Notes to the Financial Statements

Note 5 – Debt and related interest

Borrowing Limits and Debt

Under the Postal Reorganization Act, as amended by Public Laws 101-227 and 109-435, we can issue and sell debt obligations. However, at year-end we are limited to net annual increases of $3 billion in our debt and our total debt cannot exceed $15 billion.

* All debt is repurchasable at any time at a price determined by the Secretary of the Treasury, based on rates prevailing in the Treasury Security market at the time of repricing.

** Prior year rate was 4.714%

*** Prior year rate was 4.701%

The current value of our debt is what it would cost to pay off the debt if we used the current yield on equivalent U.S. Treasury notes. At year-end, the current estimated value of our debt is $4.2 billion.

Note Purchase Agreements

Our note purchase agreements with the Federal Financing Bank provide for revolving credit lines of $4 billion. These credit lines enable us to draw up to $3.4 billion with two days’ notice, and up to $600 million on the same business day the funds are needed. Under these agreements we can also use a series of other notes with varying provisions to draw upon with two days’ notice. The notes provide us the flexibility to borrow short-term or long-term, using fixed or floating rate debt, and can be either callable or non-callable.

Interest Payments on Retirement

There were no cash outlays for interest on the retirement “supplemental liability” in 2007 because of the enactment of P.L.109-435. In 2006, the cash outlay was $231 million and $263 million in 2005. See Note 10, Retirement programs, in the Notes to the Financial Statements for additional information.

Other Interest Payments

Cash outlays for other interest were $9 million in 2007, $4 million in 2006 and $3 million in 2005.

Note 6 – Property and equipment

Sale of Major Facility

On March 30, 2007, we sold the James A. Farley building in New York City to the Empire State Development Corporation (ESDC) for $190 million and additional proceeds of up to $55 million, contingent upon the achievement of certain development and leasing criteria by the developer of the property. This building formerly housed retail, carrier, and mail processing operations. Mail processing operations formerly housed in this facility had been transferred to other facilities in 2004. The Postal Service continues to conduct retail and carrier operations at this facility under the terms of an interim lease with annual rentals of $5.6 million per year. Once the carrier operations are relocated to other facilities, we will continue to conduct retail and some administrative functions in a smaller portion of the building under a 99-year lease, with a rental fee of $1. The Postal Service has an option to require the building owner to change the legal structure of the building ownership into condominium units, with the Postal Service being given the right to purchase the space subject to the 99-year lease.

We have accounted for the transaction under the deposit method under the provisions of FAS 66, Accounting for Sales of Real Estate. The gain will not be recognized and the asset will not be removed from our accounting records until the lease and other continuing involvement in the building have expired. If the condominiumization of the building is legally completed prior to that time, and the contingent payments are satisfied, or we completely move out of the facility, then the gain could be recognized earlier.

Additionally, from the funds ESDC paid us, $10 million was set aside for an environmental clean-up fund. Our environmental liability is limited to $10 million and is included on our balance sheet under trade payables and other accrued expenses.

Interest Capitalization

No interest was capitalized in 2007, 2006 or 2005.

Repairs and Maintenance

Repairs and maintenance are charged to expense as incurred. This expense amounted to $956 million in 2007, $933 million in 2006, and $809 million in 2005.