Results of Operations

Despite increases in 2010 productivity and $11 billion in cost savings over the past three years, we have been unable to fully offset the financial impact of a continuing decline in mail volume and related revenue. Added to the declining revenue, expenses related to PSRHBF and workers’ compensation continue to hinder our ability to become profitable.

Net losses were $8,505 million, $3,794 million, and $2,806 million for the years ended 2010, 2009, and 2008, respectively.


Operating Statistics (dollars & pieces in millions)





Operating Revenue

$ 67,052

$ 68,090

$ 74,932

Loss from Operations

$ (8,374)

$ (3,740)

$ (2,806)

Net Loss

$ (8,505)

$ (3,794)

$ (2,806)

Average Daily Volume




The losses for the years ended September 30, 2010, 2009, and 2008 include expenses due to discount rate changes and actuarial estimations that increased the workers’ compensation expense by $2,500 million, $1,343 million, and $417 million for each of the respective years. Discount rates are updated quarterly, based on prevailing market rates for a basket of Treasury securities with maturities corresponding to the expected duration of the future cash payments. Over the course of the last three years, yields on Treasury securities have generally trended downward, corresponding with the weakness in the economy. As a result, the present value of our workers’ compensation liability has increased substantially, although actual cash outflows have not been impacted. These increases in the present value of the workers’ compensation liability are recorded as operating expenses.

Further, we have incurred expenses for retiree health benefits of $5.5 billion, $1.4 billion, and $5.6 billion in 2010, 2009, and 2008, respectively, for the legally-mandated pre-funding payments to the PSRHBF at each year-end.

Because expenses related to discount rate changes, actuarial valuation of workers’ compensation cases and legislative mandates are not subject to management’s control, we believe that analyzing operating results without the impact of these charges provides a more meaningful insight into operations. The table below illustrates the loss or income from ongoing business activities when these charges are not considered, and reconciles this amount to our GAAP net loss.


(dollars in millions)





Net Loss

$ (8,505)

$ (3,794)

$ (2,806)

Impact of:







(Loss)/Income Before Impact of Discount Rate Changes, Actuarial Revaluations, and PSRHBF Expense

$ (505)

$ (1,051)

$ 3,211

Without the impact of these charges, the net loss would have been $505 million in 2010 and $1,051 million in 2009. In 2008 the net income would have been $3,211 million.

Due to the combined effect of decreasing revenue and legislatively-mandated costs, we have suffered losses in every quarter since Quarter I, 2008, except Quarter IV, 2009. Quarter IV, 2009 would have also been a loss if P.L. 111-68 had not reduced that year’s retiree health benefits pre-funding contribution from $5.4 billion to $1.4 billion. No similar legislation was enacted in 2010.

Despite these financial challenges, in 2010 we were able to significantly increase operating efficiency. Operating efficiency, as measured by Total Factor Productivity (TFP), increased 2.2% in 2010 as compared to 2009. This marks the ninth year of positive TFP growth since 2000 and a cumulative growth of 20.3% since 1972. Productivity gains are a result of effective workforce management, efficient use of material (supplies and services including transportation), and maximizing the return-on-capital investments (mainly automation).

Work hours in 2010 were reduced by 75 million, or 6.0% despite an increase of approximately 740,000 delivery points. Non-personnel expenses were reduced by 1.2%, while mail volume declined 3.5%.

As explained more fully in the “Revenue and Volume” discussion below, the recent recession and the continuing migration of mail to electronic media have had a significant adverse impact on our operating revenue. While an economic recovery from the recession has begun, the pace of the recovery is expected to be gradual and will not be sufficient to make up for the substantial losses we suffered as a result of the recession.

For the year ended September 30, 2010, operating revenue was $67,052 million, compared to $68,090 million in 2009, a decrease of $1,038 million, or 1.5%, despite an average Mailing Services price increase of 3.8% in May 2009 and Shipping Services price increases of 5.0% and 3.3% in January 2009 and 2010, respectively. There were no price increases for Mailing Services products during 2010. Volume of all major categories of Mailing Services declined in 2010 compared to 2009 while Shipping Services volume remained relatively flat.

In 2010, operating expenses were $75,426 million, compared to $71,830 million in 2009, an increase of $3,596 million, or 5.0%. Within that increase, two items had significant increases. Total workers’ compensation expenses rose by $1,343 million, of which $1,157 million is due to changes in the discount rate and actuarial revaluation used to estimate the cost of future payments. Retiree health benefits pre-funding increased by $4,100 million, as discussed in the next paragraph. Without the changes in discount rates and actuarial revaluation and changes in the pre-funding, total operating expenses would have decreased by $1,661 million.

In total, retiree health benefits expenses increased by $4,357 million, or 128.5%, primarily due to the $4.1 billion increase in the annual pre-funding payment to the PSRHBF. In contrast to 2009 when the passage of P.L. 111-68 changed the scheduled payment to the PSRHBF due on September 30, 2009, to $1.4 billion, $5.5 billion was paid in 2010 as no similar legislation was enacted. Workers’ compensation expenses increased $1,343 million in 2010, primarily due to the previously mentioned discount rate decrease. The discount rate change is further discussed in Note 9, Workers’ Compensation, in the Notes to the Financial Statements and in the “Workers’ Compensation” section.

Increases in workers’ compensation and retiree health benefits expenses more than offset the $1,896 million, or 3.7%, reduction in compensation and benefit expense in 2010. Work hours decreased by 75 million, resulting in significant savings. Transportation expenses decreased $148 million, or 2.5%, as mail volume declined and utilization decreased. The expense reductions were accomplished without affecting service to our customers and despite the large percentage of costs dedicated to serving the still-growing delivery network.

The operating loss for 2009 was $3,740 million, compared to a $2,806 million operating loss in 2008. Operating revenue of $68,090 million in 2009 was 9.1%, or $6,842 million, less than operating revenue of $74,932 million in 2008. Despite a May 2009 price increase for Mailing Services products which averaged 3.8%, and Shipping Services price increases averaging 5.0% in January 2009, revenue was negatively impacted by a decline in volume of 26.0 billion pieces.

Operating expenses were $71,830 million in 2009 compared to $77,738 million in 2008, a $5,908 million, or 7.6% reduction. The reduction in operating expenses was driven by a $4,017 million reduction in retiree health benefits expense, which was wholly attributable to the passage of P.L. 111-68. The law amended P.L. 109-435, changing the scheduled payment to the PSRHBF due on September 30, 2009, from $5.4 billion to $1.4 billion. Excluding the $4.0 billion reduction in retiree health benefits pre-funding expenses, operating expenses were reduced $1,908 million in 2009, a 2.5% reduction.

In addition to the $4.0 billion decrease attributable to P.L. 111-68, compensation and benefit expenses decreased $1,427 million or 2.7% in 2009 compared to 2008, mainly due to an unprecedented reduction of 115 million work hours. Transportation expenses decreased by $935 million, or 13.4%, as fuel prices and mail volume declined from 2008, utilization decreased, and certain contracts were renegotiated. Other expenses decreased $525 million, or 5.4%, as stringent limits were implemented on discretionary expenditures. These expense reductions were somewhat offset by a $926 million increase in workers’ compensation expenses attributable to discount rate changes and actuarial revaluation of the liability.