US Postal Service 2007 Annual Report Download - page 47

2007 Annual Report United States Postal Service | 47
Notes to the Financial Statements
Note 5 – Debt and related interest
Borrowing Limits and Debt
Under the Postal Reorganization Act, as amended by Public Laws 101-227
and 109-435, we can issue and sell debt obligations. However, at year-end
we are limited to net annual increases of $3 billion in our debt and our total
debt cannot exceed $15 billion.
Debt Consists of the Following:
Interest
Rate % Terms * 2007 2006
(Dollars in millions)
NOTES PAYABLE TO THE FEDERAL FINANCING
BANK (FFB):
3.366%**
Short-term revolving credit facility;
Payable October 1, 2007 $ 2,900 $ 1,900
3.528%***
Overnight revolving credit note;
Payable October 1, 2007 300 200
3.101% Payable November 15, 2007 500 -
3.866% Payable December 20, 2007 500 -
$ 4,200 $ 2,100
* All debt is repurchasable at any time at a price determined by the Secretary of the Treasury,
based on rates prevailing in the Treasury Security market at the time of repricing.
** Prior year rate was 4.714%
*** Prior year rate was 4.701%
The current value of our debt is what it would cost to pay off the debt if we
used the current yield on equivalent U.S. Treasury notes. At year-end, the
current estimated value of our debt is $4.2 billion.
Note Purchase Agreements
Our note purchase agreements with the Federal Financing Bank provide for
revolving credit lines of $4 billion. These credit lines enable us to draw up
to $3.4 billion with two days’ notice, and up to $600 million on the same
business day the funds are needed. Under these agreements we can also
use a series of other notes with varying provisions to draw upon with two
days’ notice. The notes provide us the flexibility to borrow short-term or
long-term, using fixed or floating rate debt, and can be either callable or
non-callable.
Interest Payments on Retirement
There were no cash outlays for interest on the retirement “supplemental
liability” in 2007 because of the enactment of P.L.109-435. In 2006, the
cash outlay was $231 million and $263 million in 2005. See Note 10,
Retirement programs, in the Notes to the Financial Statements for additional
information.
Other Interest Payments
Cash outlays for other interest were $9 million in 2007, $4 million in 2006
and $3 million in 2005.
Note 6 – Property and equipment
Sale of Major Facility
On March 30, 2007, we sold the James A. Farley building in New York City
to the Empire State Development Corporation (ESDC) for $190 million and
additional proceeds of up to $55 million, contingent upon the achieve-
ment of certain development and leasing criteria by the developer of the
property. This building formerly housed retail, carrier, and mail processing
operations. Mail processing operations formerly housed in this facility had
been transferred to other facilities in 2004. The Postal Service continues
to conduct retail and carrier operations at this facility under the terms of an
interim lease with annual rentals of $5.6 million per year. Once the carrier
operations are relocated to other facilities, we will continue to conduct retail
and some administrative functions in a smaller portion of the building under
a 99-year lease, with a rental fee of $1. The Postal Service has an option
to require the building owner to change the legal structure of the building
ownership into condominium units, with the Postal Service being given the
right to purchase the space subject to the 99-year lease.
We have accounted for the transaction under the deposit method under
the provisions of FAS 66, Accounting for Sales of Real Estate. The gain will
not be recognized and the asset will not be removed from our accounting
records until the lease and other continuing involvement in the building have
expired. If the condominiumization of the building is legally completed prior
to that time, and the contingent payments are satisfied, or we completely
move out of the facility, then the gain could be recognized earlier.
Additionally, from the funds ESDC paid us, $10 million was set aside for an
environmental clean-up fund. Our environmental liability is limited to $10
million and is included on our balance sheet under trade payables and other
accrued expenses.
Interest Capitalization
No interest was capitalized in 2007, 2006 or 2005.
Repairs and Maintenance
Repairs and maintenance are charged to expense as incurred. This expense
amounted to $956 million in 2007, $933 million in 2006, and $809 million
in 2005.