US Postal Service 2003 Annual Report Download - page 48

46 | 2003 annual report united states postal service
notes to the
financial statements
1 description of business
Nature of Operations
The United States Postal Service (Postal Service)
provides mail service to the public, offering a variety
of classes of mail services without discrimination
among its many customers. This means that within
each class of mail our price does not vary by
customer for the levels of service we provide. This
fulfills our legal mandate to offer universal services at
a fair price. Our primary lines of business are First-
Class Mail, Standard Mail, Priority Mail, Periodicals
and Package Services. The principal markets for
these services are the communications, distribution
and delivery, advertising and retail markets. Our prod-
ucts are distributed through our more than 37,000
Post Offices and a large network of consignees. As in
the past, we continue to conduct our significant oper-
ations primarily in the domestic market, with
international operations representing less than 3% of
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 collec-
tive bargaining agreements. The agreements with the
major unions expire between November 20, 2004
and November 20, 2006.
Postal Reorganization
The Postal Service 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 the initial capital of the Postal
Service. The Postal Service 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 1973 and 1982
totaled approximately $1.3 billion, resulting in total
government contributions 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 the Postal Service.
Although the Postal Service is excluded from the
U.S. government budgetary process, the Postal
Service enters into significant transactions with other
government agencies, as disclosed throughout these
financial statements.
Price Setting Process
Since 1971, the Act has required the Postal Service
to establish prices that cover the costs of operating
the postal system. The Act established the independ-
ent Postal Rate Commission with oversight
responsibility for mail prices, subject to approval by
the Governors of the Postal Service. The Act provides
for the recovery of financial losses through future rate
increases.
2 summary of significant
accounting policies
Basis of Accounting and Use of Estimates
We maintain our accounting records and prepare our
financial statements on the accrual basis of account-
ing. This basis conforms to accounting principles
generally accepted in the United States. Following
these principles, we made estimates and assump-
tions that affect the amounts we report in the
financial statements and notes. Actual results may
differ from our estimates.
Cash Equivalents
Cash equivalents are securities that mature within 90
days or less from the date we buy them. We recog-
nize 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 equiv-
alent U.S. Treasury debt.
We have foreign currency risk related to the settle-
ment of terminal dues and transit fees with foreign
postal administrations for international mail. The
majority of our international accounts are denomi-
nated in Special Drawing Rights (SDRs). The SDR
exchange rate fluctuates daily based on a basket of
currencies comprised of the euro, Japanese yen, the
pound sterling and the U.S. dollar. Changes in the
relative value of these currencies will increase or
decrease the value of our settlement accounts and