Notes to the Financial Statements

As of September 30, 2003 and 2002
(In Thousands)

Note 1. Summary of Significant Accounting Practices
Note 2. Fund Balance with Treasury
Note 3. Non-Entity Assets
Note 4. Accounts and Interest Receivable, Net
Note 5. Deferred Revenue and Credits
Note 6. Inventory
Note 7. Property, Plant and Equipment
Note 8. Property, Plant and Equipment Impairment
Note 9. Liabilties Not Covered by Budgetary Resources 		  Note 10. FECA Liabilities
Note 11. Leases and Occupancy Agreements
Note 12. Contingent Liabilities
Note 13. Imputed Financing Costs
Note 14. Statement of Net Cost by Segment
Note 15. Budgetary Resources (Unaudited)
Note 16. Allocation Transfers
Note 17. Change in Accounting Principle

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Reporting Entity
The U.S. Geological Survey, a Bureau within the Department of Interior, was established on March 3, 1879 by an act of Congress to conduct systematic and scientific "classification of the public lands, and examination of the geological structure, mineral resources, and products of the national domain." The mission of the USGS is to serve the Nation by providing reliable scientific information to describe and understand the earth; minimize loss of life and property from natural disasters; manage water, biological, energy and mineral resources; and enhance and protect our quality of life.

The USGS accomplishes its mission through integrated science programs consisting primarily of: B. Basis of Presentation
These financial statements have been prepared to report the consolidated financial position, the net cost of operations, the changes in financial position, the budgetary resources and the financing of the USGS, consistent with the Chief Financial Officers' Act of 1990 and the Government Management Reform Act of 1994. These financial statements have been prepared from the books and records of the USGS in accordance with generally accepted accounting principles (GAAP) using guidance issued by the Federal Accounting Standards Advisory Board (FASAB), the OMB, and USGS' accounting policies, which are summarized in this note. These consolidated financial statements present proprietary and budgetary information while other financial reports also prepared by the USGS pursuant to OMB directives are used to monitor and control the USGS' use of Federal budgetary resources. The Statement of Budgetary Resources is presented on a combined, rather than consolidated basis, and therefore, Intra-entity eliminations were not made for the purpose of this statement. The Statement of Financing reconciles combined amounts from the Statement of Budgetary Resources to amounts from the consolidated Statement of Net Cost.

C. Basis of Accounting
Financial transactions are recorded on an accrual accounting basis and a budgetary basis. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal requirements and mandated controls over the use of federal funds. It generally differs from the accrual basis of accounting in that obligations are recognized when new orders are placed, contracts awarded, and services received, that will require payments during the same or future period. The USGS intra-entity transactions have been eliminated in the Consolidated Statement of Net Cost.

D. Fund Balance with Treasury and Cash
Fund Balances with Treasury are cash balances remaining as of fiscal year-end from which USGS is authorized to pay liabilities resulting from operational activity, except as restricted by law. Fund balance with Treasury includes funds received from direct appropriations, transfers, offsetting receipts, recoveries, and funds held in budget clearing accounts. The USGS is permitted by law to use appropriated funds to finance its working capital fund.

E. Revenues, User Fees and Financing
Appropriations: The USGS receives the majority of the funding needed to support its programs through congressional appropriations. Financing sources are received in annual, multi-year and no-year appropriations that may be used, within statutory limits, for operating and capital expenditures. Upon expiration of an annual or multiple-year appropriation, the obligated and unobligated balances retain their fiscal year identity, and are maintained separately within an expired account. The unobligated balance can be used to make adjustments to existing obligations, but is otherwise not available for expenditures. Annual and multiple-year appropriations are canceled at the end of the fifth year after expiration. No-year appropriations do not expire. Appropriations of budget authority are recognized as used when a liability for goods and services or benefits and grants are incurred.

Exchange revenues: Additional funds are obtained through reimbursements for services performed for other Federal agencies and the public and fees charged for surveys, investigations, and research. Revenue and intra-governmental reimbursements are recognized as earned when the goods have been delivered or services rendered by USGS. Revenues earned from public sources are derived from states and municipalities for making cooperative topographic and geologic surveys and water resource investigations; proceeds from the sale of photographs, maps, and records; proceeds from the sale of personal property; and reimbursements from permits and licenses of the Federal Energy Regulatory Commission. Revenues from certain cooperators represent about half of the total cost; the USGS pays the remaining half of the total cooperators cost. Revenues earned from other Federal agencies are derived from special-purpose mapping and investigations. Revenues are also received through the Department of State from foreign countries and international organizations for scientific and technical assistance.

The USGS has specific legislative authority to receive revenue from non-federal reimbursable customers as budgetary resources. The USGS also has authority to receive contributions from outside organizations to perform work desired mutually by multiple parties. In addition, the USGS receives rental receipts for quarters provided at remote locations.

User fees are set at a level that will recover the full costs associated with the services for specific customers, and prices for the sale of information products are set at a level that will recover the full costs of reproduction and dissemination, or costs incurred after the mission related information is collected and archived. User fees and product prices are developed in accordance with cost components of OMB Circular A-25, with review and approval by the Director, or a delegated party. The annual Cost Recovery Report and regularly scheduled independent pricing reviews by product line are among the methods used to monitor compliance with the USGS policies.

Imputed financing sources: In certain cases, operating costs of the USGS are paid for by funds appropriated with other federal entities. For example, pension benefits for most USGS employees are paid for by the U.S. Office of Personnel Management (OPM) and certain legal judgments against the USGS are paid from the Judgment Fund maintained by Treasury. OMB limits imputed costs to be recognized by federal entities to the following: (1) employees' pension benefits; (2) health insurance, life insurance, and other benefits for retired employees; (3) other post-employment benefits for retired, terminated, and inactive employees, including severance payments, training and counseling, continued health care, and unemployment and workers' compensation under the Federal Employees' Compensation Act; and (4) losses in litigation proceedings. The USGS includes applicable imputed costs on the Consolidated Statements of Net Cost. In addition, an imputed financing source is recognized on the Consolidated Statements of Changes in Net Position.

F. Assets
Assets presented on USGS' balance sheets include both entity and non-entity balances. Entity assets are assets that USGS has authority to use in its operations. Non-entity assets are held and managed by USGS, but are not available for use in operations.

Intragovernmental assets arise from transactions between USGS and other Federal entities.

G. Liabilities
Liabilities covered by budgetary or other resources are those liabilities of USGS for which Congress has appropriated funds or funding is otherwise available to pay amounts due. Liabilities not covered by budgetary or other resources represent amounts owed in excess of available congressionally-appropriated funds or other amounts. The liquidation of liabilities not covered by budgetary or other resources is dependent on future congressional appropriations or other funding. Intragovernmental liabilities are claims against USGS by other Federal entities.

H. Accounts Receivable
Accounts receivable consist of amounts owed to the USGS by other Federal agencies and the public. Unbilled accounts receivable represents amounts that have been earned but not yet billed to reimbursable customers. Receivables from Federal agencies result from reimbursable services performed, and from joint funding agreements with state, local, and regional agencies for cooperative work in support of the "Surveys, Investigations, and Research" appropriation. Receivables also include balances owed for credit sales of products and maps to Federal agencies and the public, and for interest, administrative costs, and penalties due on delinquent receivables. The majority of USGS' accounts receivable are generated from the water resources and the national mapping program. Amounts due from Federal agencies are considered fully collectible. Receivables due from the public are stated net of an allowance for estimated uncollectible amounts, determined by considering the debtor's current ability to pay, the debtor's payment record and willingness to pay, and an analysis of aged receivable activity.

I. Deferred Revenue
Deferred revenue consists of advances received from Federal and public entities for goods and services that will not be fully earned until the related goods or services have been provided by USGS. The majority of USGS' deferred revenue is generated from the water resources program.

J. Property, Plant, and Equipment
Property, plant and equipment consist of land, structures, facilities and improvements, equipment, and software purchased or developed for internal use. There are no restrictions on the use or convertibility of property, plant and equipment.

The USGS capitalizes property, plant and equipment purchases with an acquisition cost in excess of $50,000 for structures and facilities, $100,000 for software, and $15,000 for all other capital assets. Depreciation or amortization is computed using the straight-line method over the assets' useful lives, of 30 years for structures and facilities, and ranging from 3 to 20 years for equipment and software. Amortization of capitalized software begins on the date of acquisition, if purchased, or when the module or component has been successfully tested if developed internally.

Costs for construction projects are recorded as construction-in-process until completed. Depreciation expense begins once the asset is placed into service.

The USGS leases the majority of its office space and vehicles from the General Services Administration. The lease costs approximate commercial lease rates for similar properties and vehicles.

K. Advances and Payments
Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of prepayment and recognized as expenditures/operating expenses when the related goods and services are received.

L. Inventories
Inventory includes maps and map products that are held for sale and raw materials held for future use. Raw materials consist primarily of paper stock and ink used in the production of maps and map products, film for aerial photographs, and blank CDs for digital data. All inventory products and materials are valued at historical cost, using a method of averaging actual costs to produce like-kind scale maps within the same fiscal year. The USGS estimates an allowance for excess, spoiled, or obsolete map inventory to arrive at a net realizable value, based on inventory turnover and current stock levels.

M. Accrued Annual, Sick, and other Leave and Compensatory Time
Annual leave, compensatory time, and other leave time are accrued when earned. The accrual is presented as a component of liabilities not covered by budgetary resources in the Balance Sheet and is adjusted for changes in compensation rates and reduced for annual leave taken. Sick leave is expensed when taken.

N. Retirement Plans
Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS): Most employees of USGS participate in either the CSRS or FERS defined-benefit pension plans. FERS went into effect on January 1, 1987. FERS and Social Security automatically cover most employees hired after December 31, 1983. Employees hired prior to January 1, 1984 could elect to either join FERS and Social Security, or remain in CSRS.

USGS is not responsible for and does not report CSRS or FERS assets, accumulated plan benefits, or liabilities applicable to its employees. OPM administers the plans, is responsible for, and reports these amounts.

For CSRS-covered employees, in both fiscal years 2003 and 2002, USGS was required to make contributions to the plan equal a range from 7 to 7.5 percent of the employee's basic pay. Employees contributed 7 percent of basic pay. For each fiscal year, OPM calculates the U.S. government's service cost for covered employees, which is an estimate of the amount of funds that, if accumulated annually and invested over an employee's career, would be enough to pay that employee's future benefits. Since the U.S. government's estimated service cost exceeds contributions made by employer agencies and covered employees, this plan is not fully funded by the USGS and its employees. USGS has recognized an imputed cost and imputed financing source for the difference between the estimated service cost and the contributions made by USGS and its covered employees. FERS contributions made by employer agencies and covered employees exceed the U.S. Government's estimated service cost. For FERS-covered employees, USGS was required in fiscal years 2003 and 2002 to make contributions of 10.7 percent of basic pay. Employees contributed 0.8 percent of basic pay. Employees participating in FERS are covered under the Federal Insurance Contributions Act (FICA), for which USGS contributes a matching amount to the Social Security Administration.

Thrift Savings Plan (TSP): Employees covered by CSRS and FERS are eligible to contribute to the U.S. Government's TSP, administered by the Federal Retirement Thrift Investment Board. A TSP account is automatically established for FERS-covered employees, and USGS makes a mandatory contribution of one percent of basic pay. FERS-covered employees are entitled to contribute up to 12 percent of basic pay to their TSP account, with USGS making matching contributions up to four percent of basic pay. Employees covered by CSRS are entitled to contribute up to seven percent of basic pay to their TSP account. USGS makes no matching contributions for CSRS-covered employees.

Federal Employees Health Benefit (FEHB) Program: Most USGS employees are enrolled in the FEHB Program, which provides post-retirement health benefits. OPM administers this program and is responsible for the reporting of liabilities. Employer agencies and covered employees are not required to make any contributions for post-retirement health benefits. OPM calculates the U.S. government's service cost for covered employees each fiscal year. USGS has recognized the entire service cost of these post-retirement benefits for covered employees as an imputed cost and imputed financing source.

Federal Employees Group Life Insurance (FEGLI) Program: Most USGS employees are entitled to participate in the FEGLI Program. Participating employees can obtain basic term life insurance, with the employee paying two-thirds of the cost and USGS paying one-third. Additional coverage is optional, to be paid fully by the employee. The basic life coverage may be continued into retirement if certain requirements are met. OPM administers this program and is responsible for the reporting of liabilities. For each fiscal year, OPM calculates the U.S. government's service cost for the post-retirement portion of basic life coverage. USGS' contributions to the basic life coverage are fully allocated by OPM to the pre-retirement portion of coverage, and accordingly, USGS has recognized the entire service cost of the post-retirement portion of basic life coverage as an imputed cost and imputed financing source.

O. Workers' Compensation
A liability is recorded for estimated future payments to be made for workers' compensation pursuant to the Federal Employees' Compensation Act (FECA). The FECA program is administered by the Department of Labor, which initially pays valid claims and subsequently seeks reimbursement from Federal agencies employing the claimants. Reimbursements to the Department of Labor on payments made occur approximately two years subsequent to the actual disbursement. Budgetary resources for this intra-governmental liability are made available to USGS as part of its annual appropriation from Congress in the year in which the reimbursement to the Department of Labor takes place. Additionally, the liability estimate includes the expected liability for death, disability, medical and miscellaneous costs for approved compensation cases. The estimated liability also includes a provision for incurred but not reported claims. Based on information provided by the Department of Labor, DOI allocates the actuarial liability to its Bureaus and Departmental offices based on the payment history for the Bureaus and Departmental offices. The estimated liability is not covered by budgetary resources and will require future funding.

P. Contingent Liabilities
A contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. USGS recognizes a contingent liability when a past event or exchange transaction has occurred, and a future outflow or other sacrifice of resources is measurable and probable. A contingency is disclosed in the Notes to the Financial Statements when any of the conditions for liability recognition are met and when the chance of the future confirming event or events occurring is more than remote, but less than probable. A contingency is not disclosed in the Notes to the Financial Statements when any of the conditions for liability recognition are not met and when the chance of the future event or events occurring is remote.

Q. Income Taxes
The USGS, as a federal agency, is not subject to federal, state, or local income taxes and, accordingly, no provision for income taxes has been recorded in the accompanying financial statements.

R. Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions in reporting assets, liabilities, revenues, expenses, and financial sources; and in the related note disclosures. Actual results could differ from these estimates. Significant estimates underlying the accompanying financial statements include accounts payable, the allowance for doubtful accounts receivable, property, plant, and equipment useful lives and impairments, contingent and environmental liabilities, and allowance for obsolete inventory.

S. Change in Accounting Principle
USGS changed its method of accounting for resources directed to the working capital fund. (Refer to footnote 17 for further discussion.)

T. Reclassifications
Certain reclassifications have been made to the 2002 balances to conform to the 2003 presentation.

NOTE 2. FUND BALANCE WITH TREASURY

Fund Balance with Treasury consists of the following at September 30:

Fund balance with Treasury as of September 30 consists of these items -- please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

USGS maintains balances with Treasury by fund type. The fund types and purpose are described below: General funds -- These funds consist of expenditure accounts used to record financial transactions arising from Congressional appropriations.

Special funds -- These accounts are credited with receipts from special sources that are earmarked by law for a specific purpose. When collected, these receipts are available immediately for expenditure for special programs, such as providing housing for employees on field assignments, operations and maintenance for the temporary housing, cleanup associated with the Exxon Valdez oil spill, and operating science and cooperative programs.

Revolving funds -- These funds account for cash flows to and from the government resulting from operations of the working capital fund, and do not fund normal operating expenses of the Bureau. The working capital funds are restricted to the purposes set forth in the legislation that established the working capital fund and related investment plans.

Trust funds -- These funds are used for the acceptance and administration of funds contributed from public and private sources, and programs in cooperation with other Federal and State agencies or private donors.

Other Fund Types -- These include miscellaneous receipt accounts, transfer accounts, performance bonds, deposit and clearing accounts maintained to account for receipts and disbursements awaiting proper classification.

Status of Fund Balance with Treasury at September 30 is as follows:

Status of fund balance with Treasury as of September 30 -- please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

Unobligated unavailable fund balance represents amounts in deposit and budget clearing accounts and amounts from appropriations for which the period of availability for obligation has expired. These balances remain available for upward adjustments of obligations incurred during the period for which the appropriation was available.

NOTE 3. NON-ENTITY ASSETS

Non-entity assets -- please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

Non-entity assets include amounts receivable to USGS from accrued interest and penalties on delinquent debt. A corresponding payable to Treasury is recorded in other liabilities.

NOTE 4. ACCOUNTS AND INTEREST RECEIVABLE, NET

Accounts receivable consist of amounts owed to the USGS by other Federal agencies and the public. Unbilled accounts receivable represents amounts that have been earned but not yet billed to reimbursable customers. This account functions much like a "work-in-process" record of the costs incurred on customer agreements. Due to the nature of agreements with reimbursable customers that frequently require invoicing upon completion of the work, USGS sometimes bills customers years after the project was initiated. This procurement practice results in the majority of accounts receivable being comprised of unbilled balances.

Accounts receivable are reduced to net realizable value by an allowance for doubtful accounts. Federal receivables are considered fully collectible. The allowance for public receivables is estimated quarterly based on identification of specific delinquent receivables, an analysis of aged receivable activity and historical trends adjusted for current market conditions, as well as management's judgment regarding the debtor's willingness and ability to pay.

Interest receivable represents interest income earned on outstanding receivables that has not yet been collected. Interest accrues on a daily basis beginning thirty days from the date the notice of amount due was sent. Interest is charged at the rate established by the Secretary of the Treasury.

Accounts and Interest Receivable at September 30, 2003 and 2002, respectively, consists of:

Accounts and interest receivable - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 5. DEFERRED REVENUE AND CREDITS

Deferred revenue represents receipts of funds for reimbursable work not yet provided to public and Federal entities. Revenue is recognized as reimbursable costs are incurred, and the deferred revenue balance is reduced accordingly.

Deferred revenue - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

In some instances, USGS is a party to long-term fixed price agreements that may result in gains or losses in future periods.

Deferred credits represent receipts of funds held on deposit prior to completion of a signed agreement to provide reimbursable services to public and Federal entities. Deferred credits also consist of monies that were not obligated prior to the agreement expiration that are funded by annual year appropriations. These deferred credit amounts will be returned to the customer.

Deferred credits - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 6. INVENTORY

Inventory consists of the following at September 30:

Inventory - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

USGS disseminates earth, water, and biological science information through various mediums, including maps, reports, digital data sets and general interest publications of the USGS and other Federal agencies. Maps and map products are located at the USGS Rocky Mountain Mapping Center in Denver, Colorado and at six Earth Science Information Centers across the United States.

The USGS' mission requires it to maintain an inventory of maps and map products and have those products available in sufficient quantities to respond to national emergencies, resource management and development needs, recreation interests, as well as governmental and educational organization requests.

In fiscal year 2002, management judgment was used to estimate the allowance for obsolescence and a net realizable value analysis was not performed. In fiscal year 2003, USGS changed its accounting estimate methodology for calculating the allowance for obsolescence, while adjusting the net book value to its net realizable value. This change in estimation technique is the primary reason for the increase in the allowance for obsolescence.

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at September 30, 2003:

Property, Plant, and Equipment - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

Property, plant and equipment consists of the following at September 30, 2002 (unaudited):

Property, Plant, and Equipment (unaudited) - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

Depreciation expense amounted to approximately $73 million and $71 million, for the years ended September 30, 2003 and 2002 (unaudited), respectively. Impairment of property, plant and equipment was recognized in 2003 for $81.1 million (see Note 8).

NOTE 8. PROPERTY, PLANT, AND EQUIPMENT IMPAIRMENT

The USGS jointly developed a sun-synchronous, earth-orbiting satellite (Landsat 7) with the National Aeronautics and Space Administration (NASA) and the National Oceanic and Atmospheric Administration. NASA incurred the construction and launching costs. In FY2002, the satellite was transferred to USGS and recorded in equipment at its net book value of $258 million. The satellite is being depreciated over its estimated useful life of five years.

The primary objective of the Landsat Project is to ensure a collection of consistently calibrated Earth imagery. Landsat's Global Survey Mission is to establish and execute a data acquisition strategy that ensures repetitive acquisition of observations over the Earth's land mass, coastal boundaries, and coral reefs; and to ensure the data acquired are of maximum utility in supporting the scientific objectives of monitoring changes in the Earth's land surface and associated environment.

On May 31, 2003, the Landsat 7 satellite suffered a component failure that affected USGS' ability to acquire and distribute data collected by the Enhanced Thematic Mapper Plus (ETM+) instrument, resulting from a failure of the instrument's scan line corrector (SLC). The non-functioning SLC causes individual scan lines to alternately overlap and leave large gaps at the edges of a normal Landsat image.

USGS assembled an anomaly team comprised of a variety of experts, and collaborated with NASA, the Aerospace Corporation, Lockheed Martin, Honeywell, Raytheon, SAIC and others, and developed a recovery plan which was approved by USGS leadership. Unfortunately, the full recovery attempt that took place on September 7, 2003, failed.

Subsequent tests and the failed full recovery attempt confirmed that while it is not possible to acquire 100 percent of the data in a post-failure image, approximately 75 percent of a pre-failure image is still captured. It is also possible, using basic interpolation algorithms, to "fill in" some of the missing pixels toward the center portion of a scene in order to generate a more complete image.

As of May 31, 2003, the net book value of Landsat 7 was $172 million. Based on an internal analysis taking into consideration the diminished capacity of the asset and the potential future marketability of the product sales generated by the asset, USGS management estimated that an economic impairment loss of $81.1 million should be recognized in the FY2003 Statement of Net Cost. Combined with normal depreciation of $15.3 million of the asset, the remaining net book value of the Landsat 7 satellite was approximately $75.6 million at September 30, 2003.

At the point of impairment, the normal depreciation rate estimate was changed to equal the net book value at May 31, 2003 divided by the remaining useful life previously established. The overall impact of the impairment loss on the 2003 financial statements follows:

Property, Plant, and Equipment Impairment - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 9. LIABILITIES NOT COVERED BY BUDGETARY RESOURCES

Liabilities not covered by budgetary or other resources represent amounts owed in excess of available congressional appropriated funds or other amounts. The liquidation of liabilities not covered by budgetary or other resources is dependent on future congressional appropriations or other funding source.

Liabilities Not Covered By Budgetary Resources - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 10. FECA LIABILITIES

USGS has recorded an estimated, unfunded liability for the expected future cost for death, disability, and medical claims under the Federal Employees Compensation Act (FECA) of approximately $42.8 million and $39.5 million (unaudited) as of September 30, 2003 and 2002, respectively. This estimated liability is calculated by the Department of Labor using a method that considers historical benefit payment patterns, wage inflation factors, medical inflation factors, and other variables. These actuarially computed projected annual benefit payments are discounted to present value using the Office of Management and Budget's economic assumptions for ten-year Treasury notes and bonds.

The Department of Labor calculated the estimated future benefit payments based on several assumptions. The interest rate assumptions utilized to discount the estimated future benefit payments to present value are 5.20 percent in year one and thereafter. Wage inflation factors (Cost of Living Adjustments) and medical inflation factors (Consumer Price Index Medical Adjustments) are also used in the calculation. USGS also recorded an estimated, unfunded liability for the expected future payments to the Department of Labor in payment of outstanding workers compensation claims of approximately $7.9 million and $7.6 million (unaudited) as of September 30, 2003 and 2002, respectively.

NOTE 11. LEASES AND OCCUPANCY AGREEMENTS

The USGS has many cancelable occupancy agreements with the General Services Administration (GSA), primarily for office space. Many of these agreements do not have a stated expiration. USGS also has many operating leases, primarily for storage and housing for employees working on location, with public entities. USGS has estimated its future minimum liability for GSA occupancy agreements by adding an inflationary increase of 3% per year to the fiscal year 2003 lease rental expense. Public operating leases were calculated based on lease agreement terms. Future estimated minimum lease payments as of September 30, 2003 are:

Leases and occupancy agreements - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

Rental expenses for occupancy agreements, operating leases, and exhibit hall space during fiscal years 2003 and 2002 were approximately $85 and $82 million respectively (unaudited).

In some cases, USGS secures funds from GSA's building fund to finance improvements made to space where USGS is the tenant. Because these improvements are made to convert the existing structures into workable space tailored to USGS needs, USGS is required to repay GSA the cost of the improvements over the term of the occupancy agreement, which is incorporated into the total rent payments billed to USGS by GSA. The principal loan balance of approximately $26 million at September 30, 2003 is recorded as a liability and the corresponding leasehold improvements are recorded in Property, Plant & Equipment, which are amortized over the period of the occupancy agreements.

NOTE 12. CONTINGENT LIABILITIES

The USGS is a party to various administrative proceedings, legal actions, environmental suits, and claims that may eventually result in the payment of substantial monetary claims to third parties, or in the unplanned reallocation of material budgetary resources to pay for the cleanup of environmentally damaged sites.

The potential liability for legal claims deemed to be probable of loss cannot be reasonably estimated by Interior's Office of the Solicitor as the claims are in a discovery stage. Accordingly, USGS has not accrued any legal liabilities in the consolidated balance sheet for such claims. However, the payment of any judgments against USGS would be made from the U.S. Department of Treasury's Judgment Fund.

Additionally, USGS has several cases that the Solicitor believes are reasonably possible of loss, some of which cannot be estimated. The range of loss for reasonably possible cases that could be estimated by the Solicitor was approximately $3 million to $9.1 million at September 30, 2003. There were no probable or reasonably possible cases with an estimated range of loss at September 30, 2002.

Total legal contingent liabilities (potential) - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

The USGS has accrued the probable and estimable liability represented by site clean-up, primarily of contaminated groundwater, and for the removal of equipment and land restoration for abandoned data collection stations, observation well sites and river cableway sites.

Estimated contingent and environmental liabilities at September 30 are:

Total environmental and contingent liabilities - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 13. IMPUTED FINANCING COSTS

Imputed financing sources are recorded in the financial statements for amounts paid or to be paid on behalf of the USGS by other Federal agencies. The Office of Personnel Management (OPM) pays Federal employee pension and other future retirement benefits on behalf of Federal agencies. OPM provided rates for recording the estimated cost of pension and other future retirement benefits paid by OPM on behalf of federal agencies. The costs of these benefits are reflected as imputed financing in the consolidated financial statements.

Imputed financing costs for the years ended September 30, 2003 and 2002 consisted of:

Imputed financing costs - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 14. STATEMENT OF NET COST BY SEGMENT

USGS' four responsibility segments within the Statement of Net Cost represent the major operating segments by which achievement of its mission and goals are measured: Biology, Water, Geology and Geography. USGS' two major programs on the Statement of Net Cost, Hazards and Environmental and Natural Resources, directly correlate to our Government Performance Results Act outcomes and outputs.

As discussed in Note 8, in fiscal year 2003, USGS experienced an unusual and infrequent event that resulted in the partial loss of value and operating capacity of our Landsat 7 satellite. This significant and unusual accounting event is shown on our Statement of Net Cost as a non-production asset impairment cost outside of normal operations.

The following tables [presented here in PDF format] reflect USGS' net cost by responsibility segment for the years ended September 30, 2003 and 2002, respectively.

NOTE 15. BUDGETARY RESOURCES (UNAUDITED)

The USGS receives budgetary resources from appropriations, offsetting receipts, and reimbursable activities. At September 30, 2003 and 2002, respectively, approximately $155.5 and $127.3 million of the budgetary resources were unobligated. These amounts include expired budget authority of $45.7 and $20.4 million at September 30, 2003 and 2002, respectively. The expired funds remain available for up to five years to pay expenses against obligations incurred.

Budgetary Resources (Unaudited) - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

The Statement of Budgetary Resources has been prepared to coincide with the President's Budget (the Budget of the United States Government). The FY2003 actual amounts as shown on the FY2005 President's Budget were not available at the time the financial statements were prepared. The FY2005 President's Budget is expected to be available in February, 2004 and will be located at: http://www.whitehouse.gov/omb/.

Differences existed between the FY2002 Statement of Budgetary Resources and the FY2002 actual amounts reported in the President's fiscal year 2004 budget request, and are primarily due to the following: Recoveries of prior year obligations are comprised of canceled or downward adjustments of obligations incurred in prior years that were not subsequently disbursed. Resources permanently not available were adjusted pursuant to Public Law 114 Stat 2763A-214, SEC 1403. Canceled authority is returned to the U.S. Treasury at the end of the fifth year of availability for annual and multi-year funds under Public Law 101-510.

NOTE 16. ALLOCATION TRANSFERS

There is a relationship between certain line items reported on the Consolidated Statement of Financing under "Total components of net cost of operations that will require or generate resources in future periods" and the change in components of costs that are included in liabilities not covered by budgetary resources reported in note 9.

The USGS is a recipient of allocation transfers of funds from the Bureau of Land Management, Department of State, and the DOI Office of the Secretary.

The allocation transfers that occurred during the years ended September 30, 2003 and 2002, respectively, consist of:

Allocation Transfers - please contact Carla Burzyk of the Office of Accounting and Financial Management at cburzyk@usgs.gov for full information

NOTE 17. CHANGE IN ACCOUNTING PRINCIPLE

USGS implemented a change in accounting principle with regard to the accounting for resources directed to the working capital fund.

During FY2003, USGS implemented new posting models that were issued by the Treasury that were more preferable given the nature of the USGS working capital fund activities. Prior to the change in principle, the "Federal reimbursable" model (recognizing revenue upon occurrence of an expenditure) had been employed for the recognition of revenues and budget authority. The principle change put into practice the "revolving" fund model (recognizing revenue and budget authority at the time it is received), which is more consistent with the working capital fund operations and its legislative authority.

Under the revolving fund concept, the fee-for-service component recognizes revenues and budgetary resources upon receipt of fees for providing products and services. This is consistent with the fact that collections are non-refundable and are necessary for acquiring resources. The investment component recognizes transfers-in of expenditure financing sources and budgetary resources upon receipt of transfers to authorized deposit accounts for investment in future capital purchases. Such transfers are also non-refundable and are restricted as to the use by the enabling legislation and related investment plans. The primary impact of the implementation of this change in accounting principle on the consolidated financial statements was to reclassify approximately $69 million of unexpended appropriations as cumulative results of operations within net position.

U.S. Department of the Interior, U.S. Geological Survey
URL: http://pubsdata.usgs.gov/pubs/03financial/html/notes.html
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