How to Read
Our Annual Report
2000 Highlights
Letter from
the Postmaster General/CEO
2000 Year
in Review
Delivering
the Future
The Governors
of the Postal Service
Audit Committee
Financial
Section
How to Read
Our Financial Statements
Quick
Find index
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2000 Annual Report
- page 25 of 70
In addition to writing our MD&A in plain English, we present our
analysis in a simple-to-understand format. First, there are four
pieces of a puzzle throughout our MD&A. Each piece indicates an
important concept about our financial condition. On pages 46*
and 47** we put these pieces together so you can understand our complete
financial condition. Second, we present our MD&A in an integrated
format with four components: Operations, Capital, Financing and
Other Issues. In the Operations section, we discuss the sources
and amounts of our revenue, our productivity and the expenses we
incur in running our operations. We explain how income from our
operations is an important part of the cash flow that we use to
finance our capital investments and our research and development
efforts. In the Capital section, we discuss the investments we make
to improve our efficiency. In our Financing section, we discuss
how we manage our cash flow and provide the funds we need for those
capital investments we cannot fund from our operating cash flow.
Finally, in our Other Issues section, we discuss proposed postal
legislation, the effects of classification and rate changes and environmental
matters.
Outlook
We see 2001 as a year of opportunity and enormous challenge. With
reasonable economic growth and the rate increase we requested, we
see opportunities for our revenue to grow. However, our past experience
has been that when we raise rates, our rate of growth in mail volume
declines. The prospect of increasing inflation means we will have
to achieve significant productivity gains to manage our costs, gains
crucial to the continued affordability and viability of the mail.
Finally, we face competition from new technologies. Yet we remain
optimistic, because technology has also created opportunities.
Rate Case R2000-1 In January 2000, we filed an
omnibus request with the Postal Rate Commission (PRC). They calculated
the request to be a 6.0% rate increase across all classes of mail.
We spent months preparing our proposal, which was then litigated
by over 100 witnesses before the PRC over a 10-month period. The
Governors are now assessing the PRC's recommended decision, which
was handed down on November 13, 2000. We expect to implement new
rates in early January 2001, which means they will not be in effect
during our biggest mailing season.
This lengthy process can seriously affect our financial condition.
At the time we prepared R2000-1, we projected that by the time the
new rates were effective, cumulative inflation since our last rate
increase would be 4.8% as measured by the Consumer Price Index (CPI)
and 7.3% as measured by the Employment Cost Index (ECI). ECI is
an indicator of overall employee labor cost. Current projections
are that CPI will be up 6.2% and ECI 8.7%. The PRC's recommended
4.6% rate increase is less than the inflationary pressures that
drive our costs. Because labor is our major cost, an ECI increasing
more rapidly than the rate increase approved by the PRC means that
our financial condition is under stress.
Mail and the Economy Mail delivery has historically
grown with the economy. However, the chart on the next page shows
that over the past few years the economy has grown faster than mail
volume. Over 90% of our mail volume is from businesses and other
institutions. Thus, economic activity and trends in business practices
fundamentally drive our volume. We expect moderate economic growth
with total consumer spending growing 2.7% in real terms in 2001.
* page 42 in the printed version
** page 43 in the printed version
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