Expense Outlook

Total expenses for 2010, excluding retiree health benefits, are expected to decrease approximately 4% as planned cost reductions outweigh the impact of contractual and expected wage and benefit increases.

We plan to aggressively reduce costs wherever possible to counter the effects of declining volume while maintaining high levels of service. We are projecting more than $3.5 billion in cost savings including approximately 90 million in workhour reductions across the organization in 2010. This is expected to result from specific operational initiatives in conjunction with expected cost savings from employee retirement incentives targeted to specific employee groups. We do not anticipate any COLA-based raises in 2010, as inflation is expected to remain below the levels that would trigger such increases.

Bulk Mail Centers are being transformed into Network Distribution Centers (NDC). The core principal of the NDC concept is to fill containers and trucks as early in the network as possible and dispatch them as deep into the network as possible. Plant staffing optimization will continue to contribute to operational savings in 2010 by aligning the plant workforce to meet changing workload levels.

City Delivery operations are expected to generate savings in FY 2010 from route adjustments made in 2009. Route adjustments have resulted in over 11,500 fewer routes.

In 2010, we plan to save an estimated $500 million from the departure of 20,150 employees that accepted the special incentive offered in August 2009.

A continuing challenge that must be overcome in order to achieve these savings will be our ability to reduce employee complement to fully capture the savings generated by these initiatives.