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Financial Update from Mailers' Technical Advisory Committee Meeting - February 21, 2007

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thomas-baxter
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This document summarizes the financial update presented by Chief Financial Officer H. Glen Walker during the Mailers' Technical Advisory Committee meeting on February 21, 2007. Key agenda items included legislative changes, financial results for Quarter 1 of FY 2006, and the forecast for Quarter 2. With a focus on net income, cash flow, and retained earnings, the report outlines projected financial challenges and variances from previous plans. The impact of legislative changes on payments and cash flow is also discussed, along with revenue drivers and expenses for the upcoming fiscal year.

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Financial Update from Mailers' Technical Advisory Committee Meeting - February 21, 2007
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  1. FINANCIAL UPDATE Mailers’ Technical Advisory Committee Meeting February 21, 2007 H. Glen Walker Chief Financial Officer & Executive Vice President

  2. Agenda • Legislative Changes • Financial Update – Quarter 1 Results & Quarter 2 Forecast

  3. Income Statement – FY 2006 GAAP External Reporting Internal Reporting ($ Millions) Net Income $900 $900 -2,962 --- Escrow Net Gain (Deficiency) After Escrow -$2,062 $900

  4. FY 2007 Revised Integrated Financial Plan GAAP External Reporting Original IFP Revised IFP $1.7B $1.7B $1.7B Net Income 2007 Escrow -3.3B --- --- 2006 Escrow --- -3.0B -3.0B 2007 HB Fund -5.4B -5.4B --- --- CSRS Refund +1.5B +1.5B Net Loss/Deficiency -$5.2B -$5.2B -$1.6B

  5. FY 2007 Revised Retained Earnings GAAP External Reporting Original IFP Revised IFP September 30, 2006 +$3.2B +$0.2B +$3.2B $1.7B $1.7B $1.7B 2007 Planned Net Income -3.3B 2007 Escrow --- --- --- +1.5B +1.5B CSRS Refund --- -3.0B 2006 Escrow -3.0B 2007 HB Fund -5.4B --- -5.4B Projected FY 2007 Retained Earnings Deficit -$1.4B -$2.0B -$2.0B

  6. FY 2007 Revised Cash Flow GAAP External Reporting Original IFP ($ Billions) Revised IFP As of Sept. 30, 2006 $1.0 $1.0 $1.0 Cash 3.0 3.0 3.0 Escrow $4.0 $4.0 $4.0 +$4.0 Cash Flow From OPS +$4.0 +$4.0 --- -6.9 Legislative Impact -6.9 -2.2 Capital Cash Outlays -2.2 -2.2 +1.8 +1.2 Cash From Financing +1.8 -$3.3 Change in Cash Before Escrow $3.0 -$3.3 $0.7 End of Year Cash $0.7 $0.7 Total Escrow --- --- $6.3

  7. FY 2007 Revised Debt Outstanding ($ Billions) Original IFP Revised IFP As of Sept. 30, 2006 $2.1 $2.1 Year End Debt FY 07 Borrowing 1.8 1.2 $3.9 Debt Outstanding at Year End $3.3

  8. Impact from Legislation on FY 2007 Financials • Payment of $3.0 billion restricted cash from FY 2006 into Retiree Health Benefit Fund (2007 Expense for external GAAP reporting) • Payment of $5.4 billion on September 30, 2007 into Retiree Health Benefit Fund (2007 Expense for external GAAP reporting) • No longer required to pay $1.5 billion per year for employer’s share of CSRS contributions (Reduction to 2007 Expense) • Net cash/additional debt impact on 2007 – $600 million

  9. Var Actual Plan* %Plan SPLY Volume +2.3% 57.2B +1.7% 56.3B +0.9B Revenue +6.4% $19,715 +1.3% $19,468 +247 Expense 18,515 18,250 [+265] +1.5% +4.0% Income from Operations $728 $1,200 $1,219 [-19] Prior-Year Escrow -2,962 -2,962 0 HB Fund Expense -1,350 0 -1,350 CSRS Refund +380 +380 0 -$2,713 Net Loss -$2,732 [-19] Income Statement – Quarter 1 *Restated to reflect legislative impacts [ ] = Unfavorable variance to plan. ($ Millions) Numbers may not add due to rounding.

  10. Commercial $214 Retail 66 Other -33 Total Revenue Variance $247 Red– Unfavorable Black – Favorable $ in Millions Revenue Drivers of Variance to Plan – Quarter 1

  11. Volume FY 2007 % Plan % SPLY First-Class 25.4B +1.1% -0.03% Standard 28.4B +2.3% +4.9% -5.3% Periodicals 2.2B -2.9% Express 14M +5.4% -3.1% 252M -0.8% Priority +1.1% Package Svc. Total 57.2B 329M +4.4% +1.6% +2.3% +1.1% Volume Performance – Qtr 1

  12. Plan % SPLY Total First-Class Mail Volume FY 2003 2004 2006 2007 2005

  13. Plan % SPLY Total Standard Mail Volume FY 2003 2004 2005 2006 2007

  14. Transportation $219 All Other 46 Total Expense Variance $265 Red– Unfavorable Black – Favorable $ in Millions Expense Drivers of Variance To Plan – Quarter 1

  15. Total National Workhours – Qtr 1 1.9M Workhours Over Plan, +0.5% 5.9M Workhours Under SPLY, -1.6%

  16. Total Factor Productivity – Qtr 1 Actual Plan +1.5% Workload +0.6% −0.4% Resources Usage −1.0% +1.9% Total Factor Productivity +1.6%

  17. FY 2004 FY 2005 FY 2006 FY 2007 Quarterly TFP

  18. FY 2007 Quarter 2 – Outlook Revised Plan Quarter 2 Outlook Volume 53.5B On Plan Revenue On Plan $18.6B $19.3B* Expenses On Plan -$0.7B On Plan Net Loss * Expense Plan Revised to Include New Postal Law

  19. FY 2007 Risks vs Plan • PRC Recommendation • R-2006-1 May Implementation Date (1 month delay = $450M) • Increase in Fuel Costs = (10% equates to $170M) • Transportation Costs = $200M • Adverse Decision on NALC/NRLCA Labor Contracts • Aggressive Workhour Reductions • Worker’s Compensation Costs – Actuarial Valuation Underway ($7.0 Billion Accrual) • Do Not Mail List

  20. FY 2007 Opportunities • Revenue Improvements – $450 Million • Rate Increase from Competition Higher than R-2006-1 • First-Class Mail Outperforming Forecast • Potential Continuing Decline in Fuel Costs (10% equates to $170M) • Employee & Annuitant Health Benefit Premiums = $200M • Labor Mix Management = $100M to $200M

  21. FINANCIAL UPDATE Mailers’ Technical Advisory Committee Meeting February 21, 2007 H. Glen Walker Chief Financial Officer & Executive Vice President