Postage Technology
Management
AIMED -- August 2002
POSTAGE TECHNOLOGY MANAGEMENT
Significance of the Mail

The sanctity of the U. S. Mail for 226 years

Fundamental component of the national
infrastructure

Nearly 700 million pieces delivered each day

Annual Revenue of approximately $70 billion

Delivery to 145 million business, government, and
residential addresses

The largest non-military vehicle fleet in the world

Revenue from mail-related commerce generates
approximately 8% of the nation’s gross national
product
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- Challenges

Slowing Growth Rate in First-Class Mail (from 4.8%
in ‘80s to 0.1% in 2001)

Changing of the Mix of Mail (trend from higher
margin First Class to lower margin Standard A)

Increasing Number of Household Deliveries (1.7
million per year)

Declining Average Piece Per Household (need
$1.92 in revenue per delivery per day)

Restrictions on Closing Unprofitable Post Offices

Mandated Shift to Electronic Billing and Payment by
Federal Government Agencies
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- Revenue Programs

New Rate Case - 8.7%, $6.1 Billion



Negotiated settlement achieved
June 30, 2002 Implementation
Product Redesign

Rate Summit for new rate making
strategies

Rate rationalization and pricing strategies
to match customer needs

Simpler requirements and preparation
rules
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- Hot Buttons

Postal Reform / Transformation Plan

Security Of The Mail, Privacy

Enhanced Screening / Scanning

USPS / Industry Partnership Opportunities

Core Business

Revenue Security

Expense Reductions - Shared Services

Value Added Services

Self-Service Vending
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- Financial Highlights
Where Does It Come From? REVENUE
Periodicals
Standard B
First Class
Standard A
63.5 cents
23.9 cents
Other
3.3¢ 3.0¢ 6.3 ¢
Source - USPS Annual Report - 2001
(*First Class figure includes Priority and Express Mail revenue)
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- Financial Highlights
Where Does It Go? COST
Personnel Expense
75.8 cents
Transportation
Supplies/Services
Other
Interest Expense
Interest on Deferred
Retirement Liabilities
7.5¢
4.8¢
9¢
.5¢ 2.4¢
Source - USPS Annual Report - 2001
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- 2002 3rd Quarter Report
Income Statement (Unaudited)
Statement of Cash Flows (Unaudited)
Year-to-Date
Quarter Ending
($ in Millions)
May 17, 2002
Same Period
FY 2001
May 17, 2002
Year-to-date
Same Period
FY 2001
($ in Millions)
May 17, 2002
Same Period
FY 2001
Cash Flows from Operating Activities:
Operating Revenue
$
15,285 $
15,607
$
46,263 $
46,711
Operating Expenses:
Compensation and Benefits
Transportation
Other
Total Operating Expenses
Net Income (Loss) (Government Fiscal Year)
$
(763) $
1,453
1,387
Changes in Non Current Assets & Liabilities
2,283
2,125
Changes in Current Assets & Liabilities
2,404
1,868
5,377
4,708
12,023
11,996
36,019
35,924
1,117
1,976
1,131
2,105
3,686
5,683
3,576
6,049
Net Cash Provided by Operating Activities
15,116
15,232
45,387
45,549
Cash Flows from Investing Activities:
Sale/Purchase of U. S. Government Securities - Net
Income From Operations
169
375
876
1,162
1
Purchase of Property and Equipment - Net
Net Cash Used by Investing Activities
Interest and Investment Income
Interest on Deferrred Retirement
Interest Expense on Borrowing
11
(378)
(83)
8
(372)
(77)
26
(1,135)
(243)
25
(1,115)
(267)
$
(281)
(65)
(476)
(194)
Increase/(Decrease) in Long-term Debt
Net Cash Used by Financing Activities
Net Change in Cash and Cash Equivalents
Cash & Cash Equivalents at Beginning of Period
Cash & Cash Equivalents at End of Period
Based on Postal Fiscal Year
-
(1,383)
(2,120)
(1,382)
(2,120)
(4,363)
(3,224)
Cash Flows from Financing Activities:
(Increase)/Decrease in Other Non-current Assets
Net Income (Loss)
(672)
Depreciation and Amortization
$
-
-
(4,363)
(3,224)
(368)
999
(636)
677
631 $
41
Based on Government Fiscal Year
Net Income: Quarter III net loss of $281M, $80M less than planned net loss of $361M. Revenue for quarter $796M below plan but
expenses under plan by $876M resulting in smaller net loss than planned for quarter.
Revenue: Revenue of $15.3B 4.9% ($796M) below plan and 2.0% ($322M) below Qtr III last year. Planned revenue growth for Qtr III
was 3.1%
Volume: Total mail volume of 47.1B pieces 3.5% below plan. Mail volume declined 2.5% during Qtr III against anticipated growth of
1.0%. Volume for all mail categories declined during Qtr III.
Expense: Operating expenses of $15.1B were $871M or 5.2% under plan. Personnel costs $524M under plan, transportation expense
$80M under plan, and other non-personnel expense were $435M under plan for quarter. Operating expenses were reduced by 0.8%
from Qtr III last year.
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- 2002 3rd Quarter Report

Performance better than plan
– Net loss of $281M
– $80M less than planned
– Total operating expenses cut $116M below
last year and $871M below plan

Volume down 2.5% from last year
– 47.1B pieces compared to 48.3B last year

Revenues $322M below last year and
$796M below planned revenue
– Revenue loss from volume decline offset by
expense reductions
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- 2002 3rd Quarter Report

Total factor productivity and output per
work hour gains
– Employee and work hour reductions
– Career complement reduced 13,750
employees
– 16.1M work hours reduced in Qtr III
– 54.6M YTD work hour reductions

Volume trends expected to continue
through FY end
– 3 - 4% reduction anticipated for quarter

Estimated Net Loss for Year $1-$1.5B
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update -- 2002 3rd Quarter Report
Quarter III Volume
Compared to Same Quarter Last Year
-1.0%
-2.5%
-3.5%
First Class
Standard
Total Mail Volume
POSTAGE TECHNOLOGY MANAGEMENT
Corporate Update-- 2002 3rd Quarter Report
Cumulative Work Hour Reduction
For FY 2002
0
(10)
(20)
Output per Work Hour
(30)
FY 2002
(40)
(50)
2.5
01
03
05
07
09
11
Accounting Period
13
% Growth
(60)
2.0
2.0
1.3
1.5
1.0
0.5
0.0
0.0
Q1
Q2
Postal Quarter
Q3
POSTAGE TECHNOLOGY MANAGEMENT
Recent Regulation Changes -- Open for Comment

Inspections of Manufacturers’ Facilities Outside
Continental US (FRN Published 5/9/2 Comments
Due 6/10/2)

Meter Withdrawal And Handling Faulty Meters
(FRN Published 5/2/2 Comments Due 6/3/2)

Inventory Control and Protection and Control of
Internal and Security Components (FRN
Published 4/24/2 Comments Due 5/24/2)
POSTAGE TECHNOLOGY MANAGEMENT
Recent Regulation Changes -- Final Rules

Release of Information (FRN Published 7/15/2)
– No changes from proposed rule

Secure Destruction of Meters (FRN Published
11/1/1)
– Added new regulation for secure destruction of meters
and PSDs

Demo Meters and Loaner Meters (FRN Published
4/25/1)
– Demo Meters must be tracked, print only specimen
indicia, not used for live mail and remain under direct
control
– Loaner Meters carry specific dealer responsibility and
conditions
POSTAGE TECHNOLOGY MANAGEMENT
Recent Changes -- Privacy Disclosure Statements

Developing enterprise wide privacy policy

Applies to all business practices and
data collection

Enterprise includes meter manufacturers,
PC Postage providers and dealer network
POSTAGE TECHNOLOGY MANAGEMENT
Meter Migration Plan

Phase III – Letterpress
– No Timeout feature
– 12/31/01 - Notify customers of schedule
– 12/31/02 - Stop placement
– 12/31/06 - Off market completely
POSTAGE TECHNOLOGY MANAGEMENT
Meter Migration Plan

Phase IV –
–
Letterpress with Timeout
– 6/30/03 - Notify customer of schedule
– 06/30/04 - Stop placement (this moved from
12/31/03)
– 12/31/08 - Off market complete
POSTAGE TECHNOLOGY MANAGEMENT
The Channel
1,967,515
Population
1,969,109
1,772,616
1,658,225
364,131
376,600
393,193
PC Postage
PC Postage
PC Postage
1,607,919
1,548,474
1,412,599
1993
1,607,870
1,604,978
1,590,915
1,497,154
1,462,692
1994
1995
1996
1997
Permit
$11.9 Billion
1998
1999
2000
2001
2002
Other
$3.6 Billion
Other
$8.2 Billion
Revenue
2,001,063
Customer Meters
$20 Billion
Stamps
$10.9 Billion
Permit
$26.4 Billion
Customer Meters
$20.7 Billion
Stamps
$11 Billion
PVI Meters
$4.3 Billion
PVI Meters
$3.1 Billion
1995 Data
2001 Data
POSTAGE TECHNOLOGY MANAGEMENT
Profile In The Mail Stream
All Mail Classes
1.56%
16.03%
54.65%
27.49%
Metered
Permit
Stamps
Other
First Class Mail
Priority Mail
2.67%
1.99% 7.79%
22.45%
67.77%
25.16%
27.13%
45.04%
Standard B
1.17% 1.14% 21.64%
76.05%
Standard A
0.21% 2.13% 5.84%
91.82%
ODIS Quarterly Statistics Report Summary of Changes in Mail Class and Postage Evidencing Method; FY02 Qtr III data
POSTAGE TECHNOLOGY MANAGEMENT
Profile In The Mail Stream
FY2001
Quarter 1
All Mail Classes
First Class Mail
Priority Mail
Standard B
Standard A
188,315
165,188
2,795
478
18,385
FY2002
Change
Change
from Prior
Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 from SPLY Quarter
Average Daily Metered Mail Volume (000)
194,477
183,424
177,604 180,292 188,038 177,455
-3.25%
-5.63%
173,422
162,493
158,371 159,908 169,058 157,773
-2.90%
-6.67%
3,325
2,632
2,382
2,465
2,975
2,540
-3.49%
-14.62%
735
726
785
790
1,004
754
3.83%
-24.93%
16,215
16,309
15,571
15,596
13,628
14,920
-8.52%
9.48%
Metered mail volumes as % of total avg daily volumes:
All classes
First Class Mail
Priority
Standard B
Standard A
27.49%
45.04%
67.77%
21.64%
5.84%
ODIS Quarterly Statistics Report Summary of Changes in Mail Class and Postage Evidencing Method; FY02 Qtr III data
POSTAGE TECHNOLOGY MANAGEMENT
Technology Migration Lowering Associated Costs
METER POPULATIONS
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
1993
1994
1995
1996
1997
1998
1999
2000
IBI Meters
PC Postage
2001
Q3
2002
8,304
15,254
9,874
364,131
376,600
393,193
9,559
129,574
249,470
457,566
616,389
597,463
666,623
798,767
CMRS
592,031
631,196
658,281
853,631
833,985
866,516
992,511
887,018
848,384
778,499
Manual
820,568
831,496
829,314
565,269
524,464
334,143
177,413
116,786
67,604
.15350
Digital CMRS
POSTAGE TECHNOLOGY MANAGEMENT
Retail Meter Revenue by AP
200,000,000
180,000,000
160,000,000
140,000,000
120,000,000
2001
2002
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
1
2
3
4
5
6
7
8
Accounting Period
9
10
11
12
13
POSTAGE TECHNOLOGY MANAGEMENT
Retail Meter Population by AP
1,040,000
1,020,000
1,000,000
980,000
960,000
2001
2002
940,000
920,000
900,000
880,000
860,000
1
2
3
4
5
6
7
8
Accounting Period
9
10
11
12
13
POSTAGE TECHNOLOGY MANAGEMENT
Commercial Meter Revenue by AP
1,800,000,000
1,600,000,000
1,400,000,000
1,200,000,000
1,000,000,000
2001
2002
800,000,000
600,000,000
400,000,000
200,000,000
0
1
2
3
4
5
6
7
8
Accounting Period
9
10
11
12
13
POSTAGE TECHNOLOGY MANAGEMENT
Commercial Meter Population by AP
700000
680000
660000
640000
620000
2001
2002
600000
580000
560000
540000
520000
1
2
3
4
5
6
7
8
Accounting Period
9
10
11
12
13
POSTAGE TECHNOLOGY MANAGEMENT
PC Postage Revenue by AP
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
2001
2002
4,000,000
3,000,000
2,000,000
1,000,000
0
1
2
3
4
5
6
7
8
Accounting Period
9
10
11
12
13
POSTAGE TECHNOLOGY MANAGEMENT
PC Postage Population by AP
600000
500000
400000
2001
2002
300000
200000
100000
0
1
2
3
4
5
6
7
8
Accounting Period
9
10
11
12
13
POSTAGE TECHNOLOGY MANAGEMENT
Background on Terrorism and The Mail

The mails have been used to promote activities
against a government since Medieval Times

Last year, 8 letter bombs were mailed, only two
detonated before detection

Last year, 4 abortion clinics received letters
containing suspected anthrax, all were hoaxes

Last year, there were 16 threats against the
government via the mails that were investigated,
most were hoaxes
POSTAGE TECHNOLOGY MANAGEMENT
Security of the Mail -- Current Mobilization
Postmaster General John Potter
established the Mail Security Task Force







Postal Inspectors
Postal Managers
Centers for Disease Control
Union Representatives
Management Associations
USPS Inspector General
Major Customers
POSTAGE TECHNOLOGY MANAGEMENT
Security of the Mail -- Task Force Sub-Groups
 Safety
and Security in the Workplace
 Mailroom
Security
 Contingency
Planning
 Mail
Screening
 Mail
Preparation
 Communicating
 Mail
and Messaging
Transportation Security
POSTAGE TECHNOLOGY MANAGEMENT
Security of the Mail -- Throughout the Ages
The fear of disease
transmitted via mail is
not new:
POSTAGE TECHNOLOGY MANAGEMENT
Mailing Industry Task Force



Made Up of 11 CEO’s of Mail Industry Companies
Chaired by PB’s Mike Critelli and USPS DPMG
John Nolan
Worked for Six Months:
– To assess the current state of the mail
communications network
– To determine how mail could be enhanced to ensure
its viability in the future

Eight Areas of Recommended Activity are
Supported by Three Basic Strategic Initiatives:
– Respond to Customer Needs
– Make the Mail Channel More Competitive
– Unify the Industry
POSTAGE TECHNOLOGY MANAGEMENT
Transformation Plan Imperatives

Growth Through Value -- improving the
quality, affordability and convenience of our
products and services

Increase Operational Efficiency -- using
cost management, new technology, and
workforce planning to improve operational
efficiency

Performance Based Culture --maximizing
employee performance by creating a
performance driven culture
POSTAGE TECHNOLOGY MANAGEMENT
How We Contribute to Transformation Objectives

Expand Access - use technology to expand
reach and reduce cost
– Postage technology products provide
alternative, convenient, affordable access
– Lower cost form of postage
– Alternative to high cost retail stamp
transactions
– Attractive to growth market (Preferred
customer segment)
– Research indicates we can reach more of
the market and more of their mail volume
POSTAGE TECHNOLOGY MANAGEMENT
How We Contribute to Transformation Objectives

Information Rich Mail Products - use
technology to make mail more competitive
– IBI provides technology platform for data on
the mail piece
– Unique identification critical characteristic of
IBI
– Software products provide valuable
transaction record capability
– Integration with other Postal products and
services; e.g., Delivery Confirmation
POSTAGE TECHNOLOGY MANAGEMENT
How We Contribute to Transformation Objectives

Products and Pricing to Match Customer
Needs - use technology to make mail more
valuable and easier to use
– Customer options with variety of products
and features that appeal to small, mid and
large size customers
– More flexible and responsive to changing
customer needs by working through vendors
– Work with industry to move to more costeffective technology (e.g., remote reset)
POSTAGE TECHNOLOGY MANAGEMENT
How We Contribute to Transformation Objectives

Key Communications and CRM Tool - use
technology to reach and inform
– Data management features of software
products attractive to customers
– Web based products provide opportunities to
inform and provide additional services when
they come to us
– Transaction data helps us to better
understand our customers, their mailing
behavior and anticipate their needs
POSTAGE TECHNOLOGY MANAGEMENT
How We Contribute to Transformation Objectives

Operational Efficiencies - use technology to
take costs out of the system
– Optimize logistics
– Increase % of barcode mail in mail stream
– Contributes to address hygiene by integrating
address management system
– Data can be used for workload planning
– Optimize retail network
– Provide alternative to stamp purchase
– Work hour reduction with elimination of
manual tasks