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2014 Report on Form 10-K United States Postal Service 63
• Level 2 inputs include observable data, such as quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in inactive markets, observable data, other than quoted
market prices for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived from, or
corroborated by, observable market data.
• Level 3 inputs include unobservable data that reflect current assumptions about the judgments and estimates that
market participants would use when pricing the asset or liability. These inputs are based on the best information
available, including internal data.
The fair value of revenue foregone has been estimated using the income approach, which converts future cash flows to a single
discounted amount using an interest rate for similar assets, a level 2 input. To determine the fair value, we calculate a net
present value of anticipated annual payments received, discounted by the 20-year Treasury Constant Maturity Rate, which was
2.98% as of September 30, 2014.
Because no active market exists for the debt with the FFB, the fair value of the noncurrent portion of these notes has been
estimated using expected future payments at risk-adjusted discount rates provided by the FFB, a level 3 input.
The carrying values and the fair values of noncurrent assets and liabilities that qualify as financial instruments in accordance
with the accounting literature are summarized in the following table. Considerable judgment is involved in developing these
estimates and, accordingly, may not necessarily be indicative of amounts that would be realized upon disposition. The
following table is presented for disclosure purposes only. The Postal Service has not recognized gains as a result of these
valuation measurements. All recognized losses have been incorporated into the financial statements and the unrecognized gains
and losses are not considered to have a significant impact upon the operations.
For the years ended September 30, 2014 and 2013 there were no significant transfers between Level 1 and Level 2 assets or
liabilities. The fair value of noncurrent financial assets and liabilities for these years are as follows:
(in millions)
2014
2013
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Revenue forgone
$
420
$
505
$
385
$
461
Total noncurrent financial assets
$
420
$
505
$
385
$
461
Debt
$
5,200
$
5,565
$
5,200
$
5,517
Total noncurrent financial liabilities
$
5,200
$
5,565
$
5,200
$
5,517
The liability for workers’ compensation is reported at fair value and is estimated using unobservable data for which no active
market exists, inflation and discount rates; therefore the liability is considered to be a level 3.
For additional information refer to Note 6- Debt and Note 10- Workers’ Compensation.
Note 12- Revenue Forgone
Revenue forgone is an appropriation received from the U.S. Government to compensate the Postal Service for the statutorily
required free and reduced rate mailing provided to certain groups. A funding request for the estimated revenue forgone for the
year is submitted to Congress at the beginning of each year. At the end of the year, the actual amount is reconciled to the
funding request and the difference is adjusted by either party requesting additional funding or returning excess funding by
adjusting the following year’s funding request.
The Revenue Forgone Reform Act of 1993 authorized Congress to make 42 annual payments of $29 million each, beginning in
1994 and continuing through 2035, to reimburse the Postal Service for certain services performed or revenue forgone from 1991
through 1998. These payments totaled $1.2 billion, which had a present value calculated at a 7% discount rate of approximately
$390 million. The $390 million was recognized as revenue during fiscal years 1991 through 1998. For 2014 and 2013, Congress
did not authorize any annual payments on this obligation. The discounted present value of the remaining future payment was
$420 million and $397 million for the years ended September 30, 2014 and 2013, respectively.