department of defense agency financial report fiscal year 2012

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Department of Defense Agency Financial Report for FY 2012 The balance of Outstanding Contract Financing Payments includes $2.1 billion in contract financing payments and an additional $877 million in estimated future payments to contractors upon delivery and government acceptance of a satisfactory product. (See additional discussion in Note 15, Other Liabilities). NOTE 7. CASH AND OTHER MONETARY ASSETS Cash and Other Monetary Assets Dollars in Thousands As of September 30 2012 2011 Cash $ 20,124,963 $ 18,160,143 Total Cash, Foreign Currency, and Other Monetary Assets $ 20,124,963 $ 18,160,143 Restricted Cash of $20.1 billion includes advance deposits from foreign nations in the Federal Reserve Bank which have not been transferred to the FMS Trust Fund and are not available for agency use (nonentity cash). NOTE 8. DIRECT LOAN AND LOAN GUARANTEES Direct Loan and Loan Guarantee Programs The DSCA operates the following direct loans and/or loan guarantee Programs: The Arms Export Control Act, as amended, authorizes funds to be appropriated to the President for financing the sales of defense articles and defense services to eligible foreign countries. Each loan is reviewed in the light of the purchasing country’s financial condition, its need for credit, U.S. economic or military assistance programs in the country and region, and other proposed arms purchases by the country. The President delegates to the Secretary of Defense the authority to issue and guaranty loans through the designated administering agency, DSCA. The loans are issued to friendly, less economically developed countries. Pursuant to the authority contained in the Act, DSCA operates the four funds, known as: For pre-1992 loans (1) Foreign Military Loan Liquidating Account (FMLLA). For post-1991 loans (2 & 3) the Foreign Military Direct Loan Program and Financing Accounts for post-1991 loans, and (4) the Military Debt Reduction Financing Account (MDRFA) for reducing loan receivables for eligible countries. The FMLLA is a liquidating account that includes all assets, liabilities, and equities for loan balances recorded prior to FY 1992. No new loan disbursements are made from this account. Certain collections made into this account are made available for default claim payments. The Federal Credit Reform Act (FCRA) provides permanent indefinite authority to cover obligations for default payments in the event the funds in the liquidating account are otherwise insufficient. Foreign Military Financing Direct Loan Program Account (FMFDLPA) is a program account that was established pursuant to the FCRA to provide the funds necessary for the subsidy element of loans. Expenditures from this account finance the subsidy element of direct loan disbursements and are transferred into the Foreign Military Financing Direct Loan Financing Account (FMFDLFA) to make required loan disbursements for approved Foreign Military Sales or commercial sales. ADDENDUM B Unaudited Financial Statements – DSCA B-16
Department of Defense Agency Financial Report for FY 2012 The FMFDLFA is a financing account that is used to make disbursements of Foreign Military Loan funds for approved procurements and for subsequent collections for the loans after September 30, 1991. The account uses permanent borrowing authority from the U.S. Treasury combined with transfers of appropriated funds from FMFDLPA to make the required disbursements to loan recipient country borrowers for approved procurements. Receipts of debt service collections from borrowers are used to repay borrowings from U.S. Treasury. MDRFA is a financing account that was established for the debt relief of certain countries as established by Public Law 103-87. The MDRFA buys the portfolio of loans from the FMLLA, thus transferring the loans from the FMLLA account to the MDRFA account. The Paris Club negotiates the debt forgiveness with Highly Indebted Poor Countries (HIPC). The Paris Club has nineteen member countries that negotiate rescheduling or refinancing of debt for HIPC. The Paris Club provides debt reduction initially on payments coming due over a specific period that correspond to the length of an International Monetary Fund (IMF) supported economic reform program. Reduction then is staged, with each successive stage contingent upon debtor country compliance with its IMF-support program. Under Naples Terms, stock of debt reduction is provided after three years of good performance with respect to IMF reform programs and payments to Paris Club creditors. The United States incurs the budget cost of the eventual stock of debt reduction when it agrees to the initial “maturities” reduction of payments coming due, since bilateral agreements commit us to stock reduction once the Paris Club agrees to provide them. The FCRA governs all amended direct loan obligations and loan guarantee commitments made after FY 1991 resulting in direct loans or loan guarantees. Direct loans are reported at the net present value of the following projected cash flows: (1) loan disbursements, (2) repayments of principal, and (3) payments of interest and other payments over the life of the loan after adjusting for estimated defaults, prepayments, fees, penalties, and other recoveries Summary of Direct Loans and Loan Guarantees Dollars in Thousands As of September 30 Loans Receivable Direct Loans: 2012 2011 Foreign Military Loan Liquidating Account $ 847,442 $ 958,461 Foreign Military Financing Account (27,111) 11,260 Military Debt Reduction Financing Account 15,737 14,110 Total Loans Receivable $ 836,068 $ 983,831 ADDENDUM B Unaudited Financial Statements – DSCA B-17
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department of defense agency financial report fiscal year 2012

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