Financial Section Part II

Item 7A – Quantitative and qualitative disclosures about market risk

Market Risk Disclosure

In the normal course of business, we are exposed to market risk from changes in commodity prices, certain foreign currency exchange rate fluctuations, and interest rates. We do not use derivative financial instruments to manage market risks. Additionally, we do not purchase or hold derivative financial instruments for speculative purposes.

Interest Rate Risk

We have not used derivative financial instruments to manage risk related to interest rate fluctuations for debt instruments.

We estimate that a 1.0% increase in interest rates would have an insignificant impact on our financial statements due to the structure of our investment portfolio.

Labor Contracts

As discussed in Item 1A, Risk Factors, the contracts with three of our four largest unions include provisions granting cost-of-living allowances linked to changes in the CPI.

Item 8 – Financial statements and supplementary data

Our audited Statements of Operations, Balance Sheets, Statements of Changes in Net Capital, and Statements of Cash Flows are included in the Financial Statements section of this report.

Item 9 – Changes in and disagreements with accountants on accounting and financial disclosure

None

Item 9A – Controls and procedures

Management is responsible for the preparation, integrity, and fair presentation of the financial statements of the Postal Service.

Disclosure Controls

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our quarterly and annual reports is recorded, processed, summarized, and reported within the time frames specified by P.L.109-435, and that this information is accumulated and communicated to our management, including the Postmaster General and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Internal Controls

There have been no significant changes during the year covered by this report in our internal control over financial reporting or in other factors that could significantly affect the internal control over financial reporting.

Item 9B – Other information

We were not required to file reports on Form 8-K during the fourth quarter of the fiscal year ended September 30, 2007.