XML 27 R16.htm IDEA: XBRL DOCUMENT
v3.20.2

Fair Value Measurements and Derivative Instruments | 9 Months Ended
--- | ---
Sep. 30, 2020
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 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. 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 its placement within the fair value hierarchy. 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.
| September 30, 2020
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |
Money market funds | $ | 116,806 |  |  | $ | 440,493 |  |  | $ | — |  |  | $ | 557,299 |
Equity securities | — |  |  | 22,555 |  |  | — |  |  | 22,555 |
Commingled fixed income securities | 1,720 |  |  | 19,537 |  |  | — |  |  | 21,257 |
Government and related securities | 17,408 |  |  | 18,601 |  |  | — |  |  | 36,009 |
Corporate debt securities | — |  |  | 82,959 |  |  | — |  |  | 82,959 |
Mortgage-backed / asset-backed securities | — |  |  | 275,352 |  |  | — |  |  | 275,352 |
Derivatives |  |  |  |  |  |  |
Foreign exchange contracts | — |  |  | 2,603 |  |  | — |  |  | 2,603 |
Total assets | $ | 135,934 |  |  | $ | 862,100 |  |  | $ | — |  |  | $ | 998,034 |
Liabilities: |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |
Interest rate swaps | $ | — |  |  | $ | (2,908) |  |  | $ | — |  |  | $ | (2,908) |
Foreign exchange contracts | — |  |  | (1,086) |  |  | — |  |  | (1,086) |
Total liabilities | $ | — |  |  | $ | (3,994) |  |  | $ | — |  |  | $ | (3,994) |
| December 31, 2019
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |
Money market funds | $ | 161,441 |  |  | $ | 240,364 |  |  | $ | — |  |  | $ | 401,805 |
Equity securities | — |  |  | 21,979 |  |  | — |  |  | 21,979 |
Commingled fixed income securities | 1,656 |  |  | 18,404 |  |  | — |  |  | 20,060 |
Government and related securities | 64,572 |  |  | 17,478 |  |  | — |  |  | 82,050 |
Corporate debt securities | — |  |  | 72,149 |  |  | — |  |  | 72,149 |
Mortgage-backed / asset-backed securities | — |  |  | 66,339 |  |  | — |  |  | 66,339 |
Derivatives |  |  |  |  |  |  |
Foreign exchange contracts | — |  |  | 3,256 |  |  | — |  |  | 3,256 |
Total assets | $ | 227,669 |  |  | $ | 439,969 |  |  | $ | — |  |  | $ | 667,638 |
Liabilities: |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |
Foreign exchange contracts | $ | — |  |  | $ | (1,402) |  |  | $ | — |  |  | $ | (1,402) |
Total liabilities | $ | — |  |  | $ | (1,402) |  |  | $ | — |  |  | $ | (1,402) |
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: 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. •Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2. •Commingled Fixed Income Securities: Commingled fixed income securities are comprised of 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. Fair value is based on the 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 mutual funds 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. •Government and Related Securities: 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 are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities. •Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads 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 or external price/spread data. These securities are classified as Level 2. Derivative Securities •Foreign Exchange Contracts: The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties. These securities are classified as Level 2. •Interest Rate Swaps: The valuation of interest rate swaps is based on an income approach using inputs that are observable or that can be derived from, or corroborated by, observable market data. These securities are classified as Level 2. Available-For-Sale Securities Available-for-sale securities are predominantly held at our wholly owned subsidiary, the Pitney Bowes Bank (the PB Bank). The PB Bank provides financing solutions to clients that rent or lease postage meters and purchase postage related supplies. The PB Bank also manages and invests excess undeployed deposits in bond investments. Investment securities classified as available-for-sale are recorded at fair value with changes in fair value due to market conditions (i.e., interest rates) recorded in accumulated other comprehensive income (AOCI), and changes in fair value due to credit conditions recorded in earnings. There were no unrealized losses due to credit losses charged to earnings through September 30, 2020. Available-for-sale securities consisted of the following:
| September 30, 2020
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
Government and related securities | $ | 35,018 |  |  | $ | 144 |  |  | $ | (719) |  |  | $ | 34,443 |
Corporate debt securities | 84,457 |  |  | 422 |  |  | (1,920) |  |  | 82,959 |
Commingled fixed income securities | 1,699 |  |  | 21 |  |  | — |  |  | 1,720 |
Mortgage-backed / asset-backed securities | 276,880 |  |  | 476 |  |  | (2,004) |  |  | 275,352 |
Total | $ | 398,054 |  |  | $ | 1,063 |  |  | $ | (4,643) |  |  | $ | 394,474 |
| December 31, 2019
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
Government and related securities | $ | 80,732 |  |  | $ | 1,358 |  |  | $ | (114) |  |  | $ | 81,976 |
Corporate debt securities | 70,426 |  |  | 2,009 |  |  | (286) |  |  | 72,149 |
Commingled fixed income securities | 1,675 |  |  | — |  |  | (19) |  |  | 1,656 |
Mortgage-backed / asset-backed securities | 65,679 |  |  | 960 |  |  | (300) |  |  | 66,339 |
Total | $ | 218,512 |  |  | $ | 4,327 |  |  | $ | (719) |  |  | $ | 222,120 |
Investment securities in a loss position were as follows:
| September 30, 2020 |  | December 31, 2019
| Fair Value |  | Gross unrealized losses |  | Fair Value |  | Gross unrealized losses
Less than 12 continuous months | $ | 314,145 |  |  | $ | 4,543 |  |  | $ | 52,521 |  |  | $ | 583 |
Greater than 12 continuous months | 3,157 |  |  | 100 |  |  | 9,227 |  |  | 136 |
Total | $ | 317,302 |  |  | $ | 4,643 |  |  | $ | 61,748 |  |  | $ | 719 |
At September 30, 2020, approximately 30% of total securities in the investment portfolio were in a net loss position. We believe our allowance for credit losses on available-for-sale investment securities is adequate as our investments are primarily in highly liquid U.S. government and agency securities, high grade corporate bonds and municipal bonds. We have not recognized an impairment on investment securities in an unrealized loss position because we have the ability and intent to hold these securities until recovery of the unrealized losses or expect to receive the stated principal and interest at maturity. Scheduled maturities of available-for-sale securities at September 30, 2020 were as follows:
| Amortized cost |  | Estimated fair value
Within 1 year | $ | 19,299 |  |  | $ | 19,379 |
After 1 year through 5 years | 9,354 |  |  | 9,553 |
After 5 years through 10 years | 54,448 |  |  | 53,476 |
After 10 years | 314,953 |  |  | 312,066 |
Total | $ | 398,054 |  |  | $ | 394,474 |
The scheduled maturities of mortgage-backed and asset-backed securities may not coincide with the actual payment, as borrowers have the right to prepay obligations. We have not experienced any significant 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. Held-to-Maturity Securities Held-to-maturity securities at September 30, 2020 and December 31, 2019, include $25 million and $383 million, respectively, of short-term, highly liquid time deposits. Due to the short-term nature of these securities, the carrying value approximates fair value. Derivative Instruments In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We mitigate these exposures by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of exchange rate fluctuations on financial results and manage the cost of debt. We do not use derivatives for trading or speculative purposes. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge. 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. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges. At September 30, 2020 and December 31, 2019, we had outstanding contracts associated with these anticipated transactions with notional amounts of $9 million and $7 million, respectively. Amounts included in AOCI at September 30, 2020 will be recognized in earnings within the next 12 months. Interest Rate Swaps We have interest rate swap agreements with an aggregate notional amount of $500 million that are designated as cash flow hedges. The fair value of the interest rate swaps is recorded as a derivative asset or liability at the end of each reporting period with the change in fair value reflected in AOCI. The fair value of derivative instruments was as follows:
Designation of Derivatives |  | Balance Sheet Location |  | September 30, 2020 |  | December 31, 2019
Derivatives designated as hedging instruments |  |  |  |  |  |
Foreign exchange contracts |  | Other current assets and prepayments |  | $ | 15 |  |  | $ | 207 |
|  | Accounts payable and accrued liabilities |  | (154) |  |  | (56) |
Interest rate swaps |  | Other noncurrent liabilities |  | (2,908) |  |  | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |
Foreign exchange contracts |  | Other current assets and prepayments |  | 2,588 |  |  | 3,049 |
|  | Accounts payable and accrued liabilities |  | (932) |  |  | (1,346) |
|  | Total derivative assets |  | $ | 2,603 |  |  | $ | 3,256 |
|  | Total derivative liabilities |  | (3,994) |  |  | (1,402) |
|  | Total net derivative (liability) asset |  | $ | (1,391) |  |  | $ | 1,854 |
Results of cash flow hedging relationships were as follows:
|  | Three Months Ended September 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 |  | 2020 |  | 2019 |  |  | 2020 |  | 2019
Foreign exchange contracts |  | $ | (80) |  |  | $ | 156 |  |  | Revenue |  | $ | (104) |  |  | $ | (98) |
|  |  |  |  |  | Cost of sales |  | (6) |  |  | 54 |
Interest rate swap |  | (1,303) |  |  | — |  |  | Interest expense |  | — |  |  | — |
|  | $ | (1,383) |  |  | $ | 156 |  |  |  |  | $ | (110) |  |  | $ | (44) |
|  | Nine Months Ended September 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 |  | 2020 |  | 2019 |  |  | 2020 |  | 2019
Foreign exchange contracts |  | $ | (361) |  |  | $ | 181 |  |  | Revenue |  | $ | (107) |  |  | $ | (23) |
|  |  |  |  |  | Cost of sales |  | 36 |  |  | 99 |
Interest rate swap |  | (2,908) |  |  | — |  |  | Interest expense |  | — |  |  | — |
|  | $ | (3,269) |  |  | $ | 181 |  |  |  |  | $ | (71) |  |  | $ | 76 |
We 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 intercompany loans and interest and the corresponding mark-to-market adjustment on derivatives are recorded in earnings. All outstanding contracts at September 30, 2020 mature within 12 months. The mark-to-market adjustments of non-designated derivative instruments were as follows:
|  |  |  | Three Months Ended September 30, |  |  |  |
|  |  |  | Derivative Gain (Loss) Recognized in Earnings |  |  |  |
Derivatives Instrument |  | Location of Derivative Gain (Loss) |  | 2020 |  | 2019 |  |  |  |
Foreign exchange contracts |  | Selling, general and administrative expense |  | $ | 891 |  |  | $ | (11,385) |  |  |  |  |
|  |  |  | Nine Months Ended September 30, |  |  |  |
|  |  |  | Derivative Gain (Loss) Recognized in Earnings |  |  |  |
Derivatives Instrument |  | Location of Derivative Gain (Loss) |  | 2020 |  | 2019 |  |  |  |
Foreign exchange contracts |  | Selling, general and administrative expense |  | $ | (2,776) |  |  | $ | (6,181) |  |  |  |  |
Fair Value of Financial Instruments Financial instruments not reported at fair value on a recurring basis include cash and cash equivalents, accounts receivable, loan receivables, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable and accounts payable approximate fair value. The fair value of debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of debt are classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of debt was as follows:
| September 30, 2020 |  | December 31, 2019
Carrying value | $ | 2,595,221 |  |  | $ | 2,739,722 |
Fair value | $ | 2,426,516 |  |  | $ | 2,572,794 |

X
- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativesAndFairValueTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration