US Postal Service 2006 Annual Report Download - page 36

34 | 2006 Annual Report United States Postal Service
NET CASH USED IN FINANCING ACTIVITIES
After funding our escrow requirements for P.L.108-18, we borrowed
$2.1 billion to fund capital investments and provide operating cash for
future operations. The September 30, 2006, borrowing provided us with
two-thirds of the $3,230 million increase in cash from September 30,
2005, levels.
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
in 2006, provides for revolving credit lines of $4.0 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 arrangements 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 certain statutory limits
on borrowing. Our total debt outstanding cannot exceed $15 billion. The
net increase in debt at year-end for any fiscal year cannot exceed a $3
billion annual limit, which consists of $2 billion for capital purposes and
$1 billion for operating expenses.
At the end of 2006 we made a decision to increase our available cash
from $725 million at the end of 2005 to approximately $1 billion on
September 30, 2006. We increased our cash balance heading into an
environment of perceived increased uncertainty, much like a private
sector organization might do. Uncertainties for 2007 include: the results
of collective bargaining with four major unions, the health of the overall
economy, the outcome and impact of the first fully litigated rate case since
R2000-1, an aggressive operating plan dependent on continued increases
in productivity, further work hour reductions and whether postal legislation
passes with adverse cash flow consequences. Our liquidity will be com-
prised of the approximately $1 billion of cash that we have entering 2007,
the cash flow that we can generate from operations and the $3.0 billion
that we can borrow if necessary. As was the case in 2006, for 2007 we
do not expect cash flow from operations to supply enough cash to fund
both our escrow requirement and our capital investments. Consequently,
we anticipate increasing debt next year by at least $1.2 billion. However,
this projection is not without risks, and unfavorable events would cause a
re-evaluation of the planned 2007 year-end levels of debt.
Pending Legislation
POSTAL REFORM
Postal reform legislation was considered in the 109th Congress, the
continuation of an effort beginning in 1996. Legislation had not yet been
approved as Congress returned from its election recess on November 13,
2006. It is possible that postal reform legislation will be considered during
this final session of the 109th Congress.
The House passed H.R. 22, the Postal Accountability and Enhancement
Act on July 26, 2005. The Senate passed its version of the bill on
February 9, 2006. The Senate immediately appointed the following
conferees: Senators Susan Collins (R-ME); Ted Stevens (R-AK); George
Voinovich (R-OH); Norman Coleman (R-MN); Robert Bennett (R-UT);
Joseph Lieberman (D-CT); Daniel Akaka (D-HI); and Thomas Carper
(D-DE). However, as of November 17, 2006, the House has not named
conferees.
The full text of the proposed legislation can be found at the website
http://thomas.loc.gov/.
We have voiced our concerns regarding the bill. However, we remain
committed to working with the Executive Branch and Congress to advance
the legislative effort on postal reform.
SEMIPOSTAL LEGISLATION
Semipostal stamps have a postage value equal to the First-Class Mail
non-automation single-piece first-ounce letter rate and are sold at an
amount in excess of the postage value to raise money for the designated
charitable causes. The amount in excess of the postage value, less
reasonable costs incurred by the Postal Service, is distributed to the
specified agencies at regular intervals to provide funding for the desig-
nated charitable causes.
To date, we have issued three semipostal stamps. These stamps, the
Breast Cancer Research stamp, Heroes of 2001 stamp and Stop Family
Violence stamp, were specifically mandated by Congress. Sales of
the Heroes of 2001 stamp were discontinued December 31, 2004, in
accordance with the terms of the legislation.
On November 11, 2005, the President signed P.L.109-100 authorizing the
extension of sales of the Breast Cancer Research stamp for two additional
years. The stamp is now authorized for sale through December 31, 2007.
Stop Family Violence stamps will be available through December 31,
2006.
In addition to the three Congressionally mandated semipostal stamps, the
Semipostal Authorization Act of 2000, P.L.106-253, also gave the Postal
Service the authority to “issue and sell semipostals to advance such
causes as the Postal Service considers to be in the national public interest
and appropriate.” The act provides that it “shall cease to be effective at
the end of the ten-year period beginning on the date on which semipostals
are first made available to the public under this section.”
According to implementing rules published by the Postal Service, Title
39, Code of Federal Regulations, Part 551, no semipostals will be issued
under the Semipostal Authorization Act of 2000 until after the sales period
for the Breast Cancer Research stamp has ended. The implementing
regulations also provide that the Office of Stamp Services will determine
the date of commencement of the ten-year period.
Financial Section Part II