Previous Page page 20 of 55 Next Page


financial review
Part II

We believe that we can maintain stable rates through calendar 2005 because of the reduction in our contributions to the Civil Service Retirement and Disability Fund (CSRDF) that were effected by P.L.108-18 in 2003 and the savings we have achieved from our continued productivity improvements. However, we will have to adjust postage rates in 2006 because increased costs will exceed the benefits from productivity improvements. Starting in 2006, P.L.108-18 requires that we place in escrow the "savings" attributable to its enactment. These funds are to be held in escrow, pending a decision by Congress as to how they are to be used. We are also required by this law to consider these "savings" as an operating expense, thus enlarging the size of the rate increase that will generate the revenues we will need to cover costs.

COMPENSATION AND BENEFITS DETAILS (Dollars in millions)
blank 2004–2003 2003–2002
blank 2004 2003 2002 % Change % Change
Compensation $37,876 $37,144 $36,877 2.0% 0.7%
Retirement 6,574 5,877 9,105 11.9% -35.5%
Health Benefits 4,845 4,526 4,201 7.0% 7.7%
Retiree Health Benefits 1,313 1,133 987 15.9% 14.8%
Workers Compensation 1,239 1,473 1,524 -15.9% -3.3%
Other 390 391 464 -0.3% -15.7%
Total Compensation
and Benefits*		 $52,237 $50,544 $53,158 3.3% -4.9%

*Equals compensation and benefits plus interest on deferred retirement on the financial statements.


WORKHOURS (In thousands)
blank 2004 2003 2002
Operations blank blank blank
  Operations Support 9,077 9,102 9,106
  Mail Processing 336,737 347,964 374,597
  Rural Delivery 171,628 166,873 169,939
  City Delivery 464,683 464,300 470,075
  Vehicle Services 31,947 32,111 32,835
  Limited Duty and Rehabilitation 6,356 21,455 25,742
  Plant & Equipment Maintenance 81,302 81,807 82,127
  Customer Services & Retail 233,237 232,529 241,491
Postal & Installation Heads,
  Supervisors, Administration and Other		 117,354 117,652 121,510
Total Workhours 1,452,321 1,473,793 1,527,422

Operating Expenses

Our costs can be categorized into two types: volume-variable and non volume-variable. As the term implies, volume-variable costs are those costs that vary directly with changes in mail volume. For example, a high percentage of mail processing costs are considered volume-variable costs since changes in mail volume directly affect the number of hours clerks and mail handlers have to work. On the other hand, only a small fraction of postmaster salaries are considered volume-variable costs since these cost are, for the most part, unaffected by mail volume. In 2003, the latest year available, volume-variable costs totaled approximately $37 billion, or about 57% of total costs. The approximately $28 billion remaining costs are non-volume-variable and must be borne, ultimately, by the combined revenue of all classes of mail.

Compensation and Benefits

Personnel compensation and benefits, which totaled $52,237 million in 2004, make up more than 79% of our operating expenses. These costs grew $1,693 million or 3.3% in 2004, compared to 2003. This year's growth was due primarily to contractual labor rate increases, cost-of-living-adjustments (COLAs), and health benefits payments for current and retired employees. Our 2004 average hourly labor rates increased by 1.7%, and our 2004 health benefits expense for current employees and retirees increased by $499 million over 2003 to over $6 billion, driven mainly by premium increases.