Financial Section Part II

Debt at Year End graph

Interest Expense

Our 2004 and 2005 debt consisted of short-term debt obligations, which provided us with the flexibility to repay debt with available cash on a daily basis. A major benefit of the short-term obligations was the reduction in interest expense payable to the Federal Financing Bank. As a result, we were able to virtually eliminate interest on debt in 2004, 2005 and 2006 and interest expense on borrowings was the lowest since postal reorganization in the early 1970s.

Other Interest Expense graph

Interest and Investment Income

When we determine that our funds exceed our current needs, we invest those funds with the U.S. Treasury’s Bureau of Public Debt in overnight securities issued by the U.S. Treasury. With reduced or zero debt to repay, we took advantage of a build up of cash and rise in short term interest rates to earn investment income of $140 million in 2006 and $60 million in 2005.

We also record imputed interest on the funds owed to us under the Revenue Forgone Act of 1993. Under the Act, Congress is required to reimburse us $29 million annually through 2035. See Note 12, Revenue Forgone in the Notes to the Financial Statements for additional information.

Interest and Investment Income 2006 2005 2004
(Dollars in millions)
Investment Income $ 140 $ 60 $ 5
Imputed interest on accounts receivable from the U.S.government 25 25 26
Other Interest 2 1 2
Total $ 167 $ 86 $ 33

Cash Flow

NET CASH PROVIDED BY OPERATING ACTIVITIES

Net cash provided by operating activities of $3,768 million increased by $38 million over 2005. Increases in cash payments for compensation and transportation expenses were offset by increases to noncash items such as accrued payroll and leave liability of $304 million and workers compensation liability of $342 million. Also contributing was $169 million of increased collections in accounts receivable between 2005 and 2006, increased investment income of $81 million versus 2005, $55 million of additional money orders outstanding at year end as well as a decrease in the interest expense payment on deferred retirement obligations of $32 million.

NET CASH USED IN INVESTING ACTIVITIES

During 2006, 2005 and 2004, net cash used in investing activities was $5.5 billion, $2.3 billion and $1.7 billion respectively. The increases reflect increased investment for mail processing equipment, retail equipment and building improvements. The increase in 2006 also reflects the placement of $2,958 million into a restricted cash account as required by P.L. 108-18.