US Postal Service 2012 Annual Report Download - page 48

2012 Report on Form 10-K United States Postal Service- 47 -
In 2012, management continued its efforts to control costs and limit non-essential spending to conserve cash.
Depreciation and amortization decreased $238 million, or 10.3%, compared to 2011, as capital spending has been limited
in recent years. In addition, rent and utilities expense was $59 million, or 3.5%, lower than last year as the number of
postal facilities and related square footage declined. Miscellaneous other operating expenses decreased by $387 million,
or 28.8%, compared to last year. A significant portion of other expenses in 2011 was driven by legal expenses associated
with the contingent liability reevaluation process.
These decreases were partially offset by increases in supplies and services of $3 million, or 0.1%, compared to last year.
In addition, rural carrier equipment maintenance increased by $25 million, or 4.5% and vehicle maintenance services
increased $21 million, or 2.2% from 2011. Fuel costs, which rose in both 2011 and 2012 accounted for 53%, and 51%, of
the total vehicle maintenance service expense for 2012, and 2011, respectively.
For 2011, other operating expenses of $9,822 million increased $496 million, or 5.3%, compared to 2010. Within total
other operating expenses, miscellaneous other expenses increased $433 million, or 47.5% in 2011, driven by legal
expenses associated with arbitration awards and the reassessment of contingent liabilities which increased expenses by
$448 million in 2011. Vehicle maintenance service expense, including fuel costs used by the carrier fleet, increased by
$154 million, or 18.8%, in 2011 from 2010, primarily as a result of the previously discussed increase in fuel costs during
the year. Information technology and communications expense increased by $31 million, or 4.7%, in 2011 from 2010.
Supplies and services increased by $24 million, or 1.1% from 2010. These increases were offset by decreases in
depreciation and amortization of $156 million, or 6.3%, compared to 2010. Rent and utilities was $10 million, or 0.6%
lower in 2011 than 2010.
PRODUCTIVITY
The Postal Service is continually striving to increase efficiency by making better use of space, staffing, equipment, and
transportation to process and deliver the nation’s mail. Generating efficiencies has become increasingly important, given
the significant reduction over the last several years in the amount of First-Class Mail. Declines in mail volume coupled with
the increased electronic access to our services provided by alternate access channels such as Click-n-Ship, PC Postage,
and Automated Postal Centers continue to reduce the requirement for customer service work hours. This means that
continuous revaluation and right-sizing of capacity from the mail processing network is critical to managing costs.
Since 2006, the Postal Service has closed 186 facilities, removed nearly 4,000 pieces of equipment, and decreased
employee complement by more than 110,000. On May 17, 2012, we announced a modified, phased plan to continue the
consolidation of our network of mail processing locations. The network consolidation efforts are projected to reduce
annual operating costs by approximately $2.1 billion when fully implemented.
We are also working to increase efficiency and reduce the costs of our retail network, while continuing to provide
appropriate levels of service to communities throughout America. On May 9, 2012, we announced a strategy, called the
POSt Plan, to preserve Post Offices serving rural America while providing a framework to achieve significant cost savings.
Once implementation is completed, the Postal Service estimates savings of approximately $500 million annually.
In 2012, we reduced work hours by 27 million, or 2.3%. Reductions in mail processing, delivery and retail customer
service in 2012 are as follows:
 Mail processing work hour savings included approximately 5 million work hours in 2012. This was accomplished
primarily through plant consolidations and continued productivity improvement.
 City delivery work hour savings included approximately 10 million work hours in 2012. This was accomplished
through increased productivity and advancements in automation, mainly flats sequencing. This also allowed for
the disposal of almost 1,200 postal-owned vehicles in 2012.
 An additional 12 million work hour reduction in customer service, postmasters, administrative, and maintenance
operations was also realized.
Overall spending reductions in 2012, and 2011, also included decreases in capital expenditures of 41%, and 15%,
respectively.
Operating efficiency, as measured by Total Factor Productivity (TFP) increased 1.0% in 2012, compared to 2011. This
marks the eleventh year of positive TFP growth since 2000 with cumulative TFP growth of 22.5% since 1972. Productivity