US Postal Service 2004 Annual Report Download - page 37

financial review
2004 annual report united states postal service | 35
Commodity฀Price฀Risk
We฀ estimate฀ that฀ we฀ purchase฀ approximately฀ 800฀ million฀
gallons฀of฀fuel฀each฀year,฀thus฀fuel฀prices฀are฀a฀significant฀part฀
of฀our฀expenses.฀
We฀are฀exposed฀to฀changes฀in฀commodity฀prices฀primarily฀for฀
diesel฀fuel,฀unleaded฀gasoline฀and฀aircraft฀fuel฀for฀transportation฀
of฀the฀mails฀and฀natural฀gas฀for฀heating฀facilities.฀We฀currently฀
do฀not฀use฀derivative฀commodity฀instruments฀to฀manage฀the฀
risk฀of฀changes฀in฀energy฀prices.฀
Foreign฀Currency฀Exchange฀Rate฀Risk
We฀have฀foreign฀currency฀risk฀related฀to฀the฀settlement฀ of฀
terminal฀dues฀and฀transit฀fees฀with฀foreign฀postal฀administra-
tions฀for฀international฀mail.฀The฀majority฀of฀our฀international฀
accounts฀are฀accounted฀for฀based฀on฀International฀Monetary฀
Fund฀special฀drawing฀rights฀(SDR).฀The฀SDR฀exchange฀rate฀
fluctuates฀daily฀based฀on฀a฀basket฀of฀currencies฀comprised฀of฀
the฀euro,฀the฀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฀
result฀in฀a฀gain฀or฀loss฀from฀revaluation.฀The฀actual฀currency฀
used฀to฀settle฀accounts฀varies฀by฀country฀based฀on฀individual฀
agreements.
We฀purchase฀the฀required฀currency฀at฀the฀time฀of฀settlement,฀
but฀when฀we฀ know฀ the฀timing฀ and฀ the฀amount฀ of฀sched-
uled฀payments฀in฀advance,฀we฀may฀purchase฀short฀duration฀
forward฀contracts.
At฀year฀end,฀we฀adjust฀the฀reported฀receivable฀and฀payable฀
balances฀ to฀ reflect฀ the฀ fair฀ value฀ based฀ on฀ the฀ SDR฀ rate฀
published฀ in฀ the฀ Wall฀ Street฀ Journal฀ on฀ the฀ last฀ day฀ of฀
September.฀This฀resulted฀in฀a฀$10฀million฀gain฀from฀the฀revalu-
ation฀in฀2004฀compared฀to฀a฀loss฀of฀$9฀million฀in฀2003.฀We฀do฀
not฀use฀derivative฀financial฀instruments฀to฀manage฀the฀risk฀of฀
changes฀in฀the฀value฀of฀the฀SDR.
Interest฀Rate฀Risk
As฀described฀in฀note฀5฀to฀the฀financial฀statements,฀we฀refi-
nanced฀all฀our฀outstanding฀long฀term฀Federal฀Financing฀Bank฀
debt฀with฀short฀term฀debt฀in฀2003.฀We฀have฀not฀used฀derivative฀
financial฀instruments฀to฀manage฀risk฀related฀to฀interest฀rate฀
fluctuations฀for฀debt฀instruments.฀
We฀estimate฀that฀a฀1%฀increase฀in฀interest฀rates฀would฀have฀an฀
insignificant฀impact฀on฀our฀interest฀expense฀due฀to฀the฀struc-
ture฀of฀our฀debt฀portfolio.฀฀A฀1%฀increase฀in฀interest฀rates฀would฀฀
increase฀investment฀income฀by฀$15฀million.
Item 8. Financial statements
Financial฀statements฀are฀on฀pages฀39–51฀of฀this฀report.
Item 9. Changes in and disagreements with
accountants on accounting and financial
disclosure
None.฀
Item 9A. Controls and procedures
Management฀is฀responsible฀for฀the฀preparation,฀integrity,฀and฀fair฀
presentation฀of฀the฀financial฀statements฀of฀the฀Postal฀Service.
We฀maintain฀a฀system฀of฀internal฀control฀over฀financial฀reporting฀
that฀is฀designed฀to฀provide฀reasonable฀assurance฀that฀transac-
tions฀are฀executed฀as฀authorized฀and฀accurately฀recorded,฀that฀
assets฀are฀safeguarded,฀and฀accounting฀records฀are฀sufficiently฀
reliable฀to฀permit฀the฀preparation฀of฀financial฀statements฀that฀
conform฀with฀accounting฀principles฀generally฀accepted฀in฀the฀
United฀States.฀We฀maintain฀disclosure฀controls฀and฀procedures฀
designed฀to฀ensure฀that฀information฀to฀be฀disclosed฀by฀us฀is฀
recorded,฀processed,฀summarized,฀and฀reported฀within฀the฀time฀
periods฀specified฀by฀our฀Board฀of฀Governors฀and฀the฀Office฀
of฀Management฀and฀Budget.฀We฀are฀monitoring฀our฀internal฀
controls฀over฀financial฀reporting฀and฀disclosure฀controls฀and฀
procedures฀through฀internal฀self-assessments.
Code฀of฀Ethics
The฀Standards฀of฀Ethical฀Conduct฀for฀Employees฀of฀the฀Executive฀
Branch฀at฀5฀Code฀of฀Federal฀Regulations฀(C.F.R.)฀§2635฀apply฀
to฀all฀postal฀employees.฀The฀Standards฀were฀issued฀in฀1993฀
by฀the฀U.S.฀Office฀of฀Government฀Ethics,฀and฀replaced฀the฀indi-
vidual฀agency฀standards฀then฀applicable฀to฀all฀employees฀of฀
the฀executive฀branch.฀Our฀employees฀are฀also฀covered฀by฀the฀
Supplemental฀Standards฀of฀Ethical฀Conduct฀for฀Employees฀of฀the฀
United฀States฀Postal฀Service฀at฀5฀C.F.R.฀§7001.฀The฀Standards฀
and฀Supplemental฀Standards฀are฀detailed฀and฀contain฀many฀
examples฀to฀help฀employees฀ recognize฀and฀resolve฀ethical฀
issues.฀We฀give฀employees฀a฀summary฀of฀the฀standards,฀and฀
other฀ethical฀conduct฀materials,฀at฀new฀employee฀orientation฀
training.฀We฀also฀provide฀annual฀ethics฀training฀for฀all฀employ-
ees฀who฀file฀a฀financial฀disclosure฀report.฀We฀encourage฀our฀
employees฀to฀seek฀ethics฀advice฀and฀information฀from฀internal฀
ethics฀officials,฀and฀we฀publicize฀an฀ethics฀telephone฀line฀and฀
e-mail฀address฀they฀can฀use฀for฀this฀purpose.
Part II
Each฀of฀our฀290,902฀letter฀carriers฀delivered฀
an฀average฀of฀43.46฀tons฀of฀mail฀in฀2004.฀
That’s฀equivalent฀to฀carrying฀almost฀11฀
average-size฀male฀elephants.