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Financial Analysis of United States Postal Service Financial Results and 10-K Statement

Fiscal Year 2014

April 1, 2015

Contents

Purpose of this Report ........................................................................................................................................ 1 Financial Facts at a Glance................................................................................................................................. 2

Chapter 1. Report Overview ............................................................................................................................. 3 Financial Changes............................................................................................................................................. 3 Other Highlights................................................................................................................................................ 5

Chapter 2. Postal Service Financial Status .................................................................................................. 6 Introduction ....................................................................................................................................................... 6 Income Statement Analysis .......................................................................................................................... 6 Revenues Compared with Prior Year.............................................................................................. 8 Expense Analysis Compared with Prior Year ........................................................................... 10 Personnel Expenses ............................................................................................................................ 11 Non-Personnel Expenses .................................................................................................................. 17 Comparison to the Postal Service Operating Plan .................................................................. 19 Balance Sheet Analysis................................................................................................................................ 19 Assets........................................................................................................................................................ 23 Liabilities................................................................................................................................................. 24 Debt and Cash Flow Analysis .................................................................................................................... 25

Chapter 3. Volumes, Revenues, and Cost Trends................................................................................... 28 Overview........................................................................................................................................................... 28 Overall Volume, Revenue, and Costs Trends ...................................................................................... 28 Market Dominant Products and Services ................................................................................... 28 Market Dominant Volume Trends................................................................................................. 29 Market Dominant Revenue and Cost Trends ............................................................................ 30 Attributable Costs................................................................................................................................ 31 Institutional Costs................................................................................................................................ 34 Competitive Products and Services .............................................................................................. 39 Market Dominant Volume, Revenue, and Costs Trends by Class ............................................... 41 First-Class Mail ..................................................................................................................................... 41

First-Class Mail Letters Compared with FY 2013 ................................................................... 41 First-Class Mail Flats Compared with FY 2013 ........................................................................ 44 Standard Mail ........................................................................................................................................ 47 Standard Mail Letters Compared with FY 2013 ...................................................................... 48 Standard Mail Flats Compared with FY 2013 ........................................................................... 50 Periodicals .............................................................................................................................................. 53 Periodicals Compared with FY 2013............................................................................................ 53 Package Services .................................................................................................................................. 56 Market Dominant Services ............................................................................................................... 58 Competitive Volume, Revenue, and Costs by Product .................................................................... 59

Chapter 4. Profitability, Solvency, Activity, and Financial Stability................................................ 63 Introduction .................................................................................................................................................... 63 Ratio Analysis........................................................................................................................................ 63 Key Ratios ............................................................................................................................................... 63 Altman Z-Score ..................................................................................................................................... 67 Trend Analysis ...................................................................................................................................... 69 Working Capital Analysis.................................................................................................................. 71 Liquidity Ratios .................................................................................................................................... 71

Appendix A. FY 2014 Volume, Revenue, Cost, and Cost Coverage by Class, Current Classification (Products) ................................................................................................................................. 73

Appendix B. Acronyms..................................................................................................................................... 76

Purpose of this Report

Prior to Fiscal Year (FY) 2013, the Postal Regulatory Commission's Annual Compliance Determination (ACD) included a chapter on the overall financial health of the Postal Service. In the ACD, the Commission analyzed data, including total volumes, revenues, costs, and contribution to institutional costs by product, and reviewed the Postal Service's financial highlights and challenges. However, the report did not include an analysis of relevant financial data provided in the Postal Service's Form 10-K1 filing and Annual Compliance Report (ACR). As a result, the Commission developed a separate Financial Analysis report to include components needed to provide greater clarity, transparency, and accountability. The Financial Analysis provides a review of the Postal Service's FY 2014 financial and operating results. It primarily uses information gathered from the FY 2014 Form 10-K and measures it against FY 2013 and the FY 2014 Integrated Financial Plan. The Cost and Revenue Analysis report, the Cost Segments and Components report, and the Revenue, Pieces, and Weight report are also used to develop and analyze the FY 2014 financial results. In addition, the Commission's analysis of reports filed under its Periodic Data Reporting rules (Title 39 of the Code of Federal Regulations, section 3050.28) provide a broad understanding of the Postal Service's FY 2014 financial statements. Appendix A of this report includes the volumes, revenues, attributable costs, and contribution to institutional costs for FY 2014 by product. It is available in two library references: a public version, Library Reference PRC?LR?ACR2014/1, and a non-public version, Library Reference PRC?LR?ACR2014/NP1. Additionally, Library Reference PRC? LR?ACR2014/2 details the data and calculations used to prepare the financial ratios highlighted in Chapter 4.

1 The Form 10-K consists of the Income Statement, the Balance Sheet, Changes in Net Deficiency, and Cash Flow Statement.

1 FY 2014 FINANCIAL ANALYSIS REPORT

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