Pitney Bowes 2007 Annual Report Download - page 47

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ITEM 7A. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes and foreign currency fluctuations due to our investing and funding
activities and our operations denominated in different foreign currencies.
We manage our exposure to changes in interest rates by limiting its impact on earnings and cash flows and lowering our
overall borrowing costs. We use a balanced mix of debt maturities and variable and fixed rate debt together with interest rate
swaps to execute our strategy.
Our objective in managing our exposure to foreign currency fluctuations is to reduce the volatility in earnings and cash flows
associated with the effect of foreign exchange rate changes on transactions that are denominated in foreign currencies.
Accordingly, we enter into various contracts, which change in value as foreign exchange rates change, to protect the value of
external and intercompany transactions. The principal currencies actively hedged are the British pound, Canadian dollar and
Euro.
We employ established policies and procedures governing the use of financial instruments to manage our exposure to such
risks. We do not enter into foreign currency or interest rate transactions for speculative purposes. The gains and losses on
these contracts offset changes in the value of the related exposures.
We utilize a “Value-at-Risk” (VaR) model to determine the maximum potential loss in fair value from changes in market
conditions. The VaR model utilizes a “variance/co-variance” approach and assumes normal market conditions, a 95%
confidence level and a one-day holding period. The model includes all of our debt and all interest rate and foreign exchange
derivative contracts. The model excludes anticipated transactions, firm commitments, and receivables and accounts payable
denominated in foreign currencies, which certain of these instruments are intended to hedge.
The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that will be incurred by us,
nor does it consider the potential effect of favorable changes in market factors.
During 2007 and 2006, our maximum potential one-day loss in fair value of our exposure to foreign exchange rates and
interest rates, using the variance/co-variance technique described above, was not material.
ITEM 8. – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Supplemental Data on Page 36.
ITEM 9. – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) and internal control over financial reporting. The CEO and CFO concluded that such disclosure controls
and procedures were effective as of December 31, 2007, based on the evaluation of these controls and procedures required by
paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act. In addition, no change in internal control over
financial reporting occurred during the year ended December 31, 2007, that has materially affected, or is reasonably likely to
materially affect, such internal control over financial reporting. It should be noted that any system of controls is based in part
upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be
no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have
reasonable assurance that the disclosure controls and procedures were effective as of December 31, 2007.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’ s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.