Financial Condition

Net Position

The following table depicts the USPTO's financial condition for the past four fiscal years. Net position was $403.2 million as of September 30, 2003, a decrease of $7.5 million, or 1.8 percent, from the FY 2002 balance of $410.7 million.

USPTO Assets and Liabilities for the Last 4 Fiscal Years
(Dollars in Millions)

Composition of USPTO Assets and Liabilities	FY 2003	FY 2002	FY 2001	FY 2000
Cash	$   11.4	$    9.3	$   11.5	$  20.0
Fund Balance with Treasury	985.6	926.1	923.4	810.4
Property and Equipment, Net	117.4	119.2	128.6	124.8
Accounts Receivable and Prepayments	37.1	40.9	9.1	7.3
Total Assets	$1,151.5	$1,095.5	$1,072.6	$ 962.5
Percentage Change in Total Assets	5.1%	2.1%	11.4%	17.6%
Deferred Revenue	$ 504.2	$  466.0	$  375.0	$ 338.8
Accounts Payable	80.1	74.7	60.2	52.1
Accrued Payroll, Leave, and Benefits	75.4	68.0	80.7	69.0
Customer Deposit Accounts	74.4	64.8	57.5	55.1
Other Liabilities	14.2	11.3	20.6	18.0
Total Liabilities	$  748.3	$  684.8	$  594.0	$ 533.0
Percentage Change in Total Liabilities	9.3%	15.3%	11.4%	17.5%
Net Position	$ 403.2	$  410.7	$  478.6	$ 429.5
Percentage Change in Net Position	(1.8%)	(14.2%)	11.4%	17.8%

The FY 2003 net position consisted of:

• Surcharge revenue withheld from FY 1992 through FY 1998 of $233.5 million, which is segregated and restricted as to its availability pursuant to the Omnibus Budget and Reconciliation Act (OBRA) of 1990, as amended;
• Unexpended appropriations of less than $0.1 million; and
• Cumulative results of operations of $169.6 million.

Adjusting cumulative results of operation for net property and equipment, accounts receivable, and prepayments, the cash and Fund Balance with Treasury portion of net position is $15.1 million. The $15.1 million is calculated on a financial accounting basis and does not reflect the impact of obligations of $230.1 million in unpaid undelivered orders (goods and services ordered, but not yet received). Therefore, after considering these items, future funding in the amount of $215.0 million will have to be earned to liquidate unfunded liabilities as of September 30, 2003.

Cash and Fund Balance with Treasury

Cash and Fund Balance with Treasury was $997.0 million as of September 30, 2003, an increase of $61.6 million, or 6.6 percent, over the FY 2002 balance of $935.4 million.

  D  

Of the $997.0 million, only $2.1 million, or 0.2 percent, was available to meet FY 2004 needs. The other 99.8 percent was earmarked or set aside as follows:

• $11.4 million represented cash or checks in transit;
• $327.8 million was set aside for the payment of existing obligations as of September 30, 2003;
• $233.5 million was restricted under OBRA;
• $5.3 million represented funds held on behalf of the WIPO;
• $74.4 million represented funds held on deposit in trust for customers;
• $341.0 million was restricted for use until subsequent fiscal years; and
• $1.5 million represented unobligated funds that were not apportioned for use at the end of FY 2003.

During FY 2003, the USPTO generated net cash of $61.6 million from patent and trademark fees and other activities, an increase of $61.1 million from the $0.5 million generated during FY 2002, summarized as follows.

USPTO Cash Flows Generated for the Last 4 Fiscal Years
(Dollars in Millions)

USPTO Cash Flows	FY 2003	FY 2002	FY 2001	FY 2000
Operating Activities	$122.7	$ 59.8	$ 173.6	$ 208.8
Investing Activities	(61.1)	(60.2)	(69.1)	(59.3)
Financing Activities	-	0.9	-	(3.0)
Net Cash Provided/(Used)	$  61.6	$   0.5	$ 104.5	$ 146.5

Of the $122.7 million generated from operating activities during FY 2003, $61.1 million was invested in new property and equipment. This amount represented an increase of $0.9 million, or 1.5 percent, from the $60.2 million of net cash invested in property and equipment during FY 2002.

Property and Equipment

Net property and equipment was $117.4 million as of September 30, 2003, which consisted of the original acquisition value of $427.3 million less accumulated depreciation of $309.9 million. The acquisition values for property and equipment at the end of each fiscal year, for the past four fiscal years, are presented in the table below:

Property and Equipment Acquisition Values for the Last 4 Fiscal Years
(Dollars in Millions)

Property and Equipment Acquisition Values	FY 2003	FY 2002	FY 2001	FY 2000
IT Equipment	$226.5	$211.3	$192.3	$167.7
Software	152.1	123.1	108.3	92.8
Software in Progress	15.5	19.6	18.7	19.6
Furniture	13.6	14.5	16.0	17.1
Non-IT Equipment	10.7	10.1	9.1	8.7
Construction in Progress	8.9	-	-	-
Total Property and Equipment Acquisition Values	$427.3	$378.6	$344.4	$305.9

The $48.7 million increase in acquisition value from FY 2002 to FY 2003 was the result of $61.1 million of assets purchased during the fiscal year, less the acquisition cost of $12.4 million related to assets disposed of during the fiscal year in the normal asset life cycle process.

The increase in IT equipment acquisitions during FY 2003 was mainly comprised of network servers, computers, printers, and scanners, while the increase in software acquisitions was primarily an increase in contractor-developed internal use software. These IT acquisitions, both hardware and software, reflected a continuing emphasis on reducing labor-intensive paper processing, enhancing the quality of patent issuances and registered trademarks, and controlling patent and trademark pendency.

The acquisition value for construction in progress was recorded due to leasehold improvements made on the new headquarters in Alexandria, Virginia. At the point in time that we begin to occupy the buildings, this investment will move from construction in progress to leasehold improvements.

Deferred Revenue

Deferred revenue was $504.2 million as of September 30, 2003, an increase of $38.2 million, or 8.2 percent, over the FY 2002 balance of $466.0 million. The deferred revenue liability included unearned patent and trademark fees and undeposited checks at the end of the fiscal year, for the past four years, as summarized below:

USPTO Deferred Revenue for the Last 4 Fiscal Years
(Dollars in Millions)

Deferred Revenue	FY 2003	FY 2002	FY 2001	FY 2000
Patent Unearned Fees	$445.1	$413.1	$325.9	$259.9
Trademark Unearned Fees	48.4	43.9	38.4	59.7
Undeposited Checks	10.7	9.0	10.7	19.2
Total Liability	$504.2	$466.0	$375.0	$338.8
Percentage Change in Deferred Revenue	8.2%	24.3%	10.7%	21.3%

Deferred revenue at the USPTO was impacted by two principal factors:

• Increases in patent and trademark application filings; and
• Changes in patent and trademark pendency rates.

The tables below track the changes in these two principal factors and relate to the percentage change in the deferred revenue liability noted in the table above.

Patent and Trademark Filings and Pendencies for the Last 4 Fiscal Years

Filings and Pendencies	FY 2003	FY 2002	FY 2001	FY 2000
Patent Filings	355,418	353,394	344,717	311,807
Percentage Change in Patent Filings	0.6%	2.5%	10.6%	12.1%
Patent First Action Pendency (months)	18.3	16.7	14.4	13.6
Total Patent Pendency (months)	26.7	24.0	24.7	25.0
Trademark Filings	267,218	258,873	296,388	375,428
Percentage Change in Trademark Filings	3.2%	(12.7%)	(21.1%)	27.2%
Trademark First Action Pendency (months)	5.4	4.3	2.7	5.7
Total Trademark Pendency (months)	19.8	19.9	17.8	17.3

Patents

The following chart summarizes unearned patent fees for the past four fiscal years:

  D  

Unearned patent fees at the end of FY 2003 were $445.1 million, an increase of $32.0 million, or 7.7 percent, over the prior year balance of $413.1 million. This was primarily due to an increase of $27.4 million in unearned fees for patent application filing fees (7.2 percent) and an increase in first action pendency for utility and plant patents from 16.7 months at the end of FY 2002 to 18.3 months at the end of FY 2003. The remaining increase of $4.6 million was related to the percentage of work completed in the other patent processing areas.

The undeposited checks component of patent deferred revenue increased $2.1 million, or 28.0 percent, from $7.5 million at the end of FY 2002 to $9.6 million at the end of FY 2003.

Trademarks

The following chart summarizes unearned trademark fees for the past four fiscal years:

  D  

Unearned trademark fees at the end of FY 2003 were $48.4 million, an increase of $4.5 million, or 10.3 percent, over the prior year balance of $43.9 million. An increase in new applications and an increase of trademark pendency to first action of 1.1 months resulted in an increase in unearned trademark application fees of $5.1 million. The increases were offset by a $1.1 million decrease in unearned trademark renewal and affidavit fees. This resulted from a decrease in inventory from the prior fiscal year.

The undeposited checks component of trademark's deferred revenue decreased $0.5 million, or 33.3 percent, from $1.5 million at the end of FY 2002 to $1.0 million at the end of FY 2003.

 

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