US Postal Service 2012 Annual Report Download - page 26

2012 Report on Form 10-K United States Postal Service- 25 -
greater in 2012 compared to 2011. Total workers’ compensation expenses of $3,729 million increased by $57 million, or
1.6%, from 2011. The increase was driven by the higher costs related to new cases.
Offsetting the increases, compensation and benefits expense of $47,689 million in 2012 decreased by $621 million, or
1.3%, compared to last year, due primarily to the reduction of 27 million work hours. Other expenses decreased $635
million, or 6.5%, driven by lower expenses related to the revaluation of legal contingencies.
The net loss in 2011 was $5,067 million, compared to $8,505 million net loss in 2010. Operating revenue of $65,711
million in 2011 was $1,341 million, or 2%, less than operating revenue of $67,052 million in 2010. The volume of First-
Class Mail declined in 2011 compared to 2010, while Standard Mail and Shipping and Package volume remained
relatively stable. Operating expenses were $70,634 million in 2011 compared to $75,426 million in 2010, a $4,792 million,
or 6.4% decrease. Due to the passage of P.L. 112-74, the most recent of several laws that changed the date of the
scheduled $5.5 billion annual prefunding of the PSRHBF due by September 30, 2011 into 2012, total retiree health
benefits expense decreased by $5,306 million, or 68.5%, in 2011 from 2010 as only monthly premiums, and not
prefunding payments to the PSRHBF, were paid in 2011. Total operating expenses would have been $68,252 million in
2011, an increase of $747 million, or 1.1% from 2010, if the impact of the required PSRHBF prefunding payments and the
long-term portion of workers’ compensation expense are excluded.
Compensation and benefit expense in 2011 decreased by $599 million, or 1.2%, driven by the reduction of 34 million work
hours. Total workers’ compensation expenses in 2011 rose by $106 million, or 3.0% compared to 2010. Despite higher
utilization rates and lower mail volume, transportation expense increased $511 million, or 8.7%, in 2011 compared to
2010 due to sharply higher fuel prices. Other expenses increased $496 million, or 5.3%.
REVENUE AND VOLUME
Reclassification of Certain Revenue and Volume Data
Periodic reclassifications and expansions of services from Market-Dominant to Competitive services, which require
approval from the PRC, are necessary to rationalize service offerings and allow more flexible pricing than is possible in
the Market-Dominant category, which has constraints, such as price caps based on the Consumer Price Index (CPI). In
other words, the additional flexibility provided in Competitive services allows us to better offer services that meet customer
needs, to increase business for the Postal Service, and to allow us to price our services competitively within the markets
in which we operate.
In Quarter I, 2012, with the approval of the PRC, we reclassified certain lightweight commercial parcels previously
classified in Market-Dominant as First-Class Mail Parcels. These parcels are now classified as First-Class Package
Services as a Competitive service. In addition, certain Post Office Box services were reclassified from Market-Dominant to
Competitive. In Quarter II, 2012, Standard Mail parcels used for the fulfillment of customer orders were reclassified as part
of Parcel Select, which is a Competitive service. There were no new reclassifications in Quarter III or IV, 2012.
Prior year results have been reclassified to conform to current year presentation.
Summary of Revenue and Volume Results
Revenue and volume are closely linked to the strength of the U.S. economy and changes in how our customers use the
mail. Historically, the more significant factor has been cyclical changes in the rate of economic growth. However, recently
the more significant factor has been the rate that relevant new technology has been introduced and accepted in the
marketplace and supplanted the role of traditional hard-copy mail. Revenue growth is also constrained by laws and
regulations restricting the types of products and services we can offer and by our ability to implement products and
services and the speed with which we can bring them to market.
Five years after the recession that began in December 2007, its lingering economic effects, accompanied by the
acceptance and growth of major new technological platforms, have had a significant negative impact on the mailing
industry and many of our traditional sources of revenue. Although some changes, such as an increase in the shipment of
goods purchased online were positive, the accelerated shift to electronic communication alternatives continue to present
significant business challenges in 2012. These challenges are expected to continue for the foreseeable future. Moreover,
unlike a private-sector business, the Postal Service is restricted by law from taking certain steps, such as entering new
lines of business, that might generate additional revenue to make up for some of the decline in First-Class Mail revenue.
In short, there currently is no foreseen revenue growth solution to the Postal Service’s financial challenges.
To date, consumer spending and business investment since the end of the recession have not provided the growth
stimulus necessary to boost mail volumes. Due to the long-term impact of technological change, discussed above, we do