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Postal Cost-Cutting Reduces Shortfall, Expenses held below previous year

Press release from the issuing company

WASHINGTON, D.C. – Despite a significant decline in mail volume during Fiscal Year 2002, the U.S. Postal Service was able to cut a budgeted loss of $1.35 billion in half to $676 million, Postmaster General John E. Potter told the Postal Service Board of Governors today at its regular monthly meeting. Potter attributed the lower deficit figure to the agency's aggressive program to hold the line on expenses. Chief Financial Officer and Executive Vice President Richard Strasser presented the FY 2002 audited financial statements to the Governors, as independently audited by Ernst & Young, LLP. Strasser noted that the Postal Service achieved cost reductions totaling $1.45 billion during the fiscal year. Total expenses were held to $67.4 billion, which was $185 million below FY 2001 expenses. "This aggressive expense management came despite the fact that our delivery network grew by 1.77 million addresses," Strasser said. "Total revenues for the year came to $66.7 billion, an increase of $819 million over 2001. This is primarily attributable to the settlement of the postal rate case and the early implementation of the new rates." "In a year in which volume declined by 4.6 billion pieces, we still had a total factor productivity gain of 1.1 percent," Potter noted in his remarks to the Governors. Workhour reductions were the key to the cost containment. "Workhours were reduced 78 million, or 23,000 career employees," Potter stated, "and we accomplished this through attrition. Today we have about the same number of employees we had in 1995, even though we're delivering 22 billion more pieces of mail and have added 12 million more delivery addresses since then." Prudent fiscal management has allowed the Postal Service to reduce its debt this year by $200 million, rather than increasing debt by $1.6 billion as originally planned at the beginning of the fiscal year, Strasser reported to the Governors. "Our financial and service progress of last year is part of our Transformation Plan [a blueprint for the Postal Service's future presented to Congress earlier this year]. I expect similar progress in Fiscal 2003," Potter said. Chairman of the Board of Governors Robert Rider added, "We must stay the course begun this past year with our Transformation Plan. We must continue to build on the successes we've achieved so far. The recent audit of our payments to the Civil Service Retirement System and the possibility of reducing those payments by $2.9 billion next year also signals an opportunity for our customers to build their business as well." In other Board activity today, the Governors voted to approve an appropriations request to Congress of $416 million for FY 2004 to cover free mail for the blind and overseas voting materials, the annual payment for revenue forgone [payments due the Postal Service for previous costs incurred on nonprofit mailings] and emergency preparedness costs. In addition, funding was approved to enhance Optical Character Recognition technology used by high-speed flat sorters that process catalogs, magazines and newspapers. The upgrades will allow two pieces of equipment to read more addresses: 537 Automated Flat Sorting Machine 100s (AFSM 100), which sort flats weighing up to 20 ounces at a throughput rate of up to 17,000 pieces per hour; and 359 Upgraded Flat Sorting Machines (UFSM) 1000s, while slower, can sort flats up to six pounds at a rate between 6,000 to 10,000 pieces per hour. The AFSM 100 is expected to see a 3 percent read rate improvement and the UFSM 1000 read rate is expected to increase 4.5 percent. Both upgrades will be completed by winter 2004. Funding was also approved to enhance the feeder portion of the AFSM 100 to improve the handling of mail. In a move to continue its midtown Manhattan presence while improving customer service, the Board approved funding to extend the lease of Rockefeller Center Station by nearly 22 years. The approval also includes funding to renovate the lobby and other areas of the facility. Construction will be phased to avoid disruption to customer service. In other Board news, Nick Barranca, vice president, product development, informed the Governors about Click-N-Ship, the Postal Service's easy-to-use online shipping service that allows customers to handle their shipping needs without leaving their place of business or their home. With Click-N-Ship, customers can quickly create and print mailing labels —with or without postage— and pay for it all via credit card. Packages can be sent to both domestic and international addresses. For domestic shipments, customers can choose Priority Mail or Express Mail and for international destinations, Global Express Mail and Global Express Guaranteed are available. "It's clear we have a hit on our hands," said Barranca. "The marketplace is responding. Customers have printed over 1.3 million shipping labels since the service was first introduced in May." Over a third of the Click-N-Ship customers have paid for their postage online, generating $2.3 million dollars in postage from more than 413,000 shipping labels.