US Postal Service 2005 Annual Report Download - page 56

46 | 2005 Annual Report United States Postal Service
Notes to the financial statements
Note 1 – Description of Business
Nature of Operations
The United States Postal Service provides mail service to
the public, offering a variety of classes of mail services
without undue discrimination among its many custom-
ers. This means that within each class of mail our price
does not unreasonably vary by customer for the levels
of service we provide. This fulfills our legal mandate to
offer universal service at a fair price. Our primary lines of
business are First-Class Mail, Standard Mail, Priority Mail,
International Mail, Express Mail, Periodicals and Package
Services. The principal markets for these services are the
communications, distribution and delivery, advertising and
retail markets. Our products are distributed through more
than 37,000 Post Offices, stations and branches, contract
postal units and a large network of consignees. We
conduct our significant operations primarily in the domestic
market, with international operations representing less
than 3% of our total revenue.
Our labor force is primarily represented by the American
Postal Workers Union, National Association of Letter
Carriers, National Postal Mail Handlers Union and National
Rural Letter Carriers Association. Almost 90% of our
career employees are covered by collective bargaining
agreements. The agreements with the major unions expire
November 20, 2006.
By law, we also consult with management organiza-
tions representing most of the employees not covered
by collective bargaining agreements. These consulta-
tions provide an opportunity to participate directly in the
planning, development, and implementation of programs
and policies affecting the managerial employees in the
field. The management organizations include the National
Association of Postal Supervisors, National League of
Postmasters, and National Association of Postmasters
of the United States. We participate in federal employee
benefit programs covering retirement, health benefits, and
workers’ compensation.
Postal Reorganization
We commenced operations on July 1, 1971, in accordance
with the provisions of the Postal Reorganization Act (the
Act). The equity that the U.S. government held in the
former Post Office Department became our initial capital.
We valued the assets of the former Post Office Department
at original cost less accumulated depreciation. The initial
transfer of assets, including property, equipment and cash,
totaled $1.7 billion. Subsequent cash contributions and
transfers of assets between 1972 and 1982 totaled ap-
proximately $1.3 billion, resulting in total government con-
tributions of approximately $3 billion. The U.S. government
remained responsible for all the liabilities attributable to
operations of the former Post Office Department; however,
under the Balanced Budget Act of 1997, the remaining
liability for Post Office Department workers’ compensation
costs was transferred to us.
Although we are excluded from the U.S. government bud-
getary process, we do enter into significant transactions
with other government agencies, as disclosed throughout
these financial statements.
Price Setting Process
Since 1971, the Act has required us to establish prices that
cover the costs of operating the postal system. The Act
established the independent Postal Rate Commission with
oversight responsibility for mail prices, subject to approval
by the Governors of the Postal Service. The ratemak-
ing process provides for the recovery of financial losses
through future rate increases.
Note 2 – Summary of Significant
Accounting Policies
Basis of Accounting and Use of Estimates
We maintain our accounting records and prepare our finan-
cial statements on the accrual basis of accounting. This
basis conforms to accounting principles generally accepted
in the United States. Following these principles, we make
estimates and assumptions that affect the amounts we
report in the financial statements and notes. Actual results
may differ from our estimates.
Cash and Cash Equivalents
Cash equivalents are securities that mature within 90
days or less from the date we buy them. We recognize
checks outstanding as a current liability until presented
for payment.
Current Values of Financial Instruments
The current value of our debt is what it would cost to pay
off the debt if we used the current yield on equivalent
U.S. Treasury debt.
We have foreign currency risk related to the settlement
of terminal dues and transit fees with foreign postal
administrations for international mail. The majority of our
international accounts are denominated in special drawing
rights (SDRs). The SDR exchange rate fluctuates daily