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 2006
(In Thousands)

Description	FY 2007	FY 2008	FY 2009	FY 2010	FY 2011	Thereafter	Total
Geostationary Operational Environmental Satellites	$439,600	$  532,100	$539,600	$  570,500	$  542,400	$3,497,300	$6,121,500
Convergence Satellites	337,900	343,900	297,200	373,900	405,900	746,500	2,505,300
Polar Operational Environmental Satellites	89,900	62,300	41,900	43,600	31,400	189,300	458,400
Other Weather Service	101,828	108,819	105,229	72,266	67,933	424,780	880,855
Other	4,613	1,357	-	-	-	-	5,970
Total	$973,841	$1,048,476	$983,929	$1,060,266	$1,047,633	$4,857,880	$9,972,025

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 $13.1 million and $3.4 million as of September 30, 2006 and 2005, respectively. Accordingly, $13.0 million and $3.4 million of contingent liabilities were included in Other Liabilities on the Consolidated Balance Sheets as of September 30, 2006 and 2005, 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 Costs 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 $502.1 million as of September 30, 2006. 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 $129.7 million as of September 30, 2006. 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, 2006 and 2005, with outstanding principal balances totaling $17.1 million and $32.4 million, respectively. A loan guarantee liability of $5.8 million and $3.2 million is recorded for the outstanding guarantees at September 30, 2006 and 2005, respectively.

Emergency Steel Loan Guarantee Program: This program has one outstanding non-acquired guaranteed loan as of September 30, 2006, and two outstanding non-acquired guaranteed loans as of September 30, 2005, with the guaranteed portion of outstanding principal balance(s) totaling $175.9 million and $212.8 million as of September 30, 2006 and 2005, respectively. The Department’s guarantee percentage is 88 percent for this loan as of September 30, 2006, and ranged from 85 to 88 percent as of September 30, 2005. A loan guarantee liability of $67.7 million and $78.3 million is recorded for the outstanding guarantee(s) at September 30, 2006 and 2005, respectively.

Related to an outstanding non-acquired guaranteed loan as of September 30, 2005, the Department additionally guaranteed two Letters of Credit totaling $10.6 million. The Department’s guarantee percentages for these Letters of Credit were 90 percent and 95 percent. The guaranteed portion of these Letters of Credit totaled $10.0 million at September 30, 2005.

Emergency Oil and Gas Loan Guarantee Program: This program has one outstanding non-acquired guaranteed loan as of September 30, 2006 and 2005, with a guaranteed portion of outstanding principal balance of zero. The Department’s guarantee percentage is 85 percent for this loan. A loan guarantee liability of $245 thousand and $294 thousand is recorded for the outstanding guarantee at September 30, 2006 and 2005, respectively. The loan guarantee liability at September 30, 2006 relates to an outstanding revolving loan for which no draws have been made as of September 30, 2006.