US Postal Service 2009 Annual Report Download - page 42

40 | 2009 Annual Report United States Postal Service
We recognize revenue when services are rendered. Be-
cause we collect payment in advance of services being
performed, we defer the revenue as an estimated liabil-
ity. This liability is classifi ed as deferred revenue–prepaid
postage on our balance sheets. In 2008, we improved the
model used to estimate the deferred revenue for prepaid
postage for stamps. This change was made necessary be-
cause the introduction of the Forever Stamp in April 2007,
combined with the May 2008 price increase, resulted in a
change in consumer behavior regarding the purchase and
usage of stamps that was not measurable using prior esti-
mation techniques. This new estimation methodology pro-
vides more refi ned estimates of the trends in stamp usage.
We further refi ned this estimation methodology in Quarter
IV of 2009 to refl ect changes in customer usage patterns
of both Forever and denominated stamps demonstrated
during 2009. The 2008 change to a new estimation model
and 2009 refi nement are both considered changes in ac-
counting estimates under Generally Accepted Accounting
Principles (GAAP).
For further information, see Note 3 to the fi nancial statements.
RESULTS OF OPERATIONS
Despite $6.1 billion in cost savings from the reduction in the
number of employees, reduction of overtime hours and re-
duction in transportation and other costs, we were unable
to fully offset contractual price increases and an unfore-
seen, rapid and dramatic drop in mail volume and revenue.
This resulted in a net loss for the year of $3,794 million.
On October 1, 2009, the President signed P.L. 111-68,
Making appropriations for the Legislative Branch for the
fi scal year ending September 30, 2010, and for other pur-
poses (P.L. 111-68), which had passed both houses of
Congress as of September 30, 2009. This law included
a provision retroactively reducing the 2009 required pay-
ment into the Postal Service Retiree Health Benefi ts Fund
(PSRHBF) from $5.4 billion to $1.4 billion. Wit hout this leg-
islative change, the resulting losses would have left us with
very little operating cash at September 30, 2009.
Operating Statistics
(dollars in millions)
2009 2008 2007
Operating Revenue $ 68,090 $ 74,932 $ 74,778
Operating Loss $ (3,740) $ (2,806) $ (5,327)
Net Loss $ (3,794) $ (2,806) $ (5,142)
Operating Margin (5.5%) (3.7%) (7.1%)
Avg. Volume per Day
(pieces in millions) 584 667 705
As explained more fully later in the “Revenue and Volume”
section of this report, the recession has had a signifi cant
adverse impact on operating revenue. For the year ended
September 30, 2009, operating revenue was $68,090 mil-
lion, compared to $74,932 million, a decrease of $6,842
million or 9.1%, in spite of average Mailing Services price
increases of 3.8% in May 2009 and 2.9% in May 2008.
Volumes of all categories of mailing and shipping services
declined compared to last year.
For 2009, operating expenses were $71,830 million, com-
pared to $77,738 million last year, a decrease of $5,908
million, or 7.6%. Excluding $718 million of non-cash ad-
justments to the workers’ compensation liability, operat-
ing expenses decreased by $6,626 million, or 8.5%. The
2009 decrease in operating expenses was driven by the
$4 billion reduction of Retiree Health Benefi ts as a result
of P.L. 111-68 and a reduction of 115 million workhours.
The 115 million workhour reduction was, by far, the largest
annual decrease in Postal Service history. Transportation
expenses also decreased $935 million, or 13.4%, as fuel
prices and mail volume declined from a year earlier, utiliza-
tion decreased, and certain contracts were re-competed
and re-priced. Other expenses decreased $525 million,
or 5.4%, as substantial limits were place on spending
for supplies and services, travel and other discretionary
items. All of these expense reductions were accomplished
without affecting service to our customers and despite the
large percentage of our costs dedicated to serving the still-
growing delivery network.
Compensation and benefi ts expenses decreased by
$1,427 million, or 2.7%, excluding workers’ compensa-
tion expenses. Workhour decreases of 115 million hours
resulted in signifi cant savings, although they were offset by
the $1.1 billion impact of the COLA that became effective
in September 2008.
Workers’ compensation expenses increased $996 million,
primarily due to a non-cash change in the estimated cost
of future claim payments, driven largely by a change in
economic assumptions. Those changes are discussed in
Note 12 to the Financial Statements and in the “Compen-
sation and Benefi ts” section of this report.
For 2008, we had an operating loss of $2,806 million,
as compared to a $5,327 million loss in 2007. Operating
revenues of $74,932 million were 0.2%, or $154 million
greater than the $74,778 million in 2007. Despite the May
2007 and May 2008 price increases, revenues were nega-
tively impacted by a decline in volume of 9.5 billion pieces.
Our 2008 expenses were impacted by high energy prices,
COLAs and the large percentage of costs dedicated to
serving the growing delivery network. These cost pres-
sures partially offset the savings generated by a reduction