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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
48
Interest Rate Swaps
Derivatives designated as fair value hedges include interest rate swaps related to fixed rate debt. Changes in the fair value of
both the derivative and hedged item attributable to the risk being hedged are recognized in income. In December 2003, we
entered into an interest rate swap for an aggregate notional amount of $350 million. The interest rate swap effectively
converted the fixed rate of 4.75% on $350 million of our notes, due 2018, into variable interest rates. The variable rates
payable by us in connection with the swap agreement are based on six month LIBOR less a spread of 22.8 basis points. At
December 31, 2007, the fair value of the derivative represented an asset of $6.8 million. Long-term debt was increased by
$6.8 million at December 31, 2007.
Net Investment Hedges
A portion of our inter-company loans denominated in a foreign currency is designated as a hedge of net investment. The
revaluation of these loans is reflected as a deferred translation gain or loss and thereby offsets a portion of the translation
adjustment of the applicable foreign subsidiaries’ net assets. At December 31, 2007, we had two inter-company loans with
an outstanding value of $126.4 million associated with these net investment hedges. Net deferred translation gains of $37.4
million for 2007 were included in accumulated other comprehensive income in stockholders’ equity on the Consolidated
Balance Sheet.
Reclassification
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year
presentation.
New Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error
Corrections (“FAS 154”), which replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28. FAS 154 requires retrospective application
to prior periods’ financial statements of a voluntary change in accounting principle unless it is not practicable. FAS 154 is
effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Our
adoption of FAS 154 did not have a material impact on our financial position, results of operations or cash flows.
In June 2005, the FASB issued FASB Staff Position (FSP) No. FAS 143-1, Accounting for Electronic Equipment Waste
Obligations, that provides guidance on how commercial users and producers of electronic equipment should recognize and
measure asset retirement obligations associated with the European Directive 2002/96/EC on Waste Electrical and Electronic
Equipment (the Directive). The adoption of this FSP did not have a material effect on our financial position, results of
operations or cash flows for those European Union (EU) countries that enacted the Directive into country-specific laws.
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”),
which supplements Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes, by defining the
confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires the tax
effect of a position to be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as
of the reporting date. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical
merits, no benefits of the position are recognized. This is a different standard for recognition than was previously required.
The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a
benefit. At adoption, companies adjusted their financial statements to reflect only those tax positions that were more-likely-
than-not to be sustained as of the adoption date. Any necessary adjustment was recorded directly to opening retained earnings
in the period of adoption and reported as a change in accounting principle. We adopted the provisions of FIN 48 on January
1, 2007 which resulted in a decrease to opening retained earnings of $84.4 million, with a corresponding increase in our tax
liabilities.
In July 2006, the FASB issued FSP No. FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash
Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction, that provided guidance on how a change or a
potential change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affected the
accounting by a lessor for the lease. We adopted the provisions of FSP No. FAS 13-2 on January 1, 2007. Our adoption of
this FSP did not have a material impact on our financial position, results of operations or cash flows.