Pitney Bowes 2010 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 of the 2010 Pitney Bowes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 126

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
66
The following is a summary of our derivative fair values at December 31, 2010 and 2009:
Fair Value at December 31,
Designation of Derivatives Balance Sheet Location 2010 2009
Derivatives designated as hedging
instruments Other current assets and prepayments:
Foreign exchange contracts $ 160 $ 456
Other assets:
Interest rate swaps 10,280 13,284
Accounts payable and accrued
liabilities:
Foreign exchange contracts 716 1,114
Derivatives not designated as
hedging instruments Other current assets and prepayments:
Foreign exchange contracts 2,727 1,934
Accounts payable and accrued
liabilities:
Foreign exchange contracts 6,191 1,936
Total Derivative Assets $ 13,167 $ 15,674
Total Derivative Liabilities 6,907 3,050
Total Net Derivative Assets $ 6,260 $ 12,624
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 item being hedged are recognized in earnings.
We have outstanding interest rate swaps with an aggregate notional value of $400 million that effectively convert fixed rate interest
payments on $400 million, 4.625% notes due in 2012, into variable interest rates. We pay a weighted average variable rate based on
one month LIBOR plus 249 basis points and receive a fixed rate of 4.625%. At December 31, 2010 and 2009, the fair value of the
interest rate swaps was an asset of $10.3 million and $4.7 million, respectively.
At December 31, 2009, we had outstanding interest rate swaps with an aggregate notional value of $250 million that effectively
converted fixed rate interest payments on $250 million, 5.6% notes due in 2018, into variable interest rates. The fair value of these
interest rate swaps at December 31, 2009 was an asset of $8.6 million. In August 2010, we unwound these interest rate swaps. See
Note 8 for further details.
The following represents the results of fair value hedging relationships for the years ended December 31, 2010 and 2009:
Derivative Gain Recognized
in Earnings
Hedged Item Expense
Recognized in Earnings
Derivative Instrument Location of Gain (Loss) 2010 2009 2010 2009
Interest rate swaps Interest expense $ 13,261 $ 12,180 $ (26,667) $ (23,250)
Foreign Exchange Contracts
We enter into foreign currency exchange contracts arising from the anticipated purchase of inventory between affiliates and from third
parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on the cash flow hedges is
included in other comprehensive income in the period that the change in fair value occurs and is reclassified to earnings in the period
that the hedged item is recorded in earnings. At December 31, 2010 and 2009, we had outstanding contracts with a notional amount of
$24.5 million and $27.8 million, respectively. The fair value of these contracts at December 31, 2010 and 2009 was a liability of $0.6
million and $0.7 million, respectively.