The big postal news this week is the Postal Service 2017 Fiscal Year Financial Results and the news is a bit grim. But the good news first.

Transcription

1 Friday, November 17, 2017 at 2:40:21 AM Eastern Standard Time Subject: Date: From: FW: PSA Report U.S. Postal Service Reports Fiscal Year 2017 Results Friday, November 17, 2017 at 2:40:09 AM Eastern Standard Time Pierce Myers (PSA) A0achments: Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com.pdf, AP on USPS Finances.docx.pdf PSA Members, The big postal news this week is the Postal Service 2017 Fiscal Year Financial Results and the news is a bit grim. But the good news first. Ø The growth in the Shipping and Packages business continued as Postal Service revenue increased $2.1 billion, or 11.8 percent. The USPS continues to be an attractive competitor for parcel delivery business and a viable alternative for many shippers. Expect, however, some operational changes to address the decrease in letter and flats mail volume that could have some ripple effect. Ø If you dig down deep in the results you will see that USPS is not in immediate danger of running out of cash. There is no immediate threat to continued mail delivery frequency or reliability. Ø As the PMG says, There is a path to profitability and long-term financial stability. We are taking actions to control costs and compete effectively for revenues in addition to legislative and regulatory reform. PSA and its allies continue to press the case for needed legislation that would address a significant part of the financial problems. Ø Our lobbying coalition continues to press forward not just on the Hill but in the court of public opinion. As we were quoted in the yesterday s Associated Press piece (attached). "These numbers are beyond troubling," said Art Sackler, manager of the Coalition for a 21st Century Postal Service, a broad trade group that includes mailers such as Amazon and the National Retail Federation. "There are 7.5 million private sector jobs that depend on the postal system, and these jobs are at risk unless Congress takes action on postal reform." Ø The financial results once again demonstrate that despite claims from some (and you will again see competitor-funded articles), the USPS package business more than pays its way, is not subsidized by revenues from letter and flat mail products, and is critical to the continuation of universal, affordable, and reliable mail service. Ø The Postal Regulatory Commission should announce soon next steps in its 10-year review of the market dominant rate system and it is expected to include a path to financial improvement for the Postal Service. (We discussed this in depth at last month s meeting. See your meeting notebook for materials.) Page 1 of 2

2 Postal Service: Red ink for 11th year in row as mail slumps Hope YenAssociated Press The beleaguered U.S. Postal Service reported a financial loss Tuesday for the 11thstraight year, citing declining mail volume and costs of its pension and health care obligations even as it predicted another strong holiday season of package deliveries. It pleaded for more freedom to raise stamp prices to help keep pace with consumer demand for ever-quicker deliveries from online shopping. Without help, "our financial results will continue to deteriorate and likely at an accelerated rate," said Postmaster General Megan J. Brennan. "We cannot generate enough revenue or cut enough costs to pay all of our bills." The Postal Service reported a loss of $2.7 billion for the fiscal year that ended Sept. 30. That was better than a $5.6 billion loss in the prior year but was mainly due to fluctuations in interest rates that reduced workers' compensation expenses. The 2017 loss came after a double-digit increase in package delivery was unable to offset drop-offs in letter mail, which makes up more than 70 percent of total postal revenue. Mail volume fell by roughly 5 billion pieces, or 3.6 percent, as people in the digital age rely more on for online bill payments. Revenue came to $69.6 billion, down from $71.5 billion last year. The Postal Regulatory Commission will issue a decision in the coming weeks that could give the Postal Service more flexibility to raise prices beyond the rate of inflation, marking the biggest change in its pricing system in nearly a half-century. The commission might limit how high prices could go, but the cost of a first-class stamp could jump. It's not known by how much. The price of a first-class stamp, now 49 cents, is slated to increase by one penny in January because of inflation. The Postal Service, an independent agency, is trying to stay financially afloat as it seeks to invest billions in new delivery trucks to get packages more nimbly to American homes. With the holiday season approaching, Brennan said, the Postal Service added hours to include early morning and evening package deliveries and was expanding service on Sundays. More recently, it began a pilot program this holiday season to provide cheap next-day service with packages delivered Sundays to people's homes. Page 1 of 3

3 "The Postal Service continues to win e-commerce customers, grow our package delivery business and increase market share," Brennan said, attributing its strength in part to affordable pricing compared to rivals UPS and FedEx. "No other shipper delivers as many e-commerce packages to the home." Analysts have cheered the Postal Service's promise in the digital age. Still, its parcel success hasn't translated to profits. To become financially stable, the Postal Service is also urging Congress to provide it relief from the mandate to prefund retiree health benefits. Legislation in 2006 required the Postal Service to fund 75 years' worth of retiree health benefits, something that neither the government nor private companies are required to do. To avert bankruptcy, the post office has defaulted on the multibillion-dollar health prepayments each year since "These numbers are beyond troubling," said Art Sackler, manager of the Coalition for a 21st Century Postal Service, a broad trade group that includes mailers such as Amazon and the National Retail Federation. "There are 7.5 million private sector jobs that depend on the postal system, and these jobs are at risk unless Congress takes action on postal reform." Page 2 of 3

4 Now the bad news. Ø Letter mail volume continued its decline, as expected, but the pace of that decline was faster than expected; Flat mail volume also declined which was unexpected. Ø At this point, Congress is completely absorbed with tax reform and passing a funding bill to avoid a Government shutdown. It is not yet ready to tackle much-needed postal legislation. Ø While the PRC 10-year review could be helpful, fears remain it could call for mail price increases that would be damaging to the industry; and in any event a long litigation process is likely before any changes can be implemented. PSA remains the only industry association dedicated to protecting the interests of parcel shippers. We continue to be there for you on The Hill and at the Postal Service and the Postal Regulatory Commission. Below is the USPS press release announcing the 2017 financials. Attached is the AP article and one from Government Executive. Pierce Pierce Myers Executive Vice President & Counsel Parcel Shippers Association pierce@parcelshippers.org Page 2 of 2

5 Friday, November 17, 2017 at 2:45:30 AM Eastern Standard Time Subject: U.S. Postal Service Reports Fiscal Year 2017 Results Date: Tuesday, November 14, 2017 at 8:02:14 AM Eastern Standard Time From: NEWS To: NEWS A1achments: image002.png, image004.jpg FOR IMMEDIATE RELEASE Nov. 14, 2017 U.S. Postal Service Reports Fiscal Year 2017 Resu Volume for primary source of revenue - letter mail - declines by 5.0 billion pieces Continued aggressive management actions along with postal reform legislation & needed to address declining volumes and changing mail mix WASHINGTON - The U.S. Postal Service reported revenue of $69.6 billion for fiscal year 2017 (October 1, 201 decrease of $1.8 billion compared to the prior year. The lower revenues were driven largely by accelerated dec Mail volumes. In 2017, mail volumes declined by approximately 5.0 billion pieces, or 3.6 percent, while package volumes gre percent, continuing a multi-year trend of declining mail volumes and increasing package volume. While mail vo somewhat offset by growth in package volume, overall volume has declined by 4.9 billion pieces. The growth in our Shipping and Packages business provided some help to the financial picture of the Postal S billion, or 11.8 percent. However, that growth was offset in our financials by the decline in mail volumes discuss 2016 noncash change in accounting estimate and the 2016 roll-back of the exigent surcharge mandated by the which further reduced revenue by $1.1 billion from what it otherwise would have been. "Our financial situation is serious, though solvable, said Postmaster General and CEO Megan J. Brennan. Th term financial stability. We are taking actions to control costs and compete effectively for revenues in addition t reform. We continue to optimize our network, enhance our products and services, and invest to better serve th FY 2017 Operating Revenue and Volume by Service Category Compared to Prior Year The following presents revenue and volume by service category for the year ended September 30, 2017, and 2 Brennan stressed that the path forward for a financially stable future must also include urgent actions needed o control. They include advancement and passage of the postal reform provisions contained in H.R. 756 in the 1 the Postal Regulatory Commission of a new pricing system as part of its 10-year pricing review, enabling the P revenues to cover our costs. Page 1 of 5

6 Operating expenses for the year were $72.2 billion, a decrease of $4.7 billion, or 6.1 percent, compared to the reduction was largely attributable to changes in actuarially determined expenses outside of management's con benefits and workers compensation declined by $4.8 billion and $3.5 billion, respectively, but were partially offs for the amortization of unfunded retirement benefits, the result of statutory mandates effective for 2017 and cha Management actuarial assumptions. Expenses for compensation and benefits and transportation also added $ respectively, to 2017 operating expenses. The Postal Service reported a net loss for the year of $2.7 billion, a decrease in net loss of $2.8 billion compar loss, $2.4 billion was the result of changes in interest rates, outside of management's control, that reduced wo compared to last year. The controllable loss for the year was $814 million, a change of $1.4 billion, driven by the $775 million decline 2016 change in accounting estimate, along with the increases in compensation and benefits and transportation million, respectively. Similar to the last several years, the Postal Service was unable to make any of the payments that were due to the fiscal year, which amounted to approximately $6.9 billion in 2017, to pre-fund pension and health benefits f Making the payments to the federal government in full or in part would have left the Postal Service with insuffi be able to cover our current and anticipated operating costs, make necessary capital investments, and absorb marketplace," said Chief Financial Officer and Executive Vice President Joseph Corbett. "We will continue to p adequate liquidity to ensure the Postal Service is able to perform our primary mission of providing universal se Revenue (revenue in $ millions; volume in millions of pieces) Service Category First-Class Mail 25,637 $ 27,508 Marketing Mail 16,626 17,622 Shipping and Packages 19,481 17,427 International 2,723 2,674 Periodicals 1,375 1,507 Other 3,751 3,630 Total before change in accounting estimate $ 69,593 $ 70,368 Change in accounting estimate $ $ 1,061 Total operating revenue and volume $ 69,593 $ 71, Change in Accounting Estimate During the third quarter of fiscal year 2016, the Postal Service revised the estimation technique utilized to Page 2 of 5

7 determine its Deferred revenue-prepaid postage liability for a series of postage stamps. The change resulted from new information regarding customers retention and usage habits of Forever Stamps, and enabled the Postal Service to update its estimate of usage and breakage (representing stamps that will never be used for mailing due to loss, damage or stamp collection). As a result of this change in estimate, the Postal Service recorded a decrease in its Deferred revenueprepaid postage liability as of June 30, 2016, which caused an increase in revenue and decrease in net loss of $1.1 billion for the year ended September 30, This change in accounting estimate resulted in a noncash adjustment that does not impact the Postal Service's available cash or access to cash and does not affect its controllable loss. Selected FY 2017 Results of Operations This news release references operating revenue before the change in accounting estimate and operating revenue before the temporary exigent surcharge, which are not calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). The following table reconciles these non-gaap operating revenue calculations with GAAP net loss for the year ended September 30, 2017, and 2016: (results in $ millions) 20 Operating revenue Operating revenue before temporary exigent surcharge and change in accounting estimate $ Temporary exigent surcharge 1 Operating revenue before change in accounting estimate $ Change in accounting estimate 2 Total operating revenue $ Other revenue Total revenue $ Total operating expenses $ Interest and investment income (expense), net Total expenses $ Net loss $ 1 The temporary exigent surcharge expired on April 10, This change in accounting estimate relates solely to changes in estimates of stamp usage and breakage for Forever Stamps sold from reflected as a decrease in the Deferred revenue-prepaid postage liability as of June 30, Controllable (Loss) Income This news release references controllable (loss) income, which is not calculated and presented in accordance with GAAP. Controllable income (loss) is a non-gaap financial measure defined as net income (loss) adjusted for items outside of management s control and non-recurring items. These adjustments Page 3 of 5

8 include workers compensation expenses caused by actuarial revaluation and discount rate changes, PSRHBF prefunding expenses, the amortization of PSRHBF, CSRS and FERS unfunded liabilities, and the change in accounting estimate. The following table reconciles the Postal Service's GAAP net loss to controllable (loss) income and illustrates the loss from ongoing business activities without the impact of non-controllable and non-recurring items for the years ended September 30, 2017, and 2016: (in $ millions) 2017 Net loss $ (2,742) $ (1,485,000,000) PSRHBF supplemental unfunded liability expense PSRHBF prefunding fixed amount 2 Change in workers compensation liability resulting from fluctuations in discount rates (1,362) Other change in workers compensation liability 3 (850) Change in accounting estimate 4 CSRS supplemental unfunded liability expense 5 1,741 FERS supplemental unfunded liability expense Change in normal cost of retiree health benefits due to revised actuarial assumptions ,003,000,000 Controllable (loss) income $ (814) (1,424) $ 1 Expense for the annual payment due by September 30, 2017, on the unfunded liability as calculated by OPM. 2 Expense for the annual prefunding payments to the PSRHBF due on September 30, 2016, and 2015, upon which the Postal Service d 3 Net amounts include changes in assumptions, as well as the valuation of new claims and revaluation of existing claims, less current y payments. 4 This change in accounting estimate relates solely to changes in estimates of stamp usage and breakage for Forever Stamps sold from through June 30, 2016, reflected as a decrease in the Deferred revenue-prepaid postage liability as of June 30, Expense for the annual payment due September 30, 2017, calculated by OPM, to amortize the unfunded CSRS retirement obligation September 30, 2016, the date of the most recent available information. Payments are to be made in equal installments through Expense for the annual payment due September 30, 2017, calculated by OPM, to amortize the unfunded FERS retirement obligation a September 30, 2016, the date of the most recent available information. Payments are to be made in equal installments through Represents the annual portion of the normal cost payment due September 30, 2017, attributable to revised actuarial assumptions and changes. The total normal cost payment amount, calculated by OPM, is $3.3 billion. Complete financial results are available in the Form 10-K, available (after 9 am ET) at Financial Briefing Postmaster General and CEO Megan J. Brennan and Chief Financial Officer and Executive Vice President Joseph Corbett will host a telephone/web conference call to discuss the financial results in more detail. The call will begin at 10:00 am ET on November 14, 2017, and is open to news media and all other interested Page 4 of 5

9 ca beg at 0 00 a o o e be, 0, a d s ope to e s ed a a d a ot e te ested parties. How to Participate: US/Canada Attendee Dial-in: Conference ID: Attendee Direct URL: If you cannot join using the direct link above, please use the alternate logins below: Alternate URL: Event Number: The briefing will also be available on live audio webcast (listen only) at: The Postal Service receives no tax dollars for operating expenses and relies on the sale of postage, products and services to fund its operations. # # # Page 5 of 5

10 Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com 11/14/17, 3:17 PM Postal Service Suffers First 'Controllable' Loss in Five Years By Eric Katz 2:12 PM ET Leave a comment The U.S. Postal Service lost $2.7 billion in fiscal 2017, less than half the deficit the agency racked up in the previous year. More troubling for USPS, however, was its net controllable income went from a $610 million profit to a $814 million loss in the fiscal year that ended Sept. 30. That marked the first such controllable loss in five years. The Postal Service cited the end to an emergency price hike that expired midway through fiscal 2016 as part of the disparity. Officials also noted a nearly $700 million increase in compensation costs as contributing to its dip into the red. Controllable income does not account for expenses beyond the influence of USPS managers, primarily a congressional mandate to prefund retiree health benefits and adjustments to workers compensation costs. Part of the dropoff in that calculation is what Postal Service Chief Financial Officer Joe Corbett called an unexpected, accelerated rate of decline in first-class mail volume. Page 1 of 3

11 Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com 11/14/17, 3:17 PM Regular, flat mail dropped off by 2.5 billion pieces in fiscal 2017, more than double the rate of decline between fiscal years 2015 and Marketing mail also dropped off by a similar number, following four consecutive years of stable volume.» Get the best federal news and ideas delivered right to your inbox. Sign up here. On a positive note, USPS continued to see growth in its shipping and packages business, where revenues grew by 12 percent. Discounting the boost the agency gained last year from the emergency price hike, its total revenue actually grew by $315 million year over year. If the emergency rates were still in place, Corbett said the Postal Service would have turned a controllable profit of about $300 million. Still, last fiscal year marked the 11th in a row the mailing agency posted a total loss of more than $1 billion. The Postal Service defaulted on $6.9 billion in required prefunding payments. The decrease in its overall losses stemmed primarily from a positive adjustment to its estimated workers compensation liabilities due to a change in interest rates. Postmaster General Megan Brennan said she expects package revenue to continue to grow, including a 10 percent year-over-year boost during the upcoming peak period, but it would not be sufficient to offset losses in more profitable parts of the agency s operations. It will not offset continuing declines in our mail business, Brennan said. "Absent regulatory and legislative change, we cannot generate enough revenue to cover our costs. Brennan pledged to continue to aggressively manage the business while pushing Congress to advance a reform bill already approved by the House Page 2 of 3

12 Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com 11/14/17, 3:17 PM Oversight and Government Reform Committee and the Postal Regulatory Commission to give her more authority to set prices. Fredric Rolando, president of the National Association of Letter Carriers, said the Postal Service s losses can be attributed solely to factors outside of the normal operations of the agency. His labor group has joined with all major postal unions in endorsing the House reform legislation, marking the first time the organizations have universally backed a committee-approved overhaul effort. Addressing these external financial burdens would allow USPS which is based in the Constitution and which enjoys broad public and political support to continue providing Americans and their businesses with the industrial world s most affordable delivery network, Rolando said. Page 3 of 3

13 Postal Service: Red ink for 11th year in row as mail slumps Hope YenAssociated Press The beleaguered U.S. Postal Service reported a financial loss Tuesday for the 11thstraight year, citing declining mail volume and costs of its pension and health care obligations even as it predicted another strong holiday season of package deliveries. It pleaded for more freedom to raise stamp prices to help keep pace with consumer demand for ever-quicker deliveries from online shopping. Without help, "our financial results will continue to deteriorate and likely at an accelerated rate," said Postmaster General Megan J. Brennan. "We cannot generate enough revenue or cut enough costs to pay all of our bills." The Postal Service reported a loss of $2.7 billion for the fiscal year that ended Sept. 30. That was better than a $5.6 billion loss in the prior year but was mainly due to fluctuations in interest rates that reduced workers' compensation expenses. The 2017 loss came after a double-digit increase in package delivery was unable to offset drop-offs in letter mail, which makes up more than 70 percent of total postal revenue. Mail volume fell by roughly 5 billion pieces, or 3.6 percent, as people in the digital age rely more on for online bill payments. Revenue came to $69.6 billion, down from $71.5 billion last year. The Postal Regulatory Commission will issue a decision in the coming weeks that could give the Postal Service more flexibility to raise prices beyond the rate of inflation, marking the biggest change in its pricing system in nearly a half-century. The commission might limit how high prices could go, but the cost of a first-class stamp could jump. It's not known by how much. The price of a first-class stamp, now 49 cents, is slated to increase by one penny in January because of inflation. The Postal Service, an independent agency, is trying to stay financially afloat as it seeks to invest billions in new delivery trucks to get packages more nimbly to American homes. With the holiday season approaching, Brennan said, the Postal Service added hours to include early morning and evening package deliveries and was expanding service on Sundays. More recently, it began a pilot program this holiday season to provide cheap next-day service with packages delivered Sundays to people's homes. Page 1 of 3

14 "The Postal Service continues to win e-commerce customers, grow our package delivery business and increase market share," Brennan said, attributing its strength in part to affordable pricing compared to rivals UPS and FedEx. "No other shipper delivers as many e-commerce packages to the home." Analysts have cheered the Postal Service's promise in the digital age. Still, its parcel success hasn't translated to profits. To become financially stable, the Postal Service is also urging Congress to provide it relief from the mandate to prefund retiree health benefits. Legislation in 2006 required the Postal Service to fund 75 years' worth of retiree health benefits, something that neither the government nor private companies are required to do. To avert bankruptcy, the post office has defaulted on the multibillion-dollar health prepayments each year since "These numbers are beyond troubling," said Art Sackler, manager of the Coalition for a 21st Century Postal Service, a broad trade group that includes mailers such as Amazon and the National Retail Federation. "There are 7.5 million private sector jobs that depend on the postal system, and these jobs are at risk unless Congress takes action on postal reform." Page 2 of 3

15 Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com 11/14/17, 3:17 PM Postal Service Suffers First 'Controllable' Loss in Five Years By Eric Katz 2:12 PM ET Leave a comment The U.S. Postal Service lost $2.7 billion in fiscal 2017, less than half the deficit the agency racked up in the previous year. More troubling for USPS, however, was its net controllable income went from a $610 million profit to a $814 million loss in the fiscal year that ended Sept. 30. That marked the first such controllable loss in five years. The Postal Service cited the end to an emergency price hike that expired midway through fiscal 2016 as part of the disparity. Officials also noted a nearly $700 million increase in compensation costs as contributing to its dip into the red. Controllable income does not account for expenses beyond the influence of USPS managers, primarily a congressional mandate to prefund retiree health benefits and adjustments to workers compensation costs. Part of the dropoff in that calculation is what Postal Service Chief Financial Officer Joe Corbett called an unexpected, accelerated rate of decline in first-class mail volume. Page 1 of 3

16 Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com 11/14/17, 3:17 PM Regular, flat mail dropped off by 2.5 billion pieces in fiscal 2017, more than double the rate of decline between fiscal years 2015 and Marketing mail also dropped off by a similar number, following four consecutive years of stable volume.» Get the best federal news and ideas delivered right to your inbox. Sign up here. On a positive note, USPS continued to see growth in its shipping and packages business, where revenues grew by 12 percent. Discounting the boost the agency gained last year from the emergency price hike, its total revenue actually grew by $315 million year over year. If the emergency rates were still in place, Corbett said the Postal Service would have turned a controllable profit of about $300 million. Still, last fiscal year marked the 11th in a row the mailing agency posted a total loss of more than $1 billion. The Postal Service defaulted on $6.9 billion in required prefunding payments. The decrease in its overall losses stemmed primarily from a positive adjustment to its estimated workers compensation liabilities due to a change in interest rates. Postmaster General Megan Brennan said she expects package revenue to continue to grow, including a 10 percent year-over-year boost during the upcoming peak period, but it would not be sufficient to offset losses in more profitable parts of the agency s operations. It will not offset continuing declines in our mail business, Brennan said. "Absent regulatory and legislative change, we cannot generate enough revenue to cover our costs. Brennan pledged to continue to aggressively manage the business while pushing Congress to advance a reform bill already approved by the House Page 2 of 3

17 Postal Service Suffers First 'Controllable' Loss in Five Years - Management - GovExec.com 11/14/17, 3:17 PM Oversight and Government Reform Committee and the Postal Regulatory Commission to give her more authority to set prices. Fredric Rolando, president of the National Association of Letter Carriers, said the Postal Service s losses can be attributed solely to factors outside of the normal operations of the agency. His labor group has joined with all major postal unions in endorsing the House reform legislation, marking the first time the organizations have universally backed a committee-approved overhaul effort. Addressing these external financial burdens would allow USPS which is based in the Constitution and which enjoys broad public and political support to continue providing Americans and their businesses with the industrial world s most affordable delivery network, Rolando said. Page 3 of 3