Pitney Bowes 2013 Annual Report Download - page 80

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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
69
The fair value of our derivative instruments at December 31, 2013 and 2012 was as follows:
December 31,
Designation of Derivatives Balance Sheet Location 2013 2012
Derivatives designated as
hedging instruments Other current assets and prepayments:
Foreign exchange contracts $ 546 $78
Other assets:
Interest rate swaps —10,117
Accounts payable and accrued liabilities:
Foreign exchange contracts (526)(320)
Derivatives not designated as
hedging instruments Other current assets and prepayments:
Foreign exchange contracts 812 2,504
Accounts payable and accrued liabilities:
Foreign exchange contracts (2,483)(854)
Total derivative assets 1,358 12,699
Total derivative liabilities (3,009)(1,174)
Total net derivative (liability) asset $(1,651)$ 11,525
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, 2013 and 2012:
Year Ended December 31,
Derivative Gain
Recognized in Earnings
Hedged Item Expense
Recognized in Earnings
Derivative Instrument Location of Gain (Loss) 2013 2012 2013 2012
Interest rate swaps Interest expense $ 3,798 $ 9,994 $(11,883)$ (31,137)
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, 2013 and 2012, we had outstanding
contracts associated with these anticipated transactions with a notional amount of $26 million and $25 million, respectively. The fair
value of these contracts was a net asset of less than $1 million at December 31, 2013 and a net liability of less than $1 million at December
31, 2012.
The amounts included in AOCI at December 31, 2013 will be recognized in earnings within the next 12 months. No amount of
ineffectiveness was recorded in earnings for these designated cash flow hedges.