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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.
Corporate Update -- 2002 3rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT
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
Corporate Update -- 2002 3rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT
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
Corporate Update -- 2002 3rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT
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
POSTAGE TECHNOLOGY MANAGEMENT
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)
How We Contribute to Transformation Objectives
POSTAGE TECHNOLOGY MANAGEMENT
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
How We Contribute to Transformation Objectives
POSTAGE TECHNOLOGY MANAGEMENT
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
How We Contribute to Transformation Objectives