Megan J. Brennan Chief Operating Officer

1. Pacific Area Focus Group Pacific Area Focus Group San Fran Sacramento Bay-Valley Megan J. Brennan Chief Operating Officer Sierra Coastal San Diego LA Santa Ana Honolulu

2. Pacific Area Focus Group Thank You for Your Participation In This valuable process Value of the Area Focus Groups: • Forum to Communicate Operational Changes • Provides a Forum for Crucial Feedback / Suggestions / Ideas • Builds Critical Relationships at All Levels of the Organization • Immediate Issue Resolution

3. Agenda • USPS Challenge • Transforming Infrastructure • YTD Service Performance and Visibility • Revenue Generation Initiatives • Mail Transport Equipment (MTE) Update • Major FY 2014 Operational Initiatives • DSCF Load Leveling • 24 Hour Clock Project • Innovation Platforms

4. Volume Universal Service Obligation • Transactional volume • declining due to e-diversion • Advertising mail is subject to more substitution options • Mail volume highly sensitive • to economic changes • Mail mix changes – lost profit contributions Postal network driven by: • Delivery points • Retail locations • Sortation facilities • Six-day delivery Price Labor Costs • ~80% of total costs • COLA increases • Benefits: pensions, retiree health, health insurance • Limited flexibility • Retiree prefunding obligation, rising workers’ compensation costs • Capped by inflation • Price elasticity impacted due to growing alternatives Business Imperative for Change Declining steadily Fixed cost base These trends will continue to put pressure on USPS ability to provide affordable universal service Rising cost per hour Rising but capped

5. Continuous Efficiency Improvements Have Helped Mitigate the Impact of Business Threats $16 Billion of Annualized Savings in the past seven fiscal years with workhours reduced by 24% Despite Significant Cost Reductions Losses Remain At Unsustainable Levels Total Workhours (Millions) Savings (Billions) Career Employees – Reduced by 205K since 2006, without layoffs Postal Service is More Efficient Than Ever 800 30 696 685 24.2 663 Annual Growth 1.2% [2000 – 2013] 623 25 584 557 20 528 491 15 TFP Cumulative Trend 10 5 Annual Growth 0.3% [1972 – 1999] 0 '06 '07 '08 '09 '10 '11 '12 13 19721980199020002013

6. A Deep Financial Hole – September 2013 • Liabilities exceed assets by approx. $40 billion • The USPS has only 35 cents of assets to cover each dollar of its liabilities ASSETS LIABILITIES • * Newly available data on forever stamp usage resulted in a $1.3B reduction in Deferred Revenue – Prepaid Postage • ** Under multi-employer accounting rules, there are approximately $51B in obligations not shown on the balance sheet. • Significant profits over years and legislation are needed to recover.

7. Preliminary Financial Results • *Before RHB pre-funding and non-cash adjustments to workers’ compensation liabilities. • Retail and Delivery days were equal to FY2013.

8. Preliminary Financial Results *Before RHB pre-funding and non-cash adjustments to workers’ compensation liabilities.  Retail and Delivery days were equal to FY2013.

9. Preliminary Operating Expenses * Excludes RHB pre-funding, non-cash adjustments to workers’ compensation liabilities, and separation incentive costs.  Delivery days were equal to FY2013.

10. Total Revenue FY13 Jan YTD vs. FY14 Jan YTD 10

11. Projected Mail Volume By Major Classes of Mail 11

12. USPS Five Year Plan Closing the Gap 2016 Savings • Legislative Initiatives $11.1B • Operational Initiatives $6.0 • Transforming Infrastructure • Continuous Improvement • Workforce $2.6B • Reduce the Unit Cost of labor • Increased Flexibility 12

13. Key Legislative Goals • Require USPS Health Care Plan • Resolves RHB Prefunding Issue • Refund FERS Overpayment • Adjust Delivery Frequency (6-Day Packages, 5-Day Mail) • Streamline Governance Model • Authority to Expand Products and Services • Require Defined Contribution System for Future Postal Employees • Instructions to Arbitrator • Reform Workers’ Compensation • Right to Appeal EEOC Class Action Decisions 13

14. Pacific Area Focus Group Delivery and Post Office Operations Transforming Infrastructure Facilities Retail Ops Network Operations 14

15. Management Actions • Network • 350 Processing Facilities Eliminate • 320 Processing Facilities Remain • Retail • POST Plan – 50% of Post Offices moved to Part Time • Consolidated 2,413 Delivery Units • Delivery • Eliminated 24,000 Delivery Routes since 2006 • 60% of New Delivery Centralized Service has remained at predictable levels

16. Network Rationalization Network Consolidations FY2013 • Completed 143 consolidations • 657 Mail Moves complete FY2014 • Phase 2 timeline to be determined 16

17. Pacific Area Focus Group Delivery Optimization 17

18. USPS Delivery Operations USPS Largest Cost Center 2013 Operating Expenses 2013 Operating Statistics Other Personnel Retail & Customer • 225K Delivery Routes 10% Service 12% • 212K Vehicles Other Non-Personnel 15% • 311K Letter Carriers Delivery Transportation 34% 11% • 133.3m physical deliveries Mail • 158.4b pieces delivered Processing 18% • 1.0M New Deliveries 18

19. Major Optimization Initiative Delivery Optimization Transforming Infrastructure • Units • Delivery Unit Consolidations • Routes • City Route Reductions • Deliveries • Efficient Mode of Delivery 19

20. Delivery Unit Consolidations - Benefits • Capture Economies of Scale • Clerical Resources • Replacement Carriers • Vehicle Utilization • Reduced Transportation • Reduced Facility Costs • Lease Costs / Custodial Costs • Reduced Number of Entry Points for Mailers • Scope • 2,503 Delivery Unit Consolidations Completed to Date • 506 Completed in FY 2013 20

21. City Delivery Route Reductions 21.4k Routes Reduced 2006 - 2013 170 160 150 140 City delivery routes 163.4 163.5 130 161.6 150.9 150.0 120 143.6 143.0 141.9 110 100 2006 2007 2008 2009 2010 2011 2012 2013

22. Delivery Mode Conversions Current Policy/Strategies are Driving Migration to More Efficient Delivery Mode USPS Delivery Modes FY 2013 Growth by Mode Fiscal Year 2013 FY 2013 Growth % Total CENTRAL DOOR Door (61.2K) (6%) 37.8M 40.5M Curbline 490.9K 47% 31% 28% Centralized 607.6K 59% CURBLINE 55.0M Total Growth 1.04M - - 41.0% Total street deliveries – 133.3M

23. Pacific Area Focus Group Access Optimization 23

24. USPS Retail Network 24 * Includes Village Post Offices

25. Access Optimization 25

26. mPOS Technology New Technology • A innovative and practical solution to expedite simple transactions in retail lobbies. • Associates are able to engage customers with the mPOS handheld device to take care of customer needs, including check-out, without being tied to the retail window. • Functionality Enabled: • Product Sales • Prepaid Mail Acceptance • PM Flat Rate • 3849 Pickup Mobile Point of Sale POS m 26

27. Retail Strategy Retail Channel Strategy Focus • Grow Revenue • Reduce the Cost to Serve • Transform Customer Experience in High Traffic Post Offices • Enhance Customer Convenience Through Expanded • Retail Partnerships • Preserve Retail Services in Rural America

28. POSt Plan Modified window hours Maintain ZIP Code Lobby and P.O. Box access Retain community identity

29. Village Post Offices