USPS Response to Hill Request Overview n The

USPS Response to Hill Request Overview n The Request – USPS to “submit a workable plan to n Environment n Capital Investment Plan n Financing the Capital Plan n Cost Reduction Efforts fund the key capital investments needed to ensure longterm viability of the Postal Service” – Traditional Approaches – Network Rationalization – Workforce Implications n Current Success

Environment n Declining n 1. 9 FCM volume and contribution new delivery points per year n Volume has become more difficult to forecast – less dependent on economy, more diversion. n Worksharing has increased bringing more mail to destination, bypassing origin processing and transportation

Capital Investment Plan n Total Draft Capital Plan 2004 -2010 -details to GAO – $2. 4 – 3. 2 B per year, almost $19 B over 7 years n Categories: – Auto/Mech – letters, flats, parcels, material handling, and infrastructure support (IT) sub-categories – Vehicles – maintain existing fleet – Retail Equip – POS and Automated Postal Centers – Facilities – customer service/admin, building improvement, major processing sub-categories – Postal Support and Emergency Preparedness – IT

Financing the Capital Plan n Depreciation is primary source n Part of test year revenue requirement n Capital freeze focused on facilities due to volume and workload declines, not generative capital Limited Options: n Sell Assets – Many smaller facilities are leased. Consistently selling assets. Yet need facilities where the mail and people are. Any one want to buy Chicago? n Borrow – statutory annual limits

Cost Reduction Efforts Traditional Approaches n Capital Equipment – PARS, OCR replacement, auto tray handling systems, etc. n BPI and standardization that does not require capital n The type of equipment is not dependent upon the network – shape related

Cost Reduction Efforts Network Optimization and Rationalization n 80% of large facilities are < 30 years old n Networks have changed many times over the years as mechanization / automation have improved – MSCs, BMCs, SDCs, AADCs, PMPCs n Need for Change – multiple shape-based networks n A Promising Alternative – one network from many n Validate model – IG suggested review n Stakeholder input n Test concept(s) – those w/ and w/o facility changes n Incremental approach – do not want a PMPC repeat

Cost Reduction Efforts Workforce Flexibility n Attrition Rates: 5. 8 - 4. 4 percent/year n Retirement Eligibility – 110, 000 now, another 125, 000 by 2007 n Down over 80, 000 career from 1999 peak - down 10, 000 this year so far n Flexibility from OT usage and 11, 000 plant casuals

Current Success n Committed to $1 billion per year in savings with BPI and Transformation n $11. 8 billion in cumulative savings since end of 1999 n Service improvements n Closed over 70 RECs and annexes n Reduced over 80, 000 career employees n USPS outstanding debt down to $2. 25 billion

Summary USPS can continue to reduce costs, moderate increases, and further improve service while generating funds through traditional means. The escrow requirement should be repealed.