Notes to the Financial Statements
Note 7 – Leases and other commitments
Capital
At September 30, 2007 our future minimum lease payments for all noncancelable leases are as follows.
| Lease Obligations | Operating | Capital |
| (Dollars in millions) | ||
| 2008 | 760 | 102 |
| 2009 | 746 | 100 |
| 2010 | 704 | 97 |
| 2011 | 643 | 95 |
| 2012 | 576 | 97 |
| After 2012 | 4,987 | 587 |
| Total Lease Obligations | $ 8,416 | $ 1,078 |
| Less: Interest | 416 | |
| Total Capital Lease Obligations | $ 662 | |
| Less: Short-term portion of capital lease obligations | 44 | |
| Long-term Portion of Capital Lease Obligations | $ 618 | |
Most of these leases contain renewal options for periods ranging from 3 to 20 years. Certain noncancelable real estate leases give us the option to purchase the facilities at prices specified in the leases.
Capital leases included in buildings were $931 million in 2007 and $891 million in 2006. Total accumulated amortization is $404 million in 2007 and $350 million in 2006. 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.
Our total rental expense for the years ended September 30 is summarized as follows.
| Rental Expense | 2007 | 2006 | 2005 |
| (Dollars in millions) | |||
| Non-cancelable real estate leases including related taxes |
$ 927 | $ 953 | $ 892 |
| Facilities leased from GSA subject to 120-day cancellation |
46 | 49 | 42 |
| Equipment and other short-term rentals |
261 | 192 | 209 |
| Total Rental Expense | $ 1,234 | $ 1,194 | $ 1,143 |
At September 30, 2007, we estimate our financial commitment for approved capital projects in progress (resources on order) to be $2,694 million, detailed in the following table.
| Capital Resources on Order | 2007 |
| (Dollars in millions) | |
| Mail Processing Equipment | $ 1,565 |
| Building Improvements | 513 |
| Postal Support Equipment | 338 |
| Construction and Building Purchase | 200 |
| Vehicles | 40 |
| Retail Equipment | 38 |
| Total Capital Resources on Order | $ 2,694 |
Expense Commitments
In the normal operations of our business we enter into commitments for expense contracts. The contracts run for periods from one to ten years. Although these contracts contain clauses for termination by the Postal Service, we normally would have early termination costs.
Expense commitments are classified as miscellaneous, inventory, and research and development. Our miscellaneous expense commitments include contracts for supplies, services, communications, repairs, research, printing and advertising. Our inventory contracts are for vehicle repair parts and mechanized equipment spare parts. These are summarized in the following table.
| Expense Resources on Order | 2007 |
|---|---|
| (Dollars in millions) | |
| Miscellaneous Contracts | $ 5,231 |
| Inventory Contracts | 76 |
| Research and Development Contracts | 48 |
| Total Expense Resources on Order | $ 5,355 |
In addition, P.L.109-435 mandates annual payments into the PSRHBF. These payments are listed in the following table.
| Retiree Health Benefits Commitments | P.L.109-435 Requirement |
| (Dollars in millions) | |
| 2008 | 5,600 |
| 2009 | 5,400 |
| 2010 | 5,500 |
| 2011 | 5,500 |
| 2012 | 5,600 |
| After 2012 | 22,800 |
| Total Retiree Health Benefits Commitments | $ 50,400 |
Note 8 – Contingent liabilities
Our contingent liabilities consist mainly of claims and suits resulting from labor issues, equal employment opportunity issues, environmental issues, property damage claims, injuries on postal properties, issues arising from postal contracts, personal claims, and traffic accidents.
Each quarter we review significant new claims and litigation for the probability of an adverse outcome. If a claim is deemed “probable” for an unfavorable outcome and the amount of settlement is estimable, we record a liability. Each quarter we also review and adjust any prior contingencies for settlements, or revisions to prior estimates. No individual claim is material to our financial statements when taken as a whole. The following table summarizes our contingent liabilities provided for in the financial statements.
| Contingent Liabilities | 2007 | 2006 |
|---|---|---|
| (Dollars in millions) | ||
| Labor Cases | $ 526 | $ 254 |
| Equal Employment Opportunity Cases | 57 | 66 |
| Tort Cases | 39 | 57 |
| Environmental | 40 | 25 |
| Contractual Cases | 14 | 16 |
| Total Contingent Liabilities | $ 676 | $ 418 |
We believe that adequate provision has been made for the probable liabilities from claims and suits. The current portion of this liability at September 30, 2007 of $248 million is included on the balance sheet under the heading “Trade payables and accrued expenses”. On September 30, 2006 this amount was $267 million. The long-term portion at September 30, 2007 of $428 million is accrued under the heading, “Noncurrent Liabilities: Contingent liabilities and other” in our balance sheet. On September 30, 2006 the long-term liability was $151 million.
We also have other claims and suits that we deem reasonably possible of unfavorable outcomes and for which we cannot yet determine the amounts or a reasonable range of potential losses, if any. No provisions for these are included in our financial statements.
Note 9 – Health benefit programs
Current Employees
Substantially all of our employees are covered by the Federal Employees’ Health Benefits Program (FEHBP). OPM administers the program and allocates the cost of the program to the various participating government agency employers. We cannot direct the costs, benefits, or funding requirements of the federally-sponsored plan and therefore account for these costs using multiemployer plan accounting rules.
Our portion of the cost is based upon the weighted average premium cost of the various employee coverage choices and the specific coverage choices made by our employees. Our employees paid approximately 17% of the premium costs in 2007, 2006 and 2005. We paid the remainder of employee health care expense, which was $5,401 million in 2007, $5,345 million in 2006, and $5,100 million in 2005.
Retirees
Our employees who participate in the FEHBP for at least the five years immediately before their retirement may participate in the FEHBP during their retirement. The Omnibus Budget Reconciliation Act of 1990 requires us to pay the employer’s share of health insurance premiums for all retired postal employees and their survivors who participate in the FEHBP and who retire on or after July 1, 1971. However, we do not include the costs attributable to federal civil service before that date.
As discussed in Note 4, Postal Accountability and Enhancement Act, Public Law 109-435 ( P.L.109-435), resulted in our retiree health benefit expenses increasing dramatically, to $10,084 million in 2007, compared to $1,637 million in 2006 and $1,495 million in 2005. These costs are reflected as Retiree health benefits in our Statements of Operations.