US Postal Service 2007 Annual Report Download - page 44

44 | 2007 Annual Report United States Postal Service
Notes to the Financial Statements
Note 1 – Description of business
Nature of Operations
The United States Postal Service (we) provides a variety of classes of
mail service to the public, without undue discrimination among our 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 service at a fair price. We
conduct our operations primarily in the domestic market, with international
operations representing less than 3% of our total revenue.
Our primary lines of service are First-Class Mail and Standard Mail, which
account for about 94% of our volume. Priority Mail, International Mail,
Express Mail, Periodicals and Package Services are other significant
services we provide. The principal markets for these services are the
communications, distribution, delivery, advertising, and retail markets. Our
services are sold and distributed through almost 37,000 Post Offices, sta-
tions, branches, contract postal units, and a large network of consignees.
Our labor force is primarily represented by the American Postal Workers
Union (APWU), National Association of Letter Carriers (NALC) National
Postal Mail Handlers Union (NPMHU) and National Rural Letter Carriers
Association (NRLCA). More than 85% of our career employees are covered
by collective bargaining agreements.
By law, we also consult with management organizations representing most
of the employees not covered by collective 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.
Postal Reorganization
We commenced operations on July 1, 1971, in accordance with the
provisions of the Postal Reorganization Act. We are an “independent
establishment of the executive branch of the Government of the United
States.” Governing decisions are made by a Board of Governors, nine of
eleven of whom are appointed by the President with the advice and consent
of the Senate.
The equity that the U.S. government held in the former Post Office
Department became our initial capital. We 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 1972 and 1982 totaled approximately $1.3 billion, resulting in total
government contributions of $3.034 billion. The U.S. government remains
responsible for all of the liabilities attributable to operations of the former
Post Office Department. However, under the Balanced Budget Act of 1997,
the liability for Post Office Department workers’ compensation costs was
transferred to us.
The Postal Accountability and Enhancement Act (P.L.109-435), enacted
December 20, 2006, made significant reforms in the governance of the
Postal Service and significantly altered some of our financial responsibili-
ties, particularly in respect to the funding of Civil Service Retirement
System (CSRS) benefits and retiree health benefits. See Note 4, Postal
Accountability and Enhancement Act, Public Law 109-435 ( P.L.109-435),
in the Notes to the Financial Statements for additional information.
We enter into significant transactions with other U.S. government agencies,
as disclosed throughout these financial statements.
Note 2 – Summary of significant
accounting policies
Basis of Accounting and Use of Estimates
We conform to accounting principles generally accepted in the United
States. We maintain our accounting records and prepare our financial
statements on the accrual basis of accounting. 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.
Segment Information
We operate in one segment throughout the United States, its possessions,
territories and internationally.
Reclassifications
Certain comparative prior year amounts that we have determined are
immaterial to the Financial Statements and accompanying Notes have been
reclassified to conform to the current year presentation. These reclas-
sifications had no effect on previously reported operating income and net
income.
Cash and Cash Equivalents
We consider securities that mature within 90 days or less from the date that
we buy them to be cash equivalents.
Cash - Restricted
In 2006 we established a restricted cash account in conformity with provi-
sions set forth in P.L.108-18 to set aside “savings”. See Note 10, Retirement
programs, in the Notes to the Financial Statements for additional informa-
tion. Restricted cash was reported as a noncurrent asset. With the passage
of P.L.109-435, the balance we held in restricted cash was to be paid into
the new Postal Service Retiree Health Benefit Fund (PSRHBF). The $2,958
million balance reported as of September 30, 2006 was transferred to the
PSRHBF on April 6, 2007.
Allowance for Doubtful Accounts
We provide an allowance for doubtful accounts on our outstanding
receivables based on our collection history and an estimate of uncollectible
accounts.
Supplies and Repair Parts
Our supplies and repair parts consist of repair parts for mail processing
equipment. We value these at average cost. Total supplies and repair
parts amounted to $119 million at the end of 2007 and $125 million at the
end of 2006. A majority of our motor vehicle spare parts are supplied on
consignment through agreements with our vendors.
Property and Equipment
We record property and equipment at cost, including the interest we
pay on the money we borrow to pay for the construction of major capital
additions. See Note 6, Property and equipment, in the Notes to the Financial
Statements for additional information.