Balance Sheet and Statement of Changes in Net Position

At the end of FY 2005, the USPTO’s consolidated Balance Sheet presents total assets of $1,409.1 million, total liabilities of $991.3 million, and a net position of $417.8 million.

Total assets increased 28.6 percent over the last three years, resulting largely from the increase in Fund Balance with Treasury. The following table shows the changes in assets during this period.

Composition of USPTO Assets (Dollars in Millions) Asset FY 2002 FY 2003 FY 2004 FY 2005 Cash $    9.3 $   11.4 $   11.9 $    8.8 Fund Balance with Treasury    926.1    985.6  1,135.2  1,240.8 Property, Plant, and Equipment, Net    119.2    117.4    137.3    148.4 Accounts Receivable and Prepayments     40.9     37.1     12.9     11.1 Total Assets $1,095.5 $1,151.5 $1,297.3 $1,409.1 Percentage Change in Total Assets     2.1%     5.1%    12.7%     8.6%

Fund Balance with Treasury is the single largest asset on the Balance Sheet and represents 88.1 percent of total assets at the end of FY 2005. This asset is comprised of unpaid obligated funds of $403.2 million, temporarily unavailable fees of $516.5 million, unavailable special fund receipts under OBRA of $233.5 million, other funds held on deposit for customers of $81.9 million, and unobligated funds of $5.7 million.

The unavailable special fund receipts and the temporarily unavailable funds require Congressional appropriation before they will be available for USPTO’s use. These funds, together with amounts obligated and held on deposit, represent 99.5 percent of the Fund Balance with Treasury.

The other major asset is property, plant, and equipment. The net balance of this asset has increased by $29.2 million during the past three years, with the acquisition values of property, plant, and equipment increasing by $99.1 million. Leasehold improvements at its consolidated headquarters in Alexandria of $68.7 million are expected to provide significant cost savings in the future. In addition, investments in IT software and software in development increased $43.0 million, in conjunction with the enhancement of the existing e-government capabilities in areas such as e-filing, application information retrieval, data and image capture, and web-based search systems. While there has been a decrease in IT equipment of $13.5 million over the past three years, due to additional budgetary resources available for spending during FY 2005, this component of property and equipment increased $4.6 million from FY 2004.

Total liabilities increased from $828.2 million at the end of FY 2004 to $991.3 million at the end of FY 2005, representing an increase of $163.1 million, or 19.7 percent. The following table shows the change in liabilities during the past four years.

Composition of USPTO Liabilities (Dollars in Millions) Liability FY 2002 FY 2003 FY 2004 FY 2005 Deferred Revenue $466.0 $504.2 $579.6 $706.7 Accounts Payable   74.7   80.1   77.3  101.8 Accrued Payroll, Leave, and Benefits   68.0   75.4   83.4   90.7 Customer Deposit Accounts   64.8   74.4   70.7   74.1 Other Liabilities   11.3   14.2   17.2   18.0 Total Liabilities $684.8 $748.3 $828.2 $991.3 Percentage Change in Total Liabilities  15.3%   9.3%  10.7%  19.7%

The USPTO’s deferred revenue is the largest liability on the Balance Sheet. The liability for deferred revenue is calculated by analyzing the process for completing each service provided. The percent incomplete based on the inventory of pending work is applied to fee collections to estimate the amount for deferred revenue liability.

At the end of FY 2005, deferred revenue liability was $706.7 million, representing an increase of $240.7 million, or 51.7 percent, over the past three years. The deferred revenue liability includes unearned patent and trademark fees, as well as undeposited checks. The unearned patent fees represented 86.6 percent of this liability. The following graph depicts the composition of the deferred revenue liability, in addition to the increase in this liability during each of the past four years.

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Deferred revenue at the USPTO is largely impacted by the change in patent and trademark filings, changes in first action pendency rates, and changes in fee rates. From FY 2002 through FY 2004, the percentage increase in deferred revenue is consistent with the percentage increases in first action pendency months. However, in FY 2005, the percentage increase in first action pendency months was less than the percentage increase in deferred revenue as a result of the increased fees associated with the unearned patent and trademark application filings. The following table depicts the changes in the filings and pendencies during the past four years.

Filings and Pendencies Filings and Pendencies FY 2002 FY 2003 FY 2004 FY 2005 Patent Filings 353,394 355,418 378,984 409,532 Percentage Change in Patent Filings    2.5%    0.6%    6.6%    8.1% Patent First Action Pendency (months)    16.7    18.3    20.2    21.1 Percentage Change in Patent First Action Pendency   16.0%    9.6%   10.4%    4.5% Total Patent Pendency (months)    24.0    26.7    27.6    29.1 Percentage Change in Total Patent Pendency  (2.8)%   11.3%    3.4%    5.4% Trademark Filings 258,873 267,218 298,489 323,501 Percentage Change in Trademark Filings (12.7%)    3.2%   11.7%    8.4% Trademark First Action Pendency (months)     4.3     5.4     6.6    6.3 Percentage Change in Trademark First Action Pendency   59.3%   25.6%   22.2%  (4.5%) Total Trademark Pendency (months)   19.9    19.8    19.5   19.6 Percentage Change in Total Trademark Pendency   11.8%   (0.5%)   (1.5%)    0.5%

Deferred revenue associated with the patent process is expected to further increase. In the FY 2006 President’s Budget Request, the number of patent applications filed from FY 2006 through FY 2010 are expected to increase approximately 5.5 percent each year, with first action pendency increasing to 22.2 months in FY 2007 and total pendency increasing to 32.2 months in FY 2008. Once the pendency starts to decrease in FY 2009, patent deferred revenue will likewise decrease. In addition, if the USPTO fee schedule authorized for two years in the Consolidated Appropriations Act of 2005 (Public Law 108-447) is not reauthorized in FY 2007, the USPTO fees will decrease, causing a decrease in the deferred revenue liability.

While the deferred revenue associated with the trademark process has been increasing, estimates included in the FY 2006 President’s Budget Request project a decrease in FY 2006 when first action pendency decreases to 5.3 months and total pendency decreases to 18.7 months.

The Statement of Changes in Net Position presents the changes in the financial position of the USPTO due to results of operations and unexpended appropriations. The major components of the movement in net position are the net income or net cost for the year, and the post-retirement costs for USPTO employees. For FY 2004 and prior, the USPTO recognized an imputed financing source and corresponding expense to represent its share of the cost to the federal government of providing pension and post-retirement health and life insurance benefits to all eligible USPTO employees. Beginning in FY 2005, the USPTO is now funding the costs of post-retirement benefits and the pension liabilities, resulting in an expense using earned revenue in the statement of net cost, without an imputed financing source. The change in the net position during the past four years is presented in the following table.

The decrease in net position from $469.1 million at the end of FY 2004 to $417.8 million at the end of FY 2005, or 10.9 percent, is attributable largely to the results of operations. The significant increase in net position during FY 2004 is attributable largely to reversing the permanent rescission of $75.6 million to a temporarily unavailable reduction in budgetary resources.

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