US Postal Service 2015 Annual Report Download - page 16

2015 Report on Form 10-K United States Postal Service 14
the increase, Shipping and Packages revenue was $15.1 billion, an increase of $1.5 billion, or 11.4%, compared to 2014, driven
by a 14.1% increase in volume.
As more fully described below in Operating Expenses, 2015 operating expenses increased $648 million, or 0.9%, compared
to last year. The net $794 million reduction in our workers’ compensation expense, mainly the result of changes in assumptions
and actuarial valuation and revaluation of new and existing workers’ compensation cases, was more than offset by an increase
for the year in compensation and benefits expense of $1.5 billion, attributable to contractually-obligated salary escalations,
higher FERS contribution rates mandated by OPM and an increase in labor hours, primarily resulting from higher Shipping
and Packages volume.
2014 Compared with 2013
Our net loss was $5.5 billion for the year ended September 30, 2014, compared to a net loss of $5.0 billion for 2013, an increase
in net loss of $531 million. The most significant factor contributing to the increase in the 2014 net loss was the net increase
in non-controllable workers’ compensation expense of $1.5 billion, a result of falling interest rates and actuarial valuation and
revaluation of new and existing workers’ compensation cases.
In 2013, we analyzed data that was not previously available regarding consumer behavior and usage patterns related to Forever
Stamp postage, specifically products that were nearing the end of their life cycle. As a result of this analysis, our 2013 results
of operations reflected a $1.3 billion adjustment, recorded as an increase in operating revenue and a decrease in the deferred
revenue-prepaid postage liability. This adjustment had no impact on our cash balance, nor did it lessen the severity of our
liquidity concerns.
As more fully described below in Operating Revenue and Volume, 2014 operating revenue was $67.8 billion, an increase of
$569 million, or 0.8%, compared to 2013. Excluding the 2013 deferred revenue adjustment, operating revenue growth would
have been $1.9 billion, or 2.9%. The growth was primarily due to the price increases implemented for Market-Dominant and
Competitive services, including the exigent surcharge, and the growth in Shipping and Packages.
As more fully described below in Operating Expenses, 2014 operating expenses increased $1.1 billion, or 1.5%, compared
to 2013. The $1.5 billion increase in workers’ compensation expense was the result of changes in interest rates impacting the
fair value adjustment of our workers’ compensation liability. This increase was partially offset by a reduction in compensation
and benefits expense of $708 million for 2014, driven primarily by effective utilization of non-career employees and our
effective management of work hours and staffing levels.
Non-GAAP Controllable Income/Loss
In the day-to-day operation of our business, we focus on costs that are within our control, including work hours, transportation
and other costs, to match declining volume levels. We exclude from our internal analysis the expenses that management cannot
control, such as expenses related to the mandated prefunding of retirement health benefits, expenses related to the actuarial
revaluation of retirement liabilities and non-cash workers’ compensation expense items, such as fluctuations due to changes
in interest rates and changes resulting from the actuarial revaluation of our related liability. The following table details our
Non-GAAP controllable income (loss) for the years ended September 30, 2015, 2014 and 2013:
(in millions) 2015 2014 2013
Net loss $ (5,060) $ (5,508) $ (4,977)
Impact of:
PSRHBF prefunding expense 5,700 5,700 5,600
Discount rate changes related to workers' compensation liability 809 485 (1,745)
Other non-cash workers' compensation expense1,3 (502) 673 1,455
Actuarial revaluation of retirement liability 241 7 —
Change in accounting estimate 2 — — (1,316)
Controllable income (loss) $ 1,188 $ 1,357 $ (983)
1 In 2015, we revised the calculation used in our workers’ compensation valuation model to determine the actuarial revaluation of existing cases.
2 The 2013 change in accounting estimate resulted from new data analytics which revised the estimated liability associated with deferred revenue-
prepaid postage for Forever stamps.
3 Includes changes in assumptions and valuation of new claims and revaluation of existing claims less current year claim payments.