Financial Condition

 

Net Position

Net position was $478.6 million as of September 30, 2001, an increase of $49.1 million over the FY 2000 total of $429.5 million. Net position consists of $233.5 million in revenue withheld, which is segregated as a portion of net position because the Omnibus Budget and Reconciliation Act (OBRA) of 1990, as amended in 1993, restricted its availability. Annual amounts were withheld from FY 1992 through FY 1998, with no additional amounts withheld after FY 1998.

After reducing net position by revenue withheld, cumulative results of operations were $245.1 million as of September 30, 2001, comprising net property and equipment in the amount of $128.6 million and non-cash assets totaling $9.1 million, leaving the remaining interest in the cash and fund balance as $107.4 million.

The $107.4 million interest in cash and the fund balance is calculated on a financial accounting basis and does not reflect the impact of obligations for $218.2 million in unpaid undelivered orders (goods and services ordered, but not yet received) less $1.5 million in receivables that provide budgetary resources. Therefore, after liquidating unpaid undelivered orders and funded liabilities as of September 30, 2001, future funding in the amount of $109.3 million will have to be earned, or surcharge revenue withheld will need to be appropriated, to liquidate unfunded liabilities as of September 30, 2001.

Components of Net Position

The following charts depict the USPTO’s financial condition for the past four FYs. There have been gradual increases in both assets and liabilities, indicating steady growth.  

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Current Ratio measures the adequacy of resources in terms of current assets per dollar of current liabilities. A current ratio greater than 1.0 normally indicates current assets are sufficient to cover current liabilities. At the USPTO, this ratio must be modified to take into consideration two important factors. The $233.5 million surcharge earned and collected through the enactment of the OBRA is included in current assets but may never be available to the USPTO to cover liabilities. Also, current liabilities do not reflect undelivered orders, which are obligations to pay for future goods or services. To demonstrate the effect of the OBRA surcharge and undelivered orders on liquidity, the current ratio also is presented net of these amounts. While the current ratio is greater than 1.0 when considering the assets and liabilities on the face of the Balance Sheet, it falls below 1.0 when undelivered orders and the surcharge are factored in for each of the four years presented. This indicates that the USPTO does not have enough current assets to cover current liabilities.

FINANCIAL RATIOS	FY 1998	FY 1999	FY 2000	FY 2001
Current Ratio	1.62	1.60	1.66	1.67
Current Ratio, Net of Surcharge and Undelivered Orders	.68	.72	.85	.87

Cash and Fund Balance with Treasury

Cash and Fund balance with Treasury was $934.9 million as of September 30, 2001, a 12.6 percent increase from the FY 2000balance of $830.4 million. Cash accounts and Fund balance with Treasury do not represent funds available for spending.Of the total $934.9 million as of September 30, 2001, $11.5 million represents cash or checks in transit and $923.4 million represents Fund balance with Treasury. Of the $923.4 million Fund balance with Treasury, $309.6 million is set aside for the payment of existing obligations, $233.5 million continues to be restricted as required by the OBRA, $6.7 million is being held on behalf of the WIPO, and $57.5 million represents funds held on deposit in trust for customers. After considering these amounts, only $316.1 million remains to meet patent and trademark needs. This amount includes $305.1 million that is restricted for use until subsequent FYs, $1.8 million in unobligated funds that were not apportioned for use at the end of FY 2001, and only $9.2 million, or 1.0 percent, available to meet FY 2001 needs.  

During FY 2001, the USPTO generated a net of $173.6 million in cash from patent and trademark fees and other operating activities, a decrease of $35.2 million, or 16.9 percent, from the $208.8 million generated during FY 2000.

Of the $173.6 million generated from operating activities during FY 2001, $69.1 million was invested in new property and equipment, principally automation and information technology. This amount represented an increase of $9.8 million, or 16.5 percent, from the $59.3 million of net cash invested in property and equipment during FY 2000. After funding FY 2001 investments in automation and information technology, the net cash provided was $104.5 million. This represented a decrease of 28.7 percent from the $146.5 million in cash provided during FY 2000.  

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Cash Flow Return on Assets measures operating effectiveness in terms of cash generated from operations per dollar of total assets. Higher cash flow returns reflect greater operating performance. This return can fluctuate greatly as it is largely influenced by Congressional spending limitations on prior year and current year fee collections.

FINANCIAL RATIOS	FY 1998	FY 1999	FY 2000	FY 2001
Cash Flow Return on Assets	24%	15%	22%	16%
Cash Flow Return on Assets, Net of Surcharge	18%	21%	29%	21%

Property and Equipment

Property and equipment net was $128.6 million as of September 30, 2001, representing the original acquisition value of $344.4 million less accumulated depreciation of $215.8 million. Although the net book value increased only $3.8 million, or 3.0 percent, from the FY 2000 net balance of $124.8 million, total acquisition value of property and equipment increased $38.5 million, or 12.6 percent, over the FY 2000 balance of $305.9 million.

The $38.5 million increase is composed of $69.1 million in assets purchased during the FY and $30.6 million in assets disposed in the normal asset life cycle process.  

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As indicated [below], IT assets continue to represent the vast majority of USPTO property and equipment acquisitions. The USPTO continues to make significant investments in development of internal-use software systems in the form of new modules and enhancements. These systems include examination workflow systems, automated search tools; on-line file submission and payment systems; application scanning tools; application tracking systems; customer inquiry systems; order fulfillment systems; and various systems to assist in agency administration and management. Major development efforts in FY 2001 included the following:

• Updating various systems to comply with the new legislation governing pre-grant publication of patents and the patent term adjustment requirements of the AIPA.
• Enhancing functionality in PALM and PCT Operations Workflow Electronics Review (POWER), the USPTO national and international patent workflow tracking and status reporting systems, respectively, to facilitate reengineered patent processes and implement electronic commerce initiatives. Specifically, there were continued efforts on migrating the legacy, mainframe-based PALM system to a modern open system architecture. This included preparing for the migration of the final PALM subsystem – Exam/Post-Exam. The new open system architecture will make future modification and enhancement initiatives less difficult and costly.
• Adding RAM functionality to allow EFT and additional credit card payments over the Internet.

The IT infrastructure continues to be improved to ensure employees have the necessary equipment to perform at the highest levels. The USPTO has begun the replacement of the agency network, PTOnet, to ensure a faster, more robust, and secure computing environment. The replacement of desktop workstations with state-of-the-art equipment and reliable network service also has started.

Deferred Revenue  

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Deferred revenue was $375.0 million as of September 30, 2001, an increase of $36.2 million, or 10.7 percent over the FY 2000 balance of $338.8 million. The USPTO defers the recognition of income for fees collected for services that have not been provided yet. The deferred revenue liability includes undeposited checks as of the end of FY 2001, unearned patent fees, and unearned trademark fees.

The undeposited checks component of deferred revenue decreased 44.3 percent from $19.2 million at the end of FY 2000 to $10.7 million at the end of FY 2001. FY 2000 undeposited checks were larger than normal due to a significant fee increase on October 1, 2000. When fees increase, customers traditionally file applications and pay maintenance fees in September to obtain "mail dates" prior to the fee increase set for October 1. The FY 2001 undeposited checks amount is more consistent with normal trends in check collections.

Unearned patent fees at the end of FY 2001 increased $66.0 million, or 25.4 percent, over the prior year, due to an increase of over 10 percent in patent application filings during FY 2001 and due to an improvement in the methodology used to estimate deferred revenue. Of the $66.0 million increase, $21.9 million is a result of this change.  

Unearned trademark fees decreased $21.3 million, or 35.7 percent, from the prior FY. The large decrease is due to a decrease of more than 20 percent in trademark application filings during FY 2001, coupled with an increase in production. The $21.3 million decrease was lessened by an improvement in the methodology used to estimate deferred revenue. Without this change, there would have been an additional $6.2 million decrease in trademark unearned fees.  

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