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Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations and cash flows. The remainder of this report, including sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” will provide the reader with a more complete understanding of the risks and uncertainties we confront.

Adverse changes in the economy directly impact our business, adversely affecting our results of operations.

The demand for postal services is heavily influenced by changes in the economy. A continuation of the slowdown in the economy is expected to impact nearly every class of mail negatively. The continual decline in employment, lasting since January 2008, has been indicative of this economic malaise. In recent months, turmoil in the financial markets has resulted in a worldwide credit crisis, which raises economic risk significantly. Moreover, a long run-up in commodities prices — including, most notably, energy prices — was followed by a rapid decline in energy prices beginning in mid-summer 2008. Volatile market conditions such as these are expected to have an adverse impact on retail sales, investment, consumer spending, and consumer confidence. Adverse trends in retail sales, investment spending, and employment are all likely to depress the demand for postal services.

Expanding use of electronic communications methods and other commercial services compete with some of our principal services. If we do not compete effectively with these services, our business and results of operations will be adversely affected.

The Internet continues to change the communications market. Within the next decade, further innovations in mobile commerce, broadband, interactive TV, data-mining software, and new printing technologies will continue to affect the way businesses and consumers interact. Of greatest impact on the Postal Service are electronic alternatives to correspondence and transactions, particularly for First-Class Mail and Standard Mail items such as business correspondence, bills, statements and customer payments and, increasingly, advertising. First-Class Mail volume has already been affected by the Internet, automatic deductions, direct deposit, telephone, fax machines, and other electronic communications.

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