammer Awards in FY98. These are:

- The Defense Ozone Depleting SubstancesReserve. Located at the Defense SupplyCenter and Defense Distribution DepotRichmond, the Reserve provides DoDwith the capability to centrally receive,reclaim and issue Class I ozone-depletingsubstances. This effort conserves reuse ofozone depleting substances, protects theenvironment, and reduces proceduralrequirements to customers on theirreturns of ozone depleting substances.

- Bid Evaluation Model. This automatedsystem is used to determine the overalllowest cost for more than $3 billionworth of annual fuel contracts. It wasradically reengineered by the DefenseEnergy Support Center to incorporateadvances in information technology thatallow it to determine fuel distributionpatterns more efficiently andeconomically; and process calculationsand reports at much greater speed. Theresult is more informed decision makingfor cost effective fuel contracts.

- The Defense Industrial Supply Center wasamong 11 finalists for the PresidentialQuality Award

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Performance Measures

The following performance measures are in directsupport of the DLA Strategic Plan goals and theDepartment’s logistics concepts. These program andfinancial performance measures are those that bestsupport the business activity goals and near-termobjectives from our customers’ perspective.

Customer Satisfaction Index: This measuredirectly supports the DLA objective of achieving90% customer satisfaction. The results reflect thepercentage of customers who responded thatthey were either “very satisfied” or “satisfied” withthe Defense Logistics Support Commandproducts and services. FY98 performance of80.7% substantially exceeded the FY98 goal of65%. The FY98 goal was established based onthe FY 1995 results of 60%. The FY99 andsubsequent goals have been adjusted to reflectFY98 performance, and increased effort andresources required to make incremental increasesas performance nears 90%.

Logistics Response Time (LRT) forImmediate Issues: The LRT performancemeasures support the DLA Strategic Plan goal ofconsistently providing responsive, best valuesupplies and services to our customers. Becauseintegrated logistics support for consumable items

includes support from both the inventory controlpoints and the distribution depots, this metricreflects the number of days required to providethe integrated support of the Supply Managementand Distribution business areas. DLSC hasestablished a response time goal of 2 days formaterial issued immediately from inventory stocks,and actually experienced an average responsetime of 2.1 days. The goal represents the DLAtime anticipated at the Inventory Control Pointand Depot to process the requisition, packagethe items, and provide delivery to on-base ornearby sites. It is important to understand thatthe total response time experienced by thecustomer—from the time the user places anorder until the time that the user receives theitem—is 18 days for immediate issue items. Theadditional 16 days represents the average amountof time that the user organization takes to processand deliver the requisition to DLA and the timeconsumed for delivery of the item to the actualend-user after DLA ships it.

Logistics Response Time (LRT) for TotalPipeline (Immediate and DelayedIssues): Some orders, where requisitionedmaterial is not immediately available from stockand must be backordered, are called delayed

FY98 ActualFY98 Goal% of Satisfied Customers

Increase Customer Satisfaction

80.7%

65%


Combined Response Time in Days

Reduce DLSC Combined LogisticsResponse Time

2.12

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goal is to meet or exceed customer expectations,for which there is no specific numeric metric. Ifthe provider meets the negotiated response time,and can deliver more rapidly than deliveries fromDLA inventories, both the military customer andDLA experience lower overall costs, infrastructureinvestment and inventory costs. The followingtimes represent the typical negotiated directdelivery contract requirements, or the actualexperienced delivery times:

Energy (Fuel): 100% on-demand availability

Subsistence (Food) and Medical Items: 2 days

Clothing and Other Textiles: 21 days

Hardware and Repair Parts: 23 days

Product Conformance: This measure directlysupports the DLA Strategic Plan goal toconsistently provide responsive, best valuesupplies and services to our customers. Thismeasure reflects the number of National StockNumbers (NSNs) that passed random testing forcritical and major defects or characteristics,divided by the number of total NSNs tested.Currently this indicator applies to construction,electronics, industrial and general supplies. DLAhas consistently achieved a product conformanceresult exceeding 90%. In FY98, DLA met thegoal of 95%.

issues. Delayed issues represent a significantlylonger response time than immediate issues. DoDhas targeted a 50% reduction in the response timesfor the combined immediate issues and delayedissues (total pipeline LRT) measured against theFY97 baseline of 36 days. This equates to a FY00target response time of 18 days for the totalpipeline, which includes immediate and delayedissues. DLSC is on target to meet the DoD FY00goal. During FY98, total response time improvedby 8 days. This improvement is attributed to anemphasis on improved ICP and depot processing,and a focus on each segment of the pipeline. DLAis focusing on implementation of more long-termcontracts, direct vendor delivery, and establishingmore prime vendor arrangements, which canallow for more rapid response for all items.

Response Times for Integrated Logistics/Commercial Practices: Consistent withproviding responsive, best value supplies andservices to our customers, DLSC satisfies manyrequisitions from commercial stocks rather thanfrom inventory. As such, DLSC has establishedcontractual agreements with commercial sourcesto supply items directly to the Military customers.Often, these arrangements allow the requiringactivity to order material directly from thecommercial supplier, within a negotiated time fordelivery. This performance measure is somewhatdifferent than the other LRT measures, in that the

Sep 98 ActualJan 98 ActualCombined Response Time in Days

Reduce Total Combined LogisticsResponse Time

37

29

FY98 ActualFY98 GoalPercent of Conforming Products

Production Conformance

95%95%

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Overall Supply Availability: This measuredirectly supports the DLA Strategic Plan goal toconsistently provide responsive, best valuesupplies and services to our customers. Thismeasure reflects the percentage of requisitionsthat are filled immediately from stock on hand,without interruption. DLA exceeded the FY98goal of 85% by 2.6%.

Weapon Systems Supply Availability: Thismeasure directly supports the DLA Strategic Plangoal to consistently provide responsive, bestvalue supplies and services to our customers. InFY98, DLA exceeded the composite goal of 85%set by DLA for weapon system supply availability.However, the availability did not meet 85% foreach Military Service. Low stocks of criticalaviation supplies, for which DLA assumedmanagement only recently, and the DLA focuson investing in fast-moving, lower-priced items,resulted in the Navy and Air Force supplyavailability averaging slightly below the 85%goal. DLA is focusing on replenishing aviationsupply levels. Anticipated increases in FY99funding authority will be used to improveaviation system supply performance for our Navyand Air Force customers. Overall, supplyavailability increased over FY97, resulting in adecrease of backordered items.

Reduce Cost of Logistics Information:This measure directly supports the DLA StrategicPlan objective of reducing total costs to ourcustomers. This metric reflects the reduction inthe price that the Defense Logistics InformationService charges for logistics services andinformation products, which ultimately results ina lower price for consumable items. Examples ofinformation products are supply chain-relatedtraining, extracts, and database and catalogupdates.

FY98 ActualFY98 GoalPercent of Supply Availability

Increase Overall Supply Availability

87.6%

85%

FY98 ActualFY98 GoalPercent of Supply Availability

Increase Weapon System Supply Availability

86.6%

85%

FY98 ActualFY98 GoalPercent of Decrease in Cost of Information

Reduce Cost of Logistics Information

2.24%

2%

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Financial Performance Measures: Inaddition to program performance measures, DLAmeasures the effectiveness of program budgetingand execution with unit cost performancemeasures. The following table depicts the SupplyManagement unit cost results for the Energy(fuel) commodity and the composite non-energycommodities:

Financial Performance Measures FY98 Goal FY98 Actual

Cost per Barrel of Fuel $ 25.87 $ 20.27

Non-Energy Cost per Dollar of Sales $ .9600 $ .9594

The Cost per Barrel of Fuel includes theacquisition cost of a barrel of fuel in addition tocosts for fuel services, transportation, andoverhead. The FY98 actual unit cost was lowerthan the FY98 goal due to product costs, whichwere substantially lower than initially planned.The non-Energy cost represents the acquisitionvalue of material in addition to overhead andother support costs.

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DLA Performance – Distribution

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Overview

The Distribution business area is responsible forthe receipt, storage, issue, packing, andpreservation of consumable items, as well asdelivery of materials from its warehouses to on-base or nearby customer sites such as ships,posts, and repair facilities. DLA also contractswith a variety of commercial sources to transportitems from vendors or DLA’s own warehousesdirect to customers worldwide. The functionincludes distribution of items managed by DLAand items managed by the Military Services,which results in unique complexities associatedwith maintaining accountability for items ownedby several components. In FY98, the Distribution

business area executed 25.9 million transactionsand managed nearly 266 million cubic feet ofoccupied storage space.

In FY98, the Distribution business area reducedoverhead by consolidating regional control of thedistribution depots in a single distribution activitycalled the Defense Distribution Center. The DDCmanages 21 subordinate distribution depotsthroughout the Continental United States andEurope. In FY98, this business area generatedrevenues of nearly $1.4 billion and includes12,140 personnel.

Mission

The mission of the Distribution business area is toensure that consumable items under its controlare provided to the Military Services worldwide atthe right time, to the right place, and

Goals

The goals of the Distribution business area areconsistent with the goals contained in the DLAStrategic Plan. These goals are achieved througha series of supporting strategies:

• Increase our reliability, response, and value toour customers by continually improving orreengineering our business practices

• Review our activities, and implement changesas necessary, to ensure efficiency,effectiveness, and best value costing for ourcustomers

• Reduce under-utilized infrastructure byeliminating unnecessary storage capacity


- World Wide Express (OCONUS ExpressCommercial Service): DLA, in partnershipwith the Air Mobility Command, establishedthis multi-theater commercial contract, whichwill serve as a means to provide reliable, cost-effective International Express Delivery ofsmall packages while also providing doorpickup and delivery, customs clearance andin-transit visibility.

consistently at the best value in peacetime,emergency, and wartime scenarios. TheDistribution mission integral part of providingintegrated logistical support to the warfighters.

- Defense Distribution System and FedExPowership Plus Interface: DLA and FederalExpress formed a partnership to build aninterface to electronically transmit shipmentinformation for domestic small packageexpress shipments. The depot benefits fromprocessing time savings and the ability toprint one label containing both militaryshipping labels and FedEx information/barcodes.

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- Overseas Destinations—Commercial DirectDelivery: This commercial express serviceships directly from the Defense Depots to theoverseas customer, and avoid delays atintermodal transportation nodes. With theagreement of TRANSCOM, DLA uses threecommercial contractors to ship high-priorityitems directly to the overseas customer.

- Premium Service: This service has FederalExpress fly low volume but readiness-criticalitems from a central warehouse in Memphis,TN to anywhere in the United States in 24-hours, and anywhere in the world in 48hours when expedited delivery is necessary.During 1998, we shipped 174,180 issuesand received 11,233 return receipts usingthis service.

- Vice President Al Gore’s National Partnershipfor Reinventing Government (NPR)recognized the success of the DistributionStandard System with a Hammer Award.DLA developed and implemented a singledistribution system at all DoD distributiondepots. Previously, the Agency and each ofthe Military Services operated supply depotsusing different systems, which made changesand improvements to depot operationsdifficult and expensive. Instead of developinga new system, DLA reviewed existing DoDsystems and selected one which could bemodified and enhanced to best meet DoDneeds at the lowest cost. The DistributionStandard System brings many businessprocess improvements, such as inventoryaccuracy and workload planning.


The following performance measures are in directsupport of the DLA Strategic Plan goals. Theprogram and financial performance measuresthat best support the business activity goals andnear-term objectives are:

Depot Logistics Response Time: Thismeasure directly supports the DLA Strategic Plangoal of consistently providing responsive, best

value supplies and services to our customers.The Distribution Business area has established agoal of less than or equal to one day for bothhigh-priority immediate issues and routine issuesfrom stock. This measures the average numberof days to process a customer order orrequisition, from the time the order is received atthe depot to the date the material is shipped. InFY98, the business area achieved a responsetime of .6 days for high priority issues and aweighted actual response time of .8 days forcombined high priority and routine issues.

Sample Inventory Accuracy: This measuredirectly supports the DLA Strategic Plan goal ofconsistently providing responsive, best valuesupplies and services to our customers. Thismeasure reflects the accuracy of inventory recordsusing statistical sampling to determine whetherphysical counts match recorded balances at thedepots. Random samples are taken and accuracyis measured semi-annually. Because the formerNavy depots had different sampling capabilitiesthan the depots using the Distribution StandardSystem (DSS), two systems were used to measureinventory accuracy in FY98 and therefore, it isnot possible to combine the statistical results in ameaningful manner. The results from eachsystem were 81.0% and 93.4%. The sampling

FY98 ActualFY98 GoalDepot Response Time in Days

Reduce Depot Logistics Response TimeImmediate Issues

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0.8

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plan used at former Navy depots had discreteitem category sampling capabilities. In FY99 weplan to incorporate similar features into theDistribution Standard System, which permitsbetter inventory management.

Denials: This measure also directly supports theDLA Strategic Plan goal of consistently providingresponsive, best value supplies and services toour customers. This metric measures denialincidents per 1000 requests for issues. A denialincident occurs when an item recorded on theinventory records is not on-hand or cannot belocated and made available for issue to acustomer.

Infrastructure Reduction: The Distributionbusiness area, in an effort to reduce infrastructurecosts, measures storage capacity and occupancyto identify improvements in space utilization ratesand eliminate unnecessary space. The goal ofincreasing space utilization ties directly to the DLAStrategic Plan goal to serve as a catalyst inbusiness affairs and acquisition reform, and theobjective to reduce overall infrastructure. InFY98, the planned space utilization rate of 66%was exceeded by 2%.

Financial Performance Measures: Inaddition to program performance measures, DLAmeasures the effectiveness of program budgetingand execution with unit cost performancemeasures. The following table depicts theDistribution unit cost results for each of theirreceipt and issue categories:


Bin Receipts $ 21.84 $ 21.87

Medium Bulk Receipt $ 36.15 $ 34.94

Hazardous/Heavy Bulk Receipts $ 56.30 $ 56.56

Bin Issues On Base $ 12.95 $ 12.59

Bin Issues Off Base $ 16.63 $ 17.71

Medium Bulk Issues On Base $ 27.86 $ 26.19

Medium Bulk Issues Off Base $ 36.12 $ 38.62

Haz/Heave Bulk Issues On Base $ 52.49 $ 49.60

Haz/Heave Bulk Issues Off Base $101.56 $109.07

FY98 ActualFY98 Goal% Accuracy of Inventory to Records

Inventory Accuracy

95%

93.4%

FY98 ActualFY98 GoalNumber of Denials per 1,000 Requests

Reduce Denial Incidents

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FY98 ActualFY98 Goal% of Space Capacity Utilized

Utilization Rates

66%68%

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Transshipments $ 4.61 $ 5.23

Unit Cost – Total $ 24.94 $ 25.78

Unit Cost – Covered Storage $ 7.89 $ 6.31

In FY98, costs for off-base issues andtransshipments were higher than projected, andthe workload for all outputs was lower thanexpected. These factors resulted in a total unitcost that exceeded the goal by $0.84.

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DLA Performance – Reutilization& Marketing Service

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Overview

The Defense Reutilization and Marketing Service(DRMS) coordinates the reuse of excess andsurplus property for the Department of Defenseand other authorized agencies. Items that arenot reutilized within DoD are screened forpossible transfer to other Federal agencies, or fordonation to local governments. Surplus propertythat cannot be reutilized is offered for sale to thepublic on a competitive basis. DRMS alsooversees the disposal of remaining property andhazardous waste items through sales andcontractual vehicles.

Command and control of the DRMS mission isaccomplished from the headquarters

organization in Battle Creek, MI. The mission isaccomplished through Defense Reutilization andMarketing Offices (DRMOs) located on militaryinstallations throughout the world. DRMOsreceive, classify, segregate, demilitarize, accountfor and report excess materiel for screening, lotcategorization, merchandising, and sale. The FY1998 mission was performed with just under3,300 personnel and generated revenues of$590M. A significant portion of the FY 1998revenues resulted from a $351 million ServiceLevel Billing effected to recoup prior year lossesin DRMS.

Mission

The Defense Reutilization and Marketing Servicemanages the reutilization, transfer, donation andsale of military personal property, as well asdisposal of hazardous waste items no longer

needed for national defense. The goal is tomaximize the financial return on the initialequipment investment, and protect bothvaluable natural resources and the environment.

Goals

The long-term goals of the Reutilization andMarketing business area are consistent with thegoals contained in the DLA Strategic Plan. Thesegoals are achieved through a series of supportingobjectives and initiatives designed to improveand reengineer business practices to ensureefficiency, effectiveness, and best value costing.

FY 1998 Accomplishments

- Commercial Venture: In 1998, the DefenseReutilization and Marketing Service awardedits first commercial venture contract, whichprovides the contractor with exclusive rightsto purchase property consisting of machinetools, bearings, service trade equipment,warehouse equipment, electronics,hardware, marine, railroad and constructionequipment. The contractor purchases theproperty and can resell it using private sectorsales processes. Upon resale, 80% of

proceeds will be returned to DRMS and 20%to the contractor. This partnership withprivate industry is expected to increase salesrevenue and reduce costs. The results of thisfirst commercial venture will be analyzed todetermine award of additional contracts forother types of commodities.

- Recycling Control Point (RCP): Under thisinitiative, disposal property is “received” into aRecycling Control Point account via an

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electronic transaction with the actual propertyremaining in place on the Defense Depotshelves. RCP automates the screening and salesprocess via the DRMS Internet World WideWeb Site and property moves from the depotonly when directed by DRMS for shipment toultimate customer. This decreases coststhrough reduced physical handling andmovements, and improves accountability.

- Foreign Military Sales – The DefenseReutilization and Marketing Service created a

foreign military sales (FMS) Web site thatallows access to a searchable and sortabledatabase. FMS customers can search theinventory by National Stock Number, itemname, weapon system, and geographicallocation to obtain descriptive data. Photosare also available for some items. Theprogram manager received one of tenOutstanding Defense Logistics AgencyEmployee of the Year awards for these efforts.


There are limited performance measurespresented for DRMS for FY98. During FY98,DRMS began to develop additional programperformance measures that are in direct supportof the DLA Strategic Plan. Those additionalperformance measures will be in effect duringFY99 and reported in the Statementsaccordingly.

Total Value: This measure directly supports theDLA Strategic Plan goal of consistently providingresponsive, best value supplies and services toour customers. The Total Value ratio identifiesthe total value of the services provided by DRMSin terms of reutilization, transfers, sales, and theresulting cost avoidance, as compared to thecost to provide the services. For example, thecurrent ratio of 1:3.07 means that the DefenseReutilization and Marketing Service provides abenefit to DoD that is three times greater thancosts.

In FY98, DRMS transferred, or donated over $5billion in items, based on latest acquisition value.This $5 billion represents cost avoidance to DoD,Federal, and State customers, and is achieved ata cost of $ .013 on the dollar of acquisitionvalue. For the fifth year in a row, DRMS hasreduced customer costs in the hazardous wastedisposal area, using innovative contractingtechniques, improved automation and improvedhazardous waste management andidentification. In FY98, the average disposal costdeclined from $ .27 per pound to $ .22 per

pound. Additionally in FY98, a longstanding$18 million backlog in customer reimbursementswas eliminated and new procedures weredeveloped and implemented to ensure that allreimbursements are made in a timely manner.

(NOTE: Total value is derived by adding:projected revenue from scrap sales, usablesales, FMS sales, precious metals, a credit for fullacquisition value of serviceable reutilizationrequests, a cost savings credit for dispositionsminus reutilization calculated at 2.5% ofacquisition value, plus a cost avoidance creditfor HM reutilization, transferred, donated orsold in lieu of ultimate disposal.)


Ratio of Value added to Total Cost

Increase Total Value

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Financial Performance Measures: Inaddition to program performance measures,DLA measures the effectiveness of programbudgeting and execution with unit costperformance measures. The following tabledepicts the Defense Reutilization and MarketingService unit cost results for each of their supportcategories:


Cost/Dollar of Acquisition Value

- Reutilization/Transfer/Donation $0.01496 $0.01296

Cost/Dollar of Sales Proceeds $1.0551 $1.0125

Cost/Pound - Ultimate Disposal $0.195 $0.185

Cost/Line - Abandonment and Destruction $293.72 $241.53

Beginning in FY98, DRMS was measured onfour unit cost goals, as opposed to two in FY97.The Sales Proceeds and Abandonment &Destruction goals were established, andHazardous Disposal was renamed as UltimateDisposal and the output measure was changedfrom lines to pounds. FY 1998 performance forAbandonment & Destruction was significantlybelow the unit cost goal. This was a new goal inFY 1998 and actual workload was lower thanplanned. This goal represents the mostexpensive effort performed by DRMS, but alsorepresents the least amount of workload (lessthan 2%). This makes the workload goaldifficult to project, but results in minimal impacton total costs.

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DLA Performance – InformationServices

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Overview

The Information Services business area serves as aprimary provider of integrated informationmanagement support. This support is providedby the Defense Automatic Addressing SystemCenter (DAASC) located in Dayton, OH and Tracy,CA, and the DLA System Design Center (DSDC)

headquartered in Columbus, OH and supportedby eight geographically dispersed satellite sites.In FY98 the Information Services business areaconsisted of approximately 1,100 employees withrevenues of $104.8 million. Non-DLA customersaccounted for 23% of the FY98 revenue.

Mission

The mission of the Information Services businessarea is to provide integrated informationmanagement support by delivering products andservices of increasing quality and decreasing cost,on time and within budget. This support is

provided through three major program areas:Software Development and Maintenance;Technology and Infrastructure Support, and; theDefense Automatic Addressing System Centerand Laboratory Operations.

Goals

The success of the Information Services businessarea is largely determined by the satisfaction of itscustomers. DSDC’s primary goal is to provideconsistently responsive, best value supplies andservices to its customers. Accomplishment of thisgoal is achieved through improved productivity,quality, and delivery. DSDC seeks to deliver 95%of products on time and within budget.

Another, extremely critical goal for theInformation Services business area is to ensurethat all DSDC-supported Information Systems arecompliant for Year 2000. DSDC has developed anumber of important objectives in this area toinclude: complete remediation of DSDCsupported business systems, complete transitionto the OS/390 operating environment and fullintegration testing of all Y2K supported software.


On-Time Delivery Rate: This measure relatesdirectly to the DLA Strategic Plan goal ofproviding responsive, best value supplies andservices to our customers. It also has a directrelationship to customer satisfaction. Thismeasure reflects the percentage of time thatprojects are delivered to the customer within 5%of the originally scheduled or re-baselinedestimated time for completion. It is used bymanagement to determine DSDC’s ability toforecast project efforts.

FY98 ActualFY98 Goal% of Deliveries Made On-Time

(within 5% of estimate)

On-Time Deliveries

90%97%

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Within Budget Delivery Rate: This measurealso relates to DLA Strategic Plan objective ofmeeting or beating our price commitments andreducing total costs. This measure reflects thepercentage of time that projects are delivered tothe customer within 5% of the originally estimatedor re-baselined cost projections. It is use bymanagement to measure the effectiveness ofDSDC’s ability to forecast project and task costs.

Hot Line Calls: This measure directly relates toDLA Strategic Plan objectives for customersatisfaction and product reliability. It identifiesthe quality of DSDC software products that areimplemented as operational systems. The metricis the number of actual system defect callsreceived by the Hotline desk. The defects mustbe classified as application-based, and notoperational in nature.

Financial Performance Measures: Thefollowing table depicts the FY98 unit costgoal and actual for the DLA Systems DesignCenter (DSDC):

Financial Performance Measure FY98 Goal FY98 ActualUnit Cost Rate $57.24 $62.72

DSDC exceeded their unit cost goal in FY98because the goal for billable productive hourswas not met. The productive hour planincluded an initiative to leverage general andadministrative and indirect assets in FY98 tosupport billable productive hours, which was notfully achieved.

FY98 ActualFY98 Goal% of Deliveries Made Within

Budget (within 5% of estimate)

Within Budget Deliveries

90%

97%

CompletedReceivedFY98 Actions

Hot Line Status

Cancelled

176

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DLA Performance – AutomatedPrinting Service

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Overview

The Defense Automated Printing Service (DAPS) isresponsible for the Department of Defense (DoD)printing program and document automationencompassing value-added conversion, electronicstorage and output and the distribution of hardcopy and digital information. All DoD printingrequirements, whether produced in-house orprocured through the Government PrintingOffice (GPO), are forwarded to DAPS to ensurecompliance with DoD Directives and the FederalPrinting Program. The Congressional JointCommittee on Printing exercises oversight of allfederal printing including the DAPS in-houseprinting capability.

DAPS manages a worldwide printing, duplicating,and document automation production andprocurement network. The DAPS CorporateSupport Team is located at Ft Belvoir, Virginiawith 80 major field locations and 238 smallerdocument automation facilities located in 12countries. Approximately 1,900 civilianpersonnel support the DAPS mission. DAPS hadFY98 revenue of $377.8 million. DAPS’s primarycustomers are Army (21.8%), Navy (31.1%), AirForce (16.2%), Defense agencies (22.7%), andnon-DoD customers (8.2 %).

Mission

The Defense Automated Printing Serviceprovides automated printing servicesworld-wide in support of America’s ArmedForces, encompassing electronic conversion,retrieval, output, and distribution of digitaland hardcopy information. DAPS providesquality products and services that arecompetitively priced and delivered on timeto their customers.

DAPS is the recognized leader in documentautomation and the customer-preferred providerof best value automated digital and hardcopyinformation products and services. DAPS isdedicated to the transition form paper toelectronic-based document management, and isan integral part of the Department of Defenseplan to transition into the age of electronicdocuments and business practices.

Goals

The long-term goals of the Automated PrintingService business area are consistent with thegoals contained in the DLA Strategic Plan. Thesegoals will be achieved through a series ofsupporting objectives. Some of the primaryobjectives planned for implementation by FY00are:

• Design the organization with the minimumpersonnel and infrastructure to effectivelyexecute it mission. This includes determiningthe DAPS Most Efficient Organization anddeveloping a plan for reducing costs, as wellas benchmarking our products and servicesagainst the best in private industry.

• Maintain a constant focus on ourcommitment as a customer driven

organization. This includes meeting orexceeding customer delivery requirementsand the customer satisfaction metric, as wellas effectively inform all customers of DAPSproducts and services.

• Promote the full portfolio of documentautomation services to our customers. Thisincludes marketing plans to promote digitalservices, the Department Product Line, andimproving the technical expert image of DAPS.

• Build Team 2000 Skills. This objective includesmeeting the DLA Strategic Plan goal ofestablishing Individual Development Plans forall DAPS employees by the end of FY99, andinvesting at least 1.5% of gross payroll costsin training.

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• Partner with government to improve synergisticrelationships. This includes partnering withthe Government Printing Office to outlineroles and relationships, and ensure that DoDcustomers receive the best value.

• Develop and implement a “DAPS At TheDesktop Strategy” to connect customers toDAPS sites. This includes implementing theDAPS Information Technology plan andNetwork Strategy.


- Vice President Al Gore’s National Partnershipfor Reinventing Government (NPR)recognized the DAPS effort for changing alabor-intensive process for recordingGovernment Bills of Lading to an automatedsystem with a Hammer Award. This effortresulted in increased accuracy and timelinessof obligation data: electronic storage anddata retrieval where the invoices were paid,reduced late payment penalties, increasedvisibility of transportation payments, andreduced requirements for paper.

- Implementation of the Defense WorkingCapital Accounting System (DWAS) wascompleted. DWAS is the first commercial off-the-shelf DoD migratory accounting systemand the first to fully implement the U.S.Government Standard General Ledger.

- DLA signed a DoD/GSA PartneringAgreement for DAPS to provide documentautomation services to GSA and other federal

agencies. GSA’s ten remaining duplicatingcenters were transferred to DAPS, which isestimated to result in $4.3 million in annualsavings to the federal government.

- Using an extended GSA contract with majorequipment manufacturers, DAPS is now offeringthe Multi-Functional Device (MFD), whichcan simultaneously deliver at least two of thefollowing functions: print, copy, scan, and fax.Successful partnering in the Cost-Per-CopyProgram and the new Group ConnectionProgram (MFDs) will result in savingsbetween 5 to 35 percent to the customers.

- DAPS is continuing to accelerate theacceptance of the universal I.M.P.A.C. forintra-government sales, which hassignificantly increased accessibility of itsproducts and services with the card. DAPStransactions number over 130 thousand,worth $48 million, with savings estimated at$70-92 per transaction.


Conversion to Digital Format: This goal istied to the DLA Strategic Plan goal to serve as acatalyst for the revolution in business affairs andacquisition reform. DAPS measures the number ofpages (in millions) converted to digital format. Thismeasure focuses on accelerating the use ofdocument automation technology. Conversion ofpages may be accomplished in-house or bycontract, and include hardcopy to digital, systemoutput to digital, and from one form of digital toanother. DAPS exceeded the goal in FY98, largelybecause initiatives emphasizing automation,including several Defense Reform Initiative Decisions,served as a catalyst for DAPS customers to seekout the DAPS expertise in digital conversion.

98 Actual98 GoalPages (in Millions) Converted

Conversion to Digital Format

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Customer Satisfaction: This metric ties to theDLA Strategic Plan goal of consistently providingresponsive, best value supplies and services toour customers. DAPS uses a survey of a statisticalsampling of customers to determine an overallcustomer satisfaction rating. Satisfied customersare measured by the percentage of customersranking DAPS performance from acceptablethrough high quality. The survey was lastconducted during FY96 and another survey isplanned for FY99 with a goal of 90% overallcustomer satisfaction.

Production Efficiency Factor: This metricties to the DLA Strategic Plan goal of consistentlyproviding responsive, best value supplies andservices to our customers. Production standardsare established for each production process andare stated in terms of units produced per hour.The units are converted to standard hoursearned. Employee time is captured by costcenter as hours available. The employee hoursavailable are divided into the hours earned toproduce the production efficiency factor shownas a percentage. DAPS performed slightly underthe FY98 goal, largely due to lower thanexpected sales.

In-House Re-work Percentage: This metric tiesdirectly to the DLA Strategic Plan goal ofconsistently providing responsive, best valuesupplies and services to our customers. Thismetric helps determine the cost of re-work. It iscalculated by dividing revenue loss from ordersnot accepted by the customer by the total in-house production revenue.

Financial Performance Measures: Inaddition to program performance measures, DLAmeasures the effectiveness of programbudgeting and execution with unit costperformance measures. The following tabledepicts the Automated Printing Service unit costresults for each of their support categories:


Cost per Offset Press Unit $0.0402 $0.0363

Cost per Electronic Impression $0.0299 $0.0324

Reproduction (Cost per Running Feet) $0.3346 $0.2880

98 Actual98 Goal% of Units Produced per Employee Hour

Production Efficiency

100%

98.9%

98 Actual98 Goal

% of Revenue Lost Due to Rework Requirement

In-House Rework

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0.18%

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Management’s Discussion andAnalysis of the Financial Statements

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These financial statements have been prepared toreport the financial position and results ofoperations for the entity, pursuant to therequirements of the Chief Financial Officers Act of1990 and the Government Management ReformAct of 1994. 31 U.S.C. 3515(b).

These financial statements include all of the DLAWorking Capital Fund activities and associatedbudget authority. These statements have beenprepared from the books and records of theDefense Logistics Agency, in accordance with theformats prescribed by the Office of ManagementBudget (OMB) Bulletin 97-01,”Form and Contentof Agency Financial Statements.” Thesestatements are reconciled to the budgetaryreports which are prepared from the same booksand records, but on a different basis ofaccounting, – the same basis as the President’sbudget, rather than in accordance with theGenerally Accepted Accounting Principals (GAAP).

Introduction, Purpose and Limitations of Financial Statements

The statements should be read with therealization that they are for an Agency of the U.S.Government, a sovereign entity. Intra-governmental assets and liabilities are those withother Federal Agencies. For example, DLA’s FundBalance is held by the U.S. Treasury Department,another Federal agency. DLA has no authority topay liabilities not covered by its budgetarylimitations. Liquidation of such liabilities requiresenactment of an appropriation. Because the U.S.Government is a sovereign entity, certainliabilities, other than that for contracts, can beabrogated by new legislation.

The FY98 financial statements were developed inconformance with the Federal hierarchy ofaccounting guidance. In that regard, DLA usedpublished Statements of Federal FinancialAccounting Standards, OMB Form and ContentGuidance, and the Department of DefenseFinancial Management Regulation.

Discussion and Analysis of Fiscal Year Operations and Financial Condition

The DLA DWCF business areas ended FY98 withtotal adjusted program costs of $14.0 billion, andearned revenues of $14.3 billion, for a net costof operations of $267 million. The positive netoperating result was due in large part to thelower than expected price of fuel in the Supplybusiness area, and the effect of a Service LevelBilling to recover prior year losses in DRMS. Thenon-energy segment of the Supply Managementbusiness area, as well as the Distribution,Information Services and Automated PrintingServices business areas, experienced losses inFY98. These losses are budgeted for recovery inFY99 and FY00.

Some significant management initiatives werefactored into the financial planning for FY98and ultimately affected the financial results. TheConsumable Item Transfer, which is the DoDdirected transfer of management of consumableitems from the Military Services to the DefenseLogistics Agency, continued in FY98. Duringthe year, DLA received over 23,000 items and

capitalized over $700 million in inventory atstandard cost. The transfer resulted in anincrease in cash balances for the Defense-wideWorking Capital Fund cash account, as DLAsold the transferred material that was initiallypurchased by the Military Services. To adjust forthis impact, DLA made non-expenditure cashtransfers of $569.1 million to the appropriateMilitary Services during FY98. The transfer ofconsumable items ends in FY99.

In FY98, 28 Defense Reutilization and MarketingOffices in the continental United States wereclosed in order to properly size the disposalinfrastructure to match current workloadvolume and dispersion. DRMS negotiatedmutually satisfactory arrangements withaffected customers for providing disposalservices after the closures. FY98 also markedcompletion of the second phase of a 25%reduction in DRMS headquarters overheadpositions. A total of 101 positions wereeliminated within the headquarters overhead

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structure through consolidation, realignment,and reengineering efforts.

The Agency continued the directed consolidationof distribution depots, resulting in reducedinfrastructure costs. The streamlining ofoverhead operations at the Defense DistributionCenter in FY98 resulted in a reduction of 355full time equivalent personnel. These reductionswill save $16 million in FY99 and are projectedto save a total of $34 million in operations costsby FY00.

In FY98, both the Distribution and Reutilizationand Marketing Service business areas began theprocess of competitive sourcing three distributiondepots and ten Defense Reutilization andMarketing Offices (DRMOs) respectively. Thisprocess compares the government’s MostEfficient Organization cost of logistics processesagainst private sector bids to perform the sameservices. If the private contractor proposal is atleast 10% lower than the government cost, thefunctions are contracted out. The initialcompetitions will take approximately two yearsto complete, and it is anticipated that 13additional depots and 58 additional DRMOs willbe competed by the end of FY00.

Cost visibility across the Department has been aconcern for a number of years. To gainadditional visibility of cost and pricing structures,the Department of Defense has increased theemphasis on the use of Activity Based Costing(ABC). ABC provides detailed cost visibility, whichcan assist management in making decisionsregarding streamlining of operations, as well aseliminate activity fragmentation. Pilot programshave been successfully completed at DefenseSupply Center Columbus, Defense LogisticsInformation Service, Defense Distribution DepotSusquehanna, and Defense Reutilization andMarketing Services. Plans are to expand ActivityBased Costing to all DLSC support activities bythe end of Calendar Year 1999.

As required by the Federal Managers’ FinancialIntegrity Act (FMFIA) of 1982, DLA has conductedan evaluation of the management control

systems. One of the objectives of the system ofinternal accounting is to provide reasonableassurance that the revenues and expendituresapplicable to agency operations are properlyrecorded and accounted for to permit thepreparation of accounts and reliable financial andstatistical reports and to maintain accountabilityover the assets. The results of the review indicatethat the DLA internal accounting andadministrative control systems in effect duringFY98 are operating effectively. Materialweaknesses were identified and reported in DLA’sFY98 Annual Statement of Assurance, andcorrective action plans have been developed andare currently being implemented. This reviewencompassed the operating accounting systems,as defined by the General Accounting Office(GAO), and was performed by the DefenseFinance and Accounting Service. DLA has sevenoperating accounting systems, with one of theseven systems considered substantially incompliance with the GAO accounting principles,standards, and related requirements. Theremaining six accounting systems contain one ormore major nonconformance which precludecertification that the system is in substantialcompliance with GAO guidelines. Those materialnonconformances are also reported in the DLAAnnual Statement of assurance. In any case,where an identified material weakness ornonconformance impacts the accounts reportedin these Statements, it is annotated in thefootnotes and/or the ManagementRepresentation Letter.

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


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47The accompanying notes are an integral part of these financial statements.

Department of DefenseDefense Logistics Agency – Defense Working Capital FundConsolidated Balance SheetAs of September 30, 1998(Dollars Rounded to Thousands)

ASSETS

Entity AssetsIntragovernmental

Fund Balance With Treasury (Note 2) $ 572,810Accounts Receivable, Net (Note 3) 770,451

Total Intragovernmental 1,343,261

Accounts Receivable, Net (Note 3) 92,825Inventory and Related Property, Net (Note 5) 9,756,123General Property, Plant and Equipment, Net (Note 6) 753,167Other (Note 4) 720,422Total Entity Assets 12,665,798

Non-Entity AssetsOther (Note 4) 83,307Total Non-Entity Assets 83,307

Total Assets $ 12,749,105

LIABILITIES

Liabilities Covered by Budgetary ResourcesIntragovernmental Liabilities

Accounts Payable (Note 16) $ 440,873Other (Note 7 and 9) 204,465

Total Intragovernmental 645,338

Accounts Payable (Note 16) 778,534Other (Note 7 and 9) 125,897Total Liabilities Covered by Budgetary Resources 1,549,769

Liabilities not Covered by Budgetary ResourcesMilitary Retirement Benefits and Other Employment Related Actuarial Liabilities (Note 8) 209,487Total Liabilities not Covered by Budgetary Resources 209,487

Total Liabilities 1,759,256

NET POSITION

Cumulative Results of Operations 10,989,849Total Net Position 10,989,849Total Liabilities and Net Position $ 12,749,105

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Department of DefenseDefense Logistics Agency – Defense Working Capital FundConsolidated Statement of Net CostFor the period ending September 30, 1998(Dollars Rounded to Thousands)

Program CostsIntragovernmental $ 4,674,561

With the Public 9,354,854

Total Program Cost 14,029,415

Less: Earned Revenues (14,296,889)

Net Program Costs (267,474)

Deferred Maintenance (Note 11) –

Net Cost Of Operations $ (267,474)

Additional information included in Note 10.

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Department of DefenseDefense Logistics Agency – Defense Working Capital FundConsolidating Statement of Net CostFor the period ending September 30, 1998(Dollars Rounded to Thousands)

ReutilizationSupply and Marketing

Management Distribution Service

Program Costs

Intragovernmental $ 4,380,650 $ 657,429 $ 229,916

With the Public 8,287,723 840,237 123,800

Total Program Cost 12,668,373 1,497,666 353,716

Less: Earned Revenues (13,026,799) (1,395,438) (589,676)

Net Program Costs (358,426) 102,228 (235,960)

Deferred Maintenance (Note 11) – – –

Net Cost Of Operations $ (358,426) $ 102,228 $ (235,960)


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Automated EliminationsInformation Printing and

Service Service Combined Adjustments Consolidated

$ 34,320 $ 379,335 $ 5,681,650 $ (1,007,089) $ 4,674,561

77,433 7,400 9,336,593 18,261 9,354,854

111,753 386,735 15,018,243 (988,828) 14,029,415

(104,809) (377,773) (15,494,495) 1,197,606 (14,296,889)

6,944 8,962 (476,252) 208,778 (267,474)

– – – – –

$ 6,944 $ 8,962 $ (476,252) $ 208,778 $ (267,474)

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Department of DefenseDefense Logistics Agency – Defense Working Capital FundConsolidated Statement of Changes in Net PositionFor the period ending September 30, 1998(Dollars Rounded to Thousands)

Net Cost of Operations $ (267,474)

Financing Sources (Other than Exchange Revenues)Imputed Financing 190,517Transfers-In 1,565,121Transfers-Out (1,386,436)

Net Results of Operations 636,676

Prior Period Adjustments (Note 12) 267,434

Net Change in Cumulative Results of Operations 904,110

Increase in Unexpended Appropriations 15,332

Change in Net Position 919,442

Net Position-Beginning of the Period 10,070,407

Net Position-End of Period $ 10,989,849


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Department of DefenseDefense Logistics Agency – Defense Working Capital FundCombined Statement of Budgetary ResourcesFor the period ending September 30, 1998(Dollars Rounded to Thousands)

BUDGETARY RESOURCESBudgetary Authority $ 14,665

Unobligated Balances – Beginning of Period (393,170)

Net Transfers Prior-Year Balance, Actual (+/-) 1,501

Spending Authority from Offsetting Collections 15,049,695

Adjustments (1,298,652)

Total Budgetary Resources 13,374,039

STATUS OF BUDGETARY RESOURCESObligations Incurred 13,446,405

Unobligated Balances – Available (72,366)

Total Status of Budgetary Resources 13,374,039

OUTLAYSObligations Incurred 13,446,405

Less: Spending Authority from OffsettingCollections and Adjustments (15,050,734)

Obligated Balance, Net – Beginning of Period 4,764,732

Obligated Balance Transferred, Net (1,501)

Less: Obligated Balance, Net – End of Period (4,572,350)

Total Outlays $ (1,413,448)


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Department of DefenseDefense Logistics Agency – Defense Working Capital FundCombined Statement of FinancingFor the period ending September 30, 1998(Dollars Rounded to Thousands)

OBLIGATIONS AND NONBUDGETARY RESOURCESObligations Incurred $ 13,446,405Less: Spending Authority for Offsetting Collections

and Adjustments (15,050,733)Financing Imputed for Cost Subsidies 190,517Net Transfers-In 178,685Total Obligations as Adjusted and Nonbudgetary Resources (1,235,126)

RESOURCES THAT DO NOT FUND NET COST OF OPERATIONSChange in Amount of Goods, Services, and Benefits

Ordered but not Yet Received or Provided 284,078Costs Capitalized on the Balance Sheet 163,530Financing Sources That Fund Costs of Prior Periods 307,989Other (185,349)Total Resources That Do not Fund Net Costs of Operations 570,248

COSTS THAT DO NOT REQUIRE RESOURCESDepreciation and Amortization 114,950Other (10,528)Total Costs That Do Not Require Resources 104,422

Financing Sources Yet to Be Provided 292,982

Net Costs of Operations $ (267,474)

Additional Information included in Note 14.

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Basis of Presentation

These financial statements have been prepared toreport the financial position and results of operationsof the Defense Logistics Agency (DLA), as required bythe Chief Financial Officers (CFO) Act of 1990expanded by the Government Management ReformAct (GMRA) of 1994, and other appropriate legislation.The report has also been prepared to provideinformation with which Congress, agency managers,the public, and other interested parties can assessmanagement performance stewardship. They havebeen prepared from the accounting records of DLA inaccordance with the Federal Accounting StandardsAdvisory Board (FASAB), DoD Financial ManagementRegulations (FMR), including Volume 6B, as adoptedfrom the Office of Management and Budget (OMB)Bulletin No.97-01, “Form and Content of AgencyFinancial Statements.” To the extent that guidance isnot provided by one of these standards, DLA accountsfor transactions in accordance with guidancepromulgated by the General Accounting Office (GAO),Department of Treasury and Generally AcceptedAccounting Principles (GAAP). These statements differfrom the DLA financial reports prepared to monitorand control the use of budgetary resources. Amountspresented are rounded to the nearest thousand unlessotherwise noted.

Reporting Entity

The Defense Logistics Agency (DLA) is a combatsupport agency responsible for worldwide logisticssupport throughout the Department of Defense(DoD). The primary focus of DLA is to provide logisticssupport to the warfighter. In addition, DLA providessupport to relief efforts during times of nationalemergency. Fiscal year 1998 represents the first yearthat DLA will prepare and provide Defense WorkingCapital Fund stand-alone financial statements asrequired by the CFO Act and the GMRA.

The accounts used to prepare the statements areclassified as entity/nonentity. Entity accounts consistof resources that the agency has the authority todecide how to use, where management is legallyobligated to use funds to meet entity obligations.Non-entity accounts are assets that are held by anentity but are not available for use in operations. TheDLA organization has five active entity sub-organizations funded through the Defense WorkingCapital Fund (DWCF). These sub-organizations arerefered to herein as business areas and are as follows:

Note 1. Summary of Significant Accounting Policies

The Supply Management Business Area (Supply) helpscarry out this mission by procuring, managing andsupplying over three billion consumable items toMilitary Departments, other DoD components,Federal agencies and selected foreign governments.The appropriation symbol is 97X4930.005C.

The Distribution Business Area (Distribution) receives,stores and distributes commodities, principal enditems, and depot level reparables for the MilitaryDepartments and other DoD components, Federalagencies, and selective foreign governments. Theappropriation symbol is 97X4930.005B.

The Reutilization and Marketing Service Business Area(DRMS) provides reutilization services which includereceiving, classifying, segregating, demilitarizing,accounting for and reporting excess materiel forscreening, lotting, merchandising, and sale. They alsohave the mission of hazardous property disposal andthe economic recovery of precious metals from excessand surplus precious metal-bearing materiel. Theappropriation symbol is 97X4930.005N.

The Information Services Business Area providesinformation management support. The appropriationsymbol is 97X4930.005F5.

The Automated Printing Service Business Area (DAPS)is responsible for document automation and printingwithin the Department of Defense, encompassingelectronic conversion, retrieval, output anddistribution of digital and hardcopy. Theappropriation symbol is 97X4930.005G.

The accompanying audited financial statementsaccount for all funds for which DLA is responsibleexcept that information relative to classified assets,programs, and operations has been excluded fromthe statement or otherwise aggregated and reportedin such a manner that is no longer classified. Theaudited financial statements are presented on theaccrual basis of accounting as required by DoDaccounting policies.

Budgets and Budgetary Accounting

The Department of Defense expanded the use ofbusiness-like financial management practices throughthe establishment of the Defense Business OperationsFund (DBOF) on October 1, 1991. On December 11,1996, the DBOF became the Defense Working CapitalFund (DWCF). The DWCF operates with financial

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accountability to enhance business management andimprove the decision making process. The DWCF isbuilt on revolving fund principles previously used forindustrial and commercial-type activities. TheDepartment of Defense’s Working Capital Fundincludes industrial and commercial type transactions.These activities provide supplies and inventories toDepartment organizations on a commercial basis.Receipts derived from resale operations are normallyavailable in their entirety for use without furthercongressional action.

Each Business Area receives an Annual OperatingBudget (AOB) in unit cost terms. Unit CostResourcing provides the operating expense authority/cost authority for such items as salaries, non-laborexpenses, and materiel within each activity. Costauthority or the amount “earned” depends on theactual workload times the unit cost goals. EachBusiness Area can also receive reimbursable authorityfor outputs/goods and services that are notcontained in the unit cost goals. Host support for atenant is an example.

Business Areas may also receive a capital budget thatprovides the obligation authority for the purchase ofequipment, minor construction, information technologyand telecommunications, and software development.

Basis of Accounting

Transactions are recorded on an accrual basis and ona budgetary basis. Under the accrual method ofaccounting, revenues are recognized when earnedand expenses are recognized when incurred, withoutregard to receipt or payment of cash. Budgetaryaccounting facilitates compliance with legal andinternal constraints and controls over the use ofFederal funds. All known DLA intrafund balanceshave been eliminated. All other intrafund balancesattributable to Other Federal entities have beenidentified in Note 15.

Revenues and Other Financing Sources

Exchange revenue is recognized at the point therendered service is completed and billed, or at thepoint inventory items are sold. Certain Distributionactivity group revenues are recognized based on theactual workload for the period. These revenues maybe billed up to two months after work is performed.These financial statements include an adjustment toaccrue for these billings.

Accounting for Intragovernmental Activities

DLA, as an agency of the Federal government, interactswith, and is dependent upon, other financial activitiesof the government as a whole. As a result, thesefinancial statements do not reflect the results of allfinancial decisions applicable to DLA as though theagency were a stand-alone entity.

1. DLA’s proportionate share of the public debt andrelated expenses of the Federal Government arenot included in these financial statements becausedebt and related interest costs are not apportionedto Federal agencies. The DLA’s financial statementstherefore do not report any portion of the publicdebt or interest thereon, nor do the statementsreport the source of public financing whetherfrom issuance of debt or tax revenues.

2. Financing for the construction of DoD facilities isobtained through budget appropriations fromCongress. To the extent that this financing mayhave been ultimately obtained through the issuanceof public debt, interest costs have not beencapitalized because the Treasury Department doesnot allocate interest costs to the benefiting agencies.

3. DLA’s civilian employees participate in the CivilService Retirement System (CSRS) and FederalEmployees Retirement System (FERS), whilemilitary personnel are covered by the MilitaryRetirement System (MRS). Additionally, employeesand personnel covered by FERS and MRS alsohave varying coverage under Social Security. DLAfunds a portion of the civilian and militarypensions. Reporting civilian pension benefitsunder CSRS and FERS retirement systems is theresponsibility of the Office of PersonnelManagement. DLA recognizes an imputedexpense for civilian employee pensions and otherretirement benefits in the Statement of Net Cost;and recognizes imputed revenue for the civilianemployee pensions and other retirement benefitsin the Statement of Changes in Net Position. DLAreports the assets, funded actuarial liability, andunfunded actuarial liability for the militarypersonnel in the Military Retirement Trust FundCFO report. DLA recognizes the actuarial liabilityfor the military retirement health benefits in theDoD Agency-wide statements.

4. Most legal actions, other than contract claims, towhich DLA may be a named party are covered bythe provisions of the Federal Tort Claims Act andthe provisions of Title 10, United States Code,Chapter 163, governing military claims. Either

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because payments under these statutes arelimited to, amounts well below the threshold ofmateriality for claims payable from DLA’sappropriations or because payments will be fromthe permanent, indefinite appropriation “Claims,Judgments, and Relief Acts” (the JudgmentFund), these legal actions should not materiallyaffect DLA’s operations or financial condition.

Funds with the U.S. Treasury and Cash

The DLA’s fund resources are maintained in U.S.Treasury accounts. Fund Balances with Treasuryrepresent the aggregate amount of an entity’saccounts with Treasury for which the entity isauthorized to make expenditures and pay liabilities.DWCF Activity Groups account for cash collectionsand disbursements. Beginning balances are notallocated to the Activity Groups. As a result, only thenet of cash collections, disbursements, and transfersare presented on the Balance Sheet.

DLA currently reports cash balances as stated by theU.S. Treasury. A cumulative difference exists betweenthe disbursements and collections reported by theU.S. Treasury and the disbursements and collectionsreported in DLA’s accounting records and is referred toas undistributed. This cumulative difference existsbecause of in-transit disbursements, collections, andfunding adjustments reported to and recorded by theTreasury but not yet reported to and recorded by DLA.For the Materiel Portion of Supply Management, theseamounts are maintained in the trial balance in accountscalled undistributed collections and disbursements.The cash balance is maintained at the consolidated levelof reporting for Supply Management. The Fund Balancewith Treasury is calculated by taking the amountreported by the U.S. Treasury and posting that as cash.Because of these adjustments, the Fund Balance withTreasury, Accounts Receivable, and Accounts Payable donot agree with the amounts shown in DLA’s accountingrecords. These differences are disclosed as “undistributed”amounts in Note 3 for Accounts Receivable and Note16 for Accounts Payable and are supported by theundistributed accounts on the trial balance.

Beginning in FY 99, in accordance with guidanceissued on October 6, 1998 by OUSD(C), DLA willbegin to report in its financial statements, cashbalances as reported in its accounting records.

Foreign Currency

Gains and losses from foreign currency transactionsare not recognized in the Statement of Net Cost.They are absorbed by budgetary transactions in

which obligations are increased or decreased to reflectforeign currency fluctuations. There are no foreigncurrency translation adjustments.

Accounts Receivable

As presented in the Balance Sheet statement,accounts receivable includes accounts, claims andrefunds receivable from other entities. DLA has notestablished an allowance for uncollectible accountsbecause the majority of its revenues are the result ofsales to other federal entities from which, due to thenature of the federal government, there are virtuallyno bad debts. Additionally, DLA has generally notexperienced significant uncollectible accounts with itscustomers outside of the federal government.

Inventories

Inventories are valued at (1) approximate historicalcost in accordance with Statement of Federal FinancialAccounting Standards Number 3, “Accounting forInventory and related Property,” and (2) LatestAcquisition Cost as required by DoD accountingpolicies. The latest acquisition cost method providesthat the last representative invoice price shall beapplied to all like units held, including units acquiredthrough donation, non-monetary exchange, andreturn from end use or reutilization. Generally, thelatest acquisition cost is determined by subtracting theappropriate surcharges from the standard cost toarrive at the price most recently paid for a carried item.

In addition to latest acquisition cost adjustments madeto the valuation of inventory, DLA makes otherinventory valuation adjustments due to physical gainsor losses, accounting gains or losses, etc. Thesevaluation adjustments, referred to as holding gains orlosses, are realized when the price variance orvaluation adjustment occurs and is reported on theBalance Sheet in a contra-inventory allowanceaccount. These inventory adjustments are recognizedin the Statement of Net Cost upon the sale or disposalof materiel. Prior to FY98, the holding gains or lossesthat resulted from price variances or valuationchanges for inventory items were immediatelyrecognized and reported in the Statement of Net Costand included in the calculation of the cost of goodssold. Currently, DLA’s accounting systems are unableto comply with the accounting guidance regardinginventory valuation, therefore these holding gains andlosses are realized and recorded on the Balance Sheetand recognized in the Statement of Net Cost using anestimate. The net change in inventory for this newmethod of valuation is $58.0 million.

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potential excess inventory) is inventory in excess ofapproved force acquisition objectives and approvedforce retention stock objectives. Beginning in FY98,procedures accounting for potential excess inventorychanged. These inventory items are written down totheir net realizable value (3.4%) according to DoDguidance. The remaining portion is expensed andincluded in the calculation of unrealized holdingperiod gains and losses.

Disposal property is classified and reported as “OtherEntity Assets” in accordance with DoD reportingguidance. This property is not “primarily” held forsale, and therefore does not meet the definition ofinventory for classification purposes.

DAPS inventories include operating materials andsupplies and non-consumable items. These inventoriesare valued using the weighted-average method.

Property, Plant and Equipment

General Property, Plant and Equipment (PP&E) isvalued at historical acquisition cost. All General PP&E,other than land, is depreciated in accordance with theUnder Secretary of Defense (Comptroller) (USD(C))policy memorandum dated March 26, 1998. GeneralPP&E is reported at historical acquisition cost less anyaccumulated depreciation. The historical acquisitioncost includes all the costs necessary to put the asset inplace and into the form in which it will be used. Thecapital assets for DLA include such items as ADPequipment, materiel handling equipment, andsoftware. Routine maintenance and repair costs areexpensed when incurred. Depreciation for propertyand equipment is recorded on a straight-line basis.

General PP&E with an acquisition cost, book value, orwhen applicable, an estimated fair market value of$100 thousand and an estimated useful life of twoyears or more were capitalized. Prior to FY 96,General PP&E with an acquisition cost, book value, orwhen applicable, an estimated fair market value of$15 thousand, $25 thousand, and $50 thousand forFY93, FY94, and FY95, respectively, and an estimateduseful life of two years or more was capitalized.

The General Accounting Office (GAO) has determinedthat real property used by any DWCF activity, butunder the jurisdiction of the Military Departments,represents an asset of the DWCF activity and suchproperty should be reported on the financialstatements as an Entity asset to show the full costs ofall resources and assets used in operations. Theseamounts should be recorded at acquisition cost, or if

unavailable, at fair market value. Documentation tosupport the recorded acquisition cost of many olderproperties is unavailable, and DoD believes it is notcost effective to obtain fair market value appraisals formany of these properties. These older propertieswould in all likelihood be fully depreciated, resulting inno impact to these financial statements.

The cost of Stewardship Assets (National DefenseProperty, Plant and Equipment, Heritage Assets andStewardship Land) shall not be reported on thebalance sheet beginning in FY 98. Any suchpreviously reported costs shall be charged to the NetPosition of the Entity, and the adjustment shall beshown as a “prior period adjustment.” Otherinformation on Stewardship Assets shall be reported inSupplemental Stewardship Reports. Multi-useHeritage Assets are treated as General PP&E forreporting and accounting purposes. Therefore, theacquisition costs of Multi-use Heritage Assets, and anycapitalized renovations or improvements, shall bereported on the balance sheet and depreciated.Multi-use Heritage Assets are Heritage Assets that arepredominantly for government operations.

Prepaid and Deferred Charges

Payments before the receipt of goods and services arerecorded as advances at the time of prepayment andreported as an asset on the Statement of FinancialPosition. Expenses are recognized when the relatedgoods and services are received.

Leases

DLA Working Capital Fund does not have operatingor capital leases. However, DLA is committed to rentalagreements. Generally, agreements are for the rentalof equipment, space and operating facilities. Paymentsunder these rental agreements are expensed as incurred.

Contingencies

At any given time, DLA may be party to various legaland administrative claims and actions brought against it.In management’s opinion, the resolution of these actionswill not materially affect DLA operations or financialposition. Therefore, no contingent liabilities havebeen recognized in the Balance Sheet.

Accrued Leave

Civilian annual leave is accrued as earned, andaccrued amounts are reduced as leave is taken.Unused annual leave is reported as a funded expenseand the liability is reduced as leave is taken. The

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balances for annual civilian leave at the end of thefiscal year reflect current pay rates for the leave that isearned but not taken. Sick and other types of non-vested leave are expensed as taken. Each year, thebalance in the accrued annual leave account isadjusted to reflect current pay rates. To the extentappropriations are not available to fund annual leaveearned but not taken, funding will be obtained fromfuture financing sources.

Equity

Equity consists of invested capital, capitalization ofassets, cumulative results of operations, futurefunding requirements, and other equity balances.Cumulative results of operations for working capitalfunds represents the excess of revenues over expensessince fund inception, less refunds to customers andreturns to the U.S. Treasury.

Comparative Data

Comparative data for the prior year has not beenpresented because FY98 is the first year for whichfinancial statements are prepared using the OMB 97-01prescribed format. In future years, comparative datawill be presented in order to provide an understandingof changes in the financial position and operations ofthe DLA’s reporting activities.

Undelivered Orders

DLA is obligated for goods and services, which havebeen ordered but not yet, received (undeliveredorders) as of September 30, 1998.

Note 2. Fund Balances with Treasury

The Defense Logistics Agency (DLA), as the cashmanager for the Defense Agencies sub-numberedDefense Working Capital Funds cash account has notallocated budgetary cash. Because budgetary cashhas not been allocated to the DLA Working Capital

Note 3. Accounts Receivable, Net

Allowance method Used

DLA has not established an allowance foruncollectible accounts because the majority of itsrevenues are the result of sales to other federal entitiesfrom which, due to the nature of federal government,there are virtually no bad debts. Additionally, DLA hasgenerally not experienced significant uncollectibleaccounts with its customers outside of the federalgovernment.

Other Information

Currently, a variance exists between the cash reportedby the U.S. Treasury and the cash reported in DLA’s

(Dollars Rounded to Thousands)Allowance for

Accounts Estimated AccountsReceivable, Gross Uncollectibles Receivable, Net

Entity Receivables

Intragovernmental $ 770,451 N/A $ 770,451With the Public 92,825 0 92,825

accounting records and it is referred to asundistributed cash. Undistributed cash includes cashcollected by the U.S. Treasury that has not yet beenposted in DLA’s accounting records. At September 30,1998 the U.S. Treasury reported $166,734 more incollections than DLA posted in its accounting records.DLA reports in its Balance Sheet the accountsreceivable amount in DLA’s accounting recordsadjusted by the amount of undistributed collectionsreported by the U.S. Treasury. Accounts receivable, asreported in DLA’s accounting records, is reconciled toTreasury’s records in the following table:

Fund level, Notes 2 is not applicable. The amountreflected on the Balance Sheet represents the netamount of FY98 collections, disbursements, andcash transfers.

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Note 4. Other Assets(Dollars Rounded to Thousands)

Other Entity Assets

Payments to Contractors $ 188,927Travel Advances 1,548Equipment not in use 328,808Items on Loan to other government agencies 9,008Items Due in to Storage 421Reparable Inventory 19,881Property Disposal Inventory 171,829

$ 720,422

Information related to Other entity assets

Payments to contractors include amounts paid inadvance to contractors and suppliers to financeproduction already accomplished or pursuant toproduction orders. These payments are recorded asprogress payments at the time of prepayment andexpensed when the goods or services are received.Travel advances are payments made to civilianemployees for the purpose of business travel beforethe actual travel expense is incurred. Equipment Notin Use represents the net book value of equipmentthat would normally be classified as Property, Plantand Equipment if it was currently being utilized.Items on Loan to Other Government Agenciesrepresents the acquisition value of property owned byDoD which has been provided to, acquired by, orfabricated by other federal agencies. The majority ofthis property is metal working machinery on loan tothe Department of Energy (DOE) and the NationalAeronautics and Space Administration (NASA). ItemsDue into Storage represents the acquisition value ofproperty owned by DoD which has been provided to,acquired by, or fabricated by other federal agenciesand deemed as excess and has been currently

recalled or is currently in transit to DoD. ReparableInventory represents the acquisition value of industrialplant equipment that is currently warehoused by DoDand is either currently being repaired or available forissue to the Military Services. Property DisposalInventory represents the net realizable value ofinventory items that await disposal or reutilization .This inventory contains usable items, scrap items andretail scrap items valued at $156,545, $15,276, and$8, respectively.

Other Non-entity Assets

Active Items in Hands of Contractors $ 69,280Suspense Account Asset 14,027

$ 83,307

Information related to Other non-entityassets

A suspense account is maintained by the DefenseReutilization and Marketing Service (DRMS) andrepresents cash received for the sales of propertydisposal; the proceeds of which are pendingdisposition to the originator. Active Items in the Handsof Contractors represents the acquisition value ofproperty owned by DoD which has been provided to,acquired by, or fabricated by contractor organizationsto facilitate completion of a contract requirement toDoD. Such property is either consumed in theperformance of the contract or will be available forreturn to DoD at contract completion.

AccountsReceivable, Gross Undistributed Accounts(in DLA’s records) Collections Receivable, Gross

Entity Receivables

Intragovernmental $ 888,511 $ (118,060) $ 770,451Governmental 141,499 (48,674) 92,825

$ 1,030,010 $ (166,734) $ 863,276

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Note 5. Inventory and Related Property(Dollars Rounded to Thousands)

Inventory and Other Related Property

Inventory Allowance for ValuationAmount (Gains) losses Inventory, Net Method

Held for Current Sale $ 8,282,472 $ (23,558) $ 8,306,030 LACHeld in Reserve for Future Sale 1,385,233 0 1,385,233 LACExcess, Obsolete, and Unserviceable 34,419 0 34,419 NRVHeld for Repair 18,547 0 18,547 LAC

$ 9,720,671 $ (23,558) $ 9,744,229

Legend: Valuation MethodLAC Latest Acquisition CostNRV Net Realizable Value

Restrictions on Inventory Use, Sale, orDisposition

Inventory Held in Reserve for Future Sale includesinventory held for research or reclassification and warreserve materiel. Inventory held for research orreclassification is held until its final disposition and isnot available for immediate sale. War reserve materielis inventory that is held for future use in case ofconflict or other emergent need. War reserve materielincludes fuel and subsistence items and, at September30, 1998, the value of the war reserve materiel heldin reserve amounted to $1,063,985.

Other Information

Inventory ClassificationsInventory Held for Sale includes the value of mostsupply system materiel that is in an issuablecondition. It also includes the value of inventorythat is in transit between storage locations orfrom suppliers. General ledger accounts are usedto record the initial acceptance of inventory itemswhen title has passed but the items have notbeen received and accepted into inventory.

Excess, Obsolete and Unserviceable inventoryincludes the value of three classifications of inventory.Excess inventory consists of items that are determinedto be beyond economic and contingency retentionstock levels and, as a result, are reported as potentialreutilization or disposal materiel. Obsolete inventoryincludes items that are deemed obsolete and nolonger needed due to changes in technology, laws,customs or operations. Unserviceable inventory

include items that are not expected to surviverepair after a technical evaluation is performed ata maintenance activity and damaged items thatare not economical to repair. The value of all excess,obsolete and unserviceable inventory is writtendown to its net realizable value (3.4%) accordingto DoD guidance. The remaining portion isexpensed and included in the calculation ofunrealized holding period gains and losses.

Inventory Held For Repair includes the value ofinventory items that are not in an issuablecondition, but not beyond economical repair, andare awaiting repair before they are eligible for sale.

Inventory AdjustmentsSignificant adjustments occurred in all inventoryrelated gain and loss accounts during the fiscalyear. These adjustments were primarily the resultof revised and improved program logic designedto reconcile SAMMS inventory-location balanceswith the Distribution Standard System (DSS)inventory-location balances. Additionally, physicalinventories unrelated to SAMMS/DSS incompatibilitieshave been performed which resulted inadjustment transactions. The net result of allthese transactions reflects improved accuracy inSAMMS inventory quantities and dollar values.

OtherLogistic transfer items are overvalued when standardprices are used as the recorded value. This situationis the result of NSN transfers to DLA from theServices for which either buy histories are unavailableor on which no recent buys have occurred.

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Note. 6 General Property, Plant and Equipment, Net

Operating Materials and Supplies (OM & S)

Allowance for ValuationOM&S Amount (Gains) Losses OM&S, Net Method

Held for Use $ 11,894 0 $ 11,894 Other$ 11,894 0 $ 11,894

Restriction on Operating Materials andSupplies

There are currently no restrictions on the use, sale, ordisposition of operating materials and supplies.

Other Information

Operating materials and supplies held for sale arevalued using the weighted-average method.

(Dollars Rounded to Thousands)Depreciation Service Acquisition Accumulated Net Book

Method Life Value Depreciation Value

Land N/A N/A $ 0 $ 0 $ 0

Structures, Facilities, L/H Improv. SL 20 1,501,098 996,831 504,267ADP Software SL 5 92,132 74,141 17,991Equipment SL 10 499,984 383,451 116,533

Assets Under Capital Lease SL 10 21 21 0Construction in Progress N/A N/A 114,304 0 114,304Other SL 5-10 77 5 72

$ 2,207,616 $ 1,454,449 $ 753,167

Legend: Depreciation MethodSL Straight Line

Recap of Inventory and Other RelatedProperty

Amount

Inventory, Net $ 9,744,229Operating Materials and Supplies, Net 11,894

$ 9,756,123

Other Information

Certain assets were not capitalized as of September30, 1998. They include the DLA Headquarter’sComplex Building and other miscellaneous corporateassets. If all these assets were capitalized as ofSeptember 30, 1998 the total acquisition value ofGeneral Property, Plant and Equipment would haveincreased by $151,686 to $2,359,303; totalaccumulated depreciation would have increased by$15,238 to $1,469,688; the total net book value ofGeneral Property, Plant and Equipment would haveincreased by $136,448 to $889,614.

Additionally, DLA has identified that a portion of thecapital assets reported as construction in progress asof September 30, 1998 are misclassified. Analysis iscurrently being conducted by DFAS and the DLAPrimary Field Level Activity (PLFA) Command sites toidentify corrections needed. These changes will bemade in fiscal year 1999. In addition, DLA hasidentified that certain assets classified as Assets UnderCapital Lease at September 30, 1998 should havebeen classified as equipment. However, the affect tothe PP&E net book value was zero because theseassets were fully depreciated. In FY 99, these assetsare reclassified as equipment.

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Other Information

Advances from others represents the amount of cashtransferred by participating civilian agencies or MilitaryServices for materiel and services in support of theirassigned program or in accordance with a specificagreement. The intragovernmental suspense accountrepresents the value of bid deposits pertaining to contractswith a life of several years. Other intragovernmentalliabilities represent the value of unearned revenue.Accrued funded payroll with the public is comprisedof $15,168 thousand accrued salaries and wages and

Other LiabilitiesNon-Current Current

liabilities Liabilities TotalIntragovernmental

Advances from others $ 0 $ 133,691 $ 133,691Deposit Funds and Suspense Account Liabilities 0 14,027 14,027Other Liabilities 13,202 43,545 56,747

$ 13,202 $ 191,263 $ 204,465

With the PublicAccrued Funded Payroll and Benefits $ 0 $ 122,749 $ 122,749Advances from Others 0 1,020 1,020Other Liabilities 0 2,128 2,128

$ 0 $ 125,897 $ 125,897

$107,581 in accrued annual leave. Other liabilitieswith the public represent the value of liabilities that aretemporarily classified as such until the properdistribution or liquidation is determined.

Other Liabilities Not Covered by BudgetaryResources

DLA’s only liabilities not covered by budgetaryresources are pensions and other actuarial liabilities.See note 8 for a description of these liabilities.

Note 8. Pensions and Other Actuarial Liabilities(Dollars Rounded to Thousands)

ActuarialPresent Value Assumed Assets Unfundedof Projected Interest Available to Actuarial

Plan Benefits Rate (%) Pay Benefits Liability

Workers’ Compensation Benefits $ 209,487 5.60% $ 0 $ 209,487$ 209,487 $ 0 $ 209,487

Note 7. Other Liabilities(Dollars Rounded to Thousands)

Environmental Cleanup

There are no Environmental Cleanup Liabilities for DLAWorking Capital Fund. Accrued EnvironmentalRestoration liabilities, including Base Realignment and

Closure (BRAC) cleanup activities, are budgeted withappropriated funds. Any environmental restoration orcleanup liabilities resulting from operations of theDefense Energy Support Center are captured in theyear of occurrence and presented as accounts payable.

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The actuarial liability estimate for future Workers’Compensation Benefits is provided by the Departmentof Labor. The liability for future workers’ compensation(FWC) benefits includes the expected liability for death,disability, medical, and miscellaneous costs for approvedcompensation cases. The liability is determined using

a method that utilizes historical benefit payment patternsrelated to a specific incurred period to predict theultimate payments related to that period. Consistentwith past practice, these projected annual benefitpayments have been discounted to present valueusing the Office of Management and Budget’s economicassumptions for 10-year Treasury notes and bonds.

Other Information

DLA has recognized an $190,517 imputed expensefor the FY 1998 service cost of civilian employeepensions and other retirement benefits in theStatement of Net Cost and has recognized an equalamount of imputed financing in the Statement ofChanges in Net Position. The imputed expense forthe FY 1998 service cost of civilian employee pensionsand other retirement benefits is computed as follows:

Civil Service RetirementSystem (CSRS) $ 96,137

Federal Employees RetirementSystem (FERS) 206

Federal Employees Health BenefitsProgram (FEHBP) 93,846

Federal Employees Group LifeInsurance (FEGLI) 328

$ 190,517

(Dollars Rounded to Thousands)

Summary of Deferred Maintenance byCategory of Property, Plant and Equipmentas of September 30,1998:

PP&E CategoryGeneral Property, Plant

and Equipment $ 80,200$ 80,200

Note 11. Deferred Maintenance on Property, Plant and Equipment

Note 9. Contingencies

At any given time, DLA may be party to various legaland administrative claims and actions brought againstit. In management’s opinion, the resolution of these

Note 10. Disclosures related to the Statement of Net Cost(Dollars Rounded to Thousands)

Gross Cost and Earned Revenue by Budget Functional Classification

Budget Function Gross Earned NetCode Cost Revenue Cost

Department of Defense Military 051 $ 14,029,415 $ 14,296,889 $ (267,474)$ 14,029,415 $ 14,296,889 $ (267,474)

actions will not materially affect DLA operations orfinancial position. Therefore, no contingent liabilitieshave been recognized in the Balance Sheet.

General Property, Plant and EquipmentDeferred Maintenance as ofSeptember 30, 1998:

Property Type/ Major ClassPersonal Property $ 0Real Property

Buildings 61,200Structures 19,000

$ 80,200

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Other Information

DLA operates a number of distribution facilitiesthroughout the world. During the fiscal year endingSeptember 30, 1998 maintenance expense wasrecognized as incurred. However, maintenancecompleted during the FY98 was insufficient over thepast several years and resulted in deferred maintenance.

Information on deferred maintenance is based onperiodic inspections of these facilities. DLA has adoptedthe military standards and policies as outlined in theDepartment of the Army Pamphlet 420-6, FacilitiesEngineering Resources Management System, in the

Asset Cost to Return Assets toMethod Condition (Note 1) Acceptable Condition (Note 2)

Buildings Conditional Assessment Survey Fair $ 61,200Structures Conditional Assessment Survey Fair $ 19,000

Note 1: Conditional Rating Scales; Excellent, Good, Fair, Poor, or Very PoorNote 2: Acceptable condition is “fair”

evaluation of facility conditions. The requirements,statements, and annual work plans outlined inPamphlet 420-6 are used by DLA in establishing fundinglevels and executing Real Property MaintenanceAgreements. These standards include minimum anddesirable condition descriptions for facilities, suggestedmaintenance schedules, standard costs for maintenance actions,and standardized condition codes. There have not beenany material changes in the standards in recent years.

The following chart presents information on deferredmaintenance on major categories of property, plantand equipment experiencing material amounts ofdeferred maintenance:


Prior Period AdjustmentsChanges in Accounting Standards $ 107,595Error and Omission in Prior

Year Accounting 159,839$ 267,434

Other InformationChanges in Accounting StandardsDuring FY 98, DLA changed from an inventoryvaluation method, which recognized gains andlosses in the income statement when inventory wasrevalued or deemed as excess, to a method thatrealized these gains and losses on the balance sheet.As a result of this change, DLA's net positionincreased by $107,522. In addition, DLA changedits accounting method for the collection of refunds.As a result of this change, DLA's net positionincreased by $73.

Error or OmissionsDuring FY 98 DLA corrected various errors oromissions attributable to prior years and are detailedas follows.

• Certain over-aged or erroneous accounts payablewere written-off. These accounts payable were

Note 12. Disclosures related to the Statement of Changes in Net Position

related to overaged or erroneous governmentbills of lading attributable to prior periods. As aresult of this correction, net position increasedby $128,900.

• Certain operating expenses that were overstatedin prior periods were reversed. As a result ofthis correction, net position increased by $89,050.

• Certain revenues that were overstated in FY 95were reversed. As a result of this correction, netposition decreased by $6,150.

• Certain expenses, related to Government Bills ofLading, that were omitted in FY 97 wererecognized. As a result of this correction, netposition decreased by $4,429.

• Depreciation expense related to the DistributionStandard System (DSS) that is attributable to priorfiscal years was recognized. As a result of thiscorrection, net position decreased by $47,533.

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Note 13. Disclosures Related to the Statement of Budgetary Resources


Net amount of Budgetary Resources Obligated for Undelivered Orders at the End of Period $ 5,163,857

Available Borrowing and Contract Authority at the End of Period $ 2,877,047

Note 14. Disclosures related to the Statement of Financing

Change in Amount of Goods, Services andBenefits

The change in amount of goods, services, and benefitsordered but not yet received or provided represents thechange in undelivered orders from the prior fiscal year tothis fiscal year. Due to the nature of undelivered orders, netdecreases are added to obligations and net increases aresubtracted from obligations to arrive at net cost of operations.

Depreciation and Amortization

This amount represents the sum of depreciation andamortization expense for the current year as it has

been recorded in the DLA accounting records. TheDefense Business Management System (DBMS) servesas the accounting system for the Information ServicesActivity Group. Unlike most accounting systems,DBMS obligates depreciation and amortizationsimultaneous with expense recognition. To complywith the Financial Management Regulation, Volume6B, Chapter 8, depreciation and amortization expensehas been separately reported on the Statement ofFinancing. However, due to this amount beingrecorded in the accounting records as an obligationas well as an expense, the reverse sign of this sameamount is included in the “Financing Sources Yet tobe Provided” line of this statement.

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Note 15. Interagency Eliminations(Dollars Rounded to Thousands)

Federal Government-Wide, Seller Activity Transactions with other Federal entities

Accounts UnearnedAppropriation Receivable Revenue Revenue

Defense Logistics Agency, WCF 97X4930.005xx $ 90,803 $ 243,351 $ 3$ 90,803 $243,351 $ 3

Federal Government-wide, Sales to Other Federal Agencies Arrayed by customer

Treasury Accounts Unearned Index Receivable Revenue Revenue

Executive Office of the President, Defense Security Assistance Agency 11 $ 4 $ 72 $ 0Department of Agriculture 12 27,028 29,954 0

Department of Commerce 13 413 1,792 0Department of the Interior 14 2,253 3,106 0Department of Justice 15 8,814 17,922 0

Department of Labor 16 3,838 8,820 0Department of State 19 1,141 524 0Department of the Treasury 20 372 1,727 0

Office of Personnel Management 24 10 4 0Nuclear Regulatory Commission 31 1 0 0Department of Veterans Affairs 36 2,207 1,964 0

General Service Administration 47 3,707 6,962 0National Science Foundation 49 187 3,583 0Federal Emergency Management Agency 58 1,325 67 0

Environmental Protection Agency 68 50 27 0Department of Transportation 69 27,301 82,332 3Agency for International Development 72 39 (92) 0

Small Business Administration 73 2 0 0Department of Health and Human Services 75 5,374 1,985 0National Aeronautics and Space Administration 80 3,927 15,687 0

Department of Energy 89 569 2,758 0Department of Education 91 74 90 0Unidentifiable Federal Agency Entity 00 (5,774) 25,344 0

Miscellaneous Identifiable Federal Agencies (see note 1) 00 7,941 38,723 0$ 90,803 $ 243,351 $ 3

Note 1: Not required to complete CFO Statements

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Note 16. Other(Dollars Rounded to Thousands)

Accounts Payable

Currently, a variance exists between thedisbursements reported by the U.S. Treasury andthe disbursements reported in DLA’s accountingrecords and it is referred to as undistributed.Undistributed includes disbursements by the U.S.Treasury that has not yet been posted in DLA’saccounting records. At September 30, the U.S.

Treasury reported $898,431 more in disbursementsthan DLA posted in its accounting records. DLAreports in its Balance Sheet, the accounts payableamount in DLA’s accounting records adjusted by theamount of undistributed disbursements. Accountspayable, as reported in DLA’s accounting records withundistributed disbursements is shown in thefollowing table:

AccountsPayables (in Undistributed Accounts

DLA’s records) Disbursements PayableEntity Accounts Payables

Intragovernmental $ 646,967 $ (206,094) $ 440,873With the Public 1,470,871 (692,337) 778,534

$ 2,117,838 $ (898,431) $ 1,219,407

Disclaimer of DAPS financial position

Because of financial information system problems andfinancial statement compilation problems, DLAbelieves that the Defense Automated Printing Service(DAPS) financial statements are not completelyrepresentative of the DAPS financial position. DLAmanagement does not believe that this will materiallyaffect the fiscal year 1998 DLA Working Capital Fund

Chief Financial Officer Annual Financial Statement. AtSeptember 30, 1998, DAPS assets represented lessthan 1% of the total DLA combined assets, DAPSrevenues represented approximately 2.4% of total DLAcombined revenues and DAPS expenses representedapproximately 2.6% of total DLA combined expenses.

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National defense property, plant and equipment isthe property, plant, and equipment (PP&E)components of weapons systems and support PP&Eused by the military departments in the performance

National Defense Property, Plant and Equipment

of military missions. DLA does not own any PP&Ethat would be classified as national defense property,plant and equipment.

Stewardship Land

Stewardship land is land other than that acquiredfor or in the connection with general property, plant,and equipment. It may include land that waspreviously identified as public domain land or land that

was donated to the federal government. DLA is notpermitted by law to own land, therefore doesnot own any land that would be classified asstewardship Land.

Heritage Assets

Heritage assets are property, plant, and equipment ofhistorical, natural, cultural, educational, artistic or

architectural significance. DLA does not own anyassets that would be classified as heritage assets.

Non–Federal Physical Property

Non–federal physical property refers to those expensesincurred by the Department of Defense for thepurchase, the construction, or the major renovationof physical property owned by state and localgovernments, including major additions, alterationsand replacements; the purchase of major equipment;

and the purchase or improvement of other physicalassets. Grants for maintenance and operations are notconsidered investments. DLA does not own anyproperty that would be classified as Non–FederalPhysical Property.

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N Department of DefenseDefense Logistics Agency – Defense Working Capital FundDisaggregated Statement of Budgetary ResourcesFor the period ending September 30, 1998(Dollars Rounded to Thousands)


Management Distribution ServiceBUDGETARY RESOURCES

Budgetary Authority $ 0 $ 0 $ 0

Unobligated Balances – Beginning of Period (601,323) 165,550 0

Net Transfers Prior Year Balance, Actual (+/–) 0 0 0

Spending Authority from Offsetting Collections 12,550,016 1,370,698 577,891

Adjustments (1,088,083) (6,948) (203,621)

Total Budgetary Resources $ 10,860,610 $ 1,529,300 $ 374,270

STATUS OF BUDGETARY RESOURCESObligations Incurred 10,851,076 1,489,434 361,035

Unobligated Balances – Available 9,534 39,866 13,235

Total, Status of Budgetary Resources $ 10,860,610 $ 1,529,300 $ 374,270

OUTLAYSObligations Incurred 10,851,076 1,489,434 361,035

Less: Spending Authority from OffsettingCollections and Adjustments (12,551,055) (1,370,698) (577,891)

Obligated Balance, Net – Beginning of Period 4,522,835 200,349 103,445

Obligated Balance Transferred, Net 0 0 0

Less: Obligated Balance, Net – End of Period (4,150,653) (134,611) (123,934)

Total Outlays $ (1,327,797) $ 184,474 $ (237,345)

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Information AutomatedServices Printing Service Combined

$ 0 $ 14,665 $ 14,665

42,603 0 (393,170)

0 1,501 1,501

108,052 443,038 15,049,695

0 0 (1,298,652)

$ 150,655 $ 459,204 $ 13,374,039

111,269 633,591 13,446,405

39,386 (174,387) (72,366)

$ 150,655 $ 459,204 $ 13,374,039

111,269 633,591 13,446,405

(108,052) (443,038) (15,050,734)

(44,273) (17,624) 4,764,732

0 (1,501) (1,501)

32,235 (195,387) (4,572,350)

$ (8,821) $ (23,959) $ (1,413,448)

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N Department of DefenseDefense Logistics Agency – Defense Working Capital FundConsolidating Balance SheetAs of September 30, 1998(Dollars Rounded to Thousands)


Management Distribution ServiceASSETS

Entity AssetsIntragovernmental

Fund Balance With Treasury (Note 2) $ 504,783 $ (184,475) $ 237,345Accounts Receivable, Net (Note 3) 535,900 462,185 37,079

Total Intragovernmental 1,040,683 277,710 274,424

Accounts Receivable, Net (Note 3) 56,303 1,086 34,892Inventory and Related Property, Net (Note 5) 9,744,229 0 0General Property, Plant and Equipment (Note 6) 179,696 417,354 116,725Other (Note 4) 474,441 62,341 178,563Total Entity Assets 11,495,352 758,491 604,604

Non–Entity AssetsOther (Note 4) 69,280 0 14,027Total Non–Entity Assets 69,280 0 14,027

Total Assets $ 11,564,632 $ 758,491 $ 618,631

LIABILITIESLiabilities Covered by Budgetary Resources

Intragovernmental LiabilitiesAccounts Payable (Note 16) $ 475,104 $ 190,600 $ 58,563Other (Notes 7 and 9) 133,432 0 70,774

Total Intragovernmental 608,536 190,600 129,337

Accounts Payable (Note 16) 439,470 243,599 55,624Other (Notes 7 and 9) 63,885 38,554 10,972Total Liabilities Covered by Budgetary Resources 1,111,891 472,753 195,933

Liabilities not Covered by Budgetary ResourcesMilitary Retirement Benefits and Other

Employment Related Actuarial Benefits (Note 8) 0 0 0Total Liabilities not Covered by Budgetary Resources 0 0 0Total Liabilities 1,111,891 472,753 195,933

NET POSITIONCumulative Results of Operations 10,452,741 285,738 422,698

Total Net Position 10,452,741 285,738 422,698Total Liabilities and Net Position $ 11,564,632 $ 758,491 $ 618,631

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Services Service Combined Adjustments Consolidated

$ 8,821 $ 6,336 $ 572,810 $ 0 $ 572,81012,771 20,184 1,068,119 (297,668) 770,45121,592 26,520 1,640,929 (297,668) 1,343,261

0 544 92,825 0 92,8250 11,894 9,756,123 0 9,756,123

7,741 31,651 753,167 0 753,1675,077 0 720,422 0 720,422

34,410 70,609 12,963,466 (297,668) 12,665,798

0 0 83,307 0 83,3070 0 83,307 0 83,307

$ 34,410 $ 70,609 $ 13,046,773 $ (297,668) $ 12,749,105

$ 6,388 $ 7,886 $ 738,541 $ (297,668) $ 440,8730 259 204,465 0 204,465

6,388 8,145 943,006 (297,668) 645,338

14,467 25,374 778,534 0 778,5346,529 5,957 125,897 0 125,897

27,384 39,476 1,847,437 (297,668) 1,549,769

0 0 0 209,487 209,4870 0 0 209,487 209,487

27,384 39,476 1,847,437 (88,181) 1,759,256

7,026 31,133 11,199,336 (209,487) 10,989,8497,026 31,133 11,199,336 (209,487) 10,989,849

$ 34,410 $ 70,609 $ 13,046,773 $ (297,668) $ 12,749,105

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N Department of DefenseDefense Logistics Agency – Defense Working Capital FundConsolidating Statement of Changes in Net PositionFor the period ending September 30, 1998(Dollars Rounded to Thousands)


Management Distribution Service

Net Cost of Operations $ (358,426) $ 102,228 $ (235,960)

Financing Sources (Other than Exchange Revenues)Imputed Financing 0 0 0Transfers-In 1,563,242 (580) 0Transfers-Out (1,672,958) 223,748 66,627

Net Results of Operations 248,710 120,940 302,587

Prior Period Adjustments 318,234 (43,841) (10,579)

Net Change in Cumulative Results of Operations 566,944 77,099 292,008

Increase in Unexpended Appropriations 0 0 0

Change in Net Position 566,944 77,099 292,008

Net Position- Beginning of the Period 9,885,797 208,639 130,690

Net Position- End of Period $ 10,452,741 285,738 $ 422,698


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Services Service Combined Adjustments Consolidated

$ 6,944 $ 8,962 $ (476,252) $ 208,778 $ (267,474)

0 0 0 190,517 190,5172,686 (227) 1,565,121 0 1,565,121

11,214 (15,067) (1,386,436) 0 (1,386,436)

6,956 (24,256) 654,937 (18,261) 636,676

0 3,620 267,434 0 267,434

6,956 (20,636) 922,371 (18,261) 904,110

0 15,332 15,332 0 15,332

6,956 (5,304) 937,703 (18,261) 919,442

70 36,437 10,261,633 (191,226) 10,070,407

$ 7,026 $ 31,133 $ 11,199,336 $ (209,487) $ 10,989,849

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N Appropriations, Funds, and Accounts Included in Financial Statements

The following table lists all appropriation, funds, and accounts included in the financial statements for the yearended September 30, 1998:

(1) The Industrial Plant Equipment sub–organization was consolidated with the Supply Management sub–organization in January 1992. Any remaining balances and activity through September 30, 1998 have beenconsolidated into the Supply Management sub–organization financial statements. Financial activity associatedwith contracts let before IPE’s consolidation into the Supply Management sub–organization is expected to continuefor years. All residual balances in the IPE sub–organization will be closed when these contracts have been settled.

Reporting Entity Entity Sub–Organization Fund/Account Subhead

Defense Logistics Agency WorkingCapital Fund 97X4930.005 –

ActiveSupply Management 97X4930.005 CDistribution Depots 97X4930.005 BDefense Reutilization and Marketing Services(DRMS) 97X4930.005 NInformation Services 97X4930.005 F5Defense Automated Printing Service (DAPS) 97X4930.005 G

InactiveIndustrial Plant Equipment (IPE) (1) 97X4930.005 M

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Defense Logistics AgencyOffice of Comptroller

8725 John J. Kingman Road, STE 2533Ft. Belvoir, VA 22060-6221

View the Annual Financial Statement on line at:www.fo.hq.dla.mil

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