Net Increase in Cash and Cash Equivalents $ 240 $ 803 $ 317 As of September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash provided by operating activities was $935 million in 2013, compared to $432 million used by operations in 2012, a year-to-year increase in cash provided by operations of $1,367 million. Cash provided by operations was driven by increased revenues from standard mail, shipping and packages, and stamp sales. Additional significant non-cash expenses included $1,901 million of depreciation and $5,600 million in PSRHBF expenses which were offset by $1.7 billion in fair value adjustments to workers compensation and a $1.3 billion change in accounting estimate related to deferred revenue – prepaid postage.

Net cash used in operating activities was $432 million in 2012, compared to $494 million provided by operations in 2011, a year-to-year decrease in cash provided by operations of $926 million. A major factor incorporated in the net loss of $15,906 million was the $11,100 million of PSRHBF expenses that were accrued during the year but not paid. Additional significant non-cash expenses included: $2,075 million of depreciation, a $2,425 million increase in the workers’ compensation liability, and a $78 million increase in other noncurrent liabilities. A significant use of cash during the year was the $911 million repayment in 2012 of the FERS employer contributions that were withheld from June 2011 through November 2011. Partially offsetting the FERS payment impact on cash flows was an increase in cash received for stamps that have not yet been used, otherwise known as deferred revenue – prepaid postage, which increased by $517 million in 2012. The remaining adjustments from net loss to cash used by operating activities net out to cash provided of $190 million.

Net cash provided by operating activities was $494 million in 2011, compared to $3,292 million used in operations during 2010, a year-to-year increase in cash provided by operations of $3,786 million. The major difference in cash flows was that for 2011, the $5,500 million payment for the PSRHBF contribution initially due in 2011 but changed to be due in 2012. The 2011 loss of $5,067 included: non-cash expenses for depreciation of $2,313 million, a $2,553 increase in the Workers’ Compensation liability, and a $520 million increase in other noncurrent liabilities. Impacting cash flow in 2011 was the fact that there were 27 pay dates during the fiscal year versus the normal 26 pay dates for an estimated cash outflow impact of $1,490 million. The 27 pay date impact was partially offset by the $911 million of FERS employer contributions that were expensed in 2011, but not disbursed until 2012. During 2011, $913 million of cash was received, but classified as deferred revenue-prepaid postage. The remaining adjustments from net loss to cash provided by operating activities net out to cash used of $159 million.

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used by investing activities in 2013 was $588 million, compared to $585 million and $1,063 million in 2012 and 2011, respectively. Purchases of property and equipment in 2013 of $667 million decreased $38 million from the prior year after a $485 million decrease in 2012 from 2011. Proceeds from building sales and the sale of property and equipment totaled $158 million in 2013, compared to $148 million and $137 million in 2012 and 2011, respectively. Changes in restricted cash requirements in 2013 of $79 million increased $51 million from the prior year, after a $18 million increase in 2012 from 2011.

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash used in financing activities was $107 million in 2013. Net cash provided by financing activities was $1.8 billion and $0.9 billion in 2012 and 2011, respectively.

The following table summarizes future cash requirements as of September 30, 2013. Contractual Obligations Less than (Dollars in millions) Debt (1) $ 15,000 $ 9,800 $ 300 $ - $ 4,900 Interest on debt (1) 1,898 180 336 318 1,064 PSHRBF 33,900 22,400 11,500 - -

Capital lease obligations 565 94 179 143 149

Operating leases 6,680 720 1,264 1,009 3,687 Capital commitments (2) 708 428 209 47 24 Purchase obligations (2) 6,082 741 1,765 1,679 1,897 Workers' compensation (3) 25,283 1,305 2,542 2,109 19,327 Employees' leave (4) 2,097 116 254 270 1,457 $ 92,213 $ 35,784 $ 18,349 $ 5,575 $ 32,505

(1) For overnight and short-term debt, the table assumes the balance as of period end remains outstanding f or all periods presented.

(2) Legally binding obligations to purchase goods or services. Capital commitments pertain to purchases of equipment, building improvements, and vehicles. Purchase obligations generally pertain to items that are expensed w hen received or amortized over a short period of time. Capital commitments and purchase obligations are not reflected on the Balance Sheet.

(3) Assuming no new cases in f uture years. This amount represents the undiscounted expected w orkers' compensation

payments. The discounted amount of $17,240 million is ref lected in our Balance Sheet as of September 30, 2013. (4) Employees' leave includes both annual and holiday leave.

Payments Due by Year

5 Years 3-5 Years 1-3 Years 1 Year Total After

F

A

As an “independent establishment of the Executive Branch of the Government of the United States,” the Postal Service receives no tax dollars for ongoing operations and has not received an appropriation for operational costs since 1982. We fund operations chiefly through cash generated from operations and by borrowing from the Federal Financing Bank (FFB).

The amount borrowed is largely determined by three major factors, the difference between: (1) cash flow from operations, (2) capital cash outlays, which include funds invested for new facilities, new automation equipment, and new services, and (3) the annual increase in debt, which is limited by statute to $3 billion. An additional determinant is our statutory debt ceiling of $15 billion. On September 30, 2013, and September 30, 2012, there was $15 billion in debt outstanding.

I

E

In 2013, interest expense was $191 million, which was slightly higher than $190 million in 2012. Net losses for the three years ended September 30, 2013, have resulted in higher debt levels, however in 2012, the maximum debt limit of $15 billion was reached. Although long-term debt carries higher interest rates than prevailing rates for short-term debt, financing a portion of debt at fixed rates decreases our interest rate risk and interest expense volatility now and in future years. At September 30, 2013, $5.2 billion of these long-term obligations remain outstanding. Overall debt levels have not changed in 2013 and 2012, albeit still higher than previous years. However, short-term interest rates remained at historically low levels helping to keep total interest expense relatively low.

In 2012 and 2011, with an increasing amount of debt outstanding throughout the year, interest expense totaled $190 million and $172 million, respectively.

I

A

I

I

The majority of our interest and investment income comes from the imputed interest we recognize on the funds owed to us under the Revenue Forgone Reform Act of 1993. Under the Act, Congress agreed to reimburse the Postal Service $1,218 million in 42 annual installments of $29 million through 2035 for services performed in prior years. Although Congress has failed to appropriate the funds for these payments in 2012 and 2013, we continue to make these appropriation requests and recognize the imputed interest due on the original amortization schedule. Imputed interest for Revenue Forgone was $23 million, $23 million, and $24 million for the years ended September 30, 2013, 2012, and 2011, respectively. See Note 12, Revenue Forgone, in the Notes to the Financial Statements for additional information.

When we determine that available funds exceed current needs, funds are invested with the U.S. Treasury’s Bureau of Public Debt in overnight securities issued by the U.S. Treasury. Investment income was $1 million, $2 million, and $4 million for the years ended September 30, 2013, 2012, and 2011, respectively.

L

M

C

L

An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Assessing contingencies is highly subjective and requires judgments about future events. We regularly review loss contingencies to determine the adequacy of our accruals and related disclosures. The amount of the actual loss may differ significantly from these estimates. In 2013, the material claim outstanding is the following.

McConnell v. Donahoe: On January 14, 2010, the Equal Employment Opportunity Commission's (EEOC) Office of Federal Operations certified a class action case against the Postal Service in a matter captioned McConnell v. Donahoe. The class currently consists of all permanent rehabilitation employees and limited-duty employees who have been subjected to the National Reassessment Process (NRP) from May 5, 2006, to July 1, 2011. We used the NRP to ensure that our records were correct and that employees receiving workers' compensation benefits were placed in jobs consistent with their abilities. The case alleges violations of the Rehabilitation Act of 1973 resulting from the NRP's failure to provide a reasonable accommodation, the NRP's wrongful disclosure of medical information, the creation by the NRP of a hostile work environment, and the NRP's adverse impact on disabled employees. The class is seeking injunctive relief and damages of an uncertain amount. If the plaintiffs were able to prove their allegations in this matter and to establish the damages they assert, then an adverse ruling could have a material impact on us. However, we dispute the claims asserted in this class action case and are vigorously contesting the matter. See Note 7, Contingent Liabilities, in the Notes to the Financial Statements for additional information.

F

V

M

In 2013 and 2012, our financial statements contain fair value disclosures required by U.S. GAAP. We did not have any recognized gains as a result of these valuation measurements in these years. All recognized losses have been incorporated into our financial statements, and the unrecognized gains and losses are not considered to have a significant impact upon our operations. See Note 11, Fair Value Measurement, in the Notes to the Financial Statements for additional information.