Fair Value Measurements

3 Months Ended

Jun. 30, 2011

Notes To Condensed Consolidated Financial Statements [Abstract]

Fair Value Measurements

10. Fair Value Measurements and Derivative Instruments

The fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management's best estimate of fair value and that are significant to the fair value of the asset or liability.

The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at June 30, 2011 and December 31, 2010, respectively. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy.

	June 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	371,439	$	9,757	$	-	$	381,196
Equity securities		-		24,486		-		24,486
Debt securities - U.S. and foreign
governments, agencies and municipalities		80,685		31,580		-		112,265
Debt securities - corporate		-		33,272		-		33,272
Mortgage-back / asset-back securities		-		120,825		-		120,825
Derivatives
Interest rate swaps		-		13,827		-		13,827
Foreign exchange contracts		-		3,129		-		3,129
Total assets	$	452,124	$	236,876	$	-	$	689,000
Liabilities:
Derivatives
Foreign exchange contracts	$	-	$	3,012	$	-	$	3,012
Total liabilities	$	-	$	3,012	$	-	$	3,012

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	256,074	$	1,531	$	-	$	257,605
Equity securities		-		23,410		-		23,410
Debt securities - U.S. and foreign
governments, agencies and municipalities		74,425		30,725		-		105,150
Debt securities - corporate		-		22,262		-		22,262
Mortgage-back / asset-back securities		-		106,479		-		106,479
Derivatives
Interest rate swaps		-		10,280		-		10,280
Foreign exchange contracts		-		2,887		-		2,887
Total assets	$	330,499	$	197,574	$	-	$	528,073
Liabilities:
Derivatives
Foreign exchange contracts	$	-	$	6,907	$	-	$	6,907
Total liabilities	$	-	$	6,907	$	-	$	6,907

Investment Securities

For our investments, we use the market approach for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace.

The following information relates to our classification into the fair value hierarchy:

• Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies and other highly liquid and low-risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2.
• Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds are classified as Level 2 as they are not separately listed on an exchange.
• Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: Debt securities are classified as Level 1 where active, high volume trades for identical securitiesexist. Valuation adjustments are not applied to these securities. Debt securities valued using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities are classified as Level 2.
• Debt Securities – Corporate: Corporate debt securities are valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
• Mortgage-Backed Securities (MBS)/ Asset-Backed Securities (ABS): These securities are valued based on external pricing indices. When external index pricing is not observable, MBS and ABS are valued based on external price/spread data. These securities are classified as Level 2.

Investment securities include investments held by The Pitney Bowes Bank (PBB). PBB, a wholly-owned subsidiary, is a Utah-chartered Industrial Loan Company (ILC). The bank's investments at June 30, 2011were $339 million. These investments were reported on the Condensed Consolidated Balance Sheets as cash and cash equivalents of $102million, short-term investments of $45 million and other assets of $192 million. The bank's investments at December 31, 2010 were $246 million and were reported as cash and cash equivalents of $61 million, short-term investments of $27 million and other assets of $158 million.

We have not experienced any write-offs in our investment portfolio. The majority of our MBS are either guaranteed or supported by the U.S. government. Market events have not caused our money market funds to experience declines in their net asset value below $1.00 per share or to incur imposed limits on redemptions. We have no investments in inactive markets which would warrant a possible change in our pricing methods or classification within the fair value hierarchy. Further, we have no investments in auction rate securities.

Derivative Instruments

In the normal course of business, we are exposed to the impact of interest rate changes and foreign currency fluctuations. We limit these risks by following established risk management policies and procedures, including the use of derivatives. We use derivatives to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results. We do not use derivatives for trading or speculative purposes.

As required by the fair value measurements guidance, we have incorporated counterparty credit risk and our credit risk into the fair value measurement ofour derivative assets and liabilities, respectively. We derive credit risk from observable data related to credit default swaps. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties.

The valuation of our interest rate swaps is based on the income approach using a model with inputs that are observable or that can be derived from or corroborated by observable market data. The valuation of our foreign exchange derivatives isbased on the market approach using observable market inputs, such as forward rates.

The following is a summary of our derivative fair values at June 30, 2011 and December 31, 2010:

		Fair Value
		June 30,		December 31,
Designation of Derivatives	Balance Sheet Location	2011		2010
Derivatives designated as hedging instruments	Other current assets and prepayments:
	Foreign exchange contracts	$	41	$	160
	Other assets:
	Interest rate swaps		13,827		10,280
	Accounts payable and accrued liabilities:
	Foreign exchange contracts		980		716
Derivatives not designated as hedging instruments	Other current assets and prepayments:
	Foreign exchange contracts		3,088		2,727
	Accounts payable and accrued liabilities:
	Foreign exchange contracts		2,032		6,191
	Total Derivative Assets	$	16,956	$	13,167
	Total Derivative Liabilities		3,012		6,907
	Total Net Derivative Assets	$	13,944	$	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 derivative and item being hedged are recognized in earnings.

At June 30, 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 (the 2012 Swaps) and the $450 million 4.875% notes due in 2014 (the 2014 Swaps) into variable rates.

Under the terms of the 2012 Swaps, we pay a weighted-average variable rate based on one month LIBOR plus 249 basis points and receive a fixed rate of 4.625%. Under the terms of the 2014 Swaps, we pay a weighted-average variable rate based on three month LIBOR plus 305 basis points and receive a fixed rate of 4.875%.At June 30, 2011 and December 31, 2010, the aggregate fair value of theseinterest rate swaps was an asset of $14 million and $10 million, respectively.

The following represents the results of fair value hedging relationships for the three and six months ended June 30, 2011 and 2010:

		Three Months Ended June 30,
		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	$	4,961	$	4,089	$	(10,109)	$	(8,125)
		Six Months Ended June 30,
		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	$	12,179	$	8,619	$	(20,219)	$	(16,250)

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 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 June 30, 2011 and December 31, 2010, we had outstanding contracts associated with these anticipated transactions with a notional amount of $27 million and $25 million, respectively. The fair value of these contracts at June 30, 2011 and December 31, 2010 was a liability of $1 million.

As of June 30, 2011, substantially all of the net 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.

The following represents the results of cash flow hedging relationships for the three and six months endedJune 30, 2011 and 2010:

	Three Months Ended June 30,
	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	2011		2010			2011		2010
Foreign exchange contracts	$	618	$	1,092	Revenue	$	(122)	$	305
					Cost of sales		(292)		20
						$	(414)	$	325
	Six Months Ended June 30,
	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	2011		2010			2011		2010
Foreign exchange contracts	$	303	$	1,137	Revenue	$	(131)	$	467
					Cost of sales		(554)		(158)
						$	(685)	$	309

We also enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans and related interest that are denominated in a foreign currency. The revaluation of the intercompany loans and interest and the mark-to-market adjustment on the derivatives are both recorded in earnings. At June 30, 2011, outstanding foreign exchange contracts to buy or sell various currencies had a net assetvalue of $1 million. These contracts mature by November 2011. At December 31, 2010,outstanding foreign exchange contracts to buy or sell various currencies had a netliability value of $3million.

The following represents the results of our non-designated derivative instruments for thethree and six months endedJune 30, 2011 and 2010:

		Three Months Ended June 30,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2011		2010
Foreign exchange contracts	Selling, general and administrative expense	$	(13,619)	$	(336)
		Six Months Ended June 30,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2011		2010
Foreign exchange contracts	Selling, general and administrative expense	$	(20,861)	$	(7,471)

Credit-Risk-Related Contingent Features

Certain derivative instruments contain provisions that would require us to post collateral upon a significant downgrade in our long-term senior unsecured debt ratings. At June 30, 2011, our long-term senior unsecured debt ratings were BBB+ / A2.Based on derivative values at June 30, 2011, we would have been required to post $1million in collateral ifour long-term senior unsecured debt ratings had fallen below BB- / Ba3.

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loans receivable, accounts payable, notes payable, long-term debt and derivative instruments. The carrying value for cash, cash equivalents, accounts receivable, accounts payable and notes payable approximate fair value because of the short maturity of these instruments.

The carrying values and estimated fair values of our remaining financial instruments at June 30, 2011 and December 31, 2010 is as follows:

	June 30, 2011				December 31, 2010
	Carrying value (1)		Fair value		Carrying value (1)		Fair value
Investment securities	$	668,170	$	672,044	$	512,771	$	514,906
Loans receivable	$	434,288	$	434,288	$	459,235	$	459,235
Derivatives, net	$	13,944	$	13,944	$	6,260	$	6,260
Long-term debt	$	(4,298,595)	$	(4,507,309)	$	(4,301,337)	$	(4,388,923)

(1) Carrying value includes accrued interest and deferred fee income, where applicable.

The fair value of long-term debt is estimated based on quoted market prices for the identical issue when traded in an active market. When a quoted market price is not available, the fair value is determined using rates currently available to the company for debt with similar terms and remaining maturities.