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Fair Value Measurements and Derivative Instruments | 12 Months Ended
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Dec. 31, 2015
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Derivative Instruments | 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 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.
Level 3 – | Unobservable inputs that are supported by little or no market activity and may be derived from internally developed methodologies based on management's best estimates.
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, 2015 and 2014. 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.
| December 31, 2015
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |  |  |  |  |
Money market funds / commercial paper | $ | 41,215 |  |  | $ | 292,412 |  |  | $ | — |  |  | $ | 333,627 |
Equity securities | — |  |  | 24,538 |  |  | — |  |  | 24,538 |
Commingled fixed income securities | — |  |  | 22,571 |  |  | — |  |  | 22,571 |
Debt securities - U.S. and foreign governments, agencies and municipalities | 102,235 |  |  | 12,566 |  |  | — |  |  | 114,801 |
Debt securities - corporate | — |  |  | 62,884 |  |  | — |  |  | 62,884 |
Mortgage-backed / asset-backed securities | — |  |  | 178,234 |  |  | — |  |  | 178,234 |
Derivatives |  |  |  |  |  |  |  |  |
Foreign exchange contracts | — |  |  | 1,716 |  |  | — |  |  | 1,716 |
Total assets | $ | 143,450 |  |  | $ | 594,921 |  |  | $ | — |  |  | $ | 738,371 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | — |  |  | $ | (5,387 | ) |  | $ | — |  |  | $ | (5,387 | )
Total liabilities | $ | — |  |  | $ | (5,387 | ) |  | $ | — |  |  | $ | (5,387 | )
| December 31, 2014
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |  |  |  |  |
Money market funds / commercial paper | $ | 505,643 |  |  | $ | 193,986 |  |  | $ | — |  |  | $ | 699,629 |
Equity securities | — |  |  | 27,409 |  |  | — |  |  | 27,409 |
Commingled fixed income securities | — |  |  | 24,077 |  |  | — |  |  | 24,077 |
Debt securities - U.S. and foreign governments, agencies and municipalities | 113,974 |  |  | 24,006 |  |  | — |  |  | 137,980 |
Debt securities - corporate | — |  |  | 67,448 |  |  | — |  |  | 67,448 |
Mortgage-backed / asset-backed securities | — |  |  | 156,614 |  |  | — |  |  | 156,614 |
Derivatives |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | — |  |  | 1,386 |  |  | — |  |  | 1,386 |
Total assets | $ | 619,617 |  |  | $ | 494,926 |  |  | $ | — |  |  | $ | 1,114,543 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | — |  |  | $ | (2,988 | ) |  | $ | — |  |  | $ | (2,988 | )
Total liabilities | $ | — |  |  | $ | (2,988 | ) |  | $ | — |  |  | $ | (2,988 | )
Investment Securities The valuation of investment securities is based on the market approach using 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 classified as Level 2 as they are not separately listed on an exchange.
• | 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. The value of the funds is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. 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. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
• | Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices. When external index pricing is not observable, these securities 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 (the Bank), whose primary business is to provide financing solutions to clients that rent postage meters and purchase supplies. The Bank's assets and liabilities consist primarily of cash, finance receivables, short and long-term investments and deposit accounts. The Bank's investment securities are classified as available-for-sale and recorded at fair value in the Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the type of investment and maturity. Unrealized holding gains and losses are recorded in accumulated other comprehensive income (AOCI), net of tax. Available-For-Sale Securities At December 31, 2015 and 2014, available-for-sale securities consisted of the following:
| December 31, 2015
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
U.S. and foreign governments, agencies and municipalities | $ | 114,265 |  |  | $ | 1,804 |  |  | $ | (1,268 | ) |  | $ | 114,801 |
Corporate | 63,140 |  |  | 823 |  |  | (1,079 | ) |  | 62,884 |
Mortgage-backed / asset-backed securities | 177,821 |  |  | 1,901 |  |  | (1,488 | ) |  | 178,234 |
Total | $ | 355,226 |  |  | $ | 4,528 |  |  | $ | (3,835 | ) |  | $ | 355,919 |
| December 31, 2014
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
U.S. and foreign governments, agencies and municipalities | $ | 135,839 |  |  | $ | 2,905 |  |  | $ | (764 | ) |  | $ | 137,980 |
Corporate | 66,170 |  |  | 1,569 |  |  | (291 | ) |  | 67,448 |
Mortgage-backed / asset-backed securities | 155,330 |  |  | 2,362 |  |  | (1,078 | ) |  | 156,614 |
Total | $ | 357,339 |  |  | $ | 6,836 |  |  | $ | (2,133 | ) |  | $ | 362,042 |
Investment securities that were in a loss position for 12 or more continuous months at December 31, 2015 had aggregate unrealized holding losses of $2 million and an estimated fair value of $36 million. Investment securities that were in a loss position for less than 12 continuous months at December 31, 2015 had aggregate unrealized holding losses of $2 million and an estimated fair value of $146 million. Investment securities that were in a loss position for 12 or more continuous months at December 31, 2014 had aggregate unrealized holding losses of $1 million and an estimated fair value of $42 million. Investment securities that were in a loss position for less than 12 continuous months at December 31, 2014 had aggregate unrealized holding losses of $1 million and an estimated fair value of $88 million. We have not recognized an other-than-temporary impairment on any of the investment securities in an unrealized loss position because we do not intend to sell these securities, it is more likely than not that we will not be required to sell these securities before recovery of the unrealized losses and we expect to receive the contractual principal and interest on these investment securities. At December 31, 2015, the amortized cost and estimated fair value of available-for-sale securities have scheduled maturities as follows:
| Amortized cost |  | Estimated fair value
Within 1 year | $ | 47,014 |  |  | $ | 46,987 |
After 1 year through 5 years | 74,649 |  |  | 75,123 |
After 5 years through 10 years | 53,432 |  |  | 53,753 |
After 10 years | 180,131 |  |  | 180,056 |
Total | $ | 355,226 |  |  | $ | 355,919 |
The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities as borrowers have the right to prepay obligations with or without prepayment penalties. At December 31, 2015, we had approximately $70 million of time deposits that are classified as held-to-maturity and are included in short-term investments because they mature in the next six months. The cost of these investments approximates fair value. We had no held-to-maturity investments at December 31, 2014. We have not experienced any write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed or supported by the U.S. government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification within the fair value hierarchy. Derivative Instruments The valuation of foreign exchange derivatives is based on a market approach using observable market data inputs, such as foreign currency spot and forward rates and yield curves. We also incorporate 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 in the credit default swap market. The fair value of our derivative instruments at December 31, 2015 and 2014 was as follows:
|  |  |  | December 31,
Designation of Derivatives |  | Balance Sheet Location |  | 2015 |  | 2014
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Other current assets and prepayments |  | $ | 217 |  |  | $ | 762 |
|  | Accounts payable and accrued liabilities |  | (208 | ) |  | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Other current assets and prepayments |  | 1,499 |  |  | 624 |
|  | Accounts payable and accrued liabilities |  | (5,179 | ) |  | (2,988 | )
|  | Total derivative assets |  | 1,716 |  |  | 1,386 |
|  | Total derivative liabilities |  | (5,387 | ) |  | (2,988 | )
|  | Total net derivative liability |  | $ | (3,671 | ) |  | $ | (1,602 | )
Foreign Exchange Contracts We enter into foreign 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 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, 2015 and 2014, we had outstanding contracts associated with these anticipated transactions with a notional amount of $13 million and $18 million, respectively. The amounts included in AOCI at December 31, 2015 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, 2015 and 2014:
|  | 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 |  | 2015 |  | 2014 |  |  | 2015 |  | 2014
Foreign exchange contracts |  | $ | 887 |  |  | $ | 1,878 |  |  | Revenue |  | $ | 1,082 |  |  | $ | 1,276 |
|  |  |  |  |  |  |  | Cost of sales |  | 558 |  |  | (140 | )
|  |  |  |  |  |  |  |  |  | $ | 1,640 |  |  | $ | 1,136 |
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. All outstanding contracts at December 31, 2015 mature over the next three months. The following represents the results of our non-designated derivative instruments for the years ended December 31, 2015 and 2014:
|  |  |  | Year Ended December 31,
|  |  |  | Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument |  | Location of Derivative Gain (Loss) |  | 2015 |  | 2014
Foreign exchange contracts |  | Selling, general and administrative expense |  | $ | (6,849 | ) |  | $ | (4,701 | )
Credit-Risk-Related Contingent Features Certain derivative instruments contain credit-risk-related contingent features that would require us to post collateral based on a combination of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At December 31, 2015, the maximum amount of collateral that we would have been required to post had the credit-risk-related contingent features been triggered was $5 million. Fair Value of Financial Instruments Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and accounts payable approximate fair value because of the short maturity of these instruments. The fair value of our debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of our debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt at December 31, 2015 and 2014 was as follows:
| December 31,
| 2015 |  | 2014
Carrying value | $ | 2,968,997 |  |  | $ | 3,252,006 |
Fair value | $ | 3,102,890 |  |  | $ | 3,440,383 |

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