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USPS suffers $8.5 Billion loss for 2010

When the U.S. Postal Service (USPS) reported its 2010 financial results, it showed a net loss of $8.5 billion for the fiscal year which ended September 30, 2010.

Excluding charges to income primarily resulting from changes to interest rates that impact the organization's workers' compensation liability, the net loss was $6 billion.

The recent recession, continuing economic pressures, the migration of mail to electronic media, and the increased popularity of online electronic bill payment, had a significant adverse impact on mail volumes and operating revenues. Despite rigorous initiatives that eliminated 75 million work hours and drove productivity to record highs in 2010, the losses mounted.

"Over the last two years, the Postal Service realized more than $9 billion in cost savings, primarily by eliminating about 105,000 full-time equivalent positions -- more than any other organization, anywhere," said Chief Financial Officer Joe Corbett. "We will continue our relentless efforts to innovate and improve efficiency. However, the need for changes to legislation, regulations and labor contracts has never been more obvious."

Details of Fiscal Year 2010 results include:
* Operating revenue of $67.1 billion in 2010 declined $1 billion from 2009, primarily due to lower volume.
* Operating expenses for 2010 of approximately $70 billion (excluding a $5.5 billion expense for pre-funding Retiree Health Benefits), down from approximately $70.4 billion in 2009 (excluding a $1.4 billion expense for RHB).
* Net loss of $8.5 billion in 2010, $4.7 billion above the 2009 level, mostly as a result of the revenue decline, additional expenses in 2010 associated with RHB pre-funding and workers' compensation -- but offset by cost savings associated with the work hour reduction.
* Total mail volume of 170.6 billion pieces, compared to 176.7 billion pieces in 2009, a decline of 3.5 percent.

USPS First-Class Mail volume continued to decline, with year-over-year declines of 6.6 percent in 2010, 8.6 percent in 2009, and 4.8 percent in 2008. This trend is particularly disturbing as First-Class Mail, the most profitable product, generates more than half of total revenue. Volume for Standard Mail showed improvement during the year, reflecting some signs of economic recovery in late 2010, but, in total, was flat in 2010, compared to 2009.

In its report on the financial statements contained in the Postal Service's 2010 report, independent auditor Ernst & Young is expected to issue an unqualified audit opinion that will emphasize that questions remain about the ability of the Postal Service to generate sufficient liquidity to make all of its future payments, including the $5.5 billion RHB pre-funding payment due on the last day of fiscal year
2011.

Five-day delivery
Facing unprecedented mail volume declines and a projected $238 billion shortfall during the next decade, moving to a five-day delivery schedule is one of the fundamental changes that the Postal Service wants to implement.

Profound technological and social changes have altered the way Americans communicate. As use of electronic communications increases, revenue from First-Class Mail -- the Postal Service's longtime bread-and-butter product -- continues to decline. While several steps must be taken to fully address the revenue gap, the U.S. Postal Service reports that five-day delivery for street addresses is one of their best options to significantly reduce its costs to partially offset its unprecedented mail volume and revenue declines, with Saturday being the best day to eliminate carrier delivery. Most businesses and households surveyed in a national Gallup Poll indicated Saturday would be the least disruptive day to eliminate mail delivery. That conclusion has since been reinforced by recent Postal Service market research.

Sarbanes-Oxley Act
In 2010, the Postal Service complied with Section 404 of the Sarbanes-Oxley Act (SOX) as mandated by the Postal Accountability and Enhancement Act of 2006. This was one of the largest successful SOX implementations on record and the first within the federal government.


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