BACKGROUND INFORMATION: Under the Postal Act 2006 (Postal Accountability and Enhancement Act), postage prices for Market Dominant products /Mailing Services are capped at the rate of inflation. The law allows for increases beyond the Consumer Price Index (CPI) when the Postal Service can prove to the Postal Regulatory Commission (PRC) “exceptional or extraordinary circumstances” beyond the rate of inflation. Given financial and volume losses, the USPS reports that it is indeed facing exceptional and extraordinary circumstances. The PRC will approve the request if it finds pricing above CPI to be “reasonable, equitable and necessary.”

To date, the Postal Service Board of Governors has approved the recommendation for prices of all Market Dominant products. The Postage Regulatory Commission has 90 days to review the filing and make a final ruling. The ruling is expected on or about Oct. 4. The PRC can accept or reject all price requests. New prices would go into effect January 2, 2011.

Shipping Services (also known as Competitive Products) which includes Express Mail® and Priority Mail® are not included in this Exigent Price Increase proposal. Shipping Services price changes will be announced in October and take effect in January 2011.

In addition to this proposed increase, the USPS has additional program proposals to address the financial condition of the Postal Service including 5-day delivery and the retiree health benefits prefunding requirements, as well as other cost-saving initiatives relating to automation and reduction in workforce and work hours.

(As a reminder, the Postal Service receives no tax dollars for operating expenses, and relies on the sale of postage, products and services to fund its operations!)

While Pitney Bowes is not taking a position on the exigent rate case filing, Pitney Bowes has and will continue to work closely with customers and the Postal Service. As such, we understand the concerns of both and will continue to focus on postal retiree cost relief and operational flexibility as a means to hold down postal costs and rate increases.

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Proposed Price Changes by Class/Category

First-Class Mail® 5.417 % • Single-piece Letters/Postcards 4.652% Commercial Letters/Postcards 5.927% • Flats 6.079% Commercial Flats 9.5% to 16.3% • Parcels 5.415% Commercial Parcels 15.8% to 53.3%

Examples of First-Class Mail® Proposed Changes • Letters - 2¢ increase to $0.46 • Cards - 2¢ increase to $0.30 • Additional ounce RETAIL – 1¢ increase to $0.18 for letters and flats (NO increase to additional ounce price for parcels (remains at 17¢). Additional ounce for COMMERCIAL FCM letters remains at 12.5¢ letters) but additional ounce for COMMERCIAL flats increases to $0.18. • Surcharge for nonmachinable letters - 1¢ increase to $0.21 • Parcels - Same price for 1 to 3 oz pieces (see charts below) - the first three ounces in each parcel pricing category will be treated as a single price cell. For each category, parcels weighing 0 to 3 ounces will all pay a single price. The additional ounce would then apply after the first three ounces.

This chart reflects RETAIL First-Class Mail® parcels.

This chart reflects proposed pricing for Commercial/Business First-Class Mail® (FCM) parcels.

Today, there are retail (single-piece prices) and commercial prices for FCM parcels. Commercial FCM mailers who presort a minimum of 500 parcels pay single-piece (retail) prices for the residual portion of a presorted mailing after sorting to all required ADCs. Under the proposal, there will be a new separate price category for commercial single-piece FCM parcels with prices lower than those for retail single-piece FCM parcels. To qualify for these prices, mailers must use an approved payment method. Commercial single-piece FCM parcels would be available to NON-presort mailers with NO minimum volume per mailing if postage paid via: • Permit imprint, or • Information-based indicia (IBI) meter with the inscription “COMM” and FCM marking either within or directly below the indicia (this becomes another added value for selling postage meters!), or • PC Postage® solutions with the inscription “COMM” and FCM marking either within or directly below the indicia (For a commercial presort mailing, the residual portion after sorting to all required ADCs would be rated at this new single-piece commercial price.) 2

Standard Mail® 5.6%

• Letters 5.011%

• Flats 5.134%

• Parcels (Regular Marketing and Fulfillment) 23.331% • High Density / Saturation Flats and Parcels 4.357% • High Density / Saturation Letters 4.808% • Carrier Route Basic Letters, Flats, Parcels 4.92%

Standard Mail Parcels

2 new categories:

1. Marketing Parcels (Regular and Nonprofit) a. Defined as - containing messages and/or product samples to encourage recipients to purchase a product or service, make a contribution, support a cause, form a belief or opinion, take an action, or provide information to recipients b. Maximum size of 9 inches by 12 inches by 2 inches thick c. Must bear an alternative addressing format (occupant or exceptional addressing, or simplified addressing when allowed for saturation mail) such as “Or Current Resident” d. Must be presented for mailing in carrier route (including carrier route basic, high-density, or saturation sortation) or presort separations. i. Presorted parcels would be prepared as either machinable or irregular parcels 2. Fulfillment Parcels (Regular and Nonprofit) a. Defined as lightweight products typically requested by the addressees (recipients). b. Prepared as either presorted machinable or irregular parcels

Standard Mail Not Flat-Machinables The NFM category will be discontinued January 2011.

2011 Standard Mail® Saturation and High Density Incentive Program Incentive will provide a price reduction equal to a percentage of a customer’s average revenue per piece for incremental volume above a threshold volume. For Standard Mail® Saturation letters and flats the credit will be 22 percent, for commercial High Density letters and flats the credit will be 13 percent. For Nonprofit of both Saturation and High Density, the credit will be 8 percent.

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Package Services 6.7% • Bound Printed Matter Parcels 7.025% • Bound Printed Matter Flats 5.040% • Single-piece Parcel Post® 7.029% • Media Mail®/Library Mail 7.010%

Parcel Post®

Currently - zone priced for each pound increment EXCEPT packages weighing up to 1 pound (see image)

Proposed - zone priced for each pound increment including packages weighing up to 1 pound. Prices for a 1-pound Parcel Post® package would range from $5.10 (for Zones 1 & 2) to $5.49 (Zone 8).

Special/Extra Services 5.2%

Examples of Proposed Special/Extra Services Price Changes • Accounting fee $615.00 (5.1% increase) • Address Correction o manual $.52 o electronic $.10 FCM, $.27 other ® o automated (OneCode ACS) $.02 FCM first 2 notices, $.09 additional FCM notices • BRM™ Permit Fee $195 • Certificate of Mailing $1.20 each $.44 each with Firm Mailing Book - 3 or more • Certified Mail™ $2.95 (5.4% increase) • Delivery Confirmation™ $.20 FCM electronic, $.85 FCM retail $0.00 PM electronic, $.75 PM retail • Permit Fee (annual mailing fee) $195 (5.4% increase) • Permit Imprint (application fee) $195 • Pickup on Demand® $16 • ™ $11.15 no declared value (4.7% increase) • Restricted Delivery $4.75 • Return Receipt $2.40 (“green card”) $4.85 (requested after mailing) $1.15 (electronic) - $1.25 savings over “green card”! • Signature Confirmation™ $2.05 electronic $2.45 retail

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Other Proposed Changes and Incentives

Reply Rides Free First-Class Mail Incentive Program (January 2, 2011 - December 31, 2011) Qualified customers will receive a credit for postage for the weight of a typical reply envelope or card included in outgoing presorted letter mail. This allows an envelope containing a reply envelope or card weighing over an ounce and up to 1.2 ounces to ultimately (after the credit is applied if having met the program qualifications) to pay the 1 ounce price. Mailers are required to participate in the Full-Service IMb program and show volume growth above their recent trend volumes. The credit will apply for those pieces in excess of the volume threshold.

Move Update Tolerance The Postal Service has proposed to change the Move Update tolerance for commercial First-Class Mail® and Standard Mail® from 30% to 25% (i.e., passing % to 75% vs. the current 70%).

Note, the passing score is calculated using the total number of pieces with a Move Update on file divided into the number of pieces that the mailer updated with the change (within the date range 95 days – 18 months). Approved Move Update solutions include certain Ancillary Endorsements, Address Change Service, FASTforward®, Alternative Methods (First-Class Mail® only) and NCOALink® product.

Resources In addition to information on Pitney Bowes Web page you can download the proposed pricing charts from the Postal Explorer® Web page http://pe.usps.gov/

Solutions and Strategies to Mitigate Increases while Improving Processes While more detailed information relative to the proposed Exigent Price and solutions to mitigate price and regulatory changes if forthcoming, here are high-level strategies to consider: • Automation prices are lower than that of presorted or retail prices. To that end, you may consider implementing addressing solutions (SmartMailer™ and AddressRight® Pro) for qualifying mailing applications, and/or using the Pitney Bowes PresortXtra™ service to reduce postage spend while improving the deliverability of your mail. • Prices for commercial First-Class Mail® flats and parcels may increase considerably (please see page 2 of this document). Redesign of mailpieces e.g., parcels to flats, and flats to letters, using solutions such as PlanetPress®, PB FIRST, folders and inserters may offset postage increases. Functionalities of document software and that of the RISO printer may also enable mailers to narrow the margins of 5

pages and to duplex pages thus, easing the transition from flat-size to letter-size. (Note that not only are letter-size prices lower than flat-size prices, but the additional ounce rate of commercial First-Class Mail® letters is 12.5¢ whereas the proposed additional ounce price for commercial flats is 18¢.) • You may be able to reduce postage spend for FCM parcels with the new (proposed) commercial single- piece FCM parcels price category. You would be required to evidence postage via methods including Permit imprint (leverage benefits of Pitney Bowes EasyPermitPostage® or Permit Reserve), or Information-based indicia (IBI) meter with the inscription “COMM” and FCM marking, or PC Postage® solutions with the inscription “COMM” and FCM. This price category may be ideal for those of you that ship/mail small, light-weight electronics, samples or pharmaceuticals. • With the proposed increases to Package Services, and the zone rating changes to 1-pound Parcel Post® packages, smart shopping capabilities of SendSuite® enables mailers and shippers to select the most cost-effective class or sub-class of mail to meet unique mailstream objectives. • Because some Extra Services offer lower “electronic” options (see page 4), implementing solutions including SendSuite® and Connect+ ™ enables mailers to reduce postage spend while improving processes. • Implementing solutions to improve address quality continues to be an important factor in reducing postage, material and labor spend. NCOALink® product solutions including AddressRight Now™, SmartMailer™ and AddressRight® Pro software (via VeriMove.Net) and/or trackmymail.com® UpdatePro™ (OneCode ACS® solution) will enhance address quality and assist you in meeting the Move Update standard for commercial First-Class Mail® and Standard Mail®. This is especially important as mail quality and preparation is increasingly scrutinized, e.g., proposed change in Move Update tolerance from 30% to 25%.

As you prepare for the proposed Exigent Price Increase, please keep the following in mind. Educate yourself on how specific proposed changes may impact your business or organization. Partner with Pitney Bowes consultants to learn about and implement solutions to mitigate potential increases while improving processes within your document creation, mailing and shipping environments.

Please watch for additional information, strategies and tools from Pitney Bowes!

Elizabeth Lombard CMDSM, CMDSS, MQC, EMCM Certified Mailstream Consultant (CMC) – Gold Level Manager, Certifications and Postal/Carrier MSM Learning & Performance, Pitney Bowes Inc. [email protected]

Every connection is a new opportunity™

© 2010 Pitney Bowes Inc. The Corporate logo, Pitney Bowes, Connect+, SendSuite, AddressRight, AddressRightNow, SmartMailer, trackmymail, UpdatePro, and EasyPermitPostage are trademarks owned by Pitney Bowes Inc.

USPS, First-Class Mail, Standard Mail, Postal Explorer, Priority Mail, Express Mail, Media Mail, Delivery Confirmation, Signature Confirmation, PC Postage, Parcel Post, Registered Mail and Certified Mail are trademarks owned by the United States Postal Service.

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