US Postal Service 2015 Annual Report Download - page 12

2015 Report on Form 10-K United States Postal Service 10
Additionally, 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 needs of the American public. The changes in the economic landscape
in recent years have made it increasingly important for us to invest in our operations in order to remain competitive. Failure
to anticipate or react to our competition, market demands and/or new technology due to inadequate cash reserves is a significant
operational risk. An 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. Over the last four years, our cash and
cash equivalents balance have ranged from $506 million to $7.1 billion. Our significant indebtedness to the Federal Financing
Bank (“FFB”) has important consequences. 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 public capital markets. It also could require us to dedicate a substantial portion of our future
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 492,000 career employees and approximately 490,000 annuitants and survivors participating in FEHB
as of September 30, 2015, our expenses relating to employee and retiree health and pension benefits are significant. We
participate in U.S. government pension and health and benefits programs for employees and retirees, including FEHB, the
CSRS and the 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 our control.
In recent years, we have experienced significant increases in retiree health benefits costs, primarily as a result of PAEA, which
obligates us to fully fund, on an accelerated time frame, the health benefits of current retirees and current and future Postal
Service employees who have not yet retired. Additionally, we are required to continue contributing to the FERS pension
program at rates specified by the Office of Personnel Management (“OPM”) 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.
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 cash outlays that we 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 our control, such as discount and inflation rates, could cause us to
incur higher workers’ compensation expenses.
We believe our estimated accruals for such claims are adequate, but if actual experience in the number of claims, and/or
severity of claims for which we retain risk increases, required accruals could materially differ from our estimates and adversely
affect our financial condition and results of operations. In addition, our workers’ compensation program is administered for
us by the DOL, and as such, we do not have the same level of control over the execution of the program, including the costs
we incur for certain medical and pharmacy costs, that a private company has with its workers’ compensation insurance provider.
The potential liability associated with existing and future litigation against us could have a material adverse effect on our
business, results of operations, financial condition and cash flows.
In the normal course of operations, we are subject to threatened and actual legal proceedings from time to time. Any litigation,
regardless of its merits, could result in substantial legal fees and costs incurred by us. Further, actions that have been or will
be brought against us may not be resolved in our favor and, if significant monetary judgments are rendered, we may not have
the ability to pay them. Such disruptions, legal fees and any losses resulting from these claims could have a material adverse
effect on our business, results of operations, financial condition and cash flows.