FY2016 Performance Report – FY2016 had total revenue of $71.5 billion and total expenses of $77.1 billion, resulting in a net loss of $5.6 billion.
Our financial results are impacted by items that are not under our control and are not reflective of our normal operations. These items include the annual legally mandated Postal Service Retiree Health Benefits Fund (PSRHBF) prefunding expense and the non-cash expenses related to changes in the liability for participation in the federal workers’ compensation program, which included fluctuations in workers’ compensation expenses caused by actuarial revaluation and discount rate changes, and the amortization of the unfunded liability for our portion of the Federal Employees Retirement System (FERS).
The FERS amortization expense is calculated by the Office of Personnel Management based on government-wide demographics and pay assumptions and is not reflective of what we believe our FERS liability would be if it were calculated using Postal-specific demographics and pay assumptions. Because these items are not under management’s control, we believe that analyzing operating results without the impact of these charges provides a more meaningful insight into our financial results. In FY2016, we also excluded a $1.1 billion one-time, non-cash adjustment resulting from a change in an accounting estimate in deferred revenue-prepaid postage, to arrive at controllable income.
We recognize revenue for postage at the time a piece of mail is processed and delivered, not when we receive cash for the sale of postage. We estimate the amount of postage that we have sold, but customers have not yet used, and include this amount as a liability in our balance sheets as deferred revenue-prepaid postage. The majority of this liability consists of our estimate of sold, but unused, Forever Stamps, the non-denominated postage stamps we introduced in 2007. Since their introduction through September 30, 2016, we sold approximately $48 billion in Forever Stamps to the public.
During 2016, we revised the estimation technique utilized to estimate our deferred revenue-prepaid postage liability for Forever Stamps. The change resulted from new information regarding customer’s retention and usage habits of applicable postage, and enabled us to update our estimate of stamps that will never be used for mailing. As a result of this change, deferred revenue-prepaid postage was decreased by nearly $1.1 billion. In accordance with accounting principles generally accepted in the U.S. (“GAAP”), the change was accounted for as a change in accounting estimate, and was reflected in operating results as an increase to revenue and a decrease in net loss by the same amount in the year ended September 30, 2016.
When the impact of the required PSRHBF prefunding expense, FERS amortization, non-cash expenses for workers’ compensation and one-time change in accounting estimate are excluded, controllable income was $610 million. (See Financial Performance Results table.)
For the fourth year in a row, revenue increased compared to the prior year, primarily due to an increase in Shipping and Packages revenue, which benefited from a strong calendar year 2015 holiday season. This increase in operating revenue was partially offset by the expiration of the temporary exigent surcharge on market-dominant products that was implemented beginning in January 2014 and was in effect until April 10, 2016. We estimate that the expiration of the exigent surcharge reduced revenues by approximately $1 billion, compared to what it would have been if it was in effect through the entire year.
Total expenses of $77.1 billion in FY2016 increased 4.2 percent, from $74 billion in FY2015. We had an increase for the year in compensation and benefits expense of $1.2 billion, attributable to contractually obligated salary escalations, and an increase in labor hours primarily resulting from higher Shipping and Packages volume. There was also a net $922 million increase in our workers’ compensation expense, mainly the result of changes in actuarial assumptions and the revaluation of existing workers compensation cases.
Although total mail volume remained flat in FY2016, First-Class Mail decreased by 1.4 billion pieces, or 2.2 percent from FY2015.
Revenue in Shipping and Packages increased by 15.7 percent over the same period last year on volume growth of 13.7 percent, while Standard Mail revenue decreased slightly on a 1.1 percent volume increase. Overall, volume increased by 1 million pieces.
The number of career employees increased by 17,045 in FY2016, compared to the year before.
The Postal Service held approximately $8.1 billion of unrestricted cash entering FY2017. This is an increase of approximately $6 billion from the reported low in FY2012. This improvement in the Postal Service’s cash position would not have occurred had the Board of Governors’ TEC — in the interest of maintaining sufficient levels of liquidity — made the decision to defer our legally mandated PSRHBF prefunding payment due on Sept. 30, 2016, to ensure achievement of our statutory obligations, including the continuation of universal mail service to the nation. Aside from the prefunding deferral, the improvement is largely attributable to the temporary exigent surcharge which generated approximately $4.6 billion in incremental revenue from January 2014 through April 10, 2016.
For more information and analysis of each program activity in the Postal Service budget and regarding the financial results of the Postal Service, see the USPS Form 10-K for FY2016 at: http://about.usps.com/who-we-are/financials/welcome.htm.
FY2017 Performance Plan – The expiration of the exigent surcharge and the ongoing decline in First-Class Mail volumes, coupled with contractual wage increases and higher benefits costs, are the primary reason that controllable income is expected to decrease from $0.6 billion in FY2016 to $0.1 billion in FY2017.
The Postal Service projects revenue growth of $0.2 billion, or 0.3 percent, compared to FY2016 despite the loss of approximately $1 billion in revenue from the expiration of the exigent surcharge, due to continued growth in Shipping and Packages volume, partially offset by continued decreases in First-Class Mail. Shipping and Packages revenue is forecast to increase $1.8 billion through an expected volume increase of 7.6 percent as economic and e-commerce growth is extended through marketing initiatives.
Controllable operating expenses (a non-GAAP measure which excludes PSRHBF amortization, amortization of unfunded retirement liabilities and non-cash adjustments to workers’ compensation liabilities) are expected to increase $0.7 billion in FY2017 from both personnel and other non-personnel cost increases. Personnel cost increases are largely driven by scheduled general wage increases for two of our major unions, and higher health benefits costs. Higher non-personnel costs are forecast due to investments in information systems and support for package growth initiatives.
For more information regarding the financial performance plan of the Postal Service, see the USPS Integrated Financial Plan for FY2017 at: http://about.usps.com/who-we-are/financials/welcome.htm.
