|Performance and Accountability Report Fiscal Year 2007
Management's Discussion and Analysis
Balance Sheet and Statement of Changes in Net Position
At the end of FY 2007, the USPTO’s consolidated Balance Sheet presents total assets of $1,625.5 million, total liabilities of $1,161.5 million, and a net position of $464.0 million.
Total assets increased 25.3 percent over the last three years, resulting largely from the increase in Fund Balance with Treasury and Property, Plant, and Equipment. The table below shows the changes in assets during this period.
Fund Balance with Treasury is the single largest asset on the Balance Sheet and represents 86.3 percent of total assets at the end of FY 2007. This asset is comprised of unpaid obligated funds of $512.1 million, temporarily unavailable fees of $528.7 million, unavailable special receipt funds under OBRA of $233.5 million, other funds held on deposit for customers of $100.4 million, and unobligated funds of $28.0 million.
The unavailable special receipt funds 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 98.0 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 $67.3 million during the past three years, with the acquisition values of property, plant, and equipment increasing by $170.3 million. Investments in IT software and software in development increased $72.2 million, in conjunction with enhancing the existing e-government capabilities in areas such as e-filing, application information retrieval, data and image capture, and Web-based search systems.
Total liabilities increased from $1,082.3 million at the end of FY 2006 to $1,161.5 million at the end of FY 2007, representing an increase of $79.2 million, or 7.3 percent. The table below shows the change in liabilities during the past four years.
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 2007, deferred revenue liability was $828.1 million, representing an increase of $248.5 million, or 42.9 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 91.0 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.
Deferred revenue at the USPTO is largely impacted by the change in patent and trademark filings, changes in the first action pendency rates, and changes in fee rates. In FY 2004, the percentage increase in deferred revenue is consistent with the percentage increases in the first action pendency months. However, in FY 2005 and FY 2006, the percentage change in first action pendency months was less than the percentage change in deferred revenue as a result of the increased fees associated with the unearned patent and trademark application filings. Again in FY 2007, the percentage increase in deferred revenue is consistent with the percentage increases in the first action pendency months. The table below depicts the changes in the filings and pendencies during the past four years.
Deferred revenue associated with the patent process is expected to further increase. In the FY 2008 President’s Budget, the number of patent applications filed from FY 2008 through FY 2012 is expected to increase approximately 8.0 percent each year, with first action pendency increasing to 28.9 months in FY 2012 and total pendency increasing to 38.6 months in FY 2012. The pendency increases will result in patent deferred revenue increases.
The deferred revenue associated with the trademark process continued to decrease in FY 2007. Trademark deferred revenue decreased by $4.9 million, or 6.5 percent, from FY 2006, with a total 9.2 percent decrease over the past three years. This was consistent with trademark first action pendency decreasing to 2.9 months and total trademark pendency decreasing to 15.1 months. Estimates included in the FY 2008 President’s Budget project the pendencies to remain constant in the upcoming years.
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 movement in net position is the result of the net income or net cost for the year. The change in the net position during the past four years is presented in the following table.
The decrease in net position from $498.0 million at the end of FY 2006 to $464.0 million at the end of FY 2007, or 6.8 percent, is attributable largely to the results of operations. The significant increase in net position during FY 2004 is attributable largely to the permanent rescission reversing to a temporarily unavailable reduction in budgetary resources for $75.6 million.
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