US Postal Service 2015 Annual Report Download - page 32

2015 Report on Form 10-K United States Postal Service 30
Our operations will require significant capital investment over the next few years to modernize and improve our processing
and delivery infrastructure and update our delivery fleet in order continue to meet our statutory obligation to provide prompt,
efficient and reliable postal services to the nation. Furthermore, given our inability to raise cash through the issuance of
additional debt, our current level of available liquidity may be insufficient to support our operations in the event of another
significant downturn in the U.S. economy.
Operating Activities
Cash flows provided by operating activities decreased by $435 million, or 13.1%, for the year ended September 30, 2015,
compared to the same period last year. As more fully described in Results of Operations, our operating revenue increased
during the year ended September 30, 2015, as we benefited from a full year of the exigent surcharge and also from a price
increase on certain mail classes that went into effect in May 2015. This increase was offset, however, by an increase in cash
used for operating expenses. Given the volume of our cash activity from operations during the year, the change in cash provided
by operating activities was immaterial.
Cash flows provided by operating activities increased $2.4 billion in 2014 primarily due to implementing price increases on
our Market-Dominant and Competitive services, including the exigent surcharge for Market-Dominant services, which became
effective in January 2014.
Our cash balance was not sufficient to pay the legally mandated PSRHBF annual payments of approximately $5.7 billion and
$5.6 billion that were due by September 30, 2014, and 2013, respectively. As of September 30, 2015, although our cash balance
was sufficient to make the annual PSRHBF payment, doing so would have placed an undue burden on our cash position in
order to maintain a prudent level of liquidity and to adequately fund our normal operations. As of September 30, 2015, the
total PSRHBF obligation of $28.1 billion remains outstanding, however we have incurred no penalties or negative consequences
resulting from our inability to make these payments.
Exigent Surcharge
As described in Operating Revenue and Volume, we have been collecting an exigent surcharge recorded as operating revenue
on Market-Dominant services since January 2014, and will continue to do so until such time as we recover $4.6 billion of
incremental revenue from the exigent surcharge. When the exigent surcharge expires, which we believe will take place during
approximately April of 2016, absent a successful appeal, the prices of most Market-Dominant services will decline, which
will have an adverse impact on our future operating revenue and liquidity.
Price Increases
On May 7, 2015, the PRC approved price increases and classifications for Standard Mail, Periodicals and Package Services.
Previously, the PRC had approved price adjustments for First-Class Mail and special services. The average price increases
on these Market-Dominant services were slightly below the CPI-U price cap of 1.966%. These price increases, for which a
notice was filed with the PRC in January 2015, became effective May 31, 2015. We expect these price increases to generate
approximately $900 million in annualized contribution.
On October 16, 2015, we filed a notice with the PRC of our intent to increase certain Competitive service prices by an average
of 9.5%. If approved, we anticipate this price increase to go into effect in January 2016, and would generate an additional
$530 million in revenue for the remainder of 2016 or $750 million annually.
Legacy Business Model
As discussed in Operating Expenses, our legacy network capabilities are excessive relative to our current mail volume, and
we anticipate that migration of hard copy mail will continue to reduce First-Class Mail volume and revenue for the foreseeable
future. In 2013, we began a realignment of our operations to reduce costs, strengthen our finances and improve liquidity.
Additionally, in January 2015, we revised our service standards for First-Class Mail and began to implement a second phase
of mail processing realignments, some of which were later deferred. We also continue to leverage employee attrition and
utilization of non-career employees to the maximum extent permitted by our labor contracts.