US Postal Service 2008 Annual Report Download - page 41

2008 Annual Report United States Postal Service | 41
In 2008, capital commitments for all projects were $2.3 bil-
lion. See Note 7, Leases and other commitments, in the
Notes to the Financial Statements for additional information.
Noteworthy projects approved in 2008 include:
The Advance Facer Canceller 200 (AFCS 200) project will
deploy 550 AFCS 200 machines. This purchase will ad-
dress end-of-life issues with existing cancellation equip-
ment initially placed in service over 16 years ago. The new
AFCS 200 will include features that improve mail process-
ing operations and enhance service.
The Carrier Route Vehicles project purchased 1,352 vehi-
cles. These vehicles will be used to initiate the next planned
phase of providing postal-owned right-hand drive vehicles
to rural routes per agreement with the National Rural Letter
Carrier’s Association.
The purchase of 739 additional Delivery Barcode Sorter
Stacker Modules will provide a greater depth-of-sort to
existing letter mail processing operations. These units will
be installed in 110 postal facilities. The labor savings gen-
erated by this program are expected to produce a strong
return on investment.
Liquidity
Liquidity is the cash we have with 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 in 2008 and expiring in 2009, provides for
revolving credit lines of $4.0 billion. These credit lines en-
able 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. This arrangement provides us the flexibility to
borrow short-term or long-term, using fixed- or floating-rate
debt that is either callable or noncallable. These arrange-
ments with the Federal Financing Bank provide us with ad-
equate tools to effectively fund our cash requirements and
manage our interest expense and risk. See Note 5, Debt
and related interest, in Notes to the Financial Statements
for additional information about our debt obligations.
The amount we can borrow is limited by statute. Our total
debt outstanding cannot exceed $15 billion, and the net in-
crease in debt at year-end for any fiscal year cannot exceed
$3 billion.
Looking forward, our liquidity will be comprised of the ap-
proximately $1.4 billion of cash that we have entering 2009,
the cash flow that we generate from operations, and the $3
billion that we can borrow if necessary. As was the case in
2008, for 2009 we do not expect cash flow from operations
to supply adequate cash to fund our capital investments and
the $5.4 billion payment into the PSRHBF required by P.L.
109-435. Consequently, the increase in debt next year could
be similar to this year’s $3 billion increase.
The majority of our revenue is earned in cash and the ma-
jority of our cash outflow is to support our biweekly payroll.
Generally, cash flow from operations is at a seasonal peak
in our first quarter and seasonal low in our fourth quarter.
The first quarter includes the fall mailing and holiday season.
In the fourth quarter we make significant cash payments for
workers’ compensation and retiree health benefits. A large
portion of the $7.2 billion in debt we incurred at the end of
2008 was to fund the $6.6 billion in year-end PSRHBF and
Workers’ Compensation payments. It should also be noted
that $4.3 billion of the current liabilities on our balance sheet
at September 30, 2008, represents items for which we have
already collected cash, but have a remaining obligation to
perform a future service.
The following table illustrates our scheduled cash flow obli-
gations in future years.
Schedule of Commitments
Retiree Health
Benefits Leases
(Dollars in millions)
2009 $ 5,400 $ 882
2010 5,500 861
2011 5,500 806
2012 5,600 738
2013 5,600 671
After 2013 17,200 5,387
Total $ 44,800 $ 9,345