Chapter 3 Financial Highlights

Figure 3-4 Cash and Debt at Year End graph

5. Capital Investment

Capital Investments include purchases of plant, property, and equipment with a cost generally greater than $3,000 and a useful life of more than 1 year. The Postal Service invests in capital projects that reduce operating costs, maintain or expand its infrastructure, or provide for the safety and well being of customers and employees. The Postal Service commits capital funds when it signs a contract with a vendor.

Each year, the Board of Governors determines the annual capital commitment plan, an essential element of the Integrated Financial Plan. The Postal Service employs an internal review process that ensures each proposed investment is fiscally sound. Investments valued at $25 million or more also must be reviewed by the Board of Governors Capital Projects Committee which may then recommend the proposed investment to the Board of Governors for approval.

Capital Commitments of $1.9 billion were made in 2006 primarily on a capital commitment plan of $2.9 billion. The underrun resulted from the delay in the development of construction and equipment projects. In addition, the contract for the Automated Packaging Processing System Phase II was not finalized this year as originally planned. These projects, along with some commitment delays to previously approved equipment projects, and benefits from Supply Chain Management initiatives, account for the majority of the 2006 commitment underrun.

The following table summarizes capital by category of investment for the year.

Table 3-5 Capital Commitments
($ millions)
Blank 2006 Actual 2006 Plan
Mail Processing
Equipment
645 1,617
Facilities 950 991
Infrastructure and Support 309 263
Retail 0 0
Vehicles 18 21
Total $1,922 $2,892

Mail Processing Equipment commitments included two main projects: the Automated Flat Sorting Machine (AFSM) 100 Auto Induction Phase II and Additional Delivery BarCode Sorter (DBCS) equipment. The AFSM 100 Auto Induction Phase II adds an additional 148 systems, which will automate the preparation and feeding of flats on the existing AFSM 100 systems. The additional DBCS equipment will replace less efficient Carrier Sequence BarCode Sorters.

Repair and alterations performed on thousands of postal facilities throughout the country produced more than $667 million in facility commitments. The remainder of the Facility commitments was for the construction of the Northeast Metro, Michigan Processing and Distribution Center; Oklahoma City, Oklahoma, co-located Facility and Vehicle Maintenance Facility; and various customer service facilities.

Infrastructure and Support commitments in excess of $309 million included funding for technology support to replace and enhance national automated data processing hardware and software; Remote Encoding System Development will develop a new letter mail image processing system to replace the Image Processing Subsystem (IPSS), which is approaching its end of life; and the Mail Processing Infrastructure Program Phase III that upgrades the existing base band local area network wiring at 160 mail processing centers and ten remote encoding centers to meet standards for Postal Service structured wiring.

Vehicle commitments were limited to critically needed vehicles to support various field activities. These included minimal administrative replacement vehicles, as well as wreckers and tow trucks for the vehicle maintenance offices.