Today, the Postal Rate Commission (PRC) issued its Recommended Decision on the R2000-1 rate case proposal submitted by the Postal Service on January 12, 2000. This concludes the Commission's in-depth review of the proposal that lasted the entire ten months allowed by law. The United States Postal Service Board of Governors (BOG) will act on the PRC Recommendation at their next meeting scheduled for December 4th and 5th. At that time, the BOG will decide the implementation date, expected to be in early January 2001. Corporate Postal Affairs will provide a detailed analysis for each class of mail produced by Quebecor World within the next couple of days. Additionally, analysis tools will be made available for Standard Mail and Periodicals. Below is a general overview of the recommended changes along with highlights from the Commission's recommendation. General Highlights The PRC cut the overall revenue requirement requested by the Postal Service from $2.8 billion to $2.5 billion. Additionally, the Commission recommended a reduction in the Postal Service's contingency reserve (an allocation to cover unforeseen expenses) from $1.7 billion to $1 billion. This decision allowed the PRC to recommend lower-than-proposed rates for some classes or categories of mail. The Rate Commission also placed a high level of importance on the Joint Task Force recommendations (made up of USPS, Association and Industry representatives, including Quebecor World) that will significantly reduce the cost of processing Periodicals mail. The resulting impact is lower-than-proposed rates for Periodicals mail. Standard A flat mail, in most cases, received higher than proposed increases but higher than proposed destination entry discounts. Quebecor World's role as our customer's logistics provider will become even more important as a result. First-Class The PRC approved the USPS request for a one-cent increase in the First Class stamp to 34 cents. They did; however, reject the proposed increase in the post card rate (which will remain at 20 cents) and reduced the First Class second ounce rate by one cent. The Postal Service proposed an overall average increase for First-Class of 3.6% while the PRC returned a recommendation of only 1.8%. This average considers the volumes for each subclass and rate category within First-Class (includes single piece, presorted and automation letters, cards and flats, as well as Qualified Business Reply Mail and Business Reply Mail). Periodicals The PRC took into account the 1999 cost data (introduced into the case in July) as well as the Postal Service / Industry Joint Task Force recommendations (of which Quebecor World was an active participant) resulting in a smaller recommended increase for Periodicals. The Postal Services' proposed increase averaged 13.5% while the PRC's recommendation averages 9.9%. In general, non-automation rate mailers will see an 8% increase while automation rate mailers will experience an approximate 11% increase. For Nonprofit and Classroom Periodicals, the average increase is 7.2%. The rate structure reflects the changes resulting from the passage of S.2686 allowing for rates that are 5% below commercial rates. The 5% discount does not apply to the advertising pound percentage, however. The PRC recommended a reduced advertising pound rate ($.007/lb.) along with an increased DDU piece discount ($.004) which should provide for more DDU initiatives. Additionally, the pound zone differentials provides for a slight increase in SCF incentive. The Quebecor World Logistics platform will play a key role in helping customers achieve additional postage savings. Standard Mail (currently known as Standard A and previously known as Third Class) Standard A flat mail rose slightly more than proposed. The average increase for Standard A flats went up from 8.8% to 9.5%. Automation flats will receive the highest percentage increases. The basic automation rate increases 12.24% while the 3/5 automation rate increases by 16.26%! The Enhanced Carrier Route basic rate increases by 8.64% resulting in a smaller percentage increase for carrier route concentrated mailings. A decrease in pound rates was finally accepted by the PRC, but not by as much as the Postal Service proposed. Heavy catalog mailers will see a larger increase under the PRC recommendation than under the Postal Services' proposal. As a percentage increase; however, pound rate mailers will see a lower increase than piece rate mailers. The Standard A letter mail rate increases average between 6 and 8%; however, the Enhanced Carrier Route Automation Basic rate decreasesby 0.6%. Unlike flats, the higher the automation, the lower the percentage increase. On the positive side, destination entry discounts increased more than the Postal Service proposed. Our customers will benefit from the enhanced Quebecor World Logistics platform. Package Services (currently known as Standard B) The overall average increase for Parcel Post is 2.7% while Bound Printed Matter increases by 17.6%. For Bound Printed Matter, the Commission accepted the introduction of Destination Entry discounts (for zones 1 - 5) and the elimination of local rates. The discounts; however, are significantly different from the Postal Services' proposal with higher per piece discounts and a pound rate discount in zones 1 & 2 only. Mailers who aggressively drop ship will see a lower than expected increase, while mailers who do not, will see a higher increase. Quebecor World Logistics will play a very significant role in increasing drop ship opportunities for our customers.