Chapter 3 Financial Highlights

Figure 3-1 Mail Mix Comparison Graph

Figure 3-1 First-Class Mail Volume Graph

2. Expenses

Postal Service expenses totaled $71.9 billion, a 4.9% increase over the previous year and 1.2% above planned expenses. Personnel compensation and benefits, including interest on deferred retirement obligations, dominate Postal Service expenses. Comprising approximately 79% of total expenses, personnel costs grew more than 4%, due to contractual pay increases, employee cost-of-living adjustments (COLAs), and health benefits expenses for current employees and retirees. These costs are detailed in Table 3-2. In 2006, management continued to control personnel costs, reducing career complement by 8,578 employees and reducing total workhours by approximately 5 million. This marked the sixth year out of the last seven in which the Postal Service has reduced total annual workhours. Offsetting the impact of the workhour reduction, costs per workhour, which were driven higher by contractual wage increases, COLAs, and rising health benefit premiums, exerted upward pressure on expenses. Additionally, driven by an increase in the average cost per claim, workers’ compensation expenses increased by $441 million in 2006. Historical fluctuations in this expense are shown in Table 3-3. The Postal Service’s primary strategies for controlling workers’ compensation costs are to reduce accidents and to identify productive work assignments for those employees who cannot return to their normal duties but are able to work. Health benefits for employees and retirees, another significant expense driver, increased by $387 million, a 5.9% increase. Total nonpersonnel costs increased 7.2%, a reflection of the significant fuel price increases of 2006. Interest expense on deferred retirement obligations decreased $32 million, or 12.1%.