In 2008, capital commitments for all projects were $2.3 billion. See Note 7, Leases and other commitments, in the Notes to the Financial Statements for additional information.
Noteworthy projects approved in 2008 include:
The Advance Facer Canceller 200 (AFCS 200) project will deploy 550 AFCS 200 machines. This purchase will address end-of-life issues with existing cancellation equipment initially placed in service over 16 years ago. The new AFCS 200 will include features that improve mail processing operations and enhance service.
The Carrier Route Vehicles project purchased 1,352 vehicles. These vehicles will be used to initiate the next planned phase of providing postal-owned right-hand drive vehicles to rural routes per agreement with the National Rural Letter Carrier’s Association.
The purchase of 739 additional Delivery Barcode Sorter Stacker Modules will provide a greater depth-of-sort to existing letter mail processing operations. These units will be installed in 110 postal facilities. The labor savings generated by this program are expected to produce a strong return on investment.
Liquidity
Liquidity is the cash we have with 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 2008 and expiring in 2009, 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. This arrangement provides us the flexibility to borrow short-term or long-term, using fixed- or floating-rate debt that is either callable or noncallable. These arrangements with the Federal Financing Bank provide us with adequate tools to effectively fund our cash requirements and manage our interest expense and risk. See Note 5, Debt and related interest, in Notes to the Financial Statements for additional information about our debt obligations.
The amount we can borrow is limited by statute. Our total debt outstanding cannot exceed $15 billion, and the net increase in debt at year-end for any fiscal year cannot exceed $3 billion.
Looking forward, our liquidity will be comprised of the approximately $1.4 billion of cash that we have entering 2009, the cash flow that we generate from operations, and the $3 billion that we can borrow if necessary. As was the case in 2008, for 2009 we do not expect cash flow from operations to supply adequate cash to fund our capital investments and the $5.4 billion payment into the PSRHBF required by P.L. 109-435. Consequently, the increase in debt next year could be similar to this year’s $3 billion increase.
The majority of our revenue is earned in cash and the majority of our cash outflow is to support our biweekly payroll. Generally, cash flow from operations is at a seasonal peak in our first quarter and seasonal low in our fourth quarter. The first quarter includes the fall mailing and holiday season. In the fourth quarter we make significant cash payments for workers’ compensation and retiree health benefits. A large portion of the $7.2 billion in debt we incurred at the end of 2008 was to fund the $6.6 billion in year-end PSRHBF and Workers’ Compensation payments. It should also be noted that $4.3 billion of the current liabilities on our balance sheet at September 30, 2008, represents items for which we have already collected cash, but have a remaining obligation to perform a future service.
The following table illustrates our scheduled cash flow obligations in future years.
Schedule of Commitments |
||
|
Retiree Health Benefits |
Leases |
|---|---|---|
(Dollars in millions) |
||
2009 |
$ 5,400 |
$ 882 |
2010 |
5,500 |
861 |
2011 |
5,500 |
806 |
2012 |
5,600 |
738 |
2013 |
5,600 |
671 |
After 2013 |
17,200 |
5,387 |
Total |
$ 44,800 |
$ 9,345 |