US Postal Service 2005 Annual Report Download - page 57

2005 Annual Report United States Postal Service | 47
based on a basket of currencies comprised of the euro,
the Japanese yen, the pound sterling and the U.S. dollar.
Changes in the relative value of these currencies will
increase or decrease the value of our settlement accounts
and result in a gain or loss from revaluation reported in the
results from operations. The actual currency used to settle
accounts varies by country.
The impact on the statements of operations from this
revaluation was a gain of $10 million in 2005, a gain of
$10 million in 2004, and a loss of $9 million in 2003. In
addition to the year end revaluation, we also recognize
gains and losses on our payables and receivables when
we settle with foreign postal administrations. The impact
on the statements of operations from these settlements
was a loss of $14 million in 2005, $15 million in 2004 and
$12 million in 2003.
Supplies, Advances and Prepayments
Supplies, advances and prepayments are primarily com-
posed of our inventories of supplies, motor vehicle parts
and parts for mail processing equipment. We value our
inventories at the lower of average cost or current market
price. Total inventories amounted to $119 million at the end
of 2005 and $118 million at the end of 2004.
Property and Equipment
We record property and equipment at what it cost us to
acquire the assets, including the interest we pay on the
money we borrow to pay for the construction of major
capital additions. No interest was capitalized in 2005 as
no outstanding debt balance was carried for this period. In
2004, interest was capitalized in the amount of $5 million
and $1 million in 2003. Repairs and maintenance are
charged to expense as incurred. This expense amounted
to $809 million in 2005, $744 million in 2004 and
$692 million in 2003.
We depreciate buildings and equipment over their esti-
mated useful lives, which range from 3 to 75 years, using
the straight-line method. We amortize leasehold improve-
ments over the period of the lease or the useful life of the
improvement, whichever time is shorter.
Impaired Assets
We record losses on long-lived assets when events and
circumstances indicate that the assets might be impaired.
In accordance with Statement of Financial Accounting
Standards (FAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, we have written down
our impaired assets to the lower of cost or fair value. On
August 29, 2005 hurricane Katrina devastated the gulf
coast and damaged many of our facilities in that area. As
of September 30, 2005 we have recorded an estimate
for impaired assets in the amount of $7.5 million. In 2004
we determined that an unused Post Office building in a
major city was impaired. A contract granting a prospec-
tive buyer an option to buy this building was signed. This
option was contingent on our making all necessary repairs
to the building. An impairment loss of $24 million was
recorded in 2004 in order to reduce the carrying value
of the property to its estimated fair value, including the
cost of necessary repairs. No material impairments were
recorded in 2003.
Allowance for Doubtful Accounts
We provide an allowance for doubtful accounts on our
outstanding receivables based on our collection history
and an estimate of uncollectible accounts. In 2005 we re-
evaluated our allowance for bad debt methodology, based
on our last five years of collection history. This change in
estimate was the primary driver that reduced our allow-
ance for doubtful accounts from $111 million in 2004 to
$50 million at the end of 2005.
Revenue Recognition/Estimated Prepaid Postage
We recognize revenue when service is rendered. Estimated
prepaid postage is the amount of cash we estimate that
we collected by the end of the year for services that we will
perform in the following year.
Compensation and Benefits Payable
This is the salaries and benefits we owe to current and
retired employees, including the amounts employees have
earned but have not yet been paid, current workers’ com-
pensation, unemployment costs and health benefits.
Outstanding Postal Money Orders
We sell money orders to the general public at our retail
locations. We charge a fee to the customer at the time of
sale. The fee is recognized as revenue at the time of sale.
We recognize a liability for uncashed money orders we
expect to be presented for payment.
Segment Information
We operate in one segment throughout the United States
and internationally.
Deferred Retirement Benefits and Cost
We are an independent establishment of the executive
branch of the U.S. government. We provide pension ben-