postage technology management aimed -- august 2002

Postage TechnologyManagement

AIMED -- August 2002

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

Significance of the Mail POSTAGE TECHNOLOGY MANAGEMENT

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

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

Corporate Update -- Challenges POSTAGE TECHNOLOGY MANAGEMENT

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

Corporate Update -- Revenue Programs POSTAGE TECHNOLOGY MANAGEMENT

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

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

Corporate Update -- Hot Buttons POSTAGE TECHNOLOGY MANAGEMENT

Where Does It Come From? REVENUEWhere Does It Come From? REVENUE

First ClassFirst Class Standard AStandard A

PeriodicalsPeriodicals

Standard BStandard B

OtherOther

Source - USPS Annual Report - 2001

(*First Class figure includes Priority and Express Mail revenue)

63.5 cents63.5 cents 23.9 cents23.9 cents 3.3¢3.3¢ 3.0¢3.0¢ 6.3 ¢6.3 ¢

Corporate Update -- Financial Highlights POSTAGE TECHNOLOGY MANAGEMENT

Where Does It Go? COSTWhere Does It Go? COST

Personnel ExpensePersonnel Expense

Source - USPS Annual Report - 2001

75.8 cents 7.5¢7.5¢ 4.8¢4.8¢ 9¢ .5¢ 2.4¢

Supplies/ServicesSupplies/Services

OtherOtherInterest ExpenseInterest Expense

Interest on Deferred Interest on Deferred Retirement LiabilitiesRetirement Liabilities

TransportationTransportation

Corporate Update -- Financial Highlights POSTAGE TECHNOLOGY MANAGEMENT

Corporate Update -- 2002 3rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT

Income Statement (Unaudited) Statement of Cash Flows (Unaudited)

Quarter Ending Year-to-Date Year-to-date

($ in Millions)May 17, 2002

Same Period FY 2001 May 17, 2002

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$ Net Income (Loss) (Government Fiscal Year) (763)$ (672)$

Depreciation and Amortization 1,453 1,387 Operating Expenses: Changes in Non Current Assets & Liabilities 2,283 2,125

Compensation and Benefits 12,023 11,996 36,019 35,924 Changes in Current Assets & Liabilities 2,404 1,868 Transportation 1,117 1,131 3,686 3,576 Net Cash Provided by Operating Activities 5,377 4,708 Other 1,976 2,105 5,683 6,049

Total Operating Expenses 15,116 15,232 45,387 45,549 Cash Flows from Investing Activities:Sale/Purchase of U. S. Government Securities - Net 1 -

Income From Operations 169 375 876 1,162 Purchase of Property and Equipment - Net (1,383) (2,120)

Net Cash Used by Investing Activities (1,382) (2,120) Interest and Investment Income 11 8 26 25 Interest on Deferrred Retirement (378) (372) (1,135) (1,115) Cash Flows from Financing Activities:Interest Expense on Borrowing (83) (77) (243) (267) Increase/(Decrease) in Long-term Debt (4,363) (3,224)

(Increase)/Decrease in Other Non-current Assets - -

Net Income (Loss) (281)$ (65) (476) (194) Net Cash Used by Financing Activities (4,363) (3,224)

Net Change in Cash and Cash Equivalents (368) (636) Cash & Cash Equivalents at Beginning of Period 999 677

Cash & Cash Equivalents at End of Period 631$ 41$

Based on Postal Fiscal Year 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.


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


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


Quarter III Volume

-1.0%

-2.5%

-3.5%

First Class Standard Total Mail Volume

Compared to Same Quarter Last Year

Corporate Update-- 2002 3rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT

Output per Work HourFY 2002

0.0

2.0

1.3

0.0

0.5

1.0

1.5

2.0

2.5

Q1 Q2 Q3

Postal Quarter

% G

row

th

Cumulative Work Hour ReductionFor FY 2002

(60)

(50)

(40)

(30)

(20)

(10)

0

Accounting Period

01 03 05 07 09 11 13

Recent Regulation Changes -- Open for CommentPOSTAGE TECHNOLOGY MANAGEMENT

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)

Recent Regulation Changes -- Final RulesPOSTAGE TECHNOLOGY MANAGEMENT

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

Recent Changes -- Privacy Disclosure StatementsPOSTAGE TECHNOLOGY MANAGEMENT

Developing enterprise wide privacy policy

Applies to all business practices and data collection

Enterprise includes meter manufacturers, PC Postage providers and dealer network

Phase III -

– Letterpress

– No Timeout feature

– 12/31/01 - Notify customers of schedule

– 12/31/02 - Stop placement

– 12/31/06 - Off market completely

Phase III -

– Letterpress

– No Timeout feature

– 12/31/01 - Notify customers of schedule

– 12/31/02 - Stop placement

– 12/31/06 - Off market completely

Meter Migration Plan POSTAGE TECHNOLOGY MANAGEMENT

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

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

Meter Migration Plan POSTAGE TECHNOLOGY MANAGEMENT

1,772,616

1,590,915

1995 19981997 2001200019991994 19961993

Po

pu

lati

on

Rev

enu

e

1,412,599

1,497,154

1,548,474

1,607,919

1,658,225

1,604,978

1,462,692

Customer Meters$20.7 Billion

PVI Meters$4.3 Billion

Stamps$11 Billion

Permit$26.4 Billion

Other$3.6 Billion

Customer Meters$20 Billion

PVI Meters$3.1 Billion

Stamps$10.9 Billion

Permit$11.9 Billion

Other$8.2 Billion

1995 Data 2001 Data

376,600PC Postage

1,969,1091,967,515

364,131PC Postage

POSTAGE TECHNOLOGY MANAGEMENTThe Channel

2002

1,607,870

393,193PC Postage

2,001,063

POSTAGE TECHNOLOGY MANAGEMENTProfile In The Mail Stream

Metered

Other

Stamps

Permit

All Mail Classes

16.03%1.56%

27.49%54.65%

First Class Mail

27.13%

2.67%

45.04%

25.16%

Priority Mail

7.79%1.99%

67.77%22.45%

Standard B1.14%1.17% 21.64%

76.05%

Standard A

5.84%0.21% 2.13%

91.82%

ODIS Quarterly Statistics Report Summary of Changes in Mail Class and Postage Evidencing Method; FY02 Qtr III data

POSTAGE TECHNOLOGY MANAGEMENTProfile In The Mail Stream

ODIS Quarterly Statistics Report Summary of Changes in Mail Class and Postage Evidencing Method; FY02 Qtr III data

Metered mail volumes as % of total avg daily volumes:

All classes 27.49%First Class Mail 45.04%Priority 67.77%Standard B 21.64%Standard A 5.84%

All Mail Classes 188,315 194,477 183,424 177,604 180,292 188,038 177,455 -3.25% -5.63%First Class Mail 165,188 173,422 162,493 158,371 159,908 169,058 157,773 -2.90% -6.67%Priority Mail 2,795 3,325 2,632 2,382 2,465 2,975 2,540 -3.49% -14.62%Standard B 478 735 726 785 790 1,004 754 3.83% -24.93%Standard A 18,385 16,215 16,309 15,571 15,596 13,628 14,920 -8.52% 9.48%

Average Daily Metered Mail Volume (000)

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3

FY2002

Change from SPLY

Change from Prior

Quarter

FY2001

Technology Migration Lowering Associated Costs POSTAGE TECHNOLOGY MANAGEMENT

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

METER POPULATIONS

IBI Meters 8,304 15,254

PC Postage 9,874 364,131 376,600 393,193

Digital CMRS 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

1993 1994 1995 1996 1997 1998 1999 2000 2001Q3 2002

POSTAGE TECHNOLOGY MANAGEMENTRetail Meter Revenue by AP

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

200,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13

Accounting Period

2001

2002

POSTAGE TECHNOLOGY MANAGEMENTRetail Meter Population by AP

860,000

880,000

900,000

920,000

940,000

960,000

980,000

1,000,000

1,020,000

1,040,000

1 2 3 4 5 6 7 8 9 10 11 12 13

Accounting Period

2001

2002

POSTAGE TECHNOLOGY MANAGEMENTCommercial Meter Revenue by AP

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13

Accounting Period

2001

2002

POSTAGE TECHNOLOGY MANAGEMENTCommercial Meter Population by AP

520000

540000

560000

580000

600000

620000

640000

660000

680000

700000

1 2 3 4 5 6 7 8 9 10 11 12 13

Accounting Period

2001

2002

POSTAGE TECHNOLOGY MANAGEMENTPC Postage Revenue by AP

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13

Accounting Period

2001

2002

POSTAGE TECHNOLOGY MANAGEMENTPC Postage Population by AP

0

100000

200000

300000

400000

500000

600000

1 2 3 4 5 6 7 8 9 10 11 12 13

Accounting Period

2001

2002

Background on Terrorism and The MailPOSTAGE TECHNOLOGY MANAGEMENT

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

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

Security of the Mail -- Current Mobilization POSTAGE TECHNOLOGY MANAGEMENT

Safety and Security in the Workplace

Mailroom Security

Contingency Planning

Mail Screening

Mail Preparation

Communicating and Messaging

Mail Transportation Security

Security of the Mail -- Task Force Sub-GroupsPOSTAGE TECHNOLOGY MANAGEMENT

The fear of disease transmitted via mail is not new:

Security of the Mail -- Throughout the Ages POSTAGE TECHNOLOGY MANAGEMENT

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

Mailing Industry Task Force POSTAGE TECHNOLOGY MANAGEMENT

Transformation Plan ImperativesPOSTAGE TECHNOLOGY MANAGEMENT

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

How We Contribute to Transformation Objectives POSTAGE TECHNOLOGY MANAGEMENT

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

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

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 cost-effective technology (e.g., remote reset)



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



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


postage technology management aimed -- august 2002

Documents