5.1% and was replaced by debt carrying an average interest rate of 1.1%. Although we paid a premium to retire this debt, we will more than make it up because of the much lower interest we will pay in the future. The economics of the transaction were compelling, with the difference between long-term interest rates and short-term interest rates reaching levels not seen since 1992. In November 1992, we restructured a smaller level of debt while paying a higher premium.

     As a result of our 2003 refinancing, we saved $62 million in interest in 2003, and we expect to save an additional $336 million in 2004.We also gained flexibility in paying off a substantial amount of debt in 2004 as required by the Act. Our net cash flow can now be applied to debt reduction without concern of paying any penalty.

     In requiring debt reduction, the Act effectively creates limits for our debt outstanding for 2003 and 2004. Our debt outstanding cannot exceed $7.6 billion for 2003 and approximately $4.6 billion for 2004. We ended 2003 with $7.3 billion debt outstanding, some $300 million lower than required by the Act. Because of our debt refinancing, we are now well positioned not only to meet but to far exceed the Act's requirements for additional debt reduction for 2004. We can now apply all cash in excess of current needs toward debt reduction on a daily basis. As a result, we project interest expense on our debt in 2004 will be the lowest since 1974. Moreover, we project debt reduction of between $4.2 billion and $4.7 billion in 2004, well beyond the estimated $2.7 billion required by the Act.

     Our opportunity for debt reduction in 2005 will depend upon our ability to operate at close to break even, combined with our ability to finance capital investment through depreciation expense. Our level of debt for 2006 and beyond will be influenced by these same factors and will also be greatly influenced by the yet to be specified requirements of the Act which requires that savings attributable to the legislation after 2005 be held in escrow and not obligated or expended until otherwise provided for by law.

     Liquidity is the cash that we have in the bank (the Postal Service Fund) and the amount of money we can borrow immediately if needed. In recent years we have relied less on the cash we have on hand and more on the readily available cash we can borrow as needed. Our Note Purchase Agreement with the Federal Financing Bank was renewed this year, and provides for revolving credit lines of $4 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.

     We are limited in the amount of funds we can borrow by the amount of debt authorized by the Board of Governors and by certain statutory limits on our borrowing. First, our total debt outstanding cannot exceed $15 billion. Second, the net increase in debt for any year cannot exceed $2 billion for capital purposes and $1 billion for operating purposes.

     For 2004, the Act, with its mandatory debt reduction requirement, limits our liquidity somewhat by removing financing as a possible source of funds. Our liquidity will be comprised of the cash that we have entering the year plus the cash flow that we can generate from operations. That said, we expect cash flow from operations to not only supply enough excess cash to fund our capital investments but to far exceed our mandatory debt reduction requirements. For 2005 and beyond, with our access to financing, if needed, being restored, liquidity will be enhanced.