Note 10 — Fair Value Measurement

The Postal Service assumes that the carrying value of current assets and current liabilities approximates fair values. The Postal Service also has noncurrent financial instruments, such as the long-term portion of debt (see Note 4 - Debt) and long-term receivables (see Note 11 - Revenue Forgone), that must be measured for disclosure purposes on a recurring basis under authoritative accounting literature as promulgated by the Financial Accounting Standards Board. The Postal Service also applies these requirements to various non-recurring measurements of financial and non-financial assets and liabilities, such as the impairment of property and equipment. Measurement of assets and liabilities at fair value is performed using inputs from the following three levels of the fair value hierarchy as defined in the authoritative literature:

Because no active market exists for the debt with the FFB, the fair value of the noncurrent portion of these notes has been estimated using prices provided by the FFB, a Level 3 input.

The fair value of revenue forgone has been estimated using the income method and discount rates on similar assets, such as noncurrent U.S. Treasury securities that have a similar maturity, a Level 2 input.

The carrying values and the fair values of noncurrent assets and liabilities that qualify as financial instruments in accordance with the accounting literature are in the table below:

Fair Value of Long-Term Financial Assets and Liabilities (dollars in millions)


September 30, 2010

September 30, 2009

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Revenue Forgone

$ 360

$ 490

$ 360

$ 462

Total Long-Term Financial Assets










Total Long-Term Financial Liabilities

$ 4,500

$ 4,815

$ 6,525

$ 6,519

The above table is presented for disclosure purposes only. The Postal Service has not recorded a charge or credit to its operations for the differences between carrying and fair values of the above assets and liabilities.

The reconciliation of the fair values of the long-term portion of debt calculated using Level 3 inputs is below:

Reconciliation of Fair Value of Level 3 Instruments (dollars in millions)

Balance at September 30, 2009

$ 6,519

Repayment of debt


Unrecognized loss


Balance at September 30, 2010

$ 4,815

For the year ended September 30, 2010, there were no significant transfers between Level 1 and Level 2 assets or liabilities.Non-financial assets, such as property and equipment, are measured at fair value when there is an indicator of impairment or when a decision is made to dispose of an asset, and recorded at fair value only when impairment is recognized. Impairment analyses of property and equipment were performed in each quarter of 2010 and 2009 and, based on those analyses, impairment charges of $26 million and $71 million were recorded in 2010 and 2009, respectively; impairment charges recorded in 2008 were not material. Independent appraisals, adjusted for estimated selling costs, are used to determine the fair value of non-financial assets deemed impaired or being held for sale. Independent third party appraisals are deemed Level 2 inputs as defined above. See section on impaired assets in Note 3 — Significant Accounting Policies.