Financial Section Part II

Supplies and Services

Supplies and services expenses of $2,643 million increased $86 million in 2006. Expenses for professional, consulting and other services increased approximately $57 million compared to the same period last year. This increase was largely due to increased credit and debit card transaction and processing fees of $19 million. Supplies expense increased approximately $16 million and equipment rental and repair charges increased $19 million. These were offset by a decline in advertising expenses of $5 million.

In 2005, supplies and services expense charges were $2,557 million, an increase of $134 million over 2004. This was attributed to increases of $103 million in supplies for items such as mail transportation equipment and advertising increases of $35 million. Offsetting some of the increase was a reduction in equipment repairs and rental expenses, which declined by $39 million in 2005.

Depreciation and Amortization

Depreciation and amortization expenses of $2,149 million in 2006 were $60 million or 2.9% more than last year. This increase is primarily due to increased deployment of equipment purchased under the emergency preparedness program and new mail processing equipment. Depreciation expenses of $2,089 million in 2005 decreased $56 million or 2.6% from 2004. See Note 13, Emergency Preparedness Funding in the Notes to the Financial Statements for additional information.

Other Expenses

Other expenses were $4,566 million in 2006, an increase of $298 million or 7%. The major components and costs included in this category are rent and utilities of $1,721 million, vehicle maintenance services of $1,194 million, information technology of $395 million, communications of $254 million, travel and training of $236 million and facility repairs and alterations of $224 million. In 2005, other expenses increased by $88 million over 2004.

Rent and utilities were up $132 million or 8.3% over 2005, driven by a $60 million increase in electricity cost. Vehicle maintenance services increased by $159 million, or 15.3%, driven by an aging fleet and increasing fuel prices. The same was true in 2005 when the increase was $114 million or 12.3% over 2004. Communications expense was virtually unchanged from 2005. In 2005 communication costs increased by $35 million or 16.3%. This was mainly from upgrading the communication lines in many of our offices. Information technology costs also remained relatively flat with a small decline of $3 million in 2006. In 2005 these costs decreased $78 million or 16.4% from 2004. This reflected the downward price trend in this industry and favorable negotiations on software maintenance and licensing agreements. Facility maintenance expenses were virtually unchanged in 2006 from 2005 while declining $21 million or 8.6% from 2004 to 2005 as repair projects declined that year.