Financial Section Part I

Item 1 – Business


The United States Postal Service (we) commenced operations on July 1, 1971, as an independent establishment of the executive branch of the United States government. We are governed by an eleven member Board of Governors. The Board is composed of nine Governors appointed by the President of the United States with the advice and consent of the Senate, the Postmaster General and the Deputy Postmaster General. Under the Postal Reorganization Act, we have a legal mandate to offer a “fundamental service” to the American people on a “fair and equitable basis.” We fulfill this legal mandate to provide universal service at a fair price by offering a variety of classes of mail services without undue discrimination among our many customers. This means that within each class of mail our price does not unreasonably vary by customer for the levels of service we provide.

We serve individual and commercial customers throughout the nation. We compete for business in the communications, distribution, delivery, advertising and retail markets. The rates and fees for postal services are subject to a regulatory review process controlled by the independent Postal Rate Commission (PRC).

Our mailing services (products) are sold through our almost 37,000 Post Offices, stations, branches, contract postal units, our website and a large network of consignees. We deliver mail to more than 146 million city, rural, Post Office Box and highway delivery points. We conduct our operations primarily in the domestic market, with international operations representing less than 3% of our total revenue.

Our labor force is primarily represented by the American Postal Workers Union, National Association of Letter Carriers, National Postal Mail Handlers Union and National Rural Letter Carriers Association. More than 85% of our career employees are covered by collective bargaining agreements. By law, we consult with management organizations representing most of the employees not covered by collective bargaining agreements. These consultations provide an opportunity to participate directly in the planning, development, and implementation of programs and policies affecting non-bargaining employees in the field. Our management organizations include the National Association of Postal Supervisors, the National League of Postmasters and the National Association of Postmasters of the United States. We participate in federal employee benefit programs as required by statute, for retirement, health benefits and workers’ compensation.

We are not subject to regulation by the Securities and Exchange Commission (SEC), nor are we required to produce, publish or file financial reports that comply with the SEC’s rules and regulations on financial reporting. In preparing our financial reporting, we are guided by SEC reporting requirements to the extent deemed practical for a non-publicly traded, government-owned entity with a break-even mandate. Additionally, we make disclosures not required by SEC reporting rules through the publication of certain reports that we either must make, or choose to make public. These additional disclosures on our organization and finances, including our Cost and Revenue Analysis reports, Integrated

Financial Plan, and Revenue, Pieces, and Weight reports, may be found on our website at


We operate in one segment throughout the United States, its possessions, territories and internationally.


The process of strategic planning in the Postal Service includes an ongoing assessment of the business environment, formulation of strategic goals, performance measures and targets, and tracking and integration of major strategic programs. Since its publication in April 2002, our Transformation Plan has provided focus and direction to all Postal Service business and operating activities. It is our principal planning tool for improving the value of mail and sustaining a financially stable enterprise that meet the nation’s needs for affordable and reliable universal service. The plan defines our vision and establishes our strategic goals in the areas of service, revenue, cost savings and human capital.

Transformation assures continuity between our longer-term direction and our near-term corporate objectives, which are published each year as our Annual Performance Plan in compliance with the requirements of the Government Performance and Results Act. It helps bridge our internal priorities and operating activities with events and conditions in our larger business environment.

Transformation in the Postal Service is designed to be dynamic and adaptable. For that reason, the plan was updated at the start of this fiscal year, with the publication of our new Strategic Transformation Plan, 2006–2010. This new plan builds on our successes since 2002, and commits us to new advances in service, customer convenience, productivity and employee engagement. We will maintain a tight focus on our core services to ensure that universal and affordable postal services continue to promote communication, reach key audiences and help bind America together. We are committed to continue taking an average of $1 billion out of our cost base each year through 2010 while employing equally aggressive measures to grow the business.

During 2006, significant actions were taken on all major strategies described in the plan. These included a number of large-scale efforts designed to bring about fundamental long-term change. Our rate case filing was developed to remedy longstanding cost-coverage issues and to better align mail processing and delivery operations. We continued to enhance our products and add convenient new options for accessing our services. Examples include Premium Forwarding Service, online customs forms and the new Priority Mail flat-rate shoebox, which helped contribute to an increase in revenue.

We launched our visibility strategy with the introduction of the 4-State Customer Barcode at the National Postal Forum. Ultimately, this strategy will allow for tracking individual mailpieces, using a new barcode, supporting systems and processes, with the potential to dramatically increase the value of mail for customers and improve service and operating efficiency. We also implemented multiple enhancements to the PostalOne! system, which forms the foundation for the automation of commercial mail acceptance.