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2004 annual report united states postal service | 45
Notes to the financial statements
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฀statement฀of฀operations฀from฀this฀revalua-
tion฀was฀a฀gain฀of฀$10฀million฀in฀2004,฀a฀loss฀of฀$9฀million฀in฀
2003,฀and฀a฀loss฀of฀$7฀million฀in฀2002.฀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฀statement฀of฀operations฀
from฀these฀settlement฀losses฀was฀$15฀million฀in฀2004,฀$12฀
million฀in฀2003฀and฀$7฀million฀in฀2002.
Supplies,฀Advances฀and฀Prepayments
Supplies,฀advances฀and฀prepayments฀are฀primarily฀composed฀
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฀$118฀million฀at฀the฀end฀of฀2004฀and฀$123฀million฀
at฀the฀end฀of฀2003.
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.฀This฀interest฀amounted฀to฀$5฀million฀in฀2004,฀$1฀
million฀in฀2003,฀and฀$23฀million฀in฀2002.฀Repairs฀and฀main-
tenance฀are฀charged฀to฀expense฀as฀incurred.฀This฀expense฀
amounted฀to฀$744฀million฀in฀2004,฀$692฀million฀in฀2003฀and฀
$577฀million฀in฀2002.
We฀depreciate฀buildings฀and฀equipment฀over฀their฀estimated฀
useful฀lives,฀which฀range฀from฀3฀to฀75฀years,฀using฀the฀straight-
line฀method.฀We฀amortize฀leasehold฀improvements฀over฀the฀
period฀of฀the฀lease฀or฀the฀useful฀life฀of฀the฀improvement,฀which-
ever฀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.฀In฀2004฀it฀was฀determined฀that฀
an฀unused฀Post฀Office฀building฀in฀a฀major฀city฀was฀impaired.฀
A฀contract฀granting฀a฀prospective฀buyer฀an฀option฀to฀buy฀this฀
building฀has฀been฀signed.฀This฀option฀is฀contingent฀ on฀the฀
Postal฀Service฀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฀or฀2002.
Allowance฀for฀Doubtful฀Accounts
We฀provide฀an฀allowance฀for฀doubtful฀accounts฀in฀our฀outstand-
ing฀receivables฀based฀on฀our฀collection฀history฀and฀an฀estimate฀
of฀uncollectible฀accounts.฀
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.฀In฀2002฀after฀extensive฀analysis,฀
we฀changed฀our฀estimate฀of฀the฀sampling฀period฀for฀meter฀
customers฀from฀92฀days฀to฀30฀days฀to฀more฀closely฀reflect฀
the฀meter฀resetting฀practices฀of฀our฀customers.฀The฀impact฀of฀
this฀change฀in฀estimate฀was฀a฀$113฀million฀reduction฀of฀the฀
liability฀in฀2002.฀
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’฀compensation,฀
unemployment฀costs฀and฀health฀benefits.
Segment฀Information
We฀operate฀in฀one฀segment฀throughout฀the฀United฀States฀and฀
internationally.฀Our฀international฀operations฀are฀not฀significant.
Deferred฀Retirement฀Benefits฀and฀Costs
We฀ are฀ an฀ independent฀ establishment฀ of฀ the฀ executive฀
branch฀of฀the฀U.S.฀government.฀We฀provide฀pension฀benefits฀
as฀defined฀by฀OPM฀and,฀therefore,฀have฀a฀parent-subsidiary฀
type฀relationship.฀We฀account฀for฀our฀participation฀in฀the฀U.S.฀
government฀sponsored฀retirement฀plans฀as฀a฀participant฀in฀a฀
multi-employer฀plan฀arrangement฀in฀accordance฀with฀FAS฀87,฀
Employers’฀Accounting฀For฀Pension฀Costs.฀See฀notes฀6฀and฀7฀
for฀additional฀information.