Notes to the Financial Statements

Note 1 — Description of business

Nature of Operations

The United States Postal Service (we) provides a variety of classes of mail service to the public, without undue discrimination among our many customers. This means that within each class of mail our price does not unreasonably vary by customer for the levels of service we provide. This fulfills our legal mandate to offer universal service at a fair price. We conduct our operations primarily in the domestic market, with international operations representing approximately 3% of our total revenue.

Our services are divided into two broad categories: mailing and shipping, which account for 89% and 11% of our revenue, respectively. Two lines, First-Class Mail and Standard Mail, account for about 94% of our mail volume, while Priority Mail and Express Mail represent significant services we provide in our shipping category. The principal markets for our services are the communications, distribution, delivery, advertising, and retail markets. Our services are sold and distributed through almost 37,000 Post Offices, stations, branches, contract postal units, and a large network of consignees.

Our labor force is primarily represented by the American Postal Workers Union (APWU), National Association of Letter Carriers (NALC), National Postal Mail Handlers Union (NPMHU), and National Rural Letter Carriers Association (NRLCA). More than 85% of our career employees are covered by collective bargaining agreements.

By law, we also consult with management organizations representing most of the employees not covered by collective bargaining agreements. These consultations provide an opportunity for nonbargaining unit employees in the field to participate directly in the planning, development, and implementation of programs and policies affecting managerial employees in the field.

Postal Reorganization

We commenced operations on July 1, 1971, in accordance with the provisions of the Postal Reorganization Act. We are an “independent establishment of the executive branch of the Government of the United States.” Governing decisions are made by a Board of Governors, which consists of nine members who are appointed by the President with the advice and consent of the Senate, plus the Postmaster General and Deputy Postmaster General.

The equity that the U.S. government held in the former Post Office Department became our initial capital. We valued the assets of the former Post Office Department at original cost less accumulated depreciation. The initial transfer of assets, including property, equipment, and cash, totaled $1.7 billion. Subsequent cash contributions and transfers of assets between 1972 and 1982 totaled approximately $1.3 billion, resulting in total government contributions of $3.034 billion. The U.S. government remains responsible for all of the liabilities attributable to operations of the former Post Office Department. However, under the Balanced Budget Act of 1997, the liability for Post Office Department workers’ compensation costs was transferred to us.