US Postal Service 2006 Annual Report Download - page 23

2006 Annual Report United States Postal Service | 21
In other rate and classification activity, on April 2, 2006, the Postal
Service implemented a one-year extension of the provisional
Repositionable Notes service. On June 1, 2006, a baseline Negotiated
Service Agreement (NSA) with Bookspan was implemented. This is the
first NSA involving Standard Mail. On September 13, 2006, a one-year
extension of the existing NSA with Capital One was implemented, as was
a minor classification change involving the eligibility criteria for Periodical
rates.
Information on PRC recommended decisions and pending dockets can be
obtained at the PRC website www.prc.gov.
Competition
The Internet continues to dramatically change the communications
market. Within the next decade further innovations such as mobile com-
merce, broadband, interactive TV, data mining software and new printing
technologies will affect the way businesses and consumers interact.
Of greatest impact on us are electronic alternatives to correspondence
and transactions, particularly for First-Class Mail items such as business
correspondence, bills, statements and customer payments. First-Class
Mail volume has already been affected by the Internet, telephone, fax
machine and other electronic communications. The Internet and electronic
commerce also have a positive impact on our business by stimulating new
uses of postal services, such as package delivery and targeted ad mail.
Major corporations now dominate parcel and express markets. Under the
current regulatory structure, competitors have far more pricing flexibility to
quickly respond to changes in market conditions and to target individual
customers for special incentives.
The competitive landscape for postal services is becoming more global.
Foreign postal operators are moving outside of their geographic borders
and expanding beyond their traditional postal services into offering
express delivery, logistics, financial and electronic services. More than
a dozen mainly European posts have set up operations in the United
States at more than 3,500 locations nationwide. Retail locations, sales
offices and full-scale offices of exchange are offering mailing services,
parcel, logistics and financial services to the American market. Despite
our competitive global products, we have a disadvantage because our
international air transportation rates are set by the U.S. government and
are not subject to more favorable market-driven rates available to foreign
posts. This has contributed to an increase in outbound market share to
our foreign competitors.
Intellectual Property
We own intellectual property including trademarks, service marks,
patents, copyrights, trade secrets and other proprietary information. We
routinely generate intellectual property in the course of developing and
improving our systems, products and operations.
Seasonal Operations
Our operations are seasonal. Mail volume and revenue tends to be
greatest in our first fiscal quarter, the fall holiday mailing season, and
lowest during the summer, our fourth quarter.
Customers
We have a very diverse customer base and we are not dependent upon a
single customer or small group of customers. We do not report revenue
from individual customers. No single customer represents more than two
percent of our revenue.
Government Contracts
No material portion of our business is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the U.S.
government.
Research and Development
We operate a research and development facility in Virginia for design,
development and testing of postal equipment and operating systems.
While research and development activities are important to our business,
these expenditures are not material. Our research and development
expenses were $41 million for 2006, $41 million for 2005 and $51
million for 2004. We also contract with independent suppliers to conduct
research activities that benefit us.
Environmental Matters
We are not aware of any federal, state or local environmental laws or
regulations that will materially affect our financial results or competitive
position or result in material capital expenditures. However, we cannot
predict the effect on our operations of possible future environmental
legislation or regulations.
In response to the continuing threat of terrorism utilizing the mail as the
delivery medium for biological attack, the Board of Governors approved
the Biohazard Detection System and the Ventilation Filtration System
projects. These projects, which are continuing to be deployed, provide
a level of protection to our employees and customers from potential
biological contamination.
Number of Employees
At September 30, 2006, we had 696,138 career employees, substantially
all of whom resided in the United States. We also had 100,061 non-career
employees.
Financial Section Part I