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USPS reports $5.2 billion loss for Q3- most of it imaginary

Postcom reports from today’s USPS Board of Governors meeting:

The Postal Service ended its third fiscal quarter (April 1 – June 30) with a net loss of $5.2 billion, compared to a net loss of $3.1 billion for the same period last year. Contributing significantly to the quarter’s $5.2 billion loss was $3.1 billion of expense for the legislatively mandated prefunding of retiree health benefits. These expenses along with the continued decline of First-Class Mail volume, more than offset the quarter’s 9 percent growth in revenue from Shipping Services and package delivery. Despite continued success in generating new package delivery revenue, improving efficiency and reducing costs, large losses are expected to continue until legislative changes are made in line with the Postal Service Business Plan to return to financial stability.

Two things to note about this massive “loss”.

  1. Most of the “loss”, the $3.1 billion pre-funding expense, doesn’t reflect actual money the USPS has paid out, but rather, three months worth of PAEA trust fund payments that the USPS has already said it won’t be making.
  2. Last year’s Q3 “loss” of $3.1 billion included $1.4 billion worth of last years trust fund payment, which was never made. Congress rolled that payment over to 2012, so the same $1.4 billion that was shown on the Q3 2011 books, but never actually paid, has also been added to this year’s “loss”.

And of course, there’s the matter of the $56.3 billion the USPS has “in the bank”- $45.3 billion already in the PAEA trust fund, and $11 billion in verified FERS overpayments. (Can you think of another company supposedly “teetering” on the brink of bankruptcy that has $56 billion in the bank?)

Isn’t it amazing what you can come up with when you combine postal bookkeeping and Congressional accounting?

Here is the USPS press release on the results:

Legislative Changes Are Still Urgently Needed to Restore Financial Health

Resolving Prefunding of Retiree Health Benefits is Not Enough to Curtail Financial Losses

Bright Spot: 9% Revenue Growth in Shipping & Packages

WASHINGTON, Aug. 9, 2012 /PRNewswire-USNewswire/ – The Postal Service ended its third fiscal quarter (April 1 – June 30) with a net loss of $5.2 billion, compared to a net loss of $3.1 billion for the same period last year. Contributing significantly to the quarter’s $5.2 billion loss was $3.1 billion of expense for the legislatively mandated prefunding of retiree health benefits. These expenses, along with the continued decline of First-Class Mail volume, more than offset the quarter’s 9 percent growth in revenue from Shipping Services and package delivery. Despite continued success in generating new package delivery revenue, improving efficiency and reducing costs, large losses are expected to continue until legislative changes are made in line with the Postal Service Business Plan to return to financial stability.

The Postal Business Plan includes measures that require urgent legislative changes, including:

  • A refund of $11 billion of pension plan overfunding needed to pay down debt and invest for future growth
  • Transition to a five-day schedule of weekly mail delivery
  • The elimination of prefunding for retiree health benefits with the introduction of a Postal health insurance program, independent of the current federal programs.

“We remain confident that Congress will do its part to help put the Postal Service on a path to financial stability. We will continue to take actions under our control to improve operational efficiency and generate revenue by offering new products and services to meet our customers changing needs,” said Postmaster General and CEO Patrick Donahoe. “Moving forward with our business plan will make the Postal Service financially self-sustaining, provide a platform for future growth and preserve our mission to provide secure, reliable and affordable universal delivery services for generations to come.”

The Postal Service was forced to default on a $5.5 billion prefunding payment for retiree health benefits on Aug. 1, due to insufficient cash resources.  Absent legislative changes, the Postal Service will also default on a second similar payment of $5.6 billion due by Sept. 30, 2012.  Current projections show very low levels of cash, and no remaining borrowing capacity, at the end of the current fiscal year and through October 2012. In response, the Postal Service will continue to prioritize payments to employees and suppliers to ensure completion of its mission to provide high-quality mail service to the American people.

“The Postal Service has successfully improved productivity while removing nearly $14 billion from its annual cost base during the past five fiscal years,” said Acting Chief Financial Officer Stephen Masse. “These operational actions to improve efficiency will continue in the future, but we urgently need the legislative changes noted above to restore our short-term liquidity and provide a stable base for the future.  In the meantime, we will prioritize our cash resources to ensure that we deliver on our mission.”

Results of Operations

New products and successful marketing campaigns continue to fuel growth in the Postal Service package business. Shipping Services and package revenue totaled $3.3 billion in the third quarter, a 9 percent increase, on a volume increase of 43 million pieces, or 5.2 percent.  Additionally, Every Door Direct Mail continues to grow as local businesses capitalize on the product’s targeted advertising impact and ease of use.

Other details of the third quarter results compared to the same period last year include:

  • Total mail volume of 38.5 billion pieces, a decrease of 1.4 billion pieces, or 3.6 percent.  This reflects the continued decline of First-Class Mail (volume decline of 4.4%) due to the on-going shift of communications and transactions to electronic alternatives;
  • Operating revenue of $15.6 billion, a decrease of $153 million, or less than 1 percent;
  • Operating expenses of $20.8 billion increased by $1.9 billion, or 10.2 percent.  This increase was driven by $3.1 billion of expenses for mandated prefunding of retiree health benefits, which unfortunately cannot be paid in cash.

The third quarter results bring the year to date net loss to $11.6 billion, compared to $5.7 billion for the same period last year. Contributing significantly to the year to date loss was the $9.2 billion expense accrual for the prefunding of retiree health benefits, which unfortunately cannot be paid.

Complete financial results are available in the Form 10-Q, available after 10 a.m. ET today at http://about.usps.com/who-we-are/financials/welcome.htm