Pitney Bowes 2012 Annual Report Download - page 82

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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
64
The fair value of our derivative instruments at December 31, 2012 and 2011 was as follows:
December 31,
Designation of Derivatives Balance Sheet Location 2012 2011
Derivatives designated as
hedging instruments Other current assets and prepayments:
Foreign exchange contracts $78
$ 780
Other assets:
Interest rate swaps 10,117 15,465
Accounts payable and accrued liabilities:
Foreign exchange contracts (320)(79)
Derivatives not designated as
hedging instruments Other current assets and prepayments:
Foreign exchange contracts 2,504 3,450
Accounts payable and accrued liabilities:
Foreign exchange contracts (854)(1,360)
Total derivative assets 12,699 19,695
Total derivative liabilities (1,174)(1,439)
Total net derivative assets $ 11,525 $ 18,256
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. The following represents the results of fair value hedging relationships for
the years ended December 31, 2012 and 2011:
Year Ended December 31,
Derivative Gain
Recognized in Earnings
Hedged Item Expense
Recognized in Earnings
Derivative Instrument Location of Gain (Loss) 2012 2011 2012 2011
Interest rate swaps Interest expense $ 9,994 $ 11,583 $(31,137)$ (33,125)
Foreign Exchange Contracts
We enter into foreign currency exchange contracts to mitigate the currency risk associated with 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
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, 2012 and 2011, we had outstanding
contracts associated with these anticipated transactions with a notional amount of $25 million and $19 million, respectively. These
contracts had a net liability value of less than $1 million at December 31, 2012 and a net asset value of $1 million at December 31, 2011.
The amounts included in AOCI at December 31, 2012 will be recognized in earnings within the next 12 months. No amount of
ineffectiveness was recorded in earnings for these designated cash flow hedges.
The following represents the results of cash flow hedging relationships for the years ended December 31, 2012 and 2011:
Year Ended December 31,
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion) Location of Gain (Loss)
(Effective Portion)
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
Derivative Instrument 2012 2011 2012 2011
Foreign exchange contracts $ (2,055) $ 2,141 Revenue $ 1,298 $ (166)
Cost of sales (185)(719)
$ 1,113 $ (885)