Chapter 5: Performance Trends and 2009 Goals

Financial Performance

	2004 Actual	2005 Actual	2006 Actual	2007 Actual	2008 Plan	2008 Actual	2009 Plan
Revenue ($ billion)	$69.0	$70.0	$72.6	$74.8	$78.2	$74.9	$76.2 (Projected)
Revenue to Plan	100.1%	102.4%	100.7%	99.6%	100%	95.9%	Achieve Plan
Net Income (Loss) ($ billion)	$3.1	$1.4	$0.9	($5.1)	($0.6)	($2.8)	NA

Source: Postal Service Annual Report, available at usps.com

The Postal Service’s financial position was also affected by the requirements of the Postal Act of 2006 to pre-fund future retiree health benefits. In 2008, this amounted to a payment of $5.6 billion. The Postal Service must also make a separate payment for the annual health benefit premiums for current retirees. The net income from operations was positive before the payment to the health benefit trust fund for future benefits.

Inflation-related expenses included $562 million in cost-of-living adjustments for eligible bargaining unit employees and an additional $525 million in fuel and energy-related price increases.

The economy is not expected to improve in 2009, and volume is expected to decline another 8 billion pieces. A $5.6 billion payment into the Postal Service Retiree Health Benefit Fund is also required in 2009. In this environment, a net loss is expected.

Net Income was a new goal in 2008, added to reflect the elimination of the break-even financial requirement included in the Postal Act of 2006. However, this is impractical, given prefunding requirements of health benefits and was removed as a corporate goal in 2009. This change will not reduce efforts to increase revenue and improve the financial viability of the Postal Service.

The Annual Report includes the management discussion and analysis of the Postal Service’s financial situation, as well as the report of the independent auditor. Detailed financial reports are available at usps.com/financials. The reliability of financial reports depends on the integrity of the systems that support them. The Postal Service is on track to comply with the requirements of Sarbanes-Oxley (SOX) legislation by 2010, and, in 2008 began to submit the SEC-like 10Q reports and certification to the Postal Regulatory Commission.

Increase Efficiency

The Postal Service cut more than $2 billion in costs in 2008, led by a reduction of 50 million workhours from the previous year — labor costs comprise nearly 80 percent of Postal Service expenses.

Productivity measures, such as deliveries per workhour, have increased. Total Factor Productivity (TFP), which compares postal outputs such as weighted mail volume and delivery network growth with the resources such as capital, labor, and materials used to produce the output, provides a more complete assessment of productivity trends. It is similar to the Multi-Factor Productivity index used by the U.S. Bureau of Labor Statistics to measure the growth of productivity in the economy.

Total Factor Productivity

2004 Actual

2005 Actual

2006 Actual

2007 Actual

2008
Plan

2008 Actual

2009 Plan

Improvement Over Prior Year

2.4%

1.1%

0.4%

1.0%

(0.5%)

Increase over end of fiscal year 2008

Source: Postal Service Financial Reporting and Analysis

TFP has increased consecutively over each of the last eight years, a cumulative improvement of 19.6 percent since 1985. In 2008, despite the reduction of 50 million workhours, TFP declined primarily due to volume declines so rapid and so large (4.5 percent) that it was impossible to adjust resources with sufficient speed to maintain positive TFP.

For 2009, the Postal Service has very aggressive cost reduction strategies, doubling the 50 million workhour savings achieved in the prior year to a goal of 100 million workhours — or the equivalent of 50,000 full-time employees. This effort is aided by continuous investments in automation (Intelligent Mail® and the Flats Sequencing System) and process improvements (Lean Six Sigma), which have been critical to improving productivity and will continue to do so. However, a large percentage of postal operating costs are fixed, regardless of volume. Examples include a carrier’s daily stop at every address and the expansion of the delivery network while planning for a continued volume decline of 8 billion pieces in 2009.

Improve Safety and Employee Satisfaction

Employees need a safe workplace where they can contribute to the success of the organization.

Workplace Safety

Safety is tracked using methodology required by the U.S. Occupational Safety and Health Administration (OSHA). Safety performance has continuously improved.