Notes to the Financial Statements

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 order to reduce the carrying value of the property to its estimated fair value, including the cost of necessary repairs. In 2006, we recorded an additional charge of $9 million related to this property.

Note 6 – Foreign Currency Translations

Special Drawing Rights

We operate in one segment for our business. We regularly exchange mail with foreign postal administrations for incoming and outgoing international mail which results in receivables and payables for terminal dues and transit fees. Under Universal Postal Union rules, each country agrees to value transactions in Special Drawing Rights. Therefore the majority of our international accounts are denominated in SDRs. The SDR exchange rate fluctuates daily based on a basket of currencies comprised of the euro, Japanese yen, pound sterling and the U.S. dollar. Changes in the relative value of these currencies will increase or decrease the value of our settlement accounts and result in a gain or loss from revaluation reported in the results from operations. The actual currency used to settle accounts varies by country.

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 impacts on our financial statements from foreign currency flucuations were insignificant for 2006, 2005 and 2004.

Note 7 – Commitments

Capital

At September 30, 2006, we estimate our financial commitment for approved capital projects in progress (resources on order) to be $2,760 million, detailed in the following table.

Capital Resources on Order 2006
(Dollars in millions)
Mail Processing Equipment $     1,483
Postal Support Equipment 476
Building Improvements 517
Construction and Building Purchase 228
Vehicles 18
Retail Equipment 38
Total Capital Resources on Order $    2,760

Our total rental expense for the years ended September 30 is summarized as follows:

Rental Expense 2006 2005 2004
(Dollars in millions)
Non-cancelable real estate leases including related taxes $  953 $  892 $  896
Facilities leased from GSA
subject to 120-day cancellation		 49 42 49
Equipment and other
short-term rentals		 192 209 213
Total Rental Expense $  1,194 $  1,143 $  1,158

At September 30, 2006, our future minimum lease payments for all non-cancelable leases are as follows:

Lease Obligations Operating Capital
(Dollars in millions)
2007 $  733 $  95
2008 722 93
2009 691 90
2010 641 87
2011 582 85
After 2011 5,027 621
$     8,396 $    1,071
Less: Interest   398
Total Capital Lease Obligations $      673
Less: Short-term portion of capital lease
obligations		 36
Long-term Portion of Capital Lease Obligations $      637

Most of these leases contain renewal options for periods ranging from 3 to 20 years. Certain non-cancelable real estate leases give us the option to purchase the facilities at prices specified in the leases.

Capital leases included in buildings were $891 million in 2006 and $906 million in 2005. Total accumulated amortization is $350 million in 2006 and $318 million in 2005. Amortization expense for assets recorded under capital leases is recorded as depreciation expense which is included in "Other" operating expenses in the statements of operations.