Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Dec. 31, 2010

Notes To Condensed Consolidated Financial Statements [Abstract]

Fair Value Measurements

13. Fair Value Measurements and Derivative Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:

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

Level 2 – Quoted prices for identical assets and liabilitiesin 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 December 31, 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 placement within the fair value hierarchy.

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities
Money market funds/commercial paper	$	239,157	$	300,702	$	-	$	539,859
Equity securities		-		22,097		-		22,097
Commingled fixed income securities		-		27,747		-		27,747
Debt securities - U.S. and foreign governments, agencies, and municipalities		93,175		19,042		-		112,217
Debt securities - corporate notes and bonds		-		31,467		-		31,467
Mortgage-backed/asset-backed securities		-		134,262		-		134,262
Derivatives
Interest rate swaps		-		15,465		-		15,465
Foreign exchange contracts		-		4,230		-		4,230
Total assets	$	332,332	$	555,012	$	-	$	887,344
Liabilities:
Derivatives
Foreign exchange contracts	$	-	$	(1,439)	$	-	$	(1,439)
Total liabilities	$	-	$	(1,439)	$	-	$	(1,439)

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 and other highly liquid, 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 not listed on an exchange in an active market and are classified as Level 2.
• Commingled Fixed Income Securities:Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Value of the funds is based on the net asset value (NAV) per unit as reported by the fund manager. NAV is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. These commingled funds are not listed on an exchange in an active market and are classified as Level 2.
• Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. 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 of securities with identical maturities. 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 by The Pitney Bowes Bank (PBB). PBB is a whollyowned subsidiary and a Utah-chartered Industrial Loan Company (ILC). The bank's investments at December 31, 2011were $282 million and were reported in the Consolidated Balance Sheets as cash and cash equivalents of $28 million, short-term investments of $11 million and other assetsof $243 million. The bank's investments at December 31, 2010were $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 other than temporary impairments in our investment portfolio. The majority of our MBS are guaranteed 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 impose 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

As required by the fair value measurements guidance, we have incorporated counterparty credit risk and our credit risk into the fair value measurement of our 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 is based on the market approach using observable market inputs, such as forward rates.

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 inearnings 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, 2011 and 2010:

	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	$	2,141	$	(470)	Revenue	$	(166)	$	1,024
					Cost of sales		(719)		(452)
						$	(885)	$	572

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 on the derivatives are both recorded to earnings. At December 31, 2011, outstanding foreign exchange contracts to buy or sell various currencies had a net asset value of $2million. The contracts mature by March 30, 2012. At December 31, 2010, outstanding foreign exchange contracts to buy or sell various currencies had a net liability value of $3 million.

The following represents the results of our non-designated derivative instruments for the years ended December 31, 2011 and 2010:

		Derivative Gain (Loss) Recognized in Earnings
Derivative Instrument	Location of Derivative Gain (Loss)	2011		2010
Foreign exchange contracts	Selling, general and administrative expense	$	(17,214)	$	(22,158)

Credit-Risk-Related Contingent Features

We are not required to post collateral with respect to our derivative instruments; however, certain derivative instruments contain provisions that would require us to post collateral if our long-term senior unsecured debt ratings fall below BB- / Ba3. At December 31, 2011, our long-term senior unsecured debt ratings were BBB+ / A2. Based on derivative values at December 31, 2011, had our long-term debt ratings fallen below BB- / Ba3, we would have been required to post $1 million in collateral.

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 and 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 value of our remaining financial instruments at December 31, 2011 and 2010was as follows:

	December 31, 2011				December 31, 2010
	Carrying value		Fair value		Carrying value		Fair value
Investment securities	$	860,614	$	867,649	$	538,562	$	540,697
Loan receivables	$	454,838	$	454,838	$	459,235	$	459,235
Derivatives, net	$	18,256	$	18,256	$	6,260	$	6,260
Debt	$	4,233,909	$	4,364,176	$	4,289,248	$	4,376,834

The following methods were used to estimate the fair values of other financial instruments:

Investment securities – the fair value of investment securities was based on quoted market prices on an active exchange where available or based on quoted market prices for similar securities, benchmarking model derived prices, bond spreads or other observable data.

Loan receivables – the fair value of loan receivables is based on anticipated cash flows, which approximates carrying value.

Debt – The fair value of 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.

In addition, $3 million of remaining reserves from prior restructuring programs was reversed and reflected in restructuring charges and asset impairments on the Consolidated Statement of Income.

	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
Commingled fixed income securities		-		27,158		-		27,158
Debt securities - U.S. and foreign governments, agencies, and municipalities		74,425		20,971		-		95,396
Debt securities - corporate notes and bonds		-		16,343		-		16,343
Mortgage-backed/asset-backed securities		-		94,994		-		94,994
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)