The impact on the statements of operations from this revalua-tion was a gain of $10 million in 2005, a gain of $10 million in 2004, and a loss of $9 million in 2003. In addition to the year end revaluation, we also recognize gains and losses on our payables and receivables when we settle with foreign postal administrations. The impact on the statements of operations from these settlements was a loss of $14 million in 2005, $15 million in 2004 and $12 million in 2003.

Supplies, Advances and Prepayments

Supplies, advances and prepayments are primarily composed of our inventories of supplies, motor vehicle parts and parts for mail processing equipment. We value our inventories at the lower of average cost or current market price. Total inventories amounted to $119 million at the end of 2005 and $118 million at the end of 2004.

Property and Equipment

We record property and equipment at what it cost us to acquire the assets, including the interest we pay on the money we borrow to pay for the construction of major capital additions. No interest was capitalized in 2005 as no outstanding debt balance was carried for this period. In 2004, interest was capitalized in the amount of $5 million and $1 million in 2003. Repairs and maintenance are charged to expense as incurred. This expense amounted to $809 million in 2005, $744 million in 2004 and $692 million in 2003.

We depreciate buildings and equipment over their estimated useful lives, which range from 3 to 75 years, using the straight-line method. We amortize leasehold improvements over the period of the lease or the useful life of the improvement, which-ever time is shorter.

Impaired Assets

We record losses on long-lived assets when events and circumstances indicate that the assets might be impaired. In accordance with Statement of Financial Accounting Standards (FAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we have written down our impaired assets to the lower of cost or fair value. On August 29, 2005 hurricane Katrina devastated the gulf coast and damaged many of our facilities in that area. As of September 30, 2005 we have recorded an estimate for impaired assets in the amount of $7.5 million. In 2004 we determined that an unused Post Office building in a major city was impaired. A contract granting a prospective buyer an option to buy this building was signed. This option was contingent on our making all necessary repairs to the building. An impairment loss of $24 million was recorded in 2004 in order to reduce the carrying value of the property to its estimated fair value, including the cost of necessary repairs. No material impairments were recorded in 2003.

Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts on our outstand-ing receivables based on our collection history and an estimate of uncollectible accounts. In 2005 we re-evaluated our allowance for bad debt methodology, based on our last five years of collection history. This change in estimate was the primary driver that reduced our allowance for doubtful accounts from $111 million in 2004 to $50 million at the end of 2005.

Revenue Recognition/Estimated Prepaid Postage

We recognize revenue when service is rendered. Estimated prepaid postage is the amount of cash we estimate that we collected by the end of the year for services that we will perform in the following year.

Compensation and Benefits Payable

This is the salaries and benefits we owe to current and retired employees, including the amounts employees have earned but have not yet been paid, current workers’ compensation, unemployment costs and health benefits.

Outstanding Postal Money Orders

We sell money orders to the general public at our retail locations. We charge a fee to the customer at the time of sale. The fee is recognized as revenue at the time of sale. We recognize a liability for uncashed money orders we expect to be presented for payment.

Segment Information

We operate in one segment throughout the United States and internationally.

Deferred Retirement Benefits and Costs

We are an independent establishment of the executive branch of the U.S. government. We provide pension benefits as defined and administered by OPM and, therefore, have a parent-subsidiary type relationship. We cannot direct the costs, benefits, or funding requirements of the federally-sponsored plan. We account for our participation in the U.S. government sponsored retirement plans as a participant in a multi-employer plan arrangement in accordance with FAS 87, Employers’ Accounting For Pension Costs. See notes 6 and 7 for additional information.