US Postal Service 2005 Annual Report Download - page 41

2005 Annual Report United States Postal Service | 31
course of 2004. As a result of the overhaul, we benefited
from both lower interest rates on short-term debt and
also from the flexibility to repay debt with available cash
on a daily basis. A major benefit was the reduction in the
interest expense payable to the Federal Financing Bank.
Reflecting this change, interest expense on borrowings
in 2005, was the lowest since postal reorganization. This
meant that while we paid an average of $327 million in
Interest expense from 2001–2003 we were able to virtu-
ally eliminate interest expense in 2004 and 2005.
For 2006, cash flow from operations, after funding the
escrow requirement, estimated at $3.1 billion, will not be
sufficient to pay for all the capital investments. A projected
borrowing of at least $1 billion will be needed to make up
the shortfall. Debt levels beyond 2006 will be influenced
by our ability to operate at close to break even, and control
the level of capital investment. Additionally, our debt levels
will also be greatly influenced by the requirements of
P.L.108-18, which requires that the “savings” we realize,
be held in escrow, and not be obligated or expended until
otherwise provided for by law.
Interest and Investment Income
When we determine that our funds exceed our current
needs, we invest those funds with the U.S. Treasury’s
Bureau of Public Debt. We invest primarily in overnight
securities issued by the U.S. Treasury. We favor short-term
investments because of the nature of our cash flow pat-
terns, and to ensure that our investments are not unneces-
sarily exposed to the price risk associated with increases in
interest rates.
We also record imputed interest on the
funds owed to us under the Revenue
Forgone Act of 1993. Under the Act,
Congress is required to reimburse us
$29 million annually through 2035.
See Note 8 of the Notes to the Financial
Statements for additional information.
Cash Flow
Net Cash Provided by Operating
Activities
During 2005, net cash provided by oper-
ating activities decreased $2.2 billion due
primarily to increases in compensation
and benefits and transportation expenses.
Compensation and benefit increases
were driven by general salary and COLA
pay increases of $1.4 billion, retirement
increases of $500 million fueled by an
increase of half a percent in the FERS employer contribu-
tion cost and current and retiree health benefit increases
of more than $400 million. Cash outlays for transportation
expenses were approximately $450 million higher than in
2004. A change from recent experience was the decline in
the cash payment for workers’ compensation in 2005 from
2004 levels. This is the first time that the cash outlays for
workers’ compensation have decreased year over year.
Also the cash payment exceeded the expense for the first
time since 1997 reducing the overall workers’ compensa-
tion liability.
The decrease of $570 million in operating cash flows in
2004 from 2003 was due primarily to increased operating
expenses resulting from higher benefit costs. The main
driver of these benefit increases was a $697 million or
11.9% increase in retirement costs mainly as a result of a
full year of funding CSRS retirement contributions at 17.4%
as required by P.L.108-18 and a $180 million or 15.9%
increase in retiree health benefit costs. These increases
were offset by an additional $247 million in accrued payroll
$306
$340 $334
$10 $2
$0
$50
$100
$150
$200
$250
$300
$350
$400
2001 2002 2003 2004 2005
Millions
OTHER INTEREST EXPENSE
*Other interest expense excludes interest on deferred retirement obligations and the 2003 debt repur-
chase expense.
(Dollars in millions)
Interest and
Investment Income 2005 2004 2003
Investment income $ 60 $ 5 $ 30
Imputed interest on
accounts receivable from
the U.S. government 25 26 26
Other Interest 1 2 2
Total $ 86 $ 33 $ 58