a letter from the postmaster general/ceo
and the chairman of the board of governors

To the President, members of Congress, postal employees, and the American people:

Innovation, performance, and a focus on service contributed to a record year for the United States Postal Service.

We continued to serve a growing delivery network while achieving record levels of service performance and customer satisfaction. Financially, we had our second straight year of positive earnings — with a net income of $3.1 billion. In fiscal year 2004, we reduced our debt by $5.5 billion to its lowest level in 20 years: $1.8 billion. Additionally, we recovered all prior years' losses and, for the first time since postal reorganization in 1971, ended the year with positive retained earnings.

Productivity continued its upward movement in 2004 as we showed positive total factor productivity gains for the fifth straight year. Career staffing reached pre-1985 levels as a combination of process standardization and new technology brought our system to remarkable levels of efficiency. As our delivery network of more than 142 million homes and businesses continued its annual expansion by some 1.8 million new addresses, we pursued opportunities to further enhance the efficiency of delivery and mail processing operations.

Our focus also was on bringing new product and service initiatives to our customers. We added new value to the mail — making it quicker, easier, and more convenient than ever for customers of all sizes to do business with the Postal Service. With new and enhanced features, our website, usps.com, has truly become an online Post Office.

The Postal Service's 37,000 retail locations offer unrivaled customer access. At a time when competitors pursue retail expansion

strategies, we are enhancing our customers' retail experience through new technologies and alliances.

And our employees played key roles in these efforts in 2004. For the first time, a pay-for-performance system directly tied the compensation of all management employees to the achievement of specific corporate and individual goals. Our workplace continues to improve, with demonstrated significant increases in safety and employee satisfaction.

While our success has been significant, changing market dynamics still require a revision to our statutory business model to protect the long-term right of every American to affordable, universal mail service. During 2004 there was considerable activity in this area. We expect the new Congress to continue these efforts. At the same time, we strongly believe that Congress must resolve the issue of billions of dollars in costs that were placed on the Postal Service and its customers as a result of legislation that adjusted our payments to the Civil Service Retirement System.

Our success is tied to the strategies of our Transformation Plan. It has been at the heart of our efforts to provide exceptional service and value to every American family and business. Along with the support and commitment of our employees, the Transformation Plan will help us to continue delivering results.

Sincerely,

John E. Potter
Postmaster General and
Chief Executive Officer

S. David Fineman
Chairman, Board of Governors