b Today’s Achievements Assure Tomorrow’s Success Today’s Achievements Assure Tomorrow’s Success Department of the Navy FISCAL YEAR 2008 AnnUAL FINANCIAL REPORT Message from the Secretary of the Navy . .3 Message from the Assistant Secretary of the Navy (Financial Management & Comptroller) . 5 Management’s Discussion and Analysis . .7 Department of the Navy Certification of Financial Statements . 37 Department of the Navy General Fund . 41 Principal Statements 41 Notes to the Principal Statements 51 Required Supplementary Stewardship Information 93 Required Supplementary Information 99 Other Accompanying Information 109 Navy Working Capital Fund . 113 Principal Statements 113 Notes to the Principal Statements 123 Required Supplementary Information 151 Other Accompanying Information 153 Subsidiary Financial Statements United States Marine Corps General Fund . 155 Principal Statements 155 Notes to the Principal Statements 165 Required Supplementary Stewardship Information 201 Required Supplementary Information 205 Other Accompanying Information 211 Navy Working Capital Fund - Marine Corps . 213 Principal Statements 213 Notes to the Principal Statements 223 Required Supplementary Information 249 Other Accompanying Information 251 Audit Opinions . 253 Photo Cover Credits . 288 1 2 Today’s Achievements Assure Tomorrow’s Success The Honorable Donald C . Winter Secretary of the Navy Department of the Navy 2008 Annual Financial Report 3 4 Today’s Achievements Assure Tomorrow’s Success The Honorable Douglas A . Brook The Assistant Secretary of the Navy (Financial Management and Comptroller) Department of the Navy 2008 Annual Financial Report 5 6 Today’s Achievements Assure Tomorrow’s Success Management’s Discussion and Analysis 2008 Management’s2008 Discussion and Analysis 2008 Department of the Navy 2008 Annual Financial Report 7 8 Today’s Achievements Assure Tomorrow’s Success OCTOBER and NOVEMBER 2007 An Aviation Warfare Systems Specialist 3rd Class, attached A Corporal attached to 2D Marine Logistics Group shakes hands to Helicopter Sea Combat Squadron (HSC) 85, searches for a with a little girl while on a security patrol. U.S. Marine Corps burning target to dump 420 gallons of water. U.S. Navy photo by photo by Lance Cpl. Robert S. Morgan. Mass Communication Specialist 3rd Class Dustin Kelling. Sailors and Marines board a CH-46E Sea Knight, assigned Secretary of the Navy Donald C. Winter (left) arrives on board to Marine Medium Helicopter Squadron (HMM) 265, after the Naval Support Activity Bahrain. U.S. Navy photo by Mass amphibious assault ship USS Essex (LHD 2) arrived off the coast Communication Specialist 1st Class Jennifer Stride. of Sihanoukville, Kingdom of Cambodia. U.S. Navy photo by Mass Communication Specialist 2nd Class Drae Parker. DECEMBER 2007 and JANUARY 2008 The Theodore Roosevelt Honor Guard parades the colors at the Sailors aboard the amphibious assault ship USS Kearsarge Great White Fleet Gala aboard USS Theodore Roosevelt (CVN (LHD 3) look out at the amphibious assault ship USS Tarawa 71). U.S. Navy photo by Mass Communications Specialist 2nd (LHA 1) as the two ships pass each other. U.S. Navy photo by Class Nathan Laird. Lt. James R. Hoeft. This photograph was taken from a high-speed video camera Africa Partnership Station (APS) pulled into Lome, Togo aboard during a record-setting firing of an electromagnetic railgun High Speed Vessel (HSV) 2 Swift, as the first U.S. Navy ship to (EMRG) at Naval Surface Warfare Center, Dahlgren, Virginia. visit Togo in 15 years. U.S. Navy photo by Mass Communication U.S. Navy Photograph. Specialist 2nd Class Elizabeth Merriam. Department of the Navy 2008 Annual Financial Report 9 10 Today’s Achievements Assure Tomorrow’s Success FEBRUARY and MARCH 2008 The amphibious assault ship USS Nassau (LHA 4) leads a A single modified tactical Standard Missile-3 (SM-3) launches formation of ships during an Atlantic Ocean crossing of the from the U.S. Navy AEGIS cruiser USS Lake Erie (CG 70). U.S. Nassau Expeditionary Strike Group. U.S. Navy photo by Mass Navy photo. Communication Specialist 2nd Class Andrew King. A Corpsman 3rd Class maintains security with 3rd Battalion, 5th Members of the Navy Band perform during the christening Marines, Regimental Combat Team 1 while on a patrol in the Al ceremony of Pre-Commissioning Unit New York (LPD 21). New Sina district of Fallujah. U.S. Marine Corps photo by Lance Cpl. York is the fifth of nine San Antonio Class amphibious transport Grant T. Walker. dock ships, but the first to be named in remembrance of the victims of the September 11, 2001 terrorist attacks. U.S. Navy photo by Mass Communication Specialist 1st Class Tiffini M. Jones. APRIL and MAY 2008 The Mine Resistant Ambush Protected (MRAP) vehicle will A U.S. Navy Ceremonial Guardsman pours waters from the Seven provide deployed Marine units with protection from improvised Seas and Great Lakes into the U.S. Navy Memorial fountain in explosive devices. U.S. Navy photo by Mass Communication Washington, DC during the 17th annual Blessing of the Fleets Specialist 2nd Class Michael B. Lavender. celebration. U.S. Navy photo by Mass Communication Specialist 2nd Class Erin Kerby. Newly commissioned officers from the U.S. Naval Academy The mother of Navy SEAL Lt. Michael Murphy cuts the ribbon Class of 2008 celebrate the conclusion of their graduation and during a dedication ceremony for her son on May 7, 2008. U.S. commissioning ceremony with the traditional hat toss. U.S. Navy Navy photo by Mass Communication Specialist 2nd Class Kevin photo by Mass Communication Specialist 3rd Class Matthew S. O’Brien. Ebarb. Department of the Navy 2008 Annual Financial Report 11 12 Today’s Achievements Assure Tomorrow’s Success JUNE and JULY 2008 Pre-Commissioning Unit (PCU) New Hampshire (SSN 778) sits An SH-60B assigned to Helicopter Anti-Submarine Squadron Light moored to the pier in Groton, Connecticut after its christening (HSL) 42 prepares to depart the guided-missile cruiser USS Vella ceremony. It is scheduled to be commissioned in October 2008. Gulf (CG 72) during the Iwo Jima Expeditionary Strike Group (ESG) U.S. Navy photo by John Narewski. composite unit training exercise (COMPTUEX). U.S. Navy photo by Mass Communication Specialist Seaman Chad R. Erdmann. Sailors assigned to Riverine Squadron (RIVRON) 3 and Marines President George W. Bush and other Department of Defense assigned to the civil affairs group of 2nd Battalion, 11th Marine officials break ground for the new Walter Reed National Military Regiment are patrolling Lake Quadsiyah near Haditha, Iraq. U.S. Medical Center during a ceremony at Bethesda Naval Hospital Marine Corps photo by Cpl. Seth Maggard. in Maryland on July 3, 2008. U.S. Air Force photo by Tech. Sgt. Jerry Morrison. AUGUST and SEPTEMBER 2008 Civilians watch as the littoral combat ship USS Freedom (LCS 1) goes to The amphibious transport dock ship USS San Antonio (LPD sea to begin acceptance trials. The littoral combat ship was designed to 17) transits the Atlantic Ocean. U.S. Navy photo by Mass provide the U.S. Navy with greater flexibility and capability in operating Communication Specialist 2nd Class Jason R. Zalasky. in the littoral or “green water” coastal areas. U.S. Navy photo by Mass Communication Specialist 3rd Class Jhi L. Scott. Sailors assigned to Amphibious Construction Battalion Medical personnel from the amphibious assault ship USS (ACB) 2, embarked aboard the amphibious assault ship USS Kearsarge (LHD 3) carry medical supplies to a nearby church Nassau (LHA 4), clean debris left behind from Hurricane Ike in Marose, Haiti. U.S. Navy photo by Mass Communication at Cloverfield Airport in Galveston, Texas. U.S. Navy photo by Specialist Seaman Apprentice Joshua Adam Nuzzo. Mass Communication Specialist 3rd Class Kenneth R. Hendrix. Department of the Navy 2008 Annual Financial Report 13 14 Today’s Achievements Assure Tomorrow’s Success Introduction The Department of the Navy (DON) has made significant strides in its transformation efforts. We are evolving our portfolio of Naval capabilities to defend our Nation against current and future challenges in support of our maritime strategy, A Cooperative Strategy for 21st Century Seapower Construction of next generation ships, the consolidation and recapitalization of our naval aircraft, and enhancement of Navy and Marine Corps special operations represent our commitment to ensuring capabilities evolve to remain ahead of emerging threats. We have embraced continuous process improvement as the means to increase efficiency, effectiveness, and to ensure the responsible use of resources. These and other achievements will help us to sustain U S maritime superiority and assure our future success in building a sound business operating environment The Fiscal Year (FY) 2008 Management’s Discussion and Analysis (MD&A) provides perspective on the breadth and depth of the DON’s mission and the resources appropriated to it The FY 2008 MD&A is organized as follows: n Organization and Mission n Strategic Management n Management Assurances n Financial Condition and Results of Operations n Looking Forward Organization and Mission The DON is a large and complex organization with over 630,000 U S Navy and U S Marine Corps personnel and over 190,000 Navy and Marine Corps civilians located worldwide Headquartered at the Pentagon, DON is organized under the Secretary of the Navy, a civilian appointed by the President, who conducts all Department affairs under the authority, direction, and control of the Secretary of Defense Under the