US Postal Service 2014 Annual Report Download - page 53

2014 Report on Form 10-K United States Postal Service 49
Contingent Liabilities
The Postal Service is a party to various legal proceedings and claims in the normal conduct of its operations. Contingent
liabilities require significant judgment in estimating potential losses for legal and other claims. Each quarter, significant new
claims and litigation are evaluated for the probability of an adverse outcome. Any prior claims and litigation are also reviewed,
and when necessary, the liability balance is adjusted for resolutions or revisions to prior estimates. Estimates of loss can
therefore change as additional information becomes available. See Note 7- Commitments and Contingencies for additional
information.
Employees’ Accumulated Leave, net
Employees earn annual leave based on the number of creditable years of service with the Postal Service. The Postal Service
advances annual leave to employees at the beginning of each calendar year for the value of leave they will earn for the current
year. Leave taken by employees before it is earned is considered an advance. Advances were $155 million and $152 million at
September 30, 2014 and 2013, respectively. Employees’ accumulated leave, net represents leave earned as of the balance sheet
date and is recorded net of advances.
Retiree Benefits
Employees are eligible to participate in the Federal Government pension and retiree health benefits programs. The Postal
Service is required to provide funding for these plans as determined by the Office of Personnel Management (“OPM”), the
administrator of the plans. The Postal Service cannot direct the costs, benefits or funding requirements of the plans.
Accordingly, the plans are accounted for using multiemployer plan accounting rules, and expense is recorded in the period in
which the contribution is due and payable. These amounts can fluctuate significantly from year to year, if changes in funding
requirements are made. See Note 8- Retirement Benefit Plans and Note 9- Health Benefit Plans for additional information.
Workers’ Compensation
Postal Service employees are covered by the Federal Employees’ Compensation Act (“FECA”), administered by the Department
of Labor (“DOL”) Office of Workers’ Compensation Programs (“OWCP”). The Postal Service uses an estimation model to
forecast and record workers’ compensation expense for the present value of estimated future payments. See Note 10- Workers’
Compensation for additional information.
Leases
The Postal Service leases over 23,000 real properties. As the lessee, the Postal Service classifies a lease which has substantially
all the risks and rewards of ownership as a capital lease. These leases are capitalized on the commencement date of the lease at
the lower of the fair value of the leased assets and the present value of the minimum lease payments. The discount rate used to
determine the present value is based on the average Treasury rates. The property acquired under a financing lease is depreciated
over the lease term. Other lease arrangements in which substantially all risks and rewards of ownership are retained by the
lessor are classified as operating leases. Rent expense for operating leases is included in “Other operating expenses” in the
Statements of Operations on a straight-line basis over the term of the lease.
Revenue Forgone Appropriation
Revenue forgone is an appropriation from Congress which covers the cost of providing mailing services to certain groups at no
cost or at reduced rates. The costs incurred for these services are estimated by the Postal Service and submitted to Congress
annually. Congress subsequently approves or alters the amount and funds the necessary appropriation. See Note 12- Revenue
Forgone for additional information.
Emergency Preparedness Appropriation
Emergency preparedness appropriations were received from Congress to help pay the costs of keeping mail, Postal Service
employees and Postal Service customers safe and are restricted for such use. These funds were accounted for as deferred
revenue upon receipt and were generally used to procure capital equipment. The majority of these funds were received in 2001.
Revenue for emergency preparedness appropriations is recognized when depreciation expense for the purchased equipment is
recorded and consumables incurred to support the operation of the equipment. The emergency preparedness appropriations
revenue recognized was $90 million, $48 million and $129 million for the years ended September 30, 2014, 2013 and 2012,
respectively. The majority of the amount recorded in 2012 reflects the revenue recognized to offset the impairment expense
related to equipment originally funded by appropriations that was taken out of service as a result of a process improvement.