United States Postal Service FY2016 Annual Report to Congress FY2016 Annual Performance Report and FY2017 Performance Plan FY2016 Comprehensive Statement on Postal Operations Ready Now Ò Future Ready Table of Contents The Year in Review .....................................2 Sustain Controllable Income .....................22 Ready Now Ò Future Ready .....................2 Key Financial and Operating Statistics ......25 Letter from the Board of Governors’ PART 2 — FY2016 Comprehensive Chairman and the Postmaster General .......4 Statement on Postal Operations ..............31 The Board of Governors .............................6 Improving Customer Experience ..............32 The Executive Leadership Team .................8 Engaging and Empowering Employees to Better Serve Customers ...........................41 Other Officers of the U.S. Postal Service ....9 Investing in Future Platforms ....................48 PART 1 — FY2016 Annual Performance Report and FY2017 Annual Performance Working Together with Plan ..........................................................11 America’s Businesses ...............................55 U.S. Postal Service FY2016 Results Accelerating the Pace of Innovation ..........56 and FY2017 Targets for Corporate-wide Goals ..............................15 Connecting Communities .........................64 Deliver High-Quality Service ......................16 Maintaining Focus and Accelerating Growth .....................................................69 Provide Excellent Customer Experiences ..17 Ensure a Safe Workplace and Engaged Workforce ................................................20 United States Postal Service — FY2016 Annual Report to Congress The Year in Review Financial Highlights Percent change from Years ended Sept 30 preceding year FY2016 FY2015 FY2014 FY2015-16 FY2014-15 (in millions) Total revenue $ 71,498 $ 68,928 $ 67,830 3.7% 1.6% Total operating expenses $ 76,899 $ 73,826 $ 73,178 4.2% 0.9% Interest, net $ (190) $ (162) $ (160) Net loss $ (5,591) $ (5,060) $ (5,508) Purchases of capital property and equipment $ 1,428 $ 1,222 $ 781 16.9% 56.5% Debt $ 15,000 $ 15,000 $ 15,000 Capital contributions of U.S. Government $ 3,132 $ 3,132 $ 3,132 Deficit since 1971 reorganization $ (59,114) $ (53,523) $ (48,463) Total net deficiency $ (55,982) $ (50,391) $ (45,331) (in actual units indicated, unaudited) Number of career employees 508,908 491,863 488,300 3.5% 0.7% Number of non-career employees 130,881 129,974 129,577 0.7% 0.3% Mail volume (pieces in millions) 154,323 154,322 155,532 0.0% (0.8)% New delivery points served 1,142,352 1,059,852 971,543 7.8% 9.1% Note: Numbers for certain mail categories for the years FY2016, FY2015 and FY2014 have been reclassified subsequent to the Postal Service’s filing its Form 10-K with the PRC on November 15, 2016; therefore slight differences from the 10-K exist, which the Postal Service considers immaterial for financial reporting purposes. The reclassifications did not impact Total Operating Revenue amount. Ready Now Ò Future Ready The United States Postal Service has been It’s about you. connecting people and communities, binding the Our customers are at the center of everything we nation together, for more than 240 years. Our do. Whether you do business with us at your local mission — established by law and solidified in our commitment to our customers — is to provide Post Office or by using mobile technologies, our reliable, efficient, trusted and affordable service to goal is to deliver a positive experience. We want connect America and help businesses grow. to provide you with the best shipping and mailing solutions. We’re playing a larger role in enabling As the nation has evolved, so have we. We’ve the growth in e-commerce, especially as more always been a leader in adopting the newest and more consumers and businesses rely on us technologies, from automation to barcodes for package delivery. to augmented reality. We view advances in technology not as disruptive — but as an And more. advantage. If they help us deliver better service Want to track your package from drop-off to to our customers, we’re there. delivery? You got it. What can we help you find? And we’re making sure we’ll always be there We’re launching new information sources that for you. are easy to navigate and can help you save time. Don’t want to wait in line? Try one of our kiosks. How about getting advance notice on 2 United States Postal Service — FY2016 Annual Report to Congress that mobile device of the mail you’ll receive that simpler to send. We’ll merge physical mail with day? We know how many times you check digital features. Everything we do will reinforce your smartphone every day. About 150. Maybe the resiliency of mail as a trusted, effective more. We’re making mail part of your daily, digital communications channel. routines. Our focus is on what our customers value. It’s about our employees. It’s about investing in the future. Our employees are our most valuable assets. We continue to make critical investments in our We’re in your communities every day — where infrastructure and our network. We’re adding we live and work too. When we take care of new equipment to handle impressive increases our employees, our employees take care of our in package volume. We’re upgrading our mail customers. processing machines. We’ll continue to enhance We’re equipping our workforce with the tools, the retail experience by adding more self-service training and resources they need to serve you kiosks and deploying more mobile devices to even better. We’re surrounded by data and handle transactions in new ways. We’ll integrate information about our operations. We’re sharing digital capabilities into mail and package delivery, this knowledge with our employees so they such as applications that monitor status and better understand how their efforts help keep our performance. customers doing business with us. By investing in new capabilities, we can meet We’ve had a longtime commitment to being an the rapidly changing needs of our customers — “employer of choice”. We understand that an households and businesses — for e-commerce engaged workforce is critical to our success, and digital solutions. We plan to remain an especially in a rapidly changing marketplace. essential part of keeping America connected for It’s about innovating to deliver value. decades to come. We are speeding the pace of innovation. We We are Ready Now Ò Future Ready. are developing mobile and digital tools to play a larger role in the daily digital lives of our customers. We’re identifying opportunities for innovation that will deliver value to the market, create new revenue growth opportunities, drive cost savings, retain customers and optimize operational and financial performance. Who benefits from this effort? You do. You’ll have more control over the mail you receive. It will be United States Postal Service — FY2016 Annual Report to Congress 3 Letter from the Board of Governors’ Chairman and the Postmaster General On a typical day, more than 600,000 men and customers in a competitive communications and women of the United States Postal Service delivery marketplace. We are also obligated to ensure that hundreds of millions of pieces of provide universal service—and to maintain the mail are delivered to 156 million delivery points, significant processing, transportation and delivery including more than 43 million rural businesses infrastructure that providing universal service and residences across the country. This daily requires. Paying for that infrastructure, which act of delivery is a cornerstone of the American continues to rise in cost every year as delivery economy, and it will be far into the future. points continue to grow, is becoming increasingly The secure, reliable and affordable delivery challenging as our most profitable mail product provided by the Postal Service enables (First-Class Mail) continues to decline, and as every marketer to reach customers, and other mandated costs also continue to rise. These every business to conduct transactions and problems are exacerbated by statutory pricing ship physical goods, from our smallest rural constraints and product and service constraints communities to our largest urban areas. From which limit our ability to generate enough revenue delivering holiday cheer through letters and to pay our bills. packages to veterans stationed overseas to Among the mandated costs, the Postal birthday greetings and college acceptance Service operates with a requirement to prefund letters, the Postal Service binds the nation retiree health benefits, but that requirement together and powers its commerce. is unaffordable unless those benefits are fully The Postal Service had a remarkable 2016. We integrated with Medicare. Additionally, our delivered over 154 billion pieces of mail, and we pension obligations are calculated based grew revenue to $71.5 billion in FY2016—a 3.7 on federal government demographics and percent revenue increase. These results helped economic assumptions, which makes them us achieve controllable income of $610 million. more expensive than they would be if they Excluding the impact of a $5.8 billion mandated were appropriately calculated based on postal Retiree Health Benefits prepayment, the Postal demographics and wage-growth assumptions. Service would have recorded net income The Postal Service is also subject to a rigid price for the year. And operationally, we improved cap not faced by private companies. That cap performance in all major