US Postal Service 2013 Annual Report Download - page 83

2013 Report on Form 10-K United States Postal Service 81
The Postal Accountability and Enhancement Act, Public Law 109-435 (P.L. 109-435), made further
revisions to the Postal Reorganization Act. The Postal Service’s governing statute is codified in Title 39 of
the United States Code. P.L. 109-435 created the Postal Regulatory Commission (PRC), endowing the
PRC with regulatory and oversight obligations.
NOTE 2 — LIQUIDITY MATTERS
LIQUIDITY CONCERNS
The Postal Service continues to suffer from a severe lack of liquidity. The Postal Service held unrestricted
cash of $2.3 billion and $2.1 billion as of September 30, 2013 and 2012. These cash balances represent
approximately 9 days and 8 days, respectively, of average daily expenses. It had no remaining borrowing
capacity on its $15 billion debt facility as of September 30, 2013 or 2012 (see Note 4 - Debt, for additional
information). On October 15, 2013, when the Postal Service had to make its annual legally mandated
workers’ compensation payment to the Department of Labor (DOL), it had a cash balance on hand of
approximately 6 days of its average daily expenses. This low level of available cash forced the Postal
Service to default on the $5.6 billion legally-mandated prefunding of retiree health benefits due by
September 30, 2013. Further, this level of cash could be insufficient to support operations in the event of
another significant downturn in mail volume.
The Postal Service has suffered 8 consecutive quarters of net losses and has had net losses in 18 of the
last 20 quarters. The net loss of $4,977 million for the year ended September 30, 2013, included $5.6 billion
of expense accrued for the legally-mandated prefunding payment for retiree health benefits, on which the
Postal Service was forced to default. The loss also included $1.3 billion of non-cash revenue recognized for
a change in accounting estimate and a non-cash reduction in workers’ compensation expense of $1.7 billion
resulting from an increase in interest rates and other non-cash adjustments to the long-term liability. These
non-cash items, which reduced the net loss, did not impact liquidity.
In addition to the requirement to prefund $5.6 billion of retiree health benefits for 2013, the Postal Service
continues to pay the employer’s share of the health insurance premiums for the Postal Service’s retirees.
This cost was $2.9 billion in 2013 and is projected to increase to $3.1 billion for 2014. In the past seven
fiscal years, since the enactment of the Congressionally-mandated prefunding, the Postal Service has
incurred $46 billion of net losses, including $38 billion of expenses for prefunding retiree health benefits.
Through 2013, the Postal Service has paid $21 billion of cash into the Postal Service Retiree Health Benefit
Fund (PSRHBF) for prefunding, plus an additional $17.1 billion that was transferred in 2007 from the then-
overfunded CSRS fund. Since 2006, Postal Service debt has increased by nearly $13 billion, reaching the
$15 billion borrowing limit at the end of 2012, and remaining there at September 30, 2013.
The Postal Service was forced to default on $16.7 billion of required prefunding payments to the PSRHBF
for retiree health benefits in 2012 and 2013. This $16.7 billion is reflected as a current liability on the
September 30, 2013 Balance Sheets. The statutory requirement establishing the prefunding payment
schedule, P.L. 109-435, contains no provisions addressing a payment default. As of the date of this report,
November 15, 2013, the Postal Service has suffered no financial penalties as a result of its inability to make
these payments.
The requirement of the Postal Accountability and Enhancement Act, Public Law 109-435 (P.L. 109-435) to
prefund its retiree health benefit obligations, a requirement not imposed upon other federal agencies or
private sector businesses, plus the permanent drop in mail volume and changes in the mail mix caused by
changes in use of mail by consumers and businesses, have been the consistent trends contributing to
Postal Service losses since 2009. Without structural change to the business model, the Postal Service will
continue to be negatively impacted by these factors and, absent legislative change, it anticipates continuing
losses into the future.
Current projections indicate that the Postal Service will have a continued low level of liquidity in 2014. It is
expected that the Postal Service will be unable to make the required $5.7 billion retiree health benefits
prefunding payment due by September 30, 2014. This cash position will worsen in October 2014, when the
Postal Service is required to make its annual payment of approximately $1.4 billion to the DOL for workers’
compensation. A low level of liquidity will continue to exist, absent legislative actions by Congress that have
been requested to assist the Postal Service in returning to a financially stable position.