US Postal Service 2011 Annual Report Download - page 39

2011 Report on Form 10-K United States Postal Service - 37 -
FINANCING ACTIVITIES
DEBT
As an “independent establishment of the executive branch
of the Government of the United States,” the Postal
Service receives no tax dollars for ongoing operations,
and has not received an appropriation for operational
costs since 1982. We fund operations chiefly through
cash generated from operations and by borrowing from
the FFB.
The amount borrowed is largely determined by three
major factors: (1) the difference between cash flow from
operations (which in 2010 and 2009 included prefunding
payments to the PSRHBF of $5.5 billion and $1.4 billion,
respectively); (2) capital cash outlays, which include funds
invested for new facilities, new automation equipment,
and new services; and (3) annual borrowings, which are
limited by statute to $3 billion. An additional determinant is
our statutory debt ceiling of $15 billion. On September 30,
2011, there was $13.0 billion in debt outstanding, a $1.0
billion increase from September 30, 2010.
INTEREST EXPENSE
In 2011, interest expense was $172 million, an increase of
$16 million, or 10.3%, compared to 2010. Net losses for
the three years ended September 30, 2011, have resulted
in higher debt levels. Although long-term debt carries
higher interest rates than prevailing rates for short-term
debt, long-term obligations were issued in 2009 and 2011
with favorable rates as compared with prior periods.
Financing a portion of debt at fixed rates decreases our
interest rate risk and interest expense volatility in future
years. At September 30, 2011, $5.5 billion of these long-
term obligations remain outstanding. The increasing debt
levels have led to higher interest expense in 2011 versus
prior years. However, short-term interest rates remained
at historically low levels helping to keep total interest
expense relatively low. In 2010 and 2009, with less debt
outstanding throughout the year, interest expense totaled
$156 million and $80 million, respectively.
INTEREST AND INVESTMENT INCOME
When we determine that available funds exceed current
needs, funds are invested with the U.S. Treasury’s
Bureau of Public Debt in overnight securities issued by
the U.S. Treasury.
Interest and Investment Income
(Dollars in millions) 2011 2010 2009
24 24 24
Other Interest 4 1 2
Total Interest and Investment Income $ 28 $ 25 $ 26
Imputed Interest - Revenue Forgone
We also recognize imputed interest on the funds owed to
us under the Revenue Forgone Reform Act of 1993.
Under the Act, Congress agreed to reimburse the Postal
Service $29 million annually through 2035 for services
performed in prior years. See Note 11, Revenue Forgone,
in the Notes to the Financial Statements for additional
information.
LEGAL MATTERS AND CONTINGENT LIABILITIES
An estimated loss contingency is accrued in our financial
statements if it is probable that a liability has been
incurred and the amount of the loss can be reasonably
estimated. Assessing contingencies is highly subjective
and requires judgments about future events. We regularly
review loss contingencies to determine the adequacy of
our accruals and related disclosures. The amount of the
actual loss may differ significantly from these estimates. In
2011, the material claim outstanding is the following:
McConnell v. Potter: On January 14, 2010, the Equal
Employment Opportunity Commission's (EEOC) Office of
Federal Operations certified a class action case against
the Postal Service in a matter captioned McConnell v.
Potter, with the class consisting of all permanent
rehabilitation employees and limited-duty employees who
have been subjected to the National Reassessment
Process (NRP) from May 5, 2006, to the present. The
Postal Service used the NRP to ensure that its records
were correct and that employees receiving workers'
compensation benefits were placed in jobs consistent with
their abilities. The case alleges violations of the
Rehabilitation Act of 1973 resulting from the NRP's failure
to provide a reasonable accommodation, the NRP's
wrongful disclosure of medical information, the creation by
the NRP of a hostile work environment, and the NRP's
adverse impact on disabled employees. The class is
seeking injunctive relief and damages of an uncertain
amount on behalf of a yet-unidentified population of
employees. If the plaintiffs were able to prove their
allegations in this matter and to establish the damages
they assert, then an adverse ruling could have a material
impact on the Postal Service. However, the Postal Service