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 44 of 70
Managing Net Interest
Expense
Since our debt balance is larger than our cash balance, we are a
net debtor. We cannot increase cash on hand without either borrowing
or forgoing opportunities to reduce debt.
Net interest expense is the difference between interest expense
and investment income. Our net interest expense is determined by
the interaction of a number of variables including day-to-day cash
flows, the behavior of interest rates and our debt management activities.
Our efforts to manage net interest expense during the year's rising
interest environment was a challenge.
Since September 30, 1999, yields on short-term U.S. Treasury securities
have risen between 90 and 135 basis points. Generally, short-term
interest rates tend to be lower than long-term interest rates, but
short-term rates are also more volatile. Borrowers are faced with
the choice of paying lower interest expense over time, at the cost
of more volatility and uncertainty, or paying stable but higher
interest expense over time. We have chosen a position between the
extremes. Our portfolio includes a mixture of long-term and short-term
debt that is subject to changes in market interest rates. Furthermore,
since our debt balance changes on a daily basis, so too does our
mix of fixed and floating rate debt. The day that our debt outstanding
reached its low for the year, we had 100% fixed rate debt. The same
is true on most of the days that we had an overnight investment
of excess cash.
We accept some volatility in interest expense in return for lower
interest expense over time. We actively monitor the financial markets
and when we see an opportunity, we move quickly to take advantage
of it. For example, twice in 2000 we prepaid debt in transactions
totaling $500 million, and we repurchased this debt at a discount.
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DEBT/AVERAGE DEBT/INTEREST EXPENSE |
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Year-End Debt
$ billions
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Average Debt
$ billions
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Interest Expense
$ millions
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1996 |
$5.9
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$5.4
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$368
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1997 |
5.9
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4.4
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307
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1998 |
6.4
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3.2
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167
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1999 |
6.9
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3.9
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158
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2000 |
9.3
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4.7
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220
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