A Letter from the Postmaster General/CEO and the Chairman
of the Board of Governors

To the President, Members of Congress, Postal Employees, and the American People:

The United States Postal Service achieved remarkable results in 2005. As we began the year, our projections called for a net loss of $200 million. By the time we closed the books, we had achieved a net income of $1.4 billion.

This reflects the strong efforts throughout the entire organization to remain focused on the transformational strategies we identified in 2002.

We continued to improve operational efficiency. A strong emphasis on results helped us to achieve a record sixth consecutive year of growth in total factor productivity, resulting in the equivalent of more than $700 million in cost savings. This contributed to our ability to deliver on our five-year commitment to reduce costs by $5 billion, a full year ahead of schedule. We eliminated all outstanding debt by mid-year, down from $11.3 billion in Fiscal Year 2001.

We saw significant growth in mail volume — to nearly 212 billion pieces, an increase of 6 billion pieces from 2004 — by continuing to add value for our customers. New products, innovative features, and record levels of performance drove growth in Standard Mail and Package Services, enough to offset the decline in higher-contribution, single-piece First-Class Mail.

We continued to enhance our performance-based culture. Employees at every level of the organization — from carriers to retail employees to Postmasters and station and branch managers — reached out to their customers and communities to promote the value of the mail. Their efforts were supported by award-winning marketing efforts that highlighted the quick, easy, and convenient shipping and mailing solutions offered by the Postal Service.

While we were faced with significant cost growth, including the price of fuel and the expansion of our delivery network by more than 2 million new homes and businesses, we were able to absorb these increases and hold postage rates steady for a third straight year. However, an impending escrow payment obligation of $3.1 billion resulting from legislation enacted in 2003 made it necessary to file for an across-the-board rate increase of 5.4 percent to be effective in early 2006.

Looking ahead, the Postal Service recognized that it had to plan for the challenges of a continually changing marketplace. This resulted in the creation of the Strategic Transformation Plan 2006-2010. Developed with the input of customers and employees, it builds on our 2002 Transformation Plan, and explains how we will intensify our efforts to stay focused on our core business and pursue the strategies that we know produce results.

As we ended the year, the tragic devastation of Hurricanes Katrina and Rita served as reminders of the important role the Postal Service plays in the life of our nation. Despite their own hardships, postal employees through the entire Gulf coast area worked tirelessly to keep people connected through the mail with friends and loved ones. They made sure mail reached evacuees wherever they were — in shelters, in devastated communities, or in temporary locations hundreds and thousands of miles from home.

We could not be prouder of the men and women of the Postal Service.

John E. Potter
Postmaster General, Chief Executive Officer

James C. Miller III
Chairman, Board of Governors