US Postal Service 2007 Annual Report Download - page 21

2007 Annual Report United States Postal Service | 21
Financial Section Part II
Item 5 – Market for registrant’s common
equity, related stockholder matters and
issuer purchases of equity securities
Not applicable to the United States Postal Service. As an “independent
establishment of the executive branch of the Government of the United
States,” we do not issue stock or other securities.
Item 6 – Selected financial data
See the Financial History Summary and Selected Quarterly Financial Data
sections of this report.
Item 7 – Management’s discussion
and analysis of financial condition and
results of operations
Cautionary Statements
Forward-looking statements contained in this report represent our best
estimates of the trends we know about, the trends we anticipate, and the
trends we believe are relevant to our future operations. However, actual
results may be different from our estimates. Certain forward-looking
statements are included in this report and use such words as “may,” “will,”
“expect,” “believe,” “plan,” or other similar terminology. These statements
reflect our current expectations regarding future events and operating
performance as of the date of this report. These forward-looking state-
ments involve a number of risks and uncertainties.
The following are some of the factors that could cause actual results to
differ materially from those expressed in, or underlying, our forward-looking
statements: effectiveness of operating initiatives; success in advertising
and promotional efforts; changes in national and local business and
economic conditions, including their impact on consumer and business
confidence; fluctuations in currency exchange and interest rates; labor and
other operating costs; oil, fuel and other transportation costs; the effects
of war and terrorist activities; competition, including pricing and marketing
initiatives and new service offerings by our competitors; consumer prefer-
ences or perceptions concerning our service offerings; spending patterns
and demographic trends; availability of qualified personnel; severe weather
conditions; effects of legal claims; cost and deployment of capital; changes
in laws and regulations; costs and delays associated with new regulations
imposed by the PRC; and changes in applicable accounting policies and
practices. The foregoing list of important factors is not all-inclusive. We
have no obligation to publicly update or revise any forward-looking state-
ments, whether as a result of new information, future events, or otherwise.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management
to make significant judgments and estimates to develop certain amounts
reflected and disclosed in the financial statements. In many cases, there
are alternative policies or estimation techniques that could be used. We
maintain a thorough process to review the application of our accounting
policies and to evaluate the appropriateness of the many estimates that
are required to prepare the financial statements of a large organization.
However, even under optimal circumstances, estimates routinely require ad-
justment based on changing circumstances and new or better information.
The three critical accounting policies that we believe are either the most
judgmental, or involve the selection or application of alternative accounting
policies, and are material to our financial statements are those relating to
workers’ compensation costs, deferred revenue for prepaid postage, and
contingent liabilities. Management has discussed the development and
selection of these critical accounting policies and estimates with the Audit
and Finance Committee of our Board of Governors and with the Board’s
independent public accounting firm. In addition, retirement and health
benefits costs for our employees and retirees represent a significant portion
of our expenses. Any changes in laws or regulations affecting the amounts,
timing, or administration of these benefits could have a material effect on
our financial position and results of operations. For additional information,
see Note 2, Summary of significant accounting policies, in the Notes to the
Financial Statements.
Results of Operations
Our financial results in 2007 were a net loss of $5,142 million compared
to net income of $900 million in 2006. These results were significantly
impacted by P.L.109-435.
In 2007, our total revenue was $74,973 million, compared to $72,817
million in 2006. All classes of mail, with the exception of Periodicals,
showed increases mainly as a result of the May rate increase. Standard
Mail revenue had the largest increase, $902 million, or 4.5%.
As shown in the chart below, P.L.109-435 added $6.8 billion in net ad-
ditional expenses in 2007. Without this legislation we would have reported
net income of $1,634 million. The major impact of the law was to increase
retiree health benefits expense by $8,358 million compared to 2006.
As discussed later in this section, other changes to operating expenses
included a decrease in compensation and benefits expense of $479 million,
and an increase in transportation expenses of $457 million.
On April 6, 2007, we transferred $2,958 million, representing the
entire amount of funds held in escrow, as required by P.L.108-18, to the
PSRHBF. Since we no longer hold these funds, there was a substantial
decrease in interest income for the second half of the year and this will
continue into the future.
Financial Impacts under P.L.109-435 September 30, 2007
(Dollars in millions)
Net Income before legislation $ 1,634
P.L.109-435 Impacts:
2006 escrow transferred into PSRHBF (2,958)
2007 PSRHBF expense (5,400)
CSRS savings 1,582
Net Loss $ (5,142)