Management’s Discussion and Analysis of
Financial Condition and Results of Operations
CASH FLOW
Cash Flows From Operating Activities
Net cash used in operating activities was $0.4 billion in 2008 compared to $2.6 billion used by operating activities in 2007. The year-to-year change of $2.2 billion was driven mainly by the reduction in the net loss of $2.3 billion. This, in turn, was largely due to the absence in 2008 of the one-time transfer of $3.0 billion formerly held in escrow to the PSRHBF in 2007. Additional cash was provided in 2008 by an increase of $547 million in prepaid postage. This is due to changes in consumer buying behavior, largely driven by the introduction of the Forever Stamp (See Note 2 to the Financial Statements, Summary of significant accounting policies — Revenue Recognition/Deferred Revenue — Prepaid Postage). This increase was partially offset by decreases in payables and accrued expenses of $324 million, other noncurrent liabilities of $167 million, money orders outstanding of $127 million, and a decrease in accrued compensation and benefits of $105 million.
Net cash used in operating activities was $2.6 billion in 2007 compared to $3.8 billion provided by operating activities in 2006. The year-to-year decrease of $6.4 billion was driven mainly by the $8.4 billion in payments to the PSRHBF in 2007, as required by P.L. 109-435, partially offset by the $1.6 billion in CSRS payments that we are no longer required to make. This is also reflected in our 2007 net loss of $5.1 billion compared to 2006 net income of $900 million. Additional cash was provided in 2007 by an increase in other noncurrent liabilities of $281 million, primarily contingent liabilities, an increase in compensation and benefits liabilities of $347 million, and increased collections of accounts receivable of $80 million. These cash flow increases were partially offset by decreases in payables and accrued expenses of $93 million, and customer deposit accounts and outstanding money orders of $186 million.
Cash Flows From Investing Activities
Net cash used by investing activities was $1.9 billion in 2008 compared to $500 million provided in 2007. Purchases of property and equipment of $2.0 billion decreased $700 million from the $2.7 billion purchased in 2007. Proceeds from building sales and the sale of property and equipment totaled $57 million in 2008 compared to $257 million in 2007. The remainder of the change was due to the absence, in 2008, of the one time 2007 transfer of funds from the escrow restricted cash into operating cash. Excluding this one time item, cash used by investing activities would have decreased $520 million in 2008.
Net cash provided by investing activities was $500 million in 2007 compared to $5.5 billion used in 2006. Nearly all of the year-over-year change can be attributed to the almost $3.0 billion that was placed in escrow as restricted cash in 2006, and then was removed from restricted cash when transferred to the new PSRHBF in 2007. Capital cash outlays of $2.7 billion increased slightly from the $2.6 billion in 2006. Proceeds from the sale of property were $39 million in 2007 compared to $114 million in 2006. In 2007, the sale of the James A. Farley Building and several Philadelphia properties resulted in proceeds from deferred building sales of $218 million. Excluding the escrow, net cash flow used in investing activities would have been virtually unchanged at $2.5 billion for both 2007 and 2006, rather than the $500 million and $5.5 billion reported.
Cash Flows From Financing Activities
Net cash provided by financing activities was $2.9 billion, $2.0 billion, and $2.0 billion for 2008, 2007, and 2006 respectively. Our borrowing from the Federal Financing Bank increased $3.0 billion, $2.1 billion, and $2.1 billion in 2008, 2007, and 2006 respectively.
FINANCING ACTIVITIES
Debt
As an “independent establishment of the executive branch of the Government of the United States,” we receive no tax dollars for ongoing operations. We are self-supporting, and have not received an appropriation for operational costs since 1982. We fund our operations chiefly through cash generated from operations and by borrowing from the Federal Financing Bank.
The amount we borrow is largely determined by the difference between our cash flow from operations, which includes the end-of-year payout of $6.6 billion for retiree health benefits and workers’ compensation, and our capital cash outlays. Our capital cash outlays consist of the funds invested for new facilities, new automation equipment, and new services. On September 30, 2008, we had $7.2 billion in debt outstanding, a $3.0 billion increase from last year.