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Washington, D.C. 20268-0001


(Mark One)



Commission File Number: N/A


(Exact name of registrant as specified in its charter)

Washington, D.C.


(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

475 L’Enfant Plaza, S.W.

Washington, D.C.


(Address of principal executive offices)

(ZIP Code)

(202) 268-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No  Not Applicable 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No  Not Applicable 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  Accelerated filer 

Non-accelerated filer  (Do not check if a smaller reporting company) Smaller reporting company 

Not Applicable 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock

Outstanding Shares as of August 9, 2013

No Common Stock


United States Postal Service

Quarterly Financial Report Index

Part I 3

Item 1 – Financial Statements 3

Notes to Financial Statements (Unaudited) 8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 22

There were no accounting standards issued or adopted during the nine months ended June 30, 2013 that had or will have a material impact on our financial statements. 24

Item 3 – Quantitative and Qualitative Disclosures about Market Risk 49

Item 4 – Controls and Procedures 49

Part II 50

Item 1 – Legal Proceedings 50

Item 1A – Risk Factors 50

Item 4 – Mine Safety Disclosures 50

Not applicable to the United States Postal Service. 50

Item 6 – Exhibits 50

Signatures 51

Part I

Item 1 – Financial Statements

Notes to Financial Statements (Unaudited)

Note 1 – Basis of Presentation

The interim financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial statements and, accordingly, do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the significant accounting policies and other disclosures in the Annual Report on Form 10-K for the year ended September 30, 2012. As in the Annual Report on Form 10-K, all references to years are to the fiscal year beginning October 1 and ending September 30, unless otherwise stated. All references to quarters, unless otherwise indicated, are to quarters within fiscal years 2013 and 2012.

In the opinion of management, the accompanying unaudited interim financial statements reflect all adjustments (including normal recurring adjustments) necessary to fairly present the financial position of the Postal Service as of June 30, 2013; and the results of operations for the three and nine months ended June 30, 2013, and 2012; and the cash flows for the nine months ended June 30, 2013, and 2012. Operating results for the three and nine month periods ended June 30, 2013, are not necessarily indicative of the results that may be expected for all of fiscal year 2013. During the three months ended June 30, 2013, the Postal Service recorded a non-recurring adjustment of $246 million to the deferred revenue - prepaid postage liability which resulted in an increase to revenue for the quarter. This adjustment was for usage related to forever stamped envelopes and cards that was previously unrecognized is considered immaterial to the current and prior periods.

Subsequent events have been evaluated through August 9, 2013, the date the Postal Service filed its Form 10-Q for the quarter ended June 30, 2013, with the Postal Regulatory Commission (PRC).

The Postal Service held $100 million in restricted cash as of June 30, 2013. The Postal Service received these funds as the result of an investigation by the United States Postal Inspection Service for mail and wire fraud. The funds are expected to be distributed to the Department of Justice (DOJ) within the next year to reimburse DOJ for the victim restitution program that the agency is administering. There was no restricted cash at September 30, 2012.

The Postal Service, which is an independent establishment of the executive branch of the Government of the United States, has significant transactions with other U.S. Government agencies, as disclosed throughout this report. In addition to the amounts disclosed elsewhere, deferred revenue of $53 million at June 30, 2013, and $27 million at September 30, 2012, related to government deposits are included in the Balance Sheets in “Customer Deposit Accounts”.

Note 2 – Liquidity


The Postal Service continues to suffer from a severe lack of liquidity. The Postal Service held unrestricted cash of $3.1 billion and $2.3 billion as of June 30, 2013, and September 30, 2012, respectively. These cash balances represent approximately 11 days, and 8 days, respectively, of average daily expenses. It had no remaining borrowing capacity on its $15 billion debt facility as of June 30, 2013. (See Note 3- Debt, for additional information). By mid-October 2013, the Postal Service projects it will have a cash balance on hand of approximately 5 days of its average daily expenses. This low level of available cash means that the Postal Service will be unable to make the $5.6 billion legally-mandated prefunding of retiree health benefits due by September 30, 2013. Further, this level of cash could be insufficient to support operations in the event of another significant downturn in mail volume.

The Postal Service has suffered 7 consecutive quarters of net losses and has had net losses in 16 of the last 18 quarters. The net loss of $3,870 million for the first nine months of the year included $4,200 million of expense accrued for the legally-mandated prefunding payment for retiree health benefits.

In addition to the requirement to prefund $5.6 billion of retiree health benefits for 2013, the Postal Service continues to pay the employer’s share of the health insurance premiums for the Postal Service’s retirees. This cost was $2.6 billion in 2012, and is projected to increase to $2.8 billion for the full year 2013. In the past six fiscal years, since the enactment of the Congressionally-mandated prefunding, the Postal Service has incurred $41 billion of net losses, including $32 billion of expenses for prefunding retiree health benefits. Through 2012, the Postal Service has paid $21 billion of cash into the Postal Service Retiree Health Benefit Fund (PSRHBF) for prefunding. Since 2006, its debt has increased by nearly $13 billion, reaching the $15 billion borrowing limit at the end of 2012.

During 2012, the Postal Service was forced to default on $11.1 billion of required prefunding payments to the PSRHBF for retiree health benefits. The statutory requirement establishing the prefunding payment schedule, P.L. 109-435, contains no provisions addressing a payment default. This $11.1 billion is reflected as a current liability on the September 30, 2012 Balance Sheet and is included, along with the $4.2 billion accrued during this fiscal year on the June 30, 2013 Balance Sheet. As of the date of this report, August 9, 2013, the Postal Service has suffered no financial penalties as a result of its inability to make these payments.

The requirement of the Postal Accountability and Enhancement Act, Public Law 109-435 (P.L. 109-435) to prefund its retiree health benefit obligations, a requirement not imposed upon other federal agencies or private sector businesses, plus the drop in mail volume and changes in the mail mix caused by changes in consumers’ use of mail, have been the major factors contributing to Postal Service losses since the recession ended in 2009. Without structural change to the business model, the Postal Service will continue to be negatively impacted by these factors and, absent legislative change, it anticipates continuing quarterly losses into the foreseeable future.

Current projections indicate that the Postal Service will have a continued low level of liquidity in the remainder of 2013. It is expected that the Postal Service will be unable to make the required $5.6 billion retiree health benefits prefunding payment due by September 30, 2013. This cash position will continue to worsen in October 2013, when the Postal Service is required to make its annual payment of approximately $1.4 billion to the DOL for workers’ compensation. This low level of liquidity will continue to exist, absent legislative actions by Congress that have been requested to assist the Postal Service in returning to a financially stable position,

In the short-term, should circumstances leave the Postal Service with insufficient cash, it would be required to implement contingency plans to ensure that mail delivery continues. These measures could require that the Postal Service prioritize payments to employees and suppliers ahead of some payments to the Federal Government, as has been done in the past. Additionally, the Postal Service continues to seek a refund of the overfunding of Federal Employees’ Retirement System (FERS) as those funds would help alleviate some of the Postal Service’s short-term liquidity risks. The Office of Personnel Management (OPM) estimated that the FERS overfunding was $3.0 billion at September 30, 2012. The Office of the Inspector General (OIG) has determined that if Postal Service specific assumptions were used to estimate the FERS obligation, rather than the government-wide averages currently used, the surplus would be greater than the amount calculated by OPM.


On January 14, 2013, the Postal Service Board of Governors directed management to accelerate the realignment of Postal Service operations to further reduce costs in order to strengthen Postal Service finances, citing the fact that the Postal Service cannot wait indefinitely for legislation.

On February 6, 2013, the Postal Service announced plans to transition to a new delivery schedule beginning in August 2013, which would include package delivery Monday through Saturday and mail delivery Monday through Friday. The Postal Service expected to generate cost savings of approximately $2 billion annually, when fully implemented. However, after Congress passed a continuing resolution which clearly prohibits such an action, the Board of Governors announced on April 10, 2013, that implementation of the modified delivery schedule would be delayed until legislation changing the 6-day delivery requirement is enacted. The Postal Service remains hopeful that comprehensive legislation will soon be enacted to enable changes to the business model that would allow a transition to the new delivery schedule in 2014.

On April 17, 2013, the Postal Service released its updated comprehensive 2013 Five-Year Business Plan (“Plan”) which details the implementation of its targeted program to eliminate nearly $20 billion of annual cost from the business by the year 2016. This plan continues the Postal Service’s efforts to aggressively pursue the strategies within its control to increase operational efficiency and to improve its liquidity position. The Plan requires a combination of operational realignment, aggressive cost reductions, and comprehensive legislation to reform the Postal Service’s current business model. Several key provisions included in the Plan, as outlined below, must continue in earnest.

  • Better alignment of network size and cost with reduced mail volumes

  • Revenue management and increased growth

  • Implementation of a USPS sponsored healthcare plan for active and retired employees

  • Business model changes, including implementation of a new delivery schedule

Alignment of network size and cost with reduced mail volumes

Operational initiatives outlined in the plan include the accelerated consolidation of mail processing, retail, and delivery networks in order to better align them with mail volumes, and a reduction in hours at 13,000 Post Offices, accompanied by an expansion in alternate retail access. These extensive operational changes are being executed while the Postal Service continues to deliver appropriate levels of service to communities throughout America. This realignment of mail processing, retail, and delivery operations is expected to generate nearly $6 billion in annual cost reductions by the year 2016.

In conjunction with the operational realignment, the Postal Service continues to implement efficiency measures, and continues its actions to better align staffing levels with projected mail volume. These staffing level reductions will be achieved largely through attrition, as approximately one-half of career employees are eligible for retirement or voluntary early retirement. As a result of a special incentive and voluntary early retirement (VER) offer, approximately 22,800 eligible employees represented by the American Postal Workers’ Union (APWU) retired or separated from the Postal Service in Quarter II, 2013. This followed 4,275 eligible postmasters and 2,925 eligible mail handlers who retired or separated from the Postal Service in Quarter IV, 2012. In addition, recent contractual agreements with major postal unions allow for increased utilization of lower cost non-career employees, which will facilitate the realignment of staffing and workload levels and the reduction of costs.

In the first nine months of 2013, the Postal Service recorded the following operational and personnel achievements which are expected to lead to improved efficiency and productivity:

  • 104 mail processing facilities were consolidated;

  • 7,397 Post Offices reduced operating hours as part of the Post Plan;

  • 258 new Village Post Offices were established;

  • 1,156 delivery routes were consolidated or reduced;

  • Career employee workhours reduced by approximately 41 million hours as the complement decreased by over 34,000 employees; and,

  • Non-career employee workhours increased by approximately 30 million.

Revenue Management

The Postal Service continues to introduce new service offerings to generate new revenue and to slow the migration of existing revenue streams to electronic alternatives. Expanded use of digital technologies to enhance the mail experience, using connectivity to various websites, social media, and points of purchase, is a focus in enhancing the mail experience. However, legislative action is also required to give the Postal Service authority to generate new revenue and adapt to changing business conditions because the scope of products and services that the Postal Service can offer is limited by law.

The Postal Service’s efforts in this area are evident in the following achievements during the first nine months of 2013:

  • Total revenue increased by 1.3%, after annual declines in each of the last four fiscal years;

  • Revenue from Shipping & Packages increased by 7.5%;

  • Standard (advertising) mail revenue increased by 2.9%

Implementation of a USPS sponsored healthcare program

A vital component of the Plan is the requirement that the Postal Service dramatically reduce its healthcare costs by sponsoring its own healthcare program independent of other federal health insurance programs.  The Postal Service’s proposed program is intended to provide Postal employees and retirees with equivalent benefits, but at lower cost. It is estimated that a Postal Service-sponsored healthcare program could achieve approximately $8 billion of projected annual savings by 2016. The Plan would eliminate the need for any additional retiree health benefit prefunding as established in P.L. 109-435, which would save the Postal Service over $5.6 billion annually through 2016. The Plan also proposes to transfer current retirees into the Postal Service sponsored healthcare program, an action that also requires legislation.  In addition, the Postal Service is also currently working with its unions to develop a healthcare proposal intended to provide the Postal Service similar financial benefits while staying within FEHB. 

Business Model Change

As noted above, achieving significant future efficiencies and cost reductions in areas that are under the Postal Service’s control will not be enough to return it to a position of financial viability in the long run without comprehensive changes to its business model. The fulfillment of the Plan’s complete cost savings and debt reduction objective can only be obtained with the enactment of comprehensive legislative reform of the Postal Service’s business model. Business model changes requiring legislation include: Postal Service sponsorship of its own healthcare program for both employees and retirees, resolving the prefunding of retiree health benefits; and obtaining a refund of its over-payment to the FERS, and calculating the Postal Service’s funding obligation for FERS using postal specific economic assumptions and demographics. Congress must also enact legislation to allow the Postal Service to implement a 6-day package delivery and a 5-day mail delivery operational schedule.

Accordingly, the Postal Service has proposed legislative changes to Congress that are needed to provide it with the legal authority to implement certain measures to increase efficiency and produce additional cost savings. Additionally, the Governors must have authority commensurate with their responsibility to provide reliable and efficient universal service in a financially self-sufficient manner. Given the vital role that the Postal Service plays in the U.S. economy, management has requested and continues to request that Congress move swiftly in taking the needed steps to enact legislative changes that will enable the Postal Service to be economically self-sustaining.


The Postal Service’s status as an independent establishment of the executive branch that does not receive tax dollars for its operations presents unique requirements and restrictions, but also potentially mitigates some of the financial risk that would otherwise be associated with a cash shortfall. With revenues of $65 billion, generated almost entirely through the sale of postage, the Postal Service is at the core of an industry that employs approximately 8 million Americans. The U. S. economy benefits greatly from the Postal Service as well as the many businesses that provide the printing and mailing services that support it. Millions of check payments, letters, and packages upon which people depend are mailed through the Postal Service on a daily basis. Disruption of the mail would cause hardships to the public, and to the business and banking sectors, and could cause some businesses to shut down. Therefore, it is unlikely that, in the event of a cash shortfall, the Federal Government would allow the Postal Service to significantly curtail or cease operations.

The Postal Service continues to inform the Administration, Congress, the PRC, and other stakeholders of the immediate and longer-term financial issues it faces and the legislative changes that would help provide financial stability. Given the vital role the Postal Service plays in the U.S. economy, it is hopeful that Congress will promptly enact, and the President will sign, legislation which will mitigate the Postal Service’s short-term financial challenges and provide it with the authority to make needed changes to ensure long-term financial stability. However, there can be no assurances that the requests to restructure the PSRHBF prefunding payment schedule, or any other legislative changes, will be made in time to impact 2013, 2014, or at all.

Note 3 – Debt

Debt payable to the Federal Financing Bank (FFB), a government-owned corporation under the general supervision of the Secretary of the Treasury, consisted of the following at June 30, 2013, and September 30, 2012:

The Postal Service has two revolving credit lines with the FFB, both of which are available until April 30, 2014. One, a short-term credit line, enables it to draw up to $3,400 million with two days prior notice. Borrowings under this credit line are typically on an overnight basis, but can have a maximum term of up to one year. The second credit facility, which only allows for borrowings on an overnight basis, enables borrowings of up to $600 million on the same business day that funds are requested. As of June 30, 2013, both of these lines of credit have been fully drawn. In addition, the Postal Service can use a series of other notes with varying provisions to draw upon with two days prior notice. These credit facilities and note arrangements provide the flexibility to borrow short or long-term, using fixed or floating-rate notes. Fixed-rate notes can be either callable or non-callable at the option of the Postal Service. Debt, all of which is unsecured and not subject to sinking fund requirements, can be repaid at any time at a price determined by the Secretary of the Treasury, based on prevailing interest rates in the Treasury Security market at the time of repayment.

The Postal Service is limited by statute to net annual debt increases of $3 billion, and total debt cannot exceed $15 billion. For 2013, the amount of borrowing is constrained by the total debt ceiling limitation of $15 billion, which the Postal Service reached during fiscal year 2012. The total debt as of June 30, 2013, and September 30, 2012, was $15 billion.

Scheduled principal repayments, exclusive of capital leases, as of June 30, 2013, are as follows:

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