Richard J. Strasser, Jr. Chief Financial Officer & Executive Vice President INTEGRATED FINANCIAL PLAN FY 2005 INTEGRATED FINANCIAL PLAN FY 2005 October 27, 2004

FISCAL YEAR 2004 HIGHLIGHTS FISCAL YEAR 2004 HIGHLIGHTS

FY 2004 HIGHLIGHTS Income Statement – September 2004 Numbers may not add due to rounding [ ] = Unfavorable variance to plan ($ Millions)* Unaudited Results Actual Var %PlanPlan 2003 Revenue $5, $5, % Expense 5,868 [+156][+2.7] 5, % Net Loss$ -60 [ -13] $ -47

FY 2004 HIGHLIGHTS Actual Volume Compared to FY 2003 Jul Aug Sep

FY 2004 HIGHLIGHTS Revenue Compared to SPLY – Sep YTD Actual

FY 2004 HIGHLIGHTS Workhours – September YTD Change to 2003 September YTD Career Complement Reduction = 21,609 Actual

INTEGRATED FINANCIAL PLAN FY 2005 FY 2005 Capital Investment Plan FY 2005 Capital Investment Plan FY 2005 Operating Plan FY 2005 Operating Plan FY 2005 Financing Plan FY 2005 Financing Plan Topics of Discussion

FISCAL YEAR 2005 OPERATING PLAN FISCAL YEAR 2005 OPERATING PLAN

INTEGRATED FINANCIAL PLAN FY 2005 FY 2005 IFP Summary   FY 2005 – October 1, 2004 to September 30, 2005   Transformation Plan – FY 2002 to FY 2006   Take out $5 Billion in annual spending   Over 5 years – $14 Billion in costs   FY 2005 – Third year without a postage rate increase   Strong volume growth – Advertising Mail   Less First-Class volume

INTEGRATED FINANCIAL PLAN FY 2005 Assumptions – FY 2005   Economy   Inflation Rate = 1.9%

INTEGRATED FINANCIAL PLAN FY 2005 Assumptions – FY 2005   Economy   Inflation Rate = 1.9%   Continued Job Growth 2004 Est Est.

INTEGRATED FINANCIAL PLAN FY 2005 Assumptions – FY 2005   Economy   Inflation Rate = 1.9%   Continued Job Growth   Slowing Retail Sales Economy-Wide Retail Sales-Percent Change 2004 Est Est.

INTEGRATED FINANCIAL PLAN FY 2005 Assumptions – FY 2005   Economy   Inflation Rate = 1.9%   Continued Job Growth   Slowing Retail Sales   No Extraordinary Events   Continued Electronic Diversion   No Cost for Postal Reform Included in 2005

INTEGRATED FINANCIAL PLAN FY 2005 $68.3B 2005 % Chg -0.3% $68.5B 3.9% ($ 0.2B) Revenue $68.5B 2004 Est. Expense $65.9B Net Income (Loss) $ 2.6B Income Statement

INTEGRATED FINANCIAL PLAN FY 2005 Volume (Volume in Billions) Est. Forecast

INTEGRATED FINANCIAL PLAN FY 2005 Volume Change 208B207B Down 14.1% Down 7.9% Up 9.8% First- Class First- Class Standard Other Similar volume, $4.9B less revenue (at constant rates)

INTEGRATED FINANCIAL PLAN FY 2005 Volume Change 205B207B Down 1.7% Down 2.2% Up 4.0% First- Class First- Class Standard Other

INTEGRATED FINANCIAL PLAN FY 2005 Expense Growth – FY 2005 $4.0B Total Before Cost Reductions $1.4B $2.6B Net Increase Cost Reductions

INTEGRATED FINANCIAL PLAN FY 2005 Salaries and Other Benefits Health Benefits COLAs Expense Growth – FY 2005 Total Personnel Compensation $2.8B $ 0.7B $0.8B $1.3B

INTEGRATED FINANCIAL PLAN FY 2005 COLA – Annualized Dollar Impact ($ Millions)

INTEGRATED FINANCIAL PLAN FY 2005 Salaries and Other Benefits Health Benefits COLAs Transportation HQ Program Increase Expense Growth – FY 2005 Workload Total Personnel Compensation $2.8B $ 0.7B $0.8B $1.3B $0.4B $0.3B $0.2B Non-Personnel

INTEGRATED FINANCIAL PLAN FY 2005 Expense Growth – FY 2005 $4.0B Total Before Cost Reductions $1.4B $2.6B Net Increase

INTEGRATED FINANCIAL PLAN FY 2005 Est. FY 2004 Cumulative Workhour Reductions Cumulative Reduction 728M Workhours Cumulative Reduction 728M Workhours Proj. FY 2005

INTEGRATED FINANCIAL PLAN FY 2005 Cost Reductions $245M Equipment Savings $1,121M Operation Strategies n n Flat Automation n n Letters (Recognition, PARS) n n Retail Ops (APCs, POS ONE) n n BPI – Standardization n n Local Management Initiatives n n Non-Personnel Reductions

INTEGRATED FINANCIAL PLAN FY 2005 Percent Growth Total Factor Productivity Cumulative 1972 – 2005 *Projection * * * * FY

INTEGRATED FINANCIAL PLAN FY 2005 Operating Plan Summary Net Loss -$0.2B Volume 0.7% TFP (Estimate) 0.9% Deliveries 1.6M Work Hours 23M

Recommendation: Approve FY 2005 Operating Plan INTEGRATED FINANCIAL PLAN FY 2005

FISCAL YEAR 2005 CAPITAL PLAN

INTEGRATED FINANCIAL PLAN FY 2005 Protects ROI Projects Capital Investment Plan Summary Allows Crucial Customer Service Facility Replacements and Repairs Promotes Safe Working Environment for Employees Includes Improved Management Information Systems

INTEGRATED FINANCIAL PLAN FY 2005 Capital Commitments FY 04 Est. 05 Proj ($ Billions) FY 04 Carryover Projects

Capital Commitments INTEGRATED FINANCIAL PLAN FY 2005 FY 2005 Plan 1852 FY 2004 Est ($ Millions) Retail Vehicles Support Equip Facilities Auto Mech Equip

INTEGRATED FINANCIAL PLAN FY 2005 FY 2005 – Financing Plan ($ Billions) Plan Est. 2.6Net Income 5.7+ Cash Flow from Ops 1.5- Capital Cash Outlays 4.2Net Cash Flow 1.3+ Cash Decrease 5.5= Debt Repayment 1.8 Debt Outstanding (9/30)

INTEGRATED FINANCIAL PLAN FY 2005 Year-End Debt Outstanding FY ($ Billions) Est. 04 Proj. 05

INTEGRATED FINANCIAL PLAN FY 2005 Recommendation: Approve Capital Investment Plan INTEGRATED FINANCIAL PLAN FY 2005

Richard J. Strasser, Jr. Chief Financial Officer & Executive Vice President INTEGRATED FINANCIAL PLAN FY 2005 INTEGRATED FINANCIAL PLAN FY 2005 October 27, 2004