US Postal Service 2004 Annual Report Download - page 20

financial review
18 | 2004 annual report united states postal service
Item 1. Business
General฀Development฀of฀Business
During฀2004,฀we฀began฀to฀prepare฀interim฀financial฀reports฀
on฀a฀calendar฀month฀basis.฀Previously,฀our฀interim฀reporting฀
was฀based฀on฀a฀28-day,฀13฀accounting฀period฀calendar฀that฀
had฀been฀used฀since฀before฀postal฀reorganization.฀As฀a฀result,฀
2003฀interim฀data฀are฀management’s฀representation฀of฀results฀
for฀the฀same฀periods฀last฀year.฀
Financial฀Information฀about฀Segments
We฀operate฀in฀one฀segment฀throughout฀the฀United฀States฀
and฀ internationally.฀ Our฀ international฀ operations฀ are฀ not฀
financially฀significant.
Narrative฀Description฀of฀Business
Overview฀
The฀United฀States฀Postal฀Service฀(we)฀commenced฀operations฀
on฀July฀1,฀1971,฀as฀an฀independent฀entity฀of฀the฀executive฀
branch฀of฀the฀United฀ States฀government.฀Under฀the฀Postal฀
Reorganization฀Act,฀we฀have฀a฀legal฀mandate฀to฀offer฀a฀“funda-
mental฀service”฀to฀the฀American฀people฀on฀a฀“fair฀and฀equitable฀
basis.”฀We฀fulfill฀this฀legal฀mandate฀to฀offer฀universal฀services฀
at฀a฀fair฀and฀uniform฀price฀by฀offering฀a฀variety฀of฀classes฀of฀
mail฀services฀without฀undue฀discrimination฀among฀our฀many฀
customers.฀This฀ means฀that฀ within฀ each฀class฀ of฀mail฀ our฀
price฀does฀not฀unreasonably฀vary฀by฀customer฀for฀the฀levels฀
of฀service฀we฀provide.
We฀serve฀individual฀and฀commercial฀customers฀throughout฀the฀
nation.฀Our฀services฀compete฀for฀business฀in฀the฀communica-
tions,฀distribution฀and฀delivery,฀advertising฀and฀retail฀markets.฀
The฀rates฀and฀fees฀for฀postal฀services฀are฀subject฀to฀a฀regula-
tory฀review฀process฀controlled฀by฀the฀independent฀Postal฀Rate฀
Commission฀(PRC).
Our฀products฀are฀distributed฀through฀our฀more฀than฀37,000฀
Post฀Offices,฀stations฀and฀ branches,฀contract฀ postal฀units,฀
our฀ website฀usps.com฀ and฀a฀large฀network฀ of฀consignees.฀
We฀deliver฀mail฀to฀142฀million฀city,฀rural,฀Post฀Office฀box,฀and฀
highway฀delivery฀points.฀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.฀Approximately฀ 90%฀ of฀ our฀ career฀ employees฀
are฀covered฀by฀collective฀bargaining฀agreements.฀By฀law,฀we฀
consult฀with฀management฀organizations฀representing฀most฀of฀
the฀employees฀not฀covered฀by฀collective฀bargaining฀agreements.฀
These฀consultations฀provide฀an฀opportunity฀to฀participate฀directly฀
in฀the฀planning,฀development,฀and฀implementation฀of฀programs฀
and฀policies฀affecting฀managerial฀employees฀in฀the฀field.฀The฀
management฀organizations฀include฀the฀National฀Association฀of฀
Postal฀Supervisors,฀the฀National฀League฀of฀Postmasters,฀and฀
the฀National฀Association฀of฀Postmasters฀of฀the฀United฀States.฀
We฀participate฀in฀federal฀employee฀benefit฀programs฀covering฀
retirement,฀health฀benefits฀and฀workers’฀compensation.
We฀are฀not฀subject฀to฀regulation฀by฀the฀Securities฀and฀Exchange฀
Commission฀(SEC).฀However,฀we฀comply฀voluntarily฀with฀the฀
financial฀reporting฀requirements฀of฀the฀SEC฀to฀the฀extent฀that฀
these฀ requirements฀ may฀ be฀ reasonably฀ applied฀ to฀ a฀ non-
publicly฀traded,฀government-owned฀entity฀with฀a฀mandate฀to฀
break฀even฀over฀time.฀Therefore,฀this฀report฀excludes฀certain฀
SEC฀reporting฀elements฀normally฀included฀in฀a฀Form฀10-K.฀
Specifically,฀we฀have฀excluded:฀Item฀4,฀Submission฀of฀Matters฀
to฀a฀Vote฀of฀Security฀Holders;฀Item฀5,฀Market฀for฀Registrant’s฀
Common฀Equity฀and฀Related฀Stockholder฀Matters;฀and฀Item฀
12,฀ Security฀ Ownership฀ of฀ Certain฀ Beneficial฀ Owners฀ and฀
Management฀and฀Related฀Stockholder฀Matters.
Postal฀Reform
In฀May฀2004,฀Representative฀John฀McHugh,฀Chairman฀of฀the฀
Government฀Reform฀Committee’s฀Special฀Panel฀on฀the฀Postal฀
Service,฀ introduced฀ H.R.฀ 4341,฀ Postal฀Accountability฀ and฀
Enhancement฀Act.฀The฀bill฀was฀reported฀favorably฀to฀the฀full฀
House฀on฀the฀date฀of฀introduction.
Also฀ in฀ May,฀ Governmental฀ Affairs฀ Committee฀ Chairman฀
Susan฀ Collins฀ introduced฀ S.฀ 2468,฀ Postal฀ Accountability฀
and฀Enhancement฀Act.฀In฀August,฀the฀Committee฀placed฀the฀
bill฀on฀the฀legislative฀calendar฀for฀action฀in฀the฀abbreviated฀
Congressional฀session฀following฀the฀Labor฀Day฀recess.฀While฀
there฀were฀some฀differences฀in฀the฀two฀bills,฀both฀provided฀for฀
a฀number฀of฀changes฀designed฀to฀reform฀the฀outdated฀Postal฀
Reorganization฀Act฀of฀1970.
Both฀the฀Senate฀and฀House฀legislation฀reaffirmed฀the฀impor-
tance฀of฀universal฀service฀and฀significantly฀strengthened฀the฀
role฀of฀the฀PRC฀granting฀it฀the฀authority฀to฀create฀a฀new฀system฀
of฀rates฀and฀service฀standards,฀among฀other฀powers.฀Both฀bills฀
granted฀us฀some฀pricing฀flexibility.฀The฀Senate฀bill฀introduced฀
price฀caps฀to฀assure฀future฀affordability,฀while฀the฀House฀bill฀
would฀have฀allowed฀the฀PRC฀to฀choose฀the฀pricing฀system.฀
However,฀only฀the฀Senate฀version฀gave฀the฀PRC฀flexibility฀in฀
crafting฀a฀price฀cap฀that฀took฀into฀account฀a฀variety฀of฀cost฀
drivers.฀The฀House฀bill฀mandated฀the฀use฀of฀the฀Consumer฀
Price฀Index.฀Neither฀bill฀provided฀the฀opportunity฀for฀relief฀from฀
our฀major฀cost฀drivers,฀wages฀and฀benefits.
Part I