US Postal Service 2008 Annual Report Download - page 54

54 | 2008 Annual Report United States Postal Service
Amortization of Leasehold Improvements
We amortize leasehold improvements over the period of
the lease or the useful life of the improvement, whichever
is shorter.
Leasehold improvements that are placed in service after the
start of the lease term are amortized over the shorter of the
useful life of the asset or the lease term, including expected
renewal options.
Foreign Currency Translation
We have foreign currency risk related to settlements with
foreign postal administrations for international mail. The
majority of our international accounts are denominated in
special drawing rights (SDRs). The SDR exchange rate fluc-
tuates daily based on a basket of currencies comprised of
the euro, Japanese yen, pound sterling, and the U.S. dol-
lar. 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 impacts on our financial
statements from foreign currency fluctuations were insignifi-
cant for 2008, 2007, and 2006.
Outstanding Postal Money Orders
We sell money orders to the general public at our retail lo-
cations. 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 money orders we expect to be
presented for payment.
Revenue Recognition/Deferred
Revenue — Prepaid Postage
We recognize revenue when services are rendered. Be-
cause we collect payment in advance of services being
performed, we defer the revenue until the services are per-
formed. This is classified as a liability, Deferred revenue–
prepaid postage, on our balance sheets. In Quarter III of
the current year, we changed the methodology used to esti-
mate the deferred revenue for prepaid postage for stamps.
This update was made necessary because the introduc-
tion of the Forever Stamp in April 2007, combined with the
May 2008 price increase, resulted in a change in consumer
behavior regarding the purchase and usage of stamps that
was not measurable using our prior estimation techniques.
We developed a new approach that more accurately cap-
tures trends in stamp usage. The change to a new estima-
tion technique is considered a change in the accounting
estimate under GAAP.
As required by FAS 154, the impact of the change was re-
corded in Quarter III, 2008. For the year ended September
30, 2008, we increased the stamp portion of the deferred
revenue–prepaid postage liability by $477 million, $230 mil-
lion of which is considered a cumulative change in estimate
and $247 million of which is attributable to changes in con-
sumer behavior during the last two quarters of the year.
Advertising Expenses
Advertising costs are expensed as incurred and are classi-
fied in other operating expenses. Advertising expenses were
$106 million in 2008, $121 million in 2007, and $138 million
in 2006.
Compensation and Benefits Payable
Compensation and Benefits Payable are the salaries and
benefits we owe to current and retired employees, includ-
ing the amounts employees have earned but have not yet
been paid, current workers’ compensation, unemployment
costs, and health benefits.
Workers’ Compensation
We pay for workers’ compensation costs under a program
administered by the Department of Labor (DOL). These
costs include employees’ medical expenses, compensa-
tion for wages lost, and DOL administrative fees. We record
these costs as an operating expense. See Note 11, Work-
ers’ compensation, in the Notes to the Financial Statements
for additional information.
Retiree Benefits
Our employees are eligible to participate in the federal gov-
ernment retirement programs, including pension and retiree
health benefits. We are required to provide funding for those
plans as determined by the administrator of the plan, the Of-
fice of Personnel Management (OPM). We cannot direct the
costs, benefits, or funding requirements of these federally
sponsored plans. In accordance with our parent-subsidiary
type relationship with the federal government, we account
for our participation in these plans using multiemployer plan
accounting rules in accordance with Financial Account-
ing Standards Board Statement (FAS) 87, Employers Ac-
counting for Pension Costs, and FAS 106, Employers Ac-
counting for Postretirement Benefits Other Than Pensions.
We account for the cost of our employees’ participation in
these programs as an expense in the period our contribu-
tion is due and payable. As more fully described in Note
4, Postal Accountability and Enhancement Act, Public Law
109-435 (P.L. 109-435), the law significantly impacted our
2007 costs associated with these programs. See also Note
9, Health benefit programs, and Note 10, Retirement pro-
grams, in the Notes to the Financial Statements for addi-
tional information.
Notes to the Financial Statements