US Postal Service 2007 Annual Report Download - page 24

24 | 2007 Annual Report United States Postal Service
Financial Section Part II
The previous chart shows the change in the mail mix since 2001. If the
mail mix in 2007 were as it was in 2001, we would have had an estimated
additional $3 billion in revenue in 2007.
Operating Expenses
Operating expenses are comprised of compensation and benefits, retiree
health benefits, transportation, supplies and services, depreciation and
amortization, and other expenses.
In 2007 total operating expenses of $80,105 million were $8,424 million
or 11.8% more than 2006. Compensation and benefits, along with retiree
health benefits made up 80.2% of our operating expenses. Retiree
health benefits increased $8,447 million, or 516%, in 2007, driven by
requirements of P.L.109-435. See Note 4, Postal Accountability and
Enhancement Act, Public Law 109-435 ( P.L.109-435), in the Notes to the
Financial Statements for more information. The new law also suspended
our retirement payments to the CSRS fund which, along with a reduction in
the estimate of our workers’ compensation liability, led to a $479 million,
or 0.9%, decrease in total compensation and benefit expenses. A $457
million, or 7.6%, increase in transportation expenses also contributed to the
increase in expenses.
In 2006, operating expenses of $71,681 million were $3,400 million,
or 5.0%, more than 2005. The increase was driven primarily by a 4.2%
increase in compensation and benefits and an 11.2% increase in transpor-
tation expenses.
Operating Expenses 2007 2006 2005
(Dollars in millions)
Compensation and Benefits $ 54,186 $ 54,665 $ 52,449
Retiree Health Benefits 10,084 1,637 1,495
Transportation 6,502 6,045 5,437
Other Expenses 9,333 9,334 8,900
Total Operating Expenses $ 80,105 $ 71,681 $ 68,281
Compensation and Benefits
Personnel compensation and benefits comprised 67.6% of our total
operating expenses in 2007. These costs were $479 million or 0.9%
below 2006. The decrease was due primarily to elimination of the
employer’s share of the CSRS contribution resulting from the enactment
of the new law. Reductions in complement and workers’ compensation
costs also contributed to the decrease in expenses.
Although total compensation and benefits were lower in 2007, our labor
costs increased by $1,118 million or 2.8%. COLA increases alone added
$871 million to our compensation expenses. These increases were offset
somewhat by a decrease of 36 million labor hours. Our 2007 average
hourly labor cost increased by 1.6% compared to an increase of 4.5% in
2006. Workers’ compensation decreased by $399 million. See Workers’
Compensation later in this section and Note 11, Workers’ compensation, in
Notes to the Financial Statements for additional information.
In 2006, personnel compensation and benefits comprised 76.3% of our
total operating expenses. These costs increased $2,216 million or 4.2% in
2006. The 2006 growth was primarily due to contractual pay increases,
COLA, and health benefits payments for current employees. Our 2006
health benefits expense for current employees increased by $245 million
to $5,345, or 7.5% of total operating expenses. Workers’ compensation
increased $441 million over 2005. This accounted for almost 20% of the
total personnel compensation and benefits growth in 2006.
Compensation and Benefits
Expenses 2007 2006 2005
(Dollars in millions)
Compensation $ 41,695 $ 40,577 $ 39,299
Retirement 5,737 7,006 6,810
Health Benefits 5,401 5,345 5,100
Workers’ Compensation 880 1,279 838
Other 473 458 402
Total $ 54,186 $ 54,665 $ 52,449
In addition to labor and benefits rates, workhours are a major driver of our
compensation and benefits expense. In 2007, mail processing, customer
service and city delivery workhours decreased by 36 million compared to
2006, partially offsetting the higher labor rates.
Rural delivery experienced an increase of three million workhours. The
rural delivery workhour growth was driven by the addition of more than
one million new rural delivery points. Other workhours decreased by three
million compared to 2006.
In 2006, growth in compensation and benefits was slightly tempered
by a reduction of almost five million workhours or 0.3%. In 2006, mail
processing, customer service and city delivery workhours decreased seven
million hours compared to 2005, while rural delivery experienced an almost
seven million increase in workhours. As was the case in 2007, the 2006
rural delivery workhour growth was driven by the addition of more than one
million new delivery points and by increased mail volume.
Workhours have been reduced in seven of the last eight years, with
only 2005 showing a slight increase. Since 2000, we have cumulatively
eliminated 1,083 million workhours, which has been the single largest
contributor to the ongoing achievement of our savings targets.