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Note 16. Commitments and Contingencies

 

Commitments:

The Department has entered into long-term contracts for the purchase, construction, and modernization of environmental satellites and weather measuring and monitoring systems. A summary of major long-term commitments is shown below.

Major Long-term Commitments:

Major Long-term Commitments
FY 2007
(In Thousands)
Description FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Thereafter Total
Geostationary Operational Environmental Satellites $359,400 $  550,300 $  672,600 $  638,500 $  497,900 $3,719,000 $ 6,437,700
Convergence Satellites  331,300    288,000    381,800    420,300    415,800  2,532,400   4,369,600
Polar Operational Environmental Satellites  114,900     61,900     43,600     41,400     41,400    146,900     450,100
Other Weather Service   99,822    102,306    100,817     95,786     91,818    171,773     662,322
Other    1,357
single underline		          -
single underline		          -
single underline		          -
single underline		          -
single underline		          -
single underline		       1,357
single underline
Total $906,779
double underline		 $1,002,506
double underline		 $1,198,817
double underline		 $1,195,986
double underline		 $1,046,918
double underline		 $6,570,073
double underline		 $11,921,079
double underline

Legal Contingencies:

The Department is subject to potential liabilities in various administrative proceedings, legal actions, environmental suits, and claims brought against it. In the opinion of the Department’s management and legal counsel, the ultimate resolution of these proceedings, actions, suits, and claims will not materially affect the financial position or net costs of the Department.

Probable Likelihood of an Adverse Outcome:

The Department is subject to potential liabilities where adverse outcomes are probable, and claims are approximately $8.7 million and $13.1 million as of September 30, 2007 and 2006, respectively. Accordingly, $8.7 million and $13.1 million of contingent liabilities were included in Other Liabilities on the Consolidated Balance Sheets as of September 30, 2007 and 2006, respectively. For a majority of these claims, any amounts ultimately due will be paid out of Treasury’s Judgment Fund. For the claims to be paid by Treasury’s Judgment Fund, once the claims are settled or court judgments are assessed relative to the Department, the liability will be removed and an Imputed Financing Source From Cost Absorbed by Others will be recognized.

Reasonably Possible Likelihood of an Adverse Outcome:

The Department and other federal agencies are subject to potential liabilities for a variety of environmental cleanup costs, many of which are associated with the Second World War, at various sites within the U.S. Since some of the potential liabilities represent claims with no stated amount, the exact amount of total potential liabilities is unknown, but may exceed $214.5 million as of September 30, 2007. For these potential liabilities, it is reasonably possible that an adverse outcome will result. It is not possible, however, to speculate as to a range of loss. In the absence of a settlement agreement, decree, or judgment, there is neither an allocation of response costs between the U.S. government and other potentially responsible parties, nor is there an attribution of such costs to or among the federal agencies implicated in the claims. Although the Department has been implicated as a responsible party, the U.S. Department of Justice was unable to provide an amount for these potential liabilities that is attributable to the Department. Of these potential liabilities, all will be funded by Treasury’s Judgment Fund, if any amounts are ultimately due.

The Department and other federal agencies are subject to other potential liabilities. Since some of the potential liabilities represent claims with no stated amount, the exact amount of total potential liabilities is unknown, but may exceed $138.2 million as of September 30, 2007. For these potential liabilities, it is reasonably possible that an adverse outcome will result. It is not possible, however, to speculate as to a range of loss. Of these potential liabilities, most will be funded by Treasury’s Judgment Fund, if any amounts are ultimately due.

Guaranteed Loan Contingencies:

Fishing Vessels Obligation Guarantee Program: This loan guarantee program has outstanding non-acquired guaranteed loans (fully guaranteed by the Department) as of September 30, 2007 and 2006, with outstanding principal balances totaling $12.7 million and $17.1 million, respectively. A loan guarantee liability of $1.0 million and $5.8 million is recorded for the outstanding guarantees at September 30, 2007 and 2006, respectively.

Emergency Steel Loan Guarantee Program: This program has one outstanding non-acquired guaranteed loan as of September 30, 2007 and 2006, with the guaranteed portion of the outstanding principal balance totaling $131.9 million and $175.9 million as of September 30, 2007 and 2006, respectively. The Department’s guarantee percentage is 88 percent for this loan as of September 30, 2006 to present. A loan guarantee liability of $54.7 million and $67.7 million is recorded for the outstanding guarantee at September 30, 2007 and 2006, respectively.

Emergency Oil and Gas Loan Guarantee Program: As of June 30, 2007, the loan guarantee ended for this program. As of September 30, 2006, this program had one outstanding non-acquired guaranteed loan with a guaranteed portion of the outstanding principal balance of zero dollars. A loan liability of $245 thousand was recorded for the outstanding guarantee at September 30, 2006, which relates to an outstanding revolving loan for which no draws have been made as of September 30, 2006.

Contingent Loss Related to the National Polar-orbiting Operational Environmental Satellite System (NPOESS) Program:

In a joint effort with the Department of Defense (DOD) and the National Aeronautics and Space Administration (NASA), NOAA is developing the NPOESS. NPOESS is expected to be a state-of-the-art environment-monitoring satellite system that will replace two existing polar-orbiting satellite systems. NOAA and DOD share the costs of funding NPOESS, while NASA funds specific technology projects and studies. Over the last several years, the NPOESS program has experienced schedule delays, cost increases and technical challenges. In FY 2006, the NPOESS program underwent a statutorily required review, known as a Nunn-McCurdy review. Under the law, any DOD-funded program that is more than 25 percent over budget must be reviewed to see if it should be continued, and if so, in what manner. As a result of the review, the NPOESS program will be continued, however the number of satellites and their capabilities will be scaled back. Additionally, NOAA, NASA and DOD agreed to restructure the NPOESS program from a three-orbit to a two-orbit program and to renegotiation of the contracts for the construction of the NPOESS program. The process may take several years.

As of September 30, 2007, the Department of Commerce Balance Sheet includes approximately $1.63 billion construction-in-progress general property, plant and equipment related to the NPOESS program. This balance is net of a $17 million write-off that NOAA recorded in FY 2006, based on a determination that certain sensors were going to be eliminated from the program, thus triggering an impairment to the property value. The potential impairment for one additional sensor, currently recorded at $108 million in the construction-in-progress account, will not be determinable until a new contract for that sensor is in place.
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