POSTAL DISTRIBUTION The Basics Of Postal Reform PRIMEX ‘02 Conference February 7

Financials Transformation Plan Product Redesign POSTAL DISTRIBUTION AND REFORM Agenda

FY 2002, AP 5 Income Statement Revenue $5,051 $5,322 [ $271 ][ 5.1 ] -3.5 Expense 5,078 5, ($ Millions) [ ] = Unfavorable Variance to plan Note: Numbers may not sum due to rounding. %SPLYActualPlanVar%Plan Net Inc (Loss) ($ 27) $ 36 [ $ 63 ] FINANCIAL UPDATE

($ Millions) [ ] = Unfavorable Variance to plan Note: Numbers may not sum due to rounding. Revenue$25,938 $27,247 [ $1,309 ][ 4.8 ] -0.2 Expense25,940 26, %SPLYActualPlanVar%Plan Net Inc (Loss) ($ 3) $ 597 [ $600 ] FY 2002, AP 5 YTD - Income Statement FINANCIAL UPDATE

FY 2002, AP 4 YTD - Volume by Class Volume from Preliminary AP Data - Subject to Change from actual Quarterly RPW Results TotalFirst-ClassPriorityStandard Actual % SPLYPlan % SPLY FINANCIAL UPDATE

FY 2002, AP 5 - Work Hour Trend -23.1M -33.0M Cumulative Work Hour Reductions (from Prior Year) Reduced 5600 Career Employees Reduced Career Employees FINANCIAL UPDATE

TRANSFORMATION PLAN Outline For Discussion Published Sept. 30th Stakeholders Comments By January 31 –Customers –Suppliers Focus Groups Ended Jan. 25th – 20 Focus Groups –Citizens and Small Businesses –Urban, Rural, and Suburban Process

Incremental Operational And Administrative Changes TRANSFORMATION PLAN Phases

Incremental Operational And Administrative Changes Moderate Legislative Reform Phases TRANSFORMATION PLAN

Incremental Operational And Administrative Changes Moderate Legislative Reform Structural Transformation Phases TRANSFORMATION PLAN

Submit Plan To Congress On March 31 Conduct Additional Stakeholder Outreach Next Steps TRANSFORMATION PLAN

Predictable (Phasing) Price Changes Targeted Pricing – Experiments – Customized Prices Ease Of Use – DMM Transformation Corporate Pricing Plan – Pricing Strategy – How we implement Pricing

TRANSFORMATION PLAN Information Rich Products Process Chain Simplification Simplified Package Solutions Access Strategy Product Development

PRODUCT REDESIGN Products That Meet Customer Needs Products That Reduce Combined USPS and Customer Costs Products That Fit Future USPS/Customer Operations Prices That Generate Growth in Volume and Contribution What We Want To Accomplish

PRODUCT REDESIGN Joint USPS/Industry Process Throughout Steering Committee: Strategic Focus Workgroups: Develop & Refine Proposals – One Workgroup for Each Major Product – One or More for Multi-Product Issues Implementation Readiness Teams – Later in the Process, As Needed Process

PRODUCT REDESIGN Provide A Process That Allows All USPS And Customers’ Views To Be Considered Equally And Fairly. Workgroups’ Operating Principle

PRODUCT REDESIGN Flexible Cost-Based Presort, Preparation and Entry Define Additional Worksharing Opportunities Improve USPS Value (Price And Service) To Customers Incentivize Mailing Practices Which Drive Out Costs Develop Prices and Products That Generate Growth In Volume and Contribution Workgroups’ Goals

PRODUCT REDESIGN Recognize Different Mailer Capabilities – Retail – Households & Other Single-Piece Mailers – Commercial (Bulk-Entered Mail) – Mail-Intensive Customers – Moderate Users Workgroups’ Goals