Financial Update

H. Glen WalkerChief Financial Officer &Executive Vice President

National Postal Policy CouncilMay 13, 2008

Service

Financial Results

Outlook

Agenda

Service

Financial Update

National Composite PerformanceImprovement Compared to Last Year

Source: IBM Global Business Services

Service

Standard

(Last Year)

PQ 2, FY 07

(Current)

PQ 2, FY 08 Improvement

Overnight 95 96 + 1

Two-Day 91 94 + 3

Three-Day 88 92 + 4

Quarterly Service Performance PQ 2, FY 2008

EXFC Quarter 2 FY 2008

Financial Update

District Area FY 07 FY 08Dakotas Western 97 98Big Sky Western 97 98Honolulu Pacific 97 98Suncoast Southeast 95

98Nevada-Sierra Western 96 98Colorado/Wyoming Western 96

98

Top 6 Districts Overnight Composite

Source: IBM Global Business Services Quarterly Service Performance PQ 2, FY 2008

EXFC Quarter 2 FY 2008

Financial Update

Top 9 Districts 2-Day Composite

Source: IBM Global Business Services

District Area FY 07 FY 08Alaska Western 97 97Portland Western 94 96 Seattle Western 94 96Suncoast Southeast 93 96South Florida Southeast 93 96Santa Ana Pacific 92 96Los Angeles Pacific 94 96 Northern Virginia Capital Metro 92 96San Diego Pacific 95 96

Quarterly Service Performance PQ 2, FY 2008

EXFC Quarter 2 FY 2008

Financial Update

Top 4 Districts 3-Day Composite

District Area FY 07 FY08

Capital Capital Metro 92 94Baltimore Capital Metro 91 94Northern Virginia Capital Metro 91 94Central New Jersey New York Metro 89 94

EXFC Quarter 2 FY 2008

Source: IBM Global Business Services Quarterly Service Performance PQ 2, FY 2008

Financial Update

National Overall Performance - %E/VG/G

Percent

Ratings

(Last Year)

PQ 2, FY 07

(Current)

PQ 2, FY 08 Improvement

Overall Performance

92 92 Maintain

Customer Satisfaction QTR 2 FY 2008

Source: IBM Global Business Services Quarterly Service Performance PQ 2, FY 2008

Financial Update

Most Trusted Government AgencyUSPS Ranked #1 Four Times in a Row

SOURCES: Privacy Trust Studies of the United States Government © by the Ponemon Institute (2004, 2006, 2007, and 2008)

2007

USPS1

RANK

83

2007

USPS1

RANK

83

2004

USPS1

RANK

78

2004

USPS1

RANK

78

2006

USPS1

RANK

82

2006

USPS1

RANK

82

2008

USPS1

RANK

86

2008

USPS1

RANK

86

Consumer Trust QTR 2 FY 2008

Financial Update

Overnight Service Performance96 percent

Two-day Service Performance94 percent

Three-day Service Performance92 percent

Residential Customer Satisfaction92 percent Excellent/Very Good/Good

Postal Quarter 2, FY 2008

Quarterly Service Performance PQ 2, FY 2008

Summary of Performance

Financial Results

Financial Update

Volumes down on last year for all mail classes– Economy

– Last price increase under old regulatory system

Rising fuel costs

Financial Performance Overview

Financial Update

Intense Focus on Cost Reductions

– Work Hours and Rates

– Transportation

– Headquarters

– Real Estate

Our Reaction To This Environment

Financial Update

Growth Initiatives

– Express, Priority, Ground Packages

– Returns

– Parcel Select

– Mailing Services• Business Development Teams

• Managed Accounts

Our Reaction To This Environment

Financial UpdateIncome Statement

Qtr II, FY 2008

Numbers may not add due to rounding(Data in Millions)

0.3%52 19,578 19,630Expense

3.1%$584$18,339$18,923Revenue

-3.3%-1,72653,02851,302Volume

%SPLYVARSPLYActual

Net Income/Loss -$707 -$1,239 $532

Financial UpdateIncome Statement

Qtr II YTD, FY 2008Income Statement

Qtr II YTD, FY 2008

Numbers may not add due to rounding(Data in Millions)

0.0% 55 39,280 39,335Expense

3.3%$1,272$38,028$39,300Revenue

-3.1%-3,426110,131106,705Volume

%SPLYVARSPLYActual

Operating Income/Loss -$35 -$1,252 $1,217

Net Income/Loss -$4,210 $4,175Prior-Year Escrow $0 $2,958 -$2,958

-$35

Financial UpdateRevenue Variance To SPLY Revenue Variance To SPLY

($ in Millions)

Commercial $328

Retail 309

Total Revenue Variance $584

Other -53

$799

509

$1,272

-36

Qtr II

Qtr II YTD

Financial UpdateQtr II 2008 Volume

Volume % SPLY First-Class 23.7B -3.1%Standard 24.5B -3.0%Periodicals 2.2B -4.3%

Priority 220M -4.2%Package Svc 279M -4.0%Total All Mail 51.3B -3.3%

Express 12M -14.3%

Financial UpdateQtr II YTD FY 2008 Volume

Volume % SPLY First-Class 48.0B -3.5%Standard 52.2B -2.8%Periodicals 4.4B -1.6%

Priority 461.0M -4.6%Package Svc 597.0M -3.7%Total All Mail 106.7B -3.1%

Express 4.0M -12.6%

Financial Update

121

409

293223 208

162 172126

176 179

275343

547

670

745

527 562649

609

708

867

671 580 497

423

1,088

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08

Forever Stamps Denominated Stamps

$ Millions

Total Stamp Sales

Financial Update

2.7% 2.4%

-1.5%

2.3% 2.3%

-0.6%-1.3%

-2.1%-3.0%-3.3%

-0.3%-0.1%

2.2%1.7%1.2%

5.4%

2.0%

3.5%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

8 Quarter Moving Average Growth Rates% SPLY

FY 2005 FY 2006 FY 2007FY 2004 FY 2008

Total Mail VolumeTotal Mail Volume

Financial Update

0.3%

-4.0%

1.2%-0.1%

-2.5%-1.3%

-2.6%-3.9%

-3.1%-0.6%

-0.5%

-1.1%-2.4%

2.1%

-1.3% -0.6%

1.6%

-0.8%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

% SPLY 8 Quarter Moving Average Growth Rates

FY 2005 FY 2006 FY 2007FY 2004 FY 2008

First-Class Mail Volume

Financial Update

-0.7%

9.3%

4.9%

-1.4%-3.0%

1.2%

-0.9%

2.8%2.7%

0.2%

4.6%4.1%

7.9%7.6% 8.4%

4.4%

0.5%

-2.6%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

% SPLY 8 Quarter Moving Average Growth Rates

FY 2005 FY 2006 FY 2007FY 2004 FY 2008

Standard Mail VolumeStandard Mail Volume

Financial Update

-0.3%

2.5%

0.7%

-5.9%-4.2%-5.3%

-2.8%

1.4%

10.3%

0.7%

7.5%

2.6%

-4.9%

-2.7%

3.2%

6.1%

4.7%

-4.9%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

% SPLY 8 Quarter Moving Average Growth Rates

FY 2005 FY 2006 FY 2007FY 2004 FY 2008

Priority Mail VolumePriority Mail Volume

Financial Update

0.9%

-5.3%

-2.6%-4.3%

-3.0%

-2.2%

-0.5%

-0.6%

0.3% 0.1%0.2%

-0.7%-3.1%-3.5%

1.9%

-3.3%

-1.8%

1.2%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

% SPLY 8 Quarter Moving Average Growth Rates

FY 2005 FY 2006 FY 2007FY 2004 FY 2008

Periodicals Mail VolumePeriodicals Mail Volume

Financial Update

Letters-2.9%

Flats-15.4%

Parcels-5.1%

Growth from SPLY

First Class Mail Volume Q2-YTD Shape

First Class Mail Volume Q2-YTD Shape

Financial Update

Letters3.7%

Flats-13.2%

Growth from SPLY

Standard Mail Volume Q2-YTD ShapeStandard Mail Volume Q2-YTD Shape

Financial UpdateExpense Variance to SPLY

($ in Millions) Qtr II

Total Expense VarianceAll Other

Compensation & BenefitsTransportation

$52

21

-$168 175

YTD

$55

122

-$435 173

Depreciation & Amortization Vehicle Maintenance Service 19 65

47 130

Qtr II

Outlook

Financial Update

Volatile Economy – credit, financial and housing sectors account for the largest portion of the volume decline, with no turn around in sight.

Full year volumes are projected to be down for only the 7th year out of the last 50 years.

Fuel prices remain unpredictable.

Challenges – 2nd Half of Fiscal Year

Financial Update

Intense Focus on Cost Reductions Optimize All Growth Opportunities

Requires us to hope for the best but plan for the worst:

Challenges – 2nd Half of Fiscal Year

Financial Update

H. Glen WalkerChief Financial Officer &Executive Vice President

National Postal Policy CouncilMay 13, 2008