US Postal Service 2013 Annual Report Download - page 14

2013 Report on Form 10-K United States Postal Service 12
Due to our current cash constraints, our operational performance in the future could be at risk as a result of
inadequate capital investment in transportation equipment, mail processing equipment, facilities, or information
technology, which are either essential to operations or necessary to improve the quality of our services.
Failure to anticipate or react to our competition, market demands, and/or new technology due to inadequate cash
reserves is a significant operational risk. Our aging facilities, equipment, and transportation fleet could inhibit our ability to
be competitive in the marketplace, deliver a high-quality service, and meet the communication needs of the American
public. The changes in the economic landscape in recent years have made it increasingly important for the Postal Service
to invest in its operations in order to remain competitive. If our operations do not generate the liquidity we require, we may
be forced to reduce, delay, or cancel investments in technology, facilities, and/or transportation equipment while our
competitors and other businesses are pursuing advanced, competing technologies, and equipment. Aging or potentially
obsolete infrastructure could result in a loss of business and increased costs.
We have a substantial amount of indebtedness.
Since 2012, our debt obligations have remained at the statutory $15 billion debt limit. Our significant indebtedness to the
Federal Financing Bank has important consequences. For example, it limits our flexibility in planning for, or reacting to,
changes in the business environment or competition; it places us at a competitive disadvantage compared to commercial
competitors that may have less debt and which have access to the public capital markets; and it could require us to
dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thus reducing the availability
of cash flow to fund working capital, capital expenditures, and other general organizational activities.
Health and pension benefit costs represent a significant expense to us.
With approximately 491,000 career employees and 491,000 annuitants and survivors participating in the Federal
Employees Health Benefit Plan, our expenses relating to employee and retiree health and pension benefits are significant.
We participate in Federal Government pension and health and benefits programs for employees and retirees, including
the Federal Employees Health Benefit Program (FEHBP), the Civil Service Retirement System (CSRS), and the Federal
Employees Retirement System (FERS), as required by law. We have no control or influence over the benefits offered by
these plans and make contributions to these plans as specified by law or contractual agreements with our unions (in the
case of health benefits for most active employees). Several factors including participant mortality rates, return on
investment, and inflation could require us to make significantly higher future contributions to these plans; and many of
these factors are beyond Postal management’s control.
In addition, P.L. 111-148, the Patient Protection and Affordable Care Act, was passed in 2010. The annual impact of this
legislation to the U.S. Postal Service is uncertain at this point. However, if the impact is negative, it could result in
increased health benefit expenses and decreased liquidity.
In recent years, we have experienced significant increases in retiree health benefits costs, primarily as a result of the
Postal Accountability and Enhancement Act, (P.L. 109-435), which obligates us to fully fund, on an accelerated time
frame, the health benefits of current retirees and current postal employees who have not yet retired. Additionally, we are
required to continue contributing to the FERS pension program at OPM-specified rates, and will likely be required to
resume contributions to the CSRS, beginning in 2017, if OPM determines that a supplemental unfunded liability payment
is necessary.
At this time, we are unable to determine the amount of additional future contributions, if any, or whether any material
adverse effect on our financial condition, results of operations, or liquidity could result from our participation in these
plans.
Workers’ compensation insurance and claims expenses could have a material adverse effect on our business,
financial condition, and results of operations.
Workers’ compensation expense accruals are established for estimates of the cash outlays that we will ultimately incur on
reported claims, as well as estimates of the costs of claims that have been incurred but not yet reported. Trends in actual
experience and management judgments about the present and expected levels of cost per claim are significant factors in
the determination of such accruals. Several other factors which are beyond Postal management’s control, such as
discount and inflation rates, could cause us to incur higher workers’ compensation expense. In addition, our workers’
compensation program is administered for us by another Federal agency, the Department of Labor (DOL). As such, we
do not have the same level of control over the execution of the program that a private company has with their workers’
compensation insurance provider.