Trans-for-ma-tion  n [from Latin transformare able to change forms or shapes] 1:  the act, process or instance of changing in composition or structure 2:  the United States Postal Service's strategy to protect the fundamental right of affordable mail service for every American — no matter who, no matter where.

This year has been the most challenging, and also, the most rewarding in my experience in the Postal Service. By responding more rapidly than ever before, working with our customers and communicating better with our employees, we overcame much adversity in 2002. Were it not for the successful partnership forged with everyone involved in postal matters and the extraordinary cost containment and productivity gains made, we could not have met the challenge of 2002 as successfully as we did.

Despite the economic recession, the contamination of some mail with anthrax and the largest decline in mail volume in our history, we finished the year with a net loss of $676 million, well below the $1.35 billion we had expected at the beginning of the year. This enabled us to reduce debt by $200 million. Our net loss easily could have exceeded $4 billion were it not for the decisive actions taken by postal management and employees to control expenses. For the first time in 31 years, operating expenses in 2002 were reduced below the previous year, and for the first time in five years we reduced debt. We did this while extending delivery to 1.8 million new addresses. The actions we took in 2002 have laid a foundation for savings in 2003 and beyond, setting the stage for achievement of our Transformation Plan goal to take $5 billion in costs out of the system by the end of 2006.

We must continue to control costs and stringently manage our work hours and workforce complement. We expect that labor costs and non-personnel costs will continue to increase. In an environment where our customers expect rate increases to be kept to an absolute minimum and where overall inflation in the economy is expected to be in the range of 2 to 3%, controlling resource usage is a critical strategy for limiting rate increases.

We, in Finance, view the financial operating information we provide for management decision-making as a primary tool in supporting value creation. In addition, we have two financial fiduciary responsibilities. First, we are responsible for maintaining and improving a system of internal controls to ensure that assets are safeguarded against material loss from unauthorized use or disposition and that our financial records are reliable for preparing financial statements. The second responsibility, which rests on the first, is for the preparation of financial statements on which our customers, our employees and our regulators can rely. We always apply generally accepted accounting principles, when we have a choice, and we have chosen to be conservative in our assumptions and assessments to minimize the likelihood of misstating assets, income, expenses or liabilities.

In last year’s report I said we faced a future forever changed, with unprecedented uncertainty. I believe we are well prepared for that future because we have had our mettle tested and proven beyond expectations. We will continue to do everything possible to ensure the financial health of the Postal Service and provide outstanding service to our customers, the American People.

Thank You,

Richard J. Strasser, Jr.
Chief Financial Officer and Executive Vice President