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United States Postal Service
Annual Report 2008
Connecting People
and Business

Table of contents

  • Page 1
    United States Postal Service Annual Report 2008 Connecting People and Business

  • Page 2
    ... 230 years, the United States Postal Service has provided dependable service at a uniform price. Our products and services create jobs, strengthen relationships and connect businesses. Mail continues to bind the nation together. 1998 to 2008 stamp prices First-Class Mail Postage Rates 1998-2008 and...

  • Page 3
    ...) Number of career employees Mail volume (pieces in millions) New delivery points served * Excluding interest expense on deferred retirement obligations in 2006. Table of Contents 4 Letter from the Postmaster General, CEO and Chairman of the Board of Governors 6 2008 Year in Review 8 Value...

  • Page 4
    ... by year end. Work hours were reduced significantly as overtime rates declined, and focused attrition activities helped bring career staffing down by more than 20,000 positions. New labor agreements contributed to our ability to better manage 4 | 2008 Annual Report United States Postal Service

  • Page 5
    ... package and express delivery business, each heavily dependent on transportation, were affected by the steep increases in fuel prices and a softening of shipping demand by consumers and businesses. Like them, the Postal Service experienced more positive results in its international product lines...

  • Page 6
    ... products and adjust prices to respond to market conditions. Taking the first steps in this brave new shipping world, we're offering online savings and other pricing incentives for our shipping services. When customers use our Express Mail, Priority Mail, ground package, or international services...

  • Page 7
    ... with new business We'll not only deliver and pick up that letter or package for you, we'll introduce you to our products and services and show you economical ways to mail and ship with the Postal Service. When we introduced our new shipping services pricing, we equipped employees with information...

  • Page 8
    ...-fuel vehicles. And postal delivery and pickup reduces emissions and fuel use. Instead of customers driving multiple cars to the Post Office, one carrier stops at multiple homes. We also deliver packages for other shipping firms, minimizing delivery trips to neighborhoods. Being green is not a new...

  • Page 9
    ... do business with us. Ship online. Buy stamps at a grocery store or ATM. Save time and do it yourself at a kiosk. After all, it's your Postal Service. Mail it your way. Our mission is to provide trusted, affordable, universal service. That's our commitment. 2008 Annual Report United States Postal...

  • Page 10
    ... and member, Audit and Finance Committee. Chairman emeritus, The CapAnalysis Group. Senior Fellow, Hoover Institution at Stanford University. Former Director, U.S. Office of Management and Budget. Former Chairman, U.S. Federal Trade Commission. 10 | 2008 Annual Report United States Postal Service

  • Page 11
    ... R. Donahoe Appointed 19th Deputy Postmaster General in April 2005. Donahoe is Chief Operating Officer and has served as Senior Vice President, Operations; Senior Vice President, Human Resources; and Vice President, Allegheny Area Operations. 2008 Annual Report United States Postal Service | 11

  • Page 12
    ... Senior Vice President, Customer Relations Robert F. Bernstock President, Mailing and Shipping Services H. Glen Walker Chief Financial Officer and Executive Vice President Linda A. Kingsley Senior Vice President, Strategy and Transition 12 | 2008 Annual Report United States Postal Service

  • Page 13
    ... Relations Paul Vogel Senior Vice President and Managing Director, Global Business Jerry W. Whalen Vice President, Sales Terry J. Wilson Vice President, Area Operations (Southeast) George W. Wright Vice President, Information Technology Operations 2008 Annual Report United States Postal Service...

  • Page 14
    ...accounting firm responsible for the independent audit of Postal Service financial statements, Ernst & Young LLP, reports to the Board through the Committee. The Postal Inspector General reports to the Governors and is represented at all Committee meetings. T 14 | 2008 Annual Report United States...

  • Page 15
    ... improvements in subsequent quarterly 10-Q filings. These are positive developments and management is to be commended as the Postal Service transitioned to a new regulatory framework. Katherine C. Tobin Chairman, Audit and Finance Committee 2008 Annual Report United States Postal Service | 15

  • Page 16
    ... the achievements of postal managers and employees in fiscal year 2008. Service is the cornerstone of the postal franchise, and employees delivered better service across the board, including our best FirstClass Mail service ever. We set new W 16 | 2008 Annual Report United States Postal Service

  • Page 17
    ... 50 million work hours compared to the prior year, even though the delivery network grew by 1.2 million new homes and businesses. Employees made important progress in transitioning to a new business model established by the Postal Accountability and Enhancement Act (PAEA) and implementing long-term...

  • Page 18
    You can count on us. After wildfires destroyed homes in California, a resident sent a clear message about the value of mail. Mail connects people, every day, everywhere. We all depend on its delivery and we're reassured by the presence of the Postal Service and its employees in our neighborhoods. ...

  • Page 19
    ... and commercial customers throughout the nation, competing for business in the communications, distribution, delivery, advertising, and retail markets. Our Mailing and Shipping Services are sold through almost 37,000 Post Offices, stations, branches, contract postal units, our website www.usps.com...

  • Page 20
    ..., constituting almost 90% of all postal revenue, allow price changes every year with limited prior review, as long as the average increase for each class of mail is no greater than the rate of inï¬,ation as measured by CPI-U. The regulations permit price increases above the price cap in the event of...

  • Page 21
    ...customers. Growth is crucial to the future of affordable universal mail service. Vision 2013 also offers a Mailing Services First-Class Mail - Includes domestic and international postcards, letters, or any other advertisement or merchandise up to 13 ounces. This service (or Express Mail or Priority...

  • Page 22
    ... purchasing Express Mail online or through corporate accounts. Additional price reductions became available for those who ship quarterly minimum volumes. Priority Mail offers a 3.5% savings for customers who use electronic postage or meet other requirements. Parcel Select - our "last mile" delivery...

  • Page 23
    ... the United States. We participate in federal employee benefit programs as required by statute, for retirement, health, and workers' compensation benefits. Available Information Financial and other information is available on www.usps. com; click on About USPS & News. Information on our website is...

  • Page 24
    ..., bills, statements and customer payments and, increasingly, advertising. First-Class Mail volume has already been affected by the Internet, automatic deductions, direct deposit, telephone, fax machines, and other electronic communications. O 24 | 2008 Annual Report United States Postal Service

  • Page 25
    ... and business customers by providing predictable price increases tied to the rate of inï¬,ation for Mailing Services (primarily First-Class Mail, Standard Mail, certain Package Services, and Periodicals). These services represent about 90% of total revenues and about 87% of our attributable costs...

  • Page 26
    ... in the processing and delivering of mail, which could damage our reputation, result in loss of business, and increase costs of operation. A failure on our part to protect the privacy of information we obtain from our customers could damage our reputation and result in a loss of business. We receive...

  • Page 27
    ...fied Stations Carrier Annexes Contract Postal Units Community Post Offices Total Retail and Delivery Facilities 2008 2007 Delivery and Collection Vehicles (1/2 - 2 1/2 ton) Mail Transport Vehicles (Tractors and Trailers) Administrative Vehicles and Other Vehicles Service Vehicles (Maintenance...

  • Page 28
    ...weather conditions; effects of legal claims; cost and deployment of capital; changes in laws and regulations; costs and delays associated with new regulations imposed by the PRC; and changes in applicable accounting policies and practices. The foregoing list of important factors is not all-inclusive...

  • Page 29
    ...trends in stamp usage. The change to a new estimation model is considered a change in accounting estimate under Generally Accepted Accounting Principles (GAAP). As required by GAAP, the impact of the change was recorded in Quarter III, 2008. For the year-ended 2008, we increased the stamp portion of...

  • Page 30
    ... categorization of our products has been updated to reï¬,ect the new Mailing Services and Shipping Services groupings. For example, First-Class Mail now also includes First-Class Mail International and is part of Mailing Services. Shipping Services include Express Mail and Priority Mail as well as...

  • Page 31
    ... in the "Other" category. In 2007, First-Class Mail revenue increased $800 million, or 2.1%, as volume decreased by 1.7 billion pieces, or 1.8%. First-Class Mail represented 51% of total operating revenues and 45% of total volume in 2007. 2008 Annual Report United States Postal Service | 31

  • Page 32
    ... 2008 price increases. In 2007, Package Services revenues of $1,812 million increased $61 million or 3.5% on a volume decline of 5 million pieces or 0.5%. Shipping Services Under the new law, Shipping Services includes Priority Mail, Express Mail, destination entry Parcel Post, Parcel Select Return...

  • Page 33
    ... Mail Processing Customer Services & Retail Rural Delivery Other, including Plant, Operational Support, and Administrative Total Workhours Compensation Retirement Health Benefits Workers' Compensation Other Total 1,373,354 1,423,001 1,458,729 In 2007, personnel compensation and benefits costs...

  • Page 34
    ... salary increases, nor do they receive COLAs or locality pay. Retirement Expense Our employees participate in one of three retirement programs of the U.S. government, based on the starting date of their employment with the federal government. These programs are the Civil Service Retirement System...

  • Page 35
    ... 6.25% The Postal Service is not required to make any agency contributions to CSRS Postal Service contributions to FERS will not change; contributions will continue at the current rate of 11.2% of pay (the employee contribution is 0.8% of pay) - 2008 Annual Report United States Postal Service | 35

  • Page 36
    ... 2006. The low level of premium increases in 2007 and 2008 are the result of lower plan costs and the application of plan reserves to lower premiums. However, in September 2008, OPM announced an average premium increase of 7.0% for January 2009. 36 | 2008 Annual Report United States Postal Service

  • Page 37
    ... the pension valuation assumptions, and decrements are based upon counts or numbers rather than dollars. Beginning Balance at October 1 Contributions and Transfers Earnings @ 4.8% and 5.0%, respectively Net increase Fund Balance at September 30 2008 Annual Report United States Postal Service | 37

  • Page 38
    ..., we pay all workers' compensation claims from postal funds. We record as a liability the present value of all future payments we expect to make for those employees receiving workers' compensation. At the end of 2008, we estimate our total liability for future workers' compensation costs at $7,968...

  • Page 39
    ...rst year since 1999 that the Postal Service registered negative annual TFP growth. Despite efforts to manage workforce utilization (reduction of 50 million workhours), utilize material such as supplies and services efficiently, and maximize the 2008 Annual Report United States Postal Service | 39

  • Page 40
    ... 463 3-digit ZIP Code areas selected on the basis of geographic area and volume density, thereby providing a measure of service performance from the customer's point of view. Results of these measures for the last four quarters are listed below. 40 | 2008 Annual Report United States Postal Service

  • Page 41
    ... cash ï¬,ow obligations in future years. Schedule of Commitments Retiree Health Benefits (Dollars in millions) Leases $ 882 861 806 738 671 5,387 $ 9,345 2009 2010 2011 2012 2013 After 2013 Total $ 5,400 5,500 5,500 5,600 5,600 17,200 $ 44,800 2008 Annual Report United States Postal Service...

  • Page 42
    ... capital cash outlays. Our capital cash outlays consist of the funds invested for new facilities, new automation equipment, and new services. On September 30, 2008, we had $7.2 billion in debt outstanding, a $3.0 billion increase from last year. 42 | 2008 Annual Report United States Postal Service

  • Page 43
    ... of its $29 million revenue foregone reimbursement. On October 1, 2008, the Postal Service received $88.9 million, to cover cost associated with free mail for the blind and overseas voters mailed in previous years. International Air Transportation Bill In October 2008, the President signed the...

  • Page 44
    ... customer needs. Prices will change in January for Express Mail, Priority Mail, Parcel Select, Parcel Return Service, and some international shipping products. It will be the first time we will separate price adjustment and implementation dates for our shipping and packaging business from the dates...

  • Page 45
    ... no changes during the year covered by this report in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 2008 Annual Report United States Postal Service | 45

  • Page 46
    Report of Independent Auditors 46 | 2008 Annual Report United States Postal Service

  • Page 47
    ... and investment income Interest expense on deferred retirement obligations Other interest expense Net (Loss) Income See accompanying notes to the financial statements. $ 74,932 53,585 7,407 6,961 9,785 77,738 (2,806) 36 - (36) $ (2,806) 2008 Annual Report United States Postal Service | 47

  • Page 48
    ... Revenue Forgone Receivable Total Assets See accompanying notes to the financial statements. 22,269 21,544 2,971 914 47,698 25,886 21,812 1,381 23,193 439 $ 25,986 $ 21,591 21,060 2,914 842 46,407 24,688 21,719 1,877 23,596 392 25,847 48 | 2008 Annual Report United States Postal Service

  • Page 49
    ... Foreign countries U.S. government Total payables and accrued expenses Customer deposit accounts Deferred revenue-prepaid postage Outstanding postal money orders Prepaid box rent and other deferred revenue Debt Total Current Liabilities Noncurrent Liabilities: Workers' compensation costs Employees...

  • Page 50
    ..., 2007 Net (Loss) Balance, September 30, 2008 See accompanying notes to the financial statements. $ 3,034 - 3,034 - 3,034 - $ 2,342 900 3,242 (5,142) (1,900) (2,806) $ 5,376 900 6,276 (5,142) 1,134 (2,806) $ 3,034 $ (4,706) $ (1,672) 50 | 2008 Annual Report United States Postal Service

  • Page 51
    ...Outstanding postal money orders Prepaid box rent and other deferred revenue Net cash (used in) provided by operating activities Cash ï¬,ows from investing activities: Decrease (increase) in restricted cash Purchase of property and equipment Proceeds from deferred building sale Proceeds from sales of...

  • Page 52
    ...-Class Mail and Standard Mail, account for about 94% of our mail volume, while Priority Mail and Express Mail represent significant services we provide in our shipping category. The principal markets for our services are the communications, distribution, delivery, advertising, and retail markets...

  • Page 53
    ...5 48 Beginning Balance Provision for Doubtful Accounts Writeoffs Ending Balance Supplies and Repair Parts Supplies and repair parts consist of repair parts for mail processing equipment. We value these at average cost. Total supplies and repair parts amounted to $112 million at the end of 2008 and...

  • Page 54
    ... insignificant for 2008, 2007, and 2006. Outstanding Postal Money Orders We sell money orders to the general public at our retail locations. We charge a fee to the customer at the time of sale. The fee is recognized as revenue at the time of sale. We recognize a liability for money orders we expect...

  • Page 55
    ... the surplus of the Postal Service's portion of the CSRS as of September 30, 2006. Beginning in 2007, P.L.109-435 required us to make annual payments into the PSRHBF. The payment schedule in the law requires us to pay, on average, $5.6 billion per year into the fund for 10 years, which began in 2007...

  • Page 56
    ...' notice, and up to $600 million on the same business day the funds are needed. Under these agreements we can also use a series of other notes with varying provisions to draw upon with two days' notice. The notes provide us the ï¬,exibility to 56 | 2008 Annual Report United States Postal Service

  • Page 57
    ... 376 633 46 $ 587 Mail Processing Equipment Building Improvements Postal Support Equipment Construction and Building Purchase Vehicles Retail Equipment Total Capital Resources on Order 2009 2010 2011 2012 2013 After 2013 Total Lease Obligations Less: Interest Total Capital Lease Obligations Less...

  • Page 58
    ... requires us to pay the employer's share of health insurance premiums for all retired postal employees and their survivors who participate in the FEHBP and who retire on or after July 1, 1971. However, we do not include the costs attributable to federal civil service before that date. As discussed...

  • Page 59
    ...7,006 Employer cash contributions to retirement plans were $3,936 million in 2008, $3,889 million in 2007, and $5,122 million in 2006. These amounts do not include Social Security contributions and interest expense on deferred retirement liabilities. 2008 Annual Report United States Postal Service...

  • Page 60
    ... severity of the injuries, and the expected trend in future costs. We estimated our total liability for future workers' compensation costs to be $7,968 million at the end of 2008 and $7,771 million at the end of 2007. The payout period for this 60 | 2008 Annual Report United States Postal Service

  • Page 61
    ...to the cost of workers' compensation claims, DOL charges us an administrative fee for processing claims. In 2008, the administrative fee, which is included in the expense above, was $52 million, compared to $49 million in 2007 and $45 million in 2006. 2008 Annual Report United States Postal Service...

  • Page 62
    ... SERVICES Registered Mail Revenue Number of articles Certified Mail Revenue Number of articles Insurance Revenue Number of articles Delivery Receipt Services Revenue Number of articles Money Orders Revenue Face value of issues (non-add) Number of articles Box rent revenue Stamped envelope and...

  • Page 63
    ... excludes Parcel Select and Parcel Return Service. * Shipping Services includes Priority Mail, Express Mail, Destination entry Parcel Post, Parcel Select Return Service and International Mail, excluding single-piece FirstClass Mail International. 2008 Annual Report United States Postal Service | 63

  • Page 64
    ... 2,856 4,527 2,991 1,147 11,521 2,761 4,402 3,130 1,071 11,364 2,654 4,333 3,443 843 11,273 2,708 3,396 3,648 782 10,534 * Beginning 2005, employees in the sales organization were reported as headquarters related instead of in the area offices. 64 | 2008 Annual Report United States Postal Service

  • Page 65
    ... Postal Units Community Post Offices Total Offices, Stations, and Branches Residential Delivery Points* City Delivery Rural PO Box Highway Contract Total Residential Delivery Business Delivery Points* City Delivery Rural PO Box Highway Contract Total Business Delivery Total Delivery Points Change...

  • Page 66
    ...reclassifications have been made to previously reported amounts. ** The net impact of P.L.109-435 legislation was $6.8 billion of additional expense in 2007 ($8.4 billion in additional retiree health benefits less $1.6 billion in CSRS savings). 66 | 2008 Annual Report United States Postal Service

  • Page 67
    ... (2,971) $ (1,239) $ (453) $ (479) Note: 2006 quarterly data was not prepared using the same standards and principles of those used in 2007 and 2008. Therefore, it is not comparative to these years and would be misleading to include here. 2008 Annual Report United States Postal Service | 67

  • Page 68
    ... less all liabilities. Express Mail. The Postal Service's premium delivery service, providing guaranteed overnight delivery for documents and packages weighing up to 70 pounds. Both domestic and international services are offered. First-Class Mail. A class of mail including letters, postcards, and...

  • Page 69
    ... Service 10 years from now is about $38.55, if we discount that $100 at a rate equal to 10% interest compounded annually. Priority Mail. Priority mail is a 1-3-day non-guaranteed delivery service. Receivable. Money that is owed to the Postal Service. Recognize. To record in Postal Service accounts...

  • Page 70
    ...Forest Kwanzaa Love - King & Queen of Hearts Lunar New Year - Ox Miami University Oregon Statehood Supreme Court Justices Thanksgiving Day Parade Weddings - Cake & Rings Winter Holidays Gary Cooper Bob Hope Civil Rights Pioneers Abraham Lincoln 70 | 2008 Annual Report United States Postal Service

  • Page 71
    2009 Postage Stamps Edward Hopper Gulf Coast Lighthouses Thanksgiving Day Parade Weddings - Cake & Rings Edgar Allan Poe Anna Julia Cooper Angel with Lute Supreme Court Justices Love - King & Queen of Hearts 2008 Annual Report United States Postal Service | 71

  • Page 72
    XXX Christmas - Sassoferrato Hanukkah Early TV Memories Lunar New Year - Ox Alaska Statehood Kwanzaa Flags of Our Nation - Set 3 72 | 2008 Annual Report United States Postal Service

  • Page 73
    Oregon Statehood Kelp Forest Hawaii Statehood Winter Holidays Miami University Flags of Our Nation - Set 4 2008 Annual Report United States Postal Service | 73

  • Page 74
    ... Postal Service®, U.S. Postal Service®, USPS®, First-Class Mail®, usps. com®, Click-N-Ship®, Automated Postal Center®, APC®, Express Mail®, Priority Mail®, Standard Mail®, Parcel Post®, Media Mail®, Customized MarketMail®, Intelligent Mail®, Parcel Select®, Express Mail International...

  • Page 75

  • Page 76
    ... your financial questions and comments at: United States Postal Service Corporate Accounting 475 L'Enfant Plaza, SW Washington, DC 20260-5241 Read our Annual Report on the web at: usps.com/financials/ar/welcome.htm © 2008 United States Postal Service. All rights reserved. Production notes for...