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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192022 Commission file number: 1-3579
PITNEY BOWES INC.
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State of incorporation: | Delaware | | I.R.S. Employer Identification No. | 06-0495050 |
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Address:State of incorporation: | Delaware | | I.R.S. Employer Identification No. | 06-0495050 |
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Address: | 3001 Summer Street, | Stamford, | Connecticut | 06926 | |
Telephone Number: | (203) | 356-5000 | | | | |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
Common Stock, $1 par value per share | | PBI | | New York Stock Exchange |
6.7% Notes due 2043 | | PBI.PRB | | New York Stock Exchange |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | þ☐ | | Accelerated filer | oþ | | Non-accelerated filer | o |
Smaller reporting company | ☐ | | Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act.¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ¨
As of June 30, 2019,2022, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $732$628 million based on the closing sale price as reported on the New York Stock Exchange.
Number of At January 31, 2023, there were 174,184,551 outstanding shares of common stock, $1 par value, outstanding as of close of business on January 31, 2020: 171,147,940 shares.value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be filed with the Securities and Exchange Commission (the Commission) no later thanwithin 120 days after our fiscal year end and to be delivered to stockholders in connection with the Annual Meeting of Stockholders, to be held May 4, 2020, are incorporated by reference in Part III of this Form 10-K.
PITNEY BOWES INC.
TABLE OF CONTENTS
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PART I | |
Item 1. | | |
Item 1A. | | |
Item 1B. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II | |
Item 5. | | |
Item 6. | RESERVED | | |
Item 7. | | |
Item 7A. | | |
Item 8. | | |
Item 9. | | |
Item 9A. | | |
Item 9B. | | |
PART IIIItem 9C. | | |
PART III | |
Item 10. | | |
Item 11. | | |
Item 12. | | |
Item 13. | | |
Item 14. | | |
PART IV | |
Item 15. | | |
Item 16. | | |
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Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report) contains statements that are forward-looking. We believe that these forward-looking statements are reasonable based on our current expectations and assumptions. However, we caution readers that any forward-looking statement within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 are subject to risks and uncertainties and actual results could differ materially. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Annual Report speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our futureresults of operations, financial condition and results of operationsforward-looking statements are subject to change and to inherent risks and uncertainties. Factorsuncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. While conditions related to the COVID-19 pandemic have improved, the pandemic continues to be dynamic, and near-term challenges across the economy remain; and the effects that they may have on our, and our clients' businesses remain uncertain. Other factors which could materially impact our financial condition and results of operations or cause future financial performance to differ materially from the expectations expressed in any forward-looking statement made by or on our behalf include, without limitation:
•declining physical mail volumes
•changes in postal regulations or the operations and financial health of posts in the U.S. or other major markets, or changes to the broader postal or shipping markets
•the loss of, or significant changes to, our contractual relationship with the United States Postal Service (USPS) commercial programs or changes in postal regulations inour contractual relationships with the U.S.USPS or other major marketsUSPS' performance under those contracts
•our ability to continue to grow and manage unexpected fluctuations in volumes, gain additional economies of scale and improve profitability within our Commerce Services groupGlobal Ecommerce segment
•the impacts of inflation and rising prices, higher interest rates and a breach of security,slow-down in economic activity, including a global recession, to the company, our clients and retail consumers
•the loss of some of our larger clients in our Global Ecommerce and Presort Services segments
•changes in labor and transportation availability and costs
•the impacts on our cost of debt due to recent increases in interest rates and the potential for future cyber-attackinterest rate hikes
•changes in foreign currency exchange rates, especially the impact a strengthening U.S. dollar could have on our global operations
•declines in demand for our ecommerce services resulting from supply chain delays or other comparable eventinterruptions affecting our retail clients, or changes in retail consumer behavior or spending patterns
•global supply chain issues adversely impacting our success in developing and marketing newthird-party suppliers' ability to provide us products and services and obtaining regulatory approvals, if required
•competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors
the loss of some of our larger clients in our Commerce Services group
changes in labor conditions and transportation costs
•expenses and potential impact on client relationshipsimpacts resulting from the October 2019 ransomware attacka breach of security, including cyber-attacks or other comparable events
•our success at managing customer credit risk
•changes in tax laws, rulings or regulations
•capital market disruptions or credit rating downgrades that affected the Company's operationsadversely impact our ability to access capital markets at reasonable costs
•our success in developing and marketing new products and services and obtaining regulatory approvals, if required
•the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws
•changes in global political conditions and international trade policies, including the imposition or expansion of trade tariffs, and other geopolitical risks
•our success at managing relationships and costs with outsource providers of certain functions and operations
third-party suppliers' ability to provide products and services required by our clients
acts of nature, including pandemics and their potential effects on demand and supply chain
•changes in banking regulations or the loss of our Industrial Bank charter
macroeconomic factors, including global•increased environmental and regional business conditions that adversely impact customer demand, foreign currency exchange rates and interest ratesclimate change requirements or other developments in these areas
the United Kingdom's (U.K.) recent exit from the European Union (Brexit)
our success at managing customer credit risk
capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs
•intellectual property infringement claims
•the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks
•impact of acts of nature on the services and solutions we offer
Further information about factors that could materially affect us, including our results of operations and financial condition, is contained in Item 1A. "Risk Factors" in this Annual Report.
ITEM 1. BUSINESS
General
Pitney Bowes Inc. (we, us, our, or the company) is a global shipping and mailing company that provides technology, company providing commerce solutions that power billionslogistics, and financial services to small and medium sized businesses, large enterprises, including more than 90 percent of transactions. Clientsthe Fortune 500, retailers and government clients around the worldworld. These clients rely on us to remove the accuracycomplexity and precision delivered by our solutions, analytics,increase the efficiency in their sending of mail and application programming interface (API) technology in the areas of ecommerce fulfillment, shipping and returns, cross-border ecommerce, office mailing and shipping, presort services and financing. Pitney Bowes Inc. was incorporated in the state of Delaware in 1920.parcels. For moreadditional information, about us, our products, services and solutions, visit www.pitneybowes.com.
Business Segments
Commerce Services
The Commerce Services group includes domestic delivery, return and fulfillment services, cross-border solutions, shipping solutions and presort services. The Commerce Services group includes the Global Ecommerce and Presort Services segments.
Global Ecommerce
Domestic parcel services combine proprietary label technologyoffers retailers a parcel delivery and returns network for returns and a delivery network with cost-effective last-mile delivery to process over 125 million parcels annually.end consumers. We operate 15numerous domestic parcel sortation centers connected by a nationwide transportation network, enabling us to pick up parcels from retailer distribution centers and move them through our physical network. We also operate fouroffer fulfillment centers,services, providing pick, pack and ship services for retailers. Theseclients through four fulfillment centers are locatedco-located within four of our larger parcel sortation centers to facilitate same-day entry into our parcel delivery network.
Cross-border solutions manages all aspectsservices offers a range of theservices for our clients to choose from to manage their international shopping and shipping experience. Our proprietary technology enables global tracking and logistics services; calculates duty, tax and shipping costs at checkout; enables multi-currency pricing, payment processing and fraud management; ensures compliance with product restrictions and produces all documentation requirements to meet export complexities and customs clearance. Our proprietary technology is utilized by direct merchants and major online marketplaces facilitating millions of parcels to be shipped worldwide.
Shipping solutions enableDigital delivery services enables clients to reduce transportation and logistics costs, select the best carrier based on need and cost, improve delivery times and track packages in real-time. Powered by our shipping APIs, an integral part of the Pitney Bowes Commerce Cloud, clients can purchase postage, print shipping labels and access shipping and tracking services from multiple carriers that can be easily integrated into any web application such as online shopping carts or ecommerce sites and provide guaranteed delivery times and flexible payment options.
Presort Services
We are athe largest workshare partner of the USPS and national outsource provider of mail sortation services that allow clients to qualify large volumes of First-Class Mail, Marketing Mail and Bound and PacketMarketing Mail (Standard Flats and Bound Printed Matter)Matter for postal workshare discounts. In 2019,2022, we processed a record 17over 16 billion pieces of mail through our network of operating centers throughout the United States. Our Presort Services network andUsing our fully-customized proprietary technology, provideswe provide clients with end-to-end solutions from pick up at their location to delivery into the postal system network, expedited mail delivery and optimal postage savings.
Sending Technology Solutions (SendTech Solutions)
We offer ourprovide clients sending technology solutions forwith physical and digital mailing and shipping suppliestechnology solutions and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and packages.flats. We also offer supplies and maintenance services for these offerings. Our cloud enabled infrastructure provides software-as-a-service (SaaS) offerings delivered online and via connected or mobile devices. Our latest offerings are designed on an open platform architecture that hashave the capabilities to leverage partnerships with carriers, developers and other innovative companies and developers to deliver new value to our clients.
We offer a variety of solutionsfinancing alternatives that enable clients to finance equipment and product purchases, make rental and lease payments, replenish postage and purchase supplies. purchases.
Through our wholly owned subsidiary, The Pitney Bowes Bank (the Bank), we offer our clients in the United States a revolving credit solution in the United States that enables them to purchase postage, services and supplies and an interest-bearing deposit solution to clients who prefer to prepay postage. Additionally, we offer financing alternatives that enable clients to finance or lease other manufacturers’ equipment and provide working capital. We provide revolving credit solutions to clients in Canada and the U.K. that enable them to make meter rental payments and purchase postage, services and supplies. The Bank also provides an interest-bearing deposit solution to clients who prefer to prepay postage. We also provide similar revolving credit solutions to clients in Canada and the U.K. but not through the Bank. In the United States, we also offer a variety of financing alternatives that enable businesses and organizations to finance or lease other manufacturers’ equipment to meet their needs.
We establish credit approval limits and procedures based on the credit quality of the client and the type of product or service provided to control risk in extending credit to clients. We closely monitor the portfolio by analyzing industry sectors and delinquency trends by product line, industry and client to ensure reserve levels and credit policies reflect current trends. Management continuously monitors credit lines and collection resources and revises credit policies as necessary to be more selective in managing the portfolio.
We provide call-center, online and on-site support services for our products and solutions. Support services are primarily provided under maintenance contracts.
Seasonality
As shipping continues to become a bigger part of our business, aA larger percentage of our revenue and earnings areis earned in the fourth quarter relative to the other quarters, driven primarily by higher shipping volumes during the holiday season.
Sales and MarketingServices
We market our products, solutions and services through a direct and inside sales force, global and regional partner channels, direct mailings and web-based offerings.digital channels. We provide call-center, online and on-site support services for our products and solutions. Support services are primarily provided under maintenance contracts.
Competition
Our businesses face competition from a number of companies. Our competitors range from large, multinational companies toand smaller, more narrowly focused regional and local firms. We compete on the basis of technology and innovation, breadth of product offerings, our ability to design and tailor targeted solutions to specificmeet client needs, performance, client service and support, price, quality and brand.
We must continue to invest in our current technologies, products and solutions, and in the development of new technologies, products and solutions in order to maintain and improve our competitive position. We willfrequently encounter new competitors as the markets in which we transition to higher value marketsparticipate evolve and offerings andnewer businesses enter newour existing markets.
A summary of the competitive environment for each of our business segments is as follows:
Global Ecommerce
The domestic and cross-border parcel services and cross-border solutions market includes competitors of various sizes, including companies and national posts with greater financial resources than us. Some of these competitors specialize in point solutions or freight forwarding services, are full-service ecommerce business process outsourcers and online marketplaces with international logistic support, or major global delivery services companies. We also face competition from companies that can offer both domestic and cross-border solutions in a single package which creates pricing leverage. The principal competitive factors include speed of delivery, reliability, functionality,price, ease of integration and use, scalability, innovation, supportinnovative services, reliability, functionality and price.scalability. We compete based on the accuracy, reliability and scalability of our platform and logistics services, our ability to provide clients and their customers a one-stop full-service ecommerce experience and the ability to provide a more customized shipping solution than some of the larger competitors in the industry.
Within shipping solutions, we competeOur digital delivery services business competes with a wide range of technology providers who help make shipping easier and more cost-effective. These technology providers range from large, established companies to smaller companies offering negotiated carrier rates (primarily with the USPS).rates. The principal competitive factors include technology stability and reliability, innovation, access to preferred shipping rates and ease of integration with existing systems.
Presort Services
We face competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services. While not necessarily competitors in the traditional sense,We also face competition from large mail ownersmailers that have sufficient volumes and the capability to presortsort their own mailings in-house.in-house and could use excess capacity to offer presort services to others. The principal competitive factors include price, innovative service, delivery speed, tracking and reporting, industry expertise and economies of scale. Our competitive advantages include our extensive network of presort facilities capable of processing significant volumes and our innovative proprietary technology that provides clients with reliable, secure and precise services and maximum postage discounts.
Sending Technology Solutions
We face competition from other mail equipment and solutions providers companies that offer products and services as alternative means of message communications and those that offer on-lineonline shipping and mailing products and services solutions. Additionally, as competitivethe growth of alternative communication methods in comparisonas compared to physical mail continue to grow, which creates competition to mail grow,and also to our operations could be affected.offerings that enable clients to use the mail efficiently. We differentiate ourselves from our competitors through our breadth of physical and digital offerings, including cloud enabled SaaS and open platform architecture offerings; pricing; available financing and payment offerings; product reliability; support services; and our extensive knowledge of the shipping and mailing industry.
Our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks, as well as small, specialized firms. Not allWe believe our competitive advantage that differentiates us from our competitors are able to offeris the same or similarbreadth of our financing and payment solutions that we offer and we believe this is a source of competitive advantage that differentiatesour ability to seamlessly integrate these solutions into our clients' shipping and mailing operations.
us fromAlso see Item 1A. Risk Factors for further details regarding the competition our competitors. The Bank is chartered as an Industrial Bank under the laws of the State of Utah, and is regulated by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions.businesses face.
Research, Development and Intellectual Property
We invest in research and development activities to develop new products and solutions, enhance the effectiveness and functionality of existing products and solutions and deliver high value technology and differentiated services in high value segments of the market.
Third-partyThird-Party Suppliers
We dependOur SendTech Solutions segment depends on third-party suppliers and outsource providers for a variety of services and product components and the hosting of our SaaS offerings, the logistics portionofferings. Our Global Ecommerce and Presort Services segments rely on third party suppliers
to help equip our facilities, provide warehouse support and assist with our logistical operations. All of our ecommerce business,businesses and some non-corecorporate functions depend on third-party providers for a variety of data analytics, sales, reporting and operations.other functions. In certain instances, we rely on single-sourced or limited-sourced suppliers and outsourcing vendors around the world because doing so is advantageous due to quality, price or lack of alternative sources. We have risk mitigation programs to monitor conditions affecting our suppliers' ability to fulfill expected commitments. We believe that our available sources for services, components, supplies, logistics and manufacturing are adequate.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide related to product specifications of our postage meters. Our Presort Services businesssegment is also subject to regulations of the USPS. The Bank is chartered as an Industrial Bank under the laws of the State of Utah. The Bank and certain company affiliates that provide services to the Bank are subject to the regulations of the Utah Department of Financial Institutions and the FDIC.Federal Deposit Insurance Corporation. We are also subject to transportation regulations for various parts of our business, customs and trade regulations worldwide related to our cross-border shipping services and regulations concerning data privacy and security for our businesses that use, process and store certain personal, confidential or proprietary data.
EmployeesClimate Change
Although climate change has had no material impact on our operations to date, the risk of increasingly severe climate events or the risk that those events happen more frequently could affect one or more of our facilities and our ability to conduct daily operations in the future. Increasing regulatory restrictions in response to climate change could also materially affect our costs, especially with respect to transportation.
Human Capital
Employee RelationsProfile
At December 31, 2019, weWe have approximately 11,000 employees, worldwide.with 81% located in the United States. We believealso rely on a contingent hourly workforce to supplement our full-time workforce to meet fluctuating demand.
We seek to create a high-performance culture that will drive and sustain enhanced value for all our stakeholders. To attract, retain and engage the talent needed, we provide competitive compensation and strive to maintain strong relationshipsa diverse, inclusive and safe workplace, with equitable opportunities for growth and development. Our compensation programs are designed to reward performance and contribution. We regularly assess the business environments and labor markets in the areas we operate to ensure our employees. Management keepscompensation programs reflect best practices and are market competitive. Depending on position and level, elements of our compensation packages include base salary or wages, variable compensation based on individual and company objectives and equity. We provide a competitive benefits package fostered on work/life balance, including medical, dental, life and disability insurance, and benefits that provide additional support for our employees’ mental, physical, financial and social well being.
Diversity and Inclusion
Maintaining a diverse workforce and an inclusive environment is critical to our success and we view diversity and inclusion as a competitive differentiator that helps us attract, grow, engage and retain the best talent. We celebrate a rich mix of countries, cultures, ages, races, ethnicities, gender identities, sexual orientation, abilities, and perspectives that showcase our humanity, differentiate us as individuals and enhance our businesses. Our global workforce is comprised of over 43% women and 35% of our global managers are women. Our U.S. population is nearly 50% people of color and 36% of our U.S. managers are people of color.
We continue to increase diversity and inclusion awareness throughout our company through enhancements and improvements to our talent acquisition processes, cultural awareness training and the creation of allies and mentors to help advance diversity and inclusion in our workforce.
Employee Engagement and Development
We are committed to creating a culture where our employees feel supported and valued. We offer our employees many opportunities to advance their skills, learn new skills and achieve career goals through virtual and in-person development and training programs, professional development initiatives, experiential learning, mentoring and coaching programs and inclusion networks.
Through multiple platforms, we offer employees and candidates varied opportunities to find development opportunities and stay informed about key changes to our business. We also conduct an independent annual employee engagement survey with demonstrated high levels of decisionsemployee participation. We benchmark our results against our previous year’s performance, as well as against an external database of high-performing organization, with a particular focus on our strategic enablers and encouragesimplement changes where possible and implementsfinancially prudent. Each year, we consider the feedback from employees, enhancing our relationship with them.
Health and Safety
We are committed to providing a safe workplace that protects against and limits personal injury and environmental harm. Through regular evaluations of site safety performance, sharing of successes, and creating projects to engage employees in safety improvements, we identify risks, provide guidance and training, review and learn from accidents, and reduce injuries. We also report monthly to both local site management and senior leadership on safety metrics, trends, risks and regulatory activity. Through these efforts and employee suggestions whenever practicable.engagement, we have experienced seen significant improvements in our total recordable cases and total recordable incident rates since 2019.
Since the inception of the COVID-19 pandemic, we implemented numerous protocols, policies and process changes in our warehouses and offices to ensure the health and safety of our employees, suppliers and the surrounding communities. All our offices and facilities are open to employees; however, we have adopted a flexible workplace strategy in our offices, allowing employees that can work remotely the opportunity to continue to do so. For those employees that report to an office or facility, we continue to place an emphasis on maintaining a high level of performance while ensuring a safe work environment.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto filed with, or furnished to, the Securities and Exchange Commission (the SEC),SEC, are available, free of charge, through the Investor Relations section of our website at www.investorrelations.pitneybowes.com or from the SEC's website at www.sec.gov, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC. The other information found on our website is not part of this or any other report we file with or furnish to the SEC.
Information About Our Executive Officers
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Name | | Age | | Title | | Executive Officer Since |
Marc B. Lautenbach | | 61 | | President and Chief Executive Officer | | 2012 |
Daniel J. Goldstein | | 61 | | Executive Vice President and Chief Legal Officer and Corporate Secretary | | 2010 |
Christoph Stehmann | | 60 | | Executive Vice President, International Sending Technology Solutions | | 2016 |
Jason C. Dies | | 53 | | Executive Vice President and Group Executive (1) | | 2017 |
Gregg Zegras | | 55 | | Executive Vice President and President, Global Ecommerce | | 2020 |
Ana Maria Chadwick | | 51 | | Executive Vice President and Chief Financial Officer | | 2021 |
James Fairweather | | 51 | | Executive Vice President, Chief Innovation Officer | | 2021 |
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Name | | Age | | Title | | Executive Officer Since |
Marc B. Lautenbach | | 58 | | President and Chief Executive Officer | | 2012 |
Jason C. Dies | | 50 | | Executive Vice President and President, Sending Technology Solutions | | 2017 |
Daniel J. Goldstein | | 58 | | Executive Vice President and Chief Legal Officer and Corporate Secretary | | 2010 |
Lila Snyder | | 47 | | Executive Vice President and President, Commerce Services | | 2016 |
Christoph Stehmann | | 57 | | Executive Vice President, International Sending Technology Solutions | | 2016 |
Stanley J. Sutula III | | 54 | | Executive Vice President and Chief Financial Officer | | 2017 |
Johnna G. Torsone | | 69 | | Executive Vice President and Chief Human Resources Officer | | 1993 |
(1) Effective January 3, 2023, Mr. Dies was named Executive Vice President and Group Executive. Prior to this, he was Executive Vice President and President, Sending Technology Solutions.
There are no family relationships among the above officers. All of theThe above officers have served in various executive positions with the company for at least the past five years except as described below:
follows:
Mr. DiesZegras was appointed to the office of Executive Vice President and President, Sending Technology SolutionsGlobal Ecommerce in October 2017.July 2020. He joined the company in 20152013 as President, Document Messaging Technologies (DMT).Imagitas. Prior to joining the company, Mr. Dies was employed at IBM where heZegras held several executive leadership positions, in North America, Europe,including at NBC Universal, Sharecare and Asia across diverse business units.
Hearst Entertainment.
Ms. Snyder was appointed to the office of Executive Vice President and President, Commerce Services in January 2016. She joined the company in November 2013 as President, DMT and became President, Global Ecommerce in June 2015. Prior to joining Pitney Bowes, Ms. Snyder was a Partner at McKinsey & Company, Inc. In her 15 years at McKinsey, she focused on serving clients in the technology, media and communications sectors and was the leader of McKinsey's Stamford office.
Mr. SutulaChadwick joined the company as Executive Vice President and Chief Financial Officer in February 2017.January 2021. Prior to joining the company, Mr. SutulaMs. Chadwick was employed at IBM for 28GE Capital as President and CEO of GE Capital Global Legacy Solutions. Ms. Chadwick spent over 20 years at GE Capital, where heshe held several leadershipexecutive positions, including Controller of GE Capital Americas and CFO at GE Capital Energy Financial Services.
Mr. Fairweather was appointed Executive Vice President and Chief Innovation Officer in May 2021. Prior to this, he was Senior Vice President and Chief Technology Officer, Commerce Services. He has been a leader in the United Statescompany's strategic digital transformation and Europe.technology initiatives across Design, SaaS, Data Science and Analytics, API Management, Security and Mobility.
ITEM 1A. RISK FACTORS
Our operations face certain risks that should be considered in evaluating our business. We manage and mitigate these risks on a proactive basis, using an enterprise risk management program. Nevertheless, the following risk factors, some of which may be beyond our control, could materially affect our business, financial condition, results of operations, brand and reputation, and may cause future results to be materially different than our current expectations. These risk factors are not intended to be all inclusive.
Significant disruptions to postal operationsMailing and Shipping Industry Risks
The financial condition of the USPS, or adverse changes to our relationships withthe national posts in our other major markets, has affected, and could, in the United Statesfuture affect, the ability of those posts to provide services to us or elsewhereour clients, which could adversely affect client demand for our offerings and thus our financial performance.
We are dependent on a healthy postal sectorfinancially viable national posts in the geographic markets where we operate, particularly in the United States. A significant portion of our revenue depends upon the ability of these posts, especially the USPS, to provide competitive mail and package delivery services to our clients and the quality of the services they provide. Their ability to provide high quality service at affordable rates in turn depends upon their ongoing financial strength. Although Congress provided the USPS a measure of relief with the enactment of the Postal Service Reform Act of 2022, the USPS, and national posts in our other major markets, still face financial challenges. If these challenges interfere with these posts’ ability to continue to provide the services they currently provide, our financial performance may be adversely affected.
Our ability to compete in the package shipping market in the United States depends upon certain contractual relationships we have with the USPS and the successful performance of those services.
The USPS is our primary provider for the “last mile” component of our parcel delivery services in the United States. This represents a significant component of our cost in offering these services. If we are unable to receive competitive pricing from the USPS or take advantage of lower cost USPS options, our ability to compete with private carriers and achieve profitable revenue growth may be adversely affected. Our digital delivery options also depends on ourdepend upon certain contractual relationships with posts. Changesthe USPS to enable us to offer these services profitably, and the USPS has adjusted the terms of those contracts in the financial viabilitypast. Should the USPS make additional changes to how it contracts with us for this service, our profitability could be adversely affected. The quality of service we provide to our clients also depends upon the quality of delivery services received from the USPS. As the ecommerce market continues to evolve, and as the USPS implements changes to its network, if the USPS’ service performance is materially worse than that of the major posts, how they price their offerings, the statutesprivate carriers, we may lose clients to competition and regulations determining how they operate, or changes in our contractual relationships with these posts, could adversely affect our financial performance.performance may be adversely affected.
We are subject to postal regulations and processes, which could adversely affect our financial performance.
A significant portion of our business is subject to regulation and oversight by the USPS, and posts in other major markets.markets, and the governmental bodies that regulate the posts themselves. These postal authorities have the power to regulate some of our current products and services.services and to establish guidelines for postage rates. They also must approve many of our new or future product and service offerings before we can bring them to market. If our new or future product and service offerings are not approved ifor there are significant conditions to approval, iffavorable postage rates are reversed, regulations on our existing products or services are changed, if posts utilize their position in the market or their role as product regulator to limit competition in areas where the posts themselves offer solutions,or if we fall out of compliance with thosethe posts’ regulations, our financial performance could be adversely affected.
If we are not able to respond to the continuing decline in the volume of physical mail delivered via traditional postal services, our financial performance could be adversely affected.
Traditional mail volumes have declined and continue to decline and impact our current and future financial results. However, we have employed, and will continue to employ, strategies to stabilize the mailing business, including introducing new digital product and service offerings and
providing clients broader access to products and services through online and direct sales channels, including products and services that make it easier forresults, primarily within our mailing clients to also ship packages. There is no guarantee that these offerings will be widely accepted in the marketplace, and they will likely face competition from existing and emerging alternative products and services. Further, an accelerated or sudden decline in physical mail volumes could have an adverse effect on our Sending TechnologySendTech Solutions (SendTech Solutions) and Presort Services segments. An accelerated or sudden decline could result from one or more of the following factors: changes in communication behavior or available communication technologies reductions to the Universal Service Obligation (USO) under which the USPS and other national posts are required to deliver to every addresstheir use; changes in a country with similar pricing and frequency and quality of mail delivery from national posts; legislation incentivizing alternative means of communication, burdening mail, or regulations that mandate electronic substitution, prohibit certain types of mailings, increase the difficulty of using information or materials inlimiting how the mail be used; or impose higher taxespandemics or fees on postal services.other external events affecting physical mail delivery. If we are not successful at meeting the continuing challenges faced in our mailing business, or if physical mail volumes were to experience an accelerated or sudden decline, our financial performance could be adversely affected.
Significant changes to the laws regulating the USPS or other posts, or changes in their operating models could have an adverse effect on our financial performance.
As a significant portion of our revenue and earnings is dependent on postal operations, changes in the laws and regulations that affect how posts operate could have an adverse effect on our financial performance. As posts consider new strategies for their operations in
an era of declining mail volumes and increasing package volumes, if we are unable to work with posts to support those strategies, our financial performance could be adversely affected.
Business Operational Risks
We face intense competition in the industries in which we operate.
The transformationmarkets for our products and services in each of our segments are highly competitive. In our Global Ecommerce segment, we face competition from full-service ecommerce business process outsourcers, online marketplaces, freight forwarders, posts, and major global delivery services companies, including those that can offer both domestic and cross-border solutions in a single package. Our digital delivery business competes with technology providers ranging from large, established companies and national posts to smaller companies offering negotiated carrier rates. If we cannot compete successfully in these markets with, among other things, speed of delivery, price, reliability, functionality and scalability of our platform and logistic services and ease of integration and use, we may lose clients, incur additional costs and suffer from reduced margins, and the financial results of the segment may be adversely affected. Our Presort Services segment faces competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services and large volume mailers that have sufficient volumes and the capability to presort their own mailings in-house and could use excess capacity to offer presort services to others. If we are not able to effectively compete on price, innovative service, delivery speed, tracking and reporting, we may lose clients and the financial results of the segment may be adversely affected. Our Sending Technology Solutions segment faces competition from other mail equipment and solutions providers, companies that offer products and services as alternative means of message communications and those that offer online shipping and mailing products and services solutions. In addition, our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks, as well as small, specialized firms. If we are not able to differentiate ourselves from our competitors or effectively compete with them, the financial results of the segment may be adversely affected.
The evolution of our businesses to more digital and commerceshipping-related services will resulthas resulted in a decline in our overall profit margins. If we cannot increase our volumes while at the same time reduce our costs, our financial performanceoverall profitability could be adversely affected.
As our businesses shift to more digital and shipping-related services, the relative revenue contribution from our shipping-related offerings now exceeds that of the revenue from our mailing-related offerings. We expect the revenue contribution from shipping-related services to continue to grow; however, profit margins on these services are lower than those for our mailing-related offerings. As a result, we transformneed to achieve higher dollars of revenue to generate the same dollars of profit that we generate in our mailing businesses. Accordingly, if we cannot continue to grow package volumes, gain additional economies of scale through increasing volumes, lowering our cost per piece and in turn, improve margins and profitability, our short and long-term financial performance may be adversely affected.
Seasonality of the Global Ecommerce segment, unexpected declines in consumer demand or the performance of our retail customers, or unexpected spikes in the costs of labor or transportation, especially during the fourth quarter, could adversely affect our overall performance.
Our Global Ecommerce segment derives the majority of its revenue from retail clients. The retail industry is subject to cyclical trends in consumer sentiment and spending habits that are affected by many factors, including prevailing economic conditions, recession or fears of recession, inflation, exchange rates, unemployment levels, pandemics, or geopolitical events. Our retail clients are also dependent on third party suppliers to provide them with either raw materials or finished goods to meet the demands of their clients. This segment also relies upon the availability of labor and transportation at a reasonable cost and unexpected increases in these costs due to higher demand or other macroeconomic factors (which have occurred in the past) could also impact the financial results of Global Ecommerce. Further, Global Ecommerce's financial results are highly dependent on its performance in the fourth quarter, so if any of these risk factors come to pass in that quarter, impact on the segment's performance could be more significant than other points in the year.
The loss of any of our largest clients in our Global Ecommerce segment could adversely affect the financial performance of that segment.
The Global Ecommerce segment receives a large portion of its revenue from a relatively small number of clients and business partners. If any of these larger clients or business partners leave our network or reduce their use of our services, which has occurred in the past, and we are unable to replace that lost volume, it could have a material adverse effect on the revenue and profitability of the segment.
There can be no assurance that our larger clients and business partners will continue to utilize our products or services at current levels, or that we would be able to replace any of these clients or business partners with others who can generate revenue at current levels.
If we fail to effectively manage our third-party suppliers, or if their ability to perform were negatively impacted, our business, financial performance and reputation could be adversely affected.
Our SendTech Solutions segment relies on third-party suppliers for services and components for our mailing equipment, spare parts, supplies and services and for the hosting of our SaaS offerings. We also rely on third-party suppliers to help us equip our Presort and Ecommerce facilities and to provide us with services related to some of our operations and productivity initiatives. In certain instances, we rely on single-sourced or limited-sourced suppliers around the world because of advantages in quality, price or lack of alternative sources. During the past few years, like many other companies, we and our suppliers experienced supply chain interruptions and increased supply costs, due to, among other things, lockdowns associated with COVID-19, disruptions in the container transportation market, volatility in the semiconductor industry, shortage of raw materials such as rubber and resin, threats of rail strikes, rising inflation and geopolitical instability. Although our 2022 financial results were not significantly impacted, these factors, at times, caused us to experience longer wait times for supplies or increased costs. If these supply chain constraints were to worsen or, if other unknown events cause our suppliers to not be able to provide their services, components or equipment to us in a timely manner, or, if the quality of the goods or services received were to deteriorate, our relationship with certain suppliers were to be terminated, or if the costs of using these third parties were to continue to increase and we were not able to find alternate suppliers, we could lose clients, incur significant disruptions in manufacturing and operations and increased costs (including higher freight and re-engineering costs) and delay automation and productivity initiatives in our warehouses.
Fluctuations in transportation costs or disruptions to transportation services in our Global Ecommerce or Presort Services segments could adversely affect client satisfaction or our financial performance.
In addition to our reliance on the USPS, our Global Ecommerce and Presort Services segments rely upon independent third-party transportation service providers to transport a significant portion of our parcel and mail volumes. Some of our providers may also be our competitors. The use of these providers is subject to risks, including our ability to negotiate acceptable terms, increased competition during peak periods, capacity issues, performance problems, extreme weather, natural or man-made disasters, pandemics, increased fuel costs, labor shortages or disputes and other unforeseen difficulties. Given our continued reliance upon these providers, any disruption to the timely supply of these services for any reason, any future unforeseen disruptions affecting these providers, any dramatic increase in the cost of these services or any deterioration of the performance of these services (each of which we have experienced, at times),have adversely affected or could adversely affect client satisfaction and our financial performance.
Our business depends on our ability to attract, retain, and engage with, employees at a reasonable cost to meet the needs of our business and to consistently deliver highly differentiated, competitive offerings.
The rapid growth of the ecommerce industry has resulted in intense competition for employees in the shipping, transportation, and logistics industry, including drivers and warehouse employees. At times, both our Global Ecommerce and Presort Services segments have experienced increased demand and competition for labor, especially for our warehouses, driving up costs. We supplement our workforce with contingent hourly workers from staffing agencies on an as-needed basis; however, if we experience labor shortages, do not effectively manage our use of contingent workers, or if our staffing agencies chose to terminate their relationship with us and we cannot find alternative providers, it could result in increased costs and adversely affect our operations. Moreover, given the nature of our Global Ecommerce and Presort Services employee base, if we cannot continue to maintain good relationships with those employees resulting in employee dissatisfaction and turnover, our operating costs could significantly increase, and our operational flexibility could be significantly reduced.
There is also significant competition for the talent needed for research and development of new products and services and talent needed to sell and service our other products and services within all our business units. Increased competition for employees has resulted in higher costs for wages and other benefits necessary to attract and retain employees with the right skill sets. Additional labor costs which may also impact our business include those triggered by regulatory actions; increased health care and workers’ compensation insurance expenses; and costs associated with the health and safety of our employees.
Difficulty in obtaining and protecting our intellectual property, and the risks of infringement claims by others may negatively impact our financial performance.
Our businesses are not materially dependent on any one patent or license or group of related patents and licenses; however, our business success depends in part upon protecting our intellectual property rights, including proprietary technology developed or obtained through acquisitions. We rely on copyrights, patents, trademarks and trade secrets and other intellectual property laws to establish and protect our proprietary rights. If we are unable to protect our intellectual property rights, our competitive position may suffer, which could adversely affect our revenue and profitability. The continued evolution of patent law and the nature of our innovation work may affect the number of patents we are able to receive for our development efforts. As we continue to transition our business to more digitalsoftware and commerce services, the revenue contributionservice-based offerings, patent protection of these innovations will be more difficult to obtain. In addition, from time to time, third parties may claim that we, our Commerce Services group is greater thanclients, or our SendTech Solutions segment and is expectedsuppliers, have infringed their intellectual property
rights. These claims, if successful, may require us to continueredesign affected products, enter into costly settlement or license agreements, pay damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products.
If we fail to increase in the future. The profit margins in Commerce Services are lower than the profit margins in SendTech Solutions and are more sensitive to rising labor and transportation costs. Margin improvement within Commerce Services is highly dependent on increasing volumes and lowering costs. Accordingly, if we cannot obtain sufficient scale by increasing volumes or are unable to reduce costs in Commerce Services significantly enough to improve profit margins,comply with government contracting regulations, our financial performance, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities. Government contracts are subject to extensive and complex procurement laws and regulations, along with regular audits and investigations by government agencies. If one or more government agencies discovers contractual noncompliance by us or one of our subcontractors in the course of an audit or investigation, we may be subject to various civil or criminal penalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments received, fines and debarment from doing business with one or more governments. Any of these events could not only affect our financial performance, but also adversely affected.affect our brand and reputation.
We may not fully realize the anticipated benefits of strategic acquisitions and divestitures which may harm our financial performance.
We may make strategic acquisitions or divest certain businesses. These actions may involve significant risks and uncertainties, which could have an adverse effect on our financial performance, including:
•difficulties in achieving anticipated benefits or synergies;
•difficulties in integrating newly acquired businesses and operations, including combining product and service offerings and integrating financial reporting and other IT systems;
•the loss of key employees or clients of businesses acquired or divested;
•significant charges for employee severance and other restructuring costs, legal, accounting and financial advisory fees;
•reducing fixed costs previously associated with divested businesses; and
•possible goodwill and asset impairment charges as divestitures and changes in our business model may adversely affect the recoverability of certain long-lived assets and valuation of our operating segments.
Our capital investments to develop new products and offerings or expand our current operations may not yield the anticipated benefits.
We made and are continuing to make significant capital investments in new products, services, and facilities. If we are not successful in these new product or service introductions at the levels anticipated when making the investments, or our investments in facilities do not yield the expected productivity improvements, there may be an adverse effect on our financial performance.
Cybersecurity and Technology Risks
Our financial performance and our reputation could be adversely affected, and we could be subject to legal liability or regulatory enforcement actions, if we or our suppliers are unable to protect against, or effectively respond to, cyberattacks or other cyber incidents.
We depend on the security of our and our suppliers' information technology systems to support numerous business processes and activities, to service our clients, and to enable consumer transactions and postal services. We have security systems, procedures and business continuity plans in place designed to ensure the continuous and uninterrupted performance of our information technology systems and to protect against unauthorized access to information or disruption to our services. We also require our suppliers who host our information technology systems or have access to sensitive data to have appropriate security and back-up measures in place. There are numerous cybersecurity risks to these systems, including individual and group criminal hackers, industrial espionage, denial of service attacks, ransomware and malware attacks, computer viruses, vandalismattacks on the software supply chain, and employee errors and/or malfeasance. The risk of cyberattacks has increased in the past year by cyberwarfare in connection with the ongoing Russia/Ukraine conflict, including proliferation of malware from the conflict into systems unrelated to the conflict. These cyber threats are constantly evolving, thereby increasing the difficulty of preventing, detecting, and successfully defending against them. Successful breaches could, among other things, disrupt our operations or result in the unauthorized disclosure, theft and misuse of company, client, consumer and employee sensitive and confidential information, disrupt the performance of our information technology systems, deny services to our clients and result in the loss of revenue, all of which could adversely affect our financial performance. Additionally, weCybersecurity breaches could be exposedresult in financial liability to potential liability, litigation,other parties, governmental inquiries, investigations, or regulatory enforcement actions and penalties, and damage to our brand and reputation could be damaged, and we could be subject to the payment of fines or other penalties, legal claims by our clients and significant remediation costs.reputation. Although we maintain insurance coverage relating to cybersecurity incidents, we may incur costs or financial losses that are either not insured against or not fully covered through our insurance.
We have security systems, procedures, and business continuity plans in place and require our suppliers to have them as well. These security systems, procedures, and business continuity plans are designed to ensure the continuous and uninterrupted performance of our information technology systems, protect against unauthorized access to information or disruption to our services, and minimize the impact of, and the time to detect, respond, and recover from a breach should one occur. Despite the protections we hadhave in place, on October 12,we have suffered cyber-events in the past, like the 2019 and 2020 ransomware attacks that were previously discussed in Item 7 of our Annual Reports for the periods ended December 31, 2019 and December 31, 2020.. In response to these attacks, as well as the constantly evolving cyber threat landscape, we were affected by a ransomware attack that temporarily disrupted customer access to some services. Our financial information was not affectedcontinually implement and there is no evidence that any sensitive or confidential company, client, consumer or employee data was improperly accessed or extracted from our network. The backup data storage systems for virtually all our client, employee and other business data were also not affected, which accelerated our ability to bring affected systems back online. We estimate that the ransomware attack adversely impacted full year revenue by $18 million and EPS by approximately $0.08 per share, primarily as a result of the business interruption, incremental costs related to the attack and costs to enhance our cybersecurity protection. We have insurance related to this event and expect a portion of any profit impact, including the profit associated with any loss of revenue, to ultimately be covered by insurance.
Following the attack, we implemented a variety ofupdate measures to further enhance our cybersecurity protections and minimize the impact of any future attack. Cyber threatsNone of these systems are constantly evolving however,fool proof and although we continually assesslike all companies, intrusions will occur, and improve our protections, there can be no guaranteehave occurred, from time to time. Our goal is to prevent meaningful incursions and minimize the overall impact of those that a future cyber event will not occur.
Failure to comply with data privacy and protection laws and regulations could subject us to legal liability and adversely affect our reputation and our financial performance.
Our businesses use, process, and store proprietary information and personal, sensitive, or confidential data relating to consumers, our business, clients, and employees. Privacy laws and similar regulations in many jurisdictions where we do business require that we take significant steps to safeguard that information, and these laws and regulations continue to evolve. The scope of the laws that may be
applicable to us is often uncertain and may be conflicting. In addition, new laws may add a broad array of requirements on how we handle or use information and increase our compliance obligations. For example, in May 2018, the European Union greatly increased the jurisdictional reach of European Law by enacting the General Data Protection Regulation (GDPR), which, among other things, enhanced an individual’s rights with respect to their information. However, ongoing litigation in the European Union on how to comply with GDPR requirements continues to create uncertainty in how to demonstrate compliance, and the outcome of these cases could impact how companies do business in the European Union. In the United States, several states have enacted different laws regarding personal information including, in 2019, new legislation in both California and Nevadaprivacy that imposedimpose significant new requirements.requirements on consumer personal information. In some instances (e.g., California), these laws also expand the definition of consumer personal information to include information related to employees and business contacts. Other countries or states may enact laws or regulations in the future that have similar or additional requirements. WhileAlthough we continually monitor and assess the impact of these laws and regulations, and continually update our systems to protect our data and comply with these laws, their interpretation and enforcement are uncertain, subject to change, and may require substantial costs to monitor and implement. Failure to comply with data privacy and protection laws and regulations could also result in government enforcement actions (which could include substantial civil and/or criminal penalties), and private litigation, andwhich could adversely affect our reputation and the results of our operations.financial performance.
If we or our suppliers encounter unforeseen interruptions or difficulties in the operation of our cloud-based applications, our business could be disrupted, our reputation and relationships may be harmed, and our financial performance could be adversely affected.
Our business relies upon the continuous and uninterrupted performance of our and our suppliers' cloud-based applications and systems to support numerous business processes, to service our clients and to support their transactions with their customers and postal services. Our applications and systems, and those of our partners, may be subject to interruptions due to technological errors, system capacity constraints, software errors or defects, human errors, computer or communications failures, power loss, adverse acts of nature and other unexpected events. We have business continuity and disaster recovery plans in place to protect our business operations in case of such events and we also require our suppliers to have the same. Nonetheless, there can be no guarantee that these plans will function as designed. If we are unable to limit interruptions or successfully correct them in a timely manner or at all, it could result in lost revenue, loss of critical data, significant expenditures of capital, a delay or loss in market acceptance of our services and damage to our reputation, brand and relationships, any of which could have an adverse effect on our business and our financial performance.
IfMacroeconomic and General Regulatory Risks
Periods of difficult economic conditions, other macroeconomic events, or a public health crisis, such as the ongoing global COVID-19 pandemic, could adversely affect our business.
Our operations and financial performance are impacted by the economic conditions in the United States and the other countries where we failand our clients do business. Any significant or perceived weakening of these economies, reduction in business confidence or change in business or consumer spending habits, concerns of a domestic or global recession, rising inflation or interest rates, limited availability of credit, or other macroeconomic events, not within our control, may reduce our client’s demand for shipping and mailing products and services (especially in our Global Ecommerce business, which is subject to effectively managecyclical trends in consumer sentiment and spending habits) and thus, negatively affect our third-party suppliersfinancial performance. These economic conditions, at times, have arisen and outsource providers,can arise suddenly, and the duration and full impact of such conditions can be difficult to predict. Moreover, while our financial results for the fiscal year 2022 were not significantly impacted by the COVID-19 pandemic, due to variants of the virus that continue to appear, COVID-19, or the emergence of another public health crisis, could also adversely impact our business, financial performancecondition, and reputation could be adversely affected.results of operations.
We depend on third-party suppliers and outsource providers for a variety of services and product components, the hosting of our SaaS offerings, the logistics portion of our ecommerce business, and some non-core functions and operations. Some of our suppliers may also be our competitors in other contexts. In certain instances, we rely on single-sourced or limited-sourced suppliers and outsourcing vendors around the world because doing so is advantageous due to quality, price or lack of alternative sources. If production or services were interrupted, the quality of those offerings were to degrade as a result of poor performance from our suppliers, these suppliers chose to terminate their relationship with us, or if the costs of using these third parties were to increase and we were not able to find alternate suppliers, we could experience significant disruptions in manufacturing and operations (including product shortages, higher freight costs and re-engineering costs) as well as increased costs in the logistics portion of our ecommerce business. If outsourcing services were interrupted, not performed, or the performance was poor, our ability to process, record and report transactions with our clients, consumers and other constituents could be impacted. Such interruptions, including a cybersecurity event affecting one of our suppliers, could impact our ability to meet client demand, damage our reputation and client relationships and adversely affect our financial performance.
Future credit rating downgrades or capital market disruptions could adversely affect our ability to maintain adequate liquidity, to provide competitive financing services to our clients and to fund various discretionary priorities.
We provide competitive finance offerings to our clients and fund discretionary priorities, such as business investments, strategic acquisitions, dividend payments and share repurchases through a combination of cash generated from operations, deposits held at the Bank and access to capital markets. Our ability to access U.S. capital markets and the associated cost of borrowing is dependent upon our credit ratings and is subject to capital market volatility. Given our current credit rating, we may experience reduced financial or strategic flexibility and higher costs when we do access the U.S. capital markets. We maintain a $500 million revolving credit facility that requires we maintain certain financial and nonfinancial covenants.
A significant decline in cash flows, noncompliance with any of the covenants under the revolving credit facility, further credit rating downgrades, material capital market disruptions, significant withdrawals by depositors at the Bank, adverse changes to our industrial
loan charter or an increase in our credit default swap spread could impact our ability to maintain adequate liquidity, which could impact our ability to provide competitive finance offerings, to our clients,repay or refinance maturing debt, and fund other financingstrategic or discretionary activities, which in turn, could adversely affect our operational and financial performance.
Changes in tax rates, laws or regulations could adversely impact our financial results.
We are subject to taxes in the U.S. and in the foreign jurisdictions where we do business. Due to economic and political conditions, tax rates, assessments and enforcement approaches in the U.S. and various foreign jurisdictions have been and may be subject to significant change. In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world could result in a tax expense or benefit. For example, in light of continuing global fiscal challenges, various levels of government and international organizations such as the Organization for Economic Co-operation and Development (OECD) and EU are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. These tax reform efforts, such as the OECD-led Base Erosion and Profit Shifting project (BEPS), are designed as anti-abuse measures, including a global minimum tax. Although some countries have passed tax laws based on findings from the BEPS project, the final nature, timing and extent of any such tax reforms or other legislative or regulatory actions is unpredictable, and it is difficult to assess their overall effect. These changes could increase our effective tax rate and adversely impact our financial results.
Our Global Ecommerce segment is exposed to increased foreign exchange rate fluctuations.
The sales generated from many of our clients who use our cross-border services are exposed to foreign exchange rate fluctuations. Currently, merchants using our cross-border services are located primarily in the U.S. and the U.K. and a majority of consumers making purchases through these platforms are in a limited number of foreign countries. The current strength of the U.S. Dollar relative to currencies in the countries where we do the most business continues to impact our client’s ability to compete internationally as the cost of similar international products improved relative to the cost of U.S. retailer’s products. This in turn, adversely affected Global Ecommerce’s revenue and profitability during 2022. If the strength of the U.S. dollar continues, or if the British Pound were to strengthen relative to other currencies, our retailers may continue to experience a decrease in international sales volumes, which, in turn would adversely affect this segment’s revenue and profitability.
Our operations and financial performance may be negatively affected by changes in trade policies, tariffs and regulations.
Our Global Ecommerce segment is subject to significant trade regulations, taxes, and duties throughout the world. Any changes to these regulations could potentially impose increased documentation and delivery requirements, increase costs, delay delivery times and subject us to increased costs and additional liabilities, andwhich could adversely affect our financial performance. OverWithin the past twolast four years, the United States increased
tariffs for certain goods, while also raising the possibility of additional tariffs. These actionswhich triggered other nations to also increase tariffs on certain of their goods. For our Global Ecommerce segment, tariff increases, or even the politicalan environment of uncertainty surrounding trade issues, could reduce demand and adversely affect ourits financial performance. For our SendTech Solutions segment, the increased tariffs resulted in additional costs on certain components used in some of our products. Although
If we have been taking actions to mitigate these costs by changing where we source certain parts, these addeddo not keep pace with evolving expectations and regulations in the areas of Environmental, Social and Governance (ESG) and address the potential impact of climate change on our costs and the potential for further tariffs could affect demand foroperations, our products or the amountreputation and results of profitability in some of our products and adversely affect our financial performance.
Our Global Ecommerce segment is exposed to increased foreign exchange rate fluctuations.
The sales generated from many of our clients’ internationally focused websites running on our cross-border platform are exposed to foreign exchange rate fluctuations. Currently, our platforms are located in the U.S. and the U.K. and a majority of consumers making purchases through these platforms are in a limited number of foreign countries. A strengthening of the U.S. Dollar or British Pound relative to currencies in the countries where we do the most business impacts our ability to compete internationally as the cost of similar international products improves relative to the cost of U.S. and U.K. retailers' products. A strong U.S. Dollar or British Pound would likely result in a decrease in international sales volumes, which would adversely affect the segment's revenue and profitability.
The loss of any of our largest clients in our Global Ecommerce segment or a material change in consumer sentiment or spending habits, could have a material adverse effect on the segment.
The Global Ecommerce segment receives a large portion of its revenue from a relatively small number of clients and business partners. The loss of any of these larger clients or business partners, or a substantial reduction in their use of our products or services, could have a material adverse effect on the revenue and profitability of the segment. There can be no assurance that our larger clients and business partners will continue to utilize our products or services at current levels, or that we would be able to replace any of these clients or business partners with others who can generate revenue at current levels.
Our business is also subject to cyclical trends in consumer sentiment and spending habits that are affected by many factors, including prevailing economic conditions, recession or fears of recession and unemployment levels. Consumer sentiment and spending habits can deteriorate rapidly, and could potentially have an adverse impact on our financial performance.
Our international operations may be adversely impacted byaffected.
The set of topics incorporated within the United Kingdom's recent exit fromterm ESG in general, and climate change in particular, cover a range of issues that pose potential risks to our operations. From an environmental perspective, the European Union (EU).
On January 31, 2020,impact of climate change and a potential increase in extreme weather events may pose risk to the U.K. formally exited the European Union (Brexit). The U.K. is currently in a transition period, during which it is expected that its trading relationship with the EU will remain the same while the two sides negotiate a free trade deal. The U.K. will also negotiate many other aspects of its relationship with the EU during this period. Approximately 10%operation of our consolidated revenue is generatedsortation facilities and the ability to transport mail and packages. The increased focus on alternative energy sources and the need to reduce our carbon footprint over time, could result in higher investments in capital spending and increased operational costs. There are also a series of laws related to product stewardship and waste disposal to which we need to comply. From a “social” perspective, a failure to meet employee expectations around safety and diversity, equity and inclusion could impact our ability to recruit new employees and retain talent. Finally, from countiesa “governance” perspective, if we do not maintain a good governance processes in general or do not satisfy investor stakeholder expectations on ESG, our reputation and attractiveness to portions of the investment community could be adversely affected.
Shareholder Activism Risks
Our business could be negatively affected as a result of shareholder activism.
We value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance. Our board of directors and management team are committed to acting in the EU, includingbest interests of all of our stockholders. There is no assurance that the U.K. Althoughactions taken by our board and management in seeking to maintain constructive engagement with certain stockholders will be successful.
The company recently received a notice from Hestia Capital Partners, LP (together with its affiliates, “Hestia”) of Hestia’s intention to nominate seven director candidates for election to our board at our 2023 annual meeting of stockholders. Hestia has also made public
statements critical of our board, management and strategy. Responding to Hestia’s actions or potential actions by another activist stockholder could be time-consuming, disrupt our operations and divert the ultimate impactattention of Brexit is unknown, the effects may adversely impact global economic conditions, contributemanagement, our board and our employees. It could also require us to instability in global financial and foreign exchange markets, impact trade and commerce, including the imposition of additional tariffs and duties and require additional documentation and inspection checks of goods moving between the U.K. and EU countries, leading to delays at ports of entry and departure. In particular, Brexit may have an adverse effect on cross-border ecommerce both into and out of the U.K. Brexit may also affect our supply chain for our SendTech Solutions segment. Any of theseincur substantial legal, communications and other advisory fees and proxy solicitation expenses. Further, we may choose to initiate, or may become subject to, litigation as a result of proposals by activist stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our board of directors and management and could require us to incur significant additional costs.
Additionally, perceived uncertainties as to our future direction as a result of activist stockholders or changes implicationsto the composition of our board may lead to the perception of a change in the direction of our business or consequences of Brexitother instability, which may be exploited by our competitors and/or other activist stockholders and cause concern to our current or potential customers, employees, investors, rating agencies, strategic partners and other constituencies, which could adversely affect our financial performance.
Ourresult in lost sales and business depends on our abilityopportunities, make it more difficult to attract and retain employees at a reasonable cost to meet the needs of ourqualified personnel and business partners and to consistently deliver highly differentiated, competitive offerings.
Given the rapid growth of the ecommerce industry, there has been intense competition for employees in the shipping, transportation and logistics industry, including drivers and factory employees. There is also significant competition for the talent needed to develop our products. If we are unable to find and retain enough qualified employees at a reasonable cost, or if the compensation required grows too rapidly, it may adversely affect our financial performance.
Our inability to obtain and protect our intellectual property and defend against claims of infringement by others may negatively impact our financial performance.
Our businesses are not materially dependent on any one patent or license or group of related patents and licenses; however, our business success depends in part upon protecting our intellectual property rights, including proprietary technology developed or obtained through acquisitions. We rely on copyrights, patents, trademarks and trade secrets and other intellectual property laws to establish and protect our proprietary rights. As we transition our business to more software and service-based offerings, patent protection of these innovations is more difficult to obtain. If we are unable to protect our intellectual property rights, our competitive position may suffer, which could adversely affect our revenue and profitability. The continued evolution of patent law and the nature of our innovation work may affect the number of patents we are able to receive for our development efforts. In addition, from time to time, third-parties may claim that we, our clients, or our suppliers, have infringed their intellectual property rights. These claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards, or face a temporary or permanent injunction
prohibiting us from marketing or selling certain products.
If we fail to comply with government contracting regulations, our financial performance, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities. Government contracts are subject to extensive and complex procurement laws and regulations, along with regular audits and investigations by government agencies. If one or more government agencies discovers contractual noncompliance in the course of an audit or investigation, we may be subject to various civil or criminal penalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments received, fines and debarment from doing business with one or more governments. Any of these events could not only affect our financial performance, but also adversely affect our brand and reputation.
We may not fully realize the anticipated benefits of strategic acquisitions and divestitures which may harm our financial performance.
As we transition our business to sustainable long-term growth, we may make strategic acquisitions or divest certain businesses. These actions may involve significant risks and uncertainties, which could have an adverse effect on our financial performance, including:
difficulties in achieving anticipated benefits or synergies;
difficulties in integrating newly acquired businesses and operations, including combining product and service offerings and entering new markets, or reducing fixed costs previously associated with divested businesses;
the loss of key employees or clients of businesses acquired or divested;
significant charges for employee severance and other restructuring costs, legal, accounting and financial advisory fees; and
possible goodwill and asset impairment charges as divestitures and changes in our business model may adversely affect the recoverability of certain long-lived assets and valuation of our operating segments.
Our capital investments to develop new products and offerings or expand our current operations may not yield the anticipated benefits.
We are making significant capital investments in new products, services, and facilities. If we are not successful in these new product or service introductions at the levels anticipated when making the investments, there may be an adverse effect on our financial performance.
Our operational costs could increase from changes in environmental regulations, or we could be subject to significant liabilities.
We are subject to various federal, state, local and foreign environmental protection laws and regulations around the world, including without limitation, those related to the manufacture, distribution, use, packaging, labeling, recycling or disposal of our products or the products of our clients for whom we perform services. Environmental rules concerning products and packaging can have a significant impact on the cost of operations or affect our ability to access capital markets at reasonable costs. Further, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do business in certain countries. We are also subject to laws concerning use, discharge or disposalnot necessarily reflect the underlying fundamentals and prospects of materials. These laws are complex, change frequently and have tended to become more stringent over time. If we are found to have violated these laws, we could be fined, criminally charged, otherwise sanctioned by regulators, or we could be subject to liability and clean-up costs. These risks can apply to both current and legacy operations and sites. From time to time, we may be involved in litigation over these issues. The amount and timing of costs under environmental laws are difficult to predict and there can be no assurance that these costs will not have an adverse effect on our financial performance.business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease numerous facilities worldwide, including our corporate headquarters located in Stamford, Connecticut, salesadministrative offices, fulfillment centers, parcel operations and mail sortation facilities, service locations, data centers and call centers. Our corporate headquarters is located in Stamford, Connecticut.
Our Global Ecommerce segment leases four fulfillment centers that comprise the majority of our fulfillment operations. An unforeseen loss of any of these fulfillment centers could materially impact our ability to conduct business and therefore materially impact our results of operations. Our Global Ecommerce business also conductsand Presort Services segments conduct parcel operations and our Presort business conducts its mail sortation operations through a network of 15 and 42over 50 operating centers throughout the United States, respectively. Should an operating center be unable to function as intended for an extended period of time, our ability to service our clients and operating results would be impacted; however, due to the extensive nature of our network, we would be able to divert affected parcel and mail volumes to other facilities and mitigate the impacts to our clients and our operating results.
States. Our SendTech Solutions segment leases a manufacturing and distribution facility in Indianapolis. This facility is significant as it stores a majority of the SendTech Solutions products, supplies and inventories.
Should any facility be unable to function as intended for an extended period of time, our ability to service our clients and operating results could be impacted.
We conduct most of our research and development activities in facilities located in Noida and Pune, India, Bielsko-Biala, Poland, Austin, Texas and Shelton, Connecticut. Management believes that our facilities are in good operating condition, materially utilized and adequate for our current business needs.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are routinely defendants in, or party to, a number of pendingSee Note 16 Commitments and threatened legal actions. These may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.Contingencies for additional information.
In August 2018, the Company, certain of its directors, officers and several banks who served as underwriters, were named as defendants in City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al., a putative class action lawsuit filed in Connecticut state court. The complaint asserts claims under the Securities Act of 1933, as amended, on behalf of those who purchased notes issued by the Company in connection with a September 13, 2017 offering, alleging, among other things, that the Company failed to make certain disclosures relating to components of its third quarter 2017 performance at the time of the notes offering. The complaint seeks compensatory damages and other relief. On October 24, 2019, the court granted the defendants' motions to strike the complaint for failure to state a claim, and the time for plaintiff to appeal or amend the complaint has expired.
In addition, in December 2018 and then in February 2019, certain of the Company’s officers and directors were named as defendants in two virtually identical derivative actions purportedly brought on behalf of the Company, Clem v. Lautenbach et al. and Devolin v. Lautenbach et al. These two actions, both filed by the same counsel in Connecticut state court, allege, among other things, breaches of fiduciary duty relating to these same disclosures, and seek compensatory damages and other relief derivatively for the benefit of the Company. Defendants have moved to dismiss these actions; given that the defendants have prevailed in the Livonia action, plaintiffs in these cases have conceded that these cases should be dismissed.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is principally traded on the New York Stock Exchange (NYSE) under the symbol "PBI". At January 31, 2020,2023, we had 14,05712,394 common stockholders of record.
Share Repurchases
We periodically repurchase shares of our common stock to manage the dilution created by shares issued under employee stock plans and for other purposes. During 2018, we did not repurchase any shares of our common stock. In February 2019, our Board of Directors approved an incremental $100 million for share repurchases, raising our authorization level to $121 million. During 2019,2022, we repurchased 18.62.8 million shares of our common stock at an aggregate price of $105$13 million. As a result, atWe did not repurchase any additional shares of our common stock in 2021 or 2020. At December 31, 2019,2022, we have remaining authorization from our Board of $16 million.Directors to repurchase up to of $3 million of our common stock.
Stock Performance Graph
As a result of our ongoing transformation and the sale of the Software business, we revised our peer group from last year to exclude companies that were no longer a fit from a business perspective and include companies that are better aligned with our business models, revenue and market capitalization.
The newOur peer group is comprised of: ACCO Brands Corporation, Bread Financial Holdings, Inc. (formerly Alliance Data Systems Corporation), Avery Dennison Corporation, Cimpress plc, Deluxe Corporation, Diebold Nixdorf, Incorporated, Echo Global Logistics,Etsy, Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Hub Group, Inc., NCR Corporation, R.R. Donnelley & Sons Company,Overstock.com, Inc., Rockwell Automation, Inc., Stamps.comRyder System, Inc., Schneider National, Inc., The Western Union Company, W.W. Grainger, Inc. and Xerox Holdings Corporation.
The old peer group was comprised of: Alliance Data Systems Corporation, Deluxe Corporation, Diebold Nixdorf, Incorporated, EchoStar Corp., Fidelity National Information Services, Inc., Fiserv, Inc., NCR Corp., NetApp Inc., Pitney Bowes Inc., R.R. Donnelley & Sons Company, Rockwell Automation Inc., Teradata Corp., Unisys Corporation, The Western Union Company and Xerox Holdings Corporation.
The accompanying graph shows the annual change in the value of a $100 investment in Pitney Bowes Inc., the Standard and Poor's (S&P) 500SmallCap 600 Composite Index the S&P SmallCap 600, the new peer group and the oldour peer group over a five-year period assuming the reinvestment of dividends. On a total return basis, a $100 investment on December 31, 20142017, in Pitney Bowes Inc., the S&P 500SmallCap 600 Composite Index the S&P SmallCap 600, the new peer group and the oldour peer group would have been worth $22, $174, $158, $172,$44, $133, and $158$111 respectively, on December 31, 2019.
2022.
All information is based upon data independently provided to us by Standard & Poor's Corporation and is derived from their official total return calculation. Total return for the S&P 500 and S&P SmallCap 600 Composite IndexesIndex and eachour peer group is based on market capitalization, weighted for each year. The stock price performance is not necessarily indicative of future stock price performance.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the more detailed consolidated financial statements and related notes included in this Form 10-K. Effective January 1, 2019, we adopted Accounting Standards Codification (ASC) 842, Leases (ASC 842) using the modified retrospective transition approach of applying the standard at the beginning of the earliest comparative period presented in the financial statements and recorded a cumulative effect adjustment at the date of initial application. Accordingly, periods prior to January 1, 2017, have not been restated for this standard and are presented under the prior guidance. Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers on a modified retrospective basis with a cumulative effect adjustment at the date of initial application. Accordingly, periods prior to January 1, 2018, have not been restated for this standard and are presented under the prior guidance. Discontinued operations includes our Software Solutions business and Production Mail business (see Note 4 for further details).[RESERVED]
|
| | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Total revenue | $ | 3,205,125 |
| | $ | 3,211,522 |
| | $ | 2,784,007 |
| | $ | 2,656,172 |
| | $ | 2,760,282 |
|
| | | | | | | | | |
Amounts attributable to common stockholders: | | | | | | | | | |
Income from continuing operations | $ | 40,149 |
| | $ | 181,705 |
| | $ | 180,039 |
| | $ | 210,861 |
| | $ | 324,970 |
|
Income (loss) from discontinued operations | 154,460 |
| | 60,106 |
| | 63,489 |
| | (118,056 | ) | | 82,973 |
|
Net income | $ | 194,609 |
| | $ | 241,811 |
| | $ | 243,528 |
| | $ | 92,805 |
| | $ | 407,943 |
|
| | | | | | | | | |
Basic earnings (loss) per share attributable to common stockholders (1): | | | | | | |
Continuing operations | $ | 0.23 |
| | $ | 0.97 |
| | $ | 0.97 |
| | $ | 1.12 |
| | $ | 1.63 |
|
Discontinued operations | 0.88 |
| | 0.32 |
| | 0.34 |
| | (0.63 | ) | | 0.42 |
|
Net income | $ | 1.10 |
| | $ | 1.29 |
| | $ | 1.31 |
| | $ | 0.49 |
| | $ | 2.04 |
|
| | | | | | | | | |
Diluted earnings (loss) per share attributable to common stockholders (1): | | | | | | |
Continuing operations | $ | 0.23 |
| | $ | 0.96 |
| | $ | 0.96 |
| | $ | 1.12 |
| | $ | 1.62 |
|
Discontinued operations | 0.87 |
| | 0.32 |
| | 0.34 |
| | (0.62 | ) | | 0.41 |
|
Net income | $ | 1.10 |
| | $ | 1.28 |
| | $ | 1.30 |
| | $ | 0.49 |
| | $ | 2.03 |
|
| | | | | | | | | |
Cash dividends paid per share of common stock | $ | 0.20 |
| | $ | 0.75 |
| | $ | 0.75 |
| | $ | 0.75 |
| | $ | 0.75 |
|
| | | | | | | | | |
Balance sheet data: | | | | | | | | | |
| December 31, |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Total assets | $ | 5,466,900 |
| | $ | 5,938,419 |
| | $ | 6,634,606 |
| | $ | 5,837,133 |
| | $ | 6,123,132 |
|
Long-term debt | $ | 2,719,614 |
| | $ | 3,066,073 |
| | $ | 3,559,278 |
| | $ | 2,750,405 |
| | $ | 2,489,583 |
|
Total debt | $ | 2,739,722 |
| | $ | 3,265,608 |
| | $ | 3,830,335 |
| | $ | 3,364,890 |
| | $ | 2,950,668 |
|
Noncontrolling interests (Preferred stockholders' equity in subsidiaries) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 296,370 |
|
| |
(1) | The sum of earnings per share may not equal the totals due to rounding. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and analysisoperating results should be read in conjunction with our risk factors, consolidated financial statements and related notes. This discussion and analysis containsincludes forward-looking statements based on management's current expectations, estimates and projections and involves risks and uncertainties. Actual results may differ significantly from those currently expressed in ourexpressed. A detailed discussion of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements as a result of various factors, including those factors describedis outlined under "Forward-Looking Statements" and "Risk"Item 1A. Risk Factors" contained elsewhere in this Annual Report.Form 10-K. All table amounts are presented in thousands of dollars, except per share data.dollars.
OverviewThroughout this discussion, we refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates from the prior period under comparison and is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year's exchange rate. Management believes that excluding the impacts of currency exchange rates provides investors a better understanding of the underlying revenue performance. Where constant currency measures are not provided, the actual change and constant currency change are the same.
In 2019, we:
| |
• | Adopted ASC 842using the modified retrospective transition approach of applying the standard at the beginning of the earliest comparative period presented in the financial statements. Accordingly, prior period financial results have been recast.
|
CompletedManagement measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the salerelated costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, goodwill impairment charges and other items not allocated to a business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our Software Solutions business,overall consolidated performance and should be read in conjunction with our consolidated results of operations.
A discussion of our financial condition and results of operations for the year ended December 31, 2020, can be found under Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the exception of the software business in Australia, which closed in January 2020, for approximately $700 million. The Software Solutions business is reported as a discontinued operation in our consolidated financial statements.SEC on February 22, 2022.
Recast our segment reporting to combine North America Mailing and International Mailing into the Sending Technology Solutions (SendTech Solutions) segment to reflect how we manage these operations and the products and services provided to our clients.
Sold the direct operations and moved to a dealer model in six smaller international markets within SendTech Solutions (Market Exits).
On October 12, 2019, we were affected by a ransomware attack that temporarily disrupted customer access to some services. Our financial information was not affected and there is no evidence that any sensitive or confidential company, client, consumer or employee data was improperly accessed or extracted from our network. The backup data storage systems for virtually all our client, employee and other business data were also not affected, which accelerated our ability to bring affected systems back online. We have implemented enhanced security features and monitoring procedures to mitigate the likelihood of future events.
Overview
Financial Results Summary - Twelve MonthsYear Ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Years Ended December 31, |
| 2022 | | 2021 | | Actual % change | | Constant Currency % Change |
Business services | $ | 2,249,941 | | | $ | 2,334,674 | | | (4) | % | | (3) | % |
Support services | 438,191 | | | 460,888 | | | (5) | % | | (3) | % |
Financing | 274,508 | | | 294,418 | | | (7) | % | | (5) | % |
Equipment sales | 354,960 | | | 350,138 | | | 1 | % | | 4 | % |
Supplies | 154,186 | | | 159,438 | | | (3) | % | | — | % |
Rentals | 66,256 | | | 74,005 | | | (10) | % | | (9) | % |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | (4) | % | | (3) | % |
| | | | | | | |
Global Ecommerce | $ | 1,576,348 | | | $ | 1,702,580 | | | (7) | % | | (7) | % |
Presort Services | 602,016 | | | 573,480 | | | 5 | % | | 5 | % |
SendTech Solutions | 1,359,678 | | | 1,397,501 | | | (3) | % | | (1) | % |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | (4) | % | | (3) | % |
| | | | | | | | | | | | | | | | | |
| EBIT |
| Years Ended December 31, |
| 2022 | | 2021 | | % change |
Global Ecommerce | $ | (100,308) | | | $ | (98,673) | | | (2) | % |
Presort Services | 82,430 | | | 79,721 | | | 3 | % |
SendTech Solutions | 400,909 | | | 429,415 | | | (7) | % |
Total Segment EBIT | $ | 383,031 | | | $ | 410,463 | | | (7) | % |
|
| | | | | | | | |
| 2019 | 2018 | Change |
Revenue | $ | 3,205,125 |
| $ | 3,211,522 |
| — | % |
Segment earnings before interest and taxes (EBIT) | $ | 490,869 |
| $ | 600,348 |
| (18 | )% |
Income from continuing operations | $ | 40,149 |
| $ | 181,705 |
| (78 | )% |
Net income | $ | 194,609 |
| $ | 241,811 |
| (20 | )% |
Earnings per share from continuing operations - diluted | $ | 0.23 |
| $ | 0.96 |
| (76 | )% |
Net cash provided by operations | $ | 252,207 |
| $ | 342,879 |
| (26 | )% |
Revenue was flatdecreased 4% (3% at constant currency) in 2022 compared to the prior year; however, currency2021 primarily due to a decrease in business services revenue primarily driven by lower Global Ecommerce volumes, lower support services revenue driven by a declining meter population and Market Exits unfavorably impacteda shift to cloud-enabled products and lower financing revenue growth by 2%. Commerceprimarily due to lower lease extensions. Global Ecommerce revenue decreased 7%, Presort Services revenue grew 9% but was offset by an overall decline in theincreased 5% and SendTech Solutions shipping and mailing business. We estimate that the ransomware attack adversely impacted full year revenue by $18 million.declined 3% (1% at constant currency).
Segment EBIT declined 18%for 2022 decreased 7% compared to 2021. Global Ecommerce EBIT decreased 2%, primarily due to higher operating expenses and a decline in SendTech Solutionsrevenue from cross-border services and digital delivery services, partially offset by the increase in domestic parcel delivery services gross margin. Presort Services EBIT increased 3%, primarily due to higher revenue, partially offset by cost savings initiatives and a shifting portfolio to faster growing, but lower margin services in Global Ecommerce. We estimate that the ransomware attack adversely impactedhigher transportation costs. SendTech Solutions EBIT by $19 million,decreased 7%, primarily as a result of the business interruption, incremental costs related to the attack and costs to enhance our cybersecurity protection.
Income from continuing operations declined 78% from the prior year driven primarily by the decline in segment EBIT, a $39 million pre-tax asset impairment chargerevenue and lower margins. Refer to Results of Operations section for further information.
Factors Affecting Comparability
Certain transactions and changes occurred during the year that impact the comparability of our 2022 financial results to the prior periods. These transactions and changes include:
•The sale of our Borderfree cross-border ecommerce solutions business (Borderfree);
•A change in the presentation of revenue for digital delivery services primarily related to our Global Ecommerce business from a gross basis to a net basis due to an adjustment in terms of one of our contracts with the developmentUSPS; and
•A refinement in the methodology of an enterprise resource planning (ERP) systemallocating transportation costs between our Global Ecommerce and Presort Services segments
Effective July 1, 2022, we sold Borderfree, which was reported in our international marketsGlobal Ecommerce segment. Prior year results were not recast to exclude the revenue and expenses from Borderfree. Accordingly, revenue and costs for 2022 include only six months of operations for Borderfree, whereas 2021 includes a full year of operations. Net income of Borderfree was not significant in any period presented.
The change in revenue presentation became effective October 1, 2022. Accordingly, revenue and cost of revenue for certain digital delivery services for the first nine months of 2022 and full year 2021 are reported as business services revenue and cost of business services, respectively, and beginning for the fourth quarter of 2022, the revenue and cost of revenue for these services are reported on a net basis as business services revenue.
The refinement to the methodology of allocating transportation costs between Global Ecommerce and Presort Services resulted in an $18 million pre-tax loss from Market Exits. Income from continuing operations includedincrease to Global Ecommerce EBIT and a tax benefit of $23 million from the release of a foreign valuation allowance. We estimate that the ransomware attack adversely impacted earnings per share from continuing operations by $0.08.
During the year, we received proceedscorresponding decrease to Presort Services EBIT of approximately $700 million from the sale of the Software Solutions business and $400 million from a new five-year term loan. Cash was used to repay $930 million of debt, invest $137$10 million in capital expenditures, repurchase $105 million of shares of our common stock, pay dividends of $35 million and fund acquisitions of $22 million. We estimate that the ransomware attack adversely impacted cash flows by $29 million.2022.
Outlook
We continueexpect consolidated revenue growth in 2023 to transformbe flat to a mid-single digit increase, on a comparable basis, and position ourselves for long-term success as a streamlined global technology company focused on shipping, mailing and related financial services. We are investingthe percentage of EBIT growth to outpace revenue growth, primarily due to an anticipated improvement in market opportunities and new solutions and services across allprofitability in our businesses, optimizing our operations and implementing cost savings initiatives to drive long-term value. Our portfolio is shifting to higher growth markets and we expect margins to improve as we build scale and realize the full benefits of our investments and optimizations.Global Ecommerce segment.
Within Global Ecommerce, we expectanticipate growth in Domestic Parcel, partially offset by continued revenue growthsoftness in our Cross-border operations. We anticipate Domestic Parcel margin and profit improvements from higher volumes and continued productivity improvements from the expansioninvestments we made in our facilities and network. In 2022, we saw significant productivity improvements in labor, transportation and warehouse operations and expect further improvements in 2023. We expect our cross-border operations to continue to be adversely impacted by a strong U.S. dollar and headwinds from changes in how certain of our domestic parcel business and shipping solutions, slightly offset by lowerclients may access cross-border solutions volumes and margin improvements from continued growthservices in volumes2023 compared to get to scale, bundling of offerings, pricing actions and organizational and operational efficiencies within our network.2022.
InWithin Presort Services, we expect higher volumes ofmargin and profit improvements from continued productivity improvements driven by our investments in increased automation and facilities consolidation. Revenue is expected to benefit from growth in Marketing Mail and Bound and Packet Mail and Marketingfrom a full year of volumes from our recent acquisitions, which we expect to offset the impact on revenue from the expected decline in First Class Mail to drive revenue growth. We expect margin improvement in 2020 from pricing initiatives, labor, transportation and other cost optimization initiatives and process efficiencies implemented in 2019.volumes.
WithinIn SendTech Solutions, we expect revenue growth from new products and our cloud-enabled shipping solutions to partially offset an expected decline in mailing businessrelated revenues. We expect a stabilization in financing revenue due to continuenew product offerings and an increasing finance receivable portfolio. Overall segment margins are expected to decline; however, we believe this revenue declineremain strong.
Certain factors beyond our control could have adverse impacts on our 2023 results including, but not limited to, reduced consumer spending due to inflationary pressures and rising prices, higher interest rates, a slow-down in economic activity, higher fuel and transportation costs and other adverse geopolitical developments. Inflationary pressures and rising prices could put increase pressure on wages, particularly warehouse and transportation employees, and result in higher component costs. Higher fuel and freight costs could also adversely impact our operations. We expect that interest expense for 2023 will be mitigated by expanding shipping capabilities, an overall product refresh, third-party equipment financing alternativesabout $30 million higher due to the recent increases in interest rates and the shiftadditional increases anticipated in the mix of business from mailing to solutions-based offerings.2023.
We continue to assess the financial impact of the ransomware attack on our operations and it is probable that additional costs and claims will be incurred in 2020. We have insurance related to this event and expect a portion of any profit impact, including the profit associated with any loss of revenue, to ultimately be covered by insurance. We are working closely with our carriers; however, we are currently not able to reasonably estimate the amount of proceeds we will receive.
RESULTS OF OPERATIONSBusiness Segments
RevenueGlobal Ecommerce
Domestic parcel services offers retailers a parcel delivery and returns network for end consumers. We operate numerous domestic parcel sortation centers connected by sourcea nationwide transportation network, enabling us to pick up parcels from retailer distribution centers and move them through our physical network. We also offer fulfillment services, providing pick, pack and ship services for clients through four fulfillment centers co-located within four of our larger parcel sortation centers to facilitate same-day entry into our parcel delivery network.
Cross-border services offers a range of services for our clients to choose from to manage their international shopping and shipping experience. Our proprietary technology enables global tracking and logistics services; calculates duty, tax and shipping costs at checkout; enables multi-currency pricing, payment processing and fraud management; ensures compliance with product restrictions and produces all documentation requirements to meet export complexities and customs clearance.
Digital delivery services enables clients to reduce transportation and logistics costs, select the best carrier based on need and cost, improve delivery times and track packages in real-time. Powered by our shipping APIs, clients can purchase postage, print shipping labels and access shipping and tracking services from multiple carriers that can be easily integrated into any web application such as online shopping carts or ecommerce sites and provide guaranteed delivery times and flexible payment options.
Presort Services
We are the largest workshare partner of the USPS and national outsource provider of mail sortation services that allow clients to qualify large volumes of First-Class Mail, Marketing Mail and Marketing Mail Flats and Bound Printed Matter for postal workshare discounts. In 2022, we processed over 16 billion pieces of mail through our network of operating centers throughout the United States. Using our fully-customized proprietary technology, we provide clients with end-to-end solutions from pick up to delivery into the postal system network, expedited mail delivery and optimal postage savings.
Sending Technology Solutions (SendTech Solutions)
We provide clients with physical and digital mailing and shipping technology solutions and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats. We also offer supplies and maintenance services for these offerings. Our cloud enabled infrastructure provides software-as-a-service (SaaS) offerings delivered online and via connected or mobile devices. Our latest offerings are designed on an open platform architecture that have the capabilities to leverage partnerships with carriers, developers and other innovative companies to deliver value to our clients. We offer financing alternatives that enable clients to finance equipment and product purchases.
Through our wholly owned subsidiary, The Pitney Bowes Bank (the Bank), we offer our clients in the United States a revolving credit solution that enables them to purchase postage, services and supplies and an interest-bearing deposit solution to clients who prefer to prepay postage. Additionally, we offer financing alternatives that enable clients to finance or lease other manufacturers’ equipment and provide working capital. We provide revolving credit solutions to clients in Canada and the U.K. that enable them to make meter rental payments and purchase postage, services and supplies.
Seasonality
A larger percentage of our revenue is earned in the fourth quarter relative to the other quarters, driven primarily by higher shipping volumes during the holiday season.
Sales and Services
We market our products, solutions and services through a direct and inside sales force, global and regional partner channels, direct mailings and digital channels. We provide call-center, online and on-site support services for our products and solutions. Support services are primarily provided under maintenance contracts.
Competition
Our businesses face competition from large, multinational companies and smaller, more narrowly focused regional and local firms. We compete on the basis of technology and innovation, breadth of product offerings, our ability to design and tailor targeted solutions to meet client needs, performance, service and support, price, quality and brand.
We must continue to invest in our current technologies, products and solutions, and in the development of new technologies, products and solutions in order to maintain and improve our competitive position. We frequently encounter new competitors as the markets in which we participate evolve and newer businesses enter our existing markets.
A summary of the competitive environment for each of our segments is as follows:
Global Ecommerce
The domestic parcel services and cross-border solutions market includes competitors of various sizes, including companies and national posts with greater financial resources than us. Some of these competitors specialize in point solutions or freight forwarding services, are full-service ecommerce business process outsourcers and online marketplaces with international logistic support, or major global delivery services companies. We also face competition from companies that can offer both domestic and cross-border solutions in a single package which creates pricing leverage. The principal competitive factors include speed of delivery, price, ease of integration and use, innovative services, reliability, functionality and scalability. We compete based on the accuracy, reliability and scalability of our platform and logistics services, our ability to provide clients and their customers a one-stop full-service ecommerce experience and the ability to provide a more customized shipping solution than some of the larger competitors in the industry.
Our digital delivery services business competes with technology providers who help make shipping easier and more cost-effective. These technology providers range from large, established companies to smaller companies offering negotiated carrier rates. The principal competitive factors include technology stability and reliability, innovation, access to preferred shipping rates and ease of integration with existing systems.
Presort Services
We face competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services. We also face competition from large mailers that have sufficient volumes and the capability to sort their own mailings in-house and could use excess capacity to offer presort services to others. The principal competitive factors include price, innovative service, delivery speed, tracking and reporting, industry expertise and economies of scale. Our competitive advantages include our extensive network of presort facilities capable of processing significant volumes and our innovative proprietary technology that provides clients with reliable, secure and precise services and maximum postage discounts.
Sending Technology Solutions
We face competition from other mail equipment and solutions providers and those that offer online shipping and mailing products and services solutions. Additionally, the growth of alternative communication methods as compared to physical mail continue to grow, which creates competition to mail and also to our offerings that enable clients to use the mail efficiently. We differentiate ourselves from our competitors through our breadth of physical and digital offerings, including cloud enabled SaaS and open platform architecture offerings; pricing; available financing and payment offerings; product reliability; support services; and our extensive knowledge of the shipping and mailing industry.
Our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks, as well as small, specialized firms. We believe our competitive advantage that differentiates us from our competitors is the breadth of our financing and payment solutions and our ability to seamlessly integrate these solutions into our clients' shipping and mailing operations.
Also see Item 1A. Risk Factors for further details regarding the competition our businesses face.
Research, Development and Intellectual Property
We invest in research and development activities to develop new products and solutions, enhance the effectiveness and functionality of existing products and solutions and deliver high value technology and differentiated services in high value segments of the market.
Third-Party Suppliers
Our SendTech Solutions segment depends on third-party suppliers and outsource providers for a variety of services and product components and the hosting of our SaaS offerings. Our Global Ecommerce and Presort Services segments rely on third party suppliers
to help equip our facilities, provide warehouse support and assist with our logistical operations. All of our businesses and corporate functions depend on third-party providers for a variety of data analytics, sales, reporting and other functions. In certain instances, we rely on single-sourced or limited-sourced suppliers and outsourcing vendors around the world because doing so is advantageous due to quality, price or lack of alternative sources. We have risk mitigation programs to monitor conditions affecting our suppliers' ability to fulfill expected commitments. We believe that our available sources for services, components, supplies, logistics and manufacturing are adequate.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide related to product specifications of our postage meters. Our Presort Services segment is also subject to regulations of the USPS. The Bank is chartered as an Industrial Bank under the laws of the State of Utah. The Bank and certain company affiliates that provide services to the Bank are subject to the regulations of the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation. We are also subject to transportation regulations for various parts of our business, customs and trade regulations worldwide related to our cross-border shipping services and regulations concerning data privacy and security for our businesses that use, process and store certain personal, confidential or proprietary data.
Climate Change
Although climate change has had no material impact on our operations to date, the risk of increasingly severe climate events or the risk that those events happen more frequently could affect one or more of our facilities and our ability to conduct daily operations in the future. Increasing regulatory restrictions in response to climate change could also materially affect our costs, especially with respect to transportation.
Human Capital
Employee Profile
We have approximately 11,000 employees, with 81% located in the United States. We also rely on a contingent hourly workforce to supplement our full-time workforce to meet fluctuating demand.
We seek to create a high-performance culture that will drive and sustain enhanced value for all our stakeholders. To attract, retain and engage the talent needed, we provide competitive compensation and strive to maintain a diverse, inclusive and safe workplace, with equitable opportunities for growth and development. Our compensation programs are designed to reward performance and contribution. We regularly assess the business environments and labor markets in the areas we operate to ensure our compensation programs reflect best practices and are market competitive. Depending on position and level, elements of our compensation packages include base salary or wages, variable compensation based on individual and company objectives and equity. We provide a competitive benefits package fostered on work/life balance, including medical, dental, life and disability insurance, and benefits that provide additional support for our employees’ mental, physical, financial and social well being.
Diversity and Inclusion
Maintaining a diverse workforce and an inclusive environment is critical to our success and we view diversity and inclusion as a competitive differentiator that helps us attract, grow, engage and retain the best talent. We celebrate a rich mix of countries, cultures, ages, races, ethnicities, gender identities, sexual orientation, abilities, and perspectives that showcase our humanity, differentiate us as individuals and enhance our businesses. Our global workforce is comprised of over 43% women and 35% of our global managers are women. Our U.S. population is nearly 50% people of color and 36% of our U.S. managers are people of color.
We continue to increase diversity and inclusion awareness throughout our company through enhancements and improvements to our talent acquisition processes, cultural awareness training and the creation of allies and mentors to help advance diversity and inclusion in our workforce.
Employee Engagement and Development
We are committed to creating a culture where our employees feel supported and valued. We offer our employees many opportunities to advance their skills, learn new skills and achieve career goals through virtual and in-person development and training programs, professional development initiatives, experiential learning, mentoring and coaching programs and inclusion networks.
Through multiple platforms, we offer employees and candidates varied opportunities to find development opportunities and stay informed about key changes to our business. We also conduct an independent annual employee engagement survey with demonstrated high levels of employee participation. We benchmark our results against our previous year’s performance, as well as against an external database of high-performing organization, with a particular focus on our strategic enablers and implement changes where possible and financially prudent. Each year, we consider the feedback from employees, enhancing our relationship with them.
Health and Safety
We are committed to providing a safe workplace that protects against and limits personal injury and environmental harm. Through regular evaluations of site safety performance, sharing of successes, and creating projects to engage employees in safety improvements, we identify risks, provide guidance and training, review and learn from accidents, and reduce injuries. We also report monthly to both local site management and senior leadership on safety metrics, trends, risks and regulatory activity. Through these efforts and employee engagement, we have experienced seen significant improvements in our total recordable cases and total recordable incident rates since 2019.
Since the inception of the COVID-19 pandemic, we implemented numerous protocols, policies and process changes in our warehouses and offices to ensure the health and safety of our employees, suppliers and the surrounding communities. All our offices and facilities are open to employees; however, we have adopted a flexible workplace strategy in our offices, allowing employees that can work remotely the opportunity to continue to do so. For those employees that report to an office or facility, we continue to place an emphasis on maintaining a high level of performance while ensuring a safe work environment.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto filed with, or furnished to, the SEC, are available, free of charge, through the Investor Relations section of our website at www.investorrelations.pitneybowes.com or from the SEC's website at www.sec.gov, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC. The other information found on our website is not part of this or any other report we file with or furnish to the SEC.
Information About Our Executive Officers
| | | | | | | | | | | | | | | | | | | | |
Name | | Age | | Title | | Executive Officer Since |
Marc B. Lautenbach | | 61 | | President and Chief Executive Officer | | 2012 |
Daniel J. Goldstein | | 61 | | Executive Vice President and Chief Legal Officer and Corporate Secretary | | 2010 |
Christoph Stehmann | | 60 | | Executive Vice President, International Sending Technology Solutions | | 2016 |
Jason C. Dies | | 53 | | Executive Vice President and Group Executive (1) | | 2017 |
Gregg Zegras | | 55 | | Executive Vice President and President, Global Ecommerce | | 2020 |
Ana Maria Chadwick | | 51 | | Executive Vice President and Chief Financial Officer | | 2021 |
James Fairweather | | 51 | | Executive Vice President, Chief Innovation Officer | | 2021 |
(1) Effective January 3, 2023, Mr. Dies was named Executive Vice President and Group Executive. Prior to this, he was Executive Vice President and President, Sending Technology Solutions.
There are no family relationships among the above officers. The above officers have served in various executive positions with the company for at least the past five years except as follows:
Mr. Zegras was appointed Executive Vice President and President, Global Ecommerce in July 2020. He joined the company in 2013 as President, Imagitas. Prior to joining the company, Mr. Zegras held several executive leadership positions, including at NBC Universal, Sharecare and Hearst Entertainment.
Ms. Chadwick joined the company as Executive Vice President and Chief Financial Officer in January 2021. Prior to joining the company, Ms. Chadwick was employed at GE Capital as President and CEO of GE Capital Global Legacy Solutions. Ms. Chadwick spent over 20 years at GE Capital, where she held several executive positions, including Controller of GE Capital Americas and CFO at GE Capital Energy Financial Services.
Mr. Fairweather was appointed Executive Vice President and Chief Innovation Officer in May 2021. Prior to this, he was Senior Vice President and Chief Technology Officer, Commerce Services. He has been a leader in the company's strategic digital transformation and technology initiatives across Design, SaaS, Data Science and Analytics, API Management, Security and Mobility.
ITEM 1A. RISK FACTORS
Our operations face certain risks that should be considered in evaluating our business. We manage and mitigate these risks on a proactive basis, using an enterprise risk management program. Nevertheless, the following risk factors, some of which may be beyond our control, could materially affect our business, financial condition, results of operations, brand and reputation, and may cause future results to be materially different than our current expectations. These risk factors are not intended to be all inclusive.
Mailing and Shipping Industry Risks
The financial condition of the USPS, or the national posts in our other major markets, has affected, and could, in the future affect, the ability of those posts to provide services to us or our clients, which could adversely affect client demand for our offerings and thus our financial performance.
We are dependent on financially viable national posts in the geographic markets where we operate, particularly in the United States. A significant portion of our revenue depends upon the ability of these posts, especially the USPS, to provide competitive mail and package delivery services to our clients and the quality of the services they provide. Their ability to provide high quality service at affordable rates in turn depends upon their ongoing financial strength. Although Congress provided the USPS a measure of relief with the enactment of the Postal Service Reform Act of 2022, the USPS, and national posts in our other major markets, still face financial challenges. If these challenges interfere with these posts’ ability to continue to provide the services they currently provide, our financial performance may be adversely affected.
Our ability to compete in the package shipping market in the United States depends upon certain contractual relationships we have with the USPS and the successful performance of those services.
The USPS is our primary provider for the “last mile” component of our parcel delivery services in the United States. This represents a significant component of our cost in offering these services. If we are unable to receive competitive pricing from the USPS or take advantage of lower cost USPS options, our ability to compete with private carriers and achieve profitable revenue growth may be adversely affected. Our digital delivery options also depend upon certain contractual relationships with the USPS to enable us to offer these services profitably, and the USPS has adjusted the terms of those contracts in the past. Should the USPS make additional changes to how it contracts with us for this service, our profitability could be adversely affected. The quality of service we provide to our clients also depends upon the quality of delivery services received from the USPS. As the ecommerce market continues to evolve, and as the USPS implements changes to its network, if the USPS’ service performance is materially worse than that of the private carriers, we may lose clients to competition and our financial performance may be adversely affected.
We are subject to postal regulations and processes, which could adversely affect our financial performance.
A significant portion of our business is subject to regulation and oversight by the USPS, posts in other major markets, and the governmental bodies that regulate the posts themselves. These postal authorities have the power to regulate some of our current products and services and to establish guidelines for postage rates. They also must approve many of our new or future product and service offerings before we can bring them to market. If our new or future product and service offerings are not approved or there are significant conditions to approval, favorable postage rates are reversed, regulations on our existing products or services are changed, if posts utilize their position in the market or their role as product regulator to limit competition in areas where the posts themselves offer solutions,or if we fall out of compliance with the posts’ regulations, our financial performance could be adversely affected.
If we are not able to respond to the continuing decline in the volume of physical mail delivered via traditional postal services, our financial performance could be adversely affected.
Traditional mail volumes have declined and continue to decline and impact our current and future financial results, primarily within our SendTech Solutions and Presort Services segments. An accelerated or sudden decline could result from one or more of the following factors: changes in communication technologies and their use; changes in frequency and quality of mail delivery from national posts; legislation incentivizing alternative means of communication, burdening mail, or limiting how the mail be used; or pandemics or other external events affecting physical mail delivery. If we are not successful at meeting the continuing challenges faced in our mailing business, or if physical mail volumes were to experience an accelerated or sudden decline, our financial performance could be adversely affected.
Significant changes to the laws regulating the USPS or other posts, or changes in their operating models could have an adverse effect on our financial performance.
As a significant portion of our revenue and earnings is dependent on postal operations, changes in the laws and regulations that affect how posts operate could have an adverse effect on our financial performance. As posts consider new strategies for their operations in
an era of declining mail volumes and increasing package volumes, if we are unable to work with posts to support those strategies, our financial performance could be adversely affected.
Business Operational Risks
We face intense competition in the industries in which we operate.
The markets for our products and services in each of our segments are highly competitive. In our Global Ecommerce segment, we face competition from full-service ecommerce business process outsourcers, online marketplaces, freight forwarders, posts, and major global delivery services companies, including those that can offer both domestic and cross-border solutions in a single package. Our digital delivery business competes with technology providers ranging from large, established companies and national posts to smaller companies offering negotiated carrier rates. If we cannot compete successfully in these markets with, among other things, speed of delivery, price, reliability, functionality and scalability of our platform and logistic services and ease of integration and use, we may lose clients, incur additional costs and suffer from reduced margins, and the financial results of the segment may be adversely affected. Our Presort Services segment faces competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services and large volume mailers that have sufficient volumes and the capability to presort their own mailings in-house and could use excess capacity to offer presort services to others. If we are not able to effectively compete on price, innovative service, delivery speed, tracking and reporting, we may lose clients and the financial results of the segment may be adversely affected. Our Sending Technology Solutions segment faces competition from other mail equipment and solutions providers, companies that offer products and services as alternative means of message communications and those that offer online shipping and mailing products and services solutions. In addition, our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks, as well as small, specialized firms. If we are not able to differentiate ourselves from our competitors or effectively compete with them, the financial results of the segment may be adversely affected.
The evolution of our businesses to more digital and shipping-related services has resulted in a decline in our overall profit margins. If we cannot increase our volumes while at the same time reduce our costs, our overall profitability could be adversely affected.
As our businesses shift to more digital and shipping-related services, the relative revenue contribution from our shipping-related offerings now exceeds that of the revenue from our mailing-related offerings. We expect the revenue contribution from shipping-related services to continue to grow; however, profit margins on these services are lower than those for our mailing-related offerings. As a result, we need to achieve higher dollars of revenue to generate the same dollars of profit that we generate in our mailing businesses. Accordingly, if we cannot continue to grow package volumes, gain additional economies of scale through increasing volumes, lowering our cost per piece and in turn, improve margins and profitability, our short and long-term financial performance may be adversely affected.
Seasonality of the Global Ecommerce segment, unexpected declines in consumer demand or the performance of our retail customers, or unexpected spikes in the costs of labor or transportation, especially during the fourth quarter, could adversely affect our overall performance.
Our Global Ecommerce segment derives the majority of its revenue from retail clients. The retail industry is subject to cyclical trends in consumer sentiment and spending habits that are affected by many factors, including prevailing economic conditions, recession or fears of recession, inflation, exchange rates, unemployment levels, pandemics, or geopolitical events. Our retail clients are also dependent on third party suppliers to provide them with either raw materials or finished goods to meet the demands of their clients. This segment also relies upon the availability of labor and transportation at a reasonable cost and unexpected increases in these costs due to higher demand or other macroeconomic factors (which have occurred in the past) could also impact the financial results of Global Ecommerce. Further, Global Ecommerce's financial results are highly dependent on its performance in the fourth quarter, so if any of these risk factors come to pass in that quarter, impact on the segment's performance could be more significant than other points in the year.
The loss of any of our largest clients in our Global Ecommerce segment could adversely affect the financial performance of that segment.
The Global Ecommerce segment receives a large portion of its revenue from a relatively small number of clients and business partners. If any of these larger clients or business partners leave our network or reduce their use of our services, which has occurred in the past, and we are unable to replace that lost volume, it could have a material adverse effect on the revenue and profitability of the segment.
There can be no assurance that our larger clients and business partners will continue to utilize our products or services at current levels, or that we would be able to replace any of these clients or business partners with others who can generate revenue at current levels.
If we fail to effectively manage our third-party suppliers, or if their ability to perform were negatively impacted, our business, financial performance and reputation could be adversely affected.
Our SendTech Solutions segment relies on third-party suppliers for services and components for our mailing equipment, spare parts, supplies and services and for the hosting of our SaaS offerings. We also rely on third-party suppliers to help us equip our Presort and Ecommerce facilities and to provide us with services related to some of our operations and productivity initiatives. In certain instances, we rely on single-sourced or limited-sourced suppliers around the world because of advantages in quality, price or lack of alternative sources. During the past few years, like many other companies, we and our suppliers experienced supply chain interruptions and increased supply costs, due to, among other things, lockdowns associated with COVID-19, disruptions in the container transportation market, volatility in the semiconductor industry, shortage of raw materials such as rubber and resin, threats of rail strikes, rising inflation and geopolitical instability. Although our 2022 financial results were not significantly impacted, these factors, at times, caused us to experience longer wait times for supplies or increased costs. If these supply chain constraints were to worsen or, if other unknown events cause our suppliers to not be able to provide their services, components or equipment to us in a timely manner, or, if the quality of the goods or services received were to deteriorate, our relationship with certain suppliers were to be terminated, or if the costs of using these third parties were to continue to increase and we were not able to find alternate suppliers, we could lose clients, incur significant disruptions in manufacturing and operations and increased costs (including higher freight and re-engineering costs) and delay automation and productivity initiatives in our warehouses.
Fluctuations in transportation costs or disruptions to transportation services in our Global Ecommerce or Presort Services segments could adversely affect client satisfaction or our financial performance.
In addition to our reliance on the USPS, our Global Ecommerce and Presort Services segments rely upon independent third-party transportation service providers to transport a significant portion of our parcel and mail volumes. Some of our providers may also be our competitors. The use of these providers is subject to risks, including our ability to negotiate acceptable terms, increased competition during peak periods, capacity issues, performance problems, extreme weather, natural or man-made disasters, pandemics, increased fuel costs, labor shortages or disputes and other unforeseen difficulties. Given our continued reliance upon these providers, any disruption to the timely supply of these services for any reason, any future unforeseen disruptions affecting these providers, any dramatic increase in the cost of revenue are shownthese services or any deterioration of the performance of these services (each of which we have experienced, at times),have adversely affected or could adversely affect client satisfaction and our financial performance.
Our business depends on our ability to attract, retain, and engage with, employees at a reasonable cost to meet the needs of our business and to consistently deliver highly differentiated, competitive offerings.
The rapid growth of the ecommerce industry has resulted in intense competition for employees in the following tables:shipping, transportation, and logistics industry, including drivers and warehouse employees. At times, both our Global Ecommerce and Presort Services segments have experienced increased demand and competition for labor, especially for our warehouses, driving up costs. We supplement our workforce with contingent hourly workers from staffing agencies on an as-needed basis; however, if we experience labor shortages, do not effectively manage our use of contingent workers, or if our staffing agencies chose to terminate their relationship with us and we cannot find alternative providers, it could result in increased costs and adversely affect our operations. Moreover, given the nature of our Global Ecommerce and Presort Services employee base, if we cannot continue to maintain good relationships with those employees resulting in employee dissatisfaction and turnover, our operating costs could significantly increase, and our operational flexibility could be significantly reduced.
There is also significant competition for the talent needed for research and development of new products and services and talent needed to sell and service our other products and services within all our business units. Increased competition for employees has resulted in higher costs for wages and other benefits necessary to attract and retain employees with the right skill sets. Additional labor costs which may also impact our business include those triggered by regulatory actions; increased health care and workers’ compensation insurance expenses; and costs associated with the health and safety of our employees.
Difficulty in obtaining and protecting our intellectual property, and the risks of infringement claims by others may negatively impact our financial performance.
Our businesses are not materially dependent on any one patent or license or group of related patents and licenses; however, our business success depends in part upon protecting our intellectual property rights, including proprietary technology developed or obtained through acquisitions. We rely on copyrights, patents, trademarks and trade secrets and other intellectual property laws to establish and protect our proprietary rights. If we are unable to protect our intellectual property rights, our competitive position may suffer, which could adversely affect our revenue and profitability. The continued evolution of patent law and the nature of our innovation work may affect the number of patents we are able to receive for our development efforts. As we continue to transition our business to more software and service-based offerings, patent protection of these innovations will be more difficult to obtain. In addition, from time to time, third parties may claim that we, our clients, or our suppliers, have infringed their intellectual property
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| | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | % change |
| Years Ended December 31, | | Actual | | Constant Currency |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Business services | $ | 1,710,801 |
| | $ | 1,566,470 |
| | $ | 1,071,021 |
| | 9 | % | | 46 | % | | 9 | % | | 46 | % |
Support services | 506,187 |
| | 552,472 |
| | 581,474 |
| | (8 | )% | | (5 | )% | | (8 | )% | | (6 | )% |
Financing | 368,090 |
| | 394,557 |
| | 406,395 |
| | (7 | )% | | (3 | )% | | (6 | )% | | (3 | )% |
Equipment sales | 352,104 |
| | 395,652 |
| | 400,704 |
| | (11 | )% | | (1 | )% | | (10 | )% | | (2 | )% |
Supplies | 187,287 |
| | 218,304 |
| | 231,412 |
| | (14 | )% | | (6 | )% | | (13 | )% | | (7 | )% |
Rentals | 80,656 |
| | 84,067 |
| | 93,001 |
| | (4 | )% | | (10 | )% | | (3 | )% | | (10 | )% |
Total revenue | $ | 3,205,125 |
| | $ | 3,211,522 |
| | $ | 2,784,007 |
| | — | % | | 15 | % | | — | % | | 15 | % |
rights. These claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products.
If we fail to comply with government contracting regulations, our financial performance, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities. Government contracts are subject to extensive and complex procurement laws and regulations, along with regular audits and investigations by government agencies. If one or more government agencies discovers contractual noncompliance by us or one of our subcontractors in the course of an audit or investigation, we may be subject to various civil or criminal penalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments received, fines and debarment from doing business with one or more governments. Any of these events could not only affect our financial performance, but also adversely affect our brand and reputation.
We may not fully realize the anticipated benefits of strategic acquisitions and divestitures which may harm our financial performance.
We may make strategic acquisitions or divest certain businesses. These actions may involve significant risks and uncertainties, which could have an adverse effect on our financial performance, including:
•difficulties in achieving anticipated benefits or synergies;
•difficulties in integrating newly acquired businesses and operations, including combining product and service offerings and integrating financial reporting and other IT systems;
•the loss of key employees or clients of businesses acquired or divested;
•significant charges for employee severance and other restructuring costs, legal, accounting and financial advisory fees;
•reducing fixed costs previously associated with divested businesses; and
•possible goodwill and asset impairment charges as divestitures and changes in our business model may adversely affect the recoverability of certain long-lived assets and valuation of our operating segments.
Our capital investments to develop new products and offerings or expand our current operations may not yield the anticipated benefits.
We made and are continuing to make significant capital investments in new products, services, and facilities. If we are not successful in these new product or service introductions at the levels anticipated when making the investments, or our investments in facilities do not yield the expected productivity improvements, there may be an adverse effect on our financial performance.
Cybersecurity and Technology Risks
Our financial performance and our reputation could be adversely affected, and we could be subject to legal liability or regulatory enforcement actions, if we or our suppliers are unable to protect against, or effectively respond to, cyberattacks or other cyber incidents.
We depend on the security of our and our suppliers' information technology systems to support numerous business processes and activities, to service our clients, and to enable consumer transactions and postal services. There are numerous cybersecurity risks to these systems, including individual and group criminal hackers, industrial espionage, denial of service attacks, ransomware and malware attacks, attacks on the software supply chain, and employee errors and/or malfeasance. The risk of cyberattacks has increased in the past year by cyberwarfare in connection with the ongoing Russia/Ukraine conflict, including proliferation of malware from the conflict into systems unrelated to the conflict. These cyber threats are constantly evolving, thereby increasing the difficulty of preventing, detecting, and successfully defending against them. Successful breaches could, among other things, disrupt our operations or result in the unauthorized disclosure, theft and misuse of company, client, consumer and employee sensitive and confidential information, all of which could adversely affect our financial performance. Cybersecurity breaches could result in financial liability to other parties, governmental investigations, regulatory enforcement actions and penalties, and damage to our brand and reputation. Although we maintain insurance coverage relating to cybersecurity incidents, we may incur costs or financial losses that are either not insured against or not fully covered through our insurance.
We have security systems, procedures, and business continuity plans in place and require our suppliers to have them as well. These security systems, procedures, and business continuity plans are designed to ensure the continuous and uninterrupted performance of our information technology systems, protect against unauthorized access to information or disruption to our services, and minimize the impact of, and the time to detect, respond, and recover from a breach should one occur. Despite the protections we have in place, we have suffered cyber-events in the past, like the 2019 and 2020 ransomware attacks that were previously discussed in Item 7 of our Annual Reports for the periods ended December 31, 2019 and December 31, 2020.. In response to these attacks, as well as the constantly evolving cyber threat landscape, we continually implement and update measures to enhance our cybersecurity protections and minimize the impact of any future attack. None of these systems are fool proof and like all companies, intrusions will occur, and have occurred, from time to time. Our goal is to prevent meaningful incursions and minimize the overall impact of those that occur.
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| | | | | | | | | | | | | | | | | | | | |
| Cost of Revenue |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
| $ | | % of revenue | | $ | | % of revenue | | $ | | % of revenue |
Cost of business services | $ | 1,389,569 |
| | 81.2 | % | | $ | 1,233,105 |
| | 78.7 | % | | $ | 770,018 |
| | 71.9 | % |
Cost of support services | 162,300 |
| | 32.1 | % | | 178,495 |
| | 32.3 | % | | 173,555 |
| | 29.8 | % |
Financing interest expense | 44,648 |
| | 12.1 | % | | 44,376 |
| | 11.2 | % | | 46,178 |
| | 11.4 | % |
Cost of equipment sales | 244,210 |
| | 69.4 | % | | 236,160 |
| | 59.7 | % | | 238,062 |
| | 59.4 | % |
Cost of supplies | 49,882 |
| | 26.6 | % | | 60,960 |
| | 27.9 | % | | 66,302 |
| | 28.7 | % |
Cost of rentals | 31,530 |
| | 39.1 | % | | 37,178 |
| | 44.2 | % | | 33,741 |
| | 36.3 | % |
Total cost of revenue | $ | 1,922,139 |
| | 60.0 | % | | $ | 1,790,274 |
| | 55.7 | % | | $ | 1,327,856 |
| | 47.7 | % |
Failure to comply with data privacy and protection laws and regulations could subject us to legal liability and adversely affect our reputation and our financial performance.Our businesses use, process, and store proprietary information and personal, sensitive, or confidential data relating to our business, clients, and employees. Privacy laws and similar regulations in many jurisdictions where we do business require that we take significant steps to safeguard that information, and these laws and regulations continue to evolve. The scope of the laws that may be applicable to us is often uncertain and may be conflicting. In addition, new laws may add a broad array of requirements on how we handle or use information and increase our compliance obligations. For example, the European Union greatly increased the jurisdictional reach of European Law by enacting the General Data Protection Regulation (GDPR), which, among other things, enhanced an individual’s rights with respect to their information. However, ongoing litigation in the European Union on how to comply with GDPR requirements continues to create uncertainty in how to demonstrate compliance, and the outcome of these cases could impact how companies do business in the European Union. In the United States, several states have enacted different laws regarding personal information and privacy that impose significant new requirements on consumer personal information. In some instances (e.g., California), these laws also expand the definition of consumer personal information to include information related to employees and business contacts. Other countries or states may enact laws or regulations in the future that have similar or additional requirements. Although we continually monitor and assess the impact of these laws and regulations, and continually update our systems to protect our data and comply with these laws, their interpretation and enforcement are uncertain, subject to change, and may require substantial costs to monitor and implement. Failure to comply with data privacy and protection laws and regulations could also result in government enforcement actions (which could include substantial civil and/or criminal penalties) and private litigation, which could adversely affect our reputation and financial performance.
If we or our suppliers encounter unforeseen interruptions or difficulties in the operation of our cloud-based applications, our business could be disrupted, our reputation and relationships may be harmed, and our financial performance could be adversely affected.
Our business relies upon the continuous and uninterrupted performance of our and our suppliers' cloud-based applications and systems to support numerous business processes, to service our clients and to support their transactions with their customers and postal services. Our applications and systems, and those of our partners, may be subject to interruptions due to technological errors, system capacity constraints, software errors or defects, human errors, computer or communications failures, power loss, adverse acts of nature and other unexpected events. We have business continuity and disaster recovery plans in place to protect our business operations in case of such events and we also require our suppliers to have the same. Nonetheless, there can be no guarantee that these plans will function as designed. If we are unable to limit interruptions or successfully correct them in a timely manner or at all, it could result in lost revenue, loss of critical data, significant expenditures of capital, a delay or loss in market acceptance of our services and damage to our reputation, brand and relationships, any of which could have an adverse effect on our business and our financial performance.
Macroeconomic and General Regulatory Risks
Periods of difficult economic conditions, other macroeconomic events, or a public health crisis, such as the ongoing global COVID-19 pandemic, could adversely affect our business.
Our operations and financial performance are impacted by the economic conditions in the United States and the other countries where we and our clients do business. Any significant or perceived weakening of these economies, reduction in business confidence or change in business or consumer spending habits, concerns of a domestic or global recession, rising inflation or interest rates, limited availability of credit, or other macroeconomic events, not within our control, may reduce our client’s demand for shipping and mailing products and services (especially in our Global Ecommerce business, which is subject to cyclical trends in consumer sentiment and spending habits) and thus, negatively affect our financial performance. These economic conditions, at times, have arisen and can arise suddenly, and the duration and full impact of such conditions can be difficult to predict. Moreover, while our financial results for the fiscal year 2022 were not significantly impacted by the COVID-19 pandemic, due to variants of the virus that continue to appear, COVID-19, or the emergence of another public health crisis, could also adversely impact our business, financial condition, and results of operations.
Future credit rating downgrades or capital market disruptions could adversely affect our ability to maintain adequate liquidity, provide competitive financing services and to fund various discretionary priorities.
We provide competitive finance offerings and fund discretionary priorities, such as business investments, strategic acquisitions, dividend payments and share repurchases through a combination of cash generated from operations, deposits held at the Bank and access to capital markets. Our ability to access U.S. capital markets and the associated cost of borrowing is dependent upon our credit ratings and is subject to capital market volatility. Given our current credit rating, we may experience reduced financial or strategic flexibility and higher costs when we do access the U.S. capital markets. We maintain a $500 million revolving credit facility that requires we maintain certain financial and nonfinancial covenants.
A significant decline in cash flows, noncompliance with any of the covenants under the revolving credit facility, further credit rating downgrades, material capital market disruptions, significant withdrawals by depositors at the Bank, adverse changes to our industrial
loan charter or an increase in our credit default swap spread could impact our ability to maintain adequate liquidity, which could impact our ability to provide competitive finance offerings, repay or refinance maturing debt, and fund other strategic or discretionary activities, which could adversely affect our operational and financial performance.
Changes in tax rates, laws or regulations could adversely impact our financial results.
We are subject to taxes in the U.S. and in the foreign jurisdictions where we do business. Due to economic and political conditions, tax rates, assessments and enforcement approaches in the U.S. and various foreign jurisdictions have been and may be subject to significant change. In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world could result in a tax expense or benefit. For example, in light of continuing global fiscal challenges, various levels of government and international organizations such as the Organization for Economic Co-operation and Development (OECD) and EU are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. These tax reform efforts, such as the OECD-led Base Erosion and Profit Shifting project (BEPS), are designed as anti-abuse measures, including a global minimum tax. Although some countries have passed tax laws based on findings from the BEPS project, the final nature, timing and extent of any such tax reforms or other legislative or regulatory actions is unpredictable, and it is difficult to assess their overall effect. These changes could increase our effective tax rate and adversely impact our financial results.
Our Global Ecommerce segment is exposed to increased foreign exchange rate fluctuations.
The sales generated from many of our clients who use our cross-border services are exposed to foreign exchange rate fluctuations. Currently, merchants using our cross-border services are located primarily in the U.S. and the U.K. and a majority of consumers making purchases through these platforms are in a limited number of foreign countries. The current strength of the U.S. Dollar relative to currencies in the countries where we do the most business continues to impact our client’s ability to compete internationally as the cost of similar international products improved relative to the cost of U.S. retailer’s products. This in turn, adversely affected Global Ecommerce’s revenue and profitability during 2022. If the strength of the U.S. dollar continues, or if the British Pound were to strengthen relative to other currencies, our retailers may continue to experience a decrease in international sales volumes, which, in turn would adversely affect this segment’s revenue and profitability.
Our operations and financial performance may be negatively affected by changes in trade policies, tariffs and regulations.
Our Global Ecommerce segment is subject to significant trade regulations, taxes, and duties throughout the world. Any changes to these regulations could potentially impose increased documentation and delivery requirements, delay delivery times and subject us to increased costs and additional liabilities, which could adversely affect our financial performance. Within the last four years, the United States increased tariffs for certain goods, which triggered other nations to also increase tariffs on certain of their goods. For our Global Ecommerce segment, tariff increases, or even an environment of uncertainty surrounding trade issues, could reduce demand and adversely affect its financial performance. For our SendTech Solutions segment, increased tariffs resulted in additional costs on certain components used in some of our products.
If we do not keep pace with evolving expectations and regulations in the areas of Environmental, Social and Governance (ESG) and address the potential impact of climate change on our costs and operations, our reputation and results of operations may be adversely affected.
The set of topics incorporated within the term ESG in general, and climate change in particular, cover a range of issues that pose potential risks to our operations. From an environmental perspective, the impact of climate change and a potential increase in extreme weather events may pose risk to the operation of our sortation facilities and the ability to transport mail and packages. The increased focus on alternative energy sources and the need to reduce our carbon footprint over time, could result in higher investments in capital spending and increased operational costs. There are also a series of laws related to product stewardship and waste disposal to which we need to comply. From a “social” perspective, a failure to meet employee expectations around safety and diversity, equity and inclusion could impact our ability to recruit new employees and retain talent. Finally, from a “governance” perspective, if we do not maintain a good governance processes in general or do not satisfy investor stakeholder expectations on ESG, our reputation and attractiveness to portions of the investment community could be adversely affected.
Shareholder Activism Risks
Our business could be negatively affected as a result of shareholder activism.
We value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance. Our board of directors and management team are committed to acting in the best interests of all of our stockholders. There is no assurance that the actions taken by our board and management in seeking to maintain constructive engagement with certain stockholders will be successful.
The company recently received a notice from Hestia Capital Partners, LP (together with its affiliates, “Hestia”) of Hestia’s intention to nominate seven director candidates for election to our board at our 2023 annual meeting of stockholders. Hestia has also made public
statements critical of our board, management and strategy. Responding to Hestia’s actions or potential actions by another activist stockholder could be time-consuming, disrupt our operations and divert the attention of management, our board and our employees. It could also require us to incur substantial legal, communications and other advisory fees and proxy solicitation expenses. Further, we may choose to initiate, or may become subject to, litigation as a result of proposals by activist stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our board of directors and management and could require us to incur significant additional costs.
Additionally, perceived uncertainties as to our future direction as a result of activist stockholders or changes to the composition of our board may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors and/or other activist stockholders and cause concern to our current or potential customers, employees, investors, rating agencies, strategic partners and other constituencies, which could result in lost sales and business opportunities, make it more difficult to attract and retain qualified personnel and business partners and adversely impact our ability to access capital markets at reasonable costs. Further, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease numerous facilities worldwide, including administrative offices, fulfillment centers, parcel operations and mail sortation facilities, service locations, data centers and call centers. Our corporate headquarters is located in Stamford, Connecticut.
Our Global Ecommerce segment leases four fulfillment centers that comprise the majority of our fulfillment operations. Our Global Ecommerce and Presort Services segments conduct parcel operations and mail sortation operations through a network of over 50 operating centers throughout the United States. Our SendTech Solutions segment leases a manufacturing and distribution facility in Indianapolis. This facility is significant as it stores a majority of the SendTech Solutions products, supplies and inventories.
Should any facility be unable to function as intended for an extended period of time, our ability to service our clients and operating results could be impacted.
We conduct our research and development activities in facilities located in Noida and Pune, India, Bielsko-Biala, Poland, Austin, Texas and Shelton, Connecticut. Management believes that our facilities are in good operating condition, materially utilized and adequate for our current business needs.
ITEM 3. LEGAL PROCEEDINGS
See Note 16 Commitments and Contingencies for additional information.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is principally traded on the New York Stock Exchange (NYSE) under the symbol "PBI". At January 31, 2023, we had 12,394 common stockholders of record.
Share Repurchases
We periodically repurchase shares of our common stock to manage the dilution created by shares issued under employee stock plans and for other purposes. During 2022, we repurchased 2.8 million shares of our common stock at an aggregate price of $13 million. We did not repurchase any additional shares of our common stock in 2021 or 2020. At December 31, 2022, we have authorization from our Board of Directors to repurchase up to of $3 million of our common stock.
Stock Performance Graph
Our peer group is comprised of: ACCO Brands Corporation, Bread Financial Holdings, Inc. (formerly Alliance Data Systems Corporation), Avery Dennison Corporation, Cimpress plc, Deluxe Corporation, Diebold Nixdorf, Incorporated, Etsy, Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Hub Group, Inc., NCR Corporation, Overstock.com, Inc., Rockwell Automation, Inc., Ryder System, Inc., Schneider National, Inc., The Western Union Company, W.W. Grainger, Inc. and Xerox Holdings Corporation.
The accompanying graph shows the annual change in the value of a $100 investment in Pitney Bowes Inc., the Standard and Poor's (S&P) SmallCap 600 Composite Index and our peer group over a five-year period assuming the reinvestment of dividends. On a total return basis, a $100 investment on December 31, 2017, in Pitney Bowes Inc., the S&P SmallCap 600 Composite Index and our peer group would have been worth $44, $133, and $111 respectively, on December 31, 2022.
All information is based upon data independently provided to us by Standard & Poor's Corporation and is derived from their official total return calculation. Total return for the S&P SmallCap 600 Composite Index and our peer group is based on market capitalization, weighted for each year. The stock price performance is not necessarily indicative of future stock price performance.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and operating results should be read in conjunction with our risk factors, consolidated financial statements and related notes. This discussion includes forward-looking statements based on management's current expectations, estimates and projections and involves risks and uncertainties. Actual results may differ significantly from those currently expressed. A detailed discussion of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements is outlined under "Forward-Looking Statements" and "Item 1A. Risk Factors" in this Form 10-K. All table amounts are presented in thousands of dollars.
Throughout this discussion, we may refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates sincefrom the prior period under comparison. We believe that excluding the impacts of currency exchange rates provides a better understanding of the underlying revenue performance. Constant currency changecomparison and is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year’syear's exchange rate. Management believes that excluding the impacts of currency exchange rates provides investors a better understanding of the underlying revenue performance. Where constant currency measures are not provided, the actual change and constant currency change are the same.
Business servicesManagement measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, goodwill impairment charges and other items not allocated to a business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and should be read in conjunction with our consolidated results of operations.
Business services revenue increased 9%A discussion of our financial condition and results of operations for the year ended December 31, 2020, can be found under Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in 2019our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 22, 2022.
Overview
Financial Results Summary - Year Ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Years Ended December 31, |
| 2022 | | 2021 | | Actual % change | | Constant Currency % Change |
Business services | $ | 2,249,941 | | | $ | 2,334,674 | | | (4) | % | | (3) | % |
Support services | 438,191 | | | 460,888 | | | (5) | % | | (3) | % |
Financing | 274,508 | | | 294,418 | | | (7) | % | | (5) | % |
Equipment sales | 354,960 | | | 350,138 | | | 1 | % | | 4 | % |
Supplies | 154,186 | | | 159,438 | | | (3) | % | | — | % |
Rentals | 66,256 | | | 74,005 | | | (10) | % | | (9) | % |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | (4) | % | | (3) | % |
| | | | | | | |
Global Ecommerce | $ | 1,576,348 | | | $ | 1,702,580 | | | (7) | % | | (7) | % |
Presort Services | 602,016 | | | 573,480 | | | 5 | % | | 5 | % |
SendTech Solutions | 1,359,678 | | | 1,397,501 | | | (3) | % | | (1) | % |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | (4) | % | | (3) | % |
| | | | | | | | | | | | | | | | | |
| EBIT |
| Years Ended December 31, |
| 2022 | | 2021 | | % change |
Global Ecommerce | $ | (100,308) | | | $ | (98,673) | | | (2) | % |
Presort Services | 82,430 | | | 79,721 | | | 3 | % |
SendTech Solutions | 400,909 | | | 429,415 | | | (7) | % |
Total Segment EBIT | $ | 383,031 | | | $ | 410,463 | | | (7) | % |
Revenue decreased 4% (3% at constant currency) in 2022 compared to 2018. Growth2021 primarily due to a decrease in domestic parcel and shipping solutions volumes contributed 8% of revenue growth and higher volumes at Presort Services contributed 1% of revenue growth.
Cost of business services as a percentage of business services revenue primarily driven by lower Global Ecommerce volumes, lower support services revenue driven by a declining meter population and a shift to cloud-enabled products and lower financing revenue primarily due to lower lease extensions. Global Ecommerce revenue decreased 7%, Presort Services revenue increased 5% and SendTech Solutions revenue declined 3% (1% at constant currency).
Segment EBIT for 2022 decreased 7% compared to 81.2% in 20192021. Global Ecommerce EBIT decreased 2%, primarily due to higher incremental fulfillment costs, investments for growth including new facilities, engineering, and marketing programsoperating expenses and a shiftdecline in the mix of business to fast growing, but lower marginrevenue from cross-border services and digital delivery services, partially offset by lower labor costs resulting from productivity actions.
Businessthe increase in domestic parcel delivery services revenuegross margin. Presort Services EBIT increased 46% in 2018 compared to 2017 primarily due to:
39% from the acquisition of Newgistics;
5% from growth in Global Ecommerce driven by higher revenue from shipping solutions, partially offset by lower cross-border revenue due to lower volumes; and
2% from higher volumes of mail processed in Presort Services.
Cost of business services as a percentage of business services revenue increased to 78.7% in 2018 primarily due to continued investment in Global Ecommerce, higher labor and transportation costs in Commerce Services of $40 million driven by increased competition for labor and transportation resources due to the rapid growth in Ecommerce and $8 million from the launch of a marketing mail pilot program in Presort Services.
Support services
Support services revenue decreased 8% in 2019 compared to 2018 and 5% as reported and 6% at constant currency in 2018 compared to 2017 primarily due to a worldwide decline in our meter population. Cost of support services as a percentage of support services revenue of 32.1% in 2019 was flat compared to the prior year period. Cost of support services as a percentage of support services revenue increased
to 32.3% in 2018 primarily due to the decline in support services revenue.
Financing
Financing revenue decreased 7% as reported and 6% at constant currency in 2019 compared to 2018 and 3% in 2018 compared to 2017 primarily due to a declining portfolio and lower fees.
We allocate a portion of our total cost of borrowing to financing interest expense based on an 8:1 debt to equity leverage ratio, our overall effective interest rate and the average outstanding finance receivables. Financing interest expense as a percentage of financing revenue increased to 12.1% in 2019 compared to 11.2% in 2018 due to a higher effective interest rate. Financing interest expense as a percentage of financing revenue in 2018 of 11.2% was consistent with the prior year period.
Equipment sales
Equipment sales decreased 11% as reported and 10% at constant currency in 2019 compared to 2018, primarily due to lower sales in mailing finishing products and a longer installation period due to a higher mix of solutions sold with our equipment relative to the prior year. Market Exits accounted for 2% of the decline.
Cost of equipment sales as a percentage of equipment sales revenue increased to 69.4% from 59.7% in the prior year period. A charge related to a SendPro C tablet replacement program, trade tariffs and engineering costs adversely impacted equipment sales margins by 2 percentage points, 2 percentage points and 1 percentage point, respectively.
Equipment sales in 2018 were down slightly compared to 2017. Lower sales in the U.S. and U.K. each contributed a 1% decline in revenue. Cost of equipment sales as a percentage of equipment sales revenue of 59.7% was consistent with the prior year.
Supplies
Supplies revenue decreased 14% as reported and 13% at constant currency in 2019 compared to 2018, primarily due to a declining meter population. Market Exits accounted for 4% of the decline. Cost of supplies as a percentage of supplies revenue of 26.6% in 2019 was consistent with the prior year.
Supplies revenue decreased 6% as reported and 7% at constant currency in 2018 compared to 2017, driven by a global decline in installed mailing equipment and postage volumes. Cost of supplies as a percentage of supplies revenue improved to 27.9% in 2018 compared to 28.7% due to a favorable mix of sales.
Rentals
Rentals revenue decreased 4% as reported and 3% at constant currency in 2019 compared to 2018 and 10% in 2018 compared to 2017 primarily due to a declining meter population.
Cost of rentals as a percentage of rentals revenue decreased to 39.1% in 2019 compared to 2018 primarily due to a favorable adjustment to cost of rentals recorded in the third quarter. Cost of rentals as a percentage of rentals revenue increased to 44.2% in 2018 compared to 2017, primarily due to higher scrappingrevenue, partially offset by higher transportation costs. SendTech Solutions EBIT decreased 7%, primarily driven by the decline in revenue and lower margins. Refer to Results of Operations section for further information.
Factors Affecting Comparability
Certain transactions and changes occurred during the year that impact the comparability of our 2022 financial results to the prior periods. These transactions and changes include:
•The sale of our Borderfree cross-border ecommerce solutions business (Borderfree);
•A change in the presentation of revenue for digital delivery services primarily related to our Global Ecommerce business from a gross basis to a net basis due to an adjustment in terms of one of our contracts with the USPS; and
•A refinement in the methodology of allocating transportation costs associated with retiring aging meters.between our Global Ecommerce and Presort Services segments
Effective July 1, 2022, we sold Borderfree, which was reported in our Global Ecommerce segment. Prior year results were not recast to exclude the revenue and expenses from Borderfree. Accordingly, revenue and costs for 2022 include only six months of operations for Borderfree, whereas 2021 includes a full year of operations. Net income of Borderfree was not significant in any period presented.
Selling, generalThe change in revenue presentation became effective October 1, 2022. Accordingly, revenue and administrative (SG&A)cost of revenue for certain digital delivery services for the first nine months of 2022 and full year 2021 are reported as business services revenue and cost of business services, respectively, and beginning for the fourth quarter of 2022, the revenue and cost of revenue for these services are reported on a net basis as business services revenue.
SG&A expense was flatThe refinement to the methodology of allocating transportation costs between Global Ecommerce and Presort Services resulted in 2019 comparedan increase to 2018. SG&A expense decreased 3%, or $27Global Ecommerce EBIT and a corresponding decrease to Presort Services EBIT of approximately $10 million in 2018 compared2022.
Outlook
We expect consolidated revenue growth in 2023 to 2017, despite $51 millionbe flat to a mid-single digit increase, on a comparable basis, and the percentage of incremental expenses from the acquisition of Newgistics. The underlying decrease in SG&A wasEBIT growth to outpace revenue growth, primarily due to lower employee related expenses of $36 million, lower marketing and advertising spend of $34 million, and other operating expense cost reductions as a result of our cost savings initiatives.
Restructuring charges and asset impairments, net
In 2019, restructuring charges and asset impairments, net of $70 million consisted of $24 million of restructuring related charges and $46 million of asset impairment charges. Asset impairment charges primarily includes the write-off of capitalized software costs related to the development of an ERP systemanticipated improvement in profitability in our international markets resultingGlobal Ecommerce segment.
Within Global Ecommerce, we anticipate growth in Domestic Parcel, partially offset by continued softness in our Cross-border operations. We anticipate Domestic Parcel margin and profit improvements from higher volumes and continued productivity improvements from the investments we made in our facilities and network. In 2022, we saw significant productivity improvements in labor, transportation and warehouse operations and expect further improvements in 2023. We expect our cross-border operations to continue to be adversely impacted by a strong U.S. dollar and headwinds from changes in how certain of our international footprint.clients may access cross-border services in 2023 compared to 2022.
Within Presort Services, we expect margin and profit improvements from continued productivity improvements driven by our investments in increased automation and facilities consolidation. Revenue is expected to benefit from growth in Marketing Mail and Bound and Packet Mail and from a full year of volumes from our recent acquisitions, which we expect to offset the impact on revenue from the expected decline in First Class Mail volumes.
In 2018, restructuring chargesSendTech Solutions, we expect revenue growth from new products and asset impairments, net of $26 million consisted of $25 million of restructuringour cloud-enabled shipping solutions to partially offset an expected decline in mailing related chargesrevenues. We expect a stabilization in financing revenue due to new product offerings and $1 million of asset impairment charges. In 2017, restructuring chargesan increasing finance receivable portfolio. Overall segment margins are expected to remain strong.
Certain factors beyond our control could have adverse impacts on our 2023 results including, but not limited to, reduced consumer spending due to inflationary pressures and asset impairments, net of $45 million consisted of $41 million of restructuring related chargesrising prices, higher interest rates, a slow-down in economic activity, higher fuel and $4 million of asset impairment charges.
Other components of net pensiontransportation costs and postretirement cost
As aother adverse geopolitical developments. Inflationary pressures and rising prices could put increase pressure on wages, particularly warehouse and transportation employees, and result of the funded status ofin higher component costs. Higher fuel and freight costs could also adversely impact our pension plans and the factoperations. We expect that most plans have been frozen, we recognized income in 2019. The 2018 amount includes a $32 million charge in connection with the disposition of the Production Mail Business and certain other actions. The amount of other components of net pension and postretirement cost recognized each year will vary based on actuarial assumptions and actual results of our pension plans.
Other expense
Otherinterest expense for 2019 includes a loss of $182023 will be about $30 million from Market Exits, primarily from the write-off of cumulative translation adjustments and a $6 million loss on the early extinguishment of debt. Other expense for 2018 and 2017 represents a loss on the early extinguishment of debt.
Income taxes
The effective tax rate for 2019 includes benefits of $23 million from the release of a foreign valuation allowance and $9 million from the resolution of certain tax examinations. The effective tax rate for 2019 also includes a tax of $3 million on the $18 million book loss from Market Exits, primarilyhigher due to nondeductible basis differences. The effective tax rate for 2018 includes tax benefits of $37 million related to true-ups from the Tax Cutsrecent increases in interest rates and Jobs Act of 2017 and $17 million from the resolution of certain tax examinations. The effective tax rate for 2017 includes provisional tax benefits of $39 million from the Tax Cuts and Jobs Act of 2017 and $30 million from the resolution of tax examinations.additional increases anticipated in 2023.
See Note 15 to the Consolidated Financial Statements for further information.
Income from discontinued operationsDiscontinued operations includes the Software Solutions business, sold in December 2019 and the Production Mail Business, sold in July 2018. See Note 4 to the Consolidated Financial Statements for further information.
Business Segments
Our reportable segments are Global Ecommerce
Domestic parcel services offers retailers a parcel delivery and returns network for end consumers. We operate numerous domestic parcel sortation centers connected by a nationwide transportation network, enabling us to pick up parcels from retailer distribution centers and move them through our physical network. We also offer fulfillment services, providing pick, pack and ship services for clients through four fulfillment centers co-located within four of our larger parcel sortation centers to facilitate same-day entry into our parcel delivery network.
Cross-border services offers a range of services for our clients to choose from to manage their international shopping and shipping experience. Our proprietary technology enables global tracking and logistics services; calculates duty, tax and shipping costs at checkout; enables multi-currency pricing, payment processing and fraud management; ensures compliance with product restrictions and produces all documentation requirements to meet export complexities and customs clearance.
Digital delivery services enables clients to reduce transportation and logistics costs, select the best carrier based on need and cost, improve delivery times and track packages in real-time. Powered by our shipping APIs, clients can purchase postage, print shipping labels and access shipping and tracking services from multiple carriers that can be easily integrated into any web application such as online shopping carts or ecommerce sites and provide guaranteed delivery times and flexible payment options.
Presort Services
We are the largest workshare partner of the USPS and SendTech Solutions. The Commerce Services reporting group comprises Global Ecommerce and Presort Services. The principal products and servicesnational outsource provider of each reportable segment are as follows:
Global Ecommerce: Includes the revenue and related expenses from products andmail sortation services that facilitate domestic retail and ecommerce shipping solutions, including fulfillment and returns, and global cross-border ecommerce transactions.
Presort Services: Includes revenue and related expenses from sortation servicesallow clients to qualify large volumes of First ClassFirst-Class Mail, Marketing Mail and Bound and Packet Mail (MarketingMarketing Mail Flats and Bound Printed Matter)Matter for postal worksharingworkshare discounts. In 2022, we processed over 16 billion pieces of mail through our network of operating centers throughout the United States. Using our fully-customized proprietary technology, we provide clients with end-to-end solutions from pick up to delivery into the postal system network, expedited mail delivery and optimal postage savings.
SendTech Solutions: Includes the revenue and related expenses fromSending Technology Solutions (SendTech Solutions)
We provide clients with physical and digital mailing and shipping technology solutions financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats. We also offer supplies and maintenance services for these offerings. Our cloud enabled infrastructure provides software-as-a-service (SaaS) offerings delivered online and via connected or mobile devices. Our latest offerings are designed on an open platform architecture that have the capabilities to leverage partnerships with carriers, developers and other innovative companies to deliver value to our clients. We offer financing alternatives that enable clients to finance equipment and product purchases.
Through our wholly owned subsidiary, The Pitney Bowes Bank (the Bank), we offer our clients in the United States a revolving credit solution that enables them to purchase postage, services and supplies and an interest-bearing deposit solution to clients who prefer to prepay postage. Additionally, we offer financing alternatives that enable clients to finance or lease other manufacturers’ equipment and provide working capital. We provide revolving credit solutions to clients in Canada and the U.K. that enable them to make meter rental payments and purchase postage, services and supplies.
Seasonality
A larger percentage of our revenue is earned in the fourth quarter relative to the other quarters, driven primarily by higher shipping volumes during the holiday season.
Sales and Services
We market our products, solutions and services through a direct and inside sales force, global and regional partner channels, direct mailings and digital channels. We provide call-center, online and on-site support services for our products and solutions. Support services are primarily provided under maintenance contracts.
Competition
Our businesses face competition from large, multinational companies and smaller, more narrowly focused regional and local firms. We compete on the basis of technology and innovation, breadth of product offerings, our ability to design and tailor targeted solutions to meet client needs, performance, service and support, price, quality and brand.
We must continue to invest in our current technologies, products and solutions, and in the development of new technologies, products and solutions in order to maintain and improve our competitive position. We frequently encounter new competitors as the markets in which we participate evolve and newer businesses enter our existing markets.
A summary of the competitive environment for each of our segments is as follows:
Global Ecommerce
The domestic parcel services and cross-border solutions market includes competitors of various sizes, including companies and national posts with greater financial resources than us. Some of these competitors specialize in point solutions or freight forwarding services, are full-service ecommerce business process outsourcers and online marketplaces with international logistic support, or major global delivery services companies. We also face competition from companies that can offer both domestic and cross-border solutions in a single package which creates pricing leverage. The principal competitive factors include speed of delivery, price, ease of integration and use, innovative services, reliability, functionality and scalability. We compete based on the accuracy, reliability and scalability of our platform and logistics services, our ability to provide clients and their customers a one-stop full-service ecommerce experience and the ability to provide a more customized shipping solution than some of the larger competitors in the industry.
Our digital delivery services business competes with technology providers who help make shipping easier and more cost-effective. These technology providers range from large, established companies to smaller companies offering negotiated carrier rates. The principal competitive factors include technology stability and reliability, innovation, access to preferred shipping rates and ease of integration with existing systems.
Presort Services
We face competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services. We also face competition from large mailers that have sufficient volumes and the capability to sort their own mailings in-house and could use excess capacity to offer presort services to others. The principal competitive factors include price, innovative service, delivery speed, tracking and reporting, industry expertise and economies of scale. Our competitive advantages include our extensive network of presort facilities capable of processing significant volumes and our innovative proprietary technology that provides clients with reliable, secure and precise services and maximum postage discounts.
Sending Technology Solutions
We face competition from other mail equipment and solutions providers and those that offer online shipping and mailing products and services solutions. Additionally, the growth of alternative communication methods as compared to physical mail continue to grow, which creates competition to mail and also to our offerings that enable clients to use the mail efficiently. We differentiate ourselves from our competitors through our breadth of physical and digital offerings, including cloud enabled SaaS and open platform architecture offerings; pricing; available financing and payment offerings; product reliability; support services; and our extensive knowledge of the shipping and mailing industry.
Our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks, as well as small, specialized firms. We believe our competitive advantage that differentiates us from our competitors is the breadth of our financing and payment solutions and our ability to seamlessly integrate these solutions into our clients' shipping and mailing operations.
Also see Item 1A. Risk Factors for further details regarding the competition our businesses face.
Research, Development and Intellectual Property
We invest in research and development activities to develop new products and solutions, enhance the effectiveness and functionality of existing products and solutions and deliver high value technology and differentiated services in high value segments of the market.
Third-Party Suppliers
Our SendTech Solutions segment depends on third-party suppliers and outsource providers for a variety of services and product components and the hosting of our SaaS offerings. Our Global Ecommerce and Presort Services segments rely on third party suppliers
to help equip our facilities, provide warehouse support and assist with our logistical operations. All of our businesses and corporate functions depend on third-party providers for a variety of data analytics, sales, reporting and other functions. In certain instances, we rely on single-sourced or limited-sourced suppliers and outsourcing vendors around the world because doing so is advantageous due to quality, price or lack of alternative sources. We have risk mitigation programs to monitor conditions affecting our suppliers' ability to fulfill expected commitments. We believe that our available sources for services, components, supplies, logistics and manufacturing are adequate.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide related to product specifications of our postage meters. Our Presort Services segment is also subject to regulations of the USPS. The Bank is chartered as an Industrial Bank under the laws of the State of Utah. The Bank and certain company affiliates that provide services to the Bank are subject to the regulations of the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation. We are also subject to transportation regulations for various parts of our business, customs and trade regulations worldwide related to our cross-border shipping services and regulations concerning data privacy and security for our businesses that use, process and store certain personal, confidential or proprietary data.
Climate Change
Although climate change has had no material impact on our operations to date, the risk of increasingly severe climate events or the risk that those events happen more frequently could affect one or more of our facilities and our ability to conduct daily operations in the future. Increasing regulatory restrictions in response to climate change could also materially affect our costs, especially with respect to transportation.
Human Capital
Employee Profile
We have approximately 11,000 employees, with 81% located in the United States. We also rely on a contingent hourly workforce to supplement our full-time workforce to meet fluctuating demand.
We seek to create a high-performance culture that will drive and sustain enhanced value for all our stakeholders. To attract, retain and engage the talent needed, we provide competitive compensation and strive to maintain a diverse, inclusive and safe workplace, with equitable opportunities for growth and development. Our compensation programs are designed to reward performance and contribution. We regularly assess the business environments and labor markets in the areas we operate to ensure our compensation programs reflect best practices and are market competitive. Depending on position and level, elements of our compensation packages include base salary or wages, variable compensation based on individual and company objectives and equity. We provide a competitive benefits package fostered on work/life balance, including medical, dental, life and disability insurance, and benefits that provide additional support for our employees’ mental, physical, financial and social well being.
Diversity and Inclusion
Maintaining a diverse workforce and an inclusive environment is critical to our success and we view diversity and inclusion as a competitive differentiator that helps us attract, grow, engage and retain the best talent. We celebrate a rich mix of countries, cultures, ages, races, ethnicities, gender identities, sexual orientation, abilities, and perspectives that showcase our humanity, differentiate us as individuals and enhance our businesses. Our global workforce is comprised of over 43% women and 35% of our global managers are women. Our U.S. population is nearly 50% people of color and 36% of our U.S. managers are people of color.
We continue to increase diversity and inclusion awareness throughout our company through enhancements and improvements to our talent acquisition processes, cultural awareness training and the creation of allies and mentors to help advance diversity and inclusion in our workforce.
Employee Engagement and Development
We are committed to creating a culture where our employees feel supported and valued. We offer our employees many opportunities to advance their skills, learn new skills and achieve career goals through virtual and in-person development and training programs, professional development initiatives, experiential learning, mentoring and coaching programs and inclusion networks.
Through multiple platforms, we offer employees and candidates varied opportunities to find development opportunities and stay informed about key changes to our business. We also conduct an independent annual employee engagement survey with demonstrated high levels of employee participation. We benchmark our results against our previous year’s performance, as well as against an external database of high-performing organization, with a particular focus on our strategic enablers and implement changes where possible and financially prudent. Each year, we consider the feedback from employees, enhancing our relationship with them.
Health and Safety
We are committed to providing a safe workplace that protects against and limits personal injury and environmental harm. Through regular evaluations of site safety performance, sharing of successes, and creating projects to engage employees in safety improvements, we identify risks, provide guidance and training, review and learn from accidents, and reduce injuries. We also report monthly to both local site management and senior leadership on safety metrics, trends, risks and regulatory activity. Through these efforts and employee engagement, we have experienced seen significant improvements in our total recordable cases and total recordable incident rates since 2019.
Since the inception of the COVID-19 pandemic, we implemented numerous protocols, policies and process changes in our warehouses and offices to ensure the health and safety of our employees, suppliers and the surrounding communities. All our offices and facilities are open to employees; however, we have adopted a flexible workplace strategy in our offices, allowing employees that can work remotely the opportunity to continue to do so. For those employees that report to an office or facility, we continue to place an emphasis on maintaining a high level of performance while ensuring a safe work environment.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto filed with, or furnished to, the SEC, are available, free of charge, through the Investor Relations section of our website at www.investorrelations.pitneybowes.com or from the SEC's website at www.sec.gov, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC. The other information found on our website is not part of this or any other report we file with or furnish to the SEC.
Information About Our Executive Officers
| | | | | | | | | | | | | | | | | | | | |
Name | | Age | | Title | | Executive Officer Since |
Marc B. Lautenbach | | 61 | | President and Chief Executive Officer | | 2012 |
Daniel J. Goldstein | | 61 | | Executive Vice President and Chief Legal Officer and Corporate Secretary | | 2010 |
Christoph Stehmann | | 60 | | Executive Vice President, International Sending Technology Solutions | | 2016 |
Jason C. Dies | | 53 | | Executive Vice President and Group Executive (1) | | 2017 |
Gregg Zegras | | 55 | | Executive Vice President and President, Global Ecommerce | | 2020 |
Ana Maria Chadwick | | 51 | | Executive Vice President and Chief Financial Officer | | 2021 |
James Fairweather | | 51 | | Executive Vice President, Chief Innovation Officer | | 2021 |
(1) Effective January 3, 2023, Mr. Dies was named Executive Vice President and Group Executive. Prior to this, he was Executive Vice President and President, Sending Technology Solutions.
There are no family relationships among the above officers. The above officers have served in various executive positions with the company for at least the past five years except as follows:
Mr. Zegras was appointed Executive Vice President and President, Global Ecommerce in July 2020. He joined the company in 2013 as President, Imagitas. Prior to joining the company, Mr. Zegras held several executive leadership positions, including at NBC Universal, Sharecare and Hearst Entertainment.
Ms. Chadwick joined the company as Executive Vice President and Chief Financial Officer in January 2021. Prior to joining the company, Ms. Chadwick was employed at GE Capital as President and CEO of GE Capital Global Legacy Solutions. Ms. Chadwick spent over 20 years at GE Capital, where she held several executive positions, including Controller of GE Capital Americas and CFO at GE Capital Energy Financial Services.
Mr. Fairweather was appointed Executive Vice President and Chief Innovation Officer in May 2021. Prior to this, he was Senior Vice President and Chief Technology Officer, Commerce Services. He has been a leader in the company's strategic digital transformation and technology initiatives across Design, SaaS, Data Science and Analytics, API Management, Security and Mobility.
ITEM 1A. RISK FACTORS
Our operations face certain risks that should be considered in evaluating our business. We manage and mitigate these risks on a proactive basis, using an enterprise risk management program. Nevertheless, the following risk factors, some of which may be beyond our control, could materially affect our business, financial condition, results of operations, brand and reputation, and may cause future results to be materially different than our current expectations. These risk factors are not intended to be all inclusive.
Mailing and Shipping Industry Risks
The financial condition of the USPS, or the national posts in our other major markets, has affected, and could, in the future affect, the ability of those posts to provide services to us or our clients, which could adversely affect client demand for our offerings and thus our financial performance.
We are dependent on financially viable national posts in the geographic markets where we operate, particularly in the United States. A significant portion of our revenue depends upon the ability of these posts, especially the USPS, to provide competitive mail and package delivery services to our clients and the quality of the services they provide. Their ability to provide high quality service at affordable rates in turn depends upon their ongoing financial strength. Although Congress provided the USPS a measure of relief with the enactment of the Postal Service Reform Act of 2022, the USPS, and national posts in our other major markets, still face financial challenges. If these challenges interfere with these posts’ ability to continue to provide the services they currently provide, our financial performance may be adversely affected.
Our ability to compete in the package shipping market in the United States depends upon certain contractual relationships we have with the USPS and the successful performance of those services.
The USPS is our primary provider for the “last mile” component of our parcel delivery services in the United States. This represents a significant component of our cost in offering these services. If we are unable to receive competitive pricing from the USPS or take advantage of lower cost USPS options, our ability to compete with private carriers and achieve profitable revenue growth may be adversely affected. Our digital delivery options also depend upon certain contractual relationships with the USPS to enable us to offer these services profitably, and the USPS has adjusted the terms of those contracts in the past. Should the USPS make additional changes to how it contracts with us for this service, our profitability could be adversely affected. The quality of service we provide to our clients also depends upon the quality of delivery services received from the USPS. As the ecommerce market continues to evolve, and as the USPS implements changes to its network, if the USPS’ service performance is materially worse than that of the private carriers, we may lose clients to competition and our financial performance may be adversely affected.
We are subject to postal regulations and processes, which could adversely affect our financial performance.
A significant portion of our business is subject to regulation and oversight by the USPS, posts in other major markets, and the governmental bodies that regulate the posts themselves. These postal authorities have the power to regulate some of our current products and services and to establish guidelines for postage rates. They also must approve many of our new or future product and service offerings before we can bring them to market. If our new or future product and service offerings are not approved or there are significant conditions to approval, favorable postage rates are reversed, regulations on our existing products or services are changed, if posts utilize their position in the market or their role as product regulator to limit competition in areas where the posts themselves offer solutions,or if we fall out of compliance with the posts’ regulations, our financial performance could be adversely affected.
If we are not able to respond to the continuing decline in the volume of physical mail delivered via traditional postal services, our financial performance could be adversely affected.
Traditional mail volumes have declined and continue to decline and impact our current and future financial results, primarily within our SendTech Solutions and Presort Services segments. An accelerated or sudden decline could result from one or more of the following factors: changes in communication technologies and their use; changes in frequency and quality of mail delivery from national posts; legislation incentivizing alternative means of communication, burdening mail, or limiting how the mail be used; or pandemics or other external events affecting physical mail delivery. If we are not successful at meeting the continuing challenges faced in our mailing business, or if physical mail volumes were to experience an accelerated or sudden decline, our financial performance could be adversely affected.
Significant changes to the laws regulating the USPS or other posts, or changes in their operating models could have an adverse effect on our financial performance.
As a significant portion of our revenue and earnings is dependent on postal operations, changes in the laws and regulations that affect how posts operate could have an adverse effect on our financial performance. As posts consider new strategies for their operations in
an era of declining mail volumes and increasing package volumes, if we are unable to work with posts to support those strategies, our financial performance could be adversely affected.
Business Operational Risks
We face intense competition in the industries in which we operate.
The markets for our products and services in each of our segments are highly competitive. In our Global Ecommerce segment, we face competition from full-service ecommerce business process outsourcers, online marketplaces, freight forwarders, posts, and major global delivery services companies, including those that can offer both domestic and cross-border solutions in a single package. Our digital delivery business competes with technology providers ranging from large, established companies and national posts to smaller companies offering negotiated carrier rates. If we cannot compete successfully in these markets with, among other things, speed of delivery, price, reliability, functionality and scalability of our platform and logistic services and ease of integration and use, we may lose clients, incur additional costs and suffer from reduced margins, and the financial results of the segment may be adversely affected. Our Presort Services segment faces competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services and large volume mailers that have sufficient volumes and the capability to presort their own mailings in-house and could use excess capacity to offer presort services to others. If we are not able to effectively compete on price, innovative service, delivery speed, tracking and reporting, we may lose clients and the financial results of the segment may be adversely affected. Our Sending Technology Solutions segment faces competition from other mail equipment and solutions providers, companies that offer products and services as alternative means of message communications and those that offer online shipping and mailing products and services solutions. In addition, our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks, as well as small, specialized firms. If we are not able to differentiate ourselves from our competitors or effectively compete with them, the financial results of the segment may be adversely affected.
The evolution of our businesses to more digital and shipping-related services has resulted in a decline in our overall profit margins. If we cannot increase our volumes while at the same time reduce our costs, our overall profitability could be adversely affected.
As our businesses shift to more digital and shipping-related services, the relative revenue contribution from our shipping-related offerings now exceeds that of the revenue from our mailing-related offerings. We expect the revenue contribution from shipping-related services to continue to grow; however, profit margins on these services are lower than those for our mailing-related offerings. As a result, we need to achieve higher dollars of revenue to generate the same dollars of profit that we generate in our mailing businesses. Accordingly, if we cannot continue to grow package volumes, gain additional economies of scale through increasing volumes, lowering our cost per piece and in turn, improve margins and profitability, our short and long-term financial performance may be adversely affected.
Seasonality of the Global Ecommerce segment, unexpected declines in consumer demand or the performance of our retail customers, or unexpected spikes in the costs of labor or transportation, especially during the fourth quarter, could adversely affect our overall performance.
Our Global Ecommerce segment derives the majority of its revenue from retail clients. The retail industry is subject to cyclical trends in consumer sentiment and spending habits that are affected by many factors, including prevailing economic conditions, recession or fears of recession, inflation, exchange rates, unemployment levels, pandemics, or geopolitical events. Our retail clients are also dependent on third party suppliers to provide them with either raw materials or finished goods to meet the demands of their clients. This segment also relies upon the availability of labor and transportation at a reasonable cost and unexpected increases in these costs due to higher demand or other macroeconomic factors (which have occurred in the past) could also impact the financial results of Global Ecommerce. Further, Global Ecommerce's financial results are highly dependent on its performance in the fourth quarter, so if any of these risk factors come to pass in that quarter, impact on the segment's performance could be more significant than other points in the year.
The loss of any of our largest clients in our Global Ecommerce segment could adversely affect the financial performance of that segment.
The Global Ecommerce segment receives a large portion of its revenue from a relatively small number of clients and business partners. If any of these larger clients or business partners leave our network or reduce their use of our services, which has occurred in the past, and we are unable to replace that lost volume, it could have a material adverse effect on the revenue and profitability of the segment.
There can be no assurance that our larger clients and business partners will continue to utilize our products or services at current levels, or that we would be able to replace any of these clients or business partners with others who can generate revenue at current levels.
If we fail to effectively manage our third-party suppliers, or if their ability to perform were negatively impacted, our business, financial performance and reputation could be adversely affected.
Our SendTech Solutions segment relies on third-party suppliers for services and components for our mailing equipment, spare parts, supplies and services and for the hosting of our SaaS offerings. We also rely on third-party suppliers to help us equip our Presort and Ecommerce facilities and to provide us with services related to some of our operations and productivity initiatives. In certain instances, we rely on single-sourced or limited-sourced suppliers around the world because of advantages in quality, price or lack of alternative sources. During the past few years, like many other companies, we and our suppliers experienced supply chain interruptions and increased supply costs, due to, among other things, lockdowns associated with COVID-19, disruptions in the container transportation market, volatility in the semiconductor industry, shortage of raw materials such as rubber and resin, threats of rail strikes, rising inflation and geopolitical instability. Although our 2022 financial results were not significantly impacted, these factors, at times, caused us to experience longer wait times for supplies or increased costs. If these supply chain constraints were to worsen or, if other unknown events cause our suppliers to not be able to provide their services, components or equipment to us in a timely manner, or, if the quality of the goods or services received were to deteriorate, our relationship with certain suppliers were to be terminated, or if the costs of using these third parties were to continue to increase and we were not able to find alternate suppliers, we could lose clients, incur significant disruptions in manufacturing and operations and increased costs (including higher freight and re-engineering costs) and delay automation and productivity initiatives in our warehouses.
Fluctuations in transportation costs or disruptions to transportation services in our Global Ecommerce or Presort Services segments could adversely affect client satisfaction or our financial performance.
In addition to our reliance on the USPS, our Global Ecommerce and Presort Services segments rely upon independent third-party transportation service providers to transport a significant portion of our parcel and mail volumes. Some of our providers may also be our competitors. The use of these providers is subject to risks, including our ability to negotiate acceptable terms, increased competition during peak periods, capacity issues, performance problems, extreme weather, natural or man-made disasters, pandemics, increased fuel costs, labor shortages or disputes and other unforeseen difficulties. Given our continued reliance upon these providers, any disruption to the timely supply of these services for any reason, any future unforeseen disruptions affecting these providers, any dramatic increase in the cost of these services or any deterioration of the performance of these services (each of which we have experienced, at times),have adversely affected or could adversely affect client satisfaction and our financial performance.
Our business depends on our ability to attract, retain, and engage with, employees at a reasonable cost to meet the needs of our business and to consistently deliver highly differentiated, competitive offerings.
The rapid growth of the ecommerce industry has resulted in intense competition for employees in the shipping, transportation, and logistics industry, including drivers and warehouse employees. At times, both our Global Ecommerce and Presort Services segments have experienced increased demand and competition for labor, especially for our warehouses, driving up costs. We supplement our workforce with contingent hourly workers from staffing agencies on an as-needed basis; however, if we experience labor shortages, do not effectively manage our use of contingent workers, or if our staffing agencies chose to terminate their relationship with us and we cannot find alternative providers, it could result in increased costs and adversely affect our operations. Moreover, given the nature of our Global Ecommerce and Presort Services employee base, if we cannot continue to maintain good relationships with those employees resulting in employee dissatisfaction and turnover, our operating costs could significantly increase, and our operational flexibility could be significantly reduced.
There is also significant competition for the talent needed for research and development of new products and services and talent needed to sell and service our other products and services within all our business units. Increased competition for employees has resulted in higher costs for wages and other benefits necessary to attract and retain employees with the right skill sets. Additional labor costs which may also impact our business include those triggered by regulatory actions; increased health care and workers’ compensation insurance expenses; and costs associated with the health and safety of our employees.
Difficulty in obtaining and protecting our intellectual property, and the risks of infringement claims by others may negatively impact our financial performance.
Our businesses are not materially dependent on any one patent or license or group of related patents and licenses; however, our business success depends in part upon protecting our intellectual property rights, including proprietary technology developed or obtained through acquisitions. We rely on copyrights, patents, trademarks and trade secrets and other intellectual property laws to establish and protect our proprietary rights. If we are unable to protect our intellectual property rights, our competitive position may suffer, which could adversely affect our revenue and profitability. The continued evolution of patent law and the nature of our innovation work may affect the number of patents we are able to receive for our development efforts. As we continue to transition our business to more software and service-based offerings, patent protection of these innovations will be more difficult to obtain. In addition, from time to time, third parties may claim that we, our clients, or our suppliers, have infringed their intellectual property
rights. These claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products.
If we fail to comply with government contracting regulations, our financial performance, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities. Government contracts are subject to extensive and complex procurement laws and regulations, along with regular audits and investigations by government agencies. If one or more government agencies discovers contractual noncompliance by us or one of our subcontractors in the course of an audit or investigation, we may be subject to various civil or criminal penalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments received, fines and debarment from doing business with one or more governments. Any of these events could not only affect our financial performance, but also adversely affect our brand and reputation.
We may not fully realize the anticipated benefits of strategic acquisitions and divestitures which may harm our financial performance.
We may make strategic acquisitions or divest certain businesses. These actions may involve significant risks and uncertainties, which could have an adverse effect on our financial performance, including:
•difficulties in achieving anticipated benefits or synergies;
•difficulties in integrating newly acquired businesses and operations, including combining product and service offerings and integrating financial reporting and other IT systems;
•the loss of key employees or clients of businesses acquired or divested;
•significant charges for employee severance and other restructuring costs, legal, accounting and financial advisory fees;
•reducing fixed costs previously associated with divested businesses; and
•possible goodwill and asset impairment charges as divestitures and changes in our business model may adversely affect the recoverability of certain long-lived assets and valuation of our operating segments.
Our capital investments to develop new products and offerings or expand our current operations may not yield the anticipated benefits.
We made and are continuing to make significant capital investments in new products, services, and facilities. If we are not successful in these new product or service introductions at the levels anticipated when making the investments, or our investments in facilities do not yield the expected productivity improvements, there may be an adverse effect on our financial performance.
Cybersecurity and Technology Risks
Our financial performance and our reputation could be adversely affected, and we could be subject to legal liability or regulatory enforcement actions, if we or our suppliers are unable to protect against, or effectively respond to, cyberattacks or other cyber incidents.
We depend on the security of our and our suppliers' information technology systems to support numerous business processes and activities, to service our clients, and to enable consumer transactions and postal services. There are numerous cybersecurity risks to these systems, including individual and group criminal hackers, industrial espionage, denial of service attacks, ransomware and malware attacks, attacks on the software supply chain, and employee errors and/or malfeasance. The risk of cyberattacks has increased in the past year by cyberwarfare in connection with the ongoing Russia/Ukraine conflict, including proliferation of malware from the conflict into systems unrelated to the conflict. These cyber threats are constantly evolving, thereby increasing the difficulty of preventing, detecting, and successfully defending against them. Successful breaches could, among other things, disrupt our operations or result in the unauthorized disclosure, theft and misuse of company, client, consumer and employee sensitive and confidential information, all of which could adversely affect our financial performance. Cybersecurity breaches could result in financial liability to other parties, governmental investigations, regulatory enforcement actions and penalties, and damage to our brand and reputation. Although we maintain insurance coverage relating to cybersecurity incidents, we may incur costs or financial losses that are either not insured against or not fully covered through our insurance.
We have security systems, procedures, and business continuity plans in place and require our suppliers to have them as well. These security systems, procedures, and business continuity plans are designed to ensure the continuous and uninterrupted performance of our information technology systems, protect against unauthorized access to information or disruption to our services, and minimize the impact of, and the time to detect, respond, and recover from a breach should one occur. Despite the protections we have in place, we have suffered cyber-events in the past, like the 2019 and 2020 ransomware attacks that were previously discussed in Item 7 of our Annual Reports for the periods ended December 31, 2019 and December 31, 2020.. In response to these attacks, as well as the constantly evolving cyber threat landscape, we continually implement and update measures to enhance our cybersecurity protections and minimize the impact of any future attack. None of these systems are fool proof and like all companies, intrusions will occur, and have occurred, from time to time. Our goal is to prevent meaningful incursions and minimize the overall impact of those that occur.
Failure to comply with data privacy and protection laws and regulations could subject us to legal liability and adversely affect our reputation and our financial performance.
Our businesses use, process, and store proprietary information and personal, sensitive, or confidential data relating to our business, clients, and employees. Privacy laws and similar regulations in many jurisdictions where we do business require that we take significant steps to safeguard that information, and these laws and regulations continue to evolve. The scope of the laws that may be applicable to us is often uncertain and may be conflicting. In addition, new laws may add a broad array of requirements on how we handle or use information and increase our compliance obligations. For example, the European Union greatly increased the jurisdictional reach of European Law by enacting the General Data Protection Regulation (GDPR), which, among other things, enhanced an individual’s rights with respect to their information. However, ongoing litigation in the European Union on how to comply with GDPR requirements continues to create uncertainty in how to demonstrate compliance, and the outcome of these cases could impact how companies do business in the European Union. In the United States, several states have enacted different laws regarding personal information and privacy that impose significant new requirements on consumer personal information. In some instances (e.g., California), these laws also expand the definition of consumer personal information to include information related to employees and business contacts. Other countries or states may enact laws or regulations in the future that have similar or additional requirements. Although we continually monitor and assess the impact of these laws and regulations, and continually update our systems to protect our data and comply with these laws, their interpretation and enforcement are uncertain, subject to change, and may require substantial costs to monitor and implement. Failure to comply with data privacy and protection laws and regulations could also result in government enforcement actions (which could include substantial civil and/or criminal penalties) and private litigation, which could adversely affect our reputation and financial performance.
If we or our suppliers encounter unforeseen interruptions or difficulties in the operation of our cloud-based applications, our business could be disrupted, our reputation and relationships may be harmed, and our financial performance could be adversely affected.
Our business relies upon the continuous and uninterrupted performance of our and our suppliers' cloud-based applications and systems to support numerous business processes, to service our clients and to support their transactions with their customers and postal services. Our applications and systems, and those of our partners, may be subject to interruptions due to technological errors, system capacity constraints, software errors or defects, human errors, computer or communications failures, power loss, adverse acts of nature and other unexpected events. We have business continuity and disaster recovery plans in place to protect our business operations in case of such events and we also require our suppliers to have the same. Nonetheless, there can be no guarantee that these plans will function as designed. If we are unable to limit interruptions or successfully correct them in a timely manner or at all, it could result in lost revenue, loss of critical data, significant expenditures of capital, a delay or loss in market acceptance of our services and damage to our reputation, brand and relationships, any of which could have an adverse effect on our business and our financial performance.
Macroeconomic and General Regulatory Risks
Periods of difficult economic conditions, other macroeconomic events, or a public health crisis, such as the ongoing global COVID-19 pandemic, could adversely affect our business.
Our operations and financial performance are impacted by the economic conditions in the United States and the other countries where we and our clients do business. Any significant or perceived weakening of these economies, reduction in business confidence or change in business or consumer spending habits, concerns of a domestic or global recession, rising inflation or interest rates, limited availability of credit, or other macroeconomic events, not within our control, may reduce our client’s demand for shipping and mailing products and services (especially in our Global Ecommerce business, which is subject to cyclical trends in consumer sentiment and spending habits) and thus, negatively affect our financial performance. These economic conditions, at times, have arisen and can arise suddenly, and the duration and full impact of such conditions can be difficult to predict. Moreover, while our financial results for the fiscal year 2022 were not significantly impacted by the COVID-19 pandemic, due to variants of the virus that continue to appear, COVID-19, or the emergence of another public health crisis, could also adversely impact our business, financial condition, and results of operations.
Future credit rating downgrades or capital market disruptions could adversely affect our ability to maintain adequate liquidity, provide competitive financing services and to fund various discretionary priorities.
We provide competitive finance offerings and fund discretionary priorities, such as business investments, strategic acquisitions, dividend payments and share repurchases through a combination of cash generated from operations, deposits held at the Bank and access to capital markets. Our ability to access U.S. capital markets and the associated cost of borrowing is dependent upon our credit ratings and is subject to capital market volatility. Given our current credit rating, we may experience reduced financial or strategic flexibility and higher costs when we do access the U.S. capital markets. We maintain a $500 million revolving credit facility that requires we maintain certain financial and nonfinancial covenants.
A significant decline in cash flows, noncompliance with any of the covenants under the revolving credit facility, further credit rating downgrades, material capital market disruptions, significant withdrawals by depositors at the Bank, adverse changes to our industrial
loan charter or an increase in our credit default swap spread could impact our ability to maintain adequate liquidity, which could impact our ability to provide competitive finance offerings, repay or refinance maturing debt, and fund other strategic or discretionary activities, which could adversely affect our operational and financial performance.
Changes in tax rates, laws or regulations could adversely impact our financial results.
We are subject to taxes in the U.S. and in the foreign jurisdictions where we do business. Due to economic and political conditions, tax rates, assessments and enforcement approaches in the U.S. and various foreign jurisdictions have been and may be subject to significant change. In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world could result in a tax expense or benefit. For example, in light of continuing global fiscal challenges, various levels of government and international organizations such as the Organization for Economic Co-operation and Development (OECD) and EU are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. These tax reform efforts, such as the OECD-led Base Erosion and Profit Shifting project (BEPS), are designed as anti-abuse measures, including a global minimum tax. Although some countries have passed tax laws based on findings from the BEPS project, the final nature, timing and extent of any such tax reforms or other legislative or regulatory actions is unpredictable, and it is difficult to assess their overall effect. These changes could increase our effective tax rate and adversely impact our financial results.
Our Global Ecommerce segment is exposed to increased foreign exchange rate fluctuations.
The sales generated from many of our clients who use our cross-border services are exposed to foreign exchange rate fluctuations. Currently, merchants using our cross-border services are located primarily in the U.S. and the U.K. and a majority of consumers making purchases through these platforms are in a limited number of foreign countries. The current strength of the U.S. Dollar relative to currencies in the countries where we do the most business continues to impact our client’s ability to compete internationally as the cost of similar international products improved relative to the cost of U.S. retailer’s products. This in turn, adversely affected Global Ecommerce’s revenue and profitability during 2022. If the strength of the U.S. dollar continues, or if the British Pound were to strengthen relative to other currencies, our retailers may continue to experience a decrease in international sales volumes, which, in turn would adversely affect this segment’s revenue and profitability.
Our operations and financial performance may be negatively affected by changes in trade policies, tariffs and regulations.
Our Global Ecommerce segment is subject to significant trade regulations, taxes, and duties throughout the world. Any changes to these regulations could potentially impose increased documentation and delivery requirements, delay delivery times and subject us to increased costs and additional liabilities, which could adversely affect our financial performance. Within the last four years, the United States increased tariffs for certain goods, which triggered other nations to also increase tariffs on certain of their goods. For our Global Ecommerce segment, tariff increases, or even an environment of uncertainty surrounding trade issues, could reduce demand and adversely affect its financial performance. For our SendTech Solutions segment, increased tariffs resulted in additional costs on certain components used in some of our products.
If we do not keep pace with evolving expectations and regulations in the areas of Environmental, Social and Governance (ESG) and address the potential impact of climate change on our costs and operations, our reputation and results of operations may be adversely affected.
The set of topics incorporated within the term ESG in general, and climate change in particular, cover a range of issues that pose potential risks to our operations. From an environmental perspective, the impact of climate change and a potential increase in extreme weather events may pose risk to the operation of our sortation facilities and the ability to transport mail and packages. The increased focus on alternative energy sources and the need to reduce our carbon footprint over time, could result in higher investments in capital spending and increased operational costs. There are also a series of laws related to product stewardship and waste disposal to which we need to comply. From a “social” perspective, a failure to meet employee expectations around safety and diversity, equity and inclusion could impact our ability to recruit new employees and retain talent. Finally, from a “governance” perspective, if we do not maintain a good governance processes in general or do not satisfy investor stakeholder expectations on ESG, our reputation and attractiveness to portions of the investment community could be adversely affected.
Shareholder Activism Risks
Our business could be negatively affected as a result of shareholder activism.
We value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance. Our board of directors and management team are committed to acting in the best interests of all of our stockholders. There is no assurance that the actions taken by our board and management in seeking to maintain constructive engagement with certain stockholders will be successful.
The company recently received a notice from Hestia Capital Partners, LP (together with its affiliates, “Hestia”) of Hestia’s intention to nominate seven director candidates for election to our board at our 2023 annual meeting of stockholders. Hestia has also made public
statements critical of our board, management and strategy. Responding to Hestia’s actions or potential actions by another activist stockholder could be time-consuming, disrupt our operations and divert the attention of management, our board and our employees. It could also require us to incur substantial legal, communications and other advisory fees and proxy solicitation expenses. Further, we may choose to initiate, or may become subject to, litigation as a result of proposals by activist stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our board of directors and management and could require us to incur significant additional costs.
Additionally, perceived uncertainties as to our future direction as a result of activist stockholders or changes to the composition of our board may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors and/or other activist stockholders and cause concern to our current or potential customers, employees, investors, rating agencies, strategic partners and other constituencies, which could result in lost sales and business opportunities, make it more difficult to attract and retain qualified personnel and business partners and adversely impact our ability to access capital markets at reasonable costs. Further, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease numerous facilities worldwide, including administrative offices, fulfillment centers, parcel operations and mail sortation facilities, service locations, data centers and call centers. Our corporate headquarters is located in Stamford, Connecticut.
Our Global Ecommerce segment leases four fulfillment centers that comprise the majority of our fulfillment operations. Our Global Ecommerce and Presort Services segments conduct parcel operations and mail sortation operations through a network of over 50 operating centers throughout the United States. Our SendTech Solutions segment leases a manufacturing and distribution facility in Indianapolis. This facility is significant as it stores a majority of the SendTech Solutions products, supplies and inventories.
Should any facility be unable to function as intended for an extended period of time, our ability to service our clients and operating results could be impacted.
We conduct our research and development activities in facilities located in Noida and Pune, India, Bielsko-Biala, Poland, Austin, Texas and Shelton, Connecticut. Management believes that our facilities are in good operating condition, materially utilized and adequate for our current business needs.
ITEM 3. LEGAL PROCEEDINGS
See Note 16 Commitments and Contingencies for additional information.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is principally traded on the New York Stock Exchange (NYSE) under the symbol "PBI". At January 31, 2023, we had 12,394 common stockholders of record.
Share Repurchases
We periodically repurchase shares of our common stock to manage the dilution created by shares issued under employee stock plans and for other purposes. During 2022, we repurchased 2.8 million shares of our common stock at an aggregate price of $13 million. We did not repurchase any additional shares of our common stock in 2021 or 2020. At December 31, 2022, we have authorization from our Board of Directors to repurchase up to of $3 million of our common stock.
Stock Performance Graph
Our peer group is comprised of: ACCO Brands Corporation, Bread Financial Holdings, Inc. (formerly Alliance Data Systems Corporation), Avery Dennison Corporation, Cimpress plc, Deluxe Corporation, Diebold Nixdorf, Incorporated, Etsy, Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Hub Group, Inc., NCR Corporation, Overstock.com, Inc., Rockwell Automation, Inc., Ryder System, Inc., Schneider National, Inc., The Western Union Company, W.W. Grainger, Inc. and Xerox Holdings Corporation.
The accompanying graph shows the annual change in the value of a $100 investment in Pitney Bowes Inc., the Standard and Poor's (S&P) SmallCap 600 Composite Index and our peer group over a five-year period assuming the reinvestment of dividends. On a total return basis, a $100 investment on December 31, 2017, in Pitney Bowes Inc., the S&P SmallCap 600 Composite Index and our peer group would have been worth $44, $133, and $111 respectively, on December 31, 2022.
All information is based upon data independently provided to us by Standard & Poor's Corporation and is derived from their official total return calculation. Total return for the S&P SmallCap 600 Composite Index and our peer group is based on market capitalization, weighted for each year. The stock price performance is not necessarily indicative of future stock price performance.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and operating results should be read in conjunction with our risk factors, consolidated financial statements and related notes. This discussion includes forward-looking statements based on management's current expectations, estimates and projections and involves risks and uncertainties. Actual results may differ significantly from those currently expressed. A detailed discussion of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements is outlined under "Forward-Looking Statements" and "Item 1A. Risk Factors" in this Form 10-K. All table amounts are presented in thousands of dollars.
Throughout this discussion, we refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates from the prior period under comparison and is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year's exchange rate. Management believes that excluding the impacts of currency exchange rates provides investors a better understanding of the underlying revenue performance. Where constant currency measures are not provided, the actual change and constant currency change are the same.
Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, assetgoodwill impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.
A discussion of our financial condition and results of operations for the year ended December 31, 2020, can be found under Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 22, 2022.
Overview
Financial Results Summary - Year Ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Years Ended December 31, |
| 2022 | | 2021 | | Actual % change | | Constant Currency % Change |
Business services | $ | 2,249,941 | | | $ | 2,334,674 | | | (4) | % | | (3) | % |
Support services | 438,191 | | | 460,888 | | | (5) | % | | (3) | % |
Financing | 274,508 | | | 294,418 | | | (7) | % | | (5) | % |
Equipment sales | 354,960 | | | 350,138 | | | 1 | % | | 4 | % |
Supplies | 154,186 | | | 159,438 | | | (3) | % | | — | % |
Rentals | 66,256 | | | 74,005 | | | (10) | % | | (9) | % |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | (4) | % | | (3) | % |
| | | | | | | |
Global Ecommerce | $ | 1,576,348 | | | $ | 1,702,580 | | | (7) | % | | (7) | % |
Presort Services | 602,016 | | | 573,480 | | | 5 | % | | 5 | % |
SendTech Solutions | 1,359,678 | | | 1,397,501 | | | (3) | % | | (1) | % |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | (4) | % | | (3) | % |
| | | | | | | | | | | | | | | | | |
| EBIT |
| Years Ended December 31, |
| 2022 | | 2021 | | % change |
Global Ecommerce | $ | (100,308) | | | $ | (98,673) | | | (2) | % |
Presort Services | 82,430 | | | 79,721 | | | 3 | % |
SendTech Solutions | 400,909 | | | 429,415 | | | (7) | % |
Total Segment EBIT | $ | 383,031 | | | $ | 410,463 | | | (7) | % |
Revenue decreased 4% (3% at constant currency) in 2022 compared to 2021 primarily due to a decrease in business services revenue primarily driven by lower Global Ecommerce volumes, lower support services revenue driven by a declining meter population and a shift to cloud-enabled products and lower financing revenue primarily due to lower lease extensions. Global Ecommerce revenue decreased 7%, Presort Services revenue increased 5% and SendTech Solutions revenue declined 3% (1% at constant currency).
Segment EBIT for 2022 decreased 7% compared to 2021. Global Ecommerce EBIT decreased 2%, primarily due to higher operating expenses and a decline in revenue from cross-border services and digital delivery services, partially offset by the increase in domestic parcel delivery services gross margin. Presort Services EBIT increased 3%, primarily due to higher revenue, partially offset by higher transportation costs. SendTech Solutions EBIT decreased 7%, primarily driven by the decline in revenue and lower margins. Refer to Results of Operations section for further information.
Factors Affecting Comparability
Certain transactions and changes occurred during the year that impact the comparability of our 2022 financial results to the prior periods. These transactions and changes include:
•The sale of our Borderfree cross-border ecommerce solutions business segment are presented(Borderfree);
•A change in the tables below.presentation of revenue for digital delivery services primarily related to our Global Ecommerce business from a gross basis to a net basis due to an adjustment in terms of one of our contracts with the USPS; and
•A refinement in the methodology of allocating transportation costs between our Global Ecommerce and Presort Services segments
Effective July 1, 2022, we sold Borderfree, which was reported in our Global Ecommerce segment. Prior year results were not recast to exclude the revenue and expenses from Borderfree. Accordingly, revenue and costs for 2022 include only six months of operations for Borderfree, whereas 2021 includes a full year of operations. Net income of Borderfree was not significant in any period presented.
The change in revenue presentation became effective October 1, 2022. Accordingly, revenue and cost of revenue for certain digital delivery services for the first nine months of 2022 and full year 2021 are reported as business services revenue and cost of business services, respectively, and beginning for the fourth quarter of 2022, the revenue and cost of revenue for these services are reported on a net basis as business services revenue.
The refinement to the methodology of allocating transportation costs between Global Ecommerce and Presort Services resulted in an increase to Global Ecommerce EBIT and a corresponding decrease to Presort Services EBIT of approximately $10 million in 2022.
Outlook
We expect consolidated revenue growth in 2023 to be flat to a mid-single digit increase, on a comparable basis, and the percentage of EBIT growth to outpace revenue growth, primarily due to an anticipated improvement in profitability in our Global Ecommerce segment.
Within Global Ecommerce, we anticipate growth in Domestic Parcel, partially offset by continued softness in our Cross-border operations. We anticipate Domestic Parcel margin and profit improvements from higher volumes and continued productivity improvements from the investments we made in our facilities and network. In 2022, we saw significant productivity improvements in labor, transportation and warehouse operations and expect further improvements in 2023. We expect our cross-border operations to continue to be adversely impacted by a strong U.S. dollar and headwinds from changes in how certain of our clients may access cross-border services in 2023 compared to 2022.
Within Presort Services, we expect margin and profit improvements from continued productivity improvements driven by our investments in increased automation and facilities consolidation. Revenue is expected to benefit from growth in Marketing Mail and Bound and Packet Mail and from a full year of volumes from our recent acquisitions, which we expect to offset the impact on revenue from the expected decline in First Class Mail volumes.
In SendTech Solutions, we expect revenue growth from new products and our cloud-enabled shipping solutions to partially offset an expected decline in mailing related revenues. We expect a stabilization in financing revenue due to new product offerings and an increasing finance receivable portfolio. Overall segment margins are expected to remain strong.
Certain factors beyond our control could have adverse impacts on our 2023 results including, but not limited to, reduced consumer spending due to inflationary pressures and rising prices, higher interest rates, a slow-down in economic activity, higher fuel and transportation costs and other adverse geopolitical developments. Inflationary pressures and rising prices could put increase pressure on wages, particularly warehouse and transportation employees, and result in higher component costs. Higher fuel and freight costs could also adversely impact our operations. We expect that interest expense for 2023 will be about $30 million higher due to the recent increases in interest rates and additional increases anticipated in 2023.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | % change |
| Years Ended December 31, | | Actual | | Constant Currency |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Global Ecommerce | $ | 1,151,510 |
| | $ | 1,022,862 |
| | $ | 552,242 |
| | 13 | % | | 85 | % | | 13 | % | | 85 | % |
Presort Services | 529,588 |
| | 515,795 |
| | 497,901 |
| | 3 | % | | 4 | % | | 3 | % | | 4 | % |
Commerce Services | 1,681,098 |
| | 1,538,657 |
| | 1,050,143 |
| | 9 | % | | 47 | % | | 10 | % | | 46 | % |
SendTech Solutions | 1,524,027 |
| | 1,672,865 |
| | 1,733,864 |
| | (9 | )% | | (4 | )% | | (8 | )% | | (4 | )% |
Total revenue | $ | 3,205,125 |
| | $ | 3,211,522 |
| | $ | 2,784,007 |
| | — | % | | 15 | % | | — | % | | 15 | % |
|
| | | | | | | | | | | | | | | | | |
| EBIT |
| Years Ended December 31, | | % change |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 |
Global Ecommerce | $ | (70,146 | ) | | $ | (32,379 | ) | | $ | (17,899 | ) | | >(100)% |
| | (81 | )% |
Presort Services | 70,693 |
| | 73,768 |
| | 97,506 |
| | (4 | )% | | (24 | )% |
Commerce Services | 547 |
| | 41,389 |
| | 79,607 |
| | (99 | )% | | (48 | )% |
SendTech Solutions | 490,322 |
| | 558,959 |
| | 553,266 |
| | (12 | )% | | 1 | % |
Total segment EBIT | $ | 490,869 |
| | $ | 600,348 |
| | $ | 632,873 |
| | (18 | )% | | (5 | )% |
RESULTS OF OPERATIONSREVENUE AND SEGMENT EBIT
Global Ecommerce
Global Ecommerce includes the revenue increased 13% in 2019 compared to 2018. Growth inand related expenses from domestic parcel volumesservices, cross-border solutions and shipping solutions volumes contributed 9 points and 5 points, respectively; partially offset by a 1 point decline due to lower cross border volumes. EBIT loss in 2019 increased to $70 million from a loss of $32 million in 2018 primarily driven by higher incremental fulfillment costs, investments for growth including new facilities, engineering, and marketing programs and a shift in the mix of business to fast growing, but lower margindigital delivery services. We also estimate that EBIT was adversely impacted by $6 million as a result of the ransomware attack.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Cost of Revenue | | Gross Margin |
| Years Ended December 31, | | Years Ended December 31, | | Years Ended December 31, |
| 2022 | | 2021 | | Actual % change | | Constant Currency % change | | 2022 | | 2021 | | 2022 | | 2021 |
Business services | $ | 1,576,348 | | | $ | 1,702,580 | | | (7) | % | | (7) | % | | $ | 1,440,807 | | | $ | 1,577,628 | | | 8.6 | % | | 7.3 | % |
| | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | |
| Years Ended December 31, | | | | | | | | | | |
| 2022 | | 2021 | | Actual % change | | | | | | | | | | |
Segment EBIT | $ | (100,308) | | | $ | (98,673) | | | (2) | % | | | | | | | | | | |
Global Ecommerce revenue increased 85%decreased 7% in 20182022 compared to 2017. Excluding Newgistics, Global Ecommerce2021. The sale of Borderfree and the change in revenue presentation each contributed a revenue decline of 2%. Lower cross-border services volumes contributed a revenue decline of 5% and lower digital delivery services contributed a revenue decline of 2% compared to the prior year. Offsetting these declines, domestic parcel delivery services contributed revenue growth of 5% compared to the prior year due to pricing actions.
Gross margin increased 13%$11 million in 2022 compared to 2021 and gross margin percentage increased to 8.6% from 7.3% compared to the prior year. Domestic parcel delivery services gross margin increased $59 million over the prior year due to pricing actions, improved warehouse productivity and a $14 million prior year charge reflecting the estimated cost of a price assessment. Cross-border gross margin declined $33 million compared to the prior year period primarily due to the decline in volumes driven by higher revenue from shipping solutions, partially offset by lower cross-border revenuea strong U.S. dollar and the loss of $21 million of gross margin due to lower volumes.the sale of Borderfree. Digital delivery services gross margin declined $18 million compared to the prior year period primarily due to the decline in volumes and revenue.
Segment EBIT for 2022 was a loss in 2018 increased to $32of $100 million compared to a loss of $18$99 million in 20172021. The slight increase in loss was driven by higher operating expenses of $12 million primarily due to higher amortization expenseemployee-related expenses, which more than offset the increase in gross margin of $12 million due to a full year of amortization related to Newgistics and higher transportation and labor costs of $6 million due to increased competition for labor and transportation resources as a result of the rapid growth in Ecommerce, partially offset by higher revenue.$11 million.
Presort Services
Presort Services includes revenue increased 3% in 2019 comparedand related expenses from sortation services to 2018, driven primarily from acquisitions as well as growth in existing clients' volumes. EBIT decreased 4%, or $3 million, in 2019 compared to the prior year primarily due to investmentsqualify large volumes of $10 million to improve profitabilityFirst Class Mail, Marketing Mail, Marketing Mail Flats and higher bad debt expense of $2 million, partially offset by lower labor costs of $13 million resulting from productivity actions. We also estimate that EBIT was adversely impacted by $4 million as a result of the ransomware attack.Bound Printed Matter for postal worksharing discounts.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Cost of Revenue | | Gross Margin |
| Years Ended December 31, | | Years Ended December 31, | | Years Ended December 31, |
| 2022 | | 2021 | | Actual % change | | Constant Currency % change | | 2022 | | 2021 | | 2022 | | 2021 |
Business services | $ | 602,016 | | | $ | 573,480 | | | 5 | % | | 5 | % | | $ | 454,923 | | | $ | 431,382 | | | 24.4 | % | | 24.8 | % |
| | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | |
| Years Ended December 31, | | | | | | | | | | |
| 2022 | | 2021 | | Actual % change | | | | | | | | | | |
Segment EBIT | $ | 82,430 | | | $ | 79,721 | | | 3 | % | | | | | | | | | | |
Presort Services revenue increased 4%5% in 20182022 compared to 20172021. The processing of First Class Mail, Marketing Mail and Marketing Mail Flats and Bound Printed Matter contributed revenue growth of 3%, 1%, and 1%, respectively, primarily due to the impact of pricing actions.
Gross margin increased $5 million and segment EBIT increased $3 million, or 3% in 2022 compared to 2021 primarily due to higher volumes of First Class, Standard Classrevenue from pricing actions and Bound and Packet Mail processed. EBIT decreased 24%productivity improvements driven by investments in 2018 compared to 2017 primarily due toautomation, partially offset by higher labor and transportation costs of $34$23 million driven by increased demand, higher fuel costs and higher allocated costs due to increased competition for labor andthe revised transportation resources and $8 million from the launch of a marketing mail pilot program.cost allocation methodology. Gross margin percentage in 2022 was consistent with 2021.
SendTech Solutions
SendTech Solutions includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Cost of Revenue | | Gross Margin |
| Years Ended December 31, | | Years Ended December 31, | | Years Ended December 31, |
| 2022 | | 2021 | | Actual % change | | Constant Currency % change | | 2022 | | 2021 | | 2022 | | 2021 |
Business services | $ | 71,578 | | | $ | 58,614 | | | 22 | % | | 23 | % | | $ | 37,272 | | | $ | 25,174 | | | 47.9 | % | | 57.1 | % |
Support services | 438,191 | | | 460,888 | | | (5) | % | | (3) | % | | 147,653 | | | 147,716 | | | 66.3 | % | | 67.9 | % |
Financing | 274,508 | | | 294,418 | | | (7) | % | | (5) | % | | 51,789 | | | 47,059 | | | 81.1 | % | | 84.0 | % |
Equipment sales | 354,960 | | | 350,138 | | | 1 | % | | 4 | % | | 251,916 | | | 251,714 | | | 29.0 | % | | 28.1 | % |
Supplies | 154,186 | | | 159,438 | | | (3) | % | | — | % | | 43,537 | | | 43,980 | | | 71.8 | % | | 72.4 | % |
Rentals | 66,256 | | | 74,005 | | | (10) | % | | (9) | % | | 24,864 | | | 24,427 | | | 62.5 | % | | 67.0 | % |
Total | $ | 1,359,679 | | | $ | 1,397,501 | | | (3) | % | | (1) | % | | $ | 557,031 | | | $ | 540,070 | | | 59.0 | % | | 61.4 | % |
| | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | |
| Years Ended December 31, | | | | | | | | | | |
| 2022 | | 2021 | | Actual % change | | | | | | | | | | |
Segment EBIT | $ | 400,909 | | | $ | 429,415 | | | (7) | % | | | | | | | | | | |
SendTech Solutions revenue decreased 9% as reported and 8%3% (1% at constant currencycurrency) in 20192022 compared to 2018,2021. Support services revenue declined 5% (3% at constant currency) primarily due to:
2% from Market Exits;
2% from lower equipment sales primarily due to lower sales in mailing finishing products and a longer installation period due to a higher mix of solutions sold with our equipment relative to the prior year;
2% from lower support services and 1% from lower supplies due to a declining meter population;population and shift to cloud-enabled products. Financing revenue declined 7% (5% at constant currency) primarily due to lower lease extensions as more clients are deciding to lease new equipment rather than extend leases on existing equipment. Rentals revenue declined 10% (9% at constant currency). Partially offsetting these decreases, business services revenue increased 22% (23% at constant currency) primarily due to growth in subscription services.
1%Gross margin for 2022 decreased $55 million and gross margin percentage decreased to 59% from lower61.4%, primarily due to declines in financing fees.
and support services revenue which have high gross margins. Segment EBIT decreased 12% in 2019 compared to 2018, primarily$29 million, or 7%, due to the decline in revenue and gross profit margins. The decline in margins was primarily due to a charge of $9 million related to a SendPro C tablet replacement program and higher costs of $8 million from trade tariffs. We also estimate that EBIT was adversely impacted by $8 million as a result of the ransomware attack. The EBIT decrease wasmargin, partially offset by lower operating expenses of $55$26 million, fromdue in part, to lower employee-related expenses, lower professional fees, lower credit loss provision and other cost savings initiatives.savings.
SendTech Solutions revenue
CONSOLIDATED EXPENSES
Selling, general and administrative (SG&A)
SG&A expense of $906 million in 2022 decreased 4% in 20182%, or $19 million, compared to 2017 primarily due to:
2% from a decline in support services revenue related to a worldwide decline in our meter population;
1% from lower supplies; and
1% from lower financing revenue.
EBIT increased 1%2021, primarily due to lower employee-related expenses from cost savings initiatives,of $23 million, lower depreciation expense of $7 million, and lower professional fees of $7 million, partially offset by higher travel expenses of $6 million and higher credit card fees of $5 million.
The majority of our SG&A expenses are recorded directly or allocated to our reportable segments. SG&A expenses not recorded directly or allocated to our reportable segments are reported as unallocated corporate expenses. Unallocated corporate expenses primarily represents corporate administrative functions such as finance, marketing, human resources, legal, information technology and innovation.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | Actual % change |
Unallocated corporate expenses | $ | 204,251 | | | $ | 207,774 | | | (2) | % |
Unallocated corporate expenses decreased $4 million in 2022 compared to 2021 primarily driven by lower salaries and variable-compensation expenses of $9 million and lower marketing expenses of $6 million, partially offset by higher pension costs of $5 million and higher travel expenses, rent expense and insurance costs of $2 million each.
Research and development (R&D)
R&D expense decreased 7%, or $3 million in 2022 compared to 2021, primarily due to cost savings, partially offset by higher R&D spending in our SendTech Solutions segment.
Restructuring charges
Restructuring charges, consisting of costs for employee severance and facility closures, were $19 million for each of the declineyears ended December 31, 2022 and 2021. See Note 12 to the Consolidated Financial Statements for further information.
Other components of net pension and postretirement cost
Other components of net pension and postretirement cost for the year ended December 31, 2022, was $4 million compared to $1 million in revenue.2021. The amount of other components of net pension and postretirement cost (income) recognized each year will vary based on actuarial assumptions and actual results of our pension plans. See Note 14 to the Consolidated Financial Statements for further information.
Other (income) expense
Other income for the year ended December 31, 2022, of $22 million consists of a $14 million gain from the sale of our Shelton, Connecticut office building, a $5 million gain from the sale of Borderfree, and a gain of $7 million from deferred proceeds received related to the sale of businesses in prior years, and a charge of $5 million from the early redemption of debt. See Notes 9, 11 and 13 to the Consolidated Financial Statements for further information.
Income taxes
The effective tax rate for 2022 includes a tax benefit of $5 million on the pre-tax gain from the sale of Borderfree as the tax basis was higher than book basis, and a $1 million benefit associated with the 2019 sale of a business. See Note 15 to the Consolidated Financial Statements for further information.
LIQUIDITY AND CAPITAL RESOURCES
We are a "Well-Known Seasoned Issuer" within the meaning of Rule 405 under the Securities Act, which allows us to issue debt securities, preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units in an expedited fashion.
At December 31, 20192022 we had cash, and cash equivalents and short-term investments of $1 billion, of$681 million, which $168includes $182 million was held byat our foreign subsidiaries. Cash held by our foreign subsidiaries are generally used to support the liquidity needs of those subsidiaries. We believe thatOur primary sources of liquidity include existing cash short-termand investments, and cash generated from operations and borrowing capacity under our $500 million revolving credit facility. We currently believe these sources of liquidity will be sufficient to supportfund our current cash needs for at least the next 12 months.
Cash Flow Summary
The change in cash and cash equivalents is as follows: |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Net cash provided by operating activities | $ | 252,207 |
| | $ | 342,879 |
| | $ | 454,158 |
|
Net cash provided by (used in) investing activities | 489,567 |
| | 309,127 |
| | (621,365 | ) |
Net cash (used in) provided by financing activities | (686,640 | ) | | (766,419 | ) | | 367,747 |
|
Effect of exchange rate changes on cash and cash equivalents | 2,046 |
| | (25,381 | ) | | 43,959 |
|
Change in cash and cash equivalents | $ | 57,180 |
| | $ | (139,794 | ) | | $ | 244,499 |
|
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | Increase/(decrease) |
Net cash from operating activities | $ | 175,983 | | | $ | 301,515 | | | $ | (125,532) | |
Net cash from investing activities | (24,269) | | | (155,251) | | | 130,982 | |
Net cash from financing activities | (198,083) | | | (330,371) | | | 132,288 | |
Effect of exchange rate changes on cash and cash equivalents | (16,130) | | | (4,863) | | | (11,267) | |
Change in cash and cash equivalents | $ | (62,499) | | | $ | (188,970) | | | $ | 126,471 | |
Operating activities
Cash flows from operating activities in 2022 declined $126 million compared to 2021, primarily due to growth in our trade and finance receivables which reduced year-over-year cash flow by $100 million. Cash flow from operations decreased $91was also impacted by higher tax payments of $10 million, higher interest payments of $10 million due to increases in variable rates and a postage payment of $14 million in 20192022 related to a 2021 volume-related vendor price adjustment.
Investing activities
Cash flows from investing activities for 2022 improved $131 million compared to 2018,the prior year. Proceeds from the sale of businesses and assets increased $133 million, primarily due to the sale of Borderfree ($95 million) and our Shelton, CT office building ($51 million), and capital expenditures were $59 million lower than the prior year. These improvements were partially offset by increased investments in our financing products of $47 million and net payments of $28 million for the settlement of foreign currency exchange contracts due to increased volatility in foreign exchange rates during 2022. We enter into foreign currency exchange contracts with third-parties to offset the earnings volatility caused by changes in foreign currency exchange rates and the revaluation of intercompany loans denominated in a foreign currency. Although there is minimal impact to our reported earnings, the settlement of these derivative contracts results in cash outflows or inflows.
Financing activities
Cash flows from financing activities for 2022 improved $132 million compared to the prior year primarily due to lower incomenet repayments of $142debt of $126 million and lower premiums and fees paid to refinance debt of $42 million. These improvements were partially offset by lower cash flow from working capital changes in customer deposits at the PB Bank of $19 million and common stock repurchases of $13 million .
Debt Activity
During 2022, we have reduced debt by $124 million, primarily from the redemption of the remaining $90 million of outstanding April 2023 notes, scheduled term loan repayments of $24 million and higher cash from discontinued operationsthe purchase of $17 million. We estimate that the ransomware attack adversely impacted cash flows from operations by $27 million.
Cash flows from operations decreased $111$9 million in 2018 compared to 2017, due to lower cash from continuing operations of $51 million primarily related to changes in working capital and lower cash from discontinued operations of $61 million.
Investing activities
Cash provided by investing activities in 2019 of $490 million primarily included proceeds of approximately $700 from the sale of our Software Solutions business, offset by cash used to fund capital expenditures of $137debt in the open market. Through February 16, 2023, we have purchased an additional $12 million and acquisitions of $22 million. We estimate that the ransomware attack resulted in additional capital expenditures of $2 million.
Cash provided by investing activities in 2018 was $309 million. Sources of cash included gross proceeds of $340 million from the sale of the Production Mail Business and $106 million from investment activities as we liquidated a portion of our investment portfolio to raise cash to supportdebt in the launch ofopen market.
The credit agreement that governs our enhanced third-party financing offerings. Cash was used to fund capital expenditures of $138 million, which included investments in Commerce Services to build new fulfillment and returns distribution facilities and increase automation at our Presort facilities.
In 2017, we used $621 million of cash in investing activities primarily for the acquisition of Newgistics for $471 million and capital expenditures of $118 million.
Financing activities
In 2019, cash used in financing activities of $687 million included the net repayment of debt of $540 million, the repurchase of 18.6 million shares of our common stock for $105 million and common stock dividend payments of $35 million.
In 2018, cash used in financing activities of $766 million included the repayment of $570 million of debt, common stock dividend payments of $140 million and the settlement of a $46 million timing difference between our investing excess cash at the subsidiary level and the funding of an intercompany cash transfer at December 31, 2017.
In 2017, cash provided by financing activities of $368 million included the net issuance of debt of $472 million and common stock dividend payments of $139 million.
Debt and Capitalization
During 2019, we completed a series of transactions to refinance our debt portfolio, including the following:
Repaid the $150 million term loan due November 2019, the remaining balance of the $200 million term loan due September 2020 and the $300 million term loan due December 2020;
Redeemed the $300 million September 2020 Notes;
Secured a new five-year $400 million secured term loan due November 2024 (the 2024 Term Loan); and
Replaced our $1 billion revolving credit facility scheduled to mature in January 2021 with a $500 million secured revolving credit facility that expires in November 2024 (the Credit Facility). As of December 31, 2019, we have not drawn upon the Credit Facility.
In December 2019, we obtained commitments for a five-year $650 millionand term loan,loans contains financial and in February 2020, we obtained lender commitments for an additional $200 million. The combined commitment amount of $850 million is scheduled to mature January 2025 (the 2025 Term Loan). On February 10, 2020, we announced a cash tender offer to purchase up to $950 million aggregate principal amount of the October 2021 Notes, the May 2022 Notes, the April 2023 Notes and the March 2024 Notes (collectively, the Notes). On February 19, 2020, we funded the 2025 Term Loan and will use the net proceeds and the remaining proceeds from the sale of the Software Solutions business to redeem the Notes on or around February 24, 2020. The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly.
The Credit Facility requires that we maintain a Consolidated Adjusted Total Leverage Ratio (as defined in the Credit Facility agreement) and a Consolidated Adjusted Interest Coverage Ratio (as defined in the Credit Facility agreement), and comply with certain other nonfinancialnon-financial covenants. Compliance with covenants is determined at the end of each fiscal quarter. In the event of noncompliance with any of the covenants, borrowings under the Credit Facility, the 2024 Term Loan and the 2025 Term Loan (collectively, the Facilities) may be accelerated (subject to grace periods, as appropriate). At December 31, 2019,2022, we were in compliance with all covenants. For more information oncovenants and there were no outstanding borrowings under the revolving credit facility. In December 2022, we amended our $500 million credit facility to adjust our financial covenants refer to our exhibits.
and provide additional financial flexibility. Borrowings under the Facilitiesrevolving credit facility and term loans are secured by substantially all company assets and the assets of the company.
During 2022, The PB Bank (the Bank), a wholly owned subsidiary, has become a member of the Federal Home Loan Bank (FHLB) of Des Moines. As a member, the Bank has access to certain credit products as a funding source known as "advances." As of our domestic subsidiaries, subjectDecember 31, 2022, the Bank had yet to customary exclusions and limitations set forth in the Credit Facility agreement and other executed loan documents. The Credit Facility agreement contains representations and warranties and affirmative and negative covenants that are usual and customary, including negative covenants that, among other things, limit our ability to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge withapply for any other company, engage in asset sales and make dividends and distributions.advances.
Future Cash Requirements
The 2024 Term Loan bears interest at LIBOR plus 1.75%following table summarizes our known and resets monthly. The interest ratecontractually committed cash requirements at December 31, 20192022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due in |
| Total | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter |
| | | | | | | | | | | | | |
Debt maturities | $ | 2,240 | | | $ | 33 | | | $ | 281 | | | $ | 51 | | | $ | 245 | | | $ | 401 | | | $ | 1,229 | |
| | | | | | | | | | | | | |
Lease obligations | 405 | | | 74 | | | 70 | | | 63 | | | 53 | | | 46 | | | 99 | |
Purchase obligations | 217 | | | 215 | | | 1 | | | 1 | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
Retiree medical payments | 93 | | | 12 | | | 11 | | | 11 | | | 10 | | | 10 | | | 39 | |
Total | $ | 2,955 | | | $ | 334 | | | $ | 363 | | | $ | 126 | | | $ | 308 | | | $ | 457 | | | $ | 1,367 | |
| | | | | | | | | | | | | |
Debt
At December 31, 2022, we have outstanding debt of $2.2 billion. Approximately 65% of this debt is at fixed rates, including the effect of interest rate swaps, and the remaining 35% is at variable rates. The weighted average interest rate of our variable rate debt at December 31, 2022 was 3.55%7.5%. We estimate that cash interest payments for the next 12 months will be $170 - $180 million.
Interest ratesRequired debt repayments over the next 12 months are $33 million, which we anticipate satisfying through available cash on certain noteshand and cash generated from operations. Our next material principal maturity is in March 2024. We expect to satisfy this obligation with a cost-effective capital market solution, available cash, or revolver access. See Note 13 to the Consolidated Financial Statements for information regarding our debt.
Lease obligations
We lease real estate and equipment under operating and capital lease arrangements. These leases have terms of up to 15 years and include renewal options. Lease obligations in the table above do not include $53 million of payments for leases signed but not yet commenced at December 31, 2022. See Note 8 and Note 17 to the Consolidated Financial Statements for further information.
Purchase obligations
Purchase obligations include unrecorded agreements to purchase goods and services that are subjectenforceable and legally binding upon us and that specify all significant terms, including fixed or minimum quantities to adjustmentbe purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable without penalty.
In addition to the above known and contractually committed cash payments, we anticipate using cash for the following items:
Capital Expenditures
We will continue to invest in new solutions and services across our businesses to capitalize on market opportunities, and in our facilities and technology to grow our businesses, improve productivity and gain additional economies of scale. Capital expenditures are evaluated and approved by senior leadership based on changesseveral factors, including expected impacts on revenue growth, productivity enhancements, service improvements and cost savings.
Capital expenditures totaled $125 million and $184 million for the years ended December 31, 2022 and 2021, respectively. In 2021, we invested significantly in our credit ratings. In April 2019, Moody's lowered our corporate credit rating from Ba1facilities, network and technologies to Ba2 resulting in a 25 basis point increase in the interest ratesexpand operations, improve productivity and gain economies of the May 2022 notes, September 2020 notes, October 2021 notes and April 2023 notes. In connection with the issuance of the secured 2024 Term Loan in November 2019, Moody's and Standard and Poor's (S&P) lowered the credit rating of our unsecured notes to Ba3/BB, rated our secured debt at Ba1/BBB- and reaffirmed our corporate rating of Ba2/BB+. As a result of the change in the credit rating of our unsecured notes, the interest rates on the October 2021 notes, May 2022 notes and April 2023 notes will increase an additional 50 basis points in the second quarter of 2020.
Interest rates on secured borrowings under the Facilities, and any additional term loans we may secure under the Credit Facility are determined based on LIBOR, which is expected to be phased out after 2021. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR. We have included languagescale in our credit documentsGlobal Ecommerce and Presort operations. During 2022, we continued to address the transition from LIBOR to an alternative rate; however, there are many uncertainties about this transition at this timemake necessary investments in our facilities, network and no assurances can be given that the transition to an alternate rate will not increase our cost of debt that could adversely affect our financial performance.technologies.
Dividends
We have historically paid a total of $2.3 billion of debt maturing within the next five years. We fully expect to be able to fund these maturities with cash or by refinancing through the U.S. capital markets. However, our ability to access the U.S. capital markets is dependent upon our credit ratings and is subject to capital market volatility. Given our current credit rating, we may experience reduced flexibility and higher costs when we access the U.S. capital markets.
In June 2019, we redeemed all outstanding shares of the 4% Convertible Cumulative Preferred Stock and the $2.12 Convertible Preference Stock.
During 2019, we returned a total of $140 millionquarterly dividend to our shareholders through the repurchase of 18.6 million shares of our common stock for $105 million and the payment of common stock dividends of $35 million. At December 31, 2019, we have remaining authorization to repurchase up to $16 million of our common stock; however, do not expect to utilize this authorization within the next 12 months.shareholders. Each quarter, our Board of Directors considers our recent and projected earnings and other capital needs and priorities in deciding whether to approve a dividend. We expect to continue to pay a quarterly dividend of $0.05 per share; however, our Board of Directors may decide to increase or decrease this amount or to not approve the payment of a dividend at any time and for any reason without notice. Assuming the current $0.05 per quarter dividend payment, we estimate that dividend payments will be approximately $35 million in 2023. There are no material restrictions on our ability to declare dividends.
For discussion
Share Repurchases
We may repurchase shares of our 2018 Debtcommon stock to manage the dilution created by shares issued under employee stock plans and Capitalization, refer to our Annual Report on Form 10-K filed with the SEC on February 20, 2019.
Contractual Obligations
The following table summarizes our known contractual obligations at for other purposes. At December 31, 2019 and the effect that such obligations are expected2022, we have authorization from our Board of Directors to have onrepurchase up to of $3 million of our liquidity and cash flow in future periods (in millions):common stock.
|
| | | | | | | | | | | | | | | | | | | |
| Payments due in |
| Total | | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 |
Debt maturities | $ | 2,766 |
| | $ | 20 |
| | $ | 1,050 |
| | $ | 1,235 |
| | $ | 461 |
|
Interest payments on debt (1) | 1,029 |
| | 137 |
| | 230 |
| | 121 |
| | 541 |
|
Noncancelable operating lease obligations | 272 |
| | 48 |
| | 76 |
| | 50 |
| | 98 |
|
Purchase obligations (2) | 163 |
| | 160 |
| | 3 |
| | — |
| | — |
|
Pension plan contributions (3) | 19 |
| | 19 |
| | — |
| | — |
| | — |
|
Retiree medical payments (4) | 126 |
| | 16 |
| | 30 |
| | 26 |
| | 54 |
|
Total | $ | 4,375 |
| | $ | 400 |
| | $ | 1,389 |
| | $ | 1,432 |
| | $ | 1,154 |
|
| |
(1) | Assumes all debt is held to maturity. |
| |
(2) | Includes unrecorded agreements to purchase goods and services that are enforceable and legally binding upon us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. |
| |
(3) | Represents the contributions we anticipate making to our pension plans during 2020. We will assess our funding alternatives as the year progresses and this amount is subject to change. |
| |
(4) | Our retiree health benefit plans are unfunded plans and cash contributions are made to cover medical claims. The amounts reported in the above table represent our estimate of future payments. |
The amount and period of future payments related to our income tax uncertainties cannot be reliably estimated and are not included in the above table. See Note 15 to the Consolidated Financial Statements for further details.
Off-BalanceOff Balance Sheet Arrangements
At December 31, 2019,2022, we had no off-balance sheet arrangementsapproximately $26 million outstanding letters of credit guarantees with financial institutions that have, or are reasonably likely to have, a material current or future effect onprimarily issued as security for insurance, leases, customs and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our financial condition, resultsobligations, the probability of operations or liquidity.which we believe is remote.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions about certain items that affect the reported amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and liabilities. The accounting policies below have been identified by management as those policies that are most critical to our financial statements due to the estimates and assumptions required. Management believes that the estimates and assumptions used are reasonable and appropriate based on the information available at the time the financial statements were prepared; however, actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a summary of our accounting policies.
Revenue recognition
We derive revenue from multiple sources including the sale and lease of equipment, equipment rentals, financing, support services and business services. Certain transactions are consummated at the same time and can therefore generate revenue from multiple sources. The most common form of these arrangements involveinvolves a sale or noncancelable lease of equipment, meter services and an equipment maintenance agreement. We are required to determine whether each product and service within the contract should be treated as a separate performance obligation (unit of accounting) for revenue recognition purposes. We recognize revenue for performance obligations when control is transferred to the customer. Transfer of control may occur at a point in time or over time, depending on the nature of the contract and the performance obligation.
Revenue is allocated among performance obligations based on relative standalone selling prices (SSP), which are a range of selling prices that we would sell the good or service to a customer on a separate basis. SSP are established for each performance obligation at the inception of the contract and can be observable prices or estimated. Revenue is allocated to the meter service and equipment maintenance agreement elements using their respective observable selling prices charged in standalone and renewal transactions. For sale and lease transactions, the SSP of the equipment is based on a range of observable selling prices in standalone transactions. We recognize revenue on non-lease transactions when control of the equipment transfers to the customer, which is upon delivery for customer installable models and upon installation or customer acceptance for other models. We recognize revenue on equipment for lease transactions upon shipment for customer installable models and upon installation or customer acceptance for other models.
Pension benefitsImpairment review
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or sooner if circumstances indicate an impairment may exist. The calculationimpairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit exceeds the carrying value of the net periodic pension expenseassets assigned to that reporting unit, goodwill is not impaired, If the fair value of the reporting unit is less than the carrying value of the net assets assigned to the reporting unit, a goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit.
Testing goodwill for impairment requires us to identify our reporting units and determinationassign assets and liabilities, including goodwill, to each reporting unit. The fair value of net pension obligations are dependenta reporting unit is based on assumptionsone or a combination of techniques, which include a discounted cash flow model, multiples of competitors, and/or multiples from sales of like businesses. The results of our annual goodwill impairment test indicated that the fair value of our reporting units exceeded their fair value and estimates relatingno impairment existed.
During 2022, we determined that the agreement to among other things,sell Borderfree was a triggering event and an impairment test was performed as of July 1, 2022. Further, we determined that the discount rate (interest rate usedshortfall in fourth quarter performance of the Global Ecommerce reporting unit was an additional triggering event. Accordingly, we performed another goodwill impairment test as of December 31, 2022 to discountassess whether the future estimated liability) andgoodwill of the expected rate of return on plan assets. These assumptions are evaluated and updated annually.
The discount rate for our largest plan, the U.S. Qualified Pension Plan (the U.S. Plan) and our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan) usedGlobal Ecommerce reporting unit was impaired. We engaged a third-party to assist in the determination of net periodic pension expense for 2019the reporting unit fair value. The fair value was 4.35%estimated using a discounted cash flow model based on management developed cash flow projections, which included judgements and 2.65%, respectively. For 2020,assumptions related to revenue growth rates, operating margins, operating income, and discount rate.
The results of our impairment analysis indicated that the Global Ecommerce reporting unit was not impaired. However, the fair value of the reporting unit exceeded the carrying value by less than 10%. The judgements and assumptions used to estimate the fair value of the reporting unit are inherently subjective and changes in any of the judgements or assumptions used to determine the fair value of this reporting unit at December 31, 2022, could result in a different fair value determination. In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied hypothetical changes to our most significant judgments and assumptions. The most significant judgements and assumptions used in our analysis to determine the fair value of the reporting unit was the discount rate used in the determination of net periodic pension expense for the U.S. Plan and the U.K. Plan will be 3.35% and 1.9%, respectively. A 0.25% changeoperating margins. Assuming all other factors remain constant, a 100 basis point increase in the discount rate or a 100 basis point reduction in operating margins in each year would impact annual pension expense byhave resulted in a reporting unit fair value less than $1 millionits carrying value. The carrying value of goodwill for both the U.S. PlanGlobal Ecommerce reporting unit at December 31, 2022 was $339 million.
Events and circumstances that could change our estimates and assumptions and impact the U.K. Plan, and the projected benefit obligationfair value determination of the U.S. PlanGlobal Ecommerce reporting unit, include, but are not limited to, continued financial and U.K. Planoperating performance below expectations, reduced consumer spending due to inflationary pressures and rising prices, a continued and prolonged slow-down in economic activity, increased competition and pricing pressures, changing consumer behaviors, our ability to increase volumes, gain economies of scale and improve margins, and rising interest rates.
Long-lived and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The estimated future undiscounted cash flows expected to result from the use and eventual disposition of the assets is compared to the carrying value. If the sum of the undiscounted cash flows is less than the asset's carrying value, an impairment charge is recorded for an amount by $42 millionwhich the carrying value exceeds its fair value. The fair value of the impaired asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and $25 million, respectively.
The expected rate of return on plan assets usedappraisals, as appropriate. We derive the cash flow estimates from our long-term business plans and historical experience. Changes in the estimates and assumptions incorporated in our impairment assessment could materially affect the determination of net periodic pension expense for 2019 was 6.75% for the U.S. Plan and 6.25% for the U.K. Plan. For 2020, the expected rate of return on plan assets used in the determination of net periodic pension expense for the U.S. Plan will be 6.25%fair value and the U.K. Plan will be 5.75%. A 0.25% change in the expected rate of return on plan assets would impact annual pension expense for the U.S. Plan by $3 million and the U.K. Plan by $1 million.associated impairment charge.
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized primarily over the life expectancy of plan participants and affect future pension expense. Net pension expense is also based on a market-related valuation of plan assets where differences between the actual and expected return on plan assets are recognized over a five-year period. Plan benefits for participants in a majority of our U.S. and foreign pension plans are frozen.
See Note 14 to the Consolidated Financial Statements for further information about our pension plans.
Residual value of leased assets
Equipment residual values are determined at the inception of the lease using estimates of fair value at the end of the lease term. Residual value estimates impact the determination of whether a lease is classified as an operating lease or a sales-type lease. Fair value estimates of equipment at the end of the lease term are based on historical renewal experience, used equipment markets, competition and technological changes.
We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered "other-than-temporary" are recognized immediately. Increases in estimated future residual values are not recognized until the equipment
is remarketed. If the actual residual value of leased assets were 10% lower than management's current estimates, pre-tax income would be $5 million lower.
Allowances for credit losses and doubtful accounts
Finance receivables are comprised of sales-type lease receivablesleases, secured loans and unsecured revolving loan receivables.loans. We provide an allowance for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay prevailingand current economic conditions and our ability to manage the collateral.
outlook based on reasonable and supportable forecasts. Total allowance for credit losses as a percentage of finance receivables was 2% at both December 31, 20192022 and 2018.2021. Holding all other assumptions constant, a 0.25% changeincrease in the allowance rate at December 31, 20192022 would have reduced pre-tax income by $3 million.
Trade accounts receivable are generally due within 30 days after the invoice date. We provide an allowance for credit losses based on historical loss experience, the age of the receivables, specific troubled accounts and other currently available information. Accounts deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible.uncollectible, or when they are 365 days past due, if sooner. We believe that our accounts receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.
The allowance for doubtful accountscredit losses as a percentage of trade accounts receivables was 5%2% at December 31, 20192022 and 4%3% at December 31, 2018.2021. Holding all other assumptions constant, a 0.25% changeincrease in the allowance rate at December 31, 20192022 would have reduced pre-tax income by $1 million.
Income taxes and valuation allowance
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our annual tax rate is based on income, statutory tax rates, tax reserve changes and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining the annual tax rate and in evaluating our tax positions. We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. We have established tax reserves that we believe are appropriate given the possibility of tax adjustments. Determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax laws. Reserves are adjusted when information becomes available or when an event occurs indicating a change in the reserve is appropriate. Changes in tax reserves could have a material impact on our financial condition or results of operations.
Significant judgment is also required in determining the amount of deferred tax assets that will ultimately be realized and corresponding deferred tax asset valuation allowance. When estimating the necessary valuation allowance, we consider all available evidence for each jurisdiction including historical operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. If new information becomes available that would alter our estimate of the amount of deferred tax assets that will ultimately be realized, we adjust the valuation allowance through income tax expense. Changes in the deferred tax asset valuation allowance could have a material impact on our financial condition or results of operations.
Impairment reviewPension benefits
Long-livedThe calculation of net periodic pension expense and finite-lived intangible assetsdetermination of net pension obligations are revieweddependent on assumptions and estimates relating to, among other things, the discount rate (interest rate used to discount the future estimated liability) and the expected rate of return on plan assets. These assumptions are evaluated and updated annually.
The discount rate for impairment whenever events or changesour largest plan, the U.S. Qualified Pension Plan (the U.S. Plan) and our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan) used in circumstances indicate that the carrying amount may not be fully recoverable. The estimated future undiscounted cash flows expected to result from the use and eventual disposition of the assets is compared to the carrying value. If the sum of the undiscounted cash flows is less than the asset's carrying value, an impairment charge is recorded for an amount by which the carrying value exceeds its fair value. The fair value of the impaired asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and appraisals, as appropriate. We derive the cash flow estimates from our long-term business plans and historical experience. Changes in the estimates and assumptions incorporated in our impairment assessment could materially affect the determination of fair valuenet periodic pension expense for 2022 was 2.85% and 1.85%, respectively. For 2023, the discount rate used in the determination of net periodic pension expense for the U.S. Plan and the associated impairment charge.
Goodwill is tested annually for impairment atU.K. Plan will be 5.55% and 4.8%, respectively. A 0.25% change in the reporting unit level during the fourth quarter or sooner when circumstances indicate an impairment may exist. The impairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recognizeddiscount rate would not materially impact annual pension expense for the difference, not to exceedU.S.
Plan or the carrying amountU.K. Plan. A 0.25% change in the discount rate would impact the projected benefit obligation of goodwill.the U.S. Plan and U.K. Plan by $24 million and $12 million, respectively.
Testing goodwill for impairment requires us to identify our reporting units and assignThe expected rate of return on plan assets and liabilities, including goodwill, to each reporting unit. Significant estimates and assumptions are used in determining the fair valuedetermination of each reporting unitnet periodic pension expense for 2022 was 5.1% for the U.S. Plan and 4.0% for the U.K. Plan. For 2023, the expected rate of return on plan assets used in the determination of net periodic pension expense for the U.S. Plan will be 6.5% and the U.K. Plan will be 5.25%. A 0.25% change in the expected rate of return on plan assets would impact annual pension expense for the U.S. Plan by $3 million and the U.K. Plan by $1 million.
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized primarily over the life expectancy of plan participants and affect future pension expense. Net pension expense is also based on a combinationmarket-related valuation of techniques, includingplan assets where differences between the presentactual and expected return on plan assets are recognized over a five-year period. Plan benefits for participants in a majority of our U.S. and foreign pension plans are frozen.
Residual value of future cash flows, multiples of competitors and multiples from sales of like businesses. The estimates and assumptions used to determine fair valueleased assets
Equipment residual values are based on projections incorporated in our current operating plans, which include estimates and assumptions associated with sales growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporates a risk-adjusted discount rate and other assumptions that market participants
may use. Changes in any of these estimates or assumptions could materially affectdetermined at the determination of fair value and the associated goodwill impairment assessment for each reporting unit. Potential events and circumstances, such as the loss of client contracts, inability to acquire new clients, downward pressures on pricing and rising interest rates could materially impact the determination of a reporting unit's fair value and potentially result in a non-cash impairment charge in future periods.
Based on the operating resultsinception of the Global Ecommerce businesslease using estimates of the equipment's fair value at the end of the third quarter, we performedlease term. Residual value estimates impact the determination of whether a goodwill impairment test to assesslease is classified as an operating lease or a sales-type lease. Fair value estimates of equipment at the recoverabilityend of the carrying value of goodwill and determined that the estimated fair value of the reporting unit exceeded its carrying value by less than 20%. We conducted the goodwill impairment text for all our reporting units during the fourth quarter and determined that the estimated fair values of each reporting unit, with the exception of the Global Ecommerce reporting unit, was substantially in excess of their respective carrying values. The estimated fair value of the Global Ecommerce reporting unit still exceeded its carrying value by less than 20%.
The carrying value of goodwill for the Global Ecommerce reporting unit at December 31, 2019 was $609 million. We will continue to monitor and evaluate the carrying value of goodwill for this reporting unit, and should facts and circumstances change, a non-cash impairment charge could be recorded in the future.
Stock-based compensation expense
We recognize compensation cost for stock-based awards based on the estimated fair value of the award on the grant date. The fair value of certain stock awards is determined using a Black-Scholes valuation model or Monte Carlo simulation model. These models require assumptions regarding the expected stock price volatility, risk-free interest rate, expected life of the award and dividend yield. The expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S. Treasuries with alease term equal to the expected life of the stock award. The expected life of the award and dividend yield are based on historical experience.renewal experience, used equipment markets, competition and technological changes.
We believe thatevaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered "other-than-temporary" are recognized immediately. Increases in estimated future residual values are not recognized until the valuation techniques and the underlying assumptions are appropriate in determining the fair value of stock-based awards. If factors change causing our assumptions to change, our stock-based compensation expense could be different in the future. In addition, we estimate an expected forfeiture rate and recognize expense only for those shares expected to vest.equipment is remarketed. If the actual forfeiture rate is different from our estimate, stock-based compensation expense recorded in the period could be adversely impacted.
Restructuring
Costs associated with restructuring actions primarily include employee severance and other employee separation costs. Certain costs associated with restructuring actions require us to makeresidual value of leased assets were 10% lower than management's current estimates and assumptions regarding the ultimate amount that willconsidered "other-than-temporary", pre-tax income would be paid and the timing of payments. Actual amounts paid and the timing of payments could differ from our original estimates and have a material impact our financial statements. On a quarterly basis, we compare our remaining restructuring reserves to our updated estimate of future remaining restructuring obligations and make adjustments if necessary.$5 million lower.
Loss contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results of operations and financial position.
Legal and Regulatory Matters
See Legal Proceedings Regulatory Matters in Item 3 for information regarding our legal proceedings1 and Other Tax Matters in Note 15 to the Consolidated Financial Statements for regulatory matters regarding our tax returns.returns and Note 16 to the Consolidated Financial Statements for information regarding our legal proceedings.
Foreign Currency Exchange
During 2019, 14% of our consolidated revenue was from operations outside the United States. The functional currency for most of our foreign operations is the local currency. Changes in the value of the U.S. dollar relative to the currencies of countries in which we operate impact our reported assets, liabilities, revenue and expenses. Exchange rate fluctuations can also impact the settlement of intercompany receivables and payables between our subsidiaries in different countries. TheDuring 2022, 13% of our consolidated revenue was from operations outside the United States and the translation of foreign currencies to the U.S. dollar did not have a material impact on revenues andor operating results for the yearsyear ended December 31, 20192022.
, 2018 and 2017.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact ofmarket risks primarily from changes in foreign currency exchange rates and interest rates. To manage these market risks, we employ derivatives, including foreign currency contracts and interest rate changesswaps, according to established policies and procedures. We do not use derivatives for speculative purposes. We are also exposed to credit risk on our accounts receivable and finance receivable portfolio.
Foreign Exchange Risk
Our foreign currency fluctuations.risks include the translation of local currency balances of foreign subsidiaries and transaction gains and losses associated with intercompany loans, transactions denominated in currencies other than a location’s functional currency and forecasted inventory purchases between affiliates and third parties. Our objective in managing exposure to foreign currency is to reduce the volatility in earnings and cash flows associated with fluctuations in foreign currency exchange rates on transactions denominated in foreign currencies. Accordingly, we enter into forward contracts, which change in value as foreign currency exchange rates change, and are intended to offset the corresponding change in value of the underlying external and intercompany transactions.rates. The principal currencies actively hedged are the British Pound, Canadian Dollar and the Euro.
At December 31, 20192022 and 2021, we had outstanding foreign currency exchange rate contracts to mitigate the currency risk associated with forecasted inventory purchases between affiliates and third parties. These contracts are designated as cash flow hedges and changes in fair value are recognized in accumulated other comprehensive income, a component of stockholders’ equity. At December 31, 2022 and 2021, we also had outstanding foreign currency exchange rate contracts to mitigate the currency risk associated with intercompany loans and related interest denominated in foreign currencies. These contracts are not designated as hedging instruments and changes in fair value of the derivative contract and transaction gains and losses associated with the revaluation of the intercompany loans are recorded in earnings. Changes in the fair values of foreign currency derivative contracts recognized in earnings are generally offset by transaction gains and losses on the underlying intercompany loans. While there is typically minimal impact to our reported earnings, the settlement of these derivative contracts results in cash outflows or inflows, which could be significant.
, 86% of
Interest Rate Risk
We are exposed to interest rate risk on our variable-rate debt borrowings. At December 31, 2022 and 2021, 35% and 26% or our debt was fixed rate obligations, compared to 81% in 2018, with aat variable rates, respectively. The weighted average interest rate of 4.9% compared to 4.7% in 2018. Variable rate debt had a weighted average interest rate of 3.6% at December 31, 2019, compared to 4.0% in 2018. A one-percentage point change in the effective interest rate of our variable rate debt at December 31, 2022 and 2021 was 7.5% and 3.1%, respectively. A 100 basis point change in the weighted average interest rate of our variable rate debt in 2022 would not have had a material impact on our 2018 or 2019 pre-tax income.increased interest expense approximately $6 million.
We employ established policiesalso maintain a significant investment portfolio comprised of fixed-rate interest-bearing money market funds, government and procedures governingmunicipal securities, corporate securities, mortgage-backed securities and asset-backed securities. Changes in interest rates impact the usefair value of financial instruments to manage our exposure to such risksthese investments. However, these securities are designated as available-for-sale, and do not enter into foreign currency or interest rate transactions for speculative purposes.
We utilize a "Value-at-Risk" (VaR) model to determine the potential losschanges in fair value fromdue to changes in market conditions. The VaR model utilizesinterest rates are recognized in accumulated other comprehensive income, a "Monte Carlo" simulation approachcomponent of equity, and not net income. We do not expect to recognize impairment losses on investment securities in an unrealized loss position as we have the intent and ability to hold these securities until recovery of unrealized losses or changes in bond spreadsmaturity.
Credit Risk
We are exposed to credit risk on our accounts receivable and assumes normal market conditions, a 95% confidence levelfinance receivable balances. This risk is mitigated due to our large, diverse client base, dispersed over various geographic regions and a one-day holding period. The model includes our public debt and foreign exchange derivative contracts, but excludes 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 2019 and 2018, our maximum potential one-day loss in fair valueindustrial sectors. No single client comprised more than 10% of our exposureconsolidated net sales in 2022 or 2021. We maintain provisions for potential credit losses based on historical experience, age of receivable, current economic conditions and future outlook and other relevant factors that may impact our customers’ ability to foreign exchange ratespay. We continually evaluate the adequacy of our allowance for credit losses and interest rates, using the Monte Carlo simulation approach or changes in bond spreads was not material.adjust as necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Supplemental Data"Schedules" in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), that are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to reasonably assure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure.
Any system of controls and procedures, no matter how well designed and operated, can provide only reasonable (and not absolute) assurance of achieving the desired control objectives. Under the direction of our CEO and CFO, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as required by Rule 13a-15 or Rule 15d-15 under the Exchange Act. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of December 31, 2019.2022.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management assessed the effectiveness of the internal control over financial reporting as of December 31, 20192022 under the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) and concluded that the internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 20192022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report in this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2019,2022, that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than information regarding our executive officers disclosed in Part I of this Annual Report, the information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 20202023 Annual Meeting of Stockholders.
Code of Ethics
We have Business Practices Guidelines (BPG) that apply to all our officers and other employees and a Code of Business Conduct and Ethics (the Code) that applies to our Board of Directors. The BPG and the Code are posted on our corporate governance website located at www.pb.com/us/our-company/leadership-and-governance/corporate-governance.html. Amendments to either the BPG or the Code and any waiver from a provision of the BPG or the Code requiring disclosure will be disclosed on our corporate governance website.
Audit Committee - Audit Committee Financial Expert
The information regarding the Audit Committee, its members and the Audit Committee financial experts is incorporated by reference to our Proxy Statement to be filed in connection with the 20202023 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 20202023 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION TABLE
The following table provides information as of December 31, 20192022 regarding the number of shares of common stock that may be issued under our equity compensation plans.
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Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | | (b) Weighted-average exercise price of outstanding options, warrants and rights (2) | | (c) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
Equity compensation plans approved by security holders | | 18,036,423 | | | $9.91 | | 17,217,552 | |
Equity compensation plans not approved by security holders | | — | | | — | | | — | |
Total | | 18,036,423 | | | $9.91 | | 17,217,552 | |
(1) Includes 10,027,048 shares issuable pursuant to outstanding stock options, 7,197,755 shares issuable pursuant to outstanding RSUs and 811,620 shares issuable pursuant to outstanding PSUs.
(2) Excludes RSUs and PSUs that convert to common stock from determination of weighted average exercise price. |
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Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | (b) Weighted-average exercise price of outstanding options, warrants and rights | | (c) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
Equity compensation plans approved by security holders | | 12,822,684 |
| | $14.08 | | 16,668,426 |
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Equity compensation plans not approved by security holders | | — |
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Total | | 12,822,684 |
| | $14.08 | | 16,668,426 |
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Other than information regarding securities authorized for issuance under equity compensation plans, the information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 20202023 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 20202023 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 20202023 Annual Meeting of Stockholders.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(a)(1) Index to Consolidated Financial Statements and Schedules | Page Number in Form 10-K |
Consolidated Statements of Income (Loss) for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
Consolidated Balance Sheets at December 31, 20192022 and 20182021 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
Notes to Consolidated Financial Statements | |
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
(a)(2) Exhibits
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Reg. S-K exhibits | Description | Status or incorporation by reference |
3(a) | Amended and Restated Certificate of Incorporation of Pitney Bowes Inc. | |
3(b) | Pitney Bowes Inc. Amended and Restated By-laws (effective May 10, 2013) | |
4(a)4 | FormDescription of Indenture between the Company and SunTrust Bank, as TrusteeRegistered Securities | |
4(b)4(a) | Supplemental Indenture No. 1 dated April 18, 2003 between the Company and SunTrust Bank, as Trustee | |
4(d) | First Supplemental Indenture, by and among Pitney Bowes Inc., The Bank of New York, and Citibank, N.A., to theSenior Debt Indenture, dated as of February 14, 2005, by and between the Company and Citibank N.A., as trustee | |
4(b) | First Supplemental Indenture, dated as of October 23, 2007, by and among Pitney Bowes Inc., The Bank of New York, as successor trustee, and Citibank, N.A., as resigning trustee | |
4(c) | Supplemental Indenture No. 2 dated as of February 26, 2020, by and between Pitney Bowes Inc. and The Bank of New York Mellon, as successor trustee to Citibank N.A. | |
4(d) | Form of 5.25% Global Medium-Term Note due 2037 | |
4(e) | Officer's Certificate establishing the terms of the Notes, dated March 7, 2013, and Specimen of 6.70% Notes due 2043 | |
4(f) | Officer's Certificate establishing the terms of the 4.625% Notes due 2024, dated March 13, 2014, and Specimen of 4.625% Notes due 2024. | |
4(g) | Indenture, dated March 19, 2021, among Pitney Bowes Inc., the guarantors party thereto and Truist Bank, as trustee, with respect to Pitney Bowes Inc.'s 6.875% Senior Notes due 2027. | |
4(h) | Indenture, dated March 19, 2021, among Pitney Bowes Inc., the guarantors party thereto and Truist Bank, as trustee, with respect to Pitney Bowes Inc.'s 7.250% Senior Notes due 2029. | |
10(a) * | Retirement Plan for Directors of Pitney Bowes Inc. | |
10(b.3) * | Pitney Bowes Inc. Directors' Stock Plan (Amended and Restated effective May 12, 2014) | |
10(c) * | Pitney Bowes Stock Plan (as amended and restated as of January 1, 2002) | |
10(d) * | Pitney Bowes Inc. 2007 Stock Plan (as amended November 7, 2009) | |
10(e) * | Pitney Bowes Inc. Key Employees' Incentive Plan (as amended and restated February 4, 2019) | |
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Reg. S-K exhibits | Description | Status or incorporation by reference |
10(f) * | Pitney Bowes Severance Plan (as amended and restated as of January 1, 2008) | |
10(g) * | Pitney Bowes Senior Executive Severance Policy (as amended and restated as of February 4, 2019) | |
10(h) * | Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board of Directors, as amended and restated effective January 1, 2009 | |
10(i) * | Pitney Bowes Inc. Deferred Incentive Savings Plan as amended and restated effective January 1, 2009 | |
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Reg. S-K exhibits | Description | Status or incorporation by reference |
10(j) * | Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan | |
10(k) * | Form of Long Term Incentive Award Agreement | |
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10(m)* | Pitney Bowes Director Equity Deferral plan dated November 8, 2013 (effective May 12, 2014) | |
10(o)* | Pitney Bowes Executive Equity Deferral Plan dated November 7, 2014 | |
10(p)* | Pitney Bowes Inc. 2013 Stock Plan | |
10(q)* | Amended and Restated Pitney Bowes Inc. 2018 Stock Plan | |
10(r) | Credit Agreement, dated as of November 1, 2019 (the "Credit Agreement"), among the company, the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent. | |
2.110(s) | Stock and Asset Purchase Agreement,First Incremental Facility Amendment, dated as of August 23, 2019, between Pitney Bowes Inc.February 19, 2020, to the Credit Agreement, among the company, the lenders and Starfish Parent LP*issuing banks party thereto and JPMorgan Chase Bank, N.A., administrative agent. | |
2.2 | | |
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10(t) | First Amendment, dated as of March 19, 2021, among Pitney Bowes Inc., the subsidiaries of Pitney Bowes Inc. party thereto, the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent | |
10(u) | First Refinancing Agreement, dated as of December 2, 2019, betweenMarch 19, 2021, among Pitney Bowes Inc., the subsidiaries of Pitney Bowes Inc. party thereto and Starfish Parent LP*JPMorgan Chase Bank, N.A., as administrative agent and refinancing tranche B term lender. | |
410(v) | DescriptionSecond Amendment, dated as of Registered SecuritiesMay 11, 2022, to the Credit Agreement, among Pitney Bowes Inc., the Lenders and issuing banks party thereto and JP Morgan Chase, N.A., as administrative agent | |
2110(w) | Third Amendment, dated as of December 7, 2022, to the Credit Agreement, among Pitney Bowes Inc., the Lenders and issuing banks party thereto and JP Morgan Chase, N.A., as administrative agent. | |
10(x) | Fourth Amendment, dated as of December 8, 2022, to the Credit Agreement, among Pitney Bowes Inc., the Lenders and issuing banks party thereto and JP Morgan Chase, N.A., as administrative agent | |
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21 | Subsidiaries of the registrant | |
23 | Consent of independent registered accounting firm | |
31.1 | Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. | |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 | |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 | |
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101.SCHReg. S-K exhibits | Description | Status or incorporation by reference |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document | |
104 | The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2019,2022, formatted in Inline XBRL (included as Exhibit 101). | |
* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.
The Company has outstanding certain other long-term indebtedness. Suchoutstanding long-term indebtedness that does not exceed 10% of the total assets of the Company; therefore, copies of instruments defining the rights of holders of such indebtedness are not included as exhibits. The Company agrees to furnish copies of such instruments to the SEC upon request.
ITEM 16. FORM 10-K SUMMARY
None
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:February 20, 202017, 2023 PITNEY BOWES INC.
Registrant
By: /s/ Marc B. Lautenbach
Marc B. Lautenbach
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Marc B. Lautenbach Marc B. Lautenbach | | President and Chief Executive Officer - Director (Principal Executive Officer) | | February 20, 202017, 2023 |
/s/ Stanley J. Sutula IIIAna Maria Chadwick
Stanley J. Sutula IIIAna Maria Chadwick | | Executive Vice President, Chief Financial Officer (Principal Financial Officer) | | February 20, 202017, 2023 |
/s/ Joseph R. Catapano Joseph R. Catapano | | Vice President, Chief Accounting Officer (Principal Accounting Officer) | | February 20, 202017, 2023 |
/s/ Michael I. Roth Michael I. Roth | | Non-Executive Chairman - Director | | February 20, 202017, 2023 |
/s/ Anne M. Busquet Anne M. Busquet | | Director | | February 20, 202017, 2023 |
/s/ Robert M. Dutkowsky Robert M. Dutkowsky | | Director | | February 20, 2020 |
/s/ Anne Sutherland Fuchs
Anne Sutherland Fuchs
| | Director | | February 20, 202017, 2023 |
/s/ Mary J. Steele Guilfoile Mary J. Steele Guilfoile | | Director | | February 20, 202017, 2023 |
/s/ S. Douglas Hutcheson S. Douglas Hutcheson | | Director | | February 20, 202017, 2023 |
/s/ Linda S. Sanford Linda S. Sanford | | Director | | February 20, 202017, 2023 |
/s/ David L. Shedlarz David L. Shedlarz | | Director | | February 20, 202017, 2023 |
/s/ Sheila A. Stamps Sheila A. Stamps | | Director | | February 17, 2023 |
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Consolidated Financial Statements of Pitney Bowes Inc. | |
| Consolidated Statements of Income (Loss) for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
| Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
| Consolidated Balance Sheets at December 31, 20192022 and 20182021 | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
| Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
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Financial Statement Schedule | |
| Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2019, 20182022, 2021 and 20172020 | |
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of Pitney Bowes Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Pitney Bowes Inc. and its subsidiaries (the “Company”) as of December 31, 20192022 and 2018,2021, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2019,2022, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(1) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes
Change in Accounting PrinciplesPrinciple
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leasescredit losses on financial assets in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018. The adoption of the accounting standard for leases is also discussed below as a critical audit matter.2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Goodwill - Interim Impairment Assessment for the- Global Ecommerce Reporting Unit
As described in Notes 1 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,324$1,067 million as of December 31, 2019,2022, and the goodwill balance associated with the Global Ecommerce reporting unit was $609$339 million.Management conducts an Goodwill is tested annually for impairment test annuallyat the reporting unit level during the fourth quarter or sooner if circumstances indicate an impairment may exist. The impairment test for goodwill determines the fair value of theeach reporting unit and compares it to the reporting unit’s carrying value, including goodwill. As disclosed by management,If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the fair value of the reporting unit is estimated by management using a combination of techniques, includingless than the presentcarrying value of future cash flows, multiplesthe net assets assigned to the reporting unit, a goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of competitorsgoodwill allocated to the reporting unit. Management determined that the agreement to sell Borderfree was a triggering event and multiples from salesan impairment test was performed as of like businesses. Based onJuly 1, 2022. Further, management determined that the operating resultsshortfall in fourth quarter performance of the Global Ecommerce business at the end of the third quarter,reporting unit was an additional triggering event. Accordingly, management performed aanother goodwill impairment test as of December 31, 2022 to assess whether the recoverabilitygoodwill of the Global Ecommerce reporting unit was impaired.The results of management’s annual test and triggering event tests indicated that the fair value of the Global Ecommerce reporting unit exceeded its carrying value of goodwill. As a result of the test, management determined thatand no impairment existed. However, the estimated fair value of the reporting unit at December 31, 2022 exceeded its carrying value and therefore no impairmentby less than 10%.The fair value of the Global Ecommerce reporting unit was recorded. The estimatesestimated by management using a discounted cash flow model based on management developed cash flow projections, which included judgments and assumptions used by managementrelated to determine fair value are based on projections incorporated in management’s currentrevenue growth rates, operating plans, which include estimatesmargins and assumptions associated with sales growth, profitability, cash flowsoperating income, and capital spending, and other available information. The determination of fair value also incorporates a risk-adjusted discount rate and other assumptions that market participants may use.rate.
The principal considerations for our determination that performing procedures relating to goodwill, specifically the interimgoodwill impairment assessment performed forof the Global Ecommerce reporting unit is a critical audit matter are there was(i) the significant judgment by management inwhen developing the fair value estimate of thisthe reporting unit. This in turn led to significantunit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluateand evaluating management’s cash flow projections and significant assumptions including salesrelated to revenue growth profitability,rates, certain forecasted costs included in the determination of operating income and the discount rate; and the risk-adjusted discount rate. In addition,(iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment test for the Global Ecommerce reporting unit,assessment, including controls over the valuation of the Company’sGlobal Ecommerce reporting unit and the underlying cash flow projections. unit.These procedures alsoincluded, among others, (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of management’sthe discounted cash flow model; (iii) testing the completeness accuracy, and relevanceaccuracy of underlying data used in the model; and (iv) evaluating the reasonableness of the significant
assumptions used by management including salesrelated to the revenue growth profitabilityrates, certain forecasted costs included in the determination of projected operating income, and the risk-adjusted discount rate. Evaluating management’s assumptions related to salesrevenue growth rates and profitabilitycertain forecasted costs included in the determination of projected operating income involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s discounted cash flow model and certain significant assumptions, including the risk-adjusted discount rate.rate assumption.
Income Taxes
As described in Notes 1 and 15 to the consolidated financial statements, the effective tax rate in 2019 was 47.9%, and the total benefit for income taxes was $13 million for the year ended December 31, 2019. The provision for income taxes includes income from U.S. and foreign affiliates taxed at statutory rates, the accrual or release of amounts for tax uncertainties, and U.S. tax impacts of foreign income in the U.S. The Company reported unrecognized tax benefits of $60 million. In addition, the Company has recorded a net deferred tax liability of $203 million as of December 31, 2019, comprised of deferred tax liabilities of $387 million and deferred tax assets of $184 million. These deferred tax assets are net of valuation allowance of $111 million to reduce the deferred tax assets to an amount that management determined is more-likely-than-not to be realized. The valuation allowance primarily relates to certain foreign, state and local net operating loss and tax credit carryforwards that are more-likely-than-not to expire unutilized. In estimating the necessary valuation allowance, management considers all available evidence for each jurisdiction including historical operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies.
The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are there was significant judgment and estimation by management when assessing complex tax laws and regulations in the jurisdictions in which the Company operates, analyzing tax uncertainties, and assessing the need for a valuation allowance against deferred tax assets. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to i) evaluate the identification and measurement of deferred tax assets and liabilities, ii) evaluate the timely identification and measurement of uncertain tax positions, and iii) assess the realizability of deferred tax assets. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to income taxes, including controls relating to the identification and recognition of the liability for uncertain tax positions and permanent and temporary differences within various jurisdictions, and the recognition and measurement of deferred tax assets and liabilities. These procedures also included, among others, (i) testing the provision for income taxes, including the effective tax rate reconciliation and the permanent and temporary differences, (ii) testing the underlying data and evaluating the significant assumptions used in establishing and measuring tax-related assets and liabilities, (iii) evaluating the identification of reserves for uncertain tax positions and the reasonableness of the more-likely-than-not determination in consideration of tax law in applicable jurisdictions, new rulings, court decisions, legislative actions, statute of limitations, and developments in tax examinations, and (iv) testing management’s process for determining the deferred tax asset valuation allowance, including evaluating management's assessment of the realizability of deferred tax assets on a jurisdictional basis and evaluating the assumptions used by management related to future taxable income and the related expected utilization and the feasibility of ongoing tax planning strategies. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of management’s judgments and estimates, including application of tax laws and regulations.
Adoption of the Accounting Standard for Leases
As described above and in Note 1 to the consolidated financial statements, the Company adopted the new accounting standard for leases on January 1, 2019 using the modified retrospective transition approach of applying the standard at the beginning of the earliest comparative period presented in the financial statements. Accordingly, prior period financial statements were recast, and a cumulative effect adjustment was recorded as of January 1, 2017 to reduce retained earnings by $137 million. Management’s assessment of the impact of the new lease standard to the lessor portfolio considered changes in the timing and classification of revenue related to contract modifications, and changes related to the definition of a leased asset.
The principal considerations for our determination that performing procedures relating to the adoption of the accounting standard for leases is a critical audit matter are there was significant judgment by management in identifying the lease components within the Company’s lessor portfolio and evaluating the accounting for lease modifications. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate lease components, the accounting for lease modifications, and management’s method of application of the new lease standard to the lessor portfolio. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s adoption of the new lease standard, including management’s process to identify lease components and account for lease modifications. These procedures also included, among others, testing the determination of lease components, evaluating the accounting for lease modifications and testing the appropriateness of management’s recast of prior period financial statements, including testing the completeness and accuracy of the underlying data used in the recast. Professionals with specialized skill and knowledge were used to assist in the evaluation of certain accounting conclusions, including the identification of lease components and accounting for lease modifications for the lessor portfolio.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
February 20, 202017, 2023
We have served as the Company’s auditor since 1934.
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Revenue: | | | | | |
Business services | $ | 2,249,941 | | | $ | 2,334,674 | | | $ | 2,191,306 | |
Support services | 438,191 | | | 460,888 | | | 473,292 | |
Financing | 274,508 | | | 294,418 | | | 341,034 | |
Equipment sales | 354,960 | | | 350,138 | | | 314,882 | |
Supplies | 154,186 | | | 159,438 | | | 159,282 | |
Rentals | 66,256 | | | 74,005 | | | 74,279 | |
Total revenue | 3,538,042 | | | 3,673,561 | | | 3,554,075 | |
Costs and expenses: | | | | | |
Cost of business services | 1,934,206 | | | 2,034,477 | | | 1,904,078 | |
Cost of support services | 148,829 | | | 149,706 | | | 149,988 | |
Financing interest expense | 51,789 | | | 47,059 | | | 48,162 | |
Cost of equipment sales | 253,843 | | | 251,914 | | | 235,153 | |
Cost of supplies | 43,778 | | | 43,980 | | | 41,679 | |
Cost of rentals | 25,105 | | | 24,427 | | | 25,600 | |
Selling, general and administrative | 905,570 | | | 924,163 | | | 963,323 | |
Research and development | 43,657 | | | 46,777 | | | 38,384 | |
Restructuring charges | 18,715 | | | 19,003 | | | 20,712 | |
Goodwill impairment | — | | | — | | | 198,169 | |
Interest expense, net | 89,980 | | | 96,886 | | | 105,753 | |
Other components of net pension and postretirement cost (income) | 4,308 | | | 1,010 | | | (1,708) | |
Other (income) expense | (21,618) | | | 41,574 | | | 8,151 | |
Total costs and expenses | 3,498,162 | | | 3,680,976 | | | 3,737,444 | |
Income (loss) from continuing operations before income taxes | 39,880 | | | (7,415) | | | (183,369) | |
Provision (benefit) for income taxes | 2,940 | | | (10,922) | | | 7,122 | |
Income (loss) from continuing operations | 36,940 | | | 3,507 | | | (190,491) | |
(Loss) income from discontinued operations, net of tax | — | | | (4,858) | | | 10,115 | |
Net income (loss) | $ | 36,940 | | | $ | (1,351) | | | $ | (180,376) | |
Basic earnings (loss) per share attributable to common stockholders (1): | | | | | |
Continuing operations | $ | 0.21 | | | $ | 0.02 | | | $ | (1.11) | |
Discontinued operations | — | | | (0.03) | | | 0.06 | |
Net income (loss) | $ | 0.21 | | | $ | (0.01) | | | $ | (1.05) | |
Diluted earnings (loss) per share attributable to common stockholders (1): | | | | | |
Continuing operations | $ | 0.21 | | | $ | 0.02 | | | $ | (1.11) | |
Discontinued operations | — | | | (0.03) | | | 0.06 | |
Net income (loss) | $ | 0.21 | | | $ | (0.01) | | | $ | (1.05) | |
(1)The sum of the earnings per share amounts may not equal the totals due to rounding. |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Revenue: | |
| | |
| | |
Business services | $ | 1,710,801 |
| | $ | 1,566,470 |
| | $ | 1,071,021 |
|
Support services | 506,187 |
| | 552,472 |
| | 581,474 |
|
Financing | 368,090 |
| | 394,557 |
| | 406,395 |
|
Equipment sales | 352,104 |
| | 395,652 |
| | 400,704 |
|
Supplies | 187,287 |
| | 218,304 |
| | 231,412 |
|
Rentals | 80,656 |
| | 84,067 |
| | 93,001 |
|
Total revenue | 3,205,125 |
| | 3,211,522 |
| | 2,784,007 |
|
Costs and expenses: | |
| | |
| | |
Cost of business services | 1,389,569 |
| | 1,233,105 |
| | 770,018 |
|
Cost of support services | 162,300 |
| | 178,495 |
| | 173,555 |
|
Financing interest expense | 44,648 |
| | 44,376 |
| | 46,178 |
|
Cost of equipment sales | 244,210 |
| | 236,160 |
| | 238,062 |
|
Cost of supplies | 49,882 |
| | 60,960 |
| | 66,302 |
|
Cost of rentals | 31,530 |
| | 37,178 |
| | 33,741 |
|
Selling, general and administrative | 1,003,989 |
| | 1,002,935 |
| | 1,029,494 |
|
Research and development | 51,258 |
| | 58,523 |
| | 60,857 |
|
Restructuring charges and asset impairments, net | 69,606 |
| | 25,899 |
| | 44,849 |
|
Interest expense, net | 110,910 |
| | 115,381 |
| | 117,984 |
|
Other components of net pension and postretirement cost | (4,225 | ) | | 22,425 |
| | 5,413 |
|
Other expense | 24,306 |
| | 7,964 |
| | 3,856 |
|
Total costs and expenses | 3,177,983 |
| | 3,023,401 |
| | 2,590,309 |
|
Income from continuing operations before income taxes | 27,142 |
| | 188,121 |
| | 193,698 |
|
(Benefit) provision for income taxes | (13,007 | ) | | 6,416 |
| | 13,659 |
|
Income from continuing operations | 40,149 |
| | 181,705 |
| | 180,039 |
|
Income from discontinued operations, net of tax | 154,460 |
| | 60,106 |
| | 63,489 |
|
Net income | $ | 194,609 |
| | $ | 241,811 |
| | $ | 243,528 |
|
Basic earnings per share attributable to common stockholders (1): | |
| | |
| | |
Continuing operations | $ | 0.23 |
| | $ | 0.97 |
| | $ | 0.97 |
|
Discontinued operations | 0.88 |
| | 0.32 |
| | 0.34 |
|
Net income | $ | 1.10 |
| | $ | 1.29 |
| | $ | 1.31 |
|
Diluted earnings per share attributable to common stockholders (1): | |
| | |
| | |
Continuing operations | $ | 0.23 |
| | $ | 0.96 |
| | $ | 0.96 |
|
Discontinued operations | 0.87 |
| | 0.32 |
| | 0.34 |
|
Net income | $ | 1.10 |
| | $ | 1.28 |
| | $ | 1.30 |
|
| |
| The sum of the earnings per share amounts may not equal the totals due to rounding. |
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income (loss) | $ | 36,940 | | | $ | (1,351) | | | $ | (180,376) | |
Other comprehensive (loss) income, net of tax: | | | | | |
Foreign currency translations, net of tax of $(3,942), $(767) and $2,374, respectively | (71,344) | | | (34,168) | | | 37,252 | |
Net unrealized gain (loss) on cash flow hedges, net of tax of $2,900, $1,738 and $(583), respectively | 8,700 | | | 5,214 | | | (1,748) | |
Net unrealized loss on available for sale securities, net of tax of $(10,424), $(2,217) and $(816), respectively | (33,191) | | | (6,651) | | | (2,447) | |
Adjustments to pension and postretirement plans, net of tax of $4,312, $17,986 and $(20,440), respectively | 9,297 | | | 54,618 | | | (70,623) | |
Amortization of pension and postretirement costs, net of tax of $9,315, $12,755 and $11,930, respectively | 31,286 | | | 39,806 | | | 38,578 | |
Other comprehensive (loss) income, net of tax | (55,252) | | | 58,819 | | | 1,012 | |
Comprehensive (loss) income | $ | (18,312) | | | $ | 57,468 | | | $ | (179,364) | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Net income | $ | 194,609 |
| | $ | 241,811 |
| | $ | 243,528 |
|
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translations, net of tax of $3,071 in 2019 and $(4,992) in 2018 | 75,319 |
| | (52,299 | ) | | 103,624 |
|
Net unrealized gain on cash flow hedges, net of tax of $49, $232, and $678, respectively | 146 |
| | 684 |
| | 1,079 |
|
Net unrealized gain (loss) on available for sale securities, net of tax of $1,970, $(1,545), and $944, respectively | 5,910 |
| | (5,002 | ) | | 1,477 |
|
Adjustments to pension and postretirement plans, net of tax of ($1,270), $(13,508), and $3,089, respectively | (845 | ) | | (46,170 | ) | | 12,185 |
|
Amortization of pension and postretirement costs, net of tax of $9,497, $21,675, and $13,936, respectively | 28,288 |
| | 64,999 |
| | 26,828 |
|
Other comprehensive income (loss), net of tax | 108,818 |
| | (37,788 | ) | | 145,193 |
|
Comprehensive income | $ | 303,427 |
| | $ | 204,023 |
| | $ | 388,721 |
|
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 669,981 | | | $ | 732,480 | |
Short-term investments (includes $1,882 and $2,658, respectively, reported at fair value) | 11,172 | | | 14,440 | |
Accounts and other receivables (net of allowance of $5,344 and $11,168 respectively) | 343,557 | | | 334,630 | |
Short-term finance receivables (net of allowance of $11,395 and $12,812, respectively) | 564,972 | | | 560,680 | |
Inventories | 83,720 | | | 78,588 | |
Current income taxes | 8,790 | | | 13,894 | |
Other current assets and prepayments | 115,824 | | | 157,341 | |
| | | |
Total current assets | 1,798,016 | | | 1,892,053 | |
Property, plant and equipment, net | 420,672 | | | 429,162 | |
Rental property and equipment, net | 27,487 | | | 34,774 | |
Long-term finance receivables (net of allowance of $10,555 and $13,406, respectively) | 627,124 | | | 587,427 | |
Goodwill | 1,066,951 | | | 1,135,103 | |
Intangible assets, net | 77,944 | | | 132,442 | |
Operating lease assets | 296,129 | | | 208,428 | |
| | | |
Noncurrent income taxes | 46,613 | | | 68,398 | |
Other assets (includes $229,936 and $318,754, respectively, reported at fair value) | 380,419 | | | 471,084 | |
Total assets | $ | 4,741,355 | | | $ | 4,958,871 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 907,083 | | | $ | 922,543 | |
Customer deposits at the Bank | 628,072 | | | 632,062 | |
Current operating lease liabilities | 52,576 | | | 40,299 | |
Current portion of long-term debt | 32,764 | | | 24,739 | |
Advance billings | 105,207 | | | 99,280 | |
Current income taxes | 2,101 | | | 9,017 | |
| | | |
Total current liabilities | 1,727,803 | | | 1,727,940 | |
Long-term debt | 2,172,502 | | | 2,299,099 | |
Deferred taxes on income | 263,131 | | | 286,445 | |
Tax uncertainties and other income tax liabilities | 23,841 | | | 31,935 | |
Noncurrent operating lease liabilities | 265,696 | | | 192,092 | |
Other noncurrent liabilities | 227,729 | | | 308,728 | |
Total liabilities | 4,680,702 | | | 4,846,239 | |
| | | |
Commitments and contingencies (See Note 16) | | | |
| | | |
Stockholders' equity: | | | |
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued) | 323,338 | | | 323,338 | |
Additional paid-in capital | — | | | 2,485 | |
Retained earnings | 5,125,677 | | | 5,169,270 | |
Accumulated other comprehensive loss | (835,564) | | | (780,312) | |
Treasury stock, at cost (149,307,325 and 148,606,517 shares, respectively) | (4,552,798) | | | (4,602,149) | |
Total stockholders’ equity | 60,653 | | | 112,632 | |
Total liabilities and stockholders’ equity | $ | 4,741,355 | | | $ | 4,958,871 | |
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
ASSETS | |
| | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 924,442 |
| | $ | 867,262 |
|
Short-term investments | 115,879 |
| | 59,391 |
|
Accounts and other receivables (net of allowance of $17,830 and $17,443 respectively) | 373,471 |
| | 371,797 |
|
Short-term finance receivables (net of allowance of $12,556 and $12,418, respectively) | 629,643 |
| | 653,236 |
|
Inventories | 68,251 |
| | 62,279 |
|
Current income taxes | 5,565 |
| | 5,947 |
|
Other current assets and prepayments | 101,601 |
| | 74,782 |
|
Assets of discontinued operations | 17,229 |
| | 602,823 |
|
Total current assets | 2,236,081 |
| | 2,697,517 |
|
Property, plant and equipment, net | 376,177 |
| | 398,501 |
|
Rental property and equipment, net | 41,225 |
| | 46,228 |
|
Long-term finance receivables (net of allowance of $7,095 and $7,804, respectively) | 625,487 |
| | 635,908 |
|
Goodwill | 1,324,179 |
| | 1,332,351 |
|
Intangible assets, net | 190,640 |
| | 213,200 |
|
Operating lease assets | 200,752 |
| | 152,554 |
|
Noncurrent income taxes | 71,903 |
| | 65,001 |
|
Other assets | 400,456 |
| | 397,159 |
|
Total assets | $ | 5,466,900 |
| | $ | 5,938,419 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
|
Current liabilities: | |
| | |
|
Accounts payable and accrued liabilities | $ | 1,384,808 |
| | $ | 1,348,127 |
|
Current operating lease liabilities | 36,060 |
| | 35,208 |
|
Current portion of long-term debt | 20,108 |
| | 199,535 |
|
Advance billings | 101,920 |
| | 116,862 |
|
Current income taxes | 17,083 |
| | 15,284 |
|
Liabilities of discontinued operations | 9,713 |
| | 174,798 |
|
Total current liabilities | 1,569,692 |
| | 1,889,814 |
|
Long-term debt | 2,719,614 |
| | 3,066,073 |
|
Deferred taxes on income | 274,435 |
| | 253,560 |
|
Tax uncertainties and other income tax liabilities | 38,834 |
| | 39,548 |
|
Noncurrent operating lease liabilities | 177,711 |
| | 125,294 |
|
Other noncurrent liabilities | 400,518 |
| | 462,288 |
|
Total liabilities | 5,180,804 |
| | 5,836,577 |
|
| | | |
Commitments and contingencies (See Note 16) |
|
| |
|
|
| | | |
Stockholders' equity: | | | |
Cumulative preferred stock, $50 par value, 4% convertible | — |
| | 1 |
|
Cumulative preference stock, no par value, $2.12 convertible | — |
| | 396 |
|
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued) | 323,338 |
| | 323,338 |
|
Additional paid-in capital | 98,748 |
| | 121,475 |
|
Retained earnings | 5,438,930 |
| | 5,279,682 |
|
Accumulated other comprehensive loss | (840,143 | ) | | (948,961 | ) |
Treasury stock, at cost (152,888,969 and 135,662,830 shares, respectively) | (4,734,777 | ) | | (4,674,089 | ) |
Total stockholders’ equity | 286,096 |
| | 101,842 |
|
Total liabilities and stockholders’ equity | $ | 5,466,900 |
| | $ | 5,938,419 |
|
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Cash flows from operating activities: | |
| | |
| | |
Net income | $ | 194,609 |
| | $ | 241,811 |
| | $ | 243,528 |
|
Income from discontinued operations, net of tax | (154,460 | ) | | (60,106 | ) | | (63,489 | ) |
Restructuring payments | (27,148 | ) | | (52,730 | ) | | (26,080 | ) |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
Depreciation and amortization | 159,142 |
| | 148,464 |
| | 126,790 |
|
Stock-based compensation | 23,149 |
| | 21,042 |
| | 24,389 |
|
Restructuring charges and asset impairments, net | 69,606 |
| | 25,899 |
| | 44,849 |
|
Loss on sale of businesses | 17,683 |
| | — |
| | — |
|
Pension plan settlement | — |
| | 31,329 |
| | — |
|
Deferred tax provision (benefit) | 4,931 |
| | 64,065 |
| | (1,414 | ) |
Changes in operating assets and liabilities, net of acquisitions/divestitures: | |
| | |
| | |
Decrease (increase) in accounts and other receivables | 8,318 |
| | (44,031 | ) | | (7,165 | ) |
Decrease in finance receivables | 25,638 |
| | 53,280 |
| | 147,836 |
|
Increase in inventories | (5,588 | ) | | (1,441 | ) | | (213 | ) |
Increase in other current assets and prepayments | (27,096 | ) | | (9,881 | ) | | (3,131 | ) |
Increase (decrease) in accounts payable and accrued liabilities | 11,492 |
| | (2,758 | ) | | (18,651 | ) |
Decrease in current and noncurrent income taxes | (40,119 | ) | | (28,127 | ) | | (23,516 | ) |
Decrease in advance billings | (10,361 | ) | | (19,802 | ) | | (33,665 | ) |
Change in net operating lease assets and liabilities | 6,398 |
| | 346 |
| | 14,840 |
|
Other, net | (13,259 | ) | | (16,565 | ) | | (23,508 | ) |
Net cash provided by operating activities: continuing operations | 242,935 |
| | 350,795 |
| | 401,400 |
|
Net cash provided by (used in) operating activities: discontinued operations | 9,272 |
| | (7,916 | ) | | 52,758 |
|
Net cash provided by operating activities | 252,207 |
| | 342,879 |
| | 454,158 |
|
Cash flows from investing activities: | |
| | |
| | |
Purchases of available-for-sale securities | (57,194 | ) | | (81,527 | ) | | (125,055 | ) |
Proceeds from sales/maturities of available-for-sale securities | 108,548 |
| | 175,820 |
| | 113,501 |
|
Net change in short-term and other investments | (78,814 | ) | | 11,838 |
| | (8,285 | ) |
Capital expenditures | (137,253 | ) | | (137,810 | ) | | (118,247 | ) |
Reserve account deposits | 16,341 |
| | 21,008 |
| | 10,954 |
|
Acquisitions, net of cash acquired | (22,100 | ) | | (10,484 | ) | | (482,853 | ) |
Other investing activities | (10,091 | ) | | (4,250 | ) | | (5,750 | ) |
Net cash used in investing activities: continuing operations | (180,563 | ) | | (25,405 | ) | | (615,735 | ) |
Net cash provided by (used in) investing activities: discontinued operations | 670,130 |
| | 334,532 |
| | (5,630 | ) |
Net cash provided by (used in) investing activities | 489,567 |
| | 309,127 |
| | (621,365 | ) |
Cash flows from financing activities: | |
| | |
| | |
Proceeds from issuance of long-term debt | 389,986 |
| | — |
| | 1,436,660 |
|
Principal payments of long-term debt | (930,189 | ) | | (570,180 | ) | | (964,550 | ) |
Dividends paid to stockholders | (35,361 | ) | | (140,498 | ) | | (139,490 | ) |
Common stock repurchases | (105,000 | ) | | — |
| | — |
|
Other financing activities | (6,076 | ) | | (55,741 | ) | | 35,127 |
|
Net cash (used in) provided by financing activities | (686,640 | ) | | (766,419 | ) | | 367,747 |
|
Effect of exchange rate changes on cash and cash equivalents | 2,046 |
| | (25,381 | ) | | 43,959 |
|
Increase (decrease) in cash and cash equivalents | 57,180 |
| | (139,794 | ) | | 244,499 |
|
Cash and cash equivalents at beginning of period | 867,262 |
| | 1,009,021 |
| | 764,522 |
|
Cash and cash equivalents at end of period | 924,442 |
| | 869,227 |
| | 1,009,021 |
|
Less cash and cash equivalents of discontinued operations | — |
| | 1,965 |
| | — |
|
Cash and cash equivalents of continuing operations at end of period | $ | 924,442 |
| | $ | 867,262 |
| | $ | 1,009,021 |
|
| | | | | |
Cash interest paid | $ | 157,709 |
| | $ | 171,120 |
| | $ | 169,279 |
|
Cash income tax payments, net of refunds | $ | 27,109 |
| | $ | 25,906 |
| | $ | 53,247 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Cash flows from operating activities: | | | | | |
Net income (loss) | $ | 36,940 | | | $ | (1,351) | | | $ | (180,376) | |
Loss (income) from discontinued operations, net of tax | — | | | 4,858 | | | (10,115) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 163,816 | | | 162,859 | | | 160,625 | |
Allowance for credit losses | 8,937 | | | 7,808 | | | 42,193 | |
Stock-based compensation | 16,629 | | | 20,862 | | | 17,476 | |
Amortization of debt fees | 8,674 | | | 7,163 | | | 10,871 | |
Loss on debt refinancing | 4,993 | | | 56,209 | | | 36,987 | |
Restructuring charges | 18,715 | | | 19,003 | | | 20,712 | |
Restructuring payments | (15,406) | | | (21,990) | | | (20,014) | |
Pension contributions and retiree medical payments | (26,769) | | | (27,534) | | | (31,828) | |
Gain on sale of businesses, including transaction costs | (12,205) | | | (10,201) | | | — | |
Gain on sale of assets | (14,372) | | | (1,434) | | | (21,969) | |
Goodwill impairment | — | | | — | | | 198,169 | |
Deferred taxes | 3,688 | | | (19,883) | | | 15,280 | |
Changes in operating assets and liabilities, net of acquisitions/divestitures: | | | | | |
Accounts and other receivables | (29,303) | | | 37,503 | | | (47,236) | |
Finance receivables | (12,591) | | | 20,934 | | | 70,505 | |
Inventories | (4,942) | | | (8,008) | | | 1,582 | |
Other current assets and prepayments | 2,727 | | | (1,184) | | | (19,581) | |
Accounts payable and accrued liabilities | 18,577 | | | 57,780 | | | 94,851 | |
| | | | | |
Current and noncurrent income taxes | (14,464) | | | 2,971 | | | 8,622 | |
Advance billings | 8,342 | | | (14,029) | | | 11,009 | |
Other, net | 13,997 | | | 9,179 | | | (17,879) | |
Net cash from operating activities: continuing operations | 175,983 | | | 301,515 | | | 339,884 | |
Net cash from operating activities: discontinued operations | — | | | — | | | (37,912) | |
Net cash from operating activities | 175,983 | | | 301,515 | | | 301,972 | |
Cash flows from investing activities: | | | | | |
Capital expenditures | (124,840) | | | (184,042) | | | (104,987) | |
Purchases of investment securities | (8,863) | | | (74,923) | | | (596,841) | |
Proceeds from sales/maturities of investment securities | 28,724 | | | 97,358 | | | 576,536 | |
Net investment in loan receivables | (53,114) | | | (6,288) | | | (4,174) | |
Proceeds from sale of business, net of cash sold | 111,593 | | | 27,573 | | | — | |
Proceeds from asset sales | 50,766 | | | 1,840 | | | 58,248 | |
Acquisitions, net of cash acquired | (5,139) | | | (14,996) | | | (6,608) | |
Settlement of derivative contracts | (27,660) | | | — | | | — | |
Other investing activities | 4,264 | | | — | | | 4,636 | |
Net cash from investing activities: continuing operations | (24,269) | | | (153,478) | | | (73,190) | |
Net cash from investing activities: discontinued operations | — | | | (1,773) | | | (2,502) | |
Net cash from investing activities | (24,269) | | | (155,251) | | | (75,692) | |
Cash flows from financing activities: | | | | | |
Proceeds from the issuance of debt, net of discount | — | | | 1,195,500 | | | 916,544 | |
Principal payments of debt | (124,101) | | | (1,445,734) | | | (1,105,650) | |
Premiums and fees to refinance debt | (8,535) | | | (50,763) | | | (32,645) | |
Dividends paid to stockholders | (34,718) | | | (34,800) | | | (34,291) | |
Customer deposits at the Bank | (3,990) | | | 14,862 | | | 26,082 | |
Common stock repurchases | (13,446) | | | — | | | — | |
Other financing activities | (13,293) | | | (9,436) | | | (5,411) | |
Net cash from financing activities | (198,083) | | | (330,371) | | | (235,371) | |
Effect of exchange rate changes on cash and cash equivalents | (16,130) | | | (4,863) | | | 6,099 | |
Change in cash and cash equivalents | (62,499) | | | (188,970) | | | (2,992) | |
Cash and cash equivalents at beginning of period | 732,480 | | | 921,450 | | | 924,442 | |
| | | | | |
| | | | | |
Cash and cash equivalents at end of period | $ | 669,981 | | | $ | 732,480 | | | $ | 921,450 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock | | Additional Paid-in Capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at December 31, 2019 | | | | | $ | 323,338 | | | $ | 98,748 | | | $ | 5,441,988 | | | $ | (840,143) | | | $ | (4,734,777) | | | $ | 289,154 | |
Cumulative effect of accounting change | | | | | — | | | — | | | (21,900) | | | — | | | — | | | (21,900) | |
Net loss | | | | | — | | | — | | | (180,376) | | | — | | | — | | | (180,376) | |
Other comprehensive income | | | | | — | | | — | | | — | | | 1,012 | | | — | | | 1,012 | |
| | | | | | | | | | | | | | | |
Dividends ($0.20 per share) | | | | | — | | | — | | | (34,291) | | | — | | | — | | | (34,291) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuance of common stock | | | | | — | | | (47,722) | | | — | | | — | | | 47,268 | | | (454) | |
Stock-based compensation | | | | | — | | | 17,476 | | | — | | | — | | | — | | | 17,476 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | 323,338 | | | 68,502 | | | 5,205,421 | | | (839,131) | | | (4,687,509) | | | 70,621 | |
| | | | | | | | | | | | | | | |
Net loss | | | | | — | | | — | | | (1,351) | | | — | | | — | | | (1,351) | |
Other comprehensive income | | | | | — | | | — | | | — | | | 58,819 | | | — | | | 58,819 | |
| | | | | | | | | | | | | | | |
Dividends ($0.20 per share) | | | | | — | | | — | | | (34,800) | | | — | | | — | | | (34,800) | |
| | | | | | | | | | | | | | | |
Issuance of common stock | | | | | — | | | (86,879) | | | — | | | — | | | 85,360 | | | (1,519) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock-based compensation | | | | | — | | | 20,862 | | | — | | | — | | | — | | | 20,862 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | 323,338 | | | 2,485 | | | 5,169,270 | | | (780,312) | | | (4,602,149) | | | 112,632 | |
| | | | | | | | | | | | | | | |
Net income | | | | | — | | | — | | | 36,940 | | | — | | | — | | | 36,940 | |
Other comprehensive loss | | | | | — | | | — | | | — | | | (55,252) | | | — | | | (55,252) | |
| | | | | | | | | | | | | | | |
Dividends ($0.20 per share) | | | | | — | | | — | | | (34,718) | | | — | | | — | | | (34,718) | |
| | | | | | | | | | | | | | | |
Issuance of common stock | | | | | — | | | (19,114) | | | (45,815) | | | — | | | 62,797 | | | (2,132) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock-based compensation | | | | | — | | | 16,629 | | | — | | | — | | | — | | | 16,629 | |
Repurchase of common stock | | | | | — | | | — | | | — | | | — | | | (13,446) | | | (13,446) | |
Balance at December 31, 2022 | | | | | $ | 323,338 | | | $ | — | | | $ | 5,125,677 | | | $ | (835,564) | | | $ | (4,552,798) | | | $ | 60,653 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common Stock | | Additional Paid-in Capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity (deficit) |
Balance at December 31, 2016 | $ | 1 |
| | $ | 483 |
| | $ | 323,338 |
| | $ | 148,125 |
| | $ | 5,107,734 |
| | $ | (940,133 | ) | | $ | (4,743,208 | ) | | $ | (103,660 | ) |
Cumulative effect of accounting changes | — |
| | — |
| | — |
| | — |
| | (137,429 | ) | | — |
| | — |
| | (137,429 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 243,528 |
| | — |
| | — |
| | 243,528 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 145,193 |
| | — |
| | 145,193 |
|
Cash dividends | | | | | | | | | | | | | | | |
Common ($0.75 per share) | — |
| | — |
| | — |
| | — |
| | (139,454 | ) | | — |
| | — |
| | (139,454 | ) |
Preference | — |
| | — |
| | — |
| | — |
| | (36 | ) | | — |
| | — |
| | (36 | ) |
Issuances of common stock | — |
| | — |
| | — |
| | (33,316 | ) | | — |
| | — |
| | 31,338 |
| | (1,978 | ) |
Conversions to common stock | — |
| | (42 | ) | | — |
| | (831 | ) | | — |
| | — |
| | 873 |
| | — |
|
Stock-based compensation | — |
| | — |
| | — |
| | 24,389 |
| | — |
| | — |
| | — |
| | 24,389 |
|
Balance at December 31, 2017 | 1 |
| | 441 |
| | 323,338 |
| | 138,367 |
| | 5,074,343 |
| | (794,940 | ) | | (4,710,997 | ) | | 30,553 |
|
Cumulative effect of accounting changes | — |
| | — |
| | — |
| | — |
| | 104,026 |
| | (116,233 | ) | | — |
| | (12,207 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 241,811 |
| | — |
| | — |
| | 241,811 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (37,788 | ) | | — |
| | (37,788 | ) |
Cash dividends | | | | | | | | | | | | | | | |
Common ($0.75 per share) | — |
| | — |
| | — |
| | — |
| | (140,466 | ) | | — |
| | — |
| | (140,466 | ) |
Preference | — |
| | — |
| | — |
| | — |
| | (32 | ) | | — |
| | — |
| | (32 | ) |
Issuances of common stock | — |
| | — |
| | — |
| | (37,030 | ) | | — |
| | — |
| | 35,959 |
| | (1,071 | ) |
Conversions to common stock | — |
| | (45 | ) | | — |
| | (904 | ) | | — |
| | — |
| | 949 |
| | — |
|
Stock-based compensation | — |
| | — |
| | — |
| | 21,042 |
| | — |
| | — |
| | — |
| | 21,042 |
|
Balance at December 31, 2018 | 1 |
| | 396 |
| | 323,338 |
| | 121,475 |
| | 5,279,682 |
| | (948,961 | ) | | (4,674,089 | ) | | 101,842 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 194,609 |
| | — |
| | — |
| | 194,609 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 108,818 |
| | — |
| | 108,818 |
|
Cash dividends | | | | | | | | | | | | | | | |
Common ($0.20 per share) | — |
| | — |
| | — |
| | — |
| | (35,353 | ) | | — |
| | — |
| | (35,353 | ) |
Preference | — |
| | — |
| | — |
| | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
Issuances of common stock | — |
| | — |
| | — |
| | (43,062 | ) | | — |
| | — |
| | 41,378 |
| | (1,684 | ) |
Conversions to common stock | — |
| | (130 | ) | | — |
| | (2,804 | ) | | — |
| | — |
| | 2,934 |
| | — |
|
Redemption of preferred/preference stock | (1 | ) | | (266 | ) | | — |
| | (10 | ) | | — |
| | — |
| | — |
| | (277 | ) |
Stock-based compensation | — |
| | — |
| | — |
| | 23,149 |
| | — |
| | — |
| | — |
| | 23,149 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (105,000 | ) | | (105,000 | ) |
Balance at December 31, 2019 | $ | — |
| | $ | — |
| | $ | 323,338 |
| | $ | 98,748 |
| | $ | 5,438,930 |
| | $ | (840,143 | ) | | $ | (4,734,777 | ) | | $ | 286,096 |
|
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements of Pitney Bowes Inc. and its wholly owned subsidiaries (we, us, our, or the company) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.
Effective January 1, 2019,2020, we adopted Accounting Standards Codification (ASC) 842,Update (ASU) 2016-13, LeasesFinancial Instruments - Credit Losses, (ASC 842), applicable to financial assets measured at amortized cost, including finance receivables, trade and other receivables and investments in debt securities classified as available-for-sale and held-to-maturity. We adopted the standard using the modified retrospective transition approach with a cumulative effect adjustment.adjustment to retained earnings, which resulted in an increase in the allowance for credit losses on accounts receivable of $15 million and the allowance for credit losses on finance receivables of $10 million and a net reduction to retained earnings of $22 million.
Pre-tax income for the twelve months ended December 31, 2022 includes a benefit of $3 million to correct misstatements related to prior periods. The impact of these misstatements is not material to the consolidated financial statements of the current annual period or for any prior quarterly or annual periods.
Factors Affecting Comparability
Certain transactions and changes occurred during 2022 that impact the comparability of our 2022 financial results to the prior periods. These transactions and changes include:
•The sale of our Borderfree cross-border ecommerce solutions business (Borderfree);
•A change in the presentation of revenue from digital delivery services primarily related to our Global Ecommerce business from a gross basis to a net basis due to an adjustment in terms of one of our contracts with the USPS; and
•A refinement in our methodology for allocating transportation costs between our Global Ecommerce and Presort Services segments.
Effective July 1, 2022, we sold Borderfree, which was reported in our Global Ecommerce segment. Prior periods have beenyear results were not recast to conform toexclude the currentrevenue and expenses from Borderfree. Accordingly, revenue and expenses for 2022 include only six months of operations for Borderfree, whereas the prior years presented include a full year of operations. Net income of Borderfree was not significant in any period presentation.presented.
Discontinued operations includes the Software Solutions business, soldThe change in December 2019revenue presentation became effective October 1, 2022. Accordingly, revenue and the Production Mail business, sold in July 2018. All prior periods have been recast to reportrelated costs of revenue for these operations as discontinued operations. See Note 4 for further details.
We recast our segment reporting to combine North America Mailing and International Mailing into the Sending Technology Solutions (SendTech Solutions) segment to reflect how we manage these operations and the products and services provided to our clients. Additionally, we sold the direct operations and moved to a dealer model in 6 smaller international markets within SendTech Solutions (Market Exits) and recognized a pre-tax loss of $18 million in other expense. In connection with the sale, we recognized a receivable for the transferfirst nine months of the lease portfolio in these international markets of $24 million. This receivable is included in other receivables.
Based2022 and full year 2021 and 2020 are reported on their nature, we determined that certain costs previously classifieda gross basis as research and developmentbusiness services revenue and cost of business services, should be classifiedrespectively, and on a net basis in other line items within costs and expenses. Accordingly, the classification of these costs are reflected as suchbusiness services revenue beginning in the income statements for the years ended December 31, 2018 and 2017. For the year ended December 31, 2018, the reclassificationfourth quarter of these costs reduced research and development expense and cost of business services by $29 million and $13 million, respectively, and increased selling, general and administrative expense and cost of equipment sales by $30 million and $12 million, respectively. For the year ended December 31, 2017, the reclassification of these costs reduced research and development expense and cost of business services by $15 million and $3 million, respectively, and increased selling, general and administrative expense and cost of equipment sales by $11 million and $7 million, respectively. Additionally, for the year ended December 31, 2018, cost of equipment sales and cost of rentals were reduced by $5 million and $3 million, respectively, and cost of support services was increased by $8 million. For the year ended December 31, 2017, both cost of equipment sales and cost of rentals were reduced by $3 million and cost of support services increased by $6 million.2022.
The December 31, 2018 balance sheet reflects the correctionrefinement to the classificationmethodology of assetsallocating transportation costs between Global Ecommerce and liabilities by reducing short-term finance receivablesPresort Services resulted in an increase to Global Ecommerce EBIT and advance billings by $106a corresponding decrease to Presort Services EBIT of approximately $10 million and $6 million, respectively, and increasing long-term finance receivables by $100 million.in 2022.
Effective January 1, 2018, we adopted ASU 2014-09,
Revenue from Contracts with Customers using the modified retrospective method and recognized a $9 million cumulative effect adjustment to retained earnings at the date of the initial application. Additionally in 2018, we adopted ASU 2016-06, Income Taxes: Intra-entity Transfers of Assets other than Inventory and recognized a $3 million cumulative effect adjustment to retained earnings and ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income with a cumulative effect adjustment to reclassify $116 million from AOCI to opening retained earnings. For more information, refer to our Annual Report on Form 10-K filed with the SEC on February 20, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and liabilities. These estimates and assumptions are based on management's best knowledge of current events, historical experience and other information available when the financial statements are prepared. These estimates include, but are not limited to, goodwill and intangible asset impairment review, deferred tax asset valuation allowance, income tax reserves, revenue recognition for multiple element arrangements, pension and other postretirement costs, allowance for doubtful accounts and credit losses, residual values of leased assets, useful lives of long-lived and intangible assets, restructuring costs, the allocation of purchase price to assets and liabilities acquired in business combinations, stock-based compensation expense and loss contingencies. Actual results could differ from those estimates and assumptions.
Cash Equivalents
Cash equivalents include interest-earning investments with maturities of three months or less at the date of purchase.
Marketable Securities
Marketable investment securities are classified as available-for-sale or held-to-maturity. 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
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Cash Equivalentsother comprehensive loss (AOCL), and Investments
Cash equivalents include interest-earning investments with maturities of three months or less at the date of purchase. Short-term investments include investments with original maturities of greater than three months and remaining maturities of less than one year from the reporting date. Investments with maturities greater than one year from the reporting date are recorded as other assets.
Investment securities classified as available-for-sale are recorded atchanges in fair value with unrealized holding gains and losses, net of tax,due to credit conditions recorded in accumulated other comprehensive income (AOCI).earnings. Purchase premiums and discounts are amortized using the effective interest method over the term of the security. Gains and losses on the salesales of available-for-sale securities are recorded on the trade date using the specific identification method. There were no unrealized losses due to credit losses charged to earnings in 2022, 2021, or 2020.
Investment securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost.
Accounts and Other Receivables and Allowance for Doubtful AccountsCredit Losses
Accounts receivablereceivables are generally due within 30 days after the invoice date. We provide an allowance for credit losses based on historical loss experience, the age of the receivables, specific troubled accounts and other currently available information.
Accounts receivablereceivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We provide an allowance for doubtful accounts based on historical loss experience, the age of the receivables, specific troubled accounts and other currently available information.uncollectible, or when they are 365 days past due, if sooner. We believe that our accounts receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients. We continually evaluate the adequacy of the allowance for doubtful accountscredit losses and make adjustmentsadjust as necessary.
Accounts and other receivables includes other receivables of $91 million at December 31, 2019 and $75 million at December 31, 2018.
Finance Receivables and Allowance for Credit Losses
Finance receivables are composedcomprised of sales-type lease receivablesleases, secured loans and unsecured loans. Sales-type leases and secured loans are from financing options provided to clients for Pitney Bowes equipment or leasing of other manufacturers' equipment and are generally due in installments over periods ranging from three to five years. Unsecured loans comprise revolving loan receivables. credit lines offered to our clients for postage and supplies and working capital purposes. These revolving credit lines are generally due monthly; however, clients may rollover outstanding balances. Interest is recognized on finance receivables using the effective interest method. Annual fees are recognized ratably over the annual period covered and client acquisition costs are expensed as incurred.
We provide an allowance for credit losses based on historical loss experience, the nature and volume of our portfolios, specific troubled accounts, prevailingadverse situations that may affect a client's ability to pay and current economic conditions and our ability to manage the collateral.outlook based on reasonable and supportable forecasts. We continually evaluate the adequacy of the allowance for credit losses and make adjustmentsadjust as necessary.
We establish creditCredit approval limits are established based on the credit quality of the client and the type of equipment financed. We discontinuecease financing revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90 days past due. Revenue recognition is resumed when the client's payments reduce the account aging to less than 60 days past due. Finance receivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.
Inventories
Inventories are stated at the lower of cost, or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.or net realizable value.
Fixed Assets
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over their estimated useful lives, which are 50 years for buildings, 10 to 20 years for building improvements, up to 3 years for internal use software development costs, 3 to 12 years for machinery and equipment and 43 to 6 years for rental equipment. Leasehold improvements are amortized over the shorter of their estimated useful life or the remaining lease term. Major improvements that add to the productive capacity or extend the life of an asset are capitalized while repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized over the shorter of their estimated useful life or the remaining lease term.expense. Fully depreciated assets are retained in fixed assets and accumulated depreciation until they are removed from service.
Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives of up to 10 years.
Research and DevelopmentDeferred Costs
ResearchCertain incremental costs to obtain a contract are capitalized if we expect the benefit of those costs to be realized over a period greater than one year. These costs primarily relate to sales commissions on multi-year equipment and development costs include engineering costs related to research and development activities andGlobal Ecommerce contracts. Costs are expensed as incurred.
Impairment Review for Long-lived and Finite-Lived Intangible Assets
Long-lived assets and finite-lived intangible assets are reviewed for impairment whenever events or changesamortized in circumstances indicate thata manner consistent with the carrying amount may not be fully recoverable. The estimated undiscounted future cash flows expected to result from the use and eventual dispositiontiming of the assetrelated revenue over the contract performance period or longer, if renewals are expected and the renewal commission is compared tonot commensurate with the asset's carrying value. The fair value ofinitial commission. Unamortized deferred costs at December 31, 2022 and December 31, 2021, included in other assets, were $41 million and $48 million, respectively. Amortization expense for these costs for the asset is determined using probability weighted expected cash flow estimates, derived from our long-term business plansyears ended December 31, 2022, 2021 and historical experience, quoted market prices when2020 was $22 million, $18 million and $10 million, respectively.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
available and appraisals, as appropriate. If the estimated undiscounted cash flows are less than the asset's carrying value, an impairment charge is recorded to reduce the assets carrying value to its fair value.
Impairment Review for Goodwill
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or sooner if circumstances indicate an impairment may exist. The impairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value an impairment loss is recognized for the difference, not to exceed the carrying amount of goodwill.
Retirement Plans
Net periodic benefit cost includes current service cost, interest cost, expected return on plan assets and the amortization of actuarial gains and losses. Actuarial gains and losses arise from actual results that differ from previous assumptions and changes in assumptions. The expected return on plan assets is based on a market-related valuation of plan assets where differences between the actual and expected return on plan assets are recognized over a five-year period. Actuarial gains and losses are recognized in other comprehensive income, net of tax, and amortized to benefit cost primarily over the life expectancy of plan participants. The funded status of pension and other postretirement benefit plans is recognized in the consolidated balance sheets.
Stock-based Compensation
We primarily issue restricted stock units, non-qualified stock options and performance stock units under our stock award plans. Compensation expense for stock-based awards is measured based on the estimated fair value of the awards expected to vest and recognized on a straight-line basis over the requisite service period. The fair value of stock awards is estimated based on the fair value of our common stock on the grant date, less the present value of expected dividends or using the Black-Scholes valuation model or Monte Carlo simulation model. We believe that the valuation techniques and underlying assumptions are appropriate in estimating the fair value of stock awards. The majority of stock-based compensation expense is recorded in selling, general and administrative expense. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our historical forfeiture rates.
Revenue Recognition
We derive revenue from multiple sources including sales, rentals, financing and services. Certain transactions are consummated at the same time and can therefore generate revenue from multiple sources. The most common form of these transactions involves a sale or noncancelable lease of equipment, meter services and an equipment maintenance agreement. We are required to determine whether each product and service within the contract should be treated as a separate performance obligation (unit of accounting) for revenue recognition purposes. For contracts that include multiple performance obligations, the transaction price is allocated based on relative standalone selling prices (SSP), which are a range of selling prices that we would sell a goodproduct or service to a customer on a separate basis. SSP are established for each performance obligation at the inception of the contract and can be observable prices or estimated. The allocation of the transaction price to the various performance obligations impacts the timing of revenue recognition, but does not change the total revenue recognized. More specifically, revenue related to our offerings is recognized as follows:
Business services
Business services revenue includes revenue fromfulfillment, delivery and return services, cross-border solutions, mail processing services and ecommerceshipping subscription solutions. TheseRevenue for fulfillment, delivery and return services, represent a series of distinctcross-border solutions and mail processing services that are similar in nature and revenue is recognized over time using an output method based on the number of parcels or mail pieces either processed or delivered, depending on the service type, since that measure best depicts the value of goods and services transferred to the client over the contract period. Revenue for shipping subscription solutions is recognized ratably over the contract period as the client obtains equal benefit from these services are provided.throughout the period. We review third partythird-party relationships and record revenue on a gross basis when we act as a principal in a transaction and on a net basis when we act as an agent between a client and vendor. In determining whether we are acting as principal or agent, we consider several factors such as whether we are the primary obligor to the client or have control over pricing or have inventory risk.pricing.
Support services
Support services revenue includes revenue from maintenance, professional and subscription services for our mailing equipment service contracts, subscriptions and meterprofessional services for our digital delivery services. Revenue is allocated to these services using selling prices charged in standalone replacementtransactions. Revenue for maintenance and renewal transactions. Since we have a stand-ready obligation to provide thesesubscription services is recognized ratably over the entire contract term,period and revenue for professional services is recognized on a straight-line basis over the term of the agreement.when services are provided.
Financing
We provide financing for our products primarily through sales-type leases. We also provideleases and revolving lines of credit for the purchase of postage and supplies. Financing revenue also includes finance income, late fees and investment income, gains and losses at the Bank. We record financing income over the lease term using the effective interest method. Financing revenue also includes amounts related to sales-type leases that customers have extended or renewed for an additional term. Revenue for these contracts is recognized over the term of the modified lease using the effective interest method. We believe that our sales-type lease portfolio contains only normal collection risk.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Equipment residual values are determined at the inception of the lease using estimatesmanagement's best estimate of fair value at the end of the lease term. Fair value estimates are determined based primarily on historical renewal experience, used equipment markets, competition and technological changes. We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered "other-than-temporary" are recognized immediately. Increases in estimated future residual values are not recognized until the equipment is remarketed.
Equipment sales
We sell and lease equipment directly to customers and to distributors (re-sellers) throughout the world. The amount of revenue allocated to the equipment is based on a range of observable selling prices in standalone transactions. Revenue from the sale of equipment under sales-type leases is recognized as control of the equipment transfers to the customer, whichcustomer. Revenue from the sale of equipment under sales-type leases is recognized upon shipment for self-installed products and upon installation or customer acceptance for other products. Revenue from the direct sale of equipment is recognized as control of the equipment transfers to the customer, which is upon delivery for self-installed products and upon installation or customer acceptance for other products. We do not typically offer any rights of return.
Supplies
Supplies revenue includes revenue from supplies for our mailing equipment and is generally recognized upon delivery.delivery when control transfers to the customer.
Rentals
Rentals revenue includes revenue from mailing equipment that does not meet the criteria to be accounted for as a sales-type lease. We may invoice in advance for rentals according to the terms of the agreement. WeAdvanced billings are initially defer these advanced billingsdeferred and recognize rentals revenuerecognized on
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
a straight-line basis over the rentalbilling period. Revenue generated from financing clients for the continued use of equipment subsequent to the expiration of the original lease is recognized as rentals revenue.
Shipping and Handling
Shipping and handling costs are recognized as incurredcosts of revenue as incurred.
Research and recorded in costDevelopment Costs
Research and development includes research, development and engineering activities relating to the development of revenues.
Deferred Charges
Certain incremental costs to obtain anew products and solutions and enhancements of existing products and solutions. Costs primarily include salaries, benefits and other employee-related expenses, materials, contract are capitalized if we expect the benefit of those costs to be realized over a period greater than one year. These costs primarily relate to sales commission on multi-year equipment. Theseservices, information systems and facilities and equipment costs. Research and development costs are amortized in a manner consistent with the timing of the related revenue over the contract performance period or longer, if renewals are expected and the renewal commission is not commensurate with the initial commission. Unamortized contract costs at December 31, 2019 and December 31, 2018 were $26 million and $20 million, respectively, and are included in other assets. Amortizationcharged to expense for the year ended December 31, 2019 and 2018 was $7 million and $9 million, respectively.as incurred.
Restructuring Charges
Costs associated with restructuring actionsRestructuring costs primarily include employee severance and other employeerelated separation costs and real estate lease early termination costs. TheseEmployee severance and related costs are recognized when a liability is incurred, which is generally upon communication to the affected employees, and the amount to be paid is both probable and reasonably estimable. Severance accruals are based on company policy, historical experience and negotiated settlements. Costs for the early termination of real estate leases are recognized as incurred.
Stock-based Compensation
We primarily issue restricted stock and non-qualified stock options under our stock award plans. Compensation expense for stock-based awards is measured based on the estimated fair value of the awards expected to vest and recognized ratably over the requisite service period. The fair value of restricted stock is estimated based on the fair value of our common stock on the grant date, less the present value of expected dividends. The fair value of non-qualified stock options is determined using the Black-Scholes valuation model. We believe that these valuation techniques and the underlying assumptions are appropriate in estimating the fair value of stock awards. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our historical forfeiture rates. Stock-based compensation expense is recognized primarily in selling, general and administrative expense.
Retirement Plans
Net periodic benefit cost includes current service cost, interest cost, expected return on plan assets and the amortization of actuarial gains and losses. Actuarial gains and losses arise from actual results that differ from previous assumptions and changes in assumptions. The expected return on plan assets is based on a market-related valuation of plan assets where differences between the actual and expected return on plan assets are recognized over a five-year period. Actuarial gains and losses are recognized in other comprehensive loss, net of tax, and amortized to benefit cost primarily over the life expectancy of plan participants. The funded status of pension and other postretirement benefit plans is recognized in the consolidated balance sheets.
Impairment Review
Long-lived assets and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset is compared to the asset's carrying value. The fair value of the asset is determined using probability weighted expected cash flow estimates, derived from our long-term business plans and historical experience, quoted market prices when available and appraisals, as appropriate.
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or sooner if circumstances indicate an impairment may exist. The impairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the fair value of the reporting unit is less than the carrying value of the net assets assigned to the reporting unit, a goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit.
We performed our annual goodwill impairment test to assess the recoverability of the carrying value of goodwill and determined that the fair value of each reporting unit exceeded its carrying value and no impairment existed. Further, the significant shortfall in the fourth quarter performance of the Global Ecommerce reporting unit caused us to reassess this reporting unit’s goodwill for impairment. See Note 9 for further details.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 limit these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of currency exchange rate fluctuations on financial results and manage the related cost of debt. We do not use derivatives for trading or speculative purposes.
We record derivativeDerivative instruments are measured at fair value and reported as assets and liabilities on the consolidated balance sheets, as applicable. The accounting for changes in 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. To qualify as a hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship must be formally documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness of the hedge relationship is evaluated on a retrospective and prospective basis.
The use of derivative instruments exposes us to counterparty credit risk. To mitigate such risks, we only enter into contracts onlyagreements with financial institutions that meet stringent credit requirements. We regularly review our credit exposure balances and the creditworthiness of our counterparties. We have not seen a material change in the creditworthiness of our derivative counterparties.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date of such change. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. In estimating the necessity and amount of a valuation allowance, we consider all available evidence for each jurisdiction, including historical operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. We adjust the valuation allowance through income tax expense when new information becomes available that would alter our determination of the amount of deferred tax assets that will ultimately be realized.
Earnings per Share
Basic earnings per share is computed based on the weighted-average number of common shares outstanding during the year. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding during the year plus the dilutive effect of common stock equivalents.
Translation of Non-U.S. Currency Amounts
In general, the functional currency of our foreign operations is the local currency. Assets and liabilities of subsidiaries operating outside the U.S. are translated at rates in effect at the end of the period and revenue and expenses are translated at average monthly rates during the period. Net deferred translation gains and losses are included as a component of accumulated other comprehensive income.loss.
Loss Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results of operations and financial position. Legal fees are expensed as incurred.
New Accounting Pronouncements
New Accounting Pronouncements - StandardsNot Yet Adopted in 2019
On January 1, 2019, we adopted ASC 842In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. usingThe transition to new reference interest rates will require certain contracts to be modified and the modified retrospectiveASU is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition approach of applyingfrom the standardLondon Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The accommodations provided by the ASU are effective through December 31, 2024, and may be applied at the beginning of the earliest comparativeany interim period presented in the financial statements. We recognized a cumulative effect adjustment at January 1, 2017 to reduce retained earnings by $137 million and recast prior period financial statements. See Notes 7 and 17 for more information.within that time frame.
From a lessor perspective, the standard simplifies the accounting for lease modifications and aligns accounting of lease contracts with revenue recognition guidance. We continue to classify leases as sales-type or operating, with the determination affecting both the pattern and classification of income recognition. There were changes in the timing and classification of revenue related to contract modifications. There were also changes related to the definition of a leased asset, which requires us to account for two lease components as a single lease component. Under prior guidance, one of the components was generally accounted for as a sales-type lease and the second as an operating lease. Under ASC 842, the two components are generally accounted for as sales-type leases and certain income and costs previously recognized over the life of the lease are now accelerated.
From a lessee perspective, the standard requires us to recognize right-of-use assets and lease liabilities for real estate and equipment operating leases and to provide new disclosures about our leasing activities. We elected the short-term lease recognition exemption and did not recognize right-of-use assets or lease liabilities for leases with a term less than 12 months. We also elected the practical expedient to not separate lease and non-lease components for our lessee portfolio.
On January 1, 2019, we also adopted Accounting Standards Update (ASU) 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The adoption of this standard did not have a material impact on our consolidated financial statements.
In July 2019, we prospectively adopted ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this standard did not have a material impact on our consolidated financial statements.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
New Accounting Pronouncements - Standards Not Yet Adopted
In June 2016,Effective in December 2022 with the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a current expectedmodification of our revolving credit loss model, which requires companiesfacility, we elected to measure expected credit losses for all financial instruments held atapply the reporting date based on historical experience, current conditions and reasonably supportable forecasts. This replaces the existing incurred loss model and is applicablepractical expedient to the measurementreplacement of credit losses on financial assets measured at amortized costLIBOR reference rate and appliesour assessment of hedge effectiveness. We may apply other expedients as additional reference rate changes occur. We continue to some off-balance sheet credit exposures. We have implemented internal controls and accounting policies to facilitate the preparation of financial information that will be required under the new standard. This standard is effective beginning January 1, 2020. We will adopt the standard using the modified retrospective transition approach with a cumulative effect adjustment at January 1, 2020 to retained earnings. We do not expect the cumulative effect adjustment, orassess the impact of this standard on an ongoing basis, will be material to our consolidated financial statements.
In December 2019,March 2022, the FASB issued ASU 2019-12,2022-02, Simplifying the Accounting for Income TaxesFinancial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, .which requires disclosure of gross write-offs and recoveries of finance receivables by year of origination. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles and also clarifies and amends existing guidance. This standard is effective for interim and annual periods beginning January 1, 2021,after December 15, 2022, with early adoption permitted. We are currently assessing the impactwill adopt this standard in the first quarter of 2023 and the adoption will not have a material impact on our consolidated financial statements.statement disclosures.
2. Revenue
Disaggregated Revenue
The following tables disaggregate our revenue by source and timing of recognition:
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Revenue from products and services | | | | | | |
Business services | $ | 1,576,348 | | $ | 602,016 | | $ | 71,577 | | $ | 2,249,941 | | $ | — | | $ | 2,249,941 | |
Support services | — | | — | | 438,191 | | 438,191 | | — | | 438,191 | |
Financing | — | | — | | — | | — | | 274,508 | | 274,508 | |
Equipment sales | — | | — | | 88,022 | | 88,022 | | 266,938 | | 354,960 | |
Supplies | — | | — | | 154,186 | | 154,186 | | — | | 154,186 | |
Rentals | — | | — | | — | | — | | 66,256 | | 66,256 | |
Subtotal | 1,576,348 | | 602,016 | | 751,976 | | 2,930,340 | | $ | 607,702 | | $ | 3,538,042 | |
| | | | | | |
| | | | | | |
Revenue from leasing transactions and financing | — | | — | | 607,702 | | 607,702 | | | |
| | | | | | |
| | | | | | |
Total revenue | $ | 1,576,348 | | $ | 602,016 | | $ | 1,359,678 | | $ | 3,538,042 | | | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — | | $ | — | | $ | 318,438 | | $ | 318,438 | | | |
Products/services transferred over time | 1,576,348 | | 602,016 | | 433,538 | | 2,611,902 | | | |
Total | $ | 1,576,348 | | $ | 602,016 | | $ | 751,976 | | $ | 2,930,340 | | | |
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Revenue from products and services | | | | | | |
Business services | $ | 1,151,510 |
| $ | 529,588 |
| $ | 29,703 |
| $ | 1,710,801 |
| $ | — |
| $ | 1,710,801 |
|
Support services | — |
| — |
| 506,187 |
| 506,187 |
| — |
| 506,187 |
|
Financing | — |
| — |
| — |
| — |
| 368,090 |
| 368,090 |
|
Equipment sales | — |
| — |
| 80,562 |
| 80,562 |
| 271,542 |
| 352,104 |
|
Supplies | — |
| — |
| 187,287 |
| 187,287 |
| — |
| 187,287 |
|
Rentals | — |
| — |
| — |
| — |
| 80,656 |
| 80,656 |
|
Subtotal | 1,151,510 |
| 529,588 |
| 803,739 |
| 2,484,837 |
| $ | 720,288 |
| $ | 3,205,125 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 368,090 |
| 368,090 |
| | |
Equipment sales | — |
| — |
| 271,542 |
| 271,542 |
| | |
Rentals | — |
| — |
| 80,656 |
| 80,656 |
| | |
Total revenue | $ | 1,151,510 |
| $ | 529,588 |
| $ | 1,524,027 |
| $ | 3,205,125 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 334,046 |
| $ | 334,046 |
| | |
Products/services transferred over time | 1,151,510 |
| 529,588 |
| 469,693 |
| 2,150,791 |
| | |
Total | $ | 1,151,510 |
| $ | 529,588 |
| $ | 803,739 |
| $ | 2,484,837 |
| | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Revenue from products and services | | | | | | |
Business services | $ | 1,702,580 | | $ | 573,480 | | $ | 58,614 | | $ | 2,334,674 | | $ | — | | $ | 2,334,674 | |
Support services | — | | — | | 460,888 | | 460,888 | | — | | 460,888 | |
Financing | — | | — | | — | | — | | 294,418 | | 294,418 | |
Equipment sales | — | | — | | 91,015 | | 91,015 | | 259,123 | | 350,138 | |
Supplies | — | | — | | 159,438 | | 159,438 | | — | | 159,438 | |
Rentals | — | | — | | — | | — | | 74,005 | | 74,005 | |
Subtotal | 1,702,580 | | 573,480 | | 769,955 | | 3,046,015 | | $ | 627,546 | | $ | 3,673,561 | |
| | | | | | |
| | | | | | |
Revenue from leasing transactions and financing | — | | — | | 627,546 | | 627,546 | | | |
| | | | | | |
| | | | | | |
Total revenue | $ | 1,702,580 | | $ | 573,480 | | $ | 1,397,501 | | $ | 3,673,561 | | | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — | | $ | — | | $ | 318,077 | | $ | 318,077 | | | |
Products/services transferred over time | 1,702,580 | | 573,480 | | 451,878 | | 2,727,938 | | | |
Total | $ | 1,702,580 | | $ | 573,480 | | $ | 769,955 | | $ | 3,046,015 | | | |
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Revenue from products and services | | | | | | |
Business services | $ | 1,618,897 | | $ | 521,212 | | $ | 51,197 | | $ | 2,191,306 | | $ | — | | $ | 2,191,306 | |
Support services | — | | — | | 473,292 | | 473,292 | | — | | 473,292 | |
Financing | — | | — | | — | | — | | 341,034 | | 341,034 | |
Equipment sales | — | | — | | 74,660 | | 74,660 | | 240,222 | | 314,882 | |
Supplies | — | | — | | 159,282 | | 159,282 | | — | | 159,282 | |
Rentals | — | | — | | — | | — | | 74,279 | | 74,279 | |
Subtotal | 1,618,897 | | 521,212 | | 758,431 | | 2,898,540 | | $ | 655,535 | | $ | 3,554,075 | |
| | | | | | |
| | | | | | |
Revenue from leasing transactions and financing | — | | — | | 655,535 | | 655,535 | | | |
| | | | | | |
| | | | | | |
Total revenue | $ | 1,618,897 | | $ | 521,212 | | $ | 1,413,966 | | $ | 3,554,075 | | | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — | | $ | — | | $ | 293,648 | | $ | 293,648 | | | |
Products/services transferred over time | 1,618,897 | | 521,212 | | 464,783 | | 2,604,892 | | | |
Total | $ | 1,618,897 | | $ | 521,212 | | $ | 758,431 | | $ | 2,898,540 | | | |
Our performance obligations for revenue from products and services are as follows:
Business services includes fulfillment, delivery and return services, cross-border solutions, mail processing services and shipping subscription solutions. Revenue for fulfillment, delivery and return services, cross-border solutions and mail processing services is recognized over time using an output method based on the number of parcels or mail pieces either processed or delivered, depending on the service type, since that measure best depicts the value of goods and services transferred to the client over the contract period. Contract terms for these services initially range from one to five years and contain annual renewal options. Revenue for shipping subscription solutions is recognized ratably over the contract period as the client obtains equal benefit from these services throughout the period.
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Revenue from products and services | | | | | | |
Business services | $ | 1,022,862 |
| $ | 515,795 |
| $ | 27,813 |
| $ | 1,566,470 |
| $ | — |
| $ | 1,566,470 |
|
Support services | — |
| — |
| 552,472 |
| 552,472 |
| — |
| 552,472 |
|
Financing | — |
| — |
| — |
| — |
| 394,557 |
| 394,557 |
|
Equipment sales | — |
| — |
| 88,616 |
| 88,616 |
| 307,036 |
| 395,652 |
|
Supplies | — |
| — |
| 218,304 |
| 218,304 |
| — |
| 218,304 |
|
Rentals | — |
| — |
| — |
| — |
| 84,067 |
| 84,067 |
|
Subtotal | 1,022,862 |
| 515,795 |
| 887,205 |
| 2,425,862 |
| $ | 785,660 |
| $ | 3,211,522 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 394,557 |
| 394,557 |
| | |
Equipment sales | — |
| — |
| 307,036 |
| 307,036 |
| | |
Rentals | — |
| — |
| 84,067 |
| 84,067 |
| | |
Total revenue | $ | 1,022,862 |
| $ | 515,795 |
| $ | 1,672,865 |
| $ | 3,211,522 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 386,844 |
| $ | 386,844 |
| | |
Products/services transferred over time | 1,022,862 |
| 515,795 |
| 500,361 |
| 2,039,018 |
| | |
Total | $ | 1,022,862 |
| $ | 515,795 |
| $ | 887,205 |
| $ | 2,425,862 |
| | |
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Revenue from products and services | | | | | | |
Business services | $ | 551,678 |
| $ | 497,901 |
| $ | 21,442 |
| $ | 1,071,021 |
| $ | — |
| $ | 1,071,021 |
|
Support services | 564 |
| — |
| 580,910 |
| 581,474 |
| — |
| 581,474 |
|
Financing | — |
| — |
| — |
| — |
| 406,395 |
| 406,395 |
|
Equipment sales | — |
| — |
| 119,416 |
| 119,416 |
| 281,288 |
| 400,704 |
|
Supplies | — |
| — |
| 231,412 |
| 231,412 |
| — |
| 231,412 |
|
Rentals | — |
| — |
| — |
| — |
| 93,001 |
| 93,001 |
|
Subtotal | 552,242 |
| 497,901 |
| 953,180 |
| 2,003,323 |
| $ | 780,684 |
| $ | 2,784,007 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 406,395 |
| 406,395 |
| | |
Equipment sales | — |
| — |
| 281,288 |
| 281,288 |
| | |
Rentals | — |
| — |
| 93,001 |
| 93,001 |
| | |
Total revenue | $ | 552,242 |
| $ | 497,901 |
| $ | 1,733,864 |
| $ | 2,784,007 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 421,470 |
| $ | 421,470 |
| | |
Products/services transferred over time | 552,242 |
| 497,901 |
| 531,710 |
| 1,581,853 |
| | |
Total | $ | 552,242 |
| $ | 497,901 |
| $ | 953,180 |
| $ | 2,003,323 |
| | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Our performance obligations are as follows:
Business services includes providing mail processing services, cross-border solutions, shipping solutions and fulfillment, delivery and return services. Revenue is recognized over time as the services are provided. Contract terms for these services range from one to five years followed by annual renewal periods.
Support services includes providing maintenance, professional meter and other subscription services for our equipment and digital mailing equipment.and shipping technology solutions. Contract terms range from one year to five years, depending on the term of the lease contract for the related equipment. Revenue for maintenance subscription and metersubscription services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.
Equipment sales generally includeincludes the sale of mailing and shipping equipment, excluding sales-type leases. We recognize revenue upon delivery for self-install equipment and upon acceptance or installation for other equipment. We provide a warranty that ourthe equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.
Supplies revenue includes revenue from supplies for our mailing equipment and is recognized upon delivery.
Revenue from leasing transactions and financing includes revenue from sales-type leases,and operating leases, finance income, late fees and late fees.investment income, gains and losses at the Bank.
Advance Billings from Contracts with Customers
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Location | | December 31, 2022 | | December 31, 2021 | | Increase/ (decrease) |
Advance billings, current | Advance billings | | $ | 97,904 | | | $ | 92,926 | | | $ | 4,978 | |
Advance billings, noncurrent | Other noncurrent liabilities | | $ | 906 | | | $ | 1,109 | | | $ | (203) | |
|
| | | | | | | | | | | | | |
| Balance Sheet Location | | December 31, 2019 | | December 31, 2018 | | Increase/ (decrease) |
Advance billings, current | Advance billings | | $ | 92,464 |
| | $ | 111,829 |
| | $ | (19,365 | ) |
Advance billings, noncurrent | Other noncurrent liabilities | | $ | 1,245 |
| | $ | 1,985 |
| | $ | (740 | ) |
Advance billings are recorded when cash payments are due in advance of our performance. Revenue is recognized ratably over the contract term. Items in advance billings primarily relate to support services on mailing equipment. Revenue is recognized ratably over the contract term.
The net decrease in advance billings at December 31, 2019 is due to revenue recognized during the period in excess of advance billings. Revenue recognized during the periodtwelve months ended December 31, 2022 includes $112$93 million of advance billings at the beginning of the period, partially offset by advanceperiod. Advance billings, in the year.current at December 31, 2022 and 2021 also includes $7 million and $6 million, respectively, from leasing transactions.
Future Performance Obligations
Future performance obligations include revenue streams bundled with our leasing contracts, primarily maintenance meter services and other subscription services. The transaction prices allocated to future performance obligations will be recognized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2024 | | 2025-2027 | | Total |
SendTech Solutions | $ | 260,058 | | | $ | 191,558 | | | $ | 235,328 | | | $ | 686,944 | |
|
| | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022-2024 | | Total |
SendTech Solutions | $ | 288,689 |
| | $ | 223,759 |
| | $ | 261,947 |
| | $ | 774,395 |
|
The table above does not include revenue related tofor performance obligations forunder contracts with terms less than 12 months and expected considerationor revenue for those performance obligations where revenue is recognized based on the amount billable to the customer.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
3. Segment Information
Our reportable segments are Global Ecommerce, Presort Services and SendTech Solutions. Global Ecommerce and Presort Services comprise the Commerce Services reporting group. The principal products and services of each reportable segment are as follows:
Global Ecommerce: Includes the revenue and related expenses from productsdomestic parcel services, cross-border solutions and services that facilitate domestic retail and ecommerce shipping solutions, including fulfillment and returns, and global cross-border ecommerce transactions.digital delivery services.
Presort Services: Includes the revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail, and Bound and Packet Mail (MarketingMarketing Mail Flats and Bound Printed Matter)Matter for postal worksharing discounts.
SendTech Solutions: Includes the revenue and related expenses from sending technology solutions for physical mailing,and digital mailing and shipping technology solutions,
financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels
and packages.flats.
Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, assetgoodwill impairment charges and other items not allocated to a particular business segment. Costs related to shared assets are allocated to the relevant segments. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The following tables provide information about our reportable segments and reconciliation of segment EBIT to net income.income (loss).
| | | | | | | | | | | | | | | | | |
| Revenue |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Global Ecommerce | $ | 1,576,348 | | | $ | 1,702,580 | | | $ | 1,618,897 | |
Presort Services | 602,016 | | | 573,480 | | | 521,212 | |
SendTech Solutions | 1,359,678 | | | 1,397,501 | | | 1,413,966 | |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | $ | 3,554,075 | |
| | | | | |
Geographic data: | | | | | |
United States | $ | 3,065,211 | | | $ | 3,114,905 | | | $ | 3,112,285 | |
Outside United States | 472,831 | | | 558,656 | | | 441,790 | |
Total revenue | $ | 3,538,042 | | | $ | 3,673,561 | | | $ | 3,554,075 | |
|
| | | | | | | | | | | |
| Revenues |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Global Ecommerce | $ | 1,151,510 |
| | $ | 1,022,862 |
| | $ | 552,242 |
|
Presort Services | 529,588 |
| | 515,795 |
| | 497,901 |
|
Commerce Services | 1,681,098 |
| | 1,538,657 |
| | 1,050,143 |
|
SendTech Solutions | 1,524,027 |
| | 1,672,865 |
| | 1,733,864 |
|
Total revenue | $ | 3,205,125 |
| | $ | 3,211,522 |
| | $ | 2,784,007 |
|
| | | | | |
Geographic data: | | | | | |
United States | $ | 2,745,928 |
| | $ | 2,679,300 |
| | $ | 2,262,249 |
|
Outside United States | 459,197 |
| | 532,222 |
| | 521,758 |
|
Total revenue | $ | 3,205,125 |
| | $ | 3,211,522 |
| | $ | 2,784,007 |
|
| | | | | | | | | | | | | | | | | |
| EBIT |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Global Ecommerce | $ | (100,308) | | | $ | (98,673) | | | $ | (82,894) | |
Presort Services | 82,430 | | | 79,721 | | | 55,799 | |
SendTech Solutions | 400,909 | | | 429,415 | | | 442,648 | |
Total segment EBIT | 383,031 | | | 410,463 | | | 415,553 | |
Reconciling items: | | | | | |
Interest, net | (141,769) | | | (143,945) | | | (153,915) | |
Unallocated corporate expenses | (204,251) | | | (207,774) | | | (200,406) | |
Restructuring charges | (18,715) | | | (19,003) | | | (20,712) | |
Goodwill impairment | — | | | — | | | (198,169) | |
| | | | | |
Gain on sale of assets | 14,372 | | | 1,434 | | | 11,908 | |
Gain (loss) on sale of businesses, including transaction costs | 12,205 | | | 7,619 | | | (641) | |
Loss on debt redemption/refinancing | (4,993) | | | (56,209) | | | (36,987) | |
| | | | | |
(Provision) benefit for income taxes | (2,940) | | | 10,922 | | | (7,122) | |
Income (loss) from continuing operations | 36,940 | | | 3,507 | | | (190,491) | |
(Loss) income from discontinued operations, net of tax | — | | | (4,858) | | | 10,115 | |
Net income (loss) | $ | 36,940 | | | $ | (1,351) | | | $ | (180,376) | |
| | | | | | | | | | | | | | | | | |
| Depreciation and amortization |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Global Ecommerce | $ | 78,296 | | | $ | 79,128 | | | $ | 69,676 | |
Presort Services | 28,039 | | | 27,243 | | | 31,769 | |
SendTech Solutions | 29,489 | | | 29,950 | | | 34,316 | |
Total for reportable segments | 135,824 | | | 136,321 | | | 135,761 | |
Corporate | 27,992 | | | 26,538 | | | 24,864 | |
Total depreciation and amortization | $ | 163,816 | | | $ | 162,859 | | | $ | 160,625 | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Capital expenditures |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Global Ecommerce | $ | 51,430 | | | $ | 89,488 | | | $ | 46,427 | |
Presort Services | 23,363 | | | 36,628 | | | 15,795 | |
SendTech Solutions | 33,364 | | | 26,028 | | | 28,823 | |
Total for reportable segments | 108,157 | | | 152,144 | | | 91,045 | |
Corporate | 16,683 | | | 31,898 | | | 13,942 | |
Total capital expenditures | $ | 124,840 | | | $ | 184,042 | | | $ | 104,987 | |
| | | | | | | | | | | | | | | | | |
| Assets |
| December 31, |
| 2022 | | 2021 | | 2020 |
Global Ecommerce | $ | 996,297 | | | $ | 1,032,434 | | | $ | 994,554 | |
Presort Services | 510,345 | | | 479,392 | | | 523,690 | |
SendTech Solutions | 2,023,020 | | | 2,013,361 | | | 2,071,028 | |
Total for reportable segments | 3,529,662 | | | 3,525,187 | | | 3,589,272 | |
Cash and cash equivalents | 669,981 | | | 732,480 | | | 921,450 | |
Short-term investments | 11,172 | | | 14,440 | | | 18,974 | |
| | | | | |
Long-term investments | 259,977 | | | 333,052 | | | 364,212 | |
| | | | | |
Other corporate assets | 270,563 | | | 353,712 | | | 330,455 | |
Consolidated assets | $ | 4,741,355 | | | $ | 4,958,871 | | | $ | 5,224,363 | |
|
| | | | | | | | | | | |
| EBIT |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Global Ecommerce | $ | (70,146 | ) | | $ | (32,379 | ) | | $ | (17,899 | ) |
Presort Services | 70,693 |
| | 73,768 |
| | 97,506 |
|
Commerce Services | 547 |
| | 41,389 |
| | 79,607 |
|
SendTech Solutions | 490,322 |
| | 558,959 |
| | 553,266 |
|
Total segment EBIT | 490,869 |
| | 600,348 |
| | 632,873 |
|
Reconciling items: | |
| | | | |
|
Interest, net | (155,558 | ) | | (159,757 | ) | | (164,162 | ) |
Unallocated corporate expenses | (211,529 | ) | | (185,919 | ) | | (219,924 | ) |
Restructuring charges and asset impairments, net | (69,606 | ) | | (25,899 | ) | | (44,849 | ) |
Pension settlement | — |
| | (31,329 | ) | | — |
|
Loss on Market Exits | (17,683 | ) | | — |
| | — |
|
Transaction costs | (2,728 | ) | | (1,359 | ) | | (6,384 | ) |
Loss on extinguishment of debt | (6,623 | ) | | (7,964 | ) | | (3,856 | ) |
Benefit (provision) for income taxes | 13,007 |
| | (6,416 | ) | | (13,659 | ) |
Income from continuing operations | 40,149 |
| | 181,705 |
| | 180,039 |
|
Income from discontinued operations, net of tax | 154,460 |
| | 60,106 |
| | 63,489 |
|
Net income | $ | 194,609 |
| | $ | 241,811 |
| | $ | 243,528 |
|
| | | | | | | | | | | | | | | | | |
| |
| | | | | |
Identifiable long-lived assets: | | | | | |
United States | $ | 730,347 | | | $ | 658,070 | | | $ | 613,990 | |
Outside United States | 13,941 | | | 14,294 | | | 17,641 | |
Total | $ | 744,288 | | | $ | 672,364 | | | $ | 631,631 | |
4. Discontinued Operations
Discontinued operations for the years ended December 31, 2021 and 2020 primarily include net working capital and other adjustments relating to the sale of the Software Solutions business in 2019 (except for the software business in Australia, which closed in January 2020). Discontinued operations for the year ended December 31, 2021 also includes a tax charge related to the sale of the Production Mail business in 2018.
|
| | | | | | | | | | | |
| Depreciation and amortization |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Global Ecommerce | $ | 68,385 |
| | $ | 61,046 |
| | $ | 36,786 |
|
Presort Services | 29,440 |
| | 26,838 |
| | 26,541 |
|
Commerce Services | 97,825 |
| | 87,884 |
| | 63,327 |
|
SendTech Solutions | 39,758 |
| | 39,104 |
| | 39,359 |
|
Total for reportable segments | 137,583 |
| | 126,988 |
| | 102,686 |
|
Corporate | 21,559 |
| | 21,476 |
| | 24,104 |
|
Total depreciation and amortization | $ | 159,142 |
| | $ | 148,464 |
| | $ | 126,790 |
|
|
| | | | | | | | | | | |
| Capital expenditures |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Global Ecommerce | $ | 53,374 |
| | $ | 46,073 |
| | $ | 26,810 |
|
Presort Services | 27,394 |
| | 42,531 |
| | 20,860 |
|
Commerce Services | 80,768 |
| | 88,604 |
| | 47,670 |
|
SendTech Solutions | 32,276 |
| | 24,648 |
| | 40,445 |
|
Total for reportable segments | 113,044 |
| | 113,252 |
| | 88,115 |
|
Corporate | 24,209 |
| | 24,558 |
| | 30,132 |
|
Total capital expenditures | $ | 137,253 |
| | $ | 137,810 |
| | $ | 118,247 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
|
| | | | | | | | | | | |
| Assets |
| December 31, |
| 2019 | | 2018 | | 2017 |
Global Ecommerce | $ | 1,102,313 |
| | $ | 1,023,732 |
| | $ | 1,016,045 |
|
Presort Services | 524,817 |
| | 431,512 |
| | 387,701 |
|
Commerce Services | 1,627,130 |
| | 1,455,244 |
| | 1,403,746 |
|
SendTech Solutions | 2,152,734 |
| | 2,325,797 |
| | 2,454,094 |
|
Total for reportable segments | 3,779,864 |
| | 3,781,041 |
| | 3,857,840 |
|
Cash and cash equivalents | 924,442 |
| | 867,262 |
| | 1,009,021 |
|
Short-term investments | 115,879 |
| | 59,391 |
| | 48,988 |
|
Assets of discontinued operations | 17,229 |
| | 602,823 |
| | 923,012 |
|
Other corporate assets | 629,486 |
| | 627,902 |
| | 795,745 |
|
Consolidated assets | $ | 5,466,900 |
| | $ | 5,938,419 |
| | $ | 6,634,606 |
|
|
| | | | | | | | | | | |
Identifiable long-lived assets: | | | | | |
United States | $ | 399,234 |
| | $ | 424,706 |
| | $ | 389,944 |
|
Outside United States | 18,168 |
| | 20,023 |
| | 26,696 |
|
Total | $ | 417,402 |
| | $ | 444,729 |
| | $ | 416,640 |
|
4. Discontinued Operations
In December 2019, we completed the sale of the Software Solutions business, with the exception of the software business in Australia, which closed in January 2020, to an affiliate of Syncsort Incorporated for approximately $700 million, subject to certain adjustments.
The operating results of the Software Solutions business are now reported as discontinued operations. Discontinued operations also includes the Production Mail business that was sold in July 2018.
Selected financial information of discontinued operations is as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Software Solutions | | Production Mail | | Total |
Revenue | $ | 272,565 |
| | $ | — |
| | $ | 272,565 |
|
| | | | | |
Earnings (loss) from discontinued operations | $ | 22,160 |
| | $ | (663 | ) | | $ | 21,497 |
|
Gain (loss) on sale | 195,957 |
| | (14,644 | ) | | 181,313 |
|
Income (loss) from discontinued operations before taxes | $ | 218,117 |
| | $ | (15,307 | ) | | 202,810 |
|
Tax provision | | | | | 48,350 |
|
Income from discontinued operations, net of tax | | | | | $ | 154,460 |
|
|
| | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Software Solutions | | Production Mail | | Total |
Revenue | $ | 340,855 |
| | $ | 211,542 |
| | $ | 552,397 |
|
| | | | | |
Earnings from discontinued operations | $ | 49,587 |
| | $ | 18,952 |
| | $ | 68,539 |
|
Gain on sale | — |
| | 60,611 |
| | 60,611 |
|
Income from discontinued operations before taxes | $ | 49,587 |
| | $ | 79,563 |
| | 129,150 |
|
Tax provision | | | | | 69,044 |
|
Income from discontinued operations, net of tax | | | | | $ | 60,106 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
|
| | | | | | | | | | | |
| Year Ended December 31, 2017 |
| Software Solutions | | Production Mail | | Total |
Revenue | $ | 331,624 |
| | $ | 426,676 |
| | $ | 758,300 |
|
| | | | | |
Income from discontinued operations before taxes | $ | 34,386 |
| | $ | 61,074 |
| | 95,460 |
|
Tax provision | | | | | 31,971 |
|
Income from discontinued operations, net of tax | | | | | $ | 63,489 |
|
The major categories of assets and liabilities included in assets of discontinued operations and liabilities of discontinued operations are as follows:
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
Cash and cash equivalents | $ | — |
| | $ | 1,965 |
|
Accounts and other receivables, net | 3,241 |
| | 85,399 |
|
Inventories | — |
| | 855 |
|
Other current assets and prepayments | 2,550 |
| | 26,121 |
|
Property, plant and equipment, net | 152 |
| | 12,140 |
|
Rental property and equipment, net | — |
| | 179 |
|
Goodwill (1) | 9,562 |
| | 434,160 |
|
Intangible assets, net | — |
| | 13,937 |
|
Operating lease assets | — |
| | 4,234 |
|
Other assets | 1,724 |
| | 23,833 |
|
Assets of discontinued operations | $ | 17,229 |
| | $ | 602,823 |
|
| | | |
Accounts payable and accrued liabilities | $ | 4,340 |
| | $ | 44,917 |
|
Current operating lease liabilities | — |
| | 2,000 |
|
Advance billings | 5,373 |
| | 113,110 |
|
Noncurrent operating lease liabilities | — |
| | 1,943 |
|
Other noncurrent liabilities | — |
| | 12,828 |
|
Liabilities of discontinued operations | $ | 9,713 |
| | $ | 174,798 |
|
(1) Goodwill amount at December 31, 2018 is net of accumulated impairment charges of $148 million.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
5. Earnings per Share (EPS)
The calculations of basic and diluted earnings per share are presented below. The sum of earnings per share amounts may not equal the totals due to rounding.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Numerator: | | | | | |
Income (loss) from continuing operations | $ | 36,940 | | | $ | 3,507 | | | $ | (190,491) | |
(Loss) income from discontinued operations, net of tax | — | | | (4,858) | | | 10,115 | |
| | | | | |
| | | | | |
Income (loss) attributable to common stockholders (numerator for EPS) | $ | 36,940 | | | $ | (1,351) | | | $ | (180,376) | |
Denominator: | | | | | |
Weighted-average shares used in basic EPS | 173,912 | | | 173,914 | | | 171,519 | |
Dilutive effect of common stock equivalents (1) | 3,340 | | | 5,191 | | | — | |
Weighted-average shares used in diluted EPS | 177,252 | | | 179,105 | | | 171,519 | |
Basic earnings (loss) per share: | | | | | |
Continuing operations | $ | 0.21 | | | $ | 0.02 | | | $ | (1.11) | |
Discontinued operations | — | | | (0.03) | | | 0.06 | |
Net income (loss) | $ | 0.21 | | | $ | (0.01) | | | $ | (1.05) | |
Diluted earnings (loss) per share: | | | | | |
Continuing operations | $ | 0.21 | | | $ | 0.02 | | | $ | (1.11) | |
Discontinued operations | — | | | (0.03) | | | 0.06 | |
Net income (loss) | $ | 0.21 | | | $ | (0.01) | | | $ | (1.05) | |
| | | | | |
Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive: | 10,234 | | | 6,514 | | | 11,626 | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Numerator: | |
| | |
| | |
|
Income from continuing operations | $ | 40,149 |
| | $ | 181,705 |
| | $ | 180,039 |
|
Income from discontinued operations, net of tax | 154,460 |
| | 60,106 |
| | 63,489 |
|
Net income (numerator for diluted EPS) | 194,609 |
| | 241,811 |
| | 243,528 |
|
Less: Preference stock dividend | 8 |
| | 32 |
| | 36 |
|
Income attributable to common stockholders (numerator for basic EPS) | $ | 194,601 |
| | $ | 241,779 |
| | $ | 243,492 |
|
Denominator: | |
| | |
| | |
|
Weighted-average shares used in basic EPS | 176,251 |
| | 187,277 |
| | 186,332 |
|
Dilutive effect of common stock equivalents | 1,198 |
| | 1,105 |
| | 1,103 |
|
Weighted-average shares used in diluted EPS | 177,449 |
| | 188,382 |
| | 187,435 |
|
Basic earnings per share: | |
| | |
| | |
|
Continuing operations | $ | 0.23 |
| | $ | 0.97 |
| | $ | 0.97 |
|
Discontinued operations | 0.88 |
| | 0.32 |
| | 0.34 |
|
Net income | $ | 1.10 |
| | $ | 1.29 |
| | $ | 1.31 |
|
Diluted earnings per share: | |
| | |
| | |
|
Continuing operations | $ | 0.23 |
| | $ | 0.96 |
| | $ | 0.96 |
|
Discontinued operations | 0.87 |
| | 0.32 |
| | 0.34 |
|
Net income | $ | 1.10 |
| | $ | 1.28 |
| | $ | 1.30 |
|
| | | | | |
Anti-dilutive options excluded from diluted earnings per share: | 15,751 |
| | 12,089 |
| | 10,267 |
|
(1) Due to the loss from continuing operations for the year ended December 31, 2020, common stock equivalents of 2,483 were excluded from the calculation of diluted earnings per share as the impact would have been anti-dilutive.
6. Inventories
Inventories consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Raw materials | $ | 25,539 | | | $ | 22,352 | |
Supplies and service parts | 27,573 | | | 26,076 | |
Finished products | 30,608 | | | 30,160 | |
| | | |
| | | |
Total inventory, net | $ | 83,720 | | | $ | 78,588 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Raw materials | $ | 13,514 |
| | $ | 8,229 |
|
Supplies and service parts | 21,840 |
| | 21,841 |
|
Finished products | 36,969 |
| | 36,692 |
|
Inventory at FIFO cost, net | 72,323 |
| | 66,762 |
|
Excess of FIFO cost over LIFO cost | (4,072 | ) | | (4,483 | ) |
Total inventory, net | $ | 68,251 |
| | $ | 62,279 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
7. Finance Assets and Lessor Operating Leases
Finance Assets
FinanceAll finance receivables are comprised of sales-type leasein our SendTech segment. We segregate our finance receivables into a North America portfolio and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our clients for postage and supplies. Most loan receivables are generally due each month; however, customers may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Client acquisition costs are expensed as incurred.
International portfolio. Finance receivables consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| North America | | International | | Total | | North America | | International | | Total |
Sales-type lease receivables | | | | | | | | | | | |
Gross finance receivables | $ | 967,298 | | | $ | 158,167 | | | $ | 1,125,465 | | | $ | 958,440 | | | $ | 187,831 | | | $ | 1,146,271 | |
Unguaranteed residual values | 38,832 | | | 8,798 | | | 47,630 | | | 37,896 | | | 10,717 | | | 48,613 | |
Unearned income | (239,238) | | | (48,334) | | | (287,572) | | | (246,381) | | | (56,643) | | | (303,024) | |
Allowance for credit losses | (14,131) | | | (2,893) | | | (17,024) | | | (19,546) | | | (3,246) | | | (22,792) | |
Net investment in sales-type lease receivables | 752,761 | | | 115,738 | | | 868,499 | | | 730,409 | | | 138,659 | | | 869,068 | |
Loan receivables | | | | | | | | | | | |
Loan receivables | 311,887 | | | 16,636 | | | 328,523 | | | 262,310 | | | 20,155 | | | 282,465 | |
Allowance for credit losses | (4,787) | | | (139) | | | (4,926) | | | (3,259) | | | (167) | | | (3,426) | |
Net investment in loan receivables | 307,100 | | | 16,497 | | | 323,597 | | | 259,051 | | | 19,988 | | | 279,039 | |
Net investment in finance receivables | $ | 1,059,861 | | | $ | 132,235 | | | $ | 1,192,096 | | | $ | 989,460 | | | $ | 158,647 | | | $ | 1,148,107 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| North America | | International | | Total | | North America | | International | | Total |
Sales-type lease receivables | |
| | |
| | |
| | | | | | |
Gross finance receivables | $ | 1,055,852 |
| | $ | 224,202 |
| | $ | 1,280,054 |
| | $ | 1,110,898 |
| | $ | 242,036 |
| | $ | 1,352,934 |
|
Unguaranteed residual values | 41,934 |
| | 11,789 |
| | 53,723 |
| | 52,637 |
| | 12,772 |
| | 65,409 |
|
Unearned income | (319,281 | ) | | (65,888 | ) | | (385,169 | ) | | (383,453 | ) | | (55,113 | ) | | (438,566 | ) |
Allowance for credit losses | (10,920 | ) | | (2,085 | ) | | (13,005 | ) | | (10,253 | ) | | (2,355 | ) | | (12,608 | ) |
Net investment in sales-type lease receivables | 767,585 |
| | 168,018 |
| | 935,603 |
| | 769,829 |
| | 197,340 |
| | 967,169 |
|
Loan receivables | |
| | |
| | |
| | |
| | |
| | |
|
Loan receivables | 298,247 |
| | 27,926 |
| | 326,173 |
| | 300,319 |
| | 29,270 |
| | 329,589 |
|
Allowance for credit losses | (5,906 | ) | | (740 | ) | | (6,646 | ) | | (6,777 | ) | | (837 | ) | | (7,614 | ) |
Net investment in loan receivables | 292,341 |
| | 27,186 |
| | 319,527 |
| | 293,542 |
| | 28,433 |
| | 321,975 |
|
Net investment in finance receivables | $ | 1,059,926 |
| | $ | 195,204 |
| | $ | 1,255,130 |
| | $ | 1,063,371 |
| | $ | 225,773 |
| | $ | 1,289,144 |
|
Maturities of gross loan receivables and gross sales-type leasefinance receivables at December 31, 20192022 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables |
| North America | | International | | Total | | North America | | International | | Total |
2020 | $ | 422,688 |
| | $ | 88,282 |
| | $ | 510,970 |
| | $ | 265,091 |
| | $ | 27,926 |
| | $ | 293,017 |
|
2021 | 300,669 |
| | 64,001 |
| | 364,670 |
| | 11,295 |
| | — |
| | 11,295 |
|
2022 | 195,533 |
| | 42,421 |
| | 237,954 |
| | 9,778 |
| | — |
| | 9,778 |
|
2023 | 102,765 |
| | 22,042 |
| | 124,807 |
| | 4,649 |
| | — |
| | 4,649 |
|
2024 | 33,309 |
| | 6,549 |
| | 39,858 |
| | 6,341 |
| | — |
| | 6,341 |
|
Thereafter | 888 |
| | 907 |
| | 1,795 |
| | 1,093 |
| | — |
| | 1,093 |
|
Total | $ | 1,055,852 |
| | $ | 224,202 |
| | $ | 1,280,054 |
| | $ | 298,247 |
| | $ | 27,926 |
| | $ | 326,173 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables |
| North America | | International | | Total | | North America | | International | | Total |
2023 | $ | 367,414 | | | $ | 62,334 | | | $ | 429,748 | | | $ | 242,529 | | | $ | 16,636 | | | $ | 259,165 | |
2024 | 274,086 | | | 45,140 | | | 319,226 | | | 26,861 | | | — | | | 26,861 | |
2025 | 181,627 | | | 28,088 | | | 209,715 | | | 20,702 | | | — | | | 20,702 | |
2026 | 104,521 | | | 15,769 | | | 120,290 | | | 12,308 | | | — | | | 12,308 | |
2027 | 39,018 | | | 5,631 | | | 44,649 | | | 7,331 | | | — | | | 7,331 | |
Thereafter | 632 | | | 1,205 | | | 1,837 | | | 2,156 | | | — | | | 2,156 | |
Total | $ | 967,298 | | | $ | 158,167 | | | $ | 1,125,465 | | | $ | 311,887 | | | $ | 16,636 | | | $ | 328,523 | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Allowance for Credit Losses
Activity in the allowance for credit losses on finance receivables was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at December 31, 2019 | $ | 10,920 | | | $ | 2,085 | | | $ | 5,906 | | | $ | 740 | | | $ | 19,651 | |
Cumulative effect of accounting change | 9,271 | | | 1,750 | | | (1,116) | | | (402) | | | 9,503 | |
Amounts charged to expense | 10,789 | | | 2,902 | | | 8,158 | | | 555 | | | 22,404 | |
Write-offs | (7,609) | | | (1,068) | | | (9,955) | | | (551) | | | (19,183) | |
Recoveries | 2,070 | | | 194 | | | 3,474 | | | 4 | | | 5,742 | |
Other | (2,524) | | | 143 | | | 17 | | | 116 | | | (2,248) | |
Balance at December 31, 2020 | 22,917 | | | 6,006 | | | 6,484 | | | 462 | | | 35,869 | |
| | | | | | | | | |
Amounts charged to expense | 648 | | | (1,788) | | | (426) | | | 19 | | | (1,547) | |
Write-offs | (7,120) | | | (846) | | | (6,045) | | | (302) | | | (14,313) | |
Recoveries | 3,097 | | | 173 | | | 3,245 | | | 3 | | | 6,518 | |
Other | 4 | | | (299) | | | 1 | | | (15) | | | (309) | |
Balance at December 31, 2021 | 19,546 | | | 3,246 | | | 3,259 | | | 167 | | | 26,218 | |
| | | | | | | | | |
Amounts charged to expense | (2,476) | | | 712 | | | 3,992 | | | 288 | | | 2,516 | |
Write-offs | (6,043) | | | (791) | | | (4,903) | | | (295) | | | (12,032) | |
Recoveries | 3,184 | | | 39 | | | 2,447 | | | 1 | | | 5,671 | |
| | | | | | | | | |
Other | (80) | | | (313) | | | (8) | | | (22) | | | (423) | |
Balance at December 31, 2022 | $ | 14,131 | | | $ | 2,893 | | | $ | 4,787 | | | $ | 139 | | | $ | 21,950 | |
|
| | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at December 31, 2016 | $ | 8,247 |
| | $ | 2,647 |
| | $ | 8,517 |
| | $ | 1,089 |
| | $ | 20,500 |
|
Amounts charged to expense | 7,544 |
| | 1,280 |
| | 6,273 |
| | 510 |
| | 15,607 |
|
Accounts written off | (8,070 | ) | | (1,133 | ) | | (7,692 | ) | | (579 | ) | | (17,474 | ) |
Balance at December 31, 2017 | 7,721 |
| | 2,794 |
| | 7,098 |
| | 1,020 |
| | 18,633 |
|
Amounts charged to expense | 7,928 |
| | 1,315 |
| | 6,825 |
| | 532 |
| | 16,600 |
|
Accounts written off | (5,396 | ) | | (1,754 | ) | | (7,146 | ) | | (715 | ) | | (15,011 | ) |
Balance at December 31, 2018 | 10,253 |
| | 2,355 |
| | 6,777 |
| | 837 |
| | 20,222 |
|
Amounts charged to expense | 5,672 |
| | 1,157 |
| | 4,746 |
| | 569 |
| | 12,144 |
|
Accounts written off | (5,005 | ) | | (1,427 | ) | | (5,617 | ) | | (666 | ) | | (12,715 | ) |
Balance at December 31, 2019 | $ | 10,920 |
| | $ | 2,085 |
| | $ | 5,906 |
| | $ | 740 |
| | $ | 19,651 |
|
Aging of Receivables
The aging of gross finance receivables was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Past due amounts 0 - 90 days | $ | 959,203 | | | $ | 155,596 | | | $ | 308,872 | | | $ | 16,503 | | | $ | 1,440,174 | |
Past due amounts > 90 days | 8,095 | | | 2,571 | | | 3,015 | | | 133 | | | 13,814 | |
Total | $ | 967,298 | | | $ | 158,167 | | | $ | 311,887 | | | $ | 16,636 | | | $ | 1,453,988 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | December 31, 2021 |
| December 31, 2019 | | Sales-type Lease Receivables | | Loan Receivables | |
| Sales-type Lease Receivables | | Loan Receivables | | | | North America | | International | | North America | | International | | Total |
| North America | | International | | North America | | International | | Total | |
1 - 90 days | $ | 1,032,912 |
| | $ | 220,819 |
| | $ | 294,001 |
| | $ | 27,697 |
| | $ | 1,575,429 |
| |
> 90 days | 22,940 |
| | 3,383 |
| | 4,246 |
| | 229 |
| | 30,798 |
| |
Past due amounts 0 - 90 days | | Past due amounts 0 - 90 days | $ | 950,138 | | | $ | 185,057 | | | $ | 258,514 | | | $ | 20,018 | | | $ | 1,413,727 | |
Past due amounts > 90 days | | Past due amounts > 90 days | 8,302 | | | 2,774 | | | 3,796 | | | 137 | | | 15,009 | |
Total | $ | 1,055,852 |
| | $ | 224,202 |
| | $ | 298,247 |
| | $ | 27,926 |
| | $ | 1,606,227 |
| Total | $ | 958,440 | | | $ | 187,831 | | | $ | 262,310 | | | $ | 20,155 | | | $ | 1,428,736 | |
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
| |
Past due amounts > 90 days (1) | | Past due amounts > 90 days (1) | | | | | | | | | |
Still accruing interest | $ | 4,835 |
| | $ | 1,081 |
| | $ | 2,094 |
| | $ | 121 |
| | $ | 8,131 |
| Still accruing interest | $ | 4,964 | | | $ | 682 | | | $ | — | | | $ | — | | | $ | 5,646 | |
Not accruing interest | 18,105 |
| | 2,302 |
| | 2,152 |
| | 108 |
| | 22,667 |
| Not accruing interest | 3,338 | | | 2,092 | | | 3,796 | | | 137 | | | 9,363 | |
Total | $ | 22,940 |
| | $ | 3,383 |
| | $ | 4,246 |
| | $ | 229 |
| | $ | 30,798 |
| Total | $ | 8,302 | | | $ | 2,774 | | | $ | 3,796 | | | $ | 137 | | | $ | 15,009 | |
(1) In 2021, our policy was to cease financing revenue recognition for sales-type lease receivables that were more than 120 days past due.
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
1 - 90 days | $ | 1,069,290 |
| | $ | 238,114 |
| | $ | 294,126 |
| | $ | 29,079 |
| | $ | 1,630,609 |
|
> 90 days | 41,608 |
| | 3,922 |
| | 6,193 |
| | 191 |
| | 51,914 |
|
Total | $ | 1,110,898 |
| | $ | 242,036 |
| | $ | 300,319 |
| | $ | 29,270 |
| | $ | 1,682,523 |
|
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
|
Still accruing interest | $ | 7,917 |
| | $ | 1,111 |
| | $ | 1,769 |
| | $ | 72 |
| | $ | 10,869 |
|
Not accruing interest | 33,691 |
| | 2,811 |
| | 4,424 |
| | 119 |
| | 41,045 |
|
Total | $ | 41,608 |
| | $ | 3,922 |
| | $ | 6,193 |
| | $ | 191 |
| | $ | 51,914 |
|
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an automateda client's credit score, where available, and a detailed manual review of the client'stheir financial condition and when applicable, payment history.history or an automated process. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes.processes to ensure that our global strategy is executed, collection resources are allocated and enhanced tools and processes are implemented as needed.
Over 85% of our finance receivables are within our North American portfolio. We use a third party to score the majority of this portfolio on a quarterly basis using a proprietary commercial credit score. The relative scores are determined based on a number of factors, including financial information, payment history, company type and ownership structure. We stratify the third party's credit scores of our clients into low, medium and high-risk accounts. Due to timing and other issues, our entire portfolio may not be scored at period end. We report these amounts as "Not Scored"; however, absence of a score is not indicative of the credit quality of the account. The third-party credit score is used to predict the payment behaviors of our clients and the probability that an account will become greater than 90 days past due during the subsequent 12-month period.
•Low risk accounts are companies with very good credit scores and a predicted delinquency rate of less than 5%.
•Medium risk accounts are companies with average to good credit scores and a predicted delinquency rate between 5% and 10%.
•High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent. The predicted delinquency rate would be greater than 10%.
We do not use a third party to score our International portfolio because the cost to do so is prohibitive as there is no single credit score model that covers all countries. Accordingly, the entire International portfolio is reported in the Not Scored category. This portfolio comprises less than 15% of total finance receivables. Most of the International credit applications are small dollar applications (i.e. below $50 thousand) and are subjected to an automated review process. Larger credit applications are manually reviewed, which includes obtaining client financial information, credit reports and other available information.
The table below shows gross finance receivables by relative risk class and year of origination based on the relative scores of the accounts within each class as of December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Type Lease Receivables | | Loan Receivables | | Total |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | |
Low | $ | 286,297 | | | $ | 206,511 | | | $ | 140,800 | | | $ | 95,485 | | | $ | 34,721 | | | $ | 12,674 | | | $ | 239,635 | | | $ | 1,016,123 | |
Medium | 53,419 | | | 40,669 | | | 27,013 | | | 19,668 | | | 6,751 | | | 3,441 | | | 56,048 | | | 207,009 | |
High | 6,492 | | | 3,840 | | | 3,119 | | | 1,942 | | | 750 | | | 508 | | | 6,800 | | | 23,451 | |
Not Scored | 71,435 | | | 53,831 | | | 29,957 | | | 19,232 | | | 5,889 | | | 1,021 | | | 26,040 | | | 207,405 | |
Total | $ | 417,643 | | | $ | 304,851 | | | $ | 200,889 | | | $ | 136,327 | | | $ | 48,111 | | | $ | 17,644 | | | $ | 328,523 | | | $ | 1,453,988 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Type Lease Receivables | | Loan Receivables | | Total |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | |
Low | $ | 274,191 | | | $ | 195,421 | | | $ | 162,479 | | | $ | 95,661 | | | $ | 33,698 | | | $ | 14,862 | | | $ | 192,161 | | | $ | 968,473 | |
Medium | 43,403 | | | 34,955 | | | 31,038 | | | 17,895 | | | 6,981 | | | 3,619 | | | 55,708 | | | 193,599 | |
High | 5,474 | | | 5,017 | | | 4,044 | | | 2,708 | | | 849 | | | 889 | | | 4,822 | | | 23,803 | |
Not Scored | 45,644 | | | 54,097 | | | 47,973 | | | 33,998 | | | 19,161 | | | 12,214 | | | 29,774 | | | 242,861 | |
Total | $ | 368,712 | | | $ | 289,490 | | | $ | 245,534 | | | $ | 150,262 | | | $ | 60,689 | | | $ | 31,584 | | | $ | 282,465 | | | $ | 1,428,736 | |
Lease Income
Lease income from sales-type leases, excluding variable lease payments, was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Profit recognized at commencement | $ | 134,717 | | | $ | 127,469 | | | $ | 117,359 | |
Interest income | 163,485 | | | 186,532 | | | 206,517 | |
Total lease income from sales-type leases | $ | 298,202 | | | $ | 314,001 | | | $ | 323,876 | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, given that it is a localized process and there is no single credit score model that covers all countries.
The table below shows the North America portfolio by relative risk class (low, medium, high) based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. Some accounts are not scored; however, absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party, refers to the relative risk that an account may become delinquent in the next 12 month period.
| |
• | Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.
|
| |
• | Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.
|
| |
• | High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.
|
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Sales-type lease receivables | |
| | |
|
Low | $ | 837,386 |
| | $ | 922,414 |
|
Medium | 161,204 |
| | 131,650 |
|
High | 21,041 |
| | 22,110 |
|
Not Scored | 36,221 |
| | 34,724 |
|
Total | $ | 1,055,852 |
| | $ | 1,110,898 |
|
Loan receivables | |
| | |
|
Low | $ | 216,295 |
| | $ | 238,620 |
|
Medium | 63,302 |
| | 43,952 |
|
High | 5,140 |
| | 5,947 |
|
Not Scored | 13,510 |
| | 11,800 |
|
Total | $ | 298,247 |
| | $ | 300,319 |
|
Lease Income
Lease income from sales-type leases was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Profit recognized at commencement (1) | $ | 142,353 |
| | $ | 171,938 |
| | $ | 157,375 |
|
Interest income | 229,719 |
| | 245,751 |
| | 253,224 |
|
Total lease income from sales-type leases | $ | 372,072 |
| | $ | 417,689 |
| | $ | 410,599 |
|
(1) Lease contracts do not include variable lease payments.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Lessor Operating Leases
We also lease mailing equipment under operating leases with terms of one to five years. Maturities of these operating leases are as follows:
| | | | | |
2023 | $ | 24,375 | |
2024 | 17,423 | |
2025 | 18,656 | |
2026 | 4,398 | |
2027 | 2,008 | |
Thereafter | 5 | |
Total | $ | 66,865 | |
|
| | | |
2020 | $ | 33,903 |
|
2021 | 17,158 |
|
2022 | 7,836 |
|
2023 | 5,369 |
|
2024 | 1,072 |
|
Total | $ | 65,338 |
|
8. Fixed Assets
Fixed assets consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| | | |
Machinery and equipment | $ | 673,898 | | | $ | 707,843 | |
Capitalized software | 516,816 | | | 488,837 | |
Leasehold improvements | 127,357 | | | 126,456 | |
| 1,318,071 | | | 1,323,136 | |
Accumulated depreciation | (897,399) | | | (893,974) | |
Property, plant and equipment, net | $ | 420,672 | | | $ | 429,162 | |
| | | |
Rental property and equipment | $ | 111,188 | | | $ | 125,967 | |
Accumulated depreciation | (83,701) | | | (91,193) | |
Rental property and equipment, net | $ | 27,487 | | | $ | 34,774 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Land | $ | 9,333 |
| | $ | 9,333 |
|
Machinery and equipment | 606,420 |
| | 559,419 |
|
Capitalized software | 410,171 |
| | 401,602 |
|
Buildings and improvements | 191,108 |
| | 186,048 |
|
| 1,217,032 |
| | 1,156,402 |
|
Accumulated depreciation | (840,855 | ) | | (757,901 | ) |
Property, plant and equipment, net | $ | 376,177 |
| | $ | 398,501 |
|
| | | |
Rental property and equipment | $ | 151,195 |
| | $ | 132,605 |
|
Accumulated depreciation | (109,970 | ) | | (86,377 | ) |
Rental property and equipment, net | $ | 41,225 |
| | $ | 46,228 |
|
Depreciation expense was $123$140 million,, $110 $132 million and $99$127 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
9. Acquisitions, Intangible Assets and Goodwill
Acquisitions
In October 2017, we acquired Newgistics for $471 million, net of cash acquired. The results of Newgistics are included in our consolidated operating results from the date of acquisition. Our consolidated revenue for the year ended December 31, 2017 includes $140 million from Newgistics. On a pro forma basis, had we acquired Newgistics on January 1, 2017, revenue would have been $341 million higher for the year ended December 31, 2017. The impact on earnings would not have been material.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
9. Acquisitions, Divestitures, Intangible Assets and Goodwill
Acquisitions/Divestitures
Effective July 1, 2022, we sold Borderfree for proceeds of $95 million, net of cash transferred, and recognized a pre-tax gain of $5 million, which included a goodwill allocation of $56 million attributable to Borderfree and write-off of intangible assets of $34 million. During 2022, we also received additional proceeds of $7 million related to the 2021 sale of a business and recognized a pre-tax gain of $4 million, and spent $5 million on acquisitions for our Presort Services segment.
During 2021, we sold a U.K. based software consultancy business ("Tacit") acquired as part of our 2017 acquisition of Newgistics. We received net proceeds of $28 million and recognized a pre-tax gain of $10 million (after-tax gain of $4 million), which included a goodwill allocation of $16 million attributable to Tacit. Additionally, we acquired CrescoData for $15 million in cash plus potential additional payments of up to $7 million based on the achievement of revenue targets during 2022-2024. CrescoData is a Singapore based, Platform-as-a-Service business that enables mapping and automating of product, stock and order data between platforms and is included in our SendTech Solutions segment.
Intangible Assets
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 155,715 | | | $ | (80,188) | | | $ | 75,527 | | | $ | 268,187 | | | $ | (141,492) | | | $ | 126,695 | |
Software & technology | 22,000 | | | (19,583) | | | 2,417 | | | 21,981 | | | (16,234) | | | 5,747 | |
| | | | | | | | | | | |
Total intangible assets, net | $ | 177,715 | | | $ | (99,771) | | | $ | 77,944 | | | $ | 290,168 | | | $ | (157,726) | | | $ | 132,442 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 265,665 |
| | $ | (88,550 | ) | | $ | 177,115 |
| | $ | 338,320 |
| | $ | (149,539 | ) | | $ | 188,781 |
|
Software & technology | 31,600 |
| | (19,999 | ) | | 11,601 |
| | 54,297 |
| | (35,325 | ) | | 18,972 |
|
Trademarks & other | 13,324 |
| | (11,400 | ) | | 1,924 |
| | 22,305 |
| | (16,858 | ) | | 5,447 |
|
Total intangible assets, net | $ | 310,589 |
| | $ | (119,949 | ) | | $ | 190,640 |
| | $ | 414,922 |
| | $ | (201,722 | ) | | $ | 213,200 |
|
Amortization expense was $36$24 million, $39$30 million and $28$33 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
The futureFuture amortization expense for intangible assets at December 31, 20192022 is as follows:
|
| | | |
2020 | $ | 33,429 |
|
2021 | 29,972 |
|
2022 | 29,026 |
|
2023 | 26,188 |
|
2024 | 26,188 |
|
Thereafter | 45,837 |
|
Total | $ | 190,640 |
|
| | | | | |
| |
2023 | $ | 15,724 | |
2024 | 15,724 | |
2025 | 15,520 | |
2026 | 14,530 | |
2027 | 11,475 | |
Thereafter | 4,971 | |
Total | $ | 77,944 | |
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange rates, acquisitions, divestitures and impairment charges.
Goodwill
Changes in the carrying amount of goodwill by reporting segment are shown in the tables below.
|
| | | | | | | | | | | | | | | |
| December 31, 2018 | | Acquisitions/ dispositions | | Other (1) | | December 31, 2019 |
Global Ecommerce | $ | 609,431 |
| | $ | — |
| | $ | — |
| | $ | 609,431 |
|
Presort Services | 207,465 |
| | 5,064 |
| | — |
| | 212,529 |
|
Commerce Services | 816,896 |
| | 5,064 |
| | — |
| | 821,960 |
|
SendTech Solutions | 515,455 |
| | (10,490 | ) | | (2,746 | ) | | 502,219 |
|
Total goodwill | $ | 1,332,351 |
| | $ | (5,426 | ) | | $ | (2,746 | ) | | $ | 1,324,179 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2017 | | Acquisitions | | Other (1) | | December 31, 2018 |
Global Ecommerce | $ | 602,461 |
| | $ | 7,623 |
| | $ | (653 | ) | | $ | 609,431 |
|
Presort Services | 204,781 |
| | 2,684 |
| | — |
| | 207,465 |
|
Commerce Services | 807,242 |
| | 10,307 |
| | (653 | ) | | 816,896 |
|
SendTech Solutions | 527,108 |
| | — |
| | (11,653 | ) | | 515,455 |
|
Total goodwill | $ | 1,334,350 |
| | $ | 10,307 |
| | $ | (12,306 | ) | | $ | 1,332,351 |
|
| |
(1) | Primarily represents foreign currency translation adjustments. |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Goodwill
During 2022, we determined that the agreement to sell Borderfree was a triggering event and an impairment test was performed as of July 1, 2022. Further, we determined that the shortfall in fourth quarter performance of the Global Ecommerce reporting unit was an additional triggering event. Accordingly, we performed another goodwill impairment test as of December 31, 2022 to assess whether the goodwill of the Global Ecommerce reporting unit was impaired. We engaged a third-party to assist in the determination of the reporting unit fair value. The fair value was estimated using a discounted cash flow model based on management developed cash flow projections, which included judgements and assumptions related to revenue growth rates, operating margins and operating income, and discount rate.
The results of our annual test and triggering event tests indicated that the fair value of the Global Ecommerce reporting unit exceeded its carrying value and no impairment existed. However, the estimated fair value of the reporting unit at December 31, 2022 exceeded its carrying value by less than 10%. Further, the judgements and assumptions used to estimate the fair value of the reporting unit are inherently subjective and changes in any of these judgements or assumptions used to determine the fair value of this reporting unit at December 31, 2022 could result in a different fair value determination in a future period. The carrying value of goodwill for the Global Ecommerce reporting unit at December 31, 2022 was $339 million.
Events and circumstances that could change our original judgements and assumptions and materially impact the fair value determination of the Global Ecommerce reporting unit, include, but are not limited to, continued financial and operating performance below expectations, reduced consumer spending due to inflationary pressures and rising prices, a continued and prolonged slow-down in economic activity, increased competition and pricing pressures, changing consumer behaviors, our ability to increase volumes, gain economies of scale and improve margins, and rising interest rates.
Changes in the carrying amount of goodwill by reporting segment are shown in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill before accumulated impairment | | Accumulated impairment | | December 31, 2021 | | Acquisitions/(dispositions) | | | | FX Impact | | December 31, 2022 |
Global Ecommerce | $ | 593,231 | | | $ | (198,169) | | | $ | 395,062 | | | $ | (55,878) | | | | | $ | — | | | $ | 339,184 | |
Presort Services | 220,992 | | | — | | | 220,992 | | | 2,771 | | | | | — | | | 223,763 | |
SendTech Solutions | 519,049 | | | — | | | 519,049 | | | — | | | | | (15,045) | | | 504,004 | |
Total goodwill | $ | 1,333,272 | | | $ | (198,169) | | | $ | 1,135,103 | | | $ | (53,107) | | | | | $ | (15,045) | | | $ | 1,066,951 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill before accumulated impairment | | Accumulated impairment | | December 31, 2020 | | Acquisitions/(dispositions) | | | | FX Impact | | December 31, 2021 |
Global Ecommerce | $ | 609,431 | | | $ | (198,169) | | | $ | 411,262 | | | $ | (16,200) | | | | | $ | — | | | $ | 395,062 | |
Presort Services | 220,992 | | | — | | | 220,992 | | | — | | | | | — | | | 220,992 | |
SendTech Solutions | 520,031 | | | — | | | 520,031 | | | 13,804 | | | | | (14,786) | | | 519,049 | |
Total goodwill | $ | 1,350,454 | | | $ | (198,169) | | | $ | 1,152,285 | | | $ | (2,396) | | | | | $ | (14,786) | | | $ | 1,135,103 | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
10. 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. | 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 at December 31, 2019 and 2018.basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Investment securities | | | | | | | |
Money market funds | $ | 29,087 | | | $ | 238,536 | | | $ | — | | | $ | 267,623 | |
Equity securities | — | | | 13,233 | | | — | | | 13,233 | |
Commingled fixed income securities | 1,520 | | | 6,526 | | | — | | | 8,046 | |
Government and related securities | 10,253 | | | 18,796 | | | — | | | 29,049 | |
Corporate debt securities | — | | | 52,319 | | | — | | | 52,319 | |
Mortgage-backed / asset-backed securities | — | | | 126,882 | | | — | | | 126,882 | |
Derivatives | | | | | | | |
Interest rate swaps | — | | | 15,283 | | | — | | | 15,283 | |
Foreign exchange contracts | — | | | 479 | | | — | | | 479 | |
Total assets | $ | 40,860 | | | $ | 472,054 | | | $ | — | | | $ | 512,914 | |
Liabilities: | | | | | | | |
Derivatives | | | | | | | |
| | | | | | | |
Foreign exchange contracts | $ | — | | | $ | (1,472) | | | $ | — | | | $ | (1,472) | |
Total liabilities | $ | — | | | $ | (1,472) | | | $ | — | | | $ | (1,472) | |
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | |
| | |
| | |
| | |
|
Investment securities | |
| | |
| | |
| | |
|
Money market funds / commercial paper | $ | 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 | ) |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Investment securities | | | | | | | |
Money market funds | $ | 88,705 | | | $ | 338,043 | | | $ | — | | | $ | 426,748 | |
Equity securities | — | | | 29,356 | | | — | | | 29,356 | |
Commingled fixed income securities | 1,692 | | | 16,815 | | | — | | | 18,507 | |
Government and related securities | 9,790 | | | 25,439 | | | — | | | 35,229 | |
Corporate debt securities | — | | | 65,167 | | | — | | | 65,167 | |
Mortgage-backed / asset-backed securities | — | | | 172,018 | | | — | | | 172,018 | |
Derivatives | | | | | | | |
Interest rate swap | — | | | 3,103 | | | — | | | 3,103 | |
Foreign exchange contracts | — | | | 2,474 | | | — | | | 2,474 | |
Total assets | $ | 100,187 | | | $ | 652,415 | | | $ | — | | | $ | 752,602 | |
Liabilities: | | | | | | | |
Derivatives | | | | | | | |
| | | | | | | |
Foreign exchange contracts | $ | — | | | $ | (304) | | | $ | — | | | $ | (304) | |
Total liabilities | $ | — | | | $ | (304) | | | $ | — | | | $ | (304) | |
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | |
| | |
| | |
| | |
|
Investment securities | |
| | |
| | |
| | |
|
Money market funds / commercial paper | $ | 220,756 |
| | $ | 391,891 |
| | $ | — |
| | $ | 612,647 |
|
Equity securities | — |
| | 19,133 |
| | — |
| | 19,133 |
|
Commingled fixed income securities | 1,570 |
| | 20,141 |
| | — |
| | 21,711 |
|
Government and related securities | 98,790 |
| | 9,787 |
| | — |
| | 108,577 |
|
Corporate debt securities | — |
| | 56,938 |
| | — |
| | 56,938 |
|
Mortgage-backed / asset-backed securities | — |
| | 98,334 |
| | — |
| | 98,334 |
|
Derivatives | |
| | |
| | |
| |
|
|
Foreign exchange contracts | — |
| | 2,031 |
| | — |
| | 2,031 |
|
Total assets | $ | 321,116 |
| | $ | 598,255 |
| | $ | — |
| | $ | 919,371 |
|
Liabilities: | |
| | |
| | |
| | |
|
Derivatives | |
| | |
| | |
| | |
|
Foreign exchange contracts | $ | — |
| | $ | (735 | ) | | $ | — |
| | $ | (735 | ) |
Total liabilities | $ | — |
| | $ | (735 | ) | | $ | — |
| | $ | (735 | ) |
Investment Securities
The valuation of investment securities is based on thea 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 intowithin the fair value hierarchy:
| |
• | Money Market Funds / Commercial Paper:•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. 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 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 on external price/spread data. These securities are classified as Level 2.
|
•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 when unadjusted quoted prices in active markets are available. 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 on 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 a market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. 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.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Available-For-Sale Securities
Available-for-sale securities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
| | | | | | | |
Government and related securities | $ | 35,744 | | | $ | 11 | | | $ | (8,210) | | | $ | 27,545 | |
Corporate debt securities | 66,300 | | | — | | | (13,981) | | | 52,319 | |
Commingled fixed income securities | 1,749 | | | — | | | (229) | | | 1,520 | |
Mortgage-backed / asset-backed securities | 156,352 | | | — | | | (29,470) | | | 126,882 | |
Total | $ | 260,145 | | | $ | 11 | | | $ | (51,890) | | | $ | 208,266 | |
| | | | | | | | | | | | December 31, 2021 |
| December 31, 2019 | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value | |
Government and related securities | $ | 80,732 |
| | $ | 1,358 |
| | $ | (114 | ) | | $ | 81,976 |
| Government and related securities | $ | 36,160 | | | $ | 81 | | | $ | (1,012) | | | $ | 35,229 | |
Corporate debt securities | 70,426 |
| | 2,009 |
| | (286 | ) | | 72,149 |
| Corporate debt securities | 67,906 | | | 259 | | | (2,998) | | | 65,167 | |
Commingled fixed income securities | 1,675 |
| | — |
| | (19 | ) | | 1,656 |
| Commingled fixed income securities | 1,725 | | | — | | | (33) | | | 1,692 | |
Mortgage-backed / asset-backed securities | 65,679 |
| | 960 |
| | (300 | ) | | 66,339 |
| Mortgage-backed / asset-backed securities | 176,559 | | | 144 | | | (4,685) | | | 172,018 | |
Total | $ | 218,512 |
| | $ | 4,327 |
| | $ | (719 | ) | | $ | 222,120 |
| Total | $ | 282,350 | | | $ | 484 | | | $ | (8,728) | | | $ | 274,106 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
Government and related securities | $ | 109,776 |
| | $ | 47 |
| | $ | (1,336 | ) | | $ | 108,487 |
|
Corporate debt securities | 58,714 |
| | 4 |
| | (1,780 | ) | | 56,938 |
|
Commingled fixed income securities | 1,637 |
| | — |
| | (67 | ) | | 1,570 |
|
Mortgage-backed / asset-backed securities | 100,186 |
| | 167 |
| | (2,019 | ) | | 98,334 |
|
Total | $ | 270,313 |
| | $ | 218 |
| | $ | (5,202 | ) | | $ | 265,329 |
|
Investment securities in a loss position were as follows:
|
| | | | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Greater than 12 continuous months | $ | 9,227 |
| | $ | 136 |
| | $ | 177,331 |
| | $ | 4,355 |
|
Less than 12 continuous months | 52,521 |
| | 583 |
| | 48,318 |
| | 847 |
|
Total | $ | 61,748 |
| | $ | 719 |
| | $ | 225,649 |
| | $ | 5,202 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Greater than 12 continuous months | | | | | | | |
Government and related securities | $ | 17,063 | | | $ | 2,753 | | | $ | 16,018 | | | $ | 579 | |
Corporate debt securities | 48,812 | | | 13,749 | | | 51,385 | | | 2,658 | |
| | | | | | | |
Mortgage-backed / asset-backed securities | 114,839 | | | 28,040 | | | 135,441 | | | 4,057 | |
Total | $ | 180,714 | | | $ | 44,542 | | | $ | 202,844 | | | $ | 7,294 | |
| | | | | | | |
Less than 12 continuous months | | | | | | | |
Government and related securities | $ | 10,061 | | | $ | 5,457 | | | $ | 15,438 | | | $ | 433 | |
Corporate debt securities | 3,508 | | | 232 | | | 8,859 | | | 339 | |
Commingled fixed income securities | 1,520 | | | 229 | | | 1,692 | | | 33 | |
Mortgage-backed / asset-backed securities | 12,042 | | | 1,430 | | | 30,754 | | | 629 | |
Total | $ | 27,131 | | | $ | 7,348 | | | $ | 56,743 | | | $ | 1,434 | |
We have not recognized an other-than-temporary impairment on anyAt December 31, 2022, approximately 99% of total securities in the investment securitiesportfolio were in an unrealizeda net loss position becauseposition. However, we have the ability and intent to hold these securities until recovery of the unrealized losses andor expect to receive the stated principal and interest at maturity. Accordingly, we have not recognized an impairment loss and our allowance for credit losses on these investment securities is not significant. Our allowance for credit losses on available-for-sale investment securities is not significant.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
At December 31, 2019,2022, scheduled maturities of available-for-sale securities were as follows:
|
| | | | | | | |
| Amortized cost | | Estimated fair value |
Within 1 year | $ | 35,393 |
| | $ | 35,495 |
|
After 1 year through 5 years | 49,647 |
| | 50,426 |
|
After 5 years through 10 years | 59,265 |
| | 60,345 |
|
After 10 years | 74,207 |
| | 75,854 |
|
Total | $ | 218,512 |
| | $ | 222,120 |
|
| | | | | | | | | | | |
| Amortized cost | | Estimated fair value |
Within 1 year | $ | 2,115 | | | $ | 1,882 | |
After 1 year through 5 years | 15,731 | | | 14,190 | |
After 5 years through 10 years | 73,002 | | | 59,117 | |
After 10 years | 169,297 | | | 133,077 | |
Total | $ | 260,145 | | | $ | 208,266 | |
The actual maturities may not coincide with scheduled maturities as certain securities contain early redemption features and/or allow for the prepayment of obligations with or without penalty.
Held-to-Maturity Securities
Held-to-maturity securities at December 31, 2019, include $3832022 and 2021 totaled $22 million of time deposits scheduledand $20 million, respectively.
Simple Agreement for Future Equity (SAFE) Investment
In October 2022, we invested $10 million in Ambi Robotics Inc., a robotics solutions company, via a SAFE arrangement. The SAFE investment provides us the right to mature within six months. Due to the short-term nature of these investments, they are recordedparticipate in future equity offerings by Ambi Robotics Inc. The investment is carried at cost as it approximates fair value.and recorded in Other assets. The carrying value of the investment could be increased or decreased based on future observable transactions by Ambi Robotics Inc.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Derivative Instruments
Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with anticipated inventory purchases 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 AOCIAOCL 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 both December 31, 20192022 and 2018,2021, outstanding contracts associated with these anticipated transactions had a notional amount of $7 million and $8 million, respectively. The valuation of foreign exchange derivatives is based on a market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves.
Interest Rate Swaps
We had an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated with $300 million of variable-rate term loans. This swap matured in September 2018. While outstanding, the swap was designated as a cash flow hedge and the effective portion of the gain or loss on the cash flow hedge was included in AOCI in the period that the change in fair value occurred and reclassified to earnings in the period that the hedged item was recorded in earnings.
The fair value of our derivative instruments at December 31, 2019 and 2018 was as follows:
|
| | | | | | | | | | |
| | | | December 31, |
Designation of Derivatives | | Balance Sheet Location | | 2019 | | 2018 |
Derivatives designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | $ | 207 |
| | $ | 61 |
|
| | Accounts payable and accrued liabilities | | (56 | ) | | (104 | ) |
| | | | | | |
Derivatives not designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | 3,049 |
| | 1,970 |
|
| | Accounts payable and accrued liabilities | | (1,346 | ) | | (631 | ) |
| | | | | | |
| | Total derivative assets | | 3,256 |
| | 2,031 |
|
| | Total derivative liabilities | | (1,402 | ) | | (735 | ) |
| | Total net derivative asset | | $ | 1,854 |
| | $ | 1,296 |
|
$1 million. The amounts included in AOCIAOCL at December 31, 20192022 will be recognized in earnings within the next 12 months.
Interest Rate Swaps
We enter into interest rate swaps to manage the cost of our variable rate debt. At December 31, 2022, we had outstanding interest rate swaps that effectively convert $200 million of our variable rate debt to fixed rates. These swaps 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 AOCL.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The fair value of our derivative instruments was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
Designation of Derivatives | | Balance Sheet Location | | 2022 | | 2021 |
Derivatives designated as hedging instruments | | | | | | |
Foreign exchange contracts | | Other current assets and prepayments | | $ | 15 | | | $ | 21 | |
| | Accounts payable and accrued liabilities | | (23) | | | (10) | |
| | | | | | |
Interest rate swaps | | Other assets | | 15,283 | | | 3,103 | |
| | | | | | |
Derivatives not designated as hedging instruments | | | | | | |
Foreign exchange contracts | | Other current assets and prepayments | | 464 | | | 2,453 | |
| | | | | | |
| | Accounts payable and accrued liabilities | | (1,449) | | | (294) | |
| | | | | | |
| | Total derivative assets | | 15,762 | | | 5,577 | |
| | Total derivative liabilities | | (1,472) | | | (304) | |
| | Total net derivative asset | | $ | 14,290 | | | $ | 5,273 | |
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, 2019 and 2018:relationships:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Years 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 | | 2022 | | 2021 | | | 2022 | | 2021 |
Foreign exchange contracts | | $ | 159 | | | $ | 198 | | | Revenue | | $ | — | | | $ | 289 | |
| | | | | | Cost of sales | | 178 | | | (117) | |
Interest rate swaps | | 12,180 | | | 5,266 | | | Interest Expense | | 549 | | | (366) | |
| | $ | 12,339 | | | $ | 5,464 | | | | | $ | 727 | | | $ | (194) | |
|
| | | | | | | | | | | | | | | | | | |
| | Years 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 | | 2019 | | 2018 | | | 2019 | | 2018 |
Foreign exchange contracts | | $ | 371 |
| | $ | 106 |
| | Revenue | | $ | 72 |
| | $ | 11 |
|
| | |
| | |
| | Cost of sales | | 104 |
| | 51 |
|
Interest rate swap | | $ | — |
| | $ | (1,776 | ) | | Interest Expense | | — |
| | — |
|
| | |
| | |
| | | | $ | 176 |
| | $ | 62 |
|
Non-designated derivative instruments
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, 20192022 mature over the next three months.
The following represents the mark-to-market adjustment on our non-designated derivative instruments:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | Years Ended December 31, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2022 | | 2021 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | (28,228) | | | $ | (4,540) | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following represents the mark-to-market adjustment on our non-designated derivative instruments for the years ended December 31, 2019 and 2018:
|
| | | | | | | | | | |
| | | | Years Ended December 31, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2019 | | 2018 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | 5,154 |
| | $ | (33,453 | ) |
Credit-Risk-Related Contingent Features
Certain derivative instruments contain credit-risk-related contingent features that could require us to post collateral based on our long-term senior unsecured debt ratings and the net fair value of our derivatives. At December 31, 2019, we were not required to post any collateral.
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, held-to-maturity investment securities and accounts payable approximate fair value. The fair value of available-for-sale investment securities and derivative instruments are presented above. 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, 2019 and 2018 was as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Carrying value | $ | 2,205,266 | | | $ | 2,323,838 | |
Fair value | $ | 1,856,878 | | | $ | 2,355,894 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Carrying value | $ | 2,739,722 |
| | $ | 3,265,608 |
|
Fair value | $ | 2,572,794 |
| | $ | 3,003,678 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
11. Supplemental Balance SheetFinancial Statement Information
The following table shows selected balance sheet information:Activity in the allowance for credit losses on accounts receivable is presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of year | | Cumulative effect of accounting change | | Amounts charged to expense | | | | Write-offs, recoveries and other | | Balance at end of year | | Accounts and other receivables | | Other assets |
2022 | $ | 29,179 | | | $ | — | | | $ | 6,421 | | | | | $ | (29,736) | | | $ | 5,864 | | | $ | 5,344 | | | $ | 520 | |
2021 | $ | 35,344 | | | $ | — | | | $ | 9,355 | | | | | $ | (15,520) | | | $ | 29,179 | | | $ | 11,168 | | | $ | 18,011 | |
2020 | $ | 17,830 | | | $ | 15,336 | | | $ | 19,789 | | | | | $ | (17,611) | | | $ | 35,344 | | | $ | 18,899 | | | $ | 16,445 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Other assets: | | | |
Long-term investments | $ | 288,963 |
| | $ | 311,417 |
|
Pension asset | 20,403 |
| | 14,502 |
|
Contract costs | 26,048 |
| | 20,420 |
|
Other | 65,042 |
| | 50,820 |
|
Total | $ | 400,456 |
| | $ | 397,159 |
|
| | | |
Accounts payable and accrued liabilities: | | | |
Accounts payable | $ | 282,125 |
| | $ | 280,936 |
|
Reserve account deposits | 591,118 |
| | 574,777 |
|
Customer deposits | 115,889 |
| | 125,574 |
|
Employee related liabilities | 219,995 |
| | 208,840 |
|
Other | 175,681 |
| | 158,000 |
|
Total | $ | 1,384,808 |
| | $ | 1,348,127 |
|
| | | |
Other noncurrent liabilities: | | | |
Pension liability | $ | 214,742 |
| | $ | 276,563 |
|
Postretirement medical benefits | 147,972 |
| | 149,463 |
|
Other | 37,804 |
| | 36,262 |
|
Total | $ | 400,518 |
| | $ | 462,288 |
|
12. Restructuring Charges and Asset Impairments
The table below shows the activity in our restructuring reserves:
|
| | | | | | | | | | | |
| Severance and benefits costs | | Other exit costs | | Total |
Balance at December 31, 2017 | $ | 42,151 |
| | $ | 1,569 |
| | $ | 43,720 |
|
Expenses, net | 18,426 |
| | 6,033 |
| | 24,459 |
|
Cash payments | (46,936 | ) | | (5,794 | ) | | (52,730 | ) |
Balance at December 31, 2018 | 13,641 |
| | 1,808 |
| | 15,449 |
|
Expenses, net | 22,794 |
| | 911 |
| | 23,705 |
|
Cash payments | (24,498 | ) | | (2,650 | ) | | (27,148 | ) |
Balance at December 31, 2019 | $ | 11,937 |
| | $ | 69 |
| | $ | 12,006 |
|
The majorityOther (income) expense consisted of the remaining restructuring reserves are expected to be paid over the next 12-24 months.following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Loss on redemption/refinancing of debt | $ | 4,993 | | | $ | 56,209 | | | $ | 36,987 | |
Insurance proceeds | — | | | (3,000) | | | (16,928) | |
Gain on sale of assets | (14,372) | | | (1,434) | | | (11,908) | |
Gain on sale of businesses, including transaction costs | (12,239) | | | (10,201) | | | — | |
Other (income) expense | $ | (21,618) | | | $ | 41,574 | | | $ | 8,151 | |
Asset impairments
Asset impairment charges were $46 million, $1In 2022, we entered into a sale and leaseback agreement for our Shelton, Connecticut office building and received proceeds of $51 million and $4 million in 2019, 2018, and 2017, respectively. Asset impairment charges in 2019 primarily include $39 million due to the write-offrecognized a gain of capitalized software costs related to the development of an enterprise resource planning (ERP) system in our international markets.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
13. Debt |
| | | | | | | | | |
| | | December 31, |
| Interest rate | | 2019 | | 2018 |
Notes due September 2020 | 4.125% | | — |
| | 300,000 |
|
Notes due October 2021 | 4.125% | | 600,000 |
| | 600,000 |
|
Notes due May 2022 | 4.625% | | 400,000 |
| | 400,000 |
|
Notes due April 2023 | 5.20% | | 400,000 |
| | 400,000 |
|
Notes due March 2024 | 4.625% | | 500,000 |
| | 500,000 |
|
Notes due January 2037 | 5.25% | | 35,841 |
| | 35,841 |
|
Notes due March 2043 | 6.70% | | 425,000 |
| | 425,000 |
|
Term loans | Variable | | 400,000 |
| | 630,000 |
|
Other debt | | | 5,108 |
| | 5,297 |
|
Principal amount | | | 2,765,949 |
| | 3,296,138 |
|
Less: unamortized costs, net | | | 26,227 |
| | 30,530 |
|
Total debt | | | 2,739,722 |
| | 3,265,608 |
|
Less: current portion long-term debt | | | 20,108 |
| | 199,535 |
|
Long-term debt | | | $ | 2,719,614 |
| | $ | 3,066,073 |
|
During 2019, we repaid all term loans outstanding at the beginning of the year and secured a new five-year $400 million secured term loan, scheduled to mature November 2024 (the 2024 Term Loan). The term loan bears interest at LIBOR plus 1.75% and resets monthly. Interest at December 31, 2019 was 3.55%. We also redeemed the $300 million September 2020 Notes. Finally, we replaced our $1 billion revolving credit facility scheduled to mature in January 2021 with a $500 million secured credit facility that expires in November 2024 (the Credit Facility). As of December 31, 2019 we had not drawn upon the Credit Facility. The Credit Facility contains financial covenants of which we were in compliance with at December 31, 2019. A $6 million loss was incurred on the early redemption of debt and is recorded in other expense.
Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. In April 2019, Moody's lowered our corporate credit rating from Ba1 to Ba2. As a result, the interest rates on the May 2022 notes, September 2020 notes, October 2021 notes and April 2023 notes increased 0.25% during the year. In November 2019, Moody's and Standard and Poor's lowered the credit rating of our unsecured notes and the interest rates on the October 2021 notes, May 2022 notes and April 2023 notes will increase an additional 0.50% in the second quarter of 2020.
Annual maturities of outstanding debt at December 31, 2019 are as follows:
|
| | | |
2020 | $ | 20,108 |
|
2021 | 620,000 |
|
2022 | 430,000 |
|
2023 | 440,000 |
|
2024 | 795,000 |
|
Thereafter | 460,841 |
|
Total | $ | 2,765,949 |
|
In December 2019, we obtained commitments for a five-year $650 million term loan, and in February 2020, we obtained lender commitments for an additional $200$14 million. The combined commitment amountgain on sale of $850businesses includes a $5 million is scheduled to mature January 2025 (the 2025 Term Loan). On February 10, 2020, we announced a cash tender offer to purchase up to $950 million aggregate principal amount of the October 2021 Notes, the May 2022 Notes, the April 2023 Notes and the March 2024 Notes (collectively, the Notes). On February 19, 2020, we funded the 2025 Term Loan and will use the net proceeds and the remaining proceeds fromgain on the sale of the Software SolutionsBorderfree and a gain of $7 million on proceeds of $16 million related to prior year business to redeem the Notes on or around February 24, 2020. The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly.sales.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
14. Retirement Plans and Postretirement Medical Benefits
We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S. under various defined benefit retirement plans. Benefit accruals under most of our significant defined benefit plans have been frozen.
We also provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. Employees hired before January 1, 2005 in the U.S. and April 1, 2005 in Canada become eligible for retiree medical benefits after reaching age 55 and with the completion of the required service period. The cost of these benefitsSupplemental cash flow information is recognized over the period the employee provides credited service to the company.
Retirement Plans
The benefit obligations and funded status of defined benefit pension plans are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Purchases of property and equipment in accounts payable | $ | 5,213 | | | $ | 5,305 | | | $ | 16,098 | |
Cash interest paid | $ | 134,247 | | | $ | 124,084 | | | $ | 151,857 | |
Cash income tax payments, net of refunds | $ | 14,553 | | | $ | 4,337 | | | $ | 20,185 | |
|
| | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2019 | | 2018 | | 2019 | | 2018 |
Accumulated benefit obligation | $ | 1,612,551 |
| | $ | 1,500,691 |
| | $ | 745,658 |
| | $ | 659,628 |
|
| | | | | | | �� |
Projected benefit obligation | | | | | | | |
Benefit obligation - beginning of year | $ | 1,501,140 |
| | $ | 1,727,737 |
| | $ | 662,644 |
| | $ | 751,373 |
|
Service cost | 83 |
| | 92 |
| | 1,543 |
| | 2,159 |
|
Interest cost | 63,171 |
| | 61,490 |
| | 17,853 |
| | 18,089 |
|
Plan participants' contributions | — |
| | — |
| | 6 |
| | 7 |
|
Actuarial loss (gain) | 160,390 |
| | (124,298 | ) | | 68,385 |
| | (41,995 | ) |
Foreign currency changes | — |
| | — |
| | 25,452 |
| | (40,559 | ) |
Plan amendments | — |
| | — |
| | — |
| | 9,009 |
|
Settlements and curtailments | (6,684 | ) | | (82,273 | ) | | (2,682 | ) | | (6,703 | ) |
Benefits paid | (105,046 | ) | | (81,608 | ) | | (26,259 | ) | | (28,736 | ) |
Benefit obligation - end of year | $ | 1,613,054 |
| | $ | 1,501,140 |
| | $ | 746,942 |
| | $ | 662,644 |
|
|
| | | | | | | | | | | | | | | |
Fair value of plan assets | | | | | | | |
Fair value of plan assets - beginning of year | $ | 1,327,034 |
| | $ | 1,557,907 |
| | $ | 562,517 |
| | $ | 632,710 |
|
Actual return on plan assets | 261,579 |
| | (73,745 | ) | | 98,006 |
| | (17,043 | ) |
Company contributions | 10,135 |
| | 6,753 |
| | 10,085 |
| | 10,939 |
|
Plan participants' contributions | — |
| | — |
| | 6 |
| | 7 |
|
Settlements and curtailments | (6,684 | ) | | (82,273 | ) | | (1,773 | ) | | — |
|
Foreign currency changes | — |
| | — |
| | 25,726 |
| | (35,360 | ) |
Benefits paid | (105,046 | ) | | (81,608 | ) | | (26,259 | ) | | (28,736 | ) |
Fair value of plan assets - end of year | $ | 1,487,018 |
| | $ | 1,327,034 |
| | $ | 668,308 |
| | $ | 562,517 |
|
|
| | | | | | | | | | | | | | | |
Amounts recognized in the Consolidated Balance Sheets | | | | | | | |
Noncurrent asset | $ | 383 |
| | $ | 277 |
| | $ | 20,020 |
| | $ | 14,225 |
|
Current liability | (9,019 | ) | | (10,975 | ) | | (1,313 | ) | | (1,197 | ) |
Noncurrent liability | (117,401 | ) | | (163,408 | ) | | (97,341 | ) | | (113,155 | ) |
Funded status | $ | (126,037 | ) | | $ | (174,106 | ) | | $ | (78,634 | ) | | $ | (100,127 | ) |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Selected balance sheet information is as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Other assets: | | | |
Long-term investments | $ | 259,977 | | | $ | 333,052 | |
| | | |
| | | |
Other (net of allowance of $520 and $18,011, respectively) | 120,442 | | | 138,032 | |
Total | $ | 380,419 | | | $ | 471,084 | |
| | | |
Accounts payable and accrued liabilities: | | | |
Accounts payable | $ | 315,351 | | | $ | 310,993 | |
Customer deposits | 209,662 | | | 185,528 | |
Employee related liabilities | 216,273 | | | 233,876 | |
Other | 165,797 | | | 192,146 | |
Total | $ | 907,083 | | | $ | 922,543 | |
| | | |
Other noncurrent liabilities: | | | |
Pension liabilities | $ | 74,681 | | | $ | 115,457 | |
Postretirement medical benefits | 87,745 | | | 126,675 | |
Other | 65,303 | | | 66,596 | |
Total | $ | 227,729 | | | $ | 308,728 | |
12. Restructuring Charges
Activity in our restructuring reserves was as follows:
| | | | | | | | | |
| Severance and other exit costs | | | | |
Balance at December 31, 2020 | $ | 10,063 | | | | | |
Expenses, net | 19,003 | | | | | |
Cash payments | (21,990) | | | | | |
Noncash activity | (1,329) | | | | | |
Balance at December 31, 2021 | 5,747 | | | | | |
Expenses, net | 18,715 | | | | | |
Cash payments | (15,406) | | | | | |
Noncash activity | (1,409) | | | | | |
Balance at December 31, 2022 | $ | 7,647 | | | | | |
The majority of the remaining restructuring reserves are expected to be paid over the next 12-24 months.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
13. Debt
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| Interest rate | | 2022 | | 2021 |
| | | | | |
| | | | | |
| | | | | |
Notes due April 2023 | 6.20% | | $ | — | | | $ | 90,259 | |
Notes due March 2024 | 4.625% | | 236,749 | | | 242,603 | |
Term loan due March 2026 | SOFR + 2.0% | | 351,500 | | | 370,500 | |
Notes due March 2027 | 6.875% | | 396,750 | | | 400,000 | |
Term loan due March 2028 | SOFR + 4.0% | | 442,125 | | | 446,625 | |
Notes due March 2029 | 7.25% | | 350,000 | | | 350,000 | |
Notes due January 2037 | 5.25% | | 35,841 | | | 35,841 | |
Notes due March 2043 | 6.70% | | 425,000 | | | 425,000 | |
Other debt | | | 2,446 | | | 3,685 | |
Principal amount | | | 2,240,411 | | | 2,364,513 | |
Less: unamortized costs, net | | | 35,145 | | | 40,675 | |
Total debt | | | 2,205,266 | | | 2,323,838 | |
Less: current portion long-term debt | | | 32,764 | | | 24,739 | |
Long-term debt | | | $ | 2,172,502 | | | $ | 2,299,099 | |
During 2022, we redeemed the April 2023 notes and recognized a $5 million pre-tax loss in connection with this redemption. We also made scheduled principal repayments of $24 million on our term loans and repurchased $6 million of the March 2024 notes and $3 million of the March 2027 notes in the open market. Through February 16, 2023, we have purchased an additional aggregate $12 million of the March 2024 notes and March 2027 notes.
The credit agreement that governs our $500 million secured revolving credit facility and term loans contains financial and non-financial covenants. At December 31, 2022, we were in compliance with all covenants and there were no outstanding borrowings under the revolving credit facility. In December 2022, we amended this credit facility to adjust our financial covenants and provide additional financial flexibility. Borrowings under the revolving credit facility and term loans are secured by assets of the company.
We have outstanding interest rate swaps that effectively convert $200 million of our variable rate debt to fixed rates. Under the terms of these agreements, we pay fixed-rate interest of 0.56% and receive variable-rate interest based on one-month LIBOR. The variable interest rate under the term loans and the swaps reset monthly.
At December 31, 2022, the interest rate of the 2026 Term Loan was 6.4% and the interest rate on the 2028 Term Loan was 8.4%.
The PB Bank (the Bank), a wholly owned subsidiary, is a member of the Federal Home Loan Bank (FHLB) of Des Moines. As a member, the Bank has access to certain credit products as a funding source known as "advances." As of December 31, 2022, the Bank had yet to apply for any advances. The Bank was required to purchase an equity interest in the FHLB of $1 million as a condition of membership. The equity interest investment is carried at cost since there is no readily determinable fair value as there is no actively traded market and investment is restricted to members only.
Annual maturities of outstanding principal at December 31, 2022 are as follows:
| | | | | |
2023 | $ | 32,739 | |
2024 | 280,956 | |
2025 | 50,500 | |
2026 | 244,500 | |
2027 | 401,250 | |
Thereafter | 1,230,466 | |
Total | $ | 2,240,411 | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
14. Retirement Plans and Postretirement Medical Benefits
Retirement Plans
We provide retirement benefits to eligible employees in the U.S. and outside the U.S. under various defined benefit retirement plans. Benefit accruals under most of our defined benefit plans have been frozen. The benefit obligations and funded status of defined benefit pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2022 | | 2021 | | 2022 | | 2021 |
Accumulated benefit obligation | $ | 1,205,135 | | | $ | 1,609,125 | | | $ | 447,401 | | | $ | 762,558 | |
| | | | | | | |
Projected benefit obligation | | | | | | | |
Benefit obligation - beginning of year | $ | 1,609,508 | | | $ | 1,729,959 | | | $ | 770,468 | | | $ | 830,674 | |
Service cost | 55 | | | 102 | | | 1,214 | | | 1,528 | |
Interest cost | 44,348 | | | 42,434 | | | 13,568 | | | 11,811 | |
| | | | | | | |
Net actuarial gain | (349,261) | | | (53,133) | | | (242,488) | | | (37,197) | |
Foreign currency changes | — | | | — | | | (68,519) | | | (10,747) | |
| | | | | | | |
Settlements | (1,574) | | | (1,429) | | | — | | | — | |
| | | | | | | |
Benefits paid | (97,893) | | | (108,425) | | | (22,906) | | | (25,601) | |
Benefit obligation - end of year | $ | 1,205,183 | | | $ | 1,609,508 | | | $ | 451,337 | | | $ | 770,468 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
Fair value of plan assets | | | | | | | |
Fair value of plan assets - beginning of year | $ | 1,549,157 | | | $ | 1,601,786 | | | $ | 737,443 | | | $ | 742,639 | |
Actual return on plan assets | (293,968) | | | 51,828 | | | (218,325) | | | 17,929 | |
Company contributions | 5,639 | | | 5,397 | | | 8,731 | | | 9,686 | |
| | | | | | | |
Settlements | (1,574) | | | (1,429) | | | — | | | — | |
Foreign currency changes | — | | | — | | | (66,540) | | | (7,210) | |
Benefits paid | (97,893) | | | (108,425) | | | (22,906) | | | (25,601) | |
Fair value of plan assets - end of year | $ | 1,161,361 | | | $ | 1,549,157 | | | $ | 438,403 | | | $ | 737,443 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in the Consolidated Balance Sheets | | | | | | | |
| | | |
| | | | | | | |
Noncurrent asset | $ | — | | | $ | — | | | $ | 26,570 | | | $ | 29,309 | |
Current liability | (7,294) | | | (5,883) | | | (1,351) | | | (1,345) | |
Noncurrent liability | (36,528) | | | (54,468) | | | (38,153) | | | (60,989) | |
Funded status | $ | (43,822) | | | $ | (60,351) | | | $ | (12,934) | | | $ | (33,025) | |
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2019 and 2018:assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2022 | | 2021 | | 2022 | | 2021 |
Projected benefit obligation | $ | 1,205,183 | | | $ | 1,609,508 | | | $ | 38,238 | | | $ | 59,859 | |
Accumulated benefit obligation | $ | 1,205,135 | | | $ | 1,609,125 | | | $ | 37,972 | | | $ | 59,352 | |
Fair value of plan assets | $ | 1,161,361 | | | $ | 1,549,157 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2019 | | 2018 | | 2019 | | 2018 |
Projected benefit obligation | $ | 1,612,745 |
| | $ | 1,500,680 |
| | $ | 615,288 |
| | $ | 540,798 |
|
Accumulated benefit obligation | $ | 1,612,241 |
| | $ | 1,500,231 |
| | $ | 614,293 |
| | $ | 538,666 |
|
Fair value of plan assets | $ | 1,486,325 |
| | $ | 1,326,296 |
| | $ | 516,634 |
| | $ | 426,446 |
|
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
Pretax amounts recognized in AOCI consist of: | | | | | | | |
| United States | | Foreign |
| 2022 | | 2021 | | 2022 | | 2021 |
Net actuarial loss | $ | 698,815 | | | $ | 716,585 | | | $ | 297,753 | | | $ | 301,913 | |
Prior service (credit) cost | (105) | | | (149) | | | 7,552 | | | 7,804 | |
Transition asset | — | | | — | | | (7) | | | (7) | |
Total | $ | 698,710 | | | $ | 716,436 | | | $ | 305,298 | | | $ | 309,710 | |
|
| | | | | | | | | | | | | | | |
Pretax amounts recognized in AOCI consist of: | | | | | | | |
| United States | | Foreign |
| 2019 | | 2018 | | 2019 | | 2018 |
Net actuarial loss | $ | 772,850 |
| | $ | 809,836 |
| | $ | 315,319 |
| | $ | 318,474 |
|
Prior service (credit) cost | (270 | ) | | (330 | ) | | 8,317 |
| | 8,496 |
|
Transition asset | — |
| | — |
| | (11 | ) | | (17 | ) |
Total | $ | 772,580 |
| | $ | 809,506 |
| | $ | 323,625 |
| | $ | 326,953 |
|
The components of net periodic benefit cost (income) for defined benefit pension plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Service cost | $ | 55 | | | $ | 102 | | | $ | 86 | | | $ | 1,214 | | | $ | 1,528 | | | $ | 1,650 | |
Interest cost | 44,348 | | | 42,434 | | | 52,103 | | | 13,568 | | | 11,811 | | | 13,379 | |
Expected return on plan assets | (71,080) | | | (77,119) | | | (84,719) | | | (26,770) | | | (31,869) | | | (34,391) | |
Amortization of net transition asset | — | | | — | | | — | | | — | | | — | | | (4) | |
Amortization of prior service (credit) cost | (44) | | | (60) | | | (60) | | | 252 | | | 268 | | | 245 | |
Amortization of net actuarial loss | 33,164 | | | 38,233 | | | 32,490 | | | 6,767 | | | 9,350 | | | 7,842 | |
| | | | | | | | | | | |
Settlements | 394 | | | 551 | | | 1,364 | | | — | | | — | | | 5,060 | |
Net periodic benefit cost (income) | $ | 6,837 | | | $ | 4,141 | | | $ | 1,264 | | | $ | (4,969) | | | $ | (8,912) | | | $ | (6,219) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Service cost | $ | 83 |
| | $ | 92 |
| | $ | 132 |
| | $ | 1,543 |
| | $ | 2,159 |
| | $ | 2,274 |
|
Interest cost | 63,171 |
| | 61,490 |
| | 68,611 |
| | 17,853 |
| | 18,089 |
| | 18,836 |
|
Expected return on plan assets | (92,726 | ) | | (101,087 | ) | | (97,656 | ) | | (34,363 | ) | | (35,687 | ) | | (32,242 | ) |
Amortization of net transition asset | — |
| | — |
| | — |
| | (6 | ) | | (7 | ) | | (8 | ) |
Amortization of prior service (credit) cost | (60 | ) | | (60 | ) | | (60 | ) | | 243 |
| | (71 | ) | | (71 | ) |
Amortization of net actuarial loss | 26,146 |
| | 31,298 |
| | 28,954 |
| | 6,337 |
| | 7,264 |
| | 8,052 |
|
Special termination benefits | — |
| | — |
| | — |
| | — |
| | 208 |
| | — |
|
Settlements and curtailments | 2,381 |
| | 44,665 |
| | — |
| | 397 |
| | (13 | ) | | — |
|
Net periodic benefit (income) cost | $ | (1,005 | ) | | $ | 36,398 |
| | $ | (19 | ) | | $ | (7,996 | ) | | $ | (8,058 | ) | | $ | (3,159 | ) |
In connection with the disposition of the Production Mail Business and certain other actions, a pre-tax, non-cash pension settlement charge of $45 million for the U.S. pension plans was incurred in 2018. We recognized $32 million of this charge in other components of net pension and postretirement cost and the remaining $13 million in income from discontinued operations, net of tax.
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2022 | | 2021 | | 2022 | | 2021 |
Net actuarial loss (gain) | $ | 15,788 | | | $ | (27,842) | | | $ | 2,607 | | | $ | (23,257) | |
| | | | | | | |
Amortization of net actuarial loss | (33,164) | | | (38,233) | | | (6,767) | | | (9,350) | |
Amortization of prior service credit (cost) | 44 | | | 60 | | | (252) | | | (268) | |
| | | | | | | |
Settlements | (394) | | | (551) | | | — | | | — | |
Total recognized in other comprehensive income | $ | (17,726) | | | $ | (66,566) | | | $ | (4,412) | | | $ | (32,875) | |
|
| | | | | | | | | | | | | | | |
| United States | | Foreign |
| 2019 | | 2018 | | 2019 | | 2018 |
Net actuarial (gain) loss | $ | (8,459 | ) | | $ | 50,534 |
| | $ | 3,643 |
| | $ | 3,824 |
|
Plan amendment | — |
| | — |
| | — |
| | 9,009 |
|
Amortization of net actuarial loss | (26,146 | ) | | (31,298 | ) | | (6,337 | ) | | (7,264 | ) |
Amortization of prior service credit (cost) | 60 |
| | 60 |
| | (243 | ) | | 71 |
|
Net transition asset | — |
| | — |
| | 6 |
| | 7 |
|
Settlements and curtailments | (2,381 | ) | | (44,665 | ) | | (397 | ) | | 13 |
|
Total recognized in other comprehensive income | $ | (36,926 | ) | | $ | (25,369 | ) | | $ | (3,328 | ) | | $ | 5,660 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Weighted-average actuarial assumptions used to determine year end of year benefit obligations and net periodic benefit cost for defined benefit pension plans include:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
United States | | | | | | | | | | | |
Used to determine benefit obligations | | | | | | | | | | | |
Discount rate | 5.55% | | 2.85% | | 2.54% |
Rate of compensation increase | N/A | | N/A | | N/A |
| | | | | | | | | | | |
Used to determine net periodic benefit cost | | | | | | | | | | | |
Discount rate | 2.85% | | 2.54% | | 3.34% |
Expected return on plan assets | 5.10% | | 5.60% | | 6.25% |
Rate of compensation increase | N/A | | N/A | | N/A |
| | | | | | | | | | | |
Foreign | | | | | | | | | | | |
Used to determine benefit obligations | | | | | | | | | | | |
Discount rate | 1.95 | % | - | 5.10% | | 0.85 | % | - | 2.85% | | 0.70 | % | - | 2.40% |
Rate of compensation increase | 2.00 | % | - | 3.00% | | 1.50 | % | - | 3.65% | | 1.50 | % | - | 2.50% |
| | | | | | | | | | | |
Used to determine net periodic benefit cost | | | | | | | | | | | |
Discount rate | 0.85 | % | - | 2.85% | | 0.70 | % | - | 2.40% | | 0.65 | % | - | 2.95% |
Expected return on plan assets | 3.75 | % | - | 5.75% | | 3.50 | % | - | 5.75% | | 4.25 | % | - | 6.00% |
Rate of compensation increase | 1.50 | % | - | 2.50% | | 1.50 | % | - | 2.50% | | 1.50 | % | - | 2.50% |
|
| | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
United States | | | | | | | | | | | |
Used to determine benefit obligations | | | | | | | | | | | |
Discount rate | 3.34% | | 4.34% | | 3.69% |
Rate of compensation increase | N/A | | N/A | | N/A |
| | | | | | | | | | | |
Used to determine net periodic benefit cost | | | | | | | | | | | |
Discount rate | 4.34% | | 3.69% | | 4.20% |
Expected return on plan assets | 6.75% | | 7.00% | | 6.75% |
Rate of compensation increase | N/A | | N/A | | N/A |
| | | | | | | | | | | |
Foreign | | | | | | | | | | | |
Used to determine benefit obligations | | | | | | | | | | | |
Discount rate | 0.65 | % | - | 2.95% | | 0.75 | % | - | 3.55% | | 0.65 | % | - | 3.35% |
Rate of compensation increase | 1.50 | % | - | 2.50% | | 1.50 | % | - | 2.50% | | 1.50 | % | - | 2.50% |
| | | | | | | | | | | |
Used to determine net periodic benefit cost | | | | | | | | | | | |
Discount rate | 0.75 | % | - | 3.55% | | 0.65 | % | - | 3.35% | | 0.70 | % | - | 3.65% |
Expected return on plan assets | 4.25 | % | - | 6.25% | | 3.75 | % | - | 6.25% | | 3.75 | % | - | 6.25% |
Rate of compensation increase | 1.50 | % | - | 2.50% | | 1.50 | % | - | 3.25% | | 1.50 | % | - | 3.30% |
A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a pool of corporate long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by using a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from a large number of high quality corporate bonds. For our other smaller foreign pension plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.
The expected return on plan assets is based on historicalthe target asset allocation for the applicable pension plan and expected rates of return for current and plannedvarious asset classes in the plans' investment portfolio after analyzing historical experience, and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio is based on the target asset allocation of our global pension plans, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns.
During 2020, we estimate making contributions of $9 million to our U.S. pension plans and
$10 million to our foreign pension plans.
Investment Strategy and Asset Allocation - U.S. Pension Plans
The investment strategy offor our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk tolevels, achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn anthe expected rate of return. return while adhering to regulations and restrictions.
Pension plan assets are invested in accordance with our strategic asset allocation policy to achieve these objectives.policy. Pension plan assets are exposed to various risks, such asincluding interest rate risks, market risks and credit risks. Investments are diversified across asset classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. We do not have any significant concentrations of credit risk within the plan assets.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
U.S. Pension Plans
Investment objectives and investment managers are reviewed periodically. Target and actual asset allocations for the U.S. pension plans were as follows:
| | | | | | | | | | | | | | | | | |
| Target allocation | | Percent of Plan Assets at December 31, |
| 2023 | | 2022 | | 2021 |
Asset category | | | | | |
Equities | 16 | % | | 15 | % | | 18 | % |
Multi-asset credit | 2 | % | | 2 | % | | 3 | % |
Fixed income | 76 | % | | 74 | % | | 73 | % |
Real estate | 5 | % | | 8 | % | | 5 | % |
Private equity | 1 | % | | 1 | % | | 1 | % |
| | | | | |
Total | 100 | % | | 100 | % | | 100 | % |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
|
| | | | | | | | |
| Target allocation | | Percent of Plan Assets at December 31, |
| 2020 | | 2019 | | 2018 |
Asset category | | | | | |
Equities | 30 | % | | 30 | % | | 26 | % |
Fixed income | 63 | % | | 63 | % | | 64 | % |
Real estate | 5 | % | | 5 | % | | 7 | % |
Private equity | 2 | % | | 2 | % | | 3 | % |
Total | 100 | % | | 100 | % | | 100 | % |
Investment Strategy and Asset Allocation - Foreign Pension Plans
Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate personnel. Investment strategies vary by country and plan, with each strategy tailored to achieve the expected rate of return within an appropriate risk level, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. The U.K. Plan comprises 77% of the total foreign pension plan assets. The U.K. pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn an expected rate of return. Plan assets are invested in accordance with our strategic asset allocation policy to achieve these objectives. Pension plan assets are exposed to various risks, such as interest rate, market and credit risks. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage currency exposure. We do not have any significant concentrations of credit risk within the plan assets. Investment objectives and investment managers are reviewed periodically. Target and actual asset allocations for the U.K. Plan, which comprises 73% of the total foreign pension plan assets, were as follows:
| | | | | | | | | | | | | | | | | |
| Target Allocation | | Percent of Plan Assets at December 31, |
| 2023 | | 2022 | | 2021 |
Asset category | | | | | |
| | | | | |
Global equities | 10 | % | | 8 | % | | 12 | % |
Fixed income | 70 | % | | 70 | % | | 69 | % |
Real estate | 10 | % | | 13 | % | | 9 | % |
Diversified growth | 10 | % | | 8 | % | | 9 | % |
Cash | — | % | | 1 | % | | 1 | % |
Total | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | |
| Target Allocation | | Percent of Plan Assets at December 31, |
| 2020 | | 2019 | | 2018 |
Asset category | | | | | |
Equities | 30 | % | | 35 | % | | 38 | % |
Fixed income | 50 | % | | 46 | % | | 41 | % |
Real estate | 10 | % | | 9 | % | | 10 | % |
Diversified growth | 10 | % | | 9 | % | | 10 | % |
Cash | — | % | | 1 | % | | 1 | % |
Total | 100 | % | | 100 | % | | 100 | % |
The target asset allocation used to manage the investment portfolios is based on the broad asset categories shown above. The plan asset categories presented in the fair value hierarchy are subsets of the broad asset categories.
The fair value of the U.K. plan assets was $516 million and $426 million at December 31, 2019 and 2018, respectively, and the expected long-term weighted average rate of return on these plan assets was 6.25% in both 2019 and 2018.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Fair Value Measurements of Plan Assets
The following tables show the U.S. and foreign pension plans' assets:assets, by level within the fair value hierarchy. The plan asset categories presented in the following tables are subsets of the broader asset allocation categories.
United States Pension Plans
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | | | Total |
Money market funds | $ | — | | | $ | 10,623 | | | $ | — | | | | | $ | 10,623 | |
Equity securities | — | | | 137,505 | | | — | | | | | 137,505 | |
Commingled fixed income securities | — | | | 220,281 | | | — | | | | | 220,281 | |
Government and related securities | 114,084 | | | 21,479 | | | — | | | | | 135,563 | |
Corporate debt securities | — | | | 527,407 | | | — | | | | | 527,407 | |
Mortgage-backed /asset-backed securities | — | | | 26,450 | | | — | | | | | 26,450 | |
| | | | | | | | | |
Real estate | — | | | — | | | 91,500 | | | | | 91,500 | |
Securities lending collateral | — | | | 113,802 | | | — | | | | | 113,802 | |
Total plan assets at fair value | $ | 114,084 | | | $ | 1,057,547 | | | $ | 91,500 | | | | | $ | 1,263,131 | |
Securities lending payable | | | | | | | | | (113,802) | |
Investments valued at NAV | | | | | | | | | 10,416 | |
Cash | | | | | | | | | 3,525 | |
Other | | | | | | | | | (1,909) | |
Fair value of plan assets | | | | | | | | | $ | 1,161,361 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | — |
| | $ | 4,917 |
| | $ | — |
| | $ | 4,917 |
|
Equity securities | — |
| | 265,832 |
| | — |
| | 265,832 |
|
Commingled fixed income securities | — |
| | 275,335 |
| | — |
| | 275,335 |
|
Government and related securities | 292,506 |
| | 15,764 |
| | — |
| | 308,270 |
|
Corporate debt securities | — |
| | 528,425 |
| | — |
| | 528,425 |
|
Mortgage-backed securities /asset-backed securities | — |
| | 51,770 |
| | — |
| | 51,770 |
|
Private equity | — |
| | — |
| | 23,608 |
| | 23,608 |
|
Real estate | — |
| | — |
| | 71,337 |
| | 71,337 |
|
Securities lending collateral | — |
| | 106,886 |
| | — |
| | 106,886 |
|
Total plan assets at fair value | $ | 292,506 |
| | $ | 1,248,929 |
| | $ | 94,945 |
| | $ | 1,636,380 |
|
Securities lending payable | | | | | | | (106,886 | ) |
Cash | | | | | | | 9,409 |
|
Other | | | | | | | (51,885 | ) |
Fair value of plan assets |
| |
|
| |
|
| | $ | 1,487,018 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | 3,498 |
| | $ | 5,759 |
| | $ | — |
| | $ | 9,257 |
|
Equity securities | 110,840 |
| | 109,864 |
| | — |
| | 220,704 |
|
Commingled fixed income securities | — |
| | 281,258 |
| | — |
| | 281,258 |
|
Government and related securities | 258,535 |
| | 16,144 |
| | — |
| | 274,679 |
|
Corporate debt securities | — |
| | 435,285 |
| | — |
| | 435,285 |
|
Mortgage-backed securities /asset-backed securities | — |
| | 23,474 |
| | — |
| | 23,474 |
|
Private equity | — |
| | — |
| | 32,750 |
| | 32,750 |
|
Real estate | — |
| | — |
| | 96,877 |
| | 96,877 |
|
Securities lending collateral | — |
| | 117,603 |
| | — |
| | 117,603 |
|
Total plan assets at fair value | $ | 372,873 |
| | $ | 989,387 |
| | $ | 129,627 |
| | $ | 1,491,887 |
|
Securities lending payable | | | | | | | (117,603 | ) |
Cash | | | | | | | 11,341 |
|
Other | | | | | | | (58,591 | ) |
Fair value of plan assets |
| |
|
| |
|
| | $ | 1,327,034 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total |
Money market funds | $ | — | | | $ | 3,725 | | | $ | — | | | | | $ | 3,725 | |
Equity securities | — | | | 195,037 | | | — | | | | | 195,037 | |
Commingled fixed income securities | — | | | 229,300 | | | — | | | | | 229,300 | |
Government and related securities | 202,416 | | | 26,582 | | | — | | | | | 228,998 | |
Corporate debt securities | — | | | 771,529 | | | — | | | | | 771,529 | |
Mortgage-backed /asset-backed securities | — | | | 12,486 | | | — | | | | | 12,486 | |
| | | | | | | | | |
Real estate | — | | | — | | | 77,494 | | | | | 77,494 | |
| | | | | | | | | |
Securities lending collateral | — | | | 145,855 | | | — | | | | | 145,855 | |
Total plan assets at fair value | $ | 202,416 | | | $ | 1,384,514 | | | $ | 77,494 | | | | | $ | 1,664,424 | |
Securities lending payable | | | | | | | | | (145,855) | |
Investments valued at NAV | | | | | | | | | 16,820 | |
Cash | | | | | | | | | 20,569 | |
Other | | | | | | | | | (6,801) | |
Fair value of plan assets | | | | | | | | | $ | 1,549,157 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Foreign Plans
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | — | | | $ | 8,338 | | | $ | — | | | $ | 8,338 | |
Equity securities | — | | | 42,717 | | | — | | | 42,717 | |
Commingled fixed income securities | — | | | 247,337 | | | — | | | 247,337 | |
Government and related securities | — | | | 35,887 | | | — | | | 35,887 | |
Corporate debt securities | — | | | 26,336 | | | — | | | 26,336 | |
| | | | | | | |
| | | | | | | |
Real estate | — | | | 4,446 | | | 42,980 | | | 47,426 | |
Diversified growth funds | — | | | — | | | 24,394 | | | 24,394 | |
| | | | | | | |
Total plan assets at fair value | $ | — | | | $ | 365,061 | | | $ | 67,374 | | | $ | 432,435 | |
Cash | | | | | | | 5,485 | |
Other | | | | | | | 483 | |
Fair value of plan assets | | | | | | | $ | 438,403 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | — |
| | $ | 8,734 |
| | $ | — |
| | $ | 8,734 |
|
Equity securities | — |
| | 222,554 |
| | — |
| | 222,554 |
|
Commingled fixed income securities | — |
| | 264,131 |
| | — |
| | 264,131 |
|
Government and related securities | — |
| | 43,405 |
| | — |
| | 43,405 |
|
Corporate debt securities | — |
| | 34,528 |
| | — |
| | 34,528 |
|
Real estate | — |
| | — |
| | 45,335 |
| | 45,335 |
|
Diversified growth funds | — |
| | — |
| | 47,621 |
| | 47,621 |
|
Total plan assets at fair value | $ | — |
| | $ | 573,352 |
| | $ | 92,956 |
| | $ | 666,308 |
|
Cash | | | | | | | 1,516 |
|
Other | | | | | | | 484 |
|
Fair value of plan assets |
| |
|
| |
|
| | $ | 668,308 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | — |
| | $ | 11,172 |
| | $ | — |
| | $ | 11,172 |
|
Equity securities | — |
| | 194,914 |
| | — |
| | 194,914 |
|
Commingled fixed income securities | — |
| | 198,902 |
| | — |
| | 198,902 |
|
Government and related securities | — |
| | 40,055 |
| | — |
| | 40,055 |
|
Corporate debt securities | — |
| | 29,996 |
| | — |
| | 29,996 |
|
Real estate | — |
| | — |
| | 42,143 |
| | 42,143 |
|
Diversified growth funds | — |
| | — |
| | 40,766 |
| | 40,766 |
|
Total plan assets at fair value | $ | — |
| | $ | 475,039 |
| | $ | 82,909 |
| | $ | 557,948 |
|
Cash | | | | | | | 3,903 |
|
Other | | | | | | | 666 |
|
Fair value of plan assets |
| |
|
| |
|
| | $ | 562,517 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | — | | | $ | 8,577 | | | $ | — | | | $ | 8,577 | |
Equity securities | — | | | 96,596 | | | — | | | 96,596 | |
Commingled fixed income securities | — | | | 431,845 | | | — | | | 431,845 | |
Government and related securities | — | | | 46,522 | | | — | | | 46,522 | |
Corporate debt securities | — | | | 33,583 | | | — | | | 33,583 | |
| | | | | | | |
| | | | | | | |
Real estate | — | | | 7,168 | | | 52,491 | | | 59,659 | |
Diversified growth funds | — | | | — | | | 52,169 | | | 52,169 | |
Total plan assets at fair value | $ | — | | | $ | 624,291 | | | $ | 104,660 | | | $ | 728,951 | |
Cash | | | | | | | 7,966 | |
Other | | | | | | | 526 | |
Fair value of plan assets | | | | | | | $ | 737,443 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following information relates to our classification of investments 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. |
| |
• | Equity Securities: include U.S. and foreign stocks, American Depository Receipts, preferred stock and commingled funds. There are no shares of our common stock included in the plan assets of our pension plans.
|
| |
• | Commingled Fixed Income Securities: mutual funds that 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 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. |
| |
• | Government and Related Securities: include treasury notes and bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include general obligation securities and revenue-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: comprised of both investment grade debt and high-yield debt. Fair value is determined using recently executed transactions, market price quotations where observable, or bond spreads.
|
| |
• | Mortgage-Backed Securities / Asset-Backed Securities: mortgage-backed securities (MBS) are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage obligations, commercial MBS and commingled funds. Asset-backed securities (ABS) are primarily comprised of credit card receivables, auto loan receivables, student loan receivables and Small Business Administration loans. These securities are valued based on external pricing indices, external price/spread data or broker quotes.
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
•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 on external price/spread data. These securities are classified as Level 2.
•Real Estate: include units in open-ended commingled real estate funds. Funds that are valued and traded on a daily basis in an active market are classified as Level 2. Investments that are valued on an annual basis by certified appraisers are classified as Level 3. The valuation techniques used to value Level 3 investments include the cost approach, sales-comparison method and the income approach.
•Diversified Growth Funds: comprised of units in commingled diversified growth funds that comprise a mix of different asset classes. The underlying investments may not be listed on an exchange in an active market or traded on a daily basis and may fall into all three fair value categories. Accordingly, these securities are classified as Level 3.
•Securities Lending Fund: represents a commingled fund through our custodian's securities lending program. The U.S. pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This collateral is invested in a commingled fund that invests in short-term fixed income securities. This investment is classified as Level 2. This amount invested in the fund is offset by a corresponding liability reflected in the U.S. pension plan's net assets available for benefits.
| |
• | Private Equity: comprised of units in fund-of-funds investment vehicles. Fund-of-funds consist of various private equity investments and are used in an effort to gain greater diversification. Investments are valued in accordance with the most appropriate valuation techniques.Investments Valued at Net Asset Value Represents investments in private equity limited partnerships that are measured at fair value using the Net Asset Value (NAV) per share as a practical expedient and are not categorized in the fair value hierarchy. There is no active market for these investments and the pension plan receives a proportionate share of the gains, losses and expenses in accordance with the partnership agreements. There was a remaining unfunded commitment of $6 million and $8 million at December 31, 2022 and 2021, respectively. These investments comprise 1% of total U.S. Pension Fund assets at both December 31, 2022 and 2021.
|
| |
• | Real Estate: include units in open-ended commingled real estate funds. Investments are valued in accordance with the most appropriate valuation techniques.
|
| |
• | Diversified Growth Funds: comprised of units in commingled diversified growth funds. Investments are valued based on the net asset value (NAV) per unit as reported by the fund manager.
|
| |
• | Securities Lending Fund: represents a commingled fund through our custodian's securities lending program. The U.S. pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This collateral is invested in a short-term fixed income securities commingled fund. This amount invested in the fund is offset by a corresponding liability reflected in the U.S. pension plan's net assets available for benefits.
|
Level 3 Gains and Losses
The following table summarizes the changes in the fair value of Level 3 assets:
United States Pension Plans | | | | | | | | | | | | | | | | | | | |
| | | U.S. Plans | | Foreign Plans |
| | | Real estate | | Real estate | | Diversified Growth Funds |
Balance at December 31, 2020 | | | $ | 69,347 | | | $ | 45,275 | | | $ | 50,750 | |
Realized gains | | | 1,791 | | | — | | | — | |
Unrealized losses | | | 6,958 | | | 6,357 | | | 1,995 | |
Net purchases, sales and settlements | | | (602) | | | 1,663 | | | — | |
Foreign currency and other | | | — | | | (804) | | | (576) | |
Balance at December 31, 2021 | | | 77,494 | | | 52,491 | | | 52,169 | |
Realized gains | | | 1,058 | | | — | | | — | |
Unrealized gains (losses) | | | 12,666 | | | (6,741) | | | (5,933) | |
Net purchases, sales and settlements | | | 282 | | | 1,729 | | | (16,474) | |
Foreign currency and other | | | — | | | (4,499) | | | (5,368) | |
Balance at December 31, 2022 | | | $ | 91,500 | | | $ | 42,980 | | | $ | 24,394 | |
|
| | | | | | | | | | | |
| Private equity | | Real estate | | Total |
Balance at December 31, 2017 | $ | 38,362 |
| | $ | 91,352 |
| | $ | 129,714 |
|
Realized gains | 8,264 |
| | 1,001 |
| | 9,265 |
|
Unrealized (losses) gains | (1,409 | ) | | 4,462 |
| | 3,053 |
|
Net purchases, sales and settlements | (12,467 | ) | | 62 |
| | (12,405 | ) |
Balance at December 31, 2018 | 32,750 |
| | 96,877 |
| | 129,627 |
|
Realized gains | 5,625 |
| | 14,876 |
| | 20,501 |
|
Unrealized losses | (5,288 | ) | | (12,517 | ) | | (17,805 | ) |
Net purchases, sales and settlements | (9,479 | ) | | (27,899 | ) | | (37,378 | ) |
Balance at December 31, 2019 | $ | 23,608 |
| | $ | 71,337 |
| | $ | 94,945 |
|
Foreign Pension Plans
|
| | | | | | | | | | | |
| Real estate | | Diversified growth funds | | Total |
Balance at December 31, 2017 | $ | 41,601 |
| | $ | 44,024 |
| | $ | 85,625 |
|
Unrealized gains (losses) | 1,317 |
| | (4,948 | ) | | (3,631 | ) |
Net purchases, sales and settlements | 1,653 |
| | 4,090 |
| | 5,743 |
|
Foreign currency | (2,428 | ) | | (2,400 | ) | | (4,828 | ) |
Balance at December 31, 2018 | 42,143 |
| | 40,766 |
| | 82,909 |
|
Unrealized (losses) gains | (799 | ) | | 4,954 |
| | 4,155 |
|
Net purchases, sales and settlements | 1,618 |
| | 107 |
| | 1,725 |
|
Other | 687 |
| | — |
| | 687 |
|
Foreign currency | 1,686 |
| | 1,794 |
| | 3,480 |
|
Balance at December 31, 2019 | $ | 45,335 |
| | $ | 47,621 |
| | $ | 92,956 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Nonpension Postretirement Medical Benefits
We provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. The cost of these benefits is recognized over the period the employee provides credited service to the company. The benefit obligation and funded status for nonpension postretirement medical benefit plans are as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
Benefit obligation | | | |
Benefit obligation - beginning of year | $ | 139,516 | | | $ | 169,210 | |
Service cost | 731 | | | 909 | |
Interest cost | 3,679 | | | 3,755 | |
| | | |
Net actuarial gain | (31,512) | | | (22,305) | |
Foreign currency changes | (740) | | | 123 | |
| | | |
| | | |
| | | |
Benefits paid, net | (12,399) | | | (12,176) | |
Benefit obligation - end of year (1) | $ | 99,275 | | | $ | 139,516 | |
|
| | | | | | | |
| 2019 | | 2018 |
Benefit obligation | | | |
Benefit obligation - beginning of year | $ | 166,476 |
| | $ | 188,841 |
|
Service cost | 967 |
| | 1,405 |
|
Interest cost | 6,584 |
| | 6,640 |
|
Plan participants' contributions | 3,003 |
| | 3,200 |
|
Actuarial loss (gain) | 6,930 |
| | (11,304 | ) |
Foreign currency changes | 674 |
| | (1,177 | ) |
Curtailment | — |
| | (533 | ) |
Benefits paid | (20,530 | ) | | (20,596 | ) |
Benefit obligation - end of year (1) | $ | 164,104 |
| | $ | 166,476 |
|
| | | | | | | | | | | |
| | | |
Fair value of plan assets | | | |
Fair value of plan assets - beginning of year | $ | — | | | $ | — | |
Company contribution | 12,399 | | | 12,176 | |
| | | |
Benefits paid, net | (12,399) | | | (12,176) | |
Fair value of plan assets - end of year | $ | — | | | $ | — | |
| | | |
| | | |
| | | | | | | | | | | |
| | | |
Amounts recognized in the Consolidated Balance Sheets | | | |
Current liability | $ | (11,530) | | | $ | (12,841) | |
Non-current liability | (87,745) | | | (126,675) | |
Funded status | $ | (99,275) | | | $ | (139,516) | |
|
| | | | | | | |
Fair value of plan assets | | | |
Fair value of plan assets - beginning of year | $ | — |
| | $ | — |
|
Company contribution | 17,527 |
| | 17,396 |
|
Plan participants' contributions | 3,003 |
| | 3,200 |
|
Benefits paid | (20,530 | ) | | (20,596 | ) |
Fair value of plan assets - end of year | $ | — |
| | $ | — |
|
(1) The benefit obligation for U.S. postretirement medical benefits plan was $90 million and $126 million at December 31, 2022 and 2021, respectively. |
| | | | | | | |
Amounts recognized in the Consolidated Balance Sheets | | | |
Current liability | $ | (16,132 | ) | | $ | (17,013 | ) |
Non-current liability | (147,972 | ) | | (149,463 | ) |
Funded status | $ | (164,104 | ) | | $ | (166,476 | ) |
| |
(1) | The benefit obligation for U.S. nonpension postretirement plans was $150 million and $154 million at December 31, 2019 and 2018, respectively. |
Pretax amounts recognized in AOCIAOCL consist of:
| | | | | | | | | | | |
| 2022 | | 2021 |
Net actuarial (gain) loss | $ | (16,405) | | | $ | 15,175 | |
| | | |
| | | |
|
| | | | | | | |
| 2019 | | 2018 |
Net actuarial loss | $ | 33,272 |
| | $ | 28,368 |
|
Prior service cost | 502 |
| | 823 |
|
Total | $ | 33,774 |
| | $ | 29,191 |
|
The components of net periodic benefit cost for nonpension postretirement medical benefit plans were as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Service cost | $ | 731 | | | $ | 909 | | | $ | 885 | |
Interest cost | 3,679 | | | 3,755 | | | 4,993 | |
Amortization of prior service cost | — | | | 129 | | | 373 | |
Amortization of net actuarial loss | 68 | | | 4,090 | | | 3,198 | |
| | | | | |
| | | | | |
Net periodic benefit cost | $ | 4,478 | | | $ | 8,883 | | | $ | 9,449 | |
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
Service cost | $ | 967 |
| | $ | 1,405 |
| | $ | 1,727 |
|
Interest cost | 6,584 |
| | 6,640 |
| | 7,100 |
|
Amortization of prior service cost | 321 |
| | 304 |
| | 297 |
|
Amortization of net actuarial loss | 2,026 |
| | 3,048 |
| | 3,600 |
|
Curtailment | — |
| | 246 |
| | — |
|
Net periodic benefit cost | $ | 9,898 |
| | $ | 11,643 |
| | $ | 12,724 |
|
Other changes in benefit obligation for postretirement medical benefit plans recognized in other comprehensive income were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
Net actuarial gain | $ | (31,512) | | | $ | (22,305) | |
| | | |
Amortization of net actuarial loss | (68) | | | (4,090) | |
Amortization of prior service cost | — | | | (129) | |
| | | |
| | | |
Total recognized in other comprehensive income | $ | (31,580) | | | $ | (26,524) | |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income were as follows:
|
| | | | | | | |
| 2019 | | 2018 |
Net actuarial loss (gain) | $ | 6,931 |
| | $ | (11,837 | ) |
Curtailment | — |
| | (246 | ) |
Amortization of net actuarial loss | (2,026 | ) | | (3,048 | ) |
Amortization of prior service cost | (321 | ) | | (304 | ) |
Total recognized in other comprehensive income | $ | 4,584 |
| | $ | (15,435 | ) |
The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Discount rate used to determine benefit obligation | | | | | |
U.S. | 5.60 | % | | 2.80 | % | | 2.35 | % |
Canada | 5.15 | % | | 2.90 | % | | 2.50 | % |
| | | | | |
Discount rate used to determine net period benefit cost | | | | | |
U.S. | 2.80 | % | | 2.35 | % | | 3.20 | % |
Canada | 2.90 | % | | 2.50 | % | | 3.00 | % |
|
| | | | | | | | |
| 2019 | | 2018 | | 2017 |
Discount rate used to determine benefit obligation | | | | | |
U.S. | 3.20 | % | | 4.20 | % | | 3.55 | % |
Canada | 3.00 | % | | 3.60 | % | | 3.35 | % |
| | | | | |
Discount rate used to determine net period benefit cost | | | | | |
U.S. | 4.20 | % | | 3.55 | % | | 3.90 | % |
Canada | 3.60 | % | | 3.35 | % | | 3.65 | % |
The discount rate for our U.S. postretirement medical benefit plan is determined by matching the expected cash flows associated with our benefit obligations to a pool of corporate long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for our Canada postretirement medical benefit plan is determined by matching the expected cash flows associated with our benefit obligations to spot rates along a yield curve developed based on yields of corporate long-term, high-quality fixed income debt instruments available as of the measurement date.
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 6.5% for 20192022 and 7.0%6.8% for 2018.2021. The assumed health care trend rate is 7.0%6.75% for 20202023 and will gradually decline to 5.0% by the year 2028 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, are expected to be paid.
| | | | | | | | | | | |
| Pension Benefits | | Postretirement Medical Benefits |
2023 | $ | 128,361 | | | $ | 11,561 | |
2024 | 121,948 | | | 11,076 | |
2025 | 122,072 | | | 10,568 | |
2026 | 120,822 | | | 10,072 | |
2027 | 119,912 | | | 9,523 | |
Thereafter | 582,503 | | | 39,736 | |
| $ | 1,195,618 | | | $ | 92,536 | |
|
| | | | | | | |
| Pension Benefits | | Nonpension Benefits |
2020 | $ | 131,577 |
| | $ | 16,129 |
|
2021 | 125,439 |
| | 15,480 |
|
2022 | 124,142 |
| | 14,756 |
|
2023 | 124,559 |
| | 13,592 |
|
2024 | 121,767 |
| | 12,500 |
|
Thereafter | 600,327 |
| | 53,101 |
|
| $ | 1,227,811 |
| | $ | 125,558 |
|
During 2023, we do not anticipate making contributions to our U.S. pension plans and estimate contributing approximately $14 million to our foreign pension plans.
Savings Plans
We offer a voluntary defined contribution plans401(k) plan to our U.S. employees designed to help them accumulate additional savings for retirement. We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of eachan additional contribution to participating employees' contribution,employees based on their eligible pay. Total employer contributions to our defined contribution plansthe 401(k) plan were $28 million in 2019 and $31$28 million in 2018.2022 and $27 million in 2021.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
15. Income Taxes
Income from continuing operations before taxes consisted of the following:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
U.S. | $ | 910 |
| | $ | 109,393 |
| | $ | 135,636 |
|
International | 26,232 |
| | 78,728 |
| | 58,062 |
|
Total | $ | 27,142 |
| | $ | 188,121 |
| | $ | 193,698 |
|
The (benefit) provision for income taxes from continuing operations consisted of the following:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
U.S. Federal: | | | | | |
Current | $ | (18,789 | ) | | $ | (56,743 | ) | | $ | 25,774 |
|
Deferred | 11,577 |
| | 61,514 |
| | (23,863 | ) |
| (7,212 | ) | | 4,771 |
| | 1,911 |
|
U.S. State and Local: | | | | | |
Current | (9,142 | ) | | (12,214 | ) | | (3,022 | ) |
Deferred | 8,043 |
| | 866 |
| | 13,426 |
|
| (1,099 | ) | | (11,348 | ) | | 10,404 |
|
International: | | | | | |
Current | 9,993 |
| | 11,308 |
| | (7,679 | ) |
Deferred | (14,689 | ) | | 1,685 |
| | 9,023 |
|
| (4,696 | ) | | 12,993 |
| | 1,344 |
|
| | | | | |
Total current | (17,938 | ) | | (57,649 | ) | | 15,073 |
|
Total deferred | 4,931 |
| | 64,065 |
| | (1,414 | ) |
Total (benefit) provision for income taxes | $ | (13,007 | ) | | $ | 6,416 |
| | $ | 13,659 |
|
| | | | | |
Effective tax rate | (47.9 | )% | | 3.4 | % | | 7.1 | % |
The effective tax rate for 2019 includes benefits of $23 million from the release of a foreign valuation allowance and $9 million from the resolution of certain tax examinations. The effective tax rate for 2019 also includes a tax of $3 million on the $18 million book loss from Market Exits, primarily due to nondeductible basis differences. The effective tax rate for 2018 includes tax benefits of $37 million related to true-ups from the Tax Cuts and Jobs Act of 2017 and $17 million from the resolution of certain tax examinations. The effective tax rate for 2017 includes provisional tax benefits of $39 million from the Tax Cuts and Jobs Act of 2017 and $30 million from the resolution of tax examinations.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
15. Income Taxes
Income (loss) from continuing operations before taxes consisted of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
U.S. | $ | (39,294) | | | $ | (85,258) | | | $ | (243,760) | |
International | 79,174 | | | 77,843 | | | 60,391 | |
Total | $ | 39,880 | | | $ | (7,415) | | | $ | (183,369) | |
The provision (benefit) for income taxes from continuing operations consisted of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
U.S. Federal: | | | | | |
Current | $ | 223 | | | $ | (7,419) | | | $ | (10,582) | |
Deferred | (12,284) | | | (13,825) | | | 6,516 | |
| (12,061) | | | (21,244) | | | (4,066) | |
U.S. State and Local: | | | | | |
Current | (9,716) | | | 5,401 | | | (2,569) | |
Deferred | 7,137 | | | (5,827) | | | 4,100 | |
| (2,579) | | | (426) | | | 1,531 | |
International: | | | | | |
Current | 8,745 | | | 10,979 | | | 4,993 | |
Deferred | 8,835 | | | (231) | | | 4,664 | |
| 17,580 | | | 10,748 | | | 9,657 | |
| | | | | |
Total current | (748) | | | 8,961 | | | (8,158) | |
Total deferred | 3,688 | | | (19,883) | | | 15,280 | |
Total provision (benefit) for income taxes | $ | 2,940 | | | $ | (10,922) | | | $ | 7,122 | |
| | | | | |
Effective tax rate | 7.4 | % | | 147.3 | % | | (3.9) | % |
The effective tax rate for 2022 includes a tax benefit of $5 million on the pre-tax gain of $5 million from the Borderfree sale as the tax basis was higher than book basis and a $1 million benefit associated with the 2019 sale of a business.
The effective tax rate for 2021 includes benefits of $7 million from the resolution of tax matters, $5 million due to tax legislation in the U.K., $3 million from an affiliate reorganization and $2 million from the vesting of restricted stock, partially offset by charges of $6 million on the pre-tax gain of $10 million from the sale of a business as the tax basis was lower than the book basis and $1 million for the write-off of deferred tax assets associated with the expiration of out-of-the-money stock options.
The effective tax rate for 2020 includes a $12 million charge for the surrender of company owned life insurance policies, a $5 million benefit for the correction of tax balances in certain domestic and international tax jurisdictions, a $3 million benefit due to regulations enacted into law, a $2 million benefit for the carryback of net operating losses resulting from the CARES Act and a benefit of $2 million on the $198 million goodwill impairment charge as the majority of this charge is nondeductible.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
A reconciliation of income taxes computed at the federal statutory rate and our provision for income taxes consist of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Federal statutory provision | $ | 8,375 | | | $ | (1,558) | | | $ | (38,507) | |
State and local income taxes (1) | (1,612) | | | (336) | | | 1,209 | |
Impact of foreign operations taxed at rates other than the U.S. statutory rate (2) | 3,349 | | | (2,220) | | | (3,345) | |
Accrual/release of uncertain tax amounts related to foreign operations | (2,753) | | | (7,288) | | | 1,802 | |
U.S. tax impacts of foreign income in the U.S. (3) | 1,089 | | | 4,441 | | | (2,300) | |
CARES Act carryback benefit | — | | | (2,270) | | | (1,646) | |
Tax credits | (850) | | | (500) | | | (750) | |
Unrealized stock compensation benefits | 572 | | | (505) | | | 2,312 | |
Surrender of company-owned life insurance policies | — | | | — | | | 10,313 | |
Goodwill impairment | — | | | — | | | 40,328 | |
Borderfree tax basis differences | (5,610) | | | — | | | — | |
| | | | | |
Other, net (4) | 380 | | | (686) | | | (2,294) | |
Provision (benefit) for income taxes | $ | 2,940 | | | $ | (10,922) | | | $ | 7,122 | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Federal statutory provision | $ | 5,700 |
| | $ | 39,505 |
| | $ | 67,794 |
|
State and local income taxes (1) | (868 | ) | | 1,292 |
| | 3,739 |
|
Impact of foreign operations taxed at rates other than the U.S. statutory rate (2) | (18,541 | ) | | (2,483 | ) | | (12,054 | ) |
Accrual/release of uncertain tax amounts related to foreign operations | 191 |
| | (4,595 | ) | | (17,919 | ) |
U.S. tax impacts of foreign income in the U.S. | 5,587 |
| | 5,854 |
| | 1,750 |
|
Tax incentives/credits/exempt income | (5,437 | ) | | 3,526 |
| | (14,587 | ) |
Unrealized stock compensation benefits | 2,176 |
| | 1,941 |
| | 3,778 |
|
Remeasurement of U.S. deferred taxes | — |
| | (13,121 | ) | | (108,176 | ) |
U.S. tax on unremitted earnings | — |
| | (23,711 | ) | | 90,916 |
|
Other, net (3) | (1,815 | ) | | (1,792 | ) | | (1,582 | ) |
(Benefit) provision for income taxes | $ | (13,007 | ) | | $ | 6,416 |
| | $ | 13,659 |
|
(1) Includes a benefit of $1 million related to tax resolutions and a benefit of $1 million for tax return true-ups for the year ended December 31, 2022 and a charge of $2 million for the surrender of company-owned life insurance for the year ended December 31, 2020. | |
(1)(2) Includes a charge of $2 million for a deferred rate change and a charge of $1 million for the establishment of a valuation allowance for the year ended December 31, 2022, a benefit of $5 million for a deferred rate change for the year ended December 31, 2021, and a benefit of $3 million for tax balance corrections and a deferred tax rate change benefit of $2 million for the year ended December 31, 2020. | Includes release of tax uncertainties of $(3) million, $(9) million and $(3) million for the years ended December 31, 2019, 2018 and 2017, respectively. |
| |
(2)
| Includes foreign valuation allowance release of $23 million and $3 million tax on Market Exits for the year ended December 31, 2019. |
| |
(3)
| Includes $1 million benefit related to interest for the year ended December 31, 2019. |
Deferred(3) Includes a benefit of $1 million associated with the sale of a 2019 business for the year ended December 31, 2022.
(4) Includes a $3 million benefit from an affiliate reorganization and charge of $3 million related to the sale of a business for the year ended December 31, 2021, and a $2 million benefit related to tax liabilitiesbalance corrections and assets consisted ofa $1 million charge related to interest for the following:year ended December 31, 2020.
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Deferred tax liabilities: | | | |
Depreciation | $ | (69,222 | ) | | $ | (71,757 | ) |
Deferred profit (for tax purposes) on sale to finance subsidiary | (30,791 | ) | | (41,951 | ) |
Lease revenue and related depreciation | (174,083 | ) | | (149,176 | ) |
Intangible assets | (88,024 | ) | | (98,707 | ) |
Other | (24,941 | ) | | (34,425 | ) |
Gross deferred tax liabilities | (387,061 | ) | | (396,016 | ) |
| | | |
Deferred tax assets: | | | |
Nonpension postretirement benefits | 41,015 |
| | 42,422 |
|
Pension | 43,763 |
| | 60,063 |
|
Inventory and equipment capitalization | 2,735 |
| | 6,042 |
|
Restructuring charges | 2,944 |
| | 5,064 |
|
Long-term incentives | 12,929 |
| | 11,517 |
|
Net operating loss | 82,673 |
| | 106,029 |
|
Tax credit carry forwards | 64,430 |
| | 64,148 |
|
Tax uncertainties gross-up | 6,577 |
| | 6,692 |
|
Other | 38,247 |
| | 46,623 |
|
Gross deferred tax assets | 295,313 |
| | 348,600 |
|
Less: Valuation allowance | (110,781 | ) | | (142,496 | ) |
Net deferred tax assets | 184,532 |
| | 206,104 |
|
Total deferred taxes, net | $ | (202,529 | ) | | $ | (189,912 | ) |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Deferred tax liabilities and assets consisted of the following:
A valuation allowance is recognized to reduce deferred tax assets to an amount that will more-likely-than-not be realized. | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Deferred tax liabilities: | | | |
Depreciation | $ | (51,717) | | | $ | (85,544) | |
Deferred profit (for tax purposes) on sale to finance subsidiary | (26,765) | | | (26,745) | |
Lease revenue and related depreciation | (216,282) | | | (202,862) | |
Intangible assets | (65,916) | | | (76,672) | |
Operating lease liability | (73,403) | | | (46,496) | |
Other | (27,366) | | | (25,438) | |
Gross deferred tax liabilities | (461,449) | | | (463,757) | |
| | | |
Deferred tax assets: | | | |
Postretirement medical benefits | 24,892 | | | 34,681 | |
Pension | 9,640 | | | 20,472 | |
Operating lease asset | 78,765 | | | 52,271 | |
| | | |
| | | |
Long-term incentives | 12,946 | | | 12,308 | |
Net operating and capital losses | 130,640 | | | 125,699 | |
Tax credit carry forwards | 66,256 | | | 65,931 | |
Section 163j carryforward | 23,917 | | | 10,556 | |
Tax uncertainties gross-up | 4,982 | | | 6,929 | |
Other | 50,345 | | | 38,641 | |
Gross deferred tax assets | 402,383 | | | 367,488 | |
Less: Valuation allowance | (157,450) | | | (121,778) | |
Net deferred tax assets | 244,933 | | | 245,710 | |
| | | |
Total deferred taxes, net | $ | (216,516) | | | $ | (218,047) | |
The valuation allowance relates primarily to certain foreign, state and local net operating loss and tax credit carryforwards that will more-likely-than-not expire unutilized.
We have a federal net operating loss carryforward of $48 million as of December 31, 2022, the majority of which has an indefinite carryforward period. We have net operating loss carryforwards in international jurisdictions of $162$153 million as of December 31, 2019,2022, of which $145$139 million can be carried forward indefinitely and the remainder expire over the next 20 years. We also have net operating loss carryforwards in most states totaling $932 million that will expire over the next 20 years. In addition, we have tax credit carryforwards of $64$66 million, of which $52$51 million can be carried forward indefinitely and the remainder expire over the next 1310 years.
As of December 31, 2019,2022, we assert that we are no longer permanently reinvested in $421 million of post-1986 earnings generated from non-U.S. subsidiaries, which were subject to the deemed repatriation toll charge under the Act. We continue to be permanently reinvested in our remainingpre-1987 and post-2017 undistributed earnings of $261$307 million as well as all other outside basis differences. While a determination of the full liability that would be incurred if these earnings were repatriated is not practical,practicable, we have estimated the withholding taxes would be approximately $3 million.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Uncertain Tax Positions
A reconciliation of the amount of unrecognized tax benefits is as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
Balance at beginning of year | $ | 71,458 |
| | $ | 89,767 |
| | $ | 124,728 |
|
Increases from prior period positions | 510 |
| | 88 |
| | 528 |
|
Decreases from prior period positions | (9,711 | ) | | (15,145 | ) | | (31,470 | ) |
Increases from current period positions | 5,052 |
| | 6,001 |
| | 5,951 |
|
Decreases relating to settlements with tax authorities | (2,626 | ) | | (4,844 | ) | | (6,953 | ) |
Reductions from lapse of applicable statute of limitations | (4,381 | ) | | (4,409 | ) | | (3,017 | ) |
Balance at end of year | $ | 60,302 |
| | $ | 71,458 |
| | $ | 89,767 |
|
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Balance at beginning of year | $ | 45,072 | | | $ | 50,064 | | | $ | 60,302 | |
Increases from prior period positions | 6 | | | 3,016 | | | 2,147 | |
Decreases from prior period positions | (6,830) | | | (4,247) | | | (47) | |
Increases from current period positions | 340 | | | 492 | | | 3,472 | |
| | | | | |
Decreases relating to settlements with tax authorities | (1,966) | | | (1,270) | | | (12,508) | |
Reductions from lapse of applicable statute of limitations | (3,322) | | | (2,983) | | | (3,302) | |
Balance at end of year | $ | 33,300 | | | $ | 45,072 | | | $ | 50,064 | |
The amount of the unrecognized tax benefits at December 31, 2019, 20182022, 2021 and 20172020 that would affect the effective tax rate if recognized was $54$29 million,, $65 $39 million and $74$44 million,, respectively.
On a regular basis, we conclude tax return examinations, statutes of limitations expire, and court decisions interpret tax law. We regularly assess tax uncertainties in light of these developments. As a result, it is reasonably possible that the amount of our unrecognized tax benefits will decrease in the next 12 months, and we expect this change could be up to 15%20% of our unrecognized tax benefits. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes. We recognized interest and penalties of $(1) million, $(1) million and $(4) million related to uncertain tax positionsAmounts included in theour provision for income taxes related to interest and penalties on uncertain tax positions for each of the years ended December 31, 2019, 20182022, 2021 and 2017 respectively.2020 were not significant. We had approximately $3 million and $4 million accrued for the payment of interest and penalties at December 31, 20192022 and 2018,2021, respectively.
Other Tax Matters
As isWith regard to U.S. Federal income tax, the case with other large corporations, our tax returns are examined each year by tax authorities in the U.S. and other global taxing jurisdictions in which we have operations. The IRS examinationsInternal Revenue Service examination of our consolidated U.S. income tax returns for tax years prior to 20172019 are closed to audit; however, various post-2011 U.S.audit, except for review of the Tax Cuts and Jobs Act (TCJA) Sec 965 transition tax. On a state and local taxlevel, returns are still subject to examination. In Canada, the examination of our tax filings prior to 2015for most jurisdictions are closed through 2017. For our significant non-U.S. jurisdictions, Canada is closed to audit. Other significant jurisdictions includeexamination through 2017 except for a specific issue under current exam, and France, (closed through 2014), Germany (closed through 2016) and the U.K. (closedare closed through 2019, 2016, except for an item under appeal).and 2020 respectively. We also have other less significant tax filings currently subject to examination.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. We believe we have established tax reserves that are appropriate given the possibility of tax adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax law and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative impact on our results of operations, financial position and cash flows.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
16. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others. In management's opinion, it is not reasonably possible that the potential liability, if any, that may result from these actions, either individually or collectively, will have a material effect on our financial position, results of operations or cash flows. However, as litigation is inherently unpredictable, there can be no assurances in this regard.
In August 2018, the Company, certain of its directors, officers and several banks who served as underwriters, were named as defendants
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al., a putative class action lawsuit filed in Connecticut state court. The complaint asserts claims under the Securities Act of 1933, as amended, on behalf of those who purchased notes issued by the Company in connection with a September 13, 2017 offering, alleging, among other things, that the Company failed to make certain disclosures relating to components of its third quarter 2017 performance at the time of the notes offering. The complaint seeks compensatory damages and other relief. On October 24, 2019, the court granted the defendants' motions to strike the complaint for failure to state a claim, and the time for plaintiff to appeal or amend the complaint has expired.thousands, except per share amounts)
In addition, in December 2018 and then in February 2019, certain of the Company’s officers and directors were named as defendants in two virtually identical derivative actions purportedly brought on behalf of the Company, Clem v. Lautenbach et al. and Devolin v. Lautenbach et al. These two actions, both filed by the same counsel in Connecticut state court, allege, among other things, breaches of fiduciary duty relating to these same disclosures, and seek compensatory damages and other relief derivatively for the benefit of the Company. Defendants have moved to dismiss these actions; given that the defendants have prevailed in the Livonia action, plaintiffs in these cases have conceded that these cases should be dismissed.
On October 12, 2019, we were affected by a ransomware attack that temporarily disrupted customer access to some services. Our financial information was not affected and there is no evidence that any sensitive or confidential company, client, consumer or employee data was improperly accessed or extracted from our network. The backup data storage systems for virtually all our client, employee and other business data were also not affected. Our financial results were impacted by this attack, primarily as a result of business interruption, incremental costs related to the attack and costs to enhance our cybersecurity protections, and our financial results may be impacted in the future. We have insurance related to this event and expect a portion of any profit impact, including the profit associated with any loss of revenue, to ultimately be covered by insurance. We are working closely with our carriers; however, we are currently not able to reasonably estimate the amount of proceeds we will receive.
17. Leased Assets and Liabilities
We lease real estate and equipment under operating and finance lease agreements. Our leases have terms of up to 15 years, and may include an option to extend the lease for up to 5 years.renewal options. At lease commencement, a lease liability and corresponding right-of-use asset is recognized. Lease liabilities represent the present value of future lease payments over the expected lease term, including options to extend or terminate the lease when it is reasonably certain those options will be exercised. Lease payments include all fixed payments and variable payments tied to an index. Variable payments excluded from the right-of-use asset and lease liability primarily includeindex, but exclude costs such as common area maintenance charges, property taxes, insurance and mileage. The present value of ourthe lease liability is determined using our incremental borrowing rate at lease inception.commencement. Information regarding operating and financing leases areis as follows:
| | | | | | | | | | | | | | | | | | | | |
Leases | | Balance Sheet Location | | December 31, 2022 | | December 31, 2021 |
Assets | | | | | | |
Operating | | Operating lease assets | | $ | 296,129 | | | $ | 208,428 | |
Finance | | Property, plant and equipment, net | | 54,063 | | | 46,770 | |
Total leased assets | | | | $ | 350,192 | | | $ | 255,198 | |
| | | | | | |
Liabilities | | | | | | |
Operating | | Current operating lease liabilities | | $ | 52,576 | | | $ | 40,299 | |
| | Noncurrent operating lease liabilities | | 265,696 | | | 192,092 | |
Finance | | Accounts payable and accrued liabilities | | 11,690 | | | 10,694 | |
| | Other noncurrent liabilities | | 43,858 | | | 39,535 | |
Total lease liabilities | | | | $ | 373,820 | | | $ | 282,620 | |
|
| | | | | | | | | | |
Leases | | Balance Sheet Location | | December 31, 2019 | | December 31, 2018 |
Assets | | | | | | |
Operating | | Operating lease assets | | $ | 200,752 |
| | $ | 152,554 |
|
Finance | | Property, plant and equipment, net | | 10,443 |
| | 10,683 |
|
Total leased assets | | | | $ | 211,195 |
| | $ | 163,237 |
|
| | | | | | |
Liabilities | | | | | | |
Operating | | Current operating lease liabilities | | $ | 36,060 |
| | $ | 35,208 |
|
| | Noncurrent operating lease liabilities | | 177,711 |
| | 125,294 |
|
Finance | | Accounts payable and accrued liabilities | | 2,879 |
| | 2,708 |
|
| | Other noncurrent liabilities | | 7,927 |
| | 7,054 |
|
Total lease liabilities | | | | $ | 224,577 |
| | $ | 170,264 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
Lease Cost | 2022 | | 2021 | | 2020 |
Operating lease expense | $ | 67,041 | | | $ | 62,269 | | | $ | 54,718 | |
Finance lease expense | | | | | |
Amortization of leased assets | 12,321 | | | 9,191 | | | 3,792 | |
Interest on lease liabilities | 3,323 | | | 2,826 | | | 949 | |
| | | | | |
Variable lease expense | 26,870 | | | 33,924 | | | 21,413 | |
Sublease income | (1,086) | | | (1,761) | | | (979) | |
Total expense | $ | 108,469 | | | $ | 106,449 | | | $ | 79,893 | |
Operating lease expense includes immaterial amounts related to leases with terms of 12 months or less.
| | | | | | | | | | | | | | | | | |
Future Lease Payments | Operating Leases | | Finance Leases | | Total |
2023 | $ | 73,846 | | | $ | 14,689 | | | $ | 88,535 | |
2024 | 69,552 | | | 13,378 | | | 82,930 | |
2025 | 63,096 | | | 11,697 | | | 74,793 | |
2026 | 53,016 | | | 9,989 | | | 63,005 | |
2027 | 46,496 | | | 8,178 | | | 54,674 | |
Thereafter | 98,880 | | | 6,721 | | | 105,601 | |
Total | 404,886 | | | 64,652 | | | 469,538 | |
Less: present value discount | 86,614 | | | 9,104 | | | 95,718 | |
Lease liability | $ | 318,272 | | | $ | 55,548 | | | $ | 373,820 | |
Future lease payments exclude $53 million of payments for leases signed but not yet commenced at December 31, 2022.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| | | | | | | | | | | |
Lease Term and Discount Rate | December 31, 2022 | | December 31, 2021 |
Weighted-average remaining lease term | | | |
Operating leases | 6.4 years | | 6.7 years |
Finance leases | 5.1 years | | 5.5 years |
Weighted-average discount rate | | | |
Operating leases | 8.2% | | 6.5% |
Finance leases | 6.2% | | 6% |
|
| | | | | | | | | | | |
| Years Ended December 31, |
Lease Cost | 2019 | | 2018 | | 2017 |
Operating lease expense | $ | 48,503 |
| | $ | 43,727 |
| | $ | 41,676 |
|
Finance lease expense | | | | | |
Amortization of leased assets | 3,372 |
| | 2,697 |
| | 2,295 |
|
Interest on lease liabilities | 700 |
| | 527 |
| | 465 |
|
Variable lease expense | 23,188 |
| | 21,864 |
| | 20,838 |
|
Sublease income | (1,948 | ) | | (1,735 | ) | | (736 | ) |
Total expense | $ | 73,815 |
| | $ | 67,080 |
| | $ | 64,538 |
|
Operating lease expense includes immaterial amounts related to leases with terms | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
Cash Flow Information | 2022 | | 2021 | | 2020 |
Operating cash outflows - operating leases | $ | 65,012 | | | $ | 59,748 | | | $ | 52,565 | |
Operating cash outflows - finance leases | $ | 3,323 | | | $ | 2,826 | | | $ | 949 | |
Financing cash outflows - finance leases | $ | 11,091 | | | $ | 7,707 | | | $ | 4,223 | |
| | | | | |
Leased assets obtained in exchange for new lease obligations | | | | | |
Operating leases | $ | 135,359 | | | $ | 48,662 | | | $ | 38,641 | |
Finance leases | $ | 20,927 | | | $ | 30,840 | | | $ | 17,741 | |
18. Stockholders' Equity
The following table summarizes the changes in shares of 12 months or less.Common Stock outstanding and Treasury Stock:
| | | | | | | | | | | |
| Common Stock Outstanding | | Treasury Stock |
Balance at December 31, 2019 | 170,448,943 | | | 152,888,969 | |
| | | |
Issuance of treasury stock | 1,526,245 | | | (1,526,245) | |
| | | |
Balance at December 31, 2020 | 171,975,188 | | | 151,362,724 | |
| | | |
Issuance of treasury stock | 2,756,207 | | | (2,756,207) | |
| | | |
Balance at December 31, 2021 | 174,731,395 | | | 148,606,517 | |
Repurchases of common stock | (2,750,000) | | | 2,750,000 | |
Issuance of treasury stock | 2,049,192 | | | (2,049,192) | |
| | | |
Balance at December 31, 2022 | 174,030,587 | | | 149,307,325 | |
|
| | | | | | | | | | | |
Future Lease Payments | Operating Leases | | Finance Leases | | Total |
2020 | $ | 47,632 |
| | $ | 3,525 |
| | $ | 51,157 |
|
2021 | 42,244 |
| | 3,133 |
| | 45,377 |
|
2022 | 33,945 |
| | 2,560 |
| | 36,505 |
|
2023 | 27,122 |
| | 1,899 |
| | 29,021 |
|
2024 | 23,165 |
| | 1,042 |
| | 24,207 |
|
Thereafter | 97,867 |
| | 277 |
| | 98,144 |
|
Total | 271,975 |
| | 12,436 |
| | 284,411 |
|
Less: present value discount | 58,204 |
| | 1,630 |
| | 59,834 |
|
Lease liability | $ | 213,771 |
| | $ | 10,806 |
| | $ | 224,577 |
|
At December 31, 2019, there2022, 35,385,343 shares were 0 operating leases signed but not yet commenced.reserved for issuance under our stock plans and dividend reinvestment program.
|
| | | |
Lease Term and Discount Rate | December 31, 2019 | | December 31, 2018 |
Weighted-average remaining lease term | | | |
Operating leases | 7.7 years | | 7.2 years |
Finance leases | 3.9 years | | 4.1 years |
Weighted-average discount rate | | | |
Operating leases | 6.1% | | 4.5% |
Finance leases | 6.8% | | 6.2% |
|
| | | | | | | | | | | |
| Years Ended December 31, |
Cash Flow Information | 2019 | | 2018 | | 2017 |
Operating cash outflows - operating leases | $ | 44,252 |
| | $ | 40,599 |
| | $ | 39,192 |
|
Operating cash outflows - finance leases | $ | 700 |
| | $ | 527 |
| | $ | 465 |
|
Financing cash outflows - finance leases | $ | 3,096 |
| | $ | 2,564 |
| | $ | 2,185 |
|
| | | | | |
Leased assets obtained in exchange for new lease obligations | | | | | |
Operating leases | $ | 87,160 |
| | $ | 36,260 |
| | $ | 33,788 |
|
Finance leases | $ | 4,072 |
| | $ | 5,715 |
| | $ | 3,325 |
|
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
18. Stockholders' Equity
Common and Treasury Stock
The following table summarizes the changes in shares of Common Stock outstanding and Treasury Stock: |
| | | | | |
| Common Stock Outstanding | | Treasury Stock |
Balance at December 31, 2016 | 185,668,718 |
| | 137,669,194 |
|
Issuance of common stock | 881,480 |
| | (881,480 | ) |
Conversions to common stock | 53,540 |
| | (53,540 | ) |
Balance at December 31, 2017 | 186,603,738 |
| | 136,734,174 |
|
Issuance of common stock | 1,043,809 |
| | (1,043,809 | ) |
Conversions to common stock | 27,535 |
| | (27,535 | ) |
Balance at December 31, 2018 | 187,675,082 |
| | 135,662,830 |
|
Repurchases of common stock | (18,595,315 | ) | | 18,595,315 |
|
Issuance of common stock | 1,276,797 |
| | (1,276,797 | ) |
Conversions to common stock | 92,379 |
| | (92,379 | ) |
Balance at December 31, 2019 | 170,448,943 |
| | 152,888,969 |
|
Preferred and Preference Stock
In June 2019, we redeemed all outstanding shares of the 4% Convertible Cumulative Preferred Stock and the $2.12 Convertible Preference Stock.
At December 31, 2019, 37,116,835 shares were reserved for issuance under our stock plans and dividend reinvestment program.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
19. Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss were as follows:
| | | | | | | | | | | | Gain (Loss) Reclassified from AOCL (a) |
| Amounts Reclassified from AOCI (a) | | Years Ended December 31, |
| Years Ended December 31, | | 2022 | | 2021 | | 2020 |
Cash flow hedges | | Cash flow hedges | | | | | |
| 2019 | | 2018 | | 2017 | |
Gain (loss) on cash flow hedges | | | | | | |
Revenue | $ | 72 |
| | $ | 11 |
| | $ | (179 | ) | Revenue | $ | — | | | $ | 289 | | | $ | (161) | |
Cost of sales | 104 |
| | 51 |
| | (32 | ) | Cost of sales | 178 | | | (117) | | | 11 | |
Interest expense | — |
| | (1,183 | ) | | (2,028 | ) | Interest expense | 549 | | | (366) | | | — | |
Loss on extinguishment of debt | — |
| | (1,267 | ) | | — |
| |
| Total before tax | 176 |
| | (2,388 | ) | | (2,239 | ) | Total before tax | 727 | | | (194) | | | (150) | |
Tax provision (benefit) | 44 |
| | (941 | ) | | (872 | ) | |
Tax (benefit) provision | | Tax (benefit) provision | 181 | | | (49) | | | (37) | |
Net of tax | $ | 132 |
| | $ | (1,447 | ) | | $ | (1,367 | ) | Net of tax | $ | 546 | | | $ | (145) | | | $ | (113) | |
| | | | | | | | | | | |
Gain (loss) on available for sale securities | | | | | | |
Interest income (expense) | $ | 1,079 |
| | $ | 3,244 |
| | $ | (520 | ) | |
Tax provision (benefit) | 270 |
| | 821 |
| | (201 | ) | |
Available for sale securities | | Available for sale securities | |
Financing revenue | | Financing revenue | $ | (9) | | | $ | (6) | | | $ | 10,124 | |
Selling, general and administrative expense | | Selling, general and administrative expense | — | | | (7) | | | 231 | |
Total before tax | | Total before tax | (9) | | | (13) | | | 10,355 | |
Tax (benefit) provision | | Tax (benefit) provision | (2) | | | (2) | | | 2,589 | |
Net of tax | $ | 809 |
| | $ | 2,423 |
| | $ | (319 | ) | Net of tax | $ | (7) | | | $ | (11) | | | $ | 7,766 | |
| | | | | | | | | | | |
Pension and Postretirement Benefit Plans (b) | | | | | | Pension and Postretirement Benefit Plans (b) | |
Transition asset | $ | 6 |
| | $ | 7 |
| | $ | 8 |
| Transition asset | $ | — | | | $ | — | | | $ | 4 | |
Prior service costs | (504 | ) | | (173 | ) | | (166 | ) | Prior service costs | (208) | | | (337) | | | (558) | |
Actuarial losses | (34,509 | ) | | (41,610 | ) | | (40,606 | ) | Actuarial losses | (39,999) | | | (51,673) | | | (43,530) | |
Settlement | (2,778 | ) | | (44,898 | ) | | — |
| Settlement | (394) | | | (551) | | | (6,424) | |
Total before tax | (37,785 | ) | | (86,674 | ) | | (40,764 | ) | Total before tax | (40,601) | | | (52,561) | | | (50,508) | |
Tax benefit | (9,497 | ) | | (21,675 | ) | | (13,936 | ) | Tax benefit | (9,315) | | | (12,755) | | | (11,930) | |
Net of tax | $ | (28,288 | ) | | $ | (64,999 | ) | | $ | (26,828 | ) | Net of tax | $ | (31,286) | | | $ | (39,806) | | | $ | (38,578) | |
(a) Amounts in parentheses indicate reductions to income and increases to other comprehensive income.
| |
(b) | (b) Reclassified from accumulated other comprehensive loss to other components of net pension and postretirement cost. These amounts are included in net periodic costs for defined benefit pension plans and nonpension postretirement cost. These amounts are included in net periodic costs for defined benefit pension plans and postretirement medical benefit plans (see Note 14 for additional details). |
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Changes in accumulated other comprehensive income (loss)loss, net of tax, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available-for-sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at December 31, 2019 | $ | 337 | | | $ | 2,849 | | | $ | (819,018) | | | $ | (24,311) | | | $ | (840,143) | |
| | | | | | | | | |
| | | | | | | | | |
Other comprehensive loss before reclassifications | (1,861) | | | 5,319 | | | (70,623) | | | 37,252 | | | (29,913) | |
Amounts reclassified from accumulated other comprehensive loss | 113 | | | (7,766) | | | 38,578 | | | — | | | 30,925 | |
Net other comprehensive income | (1,748) | | | (2,447) | | | (32,045) | | | 37,252 | | | 1,012 | |
Balance at December 31, 2020 | (1,411) | | | 402 | | | (851,063) | | | 12,941 | | | (839,131) | |
Other comprehensive (loss) income before reclassifications | 5,069 | | | (6,662) | | | 54,618 | | | (34,168) | | | 18,857 | |
Amounts reclassified from accumulated other comprehensive loss | 145 | | | 11 | | | 39,806 | | | — | | | 39,962 | |
Net other comprehensive (loss) income | 5,214 | | | (6,651) | | | 94,424 | | | (34,168) | | | 58,819 | |
Balance at December 31, 2021 | 3,803 | | | (6,249) | | | (756,639) | | | (21,227) | | | (780,312) | |
Other comprehensive income (loss) before reclassifications | 9,246 | | | (33,198) | | | 9,297 | | | (71,344) | | | (85,999) | |
Amounts reclassified from accumulated other comprehensive loss | (546) | | | 7 | | | 31,286 | | | — | | | 30,747 | |
Net other comprehensive income (loss) | 8,700 | | | (33,191) | | | 40,583 | | | (71,344) | | | (55,252) | |
Balance at December 31, 2022 | $ | 12,503 | | | $ | (39,440) | | | $ | (716,056) | | | $ | (92,571) | | | $ | (835,564) | |
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available-for-sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance January 1, 2017 | $ | (1,485 | ) | | $ | 120 |
| | $ | (787,813 | ) | | $ | (150,955 | ) | | $ | (940,133 | ) |
Other comprehensive loss before reclassifications (a) | (288 | ) | | 1,158 |
| | 12,185 |
| | 103,624 |
| | 116,679 |
|
Amounts reclassified from accumulated other comprehensive loss (a), (b) | 1,367 |
| | 319 |
| | 26,828 |
| | — |
| | 28,514 |
|
Net other comprehensive income (loss) | 1,079 |
| | 1,477 |
| | 39,013 |
| | 103,624 |
| | 145,193 |
|
Balance at December 31, 2017 | (406 | ) | | 1,597 |
| | (748,800 | ) | | (47,331 | ) | | (794,940 | ) |
Cumulative effect of accounting change | (87 | ) | | 344 |
| | (116,490 | ) | | — |
| | (116,233 | ) |
Restated balance at December 31, 2017 | (493 | ) | | 1,941 |
| | (865,290 | ) | | (47,331 | ) | | (911,173 | ) |
Other comprehensive loss before reclassifications (a) | (763 | ) | | (2,579 | ) | | (46,170 | ) | | (52,299 | ) | | (101,811 | ) |
Amounts reclassified from accumulated other comprehensive loss (a), (b) | 1,447 |
| | (2,423 | ) | | 64,999 |
| | — |
| | 64,023 |
|
Net other comprehensive income (loss) | 684 |
| | (5,002 | ) | | 18,829 |
| | (52,299 | ) | | (37,788 | ) |
Balance at December 31, 2018 | 191 |
| | (3,061 | ) | | (846,461 | ) | | (99,630 | ) | | (948,961 | ) |
Other comprehensive loss before reclassifications (a) | 278 |
| | 6,719 |
| | (845 | ) | | 75,319 |
| | 81,471 |
|
Amounts reclassified from accumulated other comprehensive loss (a), (b) | (132 | ) | | (809 | ) | | 28,288 |
| | — |
| | 27,347 |
|
Net other comprehensive loss | 146 |
| | 5,910 |
| | 27,443 |
| | 75,319 |
| | 108,818 |
|
Balance at December 31, 2019 | $ | 337 |
| | $ | 2,849 |
| | $ | (819,018 | ) | | $ | (24,311 | ) | | $ | (840,143 | ) |
(a) Amounts are net of tax. Amounts in parentheses indicate debits to AOCI.
(b) See table above for additional details of these reclassifications.
20. Stock-Based Compensation Plans
We have a long-term incentive program whereby eligible employees may be grantedgrant restricted stock units, non-qualified stock options and performanceother stock units. Theawards to eligible employees. All stock-based awards are approved by the Executive Compensation Committee of the Board of Directors administers these plans.Directors. We settle stock awards with treasury shares. At December 31, 2019,2022, there were 16,668,42617,217,552 shares available for future grants under our long-term incentive program.grants.
Restricted Stock Units
Restricted stock units (RSUs) typically vest ratably over a three-year service period and entitle the holder to shares of common stock as the units vest, typically over a three-year service period.vest. The following table summarizes information about RSUs:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| Shares | | Weighted average fair value | | Shares | | Weighted average fair value |
Outstanding - beginning of the year | 5,738,293 | | | $ | 6.95 | | | 6,560,372 | | | $ | 6.27 | |
Granted | 5,280,429 | | | 4.82 | | | 2,100,126 | | | 8.36 | |
| | | | | | | |
Vested | (2,221,027) | | | 6.10 | | | (2,504,189) | | | 6.72 | |
Forfeited | (1,599,940) | | | 4.69 | | | (418,016) | | | 6.61 | |
Outstanding - end of the year | 7,197,755 | | | $ | 6.09 | | | 5,738,293 | | | $ | 6.95 | |
|
| | | | | | | | | | | | | |
| 2019 | | 2018 |
| Shares | | Weighted average grant date fair value | | Shares | | Weighted average grant date fair value |
Outstanding - beginning of the year | 3,228,339 |
| | $ | 13.33 |
| | 2,651,053 |
| | $ | 14.16 |
|
Granted | 3,113,886 |
| | 6.56 |
| | 1,754,098 |
| | 12.36 |
|
Vested | (1,360,219 | ) | | 11.90 |
| | (963,010 | ) | | 11.41 |
|
Forfeited | (501,159 | ) | | 8.71 |
| | (213,802 | ) | | 13.26 |
|
Outstanding - end of the year | 4,480,847 |
| | $ | 9.51 |
| | 3,228,339 |
| | $ | 13.33 |
|
The fair value of RSUs is determined based on the stock price on the grant date less the present value of expected dividends. At December 31, 2019,2022, there was $13$11 million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.6 years. The intrinsic value of RSUs outstanding at December 31, 20192022 was $18$27 million. The intrinsic value of RSUs vested during 2019, 2018 and 2017 was $16 million, $17 million and $26 million, respectively. The fair value of RSUs vested during 2019, 20182022, 2021 and 20172020 was $18$11 million, $18$22 million and $14$6 million, respectively. During 2017,2020, we granted 1,995,4734,123,544 RSUs at a weighted average fair value of $13.24.$3.92.
In 2022 and 2021, we granted 158,416 and 121,455 RSUs, respectively, to non-employee directors. These RSUs vest one year from the grant date.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
In 2019 and 2018, we granted 155,709 and 131,420 RSUs, respectively, to non-employee directors. These RSUs vest one year from the grant date.
Performance Stock Units
Performance stock units (PSUs) are stock awards where the number of shares ultimately received by the employee is conditional upon the attainment of certain performance targets as well asand total shareholder return relative to peer companies. PSUs vest at the end of a three-year service periodperiod. There were no PSU awards granted since 2020 and the actual number of shares awarded may range from 0% to 200% of the target award. However,award period for the final determination of the number of shares toaward granted in 2019 closed in 2022. Awards outstanding at December 31, 2022 represent awards that have been deferred and will be issued is made by our Board of Directors, who may reduce, but not increase, the number of shares to be awarded (negative discretion). PSUs are accounted for as variable awards until the end of the service period when the grant date is established.at a later date.
The following table summarizes share information about PSUs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | | | |
| Shares | | Weighted average fair value | | Shares | | Weighted average fair value | | | | |
Outstanding - beginning of the year | 1,009,091 | | | $ | 6.60 | | | 1,730,002 | | | $ | 9.31 | | | | | |
| | | | | | | | | | | |
Vested | (197,471) | | | 6.73 | | | (287,109) | | | 9.33 | | | | | |
Forfeited | — | | | — | | | (433,802) | | | 9.33 | | | | | |
| | | | | | | | | | | |
Outstanding - end of the year | 811,620 | | | $ | 9.57 | | | 1,009,091 | | | $ | 6.60 | | | | | |
|
| | | | | | | | | | | | | |
| 2019 | | 2018 |
| Shares | | Weighted average grant date fair value | | Shares | | Weighted average grant date fair value |
Outstanding - beginning of the year | 1,653,004 |
| | $ | 13.08 |
| | 1,145,025 |
| | $ | 13.43 |
|
Granted | 1,368,182 |
| | 6.60 |
| | 733,148 |
| | 12.64 |
|
Vested | — |
| | — |
| | (91,493 | ) | | 12.21 |
|
Forfeited | (242,824 | ) | | 9.65 |
| | (133,676 | ) | | 14.26 |
|
Outstanding - end of the year | 2,778,362 |
| | $ | 10.09 |
| | 1,653,004 |
| | $ | 13.08 |
|
Share-based compensation expense for PSUs is recognized ratably over the service period based on the number shares expected to be awarded and the fair value of an award. The fair value of PSUs is determined using a Monte Carlo simulation model. Due to the variability of these awards, significant fluctuations in share-based compensation expense for PSUs recognized from one period to the next are possible.
Stock Options
Stock options are granted at an exercise price equal to or greater than the stockmarket price of our common stock on the grant date. Options vest ratably over three years and expire ten years from the grant date. At December 31, 2019,2022, there was $3less than $1 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.4 years.1.3 years. The intrinsic value of options outstanding and options exercisable at December 31, 20192022 was not significant. There were 0 stock option exercises in 2019, 2018 or 2017.
The following table summarizes information about stock option activity:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| Shares | | Per share weighted average exercise prices | | Shares | | Per share weighted average exercise prices |
Options outstanding - beginning of the year | 11,120,069 | | | $ | 10.65 | | | 12,814,365 | | | $ | 11.81 | |
Granted | — | | | — | | | 737,842 | | | 8.48 | |
Exercised | — | | | — | | | (777,429) | | | 6.11 | |
Canceled | (93,021) | | | 8.09 | | | (604,101) | | | 11.71 | |
Expired | (1,000,000) | | | 18.29 | | | (1,050,608) | | | 25.85 | |
Options outstanding - end of the year | 10,027,048 | | | $ | 9.91 | | | 11,120,069 | | | $ | 10.65 | |
Options exercisable - end of the year | 8,912,286 | | | $ | 10.42 | | | 8,853,859 | | | $ | 11.94 | |
|
| | | | | | | | | | | | | |
| 2019 | | 2018 |
| Shares | | Per share weighted average exercise prices | | Shares | | Per share weighted average exercise prices |
Options outstanding - beginning of the year | 13,593,156 |
| | $ | 15.30 |
| | 10,495,039 |
| | $ | 21.67 |
|
Granted | 869,297 |
| | 6.57 |
| | 4,932,467 |
| | 8.47 |
|
Canceled | (533,921 | ) | | 11.06 |
| | (258,509 | ) | | 13.09 |
|
Expired | (1,105,848 | ) | | 24.75 |
| | (1,575,841 | ) | | 36.86 |
|
Options outstanding - end of the year | 12,822,684 |
| | $ | 14.08 |
| | 13,593,156 |
| | $ | 15.30 |
|
Options exercisable - end of the year | 7,288,614 |
| | $ | 18.49 |
| | 6,824,433 |
| | $ | 20.23 |
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
During 2020, 33,501 stock options were exercised at a weighted average fair value of $6.82.
The following table provides additional information about stock options outstanding and exercisable at December 31, 2019:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of per share exercise prices | | Shares | | Per share weighted-average exercise price | | Weighted-average remaining contractual life | | Shares | | Per share weighted-average exercise price | | Weighted-average remaining contractual life |
$3.98 - $7.24 | | 4,605,995 | | | $ | 5.14 | | | 6.5 years | | 3,905,829 | | | $ | 5.31 | | | 6.4 years |
$8.21 - $13.16 | | 3,674,457 | | | $ | 12.05 | | | 5.1 years | | 3,259,861 | | | $ | 12.49 | | | 4.8 years |
$16.82 - $23.94 | | 1,746,596 | | | $ | 17.94 | | | 2.5 years | | 1,746,596 | | | $ | 17.94 | | | 2.5 years |
| | | | | | | | | | | | |
| | 10,027,048 | | | $ | 9.91 | | | 5.3 years | | 8,912,286 | | | $ | 10.42 | | | 5.0 years |
|
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of per share exercise prices | | Shares | | Per share weighted-average exercise price | | Weighted-average remaining contractual life | | Shares | | Per share weighted-average exercise price | | Weighted-average remaining contractual life |
$4.32 - $8.55 | | 3,855,770 |
| | $ | 6.18 |
| | 9.0 | years | | — |
| | $ | — |
| | — |
|
$12.64 - $19.45 | | 6,001,756 |
| | 14.36 |
| | 6.6 | years | | 4,323,456 |
| | 14.86 |
| | 6.2 | years |
$21.54 - $26.07 | | 2,965,158 |
| | 23.77 |
| | 1.6 | years | | 2,965,158 |
| | 23.77 |
| | 1.6 | years |
| | 12,822,684 |
| | $ | 14.08 |
| | 6.2 | years | | 7,288,614 |
| | $ | 18.49 |
| | 4.3 | years |
The fair value of stock options is determined using a Black-Scholes valuation model and requires assumptions be made regarding the expected stock price volatility, risk-free interest rate, life of the award and dividend yield. The expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S. Treasuries with a term equal to the expected life of the award. The expected life of the award and expected dividend yield are based on historical experience.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following table lists the weighted average of assumptions used to calculate the fair value of stock options granted:
| | | Years Ended December 31, | | | Years Ended December 31, |
| 2019 | | 2018 | | 2017 | | | 2021 | | 2020 |
Expected dividend yield | 3.0 | % | | 9.9 | % | | 5.7 | % | Expected dividend yield | | 2.4 | % | | 5.0 | % |
Expected stock price volatility | 41.5 | % | | 37.8 | % | | 29.7 | % | Expected stock price volatility | | 70.0 | % | | 43.0 | % |
Risk-free interest rate | 2.5 | % | | 2.8 | % | | 2.3 | % | Risk-free interest rate | | 1.1 | % | | 1.5 | % |
Expected life | 5 years |
| | 7 years |
| | 7 years |
| Expected life | | 7 years | | 7 years |
Weighted-average fair value per option granted | $1.98 | | $1.26 | | $2.00 | Weighted-average fair value per option granted | | $4.53 | | $1.01 |
Fair value of options granted | $1,722 | | $6,229 | | $5,107 | Fair value of options granted | | $3,342 | | $2,830 |
Employee Stock Purchase Plan (ESPP)
We maintain a non-compensatory ESPP that enables substantially all U.S. and Canadian employees to purchase shares of our common stock at an offering price of 95% of the average market price on the offering date. At no time will the exercise price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. Employees purchased 258,838381,229 shares and 218,424182,899 shares in 20192022 and 2018,2021, respectively. We have reserved 2,293,1661,437,498 common shares for future purchase under the ESPP.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
21. Quarterly Financial Data (unaudited)
Beginning in the third quarter of 2019, Software Solutions was presented as a discontinued operation. Accordingly, amounts previously reported for the first and second quarters of 2019 and 2018 have been recast from what was previously reported in our quarterly filings on Form 10-Q.
|
| | | | | | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
2019 | | | | | | | | | |
Revenue | $ | 795,084 |
| | $ | 788,573 |
| | $ | 790,125 |
| | $ | 831,343 |
| | $ | 3,205,125 |
|
Cost of revenue | 467,187 |
| | 468,227 |
| | 467,805 |
| | 518,920 |
| | 1,922,139 |
|
Operating expenses | 322,620 |
| | 287,312 |
| | 341,870 |
| | 304,042 |
| | 1,255,844 |
|
Income (loss) from continuing operations before income taxes | 5,277 |
| | 33,034 |
| | (19,550 | ) | | 8,381 |
| | 27,142 |
|
Provision (benefit) for income taxes | 7,820 |
| | 3,724 |
| | (24,895 | ) | | 344 |
| | (13,007 | ) |
(Loss) income from continuing operations | (2,543 | ) | | 29,310 |
| | 5,345 |
| | 8,037 |
| | 40,149 |
|
(Loss) income from discontinued operations | (116 | ) | | (5,613 | ) | | (8,470 | ) | | 168,659 |
| | 154,460 |
|
Net (loss) income | $ | (2,659 | ) | | $ | 23,697 |
| | $ | (3,125 | ) | | $ | 176,696 |
| | $ | 194,609 |
|
Basic (loss) earnings per share (1) | | | | | | | | | |
Continuing operations | $ | (0.01 | ) | | $ | 0.17 |
| | $ | 0.03 |
| | $ | 0.05 |
| | $ | 0.23 |
|
Discontinued operations | — |
| | (0.03 | ) | | (0.05 | ) | | 0.99 |
| | 0.88 |
|
Net income | $ | (0.01 | ) | | $ | 0.13 |
| | $ | (0.02 | ) | | $ | 1.04 |
| | $ | 1.10 |
|
Diluted (loss) earnings per share (1) | | | | | | | | | |
Continuing operations | $ | (0.01 | ) | | $ | 0.16 |
| | $ | 0.03 |
| | $ | 0.05 |
| | $ | 0.23 |
|
Discontinued operations | — |
| | (0.03 | ) | | (0.05 | ) | | 0.98 |
| | 0.87 |
|
Net income | $ | (0.01 | ) | | $ | 0.13 |
| | $ | (0.02 | ) | | $ | 1.03 |
| | $ | 1.10 |
|
|
| | | | | | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
2018 | | | | | | | | | |
Revenue | $ | 820,289 |
| | $ | 773,538 |
| | $ | 760,281 |
| | $ | 857,414 |
| | $ | 3,211,522 |
|
Cost of revenues | 444,032 |
| | 426,818 |
| | 419,311 |
| | 500,113 |
| | 1,790,274 |
|
Operating expenses | 310,300 |
| | 308,077 |
| | 295,782 |
| | 318,968 |
| | 1,233,127 |
|
Income from continuing operations before income taxes | 65,957 |
| | 38,643 |
| | 45,188 |
| | 38,333 |
| | 188,121 |
|
Provision (benefit) for income taxes | 17,498 |
| | 2,205 |
| | (2,468 | ) | | (10,819 | ) | | 6,416 |
|
Income from continuing operations | 48,459 |
| | 36,438 |
| | 47,656 |
| | 49,152 |
| | 181,705 |
|
Income from discontinued operations | 11,511 |
| | 15,157 |
| | 32,621 |
| | 817 |
| | 60,106 |
|
Net income | $ | 59,970 |
| | $ | 51,595 |
| | $ | 80,277 |
| | $ | 49,969 |
| | $ | 241,811 |
|
Basic earnings per share (1): | | | | | | | | | |
Continuing operations | $ | 0.26 |
| | $ | 0.19 |
| | $ | 0.25 |
| | $ | 0.26 |
| | $ | 0.97 |
|
Discontinued operations | 0.06 |
| | 0.08 |
| | 0.17 |
| | — |
| | 0.32 |
|
Net income | $ | 0.32 |
| | $ | 0.28 |
| | $ | 0.43 |
| | $ | 0.27 |
| | $ | 1.29 |
|
Diluted earnings per share (1): | | | | | | | | | |
Continuing operations | $ | 0.26 |
| | $ | 0.19 |
| | $ | 0.25 |
| | $ | 0.26 |
| | $ | 0.96 |
|
Discontinued operations | 0.06 |
| | 0.08 |
| | 0.17 |
| | — |
| | 0.32 |
|
Net income | $ | 0.32 |
| | $ | 0.27 |
| | $ | 0.43 |
| | $ | 0.26 |
| | $ | 1.28 |
|
(1) The sum of earnings per share amounts may not equal the totals due to rounding.
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Balance at beginning of year | | Additions charged to expense | | Deductions | | Balance at end of year |
| | | | | | | | |
|
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Valuation allowance for deferred tax asset |
2022 | | $ | 121,778 | | | $ | 44,188 | | | $ | (8,516) | | | $ | 157,450 | |
2021 | | $ | 116,543 | | | $ | 7,490 | | | $ | (2,255) | | | $ | 121,778 | |
2020 | | $ | 110,781 | | | $ | 23,150 | | | $ | (17,388) | | | $ | 116,543 | |
| | | | | | | | |
|
|
|
| | | | | | | | | | | | | | | | |
Description | | Balance at beginning of year | | Additions charged to expense | | Deductions | | Balance at end of year |
| | | | | | | | |
Allowance for doubtful accounts |
2019 | | $ | 17,443 |
| | $ | 16,345 |
| | $ | (15,958 | ) | | $ | 17,830 |
|
2018 | | $ | 14,319 |
| | $ | 9,770 |
| | $ | (6,646 | ) | | $ | 17,443 |
|
2017 | | $ | 13,506 |
| | $ | 7,426 |
| | $ | (6,613 | ) | | $ | 14,319 |
|
| | | | | | | | |
Valuation allowance for deferred tax asset |
2019 | | $ | 142,496 |
| | $ | 5,324 |
| | $ | (37,038 | ) | | $ | 110,782 |
|
2018 | | $ | 178,156 |
| | $ | 3,682 |
| | $ | (39,342 | ) | | $ | 142,496 |
|
2017 | | $ | 127,095 |
| | $ | 53,782 |
| | $ | (2,721 | ) | | $ | 178,156 |
|