US Postal Service 2012 Annual Report Download - page 89

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2012 Report on Form 10-K United States Postal Service- 88 -
ASSET RETIREMENT OBLIGATIONS
A liability for the estimated costs of legally binding obligations to perform asset retirement activities is
included in “Contingent liabilities and other” on the Balance Sheets.
IMPAIRED ASSETS
In accordance with ASC Topic 360-10-35, Accounting for the Impairment or Disposal of Long-Lived Assets,
impairment losses on long-lived assets are recorded when events or circumstances indicate that the assets’
fair value is less than the carrying value. When such a determination is made, the carrying values of the
assets are written down to fair value. Fair value is determined by independent appraisals for real property.
Due to the absence of a market for most types of mailing equipment, impaired equipment assets are
assigned a fair value of zero. See Note 5, Property and Equipment for additional information related to
impairment charges for 2012, 2011, and 2010.
OUTSTANDING POSTAL MONEY ORDERS
Postal money orders are sold at retail locations. A fee is charged at the time of sale. The fee is recognized
as revenue at the time of sale. A current liability is recorded for money orders expected to be presented for
payment.
REVENUE RECOGNITION/DEFERRED REVENUE-PREPAID POSTAGE
Deferred revenue-prepaid postage is an estimate of postage that has been sold but not yet used by
customers. Revenue is recognized only when services are rendered. Because payments for postage are
collected in advance of services being performed, revenue is deferred and reflected in the Balance Sheets
as “Deferred revenue–prepaid postage.” Two categories of postage sales account for the majority of
deferred revenue–prepaid postage: stamp sales and metered postage.
Stamp sales in 2012 totaled $8.1 billion. Deferred revenue on stamp sales is estimated using statistical
samples of stamped mail exiting the mail system across the country. The estimated stamp usage is
subtracted from stamp sales with the difference representing our obligation to perform future services. That
obligation is reduced by recognizing a provision for stamps sold that may never be used; either through
loss, damage, or collecting activity, commonly referred to as the “breakage factor.”
Metered postage is primarily used by businesses. Deferred revenue related to meters is estimated by
monitoring the actual usage of all postage meters that had postage added during the month preceding the
financial measurement date. The information from the two most recent meter readings is used to derive a
deferral percentage, which is applied to all postage meter receipts for the month. Metered postage receipts
in September 2012 subject to deferral totaled $1.2 billion.
Also included in the estimate of deferred revenue–prepaid postage is an estimate for mail that is in transit
within the postal system.
In Quarter III, 2010, the Postal Service refined the stamp usage estimation technique to reflect new
information concerning the breakage factor. This resulted in an increase of deferred revenue-prepaid
postage of $112 million, $103 million of which is attributable to changes that were not identifiable based on
data previously available.
In Quarter I, 2011, the Postal Service enhanced the estimation technique employed to estimate deferred
revenue-prepaid postage for Forever Stamps. During that quarter, certain usage data indicated that a
refinement of the estimation process for Forever Stamp usage was necessary. As a result of this
enhancement, deferred revenue-prepaid postage was increased by $170 million.
In Quarter II, 2012, the Postal Service improved the estimation technique employed to estimate deferred
revenue-prepaid postage for Forever Stamps. The Postal Service obtained new information regarding its
customers’ stamp usage and retention habits. This enabled the Postal Service to update its estimate of
stamps that will never be used for mailing. As a result of this enhancement, the liability for deferred
revenue-prepaid postage was decreased by $59 million.