US Postal Service 2005 Annual Report Download - page 42

32 | 2005 Annual Report United States Postal Service
and benefit expenses caused by one additional day of ac-
crued payroll at year end.
Net Cash Used in Investing Activities
During 2005, 2004 and 2003, net cash used in invest-
ing activities was $2.3 billion, $1.7 billion and $1.3 billion
respectively. The increase in net cash used in investing ac-
tivities for the last two years reflects increased investment
for mail processing equipment, retail equipment and for
building improvements. In 2005 capital outlays exceeded
depreciation expense for the first time since 2001.
Net Cash Used in Financing Activities
During 2005, we repaid what remained of our prior year-
end debt to the Federal Financing Bank, leaving us debt
free at year end. There was no mandatory debt reduction
provision in the legislation for 2005. Our action this year
continues our established practice of going beyond the
debt reduction requirements of P.L.108-18. We also re-
ceived a net appropriation from Congress of $503 million
to fund additional biohazard detection systems, ventilation
filtration systems and an irradiation facility.
In both 2004 and 2003 the net cash used in financing
activities of $5.6 billion and $4.0 billion respectively, reflect
our desire, and the requirement of P.L.108-18, that any
“savings” generated by the enactment of the law be used
to pay down debt. Consequently in 2004 we paid down
$5.5 billion in debt and in 2003 we paid down $3.8 billion
in debt.
Liquidity
Our liquidity is the cash in the Postal Service Fund in the
U.S. Treasury and the amount of money we can borrow on
short notice if needed. Our Note Purchase Agreement with
the Federal Financing Bank, renewed this year, provides for
revolving credit lines of $4 billion. These credit lines enable
us to draw up to $3.4 billion with two days notice and up
to $600 million on the same business day the funds are
needed. Under this agreement we can also use a series
of other notes with varying provisions to draw upon with
two days notice. The notes provide the flexibility to borrow
short-term or long-term, using fixed or floating rate debt,
and can be either callable or non-callable. These arrange-
ments with the Federal Financing Bank provide us with
adequate tools to effectively manage our interest expense
and risk.
The amount of funds we can borrow is limited by the
amount of debt authorized by the Board of Governors and
by certain statutory limits on borrowing. Our total debt
outstanding cannot exceed $15 billion. The net increase in
debt for any fiscal year cannot exceed $2 billion for capital
purposes and $1 billion to defray operating expenses
($3 billion maximum annual limit).
Our liquidity will be comprised of the cash that we have
entering 2006, the cash flow that we can generate from
operations, and the $3 billion that can be borrowed if
necessary. We do not expect cash flow from operations to
supply enough cash to fund both the escrow requirement
and our capital investments in 2006. Consequently, we
anticipate increasing debt by at least $1 billion. However,
this projection is not without risks, and unfavorable events
would cause a re-evaluation of the planned 2006 year-end
levels of debt.
P.L.108-18 requires that we create an escrow, or restricted
cash account of approximately $3.1 billion by September
30, 2006 in the event that Congress has not yet decided
how to deploy the savings from change in the retirement
funding provisions.
Other Developments
Pending Legislation
POSTAL REFORM
On July 26, 2005, the House of Representatives passed
its postal reform bill, H.R. 22, the Postal Accountability
and Enhancement Act. On June 22, the Senate Homeland
Security and Governmental Affairs Committee approved
its bill, S. 662, the Postal Accountability and Enhancement
Act. At press time that bill was pending full Senate action.
The full text of the proposed legislation can be found at the
website http://thomas.loc.gov/
On August 2, 2005 the Board of Governors again ad-
dressed postal reform. The Statement of Chairman Miller,
USPS Board of Governors, regarding postal reform legisla-
tion can be found on usps.com under News Releases.
On September 13, 2005, the Postal Service Board of
Governors wrote letters to the bipartisan leadership
of the Senate Committee on Homeland Security and
Governmental Affairs and to the House Committee on
Government Reform, to clarify the Board’s position on
postal reform. The Board expressed its concern that
the financial relief provided by the escrow and military
provisions of both the House and Senate reform bills
was threatened by the Administration’s Statement of
Administration Policy, which stated that the President’s se-
nior advisors would recommend that the President veto any
enrolled bill that was not budget-neutral. The Board stated
Financial review
Part II