Pitney Bowes 2015 Annual Report Download - page 48

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32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes and foreign currency fluctuations due to our investing and funding activities and
our operations denominated in different foreign currencies. Our objective in managing exposure to foreign currency fluctuations is to
reduce the volatility in earnings and cash flows associated with the effect of foreign currency exchange rate changes on transactions that
are denominated in foreign currencies. Accordingly, we enter into various contracts, which change in value as foreign currency exchange
rates change, to protect the value of external and intercompany transactions. The principal currencies actively hedged are the British
pound and Euro.
At December 31, 2015, 92% of our debt was fixed rate obligations at a weighted average interest rate of 5.2%. Our variable rate debt,
which consists of commercial paper and term loans, had a weighted average interest rate at December 31, 2015 of 1.35%. A one-percentage
point change in the effective interest rate of our variable rate debt would not have had a material impact on our 2015 pre-tax income. To
limit the volatility and impact of changing interest rates on earnings and cash flows, we may from time to time enter into interest rate
swap agreements that convert fixed rate interest payments to variable rates and vice versa. During 2015 and 2014, we did not enter into
any interest rate swap agreements.
We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks. We do
not enter into foreign currency or interest rate transactions for speculative purposes. The gains and losses on these contracts are intended
to offset changes in the value of the related exposures.
We utilize a "Value-at-Risk" (VaR) model to determine the potential loss in fair value from changes in market conditions. The VaR model
utilizes a "variance/co-variance" approach and assumes normal market conditions, a 95% confidence level and a one-day holding period.
The model includes all of our debt, interest rate derivative contracts and foreign exchange derivative contracts associated with forecasted
transactions. The model excludes all anticipated transactions, firm commitments and accounts receivables and payables denominated in
foreign currencies, which certain of these instruments are intended to hedge. The VaR model is a risk analysis tool and does not purport
to represent actual losses in fair value that will be incurred, nor does it consider the potential effect of favorable changes in market factors.
During 2015 and 2014, our maximum potential one-day loss in fair value of our exposure to foreign exchange rates and interest rates,
using the variance/co-variance technique described above, was not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Supplemental Data" in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.