Financial Statements Analysis and Summary

For FY 2007, the independent accounting firm of PricewaterhouseCoopers, LLP (PwC) expressed an unqualified (clean) opinion on GSA’s comparative FYs 2007 and 2006, proprietary financial statements, the Consolidating Statements of Net Cost, Balance Sheets, and Statements of Changes in Net Position, as well as the budgetary Combining Statements of Budgetary Resources. Throughout FY 2007 GSA’s management significantly increased attention and internal controls over budgetary reporting as part of its duties to ensure accountability over resources that are entrusted to it, as well as to provide accurate and reliable information. Agency management is accountable for the integrity of the financial information presented in the financial statements.

The financial statements and financial data presented in this report have been prepared from GSA’s accounting records in conformity with generally accepted accounting principles (GAAP) in the United States. GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB).

Overview of Financial Position

ASSETS: Total assets were $29,162 million at the end of FY 2007. This represents an increase of $692 million (2.4 percent) over the previous year’s total assets of $28,470 million. This increase is largely attributable to continued growth in GSA’s Federal Buildings Fund (FBF) primary business operations, which is reflected in capital asset purchases and alterations and increases in earnings that provided cash (Fund Balance with Treasury) from operations.

Taken together, Property and Equipment combined with Fund Balance with Treasury comprise 94.1 percent of the total assets for FY 2007. The $132 million increase in Fund Balance with Treasury was primarily due to overall profits in the Acquisition Services Fund (ASF) that are used to maintain sufficient working capital, as well as to provide sufficient resources for capital investments in fleet vehicles and unique program requirements, such as conversion costs associated with the government-wide Networx telecommunications contract. The $7,011 million of Fund Balance with Treasury is generally available to GSA to liquidate outstanding commitments ($884 million of net obligations), to provide working capital to the revolving fund programs, and contains balances that will fund future needs. While the majority of these balances ($5,670 million) are available for such future needs, $2,262 million of the available balance is committed to the funding of building construction and alteration projects provided for in legislation. Amounts totaling $474 million were unavailable for spending as of September 30, 2007 and would require future authorization or legislation to be used.

GSA’s assets reflected in the Consolidating Balance Sheets are summarized in the table below:

Property and Equipment increased by $720 million (3.7 percent) from FY 2006. Property acquisitions of $2,493 million during the year, net of the recorded depreciation expense of $1,455 million and $307 million in property disposals and write-offs, account for most of this increase. For the total amount of property acquisitions in FY 2007, $1,640 million were comprised of construction, modernization, and alterations to buildings.

LIABILITIES: In FY 2007, total Agency liabilities decreased by $324 million (5.4 percent) to $5,635 million from $5,959 million in FY 2006. Liabilities reported on the Consolidating Balance Sheet are summarized in the table below.

For FY 2007 GSA’s largest liability balance is Intragovernmental Debt. The $2,151 million of Intragovernmental Debt is 38.2 percent of total liabilities, of which $31 million is unfunded. Periodically, in lieu of direct appropriations, GSA receives authority in its FBF to finance construction of buildings. Borrowings have been obtained from the U.S. Department of the Treasury’s (U.S. Treasury) Federal Financing Bank (FFB), with the expenditure of the funds amortized over a 30-year period. GSA has almost depleted its authority to borrow and is currently paying off more debt than it is currently borrowing.

Accounts payable makes up 34.7 percent of total liabilities. These balances decreased $179 million (3.0 percent) in FY 2007 primarily due to continued decline in the ASF in the business activity of IT Solutions. The decrease in business activity for the ASF is further explained in the section on Results of Operations.

Liabilities totaling $1,345 million, or 23.9 percent of total liabilities, were unfunded, (i.e., budgetary resources are not yet available). For most unfunded liabilities, budgetary resources will be made available in the years balances are due, in accordance with Office of Management and Budget (OMB) funding guidelines. The major elements of unfunded liabilities are $198 million for Workers’ Compensation, $427 million for capital leases and installment purchases, $269 million for reimburse-ments due the U.S. Treasury Judgment Fund for costs from past litigation, and $157 million for contingencies and environmental/disposal liabilities.

ENDING NET POSITION: GSA’s Net Position at the end of FY 2007 on the Consolidating Balance Sheet and the Consolidating Statement of Changes in Net Position was $23,527 million, a $1,016 million (4.5 percent) increase from the prior fiscal year. Net Position is the sum of the Unexpended Appropriations and Cumulative Results of Operations.

The increase in Cumulative Results of Operations resulted primarily from the Net Results of Operations in GSA’s FBF (results of $655 million) which mostly funds the capital needs for building construction and alterations. The Acquisition Services Fund (ASF) Net Results of Operations also increased significantly with solid earnings and other changes totaling $330 million.

Results of Operations

The results of operations are reported in the Consolidated Statements of Net Cost and the Consolidated Statements of Changes in Net Position.

The Consolidated Statements of Net Cost presents the cost (net of any earned revenue) of operating the FBF, ASF, the GSA Working Capital Fund (WCF) and other operating funds in reporting the Agency’s Net Cost.

GSA’s total Net Revenue from Operations at the end of FY 2007, after intra-agency eliminations, was $488 million, a $79 million (19.3 percent) increase from the prior fiscal year. The Net Revenue from Operations is presented as Total Revenues less Total Expenses at the end of FY 2007. The most significant reason for this increase in GSA’s Net Operating Results is attributable to ASF net revenue of $122 million at the end of FY 2007, compared to $12 million in FY 2006. This significant change reflects a return to results closer to expectations. Results from FY 2006 were significantly lower than normal following the write-off of a major IT develop-ment project, which reduced earnings by approximately $80 million. In addition, losses from normal operations in the IT Solutions program in FY 2006 totaled $75 million. Despite reductions in business demand that continued into FY 2007, cost containment actions reduced losses from IT Solutions operations to $57 million in FY 2007. Management has taken significant actions to restructure business processes and further reduce operating costs to stop the recurring losses in FY 2008.

The tables below summarize the activity on GSA’s Consolidated Statements of Net Cost (before intra-GSA eliminations) and the Consolidated Statements of Changes in Net Position by showing the funds available to GSA in FY 2007 and how these funds were used.

Budgetary Issues

The decline in certain ASF business volume discussed in the sections above also had a significant effect on the budgetary statements, as Unfilled Customer Orders decreased by $786 million and Obligations incurred decreased by $308 million. In addition, Accounts Receivable from Federal customers decreased by $179 million and Collections decreased by a total of $460 million. Total Budgetary Resources in the ASF declined $959 million (8.4 percent).

Funding for capital investment in real property remains a significant challenge. The current funding level of the FBF is inadequate to meet the demand for new construction, particularly new courthouses and facilities with stringent security requirements, and the need to reinvest in the existing inventory of government-owned buildings. Public Buildings Service’s (PBS) Strategy for Restructuring and Reinvesting in the Owned Inventory has brought new emphasis to addressing the non-performing assets in the PBS inventory. This effort, along with asset management reform legislation and continued support for repairs and alterations (R&A) funding, is essential to reducing the $6.3 billion backlog of building R&A work and providing quality space for GSA’s Federal customers and the visiting public.

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