Postage Technology Management 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? REVENUE First Class Standard A Periodicals Standard B Other Source - USPS Annual Report (*First Class figure includes Priority and Express Mail revenue) 63.5 cents 23.9 cents 3.3¢3.0¢ 6.3 ¢ Corporate Update -- Financial Highlights POSTAGE TECHNOLOGY MANAGEMENT

Where Does It Go? COST Personnel Expense Source - USPS Annual Report cents7.5¢4.8¢9¢.5¢ 2.4¢ Supplies/Services Other Interest Expense Interest on Deferred Retirement Liabilities Transportation Corporate Update -- Financial Highlights POSTAGE TECHNOLOGY MANAGEMENT

Corporate Update rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT 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 rd 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 rd 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 rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT

Corporate Update rd Quarter Report POSTAGE TECHNOLOGY MANAGEMENT Cumulative Work Hour Reduction For FY 2002 (60) (50) (40) (30) (20) (10) 0 Accounting Period

Recent Regulation Changes -- Open for Comment POSTAGE 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 Rules POSTAGE 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 Statements POSTAGE 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, Population Revenue 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 Data2001 Data 376,600 PC Postage 1,969,109 1,967, ,131 PC Postage POSTAGE TECHNOLOGY MANAGEMENT The Channel ,607, ,193 PC Postage 2,001,063

POSTAGE TECHNOLOGY MANAGEMENT Profile 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 B 1.14% 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 MANAGEMENT Profile 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%

Technology Migration Lowering Associated Costs POSTAGE TECHNOLOGY MANAGEMENT - 200, , , ,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, , , ,193 Digital CMRS 9, , , , , , , ,767 CMRS 592, , , , , , , , ,384778,499 Manual 820, , , , , , , ,786 67, Q3 2002

POSTAGE TECHNOLOGY MANAGEMENT Retail Meter Revenue by AP 0 20,000,000 40,000,000 60,000,000 80,000, ,000, ,000, ,000, ,000, ,000, ,000, Accounting Period

POSTAGE TECHNOLOGY MANAGEMENT Retail Meter Population by AP 860, , , , , , ,000 1,000,000 1,020,000 1,040, Accounting Period

POSTAGE TECHNOLOGY MANAGEMENT Commercial Meter Revenue by AP 0 200,000, ,000, ,000, ,000,000 1,000,000,000 1,200,000,000 1,400,000,000 1,600,000,000 1,800,000, Accounting Period

POSTAGE TECHNOLOGY MANAGEMENT Commercial Meter Population by AP Accounting Period

POSTAGE TECHNOLOGY MANAGEMENT PC 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, Accounting Period

POSTAGE TECHNOLOGY MANAGEMENT PC Postage Population by AP Accounting Period

Background on Terrorism and The Mail POSTAGE 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-Groups POSTAGE 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 Imperatives POSTAGE 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