US Postal Service 2004 Annual Report Download - page 46

44 | 2004 annual report united states postal service
Notes to the financial statements
Note 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฀ undue฀ discrimination฀ among฀ its฀ 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.฀This฀fulfills฀our฀legal฀mandate฀to฀offer฀
universal฀services฀at฀a฀fair฀and฀uniform฀price.฀Our฀primary฀lines฀
of฀business฀are฀First-Class฀Mail,฀Standard฀Mail,฀Express฀Mail,฀
Priority฀Mail,฀Periodicals฀and฀Package฀Services.฀The฀principal฀
markets฀for฀these฀services฀are฀the฀communications,฀distribu-
tion฀and฀delivery,฀advertising฀and฀retail฀markets.฀Our฀products฀
are฀ distributed฀ through฀ our฀ 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฀between฀November฀20,฀2005,฀and฀
November฀20,฀2006.
By฀ law,฀ we฀ also฀ consult฀ with฀ management฀ organizations฀
representing฀most฀of฀the฀employees฀not฀covered฀by฀collec-
tive฀bargaining฀agreements.฀These฀consultations฀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฀organiza-
tions฀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฀bene-
fits,฀and฀workers’฀compensation.
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฀opera-
tions฀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฀trans-
ferred฀to฀the฀Postal฀Service.
Although฀the฀Postal฀Service฀is฀excluded฀from฀the฀U.S.฀govern-
ment฀ 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฀independent฀Postal฀Rate฀Commission฀with฀
oversight฀responsibility฀for฀mail฀prices,฀subject฀to฀approval฀by฀
the฀Governors฀of฀the฀Postal฀Service.฀The฀ratemaking฀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฀administra-
tions฀for฀international฀mail.฀The฀majority฀of฀our฀international฀
accounts฀are฀denominated฀in฀special฀drawing฀rights฀(SDRs).฀
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฀