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 (FFB) 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. Under normal circumstances, these arrangements with the FFB provide adequate tools to effectively fund our cash requirements and manage interest expense and risk. See Note 6, Debt and Related Interest, in the Notes to the Financial Statements, for additional information about our debt obligations.

The majority of revenue is earned in cash and the majority of cash outflow is to support the biweekly payroll. Historically, cash flow from operations reaches a seasonal peak in the first quarter and a seasonal low in the fourth quarter of our fiscal year. The first quarter includes the fall mailing and holiday seasons. Going forward, the shift in the workers’ compensation payment into the first quarter from the fourth quarter will mostly offset the strong incoming cash flow from seasonal revenues. In the fourth quarter we make a significant cash payment for retiree health benefits to fund the PSRHBF, scheduled to be $5.5 billion in 2010. Cash flows for the fourth quarter are projected to remain at seasonal lows as revenue remains lower relative to the other quarters and the retiree health benefit payment is made.