In October 2001, the United States became the target of biological terrorism. These activities affected us because infectious biological agents were sent by mail, resulting in the death of two employees, the curtailment of mail services in some areas, long-term closing of two processing facilities and a decline in mail volume. Our viability and our value to the American people, is dependent upon an open and accessible system. It was critical to put in place process changes and technology applications that can reduce risks for both employees and customers.

The President of the United States authorized an initial funding of $175 million for 2002 to assist in paying for these safety measures. In November 2001, Congress appropriated an additional $500 million to "protect postal employees and postal customers from exposure to biohazardous material, to sanitize and screen the mail and to replace or repair postal facilities destroyed or damaged in New York City as a result of the September 11, 2001, terrorist attacks." Our use of the funds provided by this appropriation was contingent on the submission of an emergency preparedness plan to combat the threat of biohazards in the mail. We submitted the required Emergency Preparedness Plan in March, 2002.

In August 2002, as set forth in our Emergency Preparedness Plan, Congress appropriated an additional $87 million to us for emergency expenses to further protect postal employees and customers from exposure to biohazardous material and to sanitize and screen the mail.

All three appropriations are to remain available until expended for purposes approved by Congress. We are required to submit quarterly expenditure plans on the obligation of all 2002 supplemental appropriations, as well as annual updates of the Emergency Preparedness Plan. Unspent funds that are not reallocated with Congressional approval are required to be returned to the United States Treasury. As a result, the funds that have not been spent or reallocated as of September 30, 2002 of $583 million are reflected in our 2002 Balance Sheet as a non-interest bearing liability and have been reflected in the 2002 Statement of Cash Flows as a financing activity.

The appropriations during the fiscal year 2002 which have been expended are as follows (dollars in millions):

	Appropriations	$175	$587
	Operating expenses	16	—
	Non-operating expenses	121	42
	Capital equipment	38	—
	Balance at September 30, 2002	$  —	$545

We recorded the balance of $545 million as a current liability. Detection and filtration systems are being tested and evaluated and will then be deployed in 2003. The amounts to be spent are as follows (dollars in millions):

	Protection and health risk reduction	$312
	Detection and identification	200
	Facility Repairs	10
	Miscellaneous (R&D, etc.)	23
		$545

The liability will be reduced as expenditures occur. Appropriations received for capital equipment will be offset against depreciation expense over the life of the equipment.

The Emergency Preparedness Expenses for the year ended September 30, 2002, are as follows (dollars in millions):

	Saftey measures (gloves,     medical treatment, etc.)	$128
	Research and development	5
	Decontamination	54
	Miscellaneous	2
		$189

The Emergency Preparedness Appropriations revenue recognized for the year ended September 30, 2002, are as follows (dollars in millions):

	Saftey measures	$137
	Research and development	5
	Decontamination	35
	Miscellaneous	2
		$179

$73 million for personnel cost was incurred for emergency preparedness and service disruptions and is reported in operating expenses under compensation and benefits, of which $16 million was reimbursed by the appropriation. An additional amount of $38 million has been spent on equipment that has not yet been deployed.