US Postal Service 2015 Annual Report Download - page 60

2015 Report on Form 10-K United States Postal Service 58
Measurement of assets and liabilities at fair value is performed using inputs from a fair value hierarchy that prioritizes observable
and unobservable inputs used to measure fair value. The fair value hierarchy listed below consists of three broad levels, as
defined in the authoritative literature:
• Level 1 inputs include unadjusted quoted prices in active markets for identical assets or liabilities as of the balance
sheet date.
• 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.
Considerable judgment is involved in developing these estimates and, accordingly, they may not necessarily be indicative of
amounts that would be realized upon disposition of a specific asset or liability.
The fair values of the revenue forgone installment receivable and debt, each of which qualifies as a financial instrument in
accordance with authoritative literature, are calculated using Level 2 and Level 3 inputs, respectively. Because no active
market exists for the Postal Service’s debt with the FFB, the fair value of the noncurrent portion of this liability has been
estimated using expected future payments at risk-adjusted discount rates provided by the FFB, a Level 3 input.
For its revenue forgone installment receivable, the Postal Service recognizes the imputed interest it is owed as interest income
and estimates the value of the receivable using the interest method, 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 of this noncurrent asset, the Postal
Service calculates a net present value of anticipated annual installment payments to be received, discounted by the 20-year
U.S. Treasury Constant Maturity Rate, which was 2.60% and 2.98% as of September 30, 2015, and 2014, respectively.
For the years ended September 30, 2015, and 2014, no transfers between Level 1 and Level 2 assets or liabilities took place.
The carrying amounts and fair values of the revenue forgone installment receivable, which is included within Other assets in
the accompanying Balance Sheets, and the Noncurrent portion of debt, also in the accompanying Balance Sheets, are presented
for disclosure purposes in the following table:
(in millions) 2015 2014
Carrying
Amount Fair Value Carrying Amount Fair Value
Revenue forgone $ 413 $ 511 $ 420 $ 505
Noncurrent portion of debt $ 4,900 $ 5,394 $ 5,200 $ 5,565
The carrying amount of the current portion of debt approximates the fair value for both 2015 and 2014.