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
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2000 Annual Report
- page 42 of 70
In this section we discuss
the last two parts of the puzzle: how we generate the cash we need
to meet our operational expenses and how to fund the capital investments
we must make if we are to improve our services and control expenses.
We also discuss our cash management program, and our success at
managing net interest expense. On pages
46*
to 47** we complete the
puzzle and your understanding of our financial condition.
Cash Flow and Liquidity
We aim to finance as much of our capital program as we can using
our cash flow, thus reducing the amount we have to borrow. By borrowing
only as much as we need to, we manage our debt and our interest
expense.
The amount we borrow is largely determined by the difference between
our cash flow from operations and our capital cash outlays. Our
capital cash outlays are the funds we invest back into the business
for our capital investments in new facilities, new automation equipment
and new services. As we discussed on page 28, our net cash flow
decreased this year. This is important since it affects the amount
of capital cash outlays we can make with internally generated funds.
In 1996 and 1997 our cash flow from operations exceeded our capital
cash outlays, and we used this excess along with cash to reduce
our debt by $1.4 billion. Starting in 1998, our capital outlays
exceeded our cash flow, so we increased our debt by $549 million
in 1998, $496 million in 1999, and $2.4 billion in 2000.
We anticipate that our operating activities in 2001 combined with
our immediate access to our loan facilities will provide us with
sufficient cash flow to cover expected operations. However, we will
need a net increase in our debt to help fund our five-year capital
investment plan.
Liquidity is defined as the cash we have in the bank (the Postal
Service Fund) and the amount of money we can borrow immediately
if needed. We manage our cash so that we pay our obligations when
they are due and use any excess to reduce debt or earn interest.
An important part of our liquidity management program is negotiating
solutions to our financing needs with the Department of the Treasury
and its Federal Financing Bank, which is our lender. We designed
this program to ensure that we have enough cash and borrowing ability
to meet our daily obligations and invest in capital improvements,
while we minimize our cash on hand and manage our debt.
We have worked closely with the Federal Financing Bank to put in
place the tools we need to manage our cash more effectively, including
call options, floating rate debt, real-time pricing, revolving credit
lines, and notes that we can draw on with two days' notice with
maturities ranging from a few days to 30 years. These financing
tools give us flexibility and reduce the time it takes us to borrow
funds while reducing market risk. If needed, the amount of money
we can borrow immediately from the Federal Financing Bank is limited
only by the amount of debt authorized by the Board of Governors
and by statute.
* page 42 in the printed version
** page 43 in the printed version
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