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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
61
The following is a summary of our derivative fair values at December 31, 2011 and 2010:
Fair Value at December 31,
Designation of Derivatives Balance Sheet Location 2011 2010
Derivatives designated as hedging
instruments Other current assets and prepayments:
Foreign exchange contracts $ 780 $ 160
Other assets:
Interest rate swaps 15,465 10,280
Accounts payable and accrued
liabilities:
Foreign exchange contracts 79 716
Derivatives not designated as
hedging instruments Other current assets and prepayments:
Foreign exchange contracts 3,450 2,727
Accounts payable and accrued
liabilities:
Foreign exchange contracts 1,360 6,191
Total Derivative Assets $ 19,695 $ 13,167
Total Derivative Liabilities 1,439 6,907
Total Net Derivative Assets $ 18,256 $ 6,260
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
interest rate swaps and the underlying debt are recognized in earnings as interest expense. At December 31, 2011, we have
outstanding interest rate swaps with an aggregate notional value of $850 million that effectively convert fixed rate interest payments
on the $400 million 4.625% notes due in 2012 and the $450 million 4.875% notes due in 2014 into variable rates. See Note 8 for
further details. The aggregate fair value of these interest rate swaps at December 31, 2011 and 2010 was an asset of $15 million and
$10 million, respectively.
The following represents the results of our interest rate swaps for the years ended December 31, 2011 and 2010:
Derivative Gain Recognized
in Earnings
Hedged Item Expense
Recognized in Earnings
Derivative Instrument Location of Gain (Loss) 2011 2010 2011 2010
Interest rate swaps Interest expense $ 11,583 $ 13,261 $ (33,125) $ (26,667)
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 accumulated other comprehensive income (AOCI) 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, 2011 and 2010, we had outstanding contracts
with a notional amount of $19 million and $25 million, respectively. These contracts had a net asset value of $1 million at December
31, 2011 and a net liability value of $1 million at December 31, 2010.
As of December 31, 2011, all of the derivative loss recognized in AOCI will be recognized in earnings within the next 12 months. No
amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.