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RR Donnelley CEO Testifies Before Congress On Need For Postal Reform

Thursday, February 12, 2004

Press release from the issuing company

CHICAGO, Feb. 11 -- William L. Davis, chairman, president and chief executive officer of RR Donnelley today testified before the U.S. House of Representatives House Committee on Government Reform urging Congress to act now to ensure the continued health and viability of the U.S. Postal Service (USPS) well into the 21st Century, and to support the recommendations of the President's Commission on the USPS. "Change is essential to the health of the mailing industry. This is a $900 billion industry, which accounts for 9 million jobs and nearly 9% of the GDP," said Davis. "This is about so much more than reforming the USPS. This is about the economy, this is about jobs, and this is about the future." The USPS operates under an inefficient 30-year old model, has massive un- funded liabilities, and is currently $7.3 billion in debt to the U.S. government. Postmaster General John E. Potter recently reported that in the last two years, the volume of first class mail has decreased by over 3.5 billion pieces, while 1.7 million new addresses have been added annually during the same period -- pushing up delivery costs at a time when revenue was declining. "Any piece of legislation that protects the status quo is not acceptable. At its heart, the governance concept of the USPS must change," added Davis. "It must change to allow, encourage and, better yet, demand continuous ongoing improvement. By doing so, the USPS will function more like a business." In December of 2002, President George W. Bush established a Commission on the USPS. The nine-member bipartisan Commission was charged with identifying operational, structural, and financial challenges facing the USPS; examining potential solutions; and recommending legislative and administrative steps to ensure the long-term viability of the postal service in the United States. The official recommendations of the commission were released in a formal report on August 1, 2003. RR Donnelley has made the following recommendations to the U.S. Congress, in order of importance: -- Maintain Universal Service - This obligation to provide universal service imposed on the USPS, must be maintained for economic and social reasons. -- Review of Worksharing - Encourage the USPS to engage in more public/private sector worksharing to drive productivity like that of major U.S. companies. Ensure that worksharing discounts adequately reflect all of the variable costs these activities actually help the USPS avoid. -- Review of All Processing Networks - The upstream process is a major contributing factor to many other problems that plague the USPS. While the entire network should be reviewed, there are savings to be realized in the range of $6-8 billion if just the upstream process was realigned. The USPS must be given the flexibility to make this an ongoing process. -- Productivity Gain - Give the USPS the flexibility and the incentive to implement the programs necessary to post productivity gains similar to those in the private sector. -- Ratemaking Process Changes - Creating rates that are more predictable, make rates more market driven, and eliminate the "politics" of ratemaking. -- Financial Modifications - The USPS should establish a mandate for financial transparency that mailers can rely upon to develop their own business plans. -- Enhance The Technology Infrastructure - The USPS should outsource their information systems and information technology to quickly achieve parity with their private sector competitors. -- Cultural Transformation - In order for organizational changes of this scope and magnitude to be realized, they must be accompanied by a corresponding cultural transformation. -- Governance - The role and make up of the Postal Board of Governors should resemble that of the boards of publicly traded companies. "We have a chance right now, a real opportunity to make the necessary changes to ensure that the USPS and the mailing industry as a whole remain health and viable," said Davis. "Several more years of business as usual could bring us to a point of disrepair."




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