US Postal Service 2004 Annual Report Download - page 32

Download and view the complete annual report

Please find page 32 of the 2004 US Postal Service annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 64

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64

financial review
30 | 2004 annual report united states postal service
Our฀ facilities฀ program฀ will฀ continue฀ to฀address฀life,฀health,฀
safety,฀and฀ security฀issues.฀Our฀facility฀plan฀has฀increased฀
as฀we฀invest฀in฀those฀facilities฀in฀our฀delivery฀system฀that฀we฀
have฀placed฀on฀a฀priority฀list.฀With฀an฀annual฀average฀growth฀
of฀approximately฀1.8฀million฀delivery฀points฀every฀year,฀we฀will฀
maintain฀our฀infrastructure฀through฀high฀priority฀replacement฀
projects฀and฀ongoing฀repair฀and฀alteration฀projects.฀
Finance
DEBT
Unlike฀other฀federal฀agencies,฀we฀receive฀no฀tax฀dollars฀for฀
our฀operations.฀We฀are฀self-supporting,฀and฀have฀not฀received฀
a฀public฀service฀appropriation฀since฀1982.฀The฀last฀year฀that฀
we฀received฀any฀substantial฀contribution฀of฀capital฀from฀the฀
U.S.฀government฀was฀1977,฀when฀we฀received฀$500฀million฀
that฀we฀were฀required฀to฀use฀to฀repay฀operating฀debt.฀Like฀any฀
private฀sector฀organization,฀we฀fund฀our฀operations฀mostly฀from฀
cash฀generated฀from฀operating฀revenue.฀However,฀unlike฀our฀
private฀sector฀counterparts,฀we฀cannot฀raise฀capital฀through฀the฀
equity฀markets,฀and฀because฀we฀are฀expected฀to฀break฀even฀
over฀time,฀we฀are฀not฀expected฀to฀accumulate฀a฀substantial฀
amount฀of฀retained฀earnings฀for฀extended฀periods฀to฀increase฀
our฀capital.฀Consequently,฀our฀only฀source฀of฀outside฀capital฀
is฀through฀issuing฀debt฀obligations.฀An฀additional฀challenge฀is฀
that฀unlike฀the฀private฀sector฀we฀are฀not฀free฀to฀set฀our฀own฀
prices฀for฀our฀products฀and฀services.฀For฀us,฀the฀rate฀setting฀
process,฀which฀by฀law฀we฀must฀rely฀upon,฀is฀a฀complex฀and฀
lengthy฀process฀that฀can฀take฀eighteen฀months฀to฀complete.฀As฀
a฀result,฀we฀cannot฀easily฀adjust฀our฀revenue฀stream฀to฀react฀to฀
changing฀market฀conditions.
The฀amount฀we฀borrow฀is฀largely฀determined฀by฀the฀difference฀
between฀our฀cash฀flow฀from฀operations฀and฀our฀capital฀cash฀
outlays.฀Our฀capital฀cash฀outlays฀are฀the฀funds฀we฀invest฀back฀
into฀the฀business฀for฀our฀capital฀investments฀in฀new฀facilities,฀
new฀ automation฀equipment฀and฀new฀services.฀From฀1997฀
through฀2002,฀our฀outlays฀for฀capital฀investment฀exceeded฀
cash฀from฀operations฀by฀$5.4฀billion,฀so฀we฀covered฀most฀of฀
the฀difference฀with฀borrowed฀funds.฀From฀the฀end฀of฀1997฀to฀
the฀end฀of฀2002,฀our฀debt฀outstanding฀with฀the฀Department฀
of฀the฀Treasury’s฀Federal฀Financing฀Bank฀increased฀from฀$5.9฀
billion฀to฀$11.1฀billion.฀In฀2003฀we฀reduced฀our฀debt฀by฀$3.8฀
billion฀to฀$7.3฀billion฀and฀in฀2004฀by฀$5.5฀billion฀to฀$1.8฀billion,฀
our฀lowest฀level฀of฀debt฀since฀1984.
The฀enactment฀of฀P.฀L.108-18฀in฀2003฀dramatically฀increased฀
our฀cash฀flow฀by฀$6.2฀billion฀over฀two฀years.฀However,฀under฀
this฀law,฀we฀are฀required฀to฀apply฀the฀savings฀attributable฀to฀
the฀law฀to฀debt฀reduction฀in฀those฀two฀years.฀The฀required฀debt฀
reduction฀amounted฀to฀$3.5฀billion฀in฀2003฀and฀an฀additional฀
$2.7฀billion฀in฀2004.฀
In฀2003,฀we฀completely฀overhauled฀our฀debt฀portfolio,฀paying฀
off฀all฀of฀our฀long-term฀debt฀obligations฀and฀replacing฀most฀of฀
them฀with฀short-term฀debt฀that฀would฀be฀available฀for฀retire-
ment฀during฀the฀course฀of฀2004.฀As฀a฀result฀of฀the฀overhaul,฀
we฀benefited฀from฀ both฀ lower฀interest฀rates฀on฀short-term฀
debt฀and฀the฀flexibility฀to฀repay฀debt฀with฀available฀cash฀on฀
a฀daily฀basis.฀A฀major฀benefit฀was฀the฀reduction฀in฀our฀inter-
est฀expense฀payable฀to฀the฀Federal฀Financing฀Bank.฀Reflecting฀
this฀change,฀other฀interest฀expense,฀net฀of฀capitalized฀inter-
est,฀was฀$10฀million฀in฀2004,฀the฀lowest฀since฀1972,฀versus฀
$334฀million฀in฀2003,฀and฀$340฀million฀in฀2002.฀The฀2003฀
debt฀transactions฀also฀provided฀us฀with฀the฀flexibility฀to฀pay฀
off฀substantially฀more฀debt฀in฀2004,฀$5.5฀billion,฀than฀the฀esti-
mated฀$2.7฀billion฀required฀by฀the฀statute,฀without฀concerns฀
for฀paying฀a฀prepayment฀premium.฀Finally,฀because฀we฀expect฀
our฀interest฀earnings฀on฀investments฀to฀exceed฀the฀interest฀
expense฀on฀our฀debt฀for฀2005,฀we฀will฀benefit฀from฀any฀rise฀in฀
short฀term-interest฀rates.฀
Part II
�
5�
1��
15�
2��
25�
3��
35�
2��42��32��22��12���
OTHER INTEREST EXPENSE
$3�6
$22�
$334
$34�
$1�
(Dollars฀in฀millions)
�
2
4
6
8
1�
12
2��42��32��22��12���
DEBT AT YEAR END
$11.1
$11.3
$9.3
$1.8
$7.3
(Dollars฀in฀billions)