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 2005
(In Thousands)

Description	FY 2006	FY 2007	FY 2008	FY 2009	FY 2010	Thereafter	Total
Geostationary Operational Environmental Satellites	$358,100	$454,000	$  532,100	$539,600	$  570,500	$3,980,800	$ 6,435,100
Convergence Satellites	321,000	341,300	343,900	297,200	373,900	1,149,200	2,826,500
Polar Operational Environmental Satellites	102,700	90,800	62,300	41,900	41,700	-	339,400
Other Weather Service	113,345	105,108	103,438	92,376	48,284	327,487	790,038
Total	$895,145	$991,208	$1,041,738	$971,076	$1,034,384	$5,457,487	$10,391,038

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 $3.4 million and $22.8 million as of September 30, 2005 and 2004, respectively. Accordingly, $3.4 million and $22.8 million of contingent liabilities were included in Other Liabilities on the Consolidated Balance Sheets as of September 30, 2005 and 2004, 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 $832.9 million as of September 30, 2005. 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 $31.0 million as of September 30, 2005. 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, 2005 and 2004, with outstanding principal balances totaling $32.4 million and $45.2 million, respectively. A loan guarantee liability of $3.2 million and $3.0 million is recorded for the outstanding guarantees at September 30, 2005 and 2004, respectively.

Emergency Steel Loan Guarantee Program: This program has two outstanding non-acquired guaranteed loans as of September 30, 2005 and 2004, with the guaranteed portion of outstanding principal balances totaling $212.8 million and $215.9 million as of September 30, 2005 and 2004, respectively. The Department’s guarantee percentages range from 85 to 88 percent for these loans as of September 30, 2005, and range from 85 to 95 percent as of September 30, 2004. A loan guarantee liability of $78.3 million and $70.1 million is recorded for the outstanding guarantees at September 30, 2005 and 2004, respectively.

Related to an outstanding non-acquired guaranteed loan, the Department has additionally guaranteed two Letters of Credit totaling $10.6 million and $12.1 million as of September 30, 2005 and 2004, respectively. The Department’s guarantee percentages for these Letters of Credit are 90 percent and 95 percent. The guaranteed portion of these Letters of Credit total $10.0 million and $11.3 million as of September 30, 2005 and 2004, respectively.

Emergency Oil and Gas Loan Guarantee Program: This program has one outstanding non-acquired guaranteed loan as of September 30, 2005, with a guaranteed portion of outstanding principal balance of zero. There were three outstanding non-acquired guaranteed loans as of September 30, 2004, with the guaranteed portion of outstanding principal balance totaling $1.1 million. The Department’s guarantee percentage is 85 percent for these loans. A loan guarantee liability of $294 thousand and $605 thousand is recorded for the outstanding guarantees at September 30, 2005 and 2004, respectively. The loan guarantee liability at September 30, 2005 relates to an outstanding revolving loan for which no draws have been made as of September 30, 2005.