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
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2000 Annual Report
- page 58 of 70
2 Summary of Significant
Accounting Policies
Basis
of Accounting and
Use of Estimates
We maintain our accounting records and prepare our financial statements
on the accrual basis of accounting. This basis conforms to generally
accepted accounting principles. Following these principles, we made
estimates and assumptions that affect the amounts we report in the
financial statements and notes. Actual results may differ from our
estimates.
Cash Equivalents
Cash equivalents are securities that mature within 90 days or less
from the date we buy them.
Current Values
of Financial Instruments
The current value of our debt is what it would cost us to pay off
the debt if we used the current yield on equivalent U.S. Treasury
debt.
Supplies, Advances
& Prepayments
Supplies, advances and prepayments are primarily composed of our
inventories of supplies, motor vehicle parts, repairable parts for
mail processing equipment, and advances to employees for annual
leave. We value our inventories at the lower of average cost or
current market price. Total inventories amounted to $173 million
at the end of 2000 and $172 million at the end of 1999.
Property and
Equipment
We record property and equipment at what it costs us to acquire
the assets, including the interest we pay on the money we borrow
to pay for the construction of major capital additions. This interest
amounted to $49 million in 2000, $59 million in 1999 and $44 million
in 1998.
We depreciate buildings and equipment over their estimated useful
lives, which range from 3 to 40 years, using the straight-line method.
We amortize leasehold improvements over the period of the lease
or the useful life of the improvement, whichever time is shorter.
Estimated Prepaid
Postage
This is the amount of cash we estimate that we collected by the
end of the year for services that we will perform in the following
year.
Compensation
and Benefits Payable
This is the salaries and benefits we owe to current and retired
employees, including the amounts employees have earned but have
not yet been paid, current workers' compensation, unemployment costs,
health benefits, and the current portion of the amounts payable
for retirement benefits.
Deferred Retirement
Benefits and Costs
This is the present value of our estimated legal obligation to the
Civil Service Retirement and Disability Fund for the amount of retirement
benefits payable in the future for our current employees' retirement
and our present retirees and their survivors. The present value
of our benefits payable for our current employees increases when
management increases basic pay. The present value of our benefits
payable also increases when cost of living adjustments (COLAs) are
granted to our retirees or their survivors. We capitalize as deferred
retirement costs the amounts due and payable in future years. We
expense and pay these costs over periods of 30 years for amounts
attributable to current employees and 15 years for amounts attributable
to retirees, at 5% interest. We account for our participation in
the U.S. government sponsored retirement plans as participation
in a multi-employer plan arrangement.
Post-Retirement
Health Benefits
Retiree health benefits costs are our obligation to pay a portion
of the health insurance premiums of those retirees and their survivors
who participate in the Federal Employees Health Benefits Program
(FEHBP). We account for our participation in FEHBP as participation
in a multi-employer plan arrangement. Therefore, we expense the
costs of our retiree health benefits as we incur them.
Workers' Compensation
Costs
We are self-insured for workers' compensation costs under a program
administered by the Department of Labor (DOL). We record these costs,
which include the employees' medical expenses and payment for continuation
of wages, as an operating expense. At the end of the year, our liability
represents the estimated present value of the total amounts we expect
to pay in the future for postal workers injured through the end
of fiscal year 2000. We base our estimate of the total costs of
a claim upon the severity of the injury, the age of the injured
employee, the assumed life expectancy of the employee, the trend
of our experience with such an injury, and other factors. In our
calculation of present value, we use a net discount rate of 1.4%
for medical expenses and 3.0% for compensation claims.
In fiscal year 1999, we adopted a change in the net discount rate
used in determining the present value of estimated future workers'
compensation payments for medical claims. The net discount rate
for medical claims was changed from 0.1% to 1.4%. The effect of
the adoption of this rate has been accounted for as a change in
accounting estimate. It resulted in a decrease of $131 million in
the fiscal year 1999 compensation and benefits expense. In management's
opinion, this net discount rate better reflects the excess of rates
of return on government debt instruments of comparable terms relative
to expected future medical inflation.
In fiscal year 2000, we refined our methodology used to estimate
the present value of the total amounts we expect to pay for current
Postal Service workers' compensation claims. The major refinement
is the use of a life table that reflects long-term experience with
a disabled population to estimate mortality rates of our permanently
disabled population. Previously, we had used a life table that reflected
experience with the general United States population. In management's
opinion, the refinements result in a better estimation of our liability
for future outlays on behalf of Postal Service workers' compensation
claimants. The effect of the refinements was a reduction of $423
million in the fiscal year 2000 compensation and benefits expense.
At the end of 2000, we estimate our total liability for future workers'
compensation costs, excluding Post Office Department (POD) liability,
at $5,560 million. At the end of 1999, this liability was $5,306
million. In 2000, we recorded $911 million in workers' compensation
expense, compared to the $603 million we recorded in 1999 and the
$760 million we recorded in 1998. Our liability for future workers'
compensation costs for POD claims was $193 million in 2000 and $210
million in 1999. In 2000, we recorded an expense of $14 million,
compared to the $11 million we recorded in 1999 and $8 million in
1998.
Research and
Development Costs
We record research and development costs as expenses when we incur
them. These costs were $42 million in 2000, $67 million in 1999
and $77 million in 1998.
Advertising
We record advertising costs as expenses when we incur them. These
costs were $151 million in 2000, $241 million in 1999 and $301 million
in 1998.
Reclassification
of Prior Years' Amounts
Certain prior years' amounts have been reclassified to conform to
the 2000 presentation.
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