US Postal Service 2015 Annual Report Download - page 59

2015 Report on Form 10-K United States Postal Service 57
NOTE 12 - REVENUE FORGONE
The Postal Service has historically offered below-cost postage prices to certain categories of mailers, including, but not limited
to, non-profit organizations, blind individuals, local newspapers, publishers of educational material and oversees mailers of
absentee voting ballots. Between 1971, when the Postal Service became independent, and 1991, Congress reimbursed the
Postal Service for the revenue it had given up, or "forgone," by offering below-cost postage prices to these mailers.
The Revenue Forgone Reform Act of 1993 (the “RFA”) phased in higher postage prices for certain of these mailers, retaining
“free and reduced mail” only for the blind and for overseas absentee ballots. The RFA also authorized $1.2 billion to be paid
to the Postal Service in 42 annual “installment” payments of $29 million each from 1994 through 2035 as reimbursement for
revenue forgone during the RFA’s 1991-to-1998 phase-in period.
The Postal Service recognized the present value of these installments as revenue and recorded a corresponding receivable,
which is reduced each year that the installment payment is received. Although the RFA authorized the reimbursement, the
Postal Service must submit an appropriation request to Congress each year in order to receive the annual revenue forgone
payment.
Installment Payments
In 2015, the U.S. Congress appropriated and paid $29 million for the 2015 installment. However for the years 2011 through
2014, some or all of these installment amounts were not appropriated and therefore not received by the Postal Service. The
total unfunded amount was $104 million as of September 30, 2015, and is included within Receivables, net in the accompanying
Balance Sheets. The Postal Service includes the total past-due installments in each annual appropriations request.
Outstanding receivables associated with the installment payments were $413 million and $420 million as of September 30,
2015, and 2014, respectively. These are not expected to be paid within one year due to the prolonged appropriation process,
and are therefore classified as noncurrent within Other assets in the accompanying Balance Sheets.
The Postal Service recognized interest income of $22 million for the years ended 2015 and 2014, respectively, and $23 million
for the year ended 2013, for interest imputed on the outstanding receivable for the installment payments, and this imputed
interest is included within Interest and investment income in the accompanying Statements of Operations.
Free and Reduced Mail
Congress has historically appropriated funds each year for free and reduced mail, however the annual appropriation may be
higher or lower than the amount requested by the Postal Service. At the end of each fiscal year, any difference between the
actual amount Congress appropriated and actual amounts the Postal Service incurred to provide the subsidy during prior
periods is reflected through an adjustment of the following year’s funding request. Likewise, the Postal Service recognizes
revenue based upon the actual amounts the Postal Service incurred to provide the subsidy during the year.
For free and reduced mail, the Postal Service recognized revenue of $63 million, $52 million and $41 million for the years
ended September 30, 2015, 2014 and 2013, respectively, and this is included within Operating Revenue in the accompanying
Statements of Operations. Outstanding receivables associated with free and reduced mail were $57 million and $50 million
as of September 30, 2015, and 2014, respectively. These are expected to be paid within one year, and are therefore classified
as current within Receivables, net in the accompanying Balance Sheets.
NOTE 13 - FAIR VALUE MEASUREMENT
The Postal Service defines fair value based on the price that would be received upon sale of an asset or the price that would
be paid to transfer a liability between unrelated parties. The carrying amounts of certain current assets and liabilities, including
cash, accounts receivable, accounts payable, accrued expenses and short-term debt, approximate fair value due to their short-
term maturities. Noncurrent receivables and noncurrent debt are measured using inputs of the fair value hierarchy model
described below. Property and equipment are stated at cost, less accumulated depreciation and amortization, and measured at
fair value on a nonrecurring basis if impaired.