These claims cover labor, equal employment opportunity, environmental issues, traffic accidents, injuries on postal properties, personal claims and property damages, and suits and claims arising from postal contracts. We also recognize the settlements of claims and lawsuits and revisions of prior estimates. Additionally, we evaluate the materiality of cases determined to have a reasonably possible chance of adverse outcome. Such cases are immaterial to our financial statements taken as a whole.

(Dollars in millions)

Management and General Counsel believe that we have made adequate provision for the probable amounts due under the suits, claims and proceedings we have discussed here. Amounts we expect to pay in the next year are accrued in Commercial vendors and accrued expenses of current liabilities. The long term portion of the liability is accrued in Other Non-Current Liabilities of the balance sheets.

Note 11 – Emergency
Preparedness Funding

In 2002, the United States was subjected to biological terror-ism, utilizing the mail as the delivery medium. In response, we implemented process changes and technology applications to reduce the risk to both our employees and our customers. The President of the United States and Congress authorized funding of $762 million in 2002 to assist in paying for some of these safety measures, and to replace or repair postal facilities damaged or destroyed on September 11, 2001.

In 2003, the majority of our emergency preparedness expenses were for one-time activities, such as plant decontamination. We recognized these expenses as non-operating expenses and the corresponding revenue offset as non-operating revenue. Due to the ongoing nature of the remaining expenses, such as depreciation, supplies, and maintenance, beginning in 2004 we treated all emergency preparedness items as operating expenses and the associated revenue as operating revenue. As of September 30, 2004, all prior emergency preparedness appropriations have been fully expended or committed.

Not all our emergency preparedness expenditures are covered by the appropriations we received. The emergency prepared-ness expenses and capital equipment commitments for the years ended September 30 are as follows:

(Dollars in millions)

In December 2004, an appropriation by Congress of $503 million provided additional funds for Biohazard Detection Systems, Ventilation Filtration Systems, and an irradiation facility. Not all of these funds have been expended. We recognize the revenue when we depreciate the capital equipment purchased with the appropriation. The emergency preparedness appropriations revenues recognized during the years ended September 30 were $45 million in 2005, $92 million in 2004, and $177 million in 2003. We are funding other costs of mail security and employee protection such as maintenance and consumable supplies from Postal revenue and charging them as operating expense.

Appropriations that have not been recognized as revenue during the years ended September 30 were $772 million in 2005 and $314 million in 2004 with the current portion included in Prepaid box rent and other deferred revenue and the long term portion in Deferred revenue. We recorded the balance as a liability until spent. We defer as a non-current liability the amounts we spend on capital equipment and amortize them to offset the depreciation expense of the related equipment.