0000078814 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2019-04-01 2019-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172019
OR
o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 1-35791-03579
PITNEY BOWES INC.INC.
(Exact name of registrant as specified in its charter)
|
| | | | |
State of incorporation: | Delaware | | 06-0495050 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
3001 Summer Street, Stamford, Connecticut | | 06926 |
(Address of principal executive offices) | | (Zip Code)06-0495050 |
|
|
(203) 356-5000 | | | | | |
(Registrant’s telephone number, including area code)Address: | 3001 Summer Street, | Stamford, | Connecticut | 06926 | |
Telephone Number: | (203) | 356-5000 | | | | |
Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
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 |
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
|
| | | | | |
Large accelerated filerþ | þ | Accelerated filero | o | Non-accelerated filer | o |
Smaller reporting companyo | ☐ | Emerging growth companyo | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐No þ
As of October 26, 2017July 29, 2019, 186,728,127170,900,031 shares of common stock, par value $1 per share, of the registrant were outstanding.
PITNEY BOWES INC.
INDEX
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| | Page Number |
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| Condensed Consolidated Statements of Income for the Three and NineSix Months Ended SeptemberJune 30, 20172019 and 20162018 | |
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| Condensed Consolidated Statements of Comprehensive Income for the Three and NineSix Months Ended SeptemberJune 30, 20172019 and 20162018 | |
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| Condensed Consolidated Balance Sheets at SeptemberJune 30, 20172019 and December 31, 20162018 | |
| | |
| Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20172019 and 20162018 | |
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue: | |
| | |
| | |
| | |
|
Equipment sales | $ | 85,551 |
| | $ | 93,811 |
| | $ | 175,338 |
| | $ | 200,519 |
|
Supplies | 46,490 |
| | 55,457 |
| | 97,443 |
| | 115,450 |
|
Software | 72,206 |
| | 91,703 |
| | 145,524 |
| | 167,997 |
|
Rentals | 18,445 |
| | 19,454 |
| | 40,602 |
| | 44,419 |
|
Financing | 92,419 |
| | 97,129 |
| | 189,462 |
| | 197,478 |
|
Support services | 127,683 |
| | 138,598 |
| | 256,304 |
| | 279,248 |
|
Business services | 417,985 |
| | 369,088 |
| | 824,508 |
| | 756,712 |
|
Total revenue | 860,779 |
| | 865,240 |
| | 1,729,181 |
| | 1,761,823 |
|
Costs and expenses: | | | | | | | |
Cost of equipment sales | 58,570 |
| | 58,948 |
| | 122,235 |
| | 121,417 |
|
Cost of supplies | 11,758 |
| | 15,738 |
| | 25,308 |
| | 32,685 |
|
Cost of software | 23,419 |
| | 26,957 |
| | 46,802 |
| | 51,086 |
|
Cost of rentals | 8,418 |
| | 8,464 |
| | 18,133 |
| | 21,212 |
|
Financing interest expense | 11,043 |
| | 11,194 |
| | 22,407 |
| | 22,258 |
|
Cost of support services | 40,448 |
| | 42,306 |
| | 82,227 |
| | 88,371 |
|
Cost of business services | 337,918 |
| | 290,567 |
| | 664,964 |
| | 584,946 |
|
Selling, general and administrative | 278,545 |
| | 289,427 |
| | 579,527 |
| | 592,237 |
|
Research and development | 22,630 |
| | 23,574 |
| | 44,404 |
| | 48,069 |
|
Restructuring charges and asset impairments, net | 7,279 |
| | 11,503 |
| | 10,877 |
| | 12,407 |
|
Interest expense, net | 28,019 |
| | 30,775 |
| | 55,621 |
| | 62,789 |
|
Other components of net pension and postretirement cost | (1,618 | ) | | (2,499 | ) | | (2,256 | ) | | (4,218 | ) |
Other (income) expense | (27 | ) | | — |
| | 17,683 |
| | — |
|
Total costs and expenses | 826,402 |
| | 806,954 |
| | 1,687,932 |
| | 1,633,259 |
|
Income from continuing operations before taxes | 34,377 |
| | 58,286 |
| | 41,249 |
| | 128,564 |
|
Provision for income taxes | 4,099 |
| | 7,899 |
| | 12,400 |
| | 26,694 |
|
Income from continuing operations | 30,278 |
| | 50,387 |
| | 28,849 |
| | 101,870 |
|
(Loss) income from discontinued operations, net of tax | (6,581 | ) | | 1,208 |
| | (7,811 | ) | | 9,695 |
|
Net income | $ | 23,697 |
| | $ | 51,595 |
| | $ | 21,038 |
| | $ | 111,565 |
|
Basic earnings (loss) per share (1): | | | | | | | |
Continuing operations | $ | 0.17 |
| | $ | 0.27 |
| | $ | 0.16 |
| | $ | 0.54 |
|
Discontinued operations | (0.04 | ) | | 0.01 |
| | (0.04 | ) | | 0.05 |
|
Net income | $ | 0.13 |
| | $ | 0.28 |
| | $ | 0.12 |
| | $ | 0.60 |
|
Diluted earnings (loss) per share (1): | | | | | | | |
Continuing operations | $ | 0.17 |
| | $ | 0.27 |
| | $ | 0.16 |
| | $ | 0.54 |
|
Discontinued operations | (0.04 | ) | | 0.01 |
| | (0.04 | ) | | 0.05 |
|
Net income | $ | 0.13 |
| | $ | 0.27 |
| | $ | 0.12 |
| | $ | 0.59 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue: | |
| | |
| | |
| | |
|
Equipment sales | $ | 157,649 |
| | $ | 173,143 |
| | $ | 479,248 |
| | $ | 485,145 |
|
Supplies | 58,296 |
| | 61,306 |
| | 188,342 |
| | 198,631 |
|
Software | 99,600 |
| | 89,087 |
| | 264,131 |
| | 257,760 |
|
Rentals | 95,901 |
| | 102,747 |
| | 291,770 |
| | 309,706 |
|
Financing | 81,184 |
| | 87,883 |
| | 250,582 |
| | 276,915 |
|
Support services | 120,479 |
| | 123,954 |
| | 354,625 |
| | 383,632 |
|
Business services | 229,711 |
| | 200,911 |
| | 672,133 |
| | 607,717 |
|
Total revenue | 842,820 |
| | 839,031 |
| | 2,500,831 |
| | 2,519,506 |
|
Costs and expenses: | |
| | |
| | |
| | |
|
Cost of equipment sales | 85,647 |
| | 86,147 |
| | 232,398 |
| | 235,741 |
|
Cost of supplies | 18,827 |
| | 20,348 |
| | 60,207 |
| | 60,662 |
|
Cost of software | 25,713 |
| | 25,698 |
| | 75,816 |
| | 79,496 |
|
Cost of rentals | 20,818 |
| | 16,041 |
| | 63,056 |
| | 54,951 |
|
Financing interest expense | 12,629 |
| | 12,965 |
| | 38,446 |
| | 41,375 |
|
Cost of support services | 70,688 |
| | 74,799 |
| | 217,232 |
| | 224,790 |
|
Cost of business services | 166,984 |
| | 140,989 |
| | 470,890 |
| | 417,357 |
|
Selling, general and administrative | 304,398 |
| | 300,983 |
| | 908,169 |
| | 916,981 |
|
Research and development | 32,057 |
| | 28,680 |
| | 96,871 |
| | 89,761 |
|
Restructuring charges and asset impairments, net | 1,493 |
| | 16,494 |
| | 30,502 |
| | 49,503 |
|
Interest expense, net | 28,601 |
| | 22,294 |
| | 81,877 |
| | 62,394 |
|
Total costs and expenses | 767,855 |
| | 745,438 |
| | 2,275,464 |
| | 2,233,011 |
|
Income before income taxes | 74,965 |
| | 93,593 |
| | 225,367 |
| | 286,495 |
|
Provision for income taxes | 17,607 |
| | 23,197 |
| | 53,975 |
| | 93,615 |
|
Income from continuing operations | 57,358 |
| | 70,396 |
| | 171,392 |
| | 192,880 |
|
Loss from discontinued operations, net of tax | — |
| | (291 | ) | | — |
| | (1,951 | ) |
Net income | 57,358 |
| | 70,105 |
| | 171,392 |
| | 190,929 |
|
Less: Preferred stock dividends attributable to noncontrolling interests | — |
| | 4,593 |
| | — |
| | 13,781 |
|
Net income attributable to Pitney Bowes Inc. | $ | 57,358 |
| | $ | 65,512 |
| | $ | 171,392 |
| | $ | 177,148 |
|
Amounts attributable to common stockholders: | |
| | |
| | |
| | |
|
Net income from continuing operations | $ | 57,358 |
| | $ | 65,803 |
| | $ | 171,392 |
| | $ | 179,099 |
|
Loss from discontinued operations, net of tax | — |
| | (291 | ) | | — |
| | (1,951 | ) |
Net income attributable to Pitney Bowes Inc. | $ | 57,358 |
| | $ | 65,512 |
| | $ | 171,392 |
| | $ | 177,148 |
|
Basic earnings per share attributable to common stockholders (1): | |
| | |
| | |
| | |
|
Continuing operations | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.95 |
|
Discontinued operations | — |
| | — |
| | — |
| | (0.01 | ) |
Net income attributable to Pitney Bowes Inc. | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.94 |
|
Diluted earnings per share attributable to common stockholders (1): | |
| | |
| | |
| | |
|
Continuing operations | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.94 |
|
Discontinued operations | — |
| | — |
| | — |
| | (0.01 | ) |
Net income attributable to Pitney Bowes Inc. | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.93 |
|
Dividends declared per share of common stock | $ | 0.1875 |
| | $ | 0.1875 |
| | $ | 0.5625 |
| | $ | 0.5625 |
|
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
See Notes to Condensed Consolidated Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 57,358 |
| | $ | 70,105 |
| | $ | 171,392 |
| | $ | 190,929 |
|
Less: Preferred stock dividends attributable to noncontrolling interests | — |
| | 4,593 |
| | — |
| | 13,781 |
|
Net income attributable to Pitney Bowes Inc. | 57,358 |
| | 65,512 |
| | 171,392 |
| | 177,148 |
|
Other comprehensive income, net of tax: | | | | | | | |
Foreign currency translations | 33,517 |
| | 6,938 |
| | 100,223 |
| | 37,263 |
|
Net unrealized gain (loss) on cash flow hedges, net of tax of $122, $(40), $361 and $224, respectively | 195 |
| | (64 | ) | | 579 |
| | 358 |
|
Net unrealized gain on investment securities, net of tax of $220, $956, $1,322 and $4,399, respectively | 375 |
| | 1,628 |
| | 2,251 |
| | 7,491 |
|
Adjustments to pension and postretirement plans, net of tax of $(304) and $(777) for the nine months ended September 30, 2017 and 2016, respectively. | — |
| | — |
| | (1,482 | ) | | (1,230 | ) |
Amortization of pension and postretirement costs, net of tax of $3,484, $3,243, $10,440 and $10,362, respectively | 6,744 |
| | 5,963 |
| | 20,078 |
| | 18,791 |
|
Other comprehensive income, net of tax | 40,831 |
| | 14,465 |
| | 121,649 |
| | 62,673 |
|
Comprehensive income attributable to Pitney Bowes Inc. | $ | 98,189 |
| | $ | 79,977 |
| | $ | 293,041 |
| | $ | 239,821 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 23,697 |
| | $ | 51,595 |
| | $ | 21,038 |
| | $ | 111,565 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation, net of tax of $(1,347) and $(423) in 2019, respectively | 104 |
| | (42,942 | ) | | 21,378 |
| | (27,859 | ) |
Net unrealized (loss) gain on cash flow hedges, net of tax of $(80), $(78), $(24) and $154, respectively | (234 | ) | | (235 | ) | | (71 | ) | | 251 |
|
Net unrealized gain (loss) on investment securities, net of tax of $1,100, $(447), $2,064 and $(1,813), respectively | 3,213 |
| | (1,305 | ) | | 6,029 |
| | (5,296 | ) |
Amortization of pension and postretirement costs, net of tax benefits of $2,124, $2,564, $4,773 and $5,368, respectively | 7,311 |
| | 7,868 |
| | 13,947 |
| | 16,040 |
|
Other comprehensive income (loss), net of tax | 10,394 |
| | (36,614 | ) | | 41,283 |
| | (16,864 | ) |
Comprehensive income | $ | 34,091 |
| | $ | 14,981 |
| | $ | 62,321 |
| | $ | 94,701 |
|
See Notes to Condensed Consolidated Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share and per share amounts)
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
ASSETS | |
| | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 1,696,903 |
| | $ | 764,522 |
|
Short-term investments | 45,508 |
| | 38,448 |
|
Accounts receivable (net of allowance of $15,610 and $14,372, respectively) | 408,886 |
| | 455,527 |
|
Short-term finance receivables (net of allowance of $11,921 and $13,323, respectively) | 826,122 |
| | 893,950 |
|
Inventories | 118,282 |
| | 92,726 |
|
Current income taxes | 42,605 |
| | 11,373 |
|
Other current assets and prepayments | 82,251 |
| | 68,637 |
|
Total current assets | 3,220,557 |
| | 2,325,183 |
|
Property, plant and equipment, net | 338,340 |
| | 314,603 |
|
Rental property and equipment, net | 185,866 |
| | 188,054 |
|
Long-term finance receivables (net of allowance of $5,999 and $7,177, respectively) | 650,793 |
| | 673,207 |
|
Goodwill | 1,616,968 |
| | 1,571,335 |
|
Intangible assets, net | 145,376 |
| | 165,172 |
|
Noncurrent income taxes | 77,188 |
| | 74,806 |
|
Other assets | 546,319 |
| | 524,773 |
|
Total assets | $ | 6,781,407 |
| | $ | 5,837,133 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | |
|
Current liabilities: | |
| | |
|
Accounts payable and accrued liabilities | $ | 1,348,395 |
| | $ | 1,378,822 |
|
Current income taxes | 13,542 |
| | 34,434 |
|
Current portion of long-term debt | 620,256 |
| | 614,485 |
|
Advance billings | 282,537 |
| | 299,878 |
|
Total current liabilities | 2,264,730 |
| | 2,327,619 |
|
Deferred taxes on income | 257,987 |
| | 204,289 |
|
Tax uncertainties and other income tax liabilities | 39,671 |
| | 61,276 |
|
Long-term debt | 3,562,672 |
| | 2,750,405 |
|
Other noncurrent liabilities | 555,514 |
| | 597,204 |
|
Total liabilities | 6,680,574 |
| | 5,940,793 |
|
| | | |
Commitments and contingencies (See Note 12) |
|
| |
|
|
| | | |
Stockholders’ equity (deficit): | | | |
Cumulative preferred stock, $50 par value, 4% convertible | 1 |
| | 1 |
|
Cumulative preference stock, no par value, $2.12 convertible | 457 |
| | 483 |
|
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued) | 323,338 |
| | 323,338 |
|
Additional paid-in capital | 133,394 |
| | 148,125 |
|
Retained earnings | 5,174,602 |
| | 5,107,734 |
|
Accumulated other comprehensive loss | (818,484 | ) | | (940,133 | ) |
Treasury stock, at cost (136,777,086 and 137,669,194 shares, respectively) | (4,712,475 | ) | | (4,743,208 | ) |
Total Pitney Bowes Inc. stockholders’ equity (deficit) | 100,833 |
| | (103,660 | ) |
Total liabilities and stockholders’ equity (deficit) | $ | 6,781,407 |
| | $ | 5,837,133 |
|
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
ASSETS | |
| | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 771,042 |
| | $ | 867,262 |
|
Short-term investments | 59,516 |
| | 59,391 |
|
Accounts and other receivables (net of allowance of $19,804 and $17,617, respectively) | 419,776 |
| | 456,138 |
|
Short-term finance receivables (net of allowance of $12,537 and $12,454, respectively) | 682,828 |
| | 752,773 |
|
Inventories | 73,347 |
| | 62,279 |
|
Current income taxes | 22,474 |
| | 5,947 |
|
Other current assets and prepayments | 132,878 |
| | 100,625 |
|
Assets of discontinued operations | — |
| | 4,854 |
|
Total current assets | 2,161,861 |
| | 2,309,269 |
|
Property, plant and equipment, net | 416,512 |
| | 410,114 |
|
Rental property and equipment, net | 36,917 |
| | 46,228 |
|
Long-term finance receivables (net of allowance of $8,180 and $7,768 respectively) | 554,075 |
| | 536,369 |
|
Goodwill | 1,754,610 |
| | 1,766,511 |
|
Intangible assets, net | 212,596 |
| | 227,137 |
|
Operating lease assets | 180,983 |
| | 156,788 |
|
Noncurrent income taxes | 63,013 |
| | 66,326 |
|
Other assets | 377,420 |
| | 419,677 |
|
Total assets | $ | 5,757,987 |
| | $ | 5,938,419 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
|
Current liabilities: | |
| | |
|
Accounts payable and accrued liabilities | $ | 1,295,712 |
| | $ | 1,390,362 |
|
Current operating lease liabilities | 34,612 |
| | 37,208 |
|
Current portion of long-term debt | 214,927 |
| | 199,535 |
|
Advance billings | 211,061 |
| | 229,379 |
|
Current income taxes | 6,011 |
| | 15,284 |
|
Liabilities of discontinued operations | — |
| | 3,276 |
|
Total current liabilities | 1,762,323 |
| | 1,875,044 |
|
Long-term debt | 3,029,246 |
| | 3,066,073 |
|
Deferred taxes on income | 264,191 |
| | 254,353 |
|
Tax uncertainties and other income tax liabilities | 45,586 |
| | 39,548 |
|
Noncurrent operating lease liabilities | 154,648 |
| | 127,237 |
|
Other noncurrent liabilities | 449,021 |
| | 474,322 |
|
Total liabilities | 5,705,015 |
| | 5,836,577 |
|
| | | |
Commitments and contingencies (See Note 14) |
|
| |
|
|
| | | |
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 | 105,341 |
| | 121,475 |
|
Retained earnings | 5,282,374 |
| | 5,279,682 |
|
Accumulated other comprehensive loss | (907,678 | ) | | (948,961 | ) |
Treasury stock, at cost (152,393,129 and 135,662,830 shares, respectively) | (4,750,403 | ) | | (4,674,089 | ) |
Total stockholders’ equity | 52,972 |
| | 101,842 |
|
Total liabilities and stockholders’ equity | $ | 5,757,987 |
| | $ | 5,938,419 |
|
See Notes to Condensed Consolidated Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 2017 | | 2016 | 2019 | | 2018 |
Cash flows from operating activities: | |
| | |
| |
| | |
|
Net income | $ | 171,392 |
| | $ | 190,929 |
| $ | 21,038 |
| | $ | 111,565 |
|
Loss (income) from discontinued operations, net of tax | | 7,811 |
| | (9,695 | ) |
Restructuring payments | (29,976 | ) | | (51,161 | ) | (14,283 | ) | | (27,528 | ) |
Special pension plan contributions | — |
| | (36,731 | ) | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
| | |
|
Loss on sale of assets | — |
| | 3,938 |
| |
Gain on sale of technology | (6,085 | ) | | — |
| |
Depreciation and amortization | 131,989 |
| | 140,225 |
| 82,813 |
| | 80,335 |
|
Gain on debt forgiveness | — |
| | (10,000 | ) | |
Stock-based compensation | 18,312 |
| | 16,014 |
| 9,165 |
| | 9,153 |
|
Restructuring charges and asset impairments, net | 30,502 |
| | 49,503 |
| 10,877 |
| | 12,407 |
|
Loss on disposition of businesses | | 17,683 |
| | — |
|
Changes in operating assets and liabilities, net of acquisitions/divestitures: | |
| | |
| |
| | |
|
Decrease in accounts receivable | 55,913 |
| | 51,853 |
| 51,721 |
| | 9,907 |
|
Decrease in finance receivables | 126,599 |
| | 113,180 |
| 41,744 |
| | 43,249 |
|
Increase in inventories | (22,814 | ) | | (20,489 | ) | (10,881 | ) | | (3,441 | ) |
(Increase) decrease in other current assets and prepayments | (11,781 | ) | | 3,312 |
| |
Increase in other current assets and prepayments | | (35,325 | ) | | (23,657 | ) |
Decrease in accounts payable and accrued liabilities | (46,034 | ) | | (119,818 | ) | (74,868 | ) | | (54,616 | ) |
(Decrease) increase in current and noncurrent income taxes | (31,377 | ) | | 1,543 |
| |
Increase in current and non-current income taxes | | 733 |
| | 8,539 |
|
Decrease in advance billings | (32,702 | ) | | (47,183 | ) | (12,711 | ) | | (18,598 | ) |
Other, net | (23,361 | ) | | 11,244 |
| (1,854 | ) | | (24,899 | ) |
Net cash provided by operating activities - continuing operations | | 93,663 |
| | 112,721 |
|
Net cash (used in) provided by operating activities - discontinued operations | | (6,881 | ) | | 41,772 |
|
Net cash provided by operating activities | 330,577 |
| | 296,359 |
| 86,782 |
| | 154,493 |
|
Cash flows from investing activities: | |
| | |
| |
| | |
|
Purchases of available-for-sale securities | (108,571 | ) | | (163,134 | ) | (6,391 | ) | | (48,303 | ) |
Proceeds from sales/maturities of available-for-sale securities | 89,940 |
| | 167,424 |
| 54,964 |
| | 36,157 |
|
Net change in short-term and other investments | (8,083 | ) | | 65,325 |
| |
Net activity from short-term and other investments | | (1,608 | ) | | 10,959 |
|
Capital expenditures | (119,562 | ) | | (115,532 | ) | (61,327 | ) | | (79,481 | ) |
Proceeds from sale of assets | 5,458 |
| | 17,671 |
| |
Acquisition of businesses, net of cash acquired | (7,889 | ) | | (37,942 | ) | |
Acquisitions, net of cash acquired | | (4,882 | ) | | (2,407 | ) |
Change in reserve account deposits | (2,508 | ) | | 1,813 |
| (8,316 | ) | | 5,959 |
|
Other investing activities | (4,500 | ) | | (7,420 | ) | (8,591 | ) | | (2,500 | ) |
Net cash used in investing activities - continuing operations | | (36,151 | ) | | (79,616 | ) |
Net cash used in investing activities - discontinued operations | | — |
| | (1,169 | ) |
Net cash used in investing activities | (155,715 | ) | | (71,795 | ) | (36,151 | ) | | (80,785 | ) |
Cash flows from financing activities: | |
| | |
| |
| | |
|
Proceeds from the issuance of long-term debt | 1,437,659 |
| | 894,744 |
| |
Principal payments of long-term debt | (614,449 | ) | | (371,007 | ) | (25,087 | ) | | (260,099 | ) |
Net change in short-term borrowings | — |
| | (90,000 | ) | |
Dividends paid to stockholders | (104,524 | ) | | (105,791 | ) | (18,346 | ) | | (70,113 | ) |
Common stock repurchases | — |
| | (197,267 | ) | (100,000 | ) | | — |
|
Dividends paid to noncontrolling interests | — |
| | (9,188 | ) | |
Other financing activities | (3,624 | ) | | (5,430 | ) | (3,337 | ) | | (49,606 | ) |
Net cash provided by financing activities | 715,062 |
| | 116,061 |
| |
Net cash used in financing activities | | (146,770 | ) | | (379,818 | ) |
Effect of exchange rate changes on cash and cash equivalents | 42,457 |
| | 3,933 |
| (81 | ) | | (13,041 | ) |
Increase in cash and cash equivalents | 932,381 |
| | 344,558 |
| |
Change in cash and cash equivalents | | (96,220 | ) | | (319,151 | ) |
Cash and cash equivalents at beginning of period | 764,522 |
| | 640,190 |
| 867,262 |
| | 1,009,021 |
|
Cash and cash equivalents at end of period | $ | 1,696,903 |
| | $ | 984,748 |
| $ | 771,042 |
| | $ | 689,870 |
|
Cash interest paid | $ | 131,927 |
| | $ | 132,359 |
| $ | 78,280 |
| | $ | 89,339 |
|
Cash income tax payments, net of refunds | $ | 88,021 |
| | $ | 95,487 |
| $ | 17,348 |
| | $ | 19,244 |
|
See Notes to Condensed Consolidated Financial Statements
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
1. Description of Business and Basis of Presentation
Description of Business
Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware in 1920. We are is a global technology company offeringproviding innovative products and commerce solutions that power billions of transactions and help our clients navigate the complex world of commerce. We provide innovativeoffer shipping, mailing, fulfillment, returns and cross-border ecommerce products and solutions for mailing, shipping and cross border ecommerce that enable the sending of parcels and packages globallyacross the globe and products and solutions for customer information management, location intelligence and customer engagement products and solutions to help our clients market to their customers. Clients around the world rely on our products, solutions and services. Pitney Bowes Inc. was incorporated in the state of Delaware in 1920. For more information about us, our products, services and solutions, visit www.pb.com.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 20162018 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 20172019. These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2016 (20162018 (2018 Annual Report).
In the fourth quarter of 2016,Based on their nature, we determined that certain investments werecosts previously classified as cashresearch and cash equivalents.development and cost of business services should be classified in other line items within costs and expenses. Accordingly, the Condensed Consolidated Statement of Cash Flowsincome statement for the periodthree months ended SeptemberJune 30, 20162018 has been revised to correct the classification of these costs by reducing research and development expense and cost of business services by $7 million and $3 million, respectively, and increasing selling, general and administrative expense and cost of equipment sales by $7 million and $3 million, respectively. The income statement for the six months ended June 30, 2018 has been revised to correct the classification of these costs by reducing research and development expense and cost of business services by $13 million and $5 million, respectively, and increasing selling, general and administrative expense and cost of equipment sales by $13 million and $5 million, respectively.
The classification of certain costs of revenue recognized in the prior year have been revised to correct and conform to the current year presentation. As a result, in the income statement for the three months ended June 30, 2018, we reduced cost of equipment sales by $1 million and cost of rentals by $1 million, and increased cost of support services by $2 million. In the income statement for the six months ended June 30, 2018, we reduced cost of equipment sales by $3 million and cost of rentals by $2 million, and increased cost of support services by $5 million.
In January 2019, we sold the direct operations and moved to a dealer model in six smaller markets within the International Mailing segment (Market Exits) and recognized a pre-tax loss of $18 million in other (income) expense.
The December 31, 2018 balance sheet has been revised to reduce beginning cashshort-term finance receivables and cash equivalentsadvance billings by $10 million and ending cash and cash equivalents by $7 million with a corresponding adjustment to net change in short-term$6 million.
Accounts and other investing activities.receivables includes other receivables of $101 million at June 30, 2019 and $76 million at December 31, 2018.
New Accounting Pronouncements -
Accounting Pronouncements Adopted on January 1, 2019
On January 1, 2019, we adopted Accounting Standards Adopted in 2017
In January 2017,Codification (ASC) 842, Leases (ASC 842), using the Financial Accounting Standard Board (FASB) issued Accounting Standard Update (ASU) 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifyingmodified retrospective transition approach of applying the Test for Goodwill Impairment, which eliminates Step 2standard at the beginning of the current two-step goodwill impairment testearliest comparative period presented in the financial statements. Accordingly, prior period financial statements have been recast and requires onlyrequired disclosures have been provided. We also recorded a one-step quantitative impairment test, whereby a goodwill impairment loss will be measuredcumulative effect adjustment as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). The ASU is effective for interim and annual periods beginning after December 15, 2019, and is required to be applied prospectively. We elected to early adopt this standard effective January 1, 2017. The adoption of this2017 to reduce retained earnings by $137 million. See Notes 7 and 15 for more information.
From a lessor perspective, the standard had no impact on our consolidated financial statements or disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard includes multiple provisions intended to simplify various aspects ofsimplifies the accounting for share-based payments.lease modifications and aligns accounting of lease contracts with revenue recognition guidance. We retroactively adopted this ASU effective January 1, 2017. Accordingly,continue to classify leases as sales-type or operating, with the Condensed Consolidated Statementdetermination affecting both the pattern and classification of Cash Flows forincome recognition. There have been changes in the nine months ended September 30, 2016 hastiming and classification of revenue related to contract modifications. There also have been recastchanges related to increase both net cash provided by operating activities and net cash used in financing activities by $5 million.
In July 2015, the FASB issued ASU 2015-11, Inventory - Simplifying the Measurementdefinition of Inventory,a leased asset, which requires inventoryus to be measured ataccount for two lease components as a single lease component. Under prior guidance, one of the lower of cost and net realizable value (estimated selling price less reasonably predictable costs of completion, disposal and transportation). Inventory measured using the last-in, first-out (LIFO) basis is not impacted by the new guidance. This standard became effective January 1, 2017 and therecomponents was no impact on our consolidated financial statements or disclosures.
New Accounting Pronouncements - Standards Not Yet Adopted
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accountinggenerally accounted for Hedging Activities. The ASU changes the recognition and presentation requirements of hedge accounting and reduces the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing and hedge documentation. The standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting. The ASU provides guidance about which changes to terms and conditions ofas a share-based payment award require an entity to apply modification accounting. The standard is effective for interim and annual periods beginning after December 15, 2017 and would be applied prospectively to awards modified on or after the effective date. We do not expect the adoption of this standard will have any impact on our consolidated financial statements.sales-type lease
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
In March 2017,and the FASB issued ASUsecond as an operating lease. Under ASC 842, the two components are generally accounted for as a sales-type lease. As a result, certain income and costs are now accelerated that were previously recognized over the life of the lease.
From a lessee perspective, the standard requires us to recognize right-of-use assets and lease liabilities for our 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.
Updates to significant accounting policies disclosed in our 2018 Annual Report due to the adoption of ASC 842 are discussed below.
Equipment sales: We sell and lease equipment directly to our 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. We recognize revenue from the sale of equipment under sales-type leases as equipment sales revenue when control of the equipment transfers to the customer, which is upon shipment for self-installed products and upon installation or customer acceptance for other products. We do not typically offer any rights of return.
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. We initially defer these advanced billings and recognize rentals revenue on a straight-line basis over the rental period. Revenue generated from financing clients for the continued use of equipment subsequent to the expiration of the original lease are recognized as rentals revenue.
Financing: We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit for the purchase of postage and supplies. We believe that our sales-type lease portfolio contains only normal collection risk. We record financing income over the lease term using the effective interest method. Financing also includes amounts related to sales-type leases that customers have extended or renewed for an additional term. Revenue for those contracts will be recognized over the term of the modified lease as financing income using the interest method.
Equipment residual values are determined at the inception of the lease using estimates of fair value at the end of the lease term. Fair value estimates are based primarily on historical experience. We also consider forecasted supply and demand for products, product retirement and launch plans, client behavior, regulatory changes, remanufacturing strategies, 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. Estimated increases in future residual values are not recognized until the equipment is remarketed.
Support services: Support services revenue includes revenue from equipment service contracts, subscriptions and meter services. Revenue is allocated to these services using selling prices charged in standalone replacement and renewal transactions. Since we have a stand-ready obligation to provide these services over the entire contract term, revenue related to these agreements is recognized on a straight-line basis over the term of the agreement.
Business services: Business services revenue includes revenue from mail processing services and ecommerce solutions. These services represent a series of distinct services that are similar in nature, and revenue is recognized as the services are provided. We review third party relationships and record revenue on a gross basis when we act as a principal in a transaction or net basis when we act as an agent between a client and vendor. We consider several factors in determining whether we are acting as principal or agent, such as whether we are the primary obligor to the client, have control over the pricing or have inventory risk.
On January 1, 2019, we also adopted Accounting Standards Update (ASU) 2017-08, Receivables-Nonrefundable Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU, 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 will be applieddid not have a material impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software. The ASU aligns the requirements for capitalizing implementation costs incurred in a modified retrospective basis throughhosting arrangement that is a cumulative-effect adjustment directlyservice contract with the requirements for capitalizing implementation costs incurred to retained earnings as of the beginning of the period of adoption.develop or obtain internal-use software. The standard is effective for interim and annual periods beginning after December 15, 2018 andJanuary 1, 2020, with early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Benefit Cost. The ASU requires the service cost component of net periodic benefit cost to be presented
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are to be presented separately, in an appropriately titled line item outside of any subtotal of operating income or disclosed in the footnotes. The standard also limits the amount eligible for capitalization to the service cost component. The standard is effective for interim and annual periods beginning after December 15, 2017 and we are currently assessing the impact this standard will have on our consolidated financial statements.thousands unless otherwise noted, except per share amounts)
In January 2017, the FASB issued ASU 2017-06 – Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. The ASU requires separate disclosure in the statement of net assets available for benefits and the statement of changes in net assets available for benefits of changes in any interests held in a Master Trust and other enhanced disclosures. The standard is effective for interim and annual periods beginning after December 15, 2018 and we are currently evaluating the impact of this standard on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business,which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for interim and annual periods beginning after December 15, 2017. The impact on our consolidated financial statements will depend on the facts and circumstances of any specific future transactions.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Inter-entity Transfers of Assets other than Inventory, which requires tax expense to be recognized from the sale of intra-entity assets, other than inventory, when the transfer occurs, even though the effects of the transaction are eliminated in consolidation. Under current guidance, the tax effects of transfers are deferred until the transferred asset is sold or otherwise recovered through use. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated financial statements.
In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in the presentation and classification of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a “currentcurrent expected credit loss” (CECL)loss model, which requires companies to measure all expected credit losses for all financial instruments held at the reporting date based on historical experience, current conditions and reasonablereasonably supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This standard is effective for interimbeginning January 1, 2020. We have completed the scoping of financial assets that will be impacted by the standard and annual periods beginning after December 15, 2019.are in the process of developing models to measure expected credit losses. We are currently assessingcontinuing to assess the impact this standard will have on our consolidated financial statementsstatements.
2. Revenue
Disaggregated Revenue
The following tables disaggregate our revenue by major source and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This standard, among other things, will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability and result in enhanced disclosures. The standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurementtiming of Financial Assets and Financial Liabilities. This standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.
recognition:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Global Ecommerce | Presort Services | North America Mailing | International Mailing | Software Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | | | |
Equipment sales | $ | — |
| $ | — |
| $ | 7,882 |
| $ | 11,502 |
| $ | — |
| $ | 19,384 |
| $ | 66,167 |
| $ | 85,551 |
|
Supplies | — |
| — |
| 32,461 |
| 14,029 |
| — |
| 46,490 |
| — |
| 46,490 |
|
Software | — |
| — |
| — |
| — |
| 72,206 |
| 72,206 |
| — |
| 72,206 |
|
Rentals | — |
| — |
| — |
| — |
| — |
| — |
| 18,445 |
| 18,445 |
|
Financing | — |
| — |
| — |
| — |
| — |
| — |
| 92,419 |
| 92,419 |
|
Support services | — |
| (22 | ) | 108,851 |
| 18,854 |
| — |
| 127,683 |
| — |
| 127,683 |
|
Business services | 282,319 |
| 128,160 |
| 6,517 |
| 989 |
| — |
| 417,985 |
| — |
| 417,985 |
|
Subtotal | 282,319 |
| 128,138 |
| 155,711 |
| 45,374 |
| 72,206 |
| 683,748 |
| $ | 177,031 |
| $ | 860,779 |
|
| | | | | | | | |
Revenue from leasing transactions and financing | | | | | | | | |
Equipment sales | — |
| — |
| 54,191 |
| 11,976 |
| — |
| 66,167 |
| | |
Rentals | — |
| — |
| 13,540 |
| 4,905 |
| — |
| 18,445 |
| | |
Financing | — |
| — |
| 79,975 |
| 12,444 |
| — |
| 92,419 |
| | |
Total revenue | $ | 282,319 |
| $ | 128,138 |
| $ | 303,417 |
| $ | 74,699 |
| $ | 72,206 |
| $ | 860,779 |
| | |
| | | | | | | | |
Timing of revenue recognition from products and services | | | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 40,343 |
| $ | 25,531 |
| $ | 20,470 |
| $ | 86,344 |
| | |
Products/services transferred over time | 282,319 |
| 128,138 |
| 115,368 |
| 19,843 |
| 51,736 |
| 597,404 |
| | |
Total | $ | 282,319 |
| $ | 128,138 |
| $ | 155,711 |
| $ | 45,374 |
| $ | 72,206 |
| $ | 683,748 |
| | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| Global Ecommerce | Presort Services | North America Mailing | International Mailing | Software Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | | | |
Equipment sales | $ | — |
| $ | — |
| $ | 10,566 |
| $ | 11,278 |
| $ | — |
| $ | 21,844 |
| $ | 71,967 |
| $ | 93,811 |
|
Supplies | — |
| — |
| 36,271 |
| 19,186 |
| — |
| 55,457 |
| — |
| 55,457 |
|
Software | — |
| — |
| — |
| — |
| 91,703 |
| 91,703 |
| — |
| 91,703 |
|
Rentals | — |
| — |
| — |
| — |
| — |
| — |
| 19,454 |
| 19,454 |
|
Financing | — |
| — |
| — |
| — |
| — |
| — |
| 97,129 |
| 97,129 |
|
Support services | — |
| — |
| 113,977 |
| 24,621 |
| — |
| 138,598 |
| — |
| 138,598 |
|
Business services | 239,100 |
| 122,730 |
| 5,664 |
| 1,594 |
| — |
| 369,088 |
| — |
| 369,088 |
|
Subtotal | 239,100 |
| 122,730 |
| 166,478 |
| 56,679 |
| 91,703 |
| 676,690 |
| $ | 188,550 |
| $ | 865,240 |
|
| | | | | | | | |
Revenue from leasing transactions and financing | | | | | | | | |
Equipment sales | — |
| — |
| 55,957 |
| 16,010 |
| — |
| 71,967 |
| | |
Rentals | — |
| — |
| 14,339 |
| 5,115 |
| — |
| 19,454 |
| | |
Financing | — |
| — |
| 82,127 |
| 15,002 |
| — |
| 97,129 |
| | |
Total revenue | $ | 239,100 |
| $ | 122,730 |
| $ | 318,901 |
| $ | 92,806 |
| $ | 91,703 |
| $ | 865,240 |
| | |
| | | | | | | | |
Timing of revenue recognition from products and services | | | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 46,837 |
| $ | 30,464 |
| $ | 40,020 |
| $ | 117,321 |
| | |
Products/services transferred over time | 239,100 |
| 122,730 |
| 119,641 |
| 26,215 |
| 51,683 |
| 559,369 |
| | |
Total | $ | 239,100 |
| $ | 122,730 |
| $ | 166,478 |
| $ | 56,679 |
| $ | 91,703 |
| $ | 676,690 |
| | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Global Ecommerce | Presort Services | North America Mailing | International Mailing | Software Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | | | |
Equipment sales | $ | — |
| $ | — |
| $ | 17,097 |
| $ | 23,580 |
| $ | — |
| $ | 40,677 |
| $ | 134,661 |
| $ | 175,338 |
|
Supplies | — |
| — |
| 67,563 |
| 29,880 |
| — |
| 97,443 |
| — |
| 97,443 |
|
Software | — |
| — |
| — |
| — |
| 145,524 |
| 145,524 |
| — |
| 145,524 |
|
Rentals | — |
| — |
| — |
| — |
| — |
| — |
| 40,602 |
| 40,602 |
|
Financing | — |
| — |
| — |
| — |
| — |
| — |
| 189,462 |
| 189,462 |
|
Support services | — |
| — |
| 216,562 |
| 39,742 |
| — |
| 256,304 |
| — |
| 256,304 |
|
Business services | 548,573 |
| 262,985 |
| 11,035 |
| 1,915 |
| — |
| 824,508 |
| — |
| 824,508 |
|
Subtotal | 548,573 |
| 262,985 |
| 312,257 |
| 95,117 |
| 145,524 |
| 1,364,456 |
| $ | 364,725 |
| $ | 1,729,181 |
|
| | | | | | | | |
Revenue from leasing transactions and financing | | | | | | | | |
Equipment sales | — |
| — |
| 112,086 |
| 22,575 |
| — |
| 134,661 |
| | |
Rentals | — |
| — |
| 30,819 |
| 9,783 |
| — |
| 40,602 |
| | |
Financing | — |
| — |
| 163,729 |
| 25,733 |
| — |
| 189,462 |
| | |
Total revenue | $ | 548,573 |
| $ | 262,985 |
| $ | 618,891 |
| $ | 153,208 |
| $ | 145,524 |
| $ | 1,729,181 |
| | |
| | | | | | | | |
Timing of revenue recognition from products and services | | | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 84,660 |
| $ | 53,460 |
| $ | 41,442 |
| $ | 179,562 |
| | |
Products/services transferred over time | 548,573 |
| 262,985 |
| 227,597 |
| 41,657 |
| 104,082 |
| 1,184,894 |
| | |
Total | $ | 548,573 |
| $ | 262,985 |
| $ | 312,257 |
| $ | 95,117 |
| $ | 145,524 |
| $ | 1,364,456 |
| | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| Global Ecommerce | Presort Services | North America Mailing | International Mailing | Software Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | | | |
Equipment sales | $ | — |
| $ | — |
| $ | 20,981 |
| $ | 23,074 |
| $ | — |
| $ | 44,055 |
| $ | 156,464 |
| $ | 200,519 |
|
Supplies | — |
| — |
| 75,223 |
| 40,227 |
| — |
| 115,450 |
| — |
| 115,450 |
|
Software | — |
| — |
| — |
| — |
| 167,997 |
| 167,997 |
| — |
| 167,997 |
|
Rentals | — |
| — |
| — |
| — |
| — |
| — |
| 44,419 |
| 44,419 |
|
Financing | — |
| — |
| — |
| — |
| — |
| — |
| 197,478 |
| 197,478 |
|
Support services | — |
| — |
| 227,690 |
| 51,558 |
| — |
| 279,248 |
| — |
| 279,248 |
|
Business services | 485,690 |
| 257,188 |
| 10,553 |
| 3,281 |
| — |
| 756,712 |
| — |
| 756,712 |
|
Subtotal | 485,690 |
| 257,188 |
| 334,447 |
| 118,140 |
| 167,997 |
| 1,363,462 |
| $ | 398,361 |
| $ | 1,761,823 |
|
| | | | | | | | |
Revenue from leasing transactions and financing | | | | | | | | |
Equipment sales | — |
| — |
| 124,429 |
| 32,035 |
| — |
| 156,464 |
| | |
Rentals | — |
| — |
| 33,851 |
| 10,568 |
| — |
| 44,419 |
| | |
Financing | — |
| — |
| 166,985 |
| 30,493 |
| — |
| 197,478 |
| | |
Total revenue | $ | 485,690 |
| $ | 257,188 |
| $ | 659,712 |
| $ | 191,236 |
| $ | 167,997 |
| $ | 1,761,823 |
| | |
| | | | | | | | |
Timing of revenue recognition from products and services | | | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 96,204 |
| $ | 63,301 |
| $ | 65,021 |
| $ | 224,526 |
| | |
Products/services transferred over time | 485,690 |
| 257,188 |
| 238,243 |
| 54,839 |
| 102,976 |
| 1,138,936 |
| | |
Total | $ | 485,690 |
| $ | 257,188 |
| $ | 334,447 |
| $ | 118,140 |
| $ | 167,997 |
| $ | 1,363,462 |
| | |
Our performance obligations are as follows:
Equipment sales and supplies: Our performance obligations generally include the FASB issued ASU 2014-09, sale of mailing equipment, excluding sales-type leases, and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.
Software: Our performance obligations include the sale of software licenses, maintenance, data products and professional services. Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of the contract.
Rentals: Our performance obligations include the fees associated with the rental of mailing equipment under an operating lease contract.
Support services: Performance obligations include providing maintenance, professional services, and subscription and meter services for our mailing equipment. 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 meter services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.
Business services: Our performance obligations include providing mail processing services and ecommerce solutions. Revenue is recognized over time as the services are provided. The contract terms for these services vary, with the initial contracts in the range of one to five years, followed by annual renewal periods.
Revenue from leasing transactions and financing includes revenue from equipment accounted for as sales-type leases, finance income and late fees.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Contract Assets and Advance Billings from Contracts with Customers, which requires companies |
| | | | | | | | | | | | | |
| Balance sheet location | | June 30, 2019 | | December 31, 2018 | | Increase (Decrease) |
Contracts assets, current | Other current assets and prepayments | | $ | 17,050 |
| | $ | 16,115 |
| | $ | 935 |
|
Contracts assets, noncurrent | Other assets | | $ | 10,050 |
| | $ | 13,092 |
| | $ | (3,042 | ) |
Advance billings, current | Advance billings | | $ | 200,224 |
| | $ | 215,790 |
| | $ | (15,566 | ) |
Advance billings, noncurrent | Other noncurrent liabilities | | $ | 12,832 |
| | $ | 12,778 |
| | $ | 54 |
|
Contract Assets
We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to recognizeconsideration is conditional on the satisfaction of another performance obligation within a contract. Contract assets decreased in the period as the invoicing of performance obligations previously satisfied exceeded the contract assets recognized during the period.
Advance Billings from Contracts with Customers
Advance billings are recorded when cash payments are due in advance of our performance. Items in advance billings primarily relate to support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term.
The net decrease in advance billings at June 30, 2019 is due to revenue forrecognized during the transferperiod in excess of goods and services to customers in amounts that reflectadvance billings. Revenue recognized during the consideration the company expects to receive in exchange for those goods and services. In addition, the standard requires enhanced disclosures about the nature, amount, timing and uncertaintyperiod includes $109 million of revenue. There were several amendments to the standard during 2016. The standard is effective beginning January 1, 2018 and can be adopted either retrospectively to each reporting period presented or on a modified retrospective basis with a cumulative effect adjustmentadvance billings at the datebeginning of the initial application. We plan to adoptperiod, partially offset by advance billings in the standard on the modified retrospective basis with a cumulative effect adjustment. quarter.
We have substantially completed our assessment of all potential impacts of the standard and do not expect a change in revenue recognition for the majority of our product and service offerings. Future Performance Obligations
The standard will have the most impact on timing of certain revenues in our Software Solutions segment. Specifically, we have concluded that for certain data subscription offerings, the portion of the transaction priceprices allocated to the initial data setfuture performance obligations will be recognized as revenue at the time of initial delivery rather than over thefollows: |
| | | | | | | | | | | | | | | | |
| | Remainder of 2019 | | 2020 | | 2021-2024 | | Total |
North America Mailing(1) | | $ | 133,984 |
| | $ | 231,394 |
| | $ | 338,435 |
| | $ | 703,813 |
|
International Mailing(1) | | 15,799 |
| | 21,938 |
| | 27,583 |
| | 65,320 |
|
Software Solutions(2) | | 34,805 |
| | 57,111 |
| | 33,295 |
| | 125,211 |
|
Total | | $ | 184,588 |
| | $ | 310,443 |
| | $ | 399,313 |
| | $ | 894,344 |
|
(1) Revenue streams bundled with our leasing contracts, primarily maintenance, meter services and other subscription period. We also concluded that forservices.
(2) Multiple-year software maintenance contracts, certain software and data licenses and data updates.
The table above does not include revenue will be recognized ratably over the specific contractrelated to performance obligations for contracts with terms rather than predominately at the time of billing and delivery. Also, we concluded that certain marketing costs associated with the acquisition of new customers will be expensed as incurred rather than recognized over their expected revenue stream of eight years. We have also determined that certain sales commission plans will qualify for capitalization under the new standard. We plan to use the practical expedient that allows companies to expense costs to obtain a contract when the estimated amortization period is less than one year. We expect12 months and expected consideration for those performance obligations where revenue is recognized based on the amount billable to complete our quantitative assessment of these key changes and the impact on our consolidated financial statements during the fourth quarter of 2017.
We continue to develop our internal controls, accounting policies and new disclosure requirements. We are enhancing our current systems and business processes to facilitate the preparation of financial information that will be required under the new standard. We expect to finalize these activities by the end of the year.customer.
2.3. Segment Information
Effective January 1, 2017, we revised our segment reporting to reflect a change in how we manage and report office shipping solutions, which we previously reported within the Global Ecommerce segment. The needs of retail and ecommerce clients differ from those of office shipping clients. Accordingly, we now report the results for office shipping solutions within Small & Medium Business Solutions and the retail and ecommerce shipping solutions remain in Global Ecommerce. We have recast prior period results to conform to our current segment presentation. The principal products and services of each of our reportable segmentssegment are as follows:
Commerce Services:
Global Ecommerce: Includes the revenue and related expenses from global cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns.
Presort Services: Includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail and Bound and Packet Mail (Marketing Mail Flats and Bound Printed Matter) for postal worksharing discounts.
Small & Medium Business (SMB) Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and office shipping solutions, financing, services, supplies and suppliesother applications for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from mailing and office shipping solutions, financing, services and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.
Enterprise BusinessPITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Software Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound and outbound mail.
Presort Services: Includes revenue and related expenses from presort mail and parcel services for our large enterprise clients to qualify large mail and parcel volumes for postal worksharing discounts.
Digital Commerce Solutions:
Software Solutions: Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, and location intelligence software solutions and related support services.data.
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions.
We determineManagement uses segment earnings before interest and taxes (EBIT) to measure profitability and performance at the segment level and believes that it provides investors a useful measure of operating performance and underlying trends of the business. We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items that are not allocated to a particular business segment. Management usesSegment EBIT may not be indicative of 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 measure profitabilitynet income.
Revenue and performance at theEBIT by business segment is presented below:
|
| | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Global Ecommerce | $ | 282,319 |
| | $ | 239,100 |
| | $ | 548,573 |
| | $ | 485,690 |
|
Presort Services | 128,138 |
| | 122,730 |
| | 262,985 |
| | 257,188 |
|
Commerce Services | 410,457 |
| | 361,830 |
| | 811,558 |
| | 742,878 |
|
North America Mailing | 303,417 |
| | 318,901 |
| | 618,891 |
| | 659,712 |
|
International Mailing | 74,699 |
| | 92,806 |
| | 153,208 |
| | 191,236 |
|
SMB Solutions | 378,116 |
| | 411,707 |
| | 772,099 |
| | 850,948 |
|
Software Solutions | 72,206 |
| | 91,703 |
| | 145,524 |
| | 167,997 |
|
Total revenue | $ | 860,779 |
| | $ | 865,240 |
| | $ | 1,729,181 |
| | $ | 1,761,823 |
|
|
| | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Global Ecommerce | $ | (15,576 | ) | | $ | (5,993 | ) | | $ | (30,176 | ) | | $ | (13,704 | ) |
Presort Services | 15,462 |
| | 12,565 |
| | 30,528 |
| | 39,591 |
|
Commerce Services | (114 | ) | | 6,572 |
| | 352 |
| | 25,887 |
|
North America Mailing | 112,804 |
| | 120,139 |
| | 223,417 |
| | 248,707 |
|
International Mailing | 11,934 |
| | 13,091 |
| | 23,724 |
| | 29,113 |
|
SMB Solutions | 124,738 |
| | 133,230 |
| | 247,141 |
| | 277,820 |
|
Software Solutions | 2,002 |
| | 18,433 |
| | 3,694 |
| | 20,925 |
|
Total segment EBIT | 126,626 |
| | 158,235 |
| | 251,187 |
| | 324,632 |
|
Reconciliation of Segment EBIT to net income: | | | | | |
| | |
|
Unallocated corporate expenses | (43,785 | ) | | (46,477 | ) | | (99,474 | ) | | (97,559 | ) |
Restructuring charges and asset impairments, net | (7,279 | ) | | (11,503 | ) | | (10,877 | ) | | (12,407 | ) |
Interest, net | (39,062 | ) | | (41,969 | ) | | (78,028 | ) | | (85,047 | ) |
Other income (expense) | 27 |
| | — |
| | (17,683 | ) | | — |
|
Transaction costs | (2,150 | ) | | — |
| | (3,876 | ) | | (1,055 | ) |
Provision for income taxes | (4,099 | ) | | (7,899 | ) | | (12,400 | ) | | (26,694 | ) |
Income from continuing operations | 30,278 |
| | 50,387 |
| | 28,849 |
| | 101,870 |
|
(Loss) income from discontinued operations, net of tax | (6,581 | ) | | 1,208 |
| | (7,811 | ) | | 9,695 |
|
Net income | $ | 23,697 |
| | $ | 51,595 |
| | $ | 21,038 |
| | $ | 111,565 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
segment level4. Discontinued Operations
Discontinued operations includes our Document Messaging Technology production mail business and believessupporting software that it provides a useful measure of operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be readwas sold in conjunction with our consolidated results of operations.
Revenue and EBIT by business segmentJuly 2018. Selected financial information is presented below:as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue | $ | — |
| | $ | 89,201 |
| | $ | — |
| | $ | 191,435 |
|
| | | | | | | |
Earnings (loss) from discontinued operations | $ | — |
| | $ | 8,278 |
| | $ | (663 | ) | | $ | 21,620 |
|
Loss on sale | (8,589 | ) | | (7,238 | ) | | (9,257 | ) | | (8,777 | ) |
(Loss) income from discontinued operations before taxes | (8,589 | ) | | 1,040 |
| | (9,920 | ) | | 12,843 |
|
Tax (benefit) provision | (2,008 | ) | | (168 | ) | | (2,109 | ) | | 3,148 |
|
(Loss) income from discontinued operations, net of tax | $ | (6,581 | ) | | $ | 1,208 |
| | $ | (7,811 | ) | | $ | 9,695 |
|
|
| | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
North America Mailing | $ | 319,966 |
| | $ | 349,785 |
| | $ | 1,016,640 |
| | $ | 1,064,456 |
|
International Mailing | 93,770 |
| | 96,730 |
| | 282,150 |
| | 309,297 |
|
Small & Medium Business Solutions | 413,736 |
| | 446,515 |
| | 1,298,790 |
| | 1,373,753 |
|
Production Mail | 104,387 |
| | 106,350 |
| | 278,912 |
| | 289,649 |
|
Presort Services | 119,074 |
| | 114,053 |
| | 370,203 |
| | 357,214 |
|
Enterprise Business Solutions | 223,461 |
| | 220,403 |
| | 649,115 |
| | 646,863 |
|
Software Solutions | 99,442 |
| | 89,031 |
| | 264,087 |
| | 257,417 |
|
Global Ecommerce | 106,181 |
| | 83,082 |
| | 288,839 |
| | 241,473 |
|
Digital Commerce Solutions | 205,623 |
| | 172,113 |
| | 552,926 |
| | 498,890 |
|
Total revenue | $ | 842,820 |
| | $ | 839,031 |
| | $ | 2,500,831 |
| | $ | 2,519,506 |
|
5. Earnings per Share (EPS) |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | |
| | |
| | |
| | |
|
Income from continuing operations | $ | 30,278 |
| | $ | 50,387 |
| | $ | 28,849 |
| | $ | 101,870 |
|
(Loss) income from discontinued operations, net of tax | (6,581 | ) | | 1,208 |
| | (7,811 | ) | | 9,695 |
|
Net income (numerator for diluted EPS) | 23,697 |
| | 51,595 |
| | 21,038 |
| | 111,565 |
|
Less: Preference stock dividend | — |
| | 8 |
| | 8 |
| | 16 |
|
Income attributable to common stockholders (numerator for basic EPS) | $ | 23,697 |
| | $ | 51,587 |
| | $ | 21,030 |
| | $ | 111,549 |
|
Denominator: | |
| | |
| | |
| | |
|
Weighted-average shares used in basic EPS | 177,192 |
| | 187,180 |
| | 181,446 |
| | 187,004 |
|
Dilutive effect of common stock equivalents | 1,089 |
| | 934 |
| | 1,192 |
| | 1,053 |
|
Weighted-average shares used in diluted EPS | 178,281 |
| | 188,114 |
| | 182,638 |
| | 188,057 |
|
Basic earnings (loss) per share (1): | |
| | |
| | |
| | |
|
Continuing operations | $ | 0.17 |
| | $ | 0.27 |
| | $ | 0.16 |
| | $ | 0.54 |
|
Discontinued operations | (0.04 | ) | | 0.01 |
| | (0.04 | ) | | 0.05 |
|
Net income | $ | 0.13 |
| | $ | 0.28 |
| | $ | 0.12 |
| | $ | 0.60 |
|
Diluted earnings (loss) per share (1): | | | | | | | |
Continuing operations | $ | 0.17 |
| | $ | 0.27 |
| | $ | 0.16 |
| | $ | 0.54 |
|
Discontinued operations | (0.04 | ) | | 0.01 |
| | (0.04 | ) | | 0.05 |
|
Net income | $ | 0.13 |
| | $ | 0.27 |
| | $ | 0.12 |
| | $ | 0.59 |
|
| | | | | | | |
Anti-dilutive options excluded from diluted earnings per share: | 16,297 |
| | 12,453 |
| | 16,077 |
| | 11,959 |
|
| |
(1) | The sum of the earnings per share amounts may not equal the totals due to rounding. |
|
| | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
North America Mailing | $ | 107,777 |
| | $ | 141,968 |
| | $ | 369,662 |
| | $ | 449,696 |
|
International Mailing | 8,729 |
| | 9,198 |
| | 35,967 |
| | 32,842 |
|
Small & Medium Business Solutions | 116,506 |
| | 151,166 |
| | 405,629 |
| | 482,538 |
|
Production Mail | 14,920 |
| | 15,696 |
| | 31,515 |
| | 35,434 |
|
Presort Services | 19,474 |
| | 19,181 |
| | 69,461 |
| | 69,305 |
|
Enterprise Business Solutions | 34,394 |
| | 34,877 |
| | 100,976 |
| | 104,739 |
|
Software Solutions | 20,912 |
| | 10,329 |
| | 31,216 |
| | 17,908 |
|
Global Ecommerce | (9,594 | ) | | 1,544 |
| | (17,894 | ) | | (2,608 | ) |
Digital Commerce Solutions | 11,318 |
| | 11,873 |
| | 13,322 |
| | 15,300 |
|
Total segment EBIT | 162,218 |
| | 197,916 |
| | 519,927 |
| | 602,577 |
|
Reconciling items: | | | | | |
| | |
|
Interest, net | (41,230 | ) | | (35,259 | ) | | (120,323 | ) | | (103,769 | ) |
Unallocated corporate expenses | (38,848 | ) | | (51,992 | ) | | (144,138 | ) | | (158,536 | ) |
Restructuring charges and asset impairments, net | (1,493 | ) | | (16,494 | ) | | (30,502 | ) | | (49,503 | ) |
Gain from the sale of technology | — |
| | — |
| | 6,085 |
| | — |
|
Acquisition and disposition-related expenses | (5,682 | ) | | (578 | ) | | (5,682 | ) | | (4,274 | ) |
Income before income taxes | 74,965 |
| | 93,593 |
| | 225,367 |
| | 286,495 |
|
Provision for income taxes | 17,607 |
| | 23,197 |
| | 53,975 |
| | 93,615 |
|
Loss from discontinued operations, net of tax | — |
| | (291 | ) | | — |
| | (1,951 | ) |
Net income | $ | 57,358 |
| | $ | 70,105 |
| | $ | 171,392 |
| | $ | 190,929 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
3. Earnings per Share
The calculations of basic and diluted earnings per share are presented below.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | |
| | |
| | |
| | |
|
Amounts attributable to common stockholders: | |
| | |
| | |
| | |
|
Net income from continuing operations | $ | 57,358 |
| | $ | 65,803 |
| | $ | 171,392 |
| | $ | 179,099 |
|
Loss from discontinued operations, net of tax | — |
| | (291 | ) | | — |
| | (1,951 | ) |
Net income attributable to Pitney Bowes Inc. (numerator for diluted EPS) | 57,358 |
| | 65,512 |
| | 171,392 |
| | 177,148 |
|
Less: Preference stock dividend | 9 |
| | 10 |
| | 28 |
| | 29 |
|
Income attributable to common stockholders (numerator for basic EPS) | $ | 57,349 |
| | $ | 65,502 |
| | $ | 171,364 |
| | $ | 177,119 |
|
Denominator: | |
| | |
| | |
| | |
|
Weighted-average shares used in basic EPS | 186,497 |
| | 185,603 |
| | 186,257 |
| | 188,634 |
|
Effect of dilutive shares: | |
| | |
| | |
| | |
|
Conversion of Preferred stock and Preference stock | 281 |
| | 299 |
| | 287 |
| | 301 |
|
Employee stock plans | 979 |
| | 781 |
| | 656 |
| | 657 |
|
Weighted-average shares used in diluted EPS | 187,757 |
| | 186,683 |
| | 187,200 |
| | 189,592 |
|
Basic earnings per share: | |
| | |
| | |
| | |
|
Continuing operations | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.95 |
|
Discontinued operations | — |
| | — |
| | — |
| | (0.01 | ) |
Net Income | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.94 |
|
Diluted earnings per share: | |
| | |
| | |
| | |
|
Continuing operations | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.94 |
|
Discontinued operations | — |
| | — |
| | — |
| | (0.01 | ) |
Net Income | $ | 0.31 |
| | $ | 0.35 |
| | $ | 0.92 |
| | $ | 0.93 |
|
Anti-dilutive shares not used in calculating diluted weighted-average shares | 9,927 |
| | 8,036 |
| | 10,211 |
| | 8,148 |
|
4.6. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at SeptemberJune 30, 20172019 and December 31, 20162018 consisted of the following:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Raw materials | $ | 13,740 |
| | $ | 8,231 |
|
Supplies and service parts | 23,701 |
| | 21,841 |
|
Finished products | 40,389 |
| | 36,690 |
|
Inventory at FIFO cost | 77,830 |
| | 66,762 |
|
Excess of FIFO cost over LIFO cost | (4,483 | ) | | (4,483 | ) |
Total inventory, net | $ | 73,347 |
| | $ | 62,279 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Raw materials | $ | 39,287 |
| | $ | 28,541 |
|
Work in process | 6,620 |
| | 6,498 |
|
Supplies and service parts | 51,854 |
| | 45,152 |
|
Finished products | 32,664 |
| | 24,678 |
|
Inventory at FIFO cost | 130,425 |
| | 104,869 |
|
Excess of FIFO cost over LIFO cost | (12,143 | ) | | (12,143 | ) |
Total inventory, net | $ | 118,282 |
| | $ | 92,726 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
5.7. Finance Assets and Lessor Operating Leases
Finance ReceivablesAssets
Finance receivables are comprised of sales-type lease receivables 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 customersclients for postage and supplies. Loan receivables are generally due each month; however, customersclients 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. CustomerClient acquisition costs are expensed as incurred.
Finance receivables at SeptemberJune 30, 20172019 and December 31, 20162018 consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| North America | | International | | Total | | North America | | International | | Total |
Sales-type lease receivables | |
| | |
| | |
| | |
| | |
| | |
|
Gross finance receivables | $ | 1,081,063 |
| | $ | 197,145 |
| | $ | 1,278,208 |
| | $ | 1,110,896 |
| | $ | 242,036 |
| | $ | 1,352,932 |
|
Unguaranteed residual values | 45,279 |
| | 11,676 |
| | 56,955 |
| | 52,637 |
| | 12,772 |
| | 65,409 |
|
Unearned income | (349,996 | ) | | (47,367 | ) | | (397,363 | ) | | (383,453 | ) | | (55,113 | ) | | (438,566 | ) |
Allowance for credit losses | (11,322 | ) | | (2,262 | ) | | (13,584 | ) | | (10,252 | ) | | (2,356 | ) | | (12,608 | ) |
Net investment in sales-type lease receivables | 765,024 |
| | 159,192 |
| | 924,216 |
| | 769,828 |
| | 197,339 |
| | 967,167 |
|
Loan receivables | | | |
| | |
| | |
| | |
| | |
|
Loan receivables | 289,694 |
| | 30,126 |
| | 319,820 |
| | 300,319 |
| | 29,270 |
| | 329,589 |
|
Allowance for credit losses | (6,374 | ) | | (759 | ) | | (7,133 | ) | | (6,777 | ) | | (837 | ) | | (7,614 | ) |
Net investment in loan receivables | 283,320 |
| | 29,367 |
| | 312,687 |
| | 293,542 |
| | 28,433 |
| | 321,975 |
|
Net investment in finance receivables | $ | 1,048,344 |
| | $ | 188,559 |
| | $ | 1,236,903 |
| | $ | 1,063,370 |
| | $ | 225,772 |
| | $ | 1,289,142 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| North America | | International | | Total | | North America | | International | | Total |
Sales-type lease receivables | |
| | |
| | |
| | |
| | |
| | |
|
Gross finance receivables | $ | 1,023,206 |
| | $ | 284,099 |
| | $ | 1,307,305 |
| | $ | 1,088,053 |
| | $ | 273,262 |
| | $ | 1,361,315 |
|
Unguaranteed residual values | 75,242 |
| | 14,301 |
| | 89,543 |
| | 90,190 |
| | 13,655 |
| | 103,845 |
|
Unearned income | (213,852 | ) | | (62,343 | ) | | (276,195 | ) | | (223,908 | ) | | (60,458 | ) | | (284,366 | ) |
Allowance for credit losses | (7,103 | ) | | (2,768 | ) | | (9,871 | ) | | (8,247 | ) | | (2,647 | ) | | (10,894 | ) |
Net investment in sales-type lease receivables | 877,493 |
| | 233,289 |
| | 1,110,782 |
| | 946,088 |
| | 223,812 |
| | 1,169,900 |
|
Loan receivables | |
| | |
| | |
| | |
| | |
| | |
|
Loan receivables | 339,726 |
| | 34,456 |
| | 374,182 |
| | 374,147 |
| | 32,716 |
| | 406,863 |
|
Allowance for credit losses | (6,960 | ) | | (1,089 | ) | | (8,049 | ) | | (8,517 | ) | | (1,089 | ) | | (9,606 | ) |
Net investment in loan receivables | 332,766 |
| | 33,367 |
| | 366,133 |
| | 365,630 |
| | 31,627 |
| | 397,257 |
|
Net investment in finance receivables | $ | 1,210,259 |
| | $ | 266,656 |
| | $ | 1,476,915 |
| | $ | 1,311,718 |
| | $ | 255,439 |
| | $ | 1,567,157 |
|
Loans receivable are due within one year. Maturities of gross sales-type lease finance receivables at June 30, 2019 were as follows:
|
| | | | | | | | | | | |
| Sales-type Lease Receivables |
| North America | | International | | Total |
Remaining for year ending December 31, 2019 | $ | 381,156 |
| | $ | 39,908 |
| | $ | 421,064 |
|
Year ending December 31, 2020 | 298,935 |
| | 56,712 |
| | 355,647 |
|
Year ending December 31, 2021 | 209,673 |
| | 44,544 |
| | 254,217 |
|
Year ending December 31, 2022 | 125,705 |
| | 29,828 |
| | 155,533 |
|
Year ending December 31, 2023 | 57,256 |
| | 16,823 |
| | 74,079 |
|
Thereafter | 8,338 |
| | 9,330 |
| | 17,668 |
|
Total | $ | 1,081,063 |
| | $ | 197,145 |
| | $ | 1,278,208 |
|
Allowance for Credit Losses
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, prevailing economic conditions and our ability to manage the collateral. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.
We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. WeAs of June 30, 2019, 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.
Activity in the allowance for credit losses for the six months ended June 30, 2019 and 2018 was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at January 1, 2019 | $ | 10,252 |
| | $ | 2,356 |
| | $ | 6,777 |
| | $ | 837 |
| | $ | 20,222 |
|
Amounts charged to expense | 3,660 |
| | 455 |
| | 2,329 |
| | 315 |
| | 6,759 |
|
Write-offs and other | (2,590 | ) | | (549 | ) | | (2,732 | ) | | (393 | ) | | (6,264 | ) |
Balance at June 30, 2019 | $ | 11,322 |
| | $ | 2,262 |
| | $ | 6,374 |
| | $ | 759 |
| | $ | 20,717 |
|
| | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at January 1, 2018 | $ | 7,721 |
| | $ | 2,794 |
| | $ | 7,098 |
| | $ | 1,020 |
| | $ | 18,633 |
|
Amounts charged to expense | 5,946 |
| | 545 |
| | 3,506 |
| | 250 |
| | 10,247 |
|
Write-offs and other | (2,538 | ) | | (933 | ) | | (3,735 | ) | | (330 | ) | | (7,536 | ) |
Balance at June 30, 2018 | $ | 11,129 |
| | $ | 2,406 |
| | $ | 6,869 |
| | $ | 940 |
| | $ | 21,344 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Activity in the allowance for credit losses for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at January 1, 2017 | $ | 8,247 |
| | $ | 2,647 |
| | $ | 8,517 |
| | $ | 1,089 |
| | $ | 20,500 |
|
Amounts charged to expense | 7,807 |
| | 895 |
| | 3,892 |
| | 438 |
| | 13,032 |
|
Write-offs and other | (8,951 | ) | | (774 | ) | | (5,449 | ) | | (438 | ) | | (15,612 | ) |
Balance at September 30, 2017 | $ | 7,103 |
| | $ | 2,768 |
| | $ | 6,960 |
| | $ | 1,089 |
| | $ | 17,920 |
|
| | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at January 1, 2016 | $ | 6,606 |
| | $ | 3,542 |
| | $ | 10,024 |
| | $ | 1,518 |
| | $ | 21,690 |
|
Amounts charged to expense | 2,881 |
| | 464 |
| | 4,217 |
| | 688 |
| | 8,250 |
|
Write-offs and other | (3,433 | ) | | (1,419 | ) | | (5,953 | ) | | (1,010 | ) | | (11,815 | ) |
Balance at September 30, 2016 | $ | 6,054 |
| | $ | 2,587 |
| | $ | 8,288 |
| | $ | 1,196 |
| | $ | 18,125 |
|
Aging of Receivables
The aging of gross finance receivables at SeptemberJune 30, 20172019 and December 31, 20162018 was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
1 - 90 days | $ | 970,891 |
| | $ | 279,517 |
| | $ | 331,233 |
| | $ | 34,224 |
| | $ | 1,615,865 |
|
> 90 days | 52,315 |
| | 4,582 |
| | 8,493 |
| | 232 |
| | 65,622 |
|
Total | $ | 1,023,206 |
| | $ | 284,099 |
| | $ | 339,726 |
| | $ | 34,456 |
| | $ | 1,681,487 |
|
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
|
Still accruing interest | $ | 6,726 |
| | $ | 1,781 |
| | $ | — |
| | $ | — |
| | $ | 8,507 |
|
Not accruing interest | 45,589 |
| | 2,801 |
| | 8,493 |
| | 232 |
| | 57,115 |
|
Total | $ | 52,315 |
| | $ | 4,582 |
| | $ | 8,493 |
| | $ | 232 |
| | $ | 65,622 |
|
As of September 30, 2017, we had North America sales-type lease receivables aged greater than 90 days with a contract value of $52 million. As of October 31, 2017, we received payments with a contract value of approximately $23 million related to these receivables. |
| | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
1 - 90 days | $ | 1,051,352 |
| | $ | 192,135 |
| | $ | 283,809 |
| | $ | 29,866 |
| | $ | 1,557,162 |
|
> 90 days | 29,711 |
| | 5,010 |
| | 5,885 |
| | 260 |
| | 40,866 |
|
Total | $ | 1,081,063 |
| | $ | 197,145 |
| | $ | 289,694 |
| | $ | 30,126 |
| | $ | 1,598,028 |
|
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
|
Still accruing interest | $ | 6,467 |
| | $ | 1,410 |
| | $ | 1,932 |
| | $ | 116 |
| | $ | 9,925 |
|
Not accruing interest | 23,244 |
| | 3,600 |
| | 3,953 |
| | 144 |
| | 30,941 |
|
Total | $ | 29,711 |
| | $ | 5,010 |
| | $ | 5,885 |
| | $ | 260 |
| | $ | 40,866 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
1 - 90 days | $ | 1,069,288 |
| | $ | 238,114 |
| | $ | 294,126 |
| | $ | 29,079 |
| | $ | 1,630,607 |
|
> 90 days | 41,608 |
| | 3,922 |
| | 6,193 |
| | 191 |
| | 51,914 |
|
Total | $ | 1,110,896 |
| | $ | 242,036 |
| | $ | 300,319 |
| | $ | 29,270 |
| | $ | 1,682,521 |
|
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 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
1 - 90 days | $ | 1,025,313 |
| | $ | 269,247 |
| | $ | 366,726 |
| | $ | 32,420 |
| | $ | 1,693,706 |
|
> 90 days | 62,740 |
| | 4,015 |
| | 7,421 |
| | 296 |
| | 74,472 |
|
Total | $ | 1,088,053 |
| | $ | 273,262 |
| | $ | 374,147 |
| | $ | 32,716 |
| | $ | 1,768,178 |
|
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
|
Still accruing interest | $ | 8,831 |
| | $ | 972 |
| | $ | — |
| | $ | — |
| | $ | 9,803 |
|
Not accruing interest | 53,909 |
| | 3,043 |
| | 7,421 |
| | 296 |
| | 64,669 |
|
Total | $ | 62,740 |
| | $ | 4,015 |
| | $ | 7,421 |
| | $ | 296 |
| | $ | 74,472 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, 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 automated credit score, where available, and a detailed manual review of the client's financial condition and, when applicable, payment history. 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. The portfolio management processes ensureare in place to track 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 at SeptemberJune 30, 20172019 and December 31, 20162018 by relative risk class 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. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk (low, medium, high), as defined by the third party, refers to the relative risk that an account may become delinquent in the next 12 month period may become delinquent.months.
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.
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Sales-type lease receivables | |
| | |
|
Low | $ | 817,332 |
| | $ | 879,823 |
|
Medium | 136,995 |
| | 135,953 |
|
High | 21,528 |
| | 22,600 |
|
Not Scored | 47,351 |
| | 49,677 |
|
Total | $ | 1,023,206 |
| | $ | 1,088,053 |
|
Loan receivables | |
| | |
|
Low | $ | 263,537 |
| | $ | 296,598 |
|
Medium | 52,630 |
| | 53,647 |
|
High | 6,897 |
| | 7,216 |
|
Not Scored | 16,662 |
| | 16,686 |
|
Total | $ | 339,726 |
| | $ | 374,147 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
6. Acquisition, Intangible Assets |
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Sales-type lease receivables | |
| | |
|
Low | $ | 893,068 |
| | $ | 922,414 |
|
Medium | 131,312 |
| | 131,650 |
|
High | 20,930 |
| | 22,110 |
|
Not Scored | 35,753 |
| | 34,722 |
|
Total | $ | 1,081,063 |
| | $ | 1,110,896 |
|
Loan receivables | |
| | |
|
Low | $ | 229,888 |
| | $ | 238,620 |
|
Medium | 42,731 |
| | 43,952 |
|
High | 5,703 |
| | 5,947 |
|
Not Scored | 11,372 |
| | 11,800 |
|
Total | $ | 289,694 |
| | $ | 300,319 |
|
Lease Income
Lease income from sales-type leases for the three and Goodwill
Acquisition
On October 2, 2017, we acquired Newgistics, a provider of parcel delivery, returns, fulfillmentsix months ended June 30, 2019 and digital commerce solutions for retailers and ecommerce brands, for $475 million. Newgistics will be included in the Global Ecommerce segment.
Intangible Assets
Intangible assets at September 30, 2017 and December 31, 2016 consisted of the following:2018 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 455,275 |
| | $ | (327,947 | ) | | $ | 127,328 |
| | $ | 445,039 |
| | $ | (300,906 | ) | | $ | 144,133 |
|
Software & technology | 154,571 |
| | (142,604 | ) | | 11,967 |
| | 150,037 |
| | (136,508 | ) | | 13,529 |
|
Trademarks & other | 37,326 |
| | (31,245 | ) | | 6,081 |
| | 36,212 |
| | (28,702 | ) | | 7,510 |
|
Total intangible assets | $ | 647,172 |
| | $ | (501,796 | ) | | $ | 145,376 |
| | $ | 631,288 |
| | $ | (466,116 | ) | | $ | 165,172 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Profit recognized at commencement (1) | $ | 34,320 |
| | $ | 39,642 |
| | $ | 70,678 |
| | $ | 86,929 |
|
Interest income | 58,045 |
| | 60,855 |
| | 117,523 |
| | 122,687 |
|
Total lease income from sales-type leases | $ | 92,365 |
| | $ | 100,497 |
| | $ | 188,201 |
| | $ | 209,616 |
|
(1) Lease contracts do not include variable lease payments.
Amortization expense was $8 million and $10 million for the three months ended September 30, 2017 and 2016, respectively and $24 million and $32 million for the nine months ended September 30, 2017 and 2016, respectively.
Future amortization expense asLessor Operating Leases
We also lease mailing equipment under operating leases with terms of September 30, 2017 wasone to five years. Maturities of these operating leases are as follows:
|
| | | |
Remaining for year ending December 31, 2019 | $ | 18,383 |
|
Year ending December 31, 2020 | 27,684 |
|
Year ending December 31, 2021 | 12,394 |
|
Year ending December 31, 2022 | 6,348 |
|
Year ending December 31, 2023 | 2,886 |
|
Thereafter | 182 |
|
Total | $ | 67,877 |
|
|
| | | |
Remaining for year ending December 31, 2017 | $ | 7,727 |
|
Year ending December 31, 2018 | 27,356 |
|
Year ending December 31, 2019 | 23,977 |
|
Year ending December 31, 2020 | 18,389 |
|
Year ending December 31, 2021 | 15,365 |
|
Thereafter | 52,562 |
|
Total | $ | 145,376 |
|
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.
Goodwill
Changes in the carrying value of goodwill, by reporting segment, for the nine months ended September 30, 2017 are shown in the table below. Prior year amounts have been recast for the change in reportable segments. |
| | | | | | | | | | | | | | | |
| December 31, 2016 | | Acquisitions | | Foreign currency translation | | September 30, 2017 |
North America Mailing | $ | 354,000 |
| | $ | — |
| | $ | 13,208 |
| | $ | 367,208 |
|
International Mailing | 145,566 |
| | — |
| | 12,074 |
| | 157,640 |
|
Small & Medium Business Solutions | 499,566 |
| | — |
| | 25,282 |
| | 524,848 |
|
Production Mail | 101,099 |
| | — |
| | 5,734 |
| | 106,833 |
|
Presort Services | 196,890 |
| | 6,229 |
| | — |
| | 203,119 |
|
Enterprise Business Solutions | 297,989 |
| | 6,229 |
| | 5,734 |
| | 309,952 |
|
Software Solutions | 501,591 |
| | — |
| | 8,388 |
| | 509,979 |
|
Global Ecommerce | 272,189 |
| | — |
| | — |
| | 272,189 |
|
Digital Commerce Solutions | 773,780 |
| | — |
| | 8,388 |
| | 782,168 |
|
Total goodwill | $ | 1,571,335 |
| | $ | 6,229 |
| | $ | 39,404 |
| | $ | 1,616,968 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
7.8. Intangible Assets and Goodwill
Intangible Assets
Intangible assets at June 30, 2019 and December 31, 2018 consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 484,597 |
| | $ | (294,244 | ) | | $ | 190,353 |
| | $ | 480,837 |
| | $ | (281,190 | ) | | $ | 199,647 |
|
Software & technology | 164,849 |
| | (147,130 | ) | | 17,719 |
| | 165,088 |
| | (143,877 | ) | | 21,211 |
|
Trademarks & other | 40,105 |
| | (35,581 | ) | | 4,524 |
| | 40,170 |
| | (33,891 | ) | | 6,279 |
|
Total intangible assets | $ | 689,551 |
| | $ | (476,955 | ) | | $ | 212,596 |
| | $ | 686,095 |
| | $ | (458,958 | ) | | $ | 227,137 |
|
Amortization expense was $10 million and $11 million for the three months ended June 30, 2019 and 2018, respectively, and $21 million and $22 million for the six months ended June 30, 2019 and 2018, respectively.
Future amortization expense as of June 30, 2019 is shown in the table below. Actual amortization expense may differ due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.
|
| | | |
Remaining for year ending December 31, 2019 | $ | 19,898 |
|
Year ending December 31, 2020 | 35,551 |
|
Year ending December 31, 2021 | 31,033 |
|
Year ending December 31, 2022 | 29,801 |
|
Year ending December 31, 2023 | 26,726 |
|
Thereafter | 69,587 |
|
Total | $ | 212,596 |
|
Goodwill
Changes in the carrying value of goodwill, by reporting segment, for the six months ended June 30, 2019 are shown in the table below.
|
| | | | | | | | | | | | | | | |
| December 31, 2018 | | Divestiture | | Currency impact | | June 30, 2019 |
Global Ecommerce | $ | 609,431 |
| | $ | — |
| | $ | — |
| | $ | 609,431 |
|
Presort Services | 207,465 |
| | — |
| | — |
| | 207,465 |
|
Commerce Services | 816,896 |
| | — |
| | — |
| | 816,896 |
|
North America Mailing | 368,248 |
| | — |
| | 326 |
| | 368,574 |
|
International Mailing | 147,207 |
| | (10,490 | ) | | (1,537 | ) | | 135,180 |
|
SMB Solutions | 515,455 |
| | (10,490 | ) | | (1,211 | ) | | 503,754 |
|
Software Solutions | 434,160 |
| | — |
| | (200 | ) | | 433,960 |
|
Total goodwill | $ | 1,766,511 |
| | $ | (10,490 | ) | | $ | (1,411 | ) | | $ | 1,754,610 |
|
In January 2019, we wrote off $10 million of goodwill associated with Market Exits.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
9. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
| |
Level 1 – | Unadjusted quoted prices in active markets for identical assets and liabilities. |
| |
Level 2 – | Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| |
Level 3 – | Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability. |
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at SeptemberJune 30, 20172019 and December 31, 2016.2018.
| | | September 30, 2017 | June 30, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Investment securities | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Money market funds / commercial paper | $ | 348,659 |
| | $ | 726,283 |
| | $ | — |
| | $ | 1,074,942 |
| $ | 237,848 |
| | $ | 321,863 |
| | $ | — |
| | $ | 559,711 |
|
Equity securities | — |
| | 25,242 |
| | — |
| | 25,242 |
| — |
| | 22,372 |
| | — |
| | 22,372 |
|
Commingled fixed income securities | 1,571 |
| | 22,296 |
| | — |
| | 23,867 |
| 1,632 |
| | 21,212 |
| | — |
| | 22,844 |
|
Debt securities - U.S. and foreign governments, agencies and municipalities | 118,439 |
| | 18,140 |
| | — |
| | 136,579 |
| |
Debt securities - corporate | — |
| | 77,761 |
| | — |
| | 77,761 |
| |
Government and related securities | | 78,842 |
| | 7,550 |
| | — |
| | 86,392 |
|
Corporate debt securities | | — |
| | 50,774 |
| | — |
| | 50,774 |
|
Mortgage-backed / asset-backed securities | — |
| | 161,461 |
| | — |
| | 161,461 |
| — |
| | 85,415 |
| | — |
| | 85,415 |
|
Derivatives | | | | | |
| |
|
| | | | | |
| |
|
|
Interest rate swap | — |
| | 1,680 |
| | — |
| | 1,680 |
| |
Foreign exchange contracts | — |
| | 62 |
| | — |
| | 62 |
| — |
| | 345 |
| | — |
| | 345 |
|
Total assets | $ | 468,669 |
| | $ | 1,032,925 |
| | $ | — |
| | $ | 1,501,594 |
| $ | 318,322 |
| | $ | 509,531 |
| | $ | — |
| | $ | 827,853 |
|
Liabilities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Derivatives | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Foreign exchange contracts | $ | — |
| | $ | (389 | ) | | $ | — |
| | $ | (389 | ) | $ | — |
| | $ | (297 | ) | | $ | — |
| | $ | (297 | ) |
Total liabilities | $ | — |
| | $ | (389 | ) | | $ | — |
| | $ | (389 | ) | $ | — |
| | $ | (297 | ) | | $ | — |
| | $ | (297 | ) |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | |
| 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 | ) |
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | |
| | |
| | |
| | |
|
Investment securities | |
| | |
| | |
| | |
|
Money market funds / commercial paper | $ | 114,471 |
| | $ | 217,175 |
| | $ | — |
| | $ | 331,646 |
|
Equity securities | — |
| | 24,571 |
| | — |
| | 24,571 |
|
Commingled fixed income securities | 1,536 |
| | 22,132 |
| | — |
| | 23,668 |
|
Debt securities - U.S. and foreign governments, agencies and municipalities | 116,822 |
| | 19,358 |
| | — |
| | 136,180 |
|
Debt securities - corporate | — |
| | 69,891 |
| | — |
| | 69,891 |
|
Mortgage-backed / asset-backed securities | — |
| | 158,996 |
| | — |
| | 158,996 |
|
Derivatives | |
| | |
| | |
| |
|
|
Interest rate swap | — |
| | 1,588 |
| | — |
| | 1,588 |
|
Foreign exchange contracts | — |
| | 637 |
| | — |
| | 637 |
|
Total assets | $ | 232,829 |
| | $ | 514,348 |
| | $ | — |
| | $ | 747,177 |
|
Liabilities: | |
| | |
| | |
| | |
|
Derivatives | |
| | |
| | |
| | |
|
Foreign exchange contracts | $ | — |
| | $ | (3,717 | ) | | $ | — |
| | $ | (3,717 | ) |
Total liabilities | $ | — |
| | $ | (3,717 | ) | | $ | — |
| | $ | (3,717 | ) |
Investment Securities
The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:
| |
• | Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2. |
| |
• | Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2. |
| |
• | Commingled Fixed Income Securities: Commingled fixed income securities are comprised of mutual funds that invest in a variety of fixed income securities, including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. |
| |
• | Government and Related Securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities. |
| |
• | Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2. |
| |
• | Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2. |
Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2.
Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds are classified as Level 2 as they are not separately listed on an exchange.
Available-For-Sale SecuritiesCommingled Fixed Income Securities: Mutual funds that invest in a variety of fixed-income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. The value of the funds is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These commingled funds are not listed on an exchange in an active market and are classified as Level 2.
Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: DebtInvestment securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustmentsavailable-for-sale and recorded at fair value. Unrealized holding gains and losses, net of tax, are not applied to these securities. Debt securities valued using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparablerecorded in accumulated other comprehensive income (AOCI). Available-for-sale investment securities are classified as Level 2.
Debt Securities – Corporate: Corporate debt securities are valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are forpredominantly held at the same maturity as the security. These securities are classified as Level 2.
Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices. When external index pricing is not observable, these securities are valued based on external price/spread data. These securities are classified as Level 2.
Investment securities include investments held by The Pitney Bowes Bank, (the Bank), whose primary business is to provide financing solutions to clients that rent postage meters and purchase supplies. The Bank's assets and liabilities consist primarily of cash, finance receivables, short and long-term investments and deposit accounts.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Available-For-Sale Securities
Certain investment securities are classified as available-for-sale and recorded at fair value in the Condensed Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the type of investment and maturity. Unrealized holding gains and losses are recorded, net of tax, in accumulated other comprehensive income (AOCI).
Available-for-sale securities at SeptemberJune 30, 20172019 and December 31, 20162018 consisted of the following:
| | | September 30, 2017 | June 30, 2019 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
U.S. and foreign governments, agencies and municipalities | $ | 134,134 |
| | $ | 2,024 |
| | $ | (850 | ) | | $ | 135,308 |
| |
Corporate notes and bonds | 76,105 |
| | 1,888 |
| | (232 | ) | | 77,761 |
| |
Government and related securities | | $ | 85,292 |
| | $ | 1,063 |
| | $ | (47 | ) | | $ | 86,308 |
|
Corporate debt securities | | 49,507 |
| | 1,320 |
| | (53 | ) | | 50,774 |
|
Commingled fixed income securities | 1,792 |
| | — |
| | (22 | ) | | 1,770 |
| 1,656 |
| | — |
| | (24 | ) | | 1,632 |
|
Mortgage-backed / asset-backed securities | 160,948 |
| | 1,742 |
| | (1,229 | ) | | 161,461 |
| 85,058 |
| | 905 |
| | (548 | ) | | 85,415 |
|
Total | $ | 372,979 |
| | $ | 5,654 |
| | $ | (2,333 | ) | | $ | 376,300 |
| $ | 221,513 |
| | $ | 3,288 |
| | $ | (672 | ) | | $ | 224,129 |
|
|
| | | | | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
U.S. and foreign governments, agencies and municipalities | $ | 136,316 |
| | $ | 1,571 |
| | $ | (1,707 | ) | | $ | 136,180 |
|
Corporate notes and bonds | 69,376 |
| | 1,180 |
| | (665 | ) | | 69,891 |
|
Commingled fixed income securities | 1,568 |
| | — |
| | (32 | ) | | 1,536 |
|
Mortgage-backed / asset-backed securities | 159,312 |
| | 1,566 |
| | (1,882 | ) | | 158,996 |
|
Total | $ | 366,572 |
| | $ | 4,317 |
| | $ | (4,286 | ) | | $ | 366,603 |
|
At September 30, 2017, investment securities that were in a loss position for 12 or more continuous months hadThe aggregate unrealized holding losses of $1 million and an estimated fair value of $90 million, and investment securities that were in a loss position for less than 12 continuous months had aggregate unrealized holding losses of $1 millionat June 30, 2019 and an estimated fair value of $76 million.
At December 31, 2016, investment securities that2018 were in a loss position for 12 or more continuous months had aggregate unrealized holding losses of less than $1 million and an estimated fair value of $12 million, and investment securities that were in a loss position for less than 12 continuous months had aggregate unrealized holding losses of $4 million and an estimated fair value of $171 million.as follows:
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Less than 12 continuous months | $ | 502 |
| | $ | 2 |
| | $ | 48,318 |
| | $ | 847 |
|
Greater than 12 continuous months | 56,970 |
| | 670 |
| | 177,331 |
| | 4,355 |
|
Total | $ | 57,472 |
| | $ | 672 |
| | $ | 225,649 |
| | $ | 5,202 |
|
We have not recognized an other-than-temporary impairment on any of the investment securities in an unrealized loss position because we have the ability and intent to hold these securities until recovery of the unrealized losses and we expect to receive the contractualstated principal and interest on these investment securities at maturity.
Scheduled maturities of available-for-sale securities at SeptemberJune 30, 20172019 were as follows:
|
| | | | | | | |
| Amortized cost | | Estimated fair value |
Within 1 year | $ | 47,535 |
| | $ | 47,589 |
|
After 1 year through 5 years | 68,901 |
| | 69,407 |
|
After 5 years through 10 years | 34,951 |
| | 36,121 |
|
After 10 years | 70,126 |
| | 71,012 |
|
Total | $ | 221,513 |
| | $ | 224,129 |
|
|
| | | | | | | |
| Amortized cost | | Estimated fair value |
Within 1 year | $ | 42,982 |
| | $ | 42,865 |
|
After 1 year through 5 years | 109,866 |
| | 110,445 |
|
After 5 years through 10 years | 61,744 |
| | 62,673 |
|
After 10 years | 158,387 |
| | 160,317 |
|
Total | $ | 372,979 |
| | $ | 376,300 |
|
The expected payments onscheduled maturities of mortgage-backed and asset-backed securities may not coincide with their contractual maturitiesthe actual payment, as borrowers have the right to prepay obligations with or without prepayment penalties.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
obligations.
We have not experienced any significant write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed or supported by the U.S. Government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification within the fair value hierarchy.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, 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 limitmitigate these risksexposures by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of exchange rate fluctuations on financial results and manage the related cost of debt. We do not use derivatives for trading or speculative purposes. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is included in AOCI in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged item is recorded in earnings. At SeptemberJune 30, 20172019 and December 31, 2016,2018, we had outstanding contracts associated with these anticipated transactions with notional amounts of $12$9 million and $13$8 million, respectively.
The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties.
counterparties in the three months ended June 30, 2019.
Interest Rate Swap
We entered intohad an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated with our $300 million of variable-rate term loans. TheThis swap ismatured in September 2018. While outstanding, the swap was designated as a cash flow hedge. Thehedge and the effective portion of the gain or loss on the cash flow hedge iswas included in AOCI in the period that the change in fair value occursoccurred and is reclassified to earnings in the period that the hedged item iswas recorded in earnings. Under the terms
The fair value of derivative instruments at June 30, 2019 and December 31, 2018 was as follows:
|
| | | | | | | | | | |
Designation of Derivatives | | Balance Sheet Location | | June 30, 2019 | | December 31, 2018 |
Derivatives designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | $ | 51 |
| | $ | 61 |
|
| | Accounts payable and accrued liabilities | | (190 | ) | | (104 | ) |
| | | | | | |
Derivatives not designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | 294 |
| | 1,970 |
|
| | Accounts payable and accrued liabilities | | (107 | ) | | (631 | ) |
| | | | | | |
| | Total derivative assets | | $ | 345 |
| | $ | 2,031 |
|
| | Total derivative liabilities | | (297 | ) | | (735 | ) |
| | Total net derivative asset | | $ | 48 |
| | $ | 1,296 |
|
The majority of the swap agreement, we pay fixed-rate interestamounts included in AOCI at June 30, 2019 will be recognized in earnings within the next 12 months. No amount of 0.8826% and receive variable-rate interest based on 1-month LIBOR. The variable interest rate resets monthly.ineffectiveness was recorded in earnings for these designated cash flow hedges.
The valuation of our interest rate swap is based on the income approach using a model with inputs that are observable or that can be derived from or corroborated by observable market data.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The fair value of derivative instruments at September 30, 2017 and December 31, 2016 was as follows:
|
| | | | | | | | | | |
Designation of Derivatives | | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
Derivatives designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | $ | 3 |
| | $ | 487 |
|
| | Accounts payable and accrued liabilities | | (309 | ) | | (136 | ) |
| | | | | | |
Interest rate swap | | Other assets | | 1,680 |
| | 1,588 |
|
| | | | |
| | |
|
Derivatives not designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | 59 |
| | 150 |
|
| | Accounts payable and accrued liabilities | | (80 | ) | | (3,581 | ) |
| | | | | | |
| | Total derivative assets | | $ | 1,742 |
| | $ | 2,225 |
|
| | Total derivative liabilities | | (389 | ) | | (3,717 | ) |
| | Total net derivative asset (liabilities) | | $ | 1,353 |
| | $ | (1,492 | ) |
The majority of the amounts included in AOCI at September 30, 2017 will be recognized in earnings within the next 12 months. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.
The following represents the results of cash flow hedging relationships for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | Derivative Gain (Loss) Recognized in AOCI (Effective Portion) | | Location of Gain (Loss) (Effective Portion) | | Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion) |
Derivative Instrument | | 2019 | | 2018 | | | 2019 | | 2018 |
Foreign exchange contracts | | $ | (320 | ) | | $ | 119 |
| | Revenue | | $ | (36 | ) | | $ | 79 |
|
| | |
| | |
| | Cost of sales | | 29 |
| | (1 | ) |
Interest rate swap | | — |
| | (771 | ) | | Interest Expense | | — |
| | — |
|
| | $ | (320 | ) | | $ | (652 | ) | | | | $ | (7 | ) | | $ | 78 |
|
| | | | | | | | | | |
| | Six Months Ended June 30, |
| | Derivative Gain (Loss) Recognized in AOCI (Effective Portion) | | Location of Gain (Loss) (Effective Portion) | | Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion) |
Derivative Instrument | | 2019 | | 2018 | | | 2019 | | 2018 |
Foreign exchange contracts | | $ | 25 |
| | $ | 154 |
| | Revenue | | $ | 75 |
| | $ | 76 |
|
| | |
| | |
| | Cost of sales | | 45 |
| | (85 | ) |
Interest rate swap | | — |
| | (952 | ) | | Interest Expense | | — |
| | — |
|
| | $ | 25 |
| | $ | (798 | ) | | | | $ | 120 |
| | $ | (9 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | Derivative Gain (Loss) Recognized in AOCI (Effective Portion) | | Location of Gain (Loss) (Effective Portion) | | Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion) |
Derivative Instrument | | 2017 | | 2016 | | | 2017 | | 2016 |
Foreign exchange contracts | | $ | (152 | ) | | $ | (158 | ) | | Revenue | | $ | (139 | ) | | $ | (443 | ) |
| | |
| | |
| | Cost of sales | | (59 | ) | | 301 |
|
Interest rate swap | | (229 | ) | | (591 | ) | | Interest Expense | | — |
| | — |
|
| | $ | (381 | ) | | $ | (749 | ) | | | | $ | (198 | ) | | $ | (142 | ) |
| | | | | | | | | | |
| | Nine Months Ended September 30, |
| | Derivative Gain (Loss) Recognized in AOCL (Effective Portion) | | Location of Gain (Loss) (Effective Portion) | | Gain (Loss) Reclassified from AOCL to Earnings (Effective Portion) |
Derivative Instrument | | 2017 | | 2016 | | | 2017 | | 2016 |
Foreign exchange contracts | | $ | (701 | ) | | $ | (114 | ) | | Revenue | | $ | (133 | ) | | $ | 290 |
|
| | |
| | |
| | Cost of sales | | 89 |
| | (69 | ) |
Interest rate swap | | 92 |
| | (591 | ) | | Interest Expense | | — |
| | — |
|
| | $ | (609 | ) | | $ | (705 | ) | | | | $ | (44 | ) | | $ | 221 |
|
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 corresponding mark-to-market adjustment on the derivatives are both recorded in earnings. All outstanding contracts at September 30, 2017 mature within 12 months.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited;The table amounts in thousands unless otherwise noted, except per share amounts)
The followingbelow represents the resultsmark-to-market adjustments of our non-designated derivative instruments for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018. All outstanding contracts at June 30, 2019 mature within 12 months.
|
| | | | | | | | | | |
| | | | Three Months Ended June 30, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2019 | | 2018 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | (65 | ) | | $ | (14,828 | ) |
| | | | | | |
| | | | Six Months Ended June 30, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2019 | | 2018 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | 5,205 |
| | $ | (18,396 | ) |
|
| | | | | | | | | | |
| | | | Three Months Ended September 30, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2017 | | 2016 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | (655 | ) | | $ | 1,719 |
|
| | | | | | |
| | | | Nine Months Ended September 30, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2017 | | 2016 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | (1,716 | ) | | $ | 322 |
|
Credit-Risk-Related Contingent Features
Certain derivative instruments contain credit-risk-related contingent features that would require us to post collateral based on a combination of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At SeptemberJune 30, 2017,2019, we did not post anyhad no cash collateral and the maximum amount of collateral that we would be required to post had the credit-risk-related contingent features been triggered was not significant.posted.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable and accounts payable approximate fair value because of the short maturity of these instruments.
The fair value of our debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of our debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt at SeptemberJune 30, 20172019 and December 31, 20162018 were as follows:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Carrying value | $ | 3,244,173 |
| | $ | 3,265,608 |
|
Fair value | $ | 3,101,477 |
| | $ | 3,003,678 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Carrying value | $ | 4,182,928 |
| | $ | 3,364,890 |
|
Fair value | $ | 4,185,628 |
| | $ | 3,412,581 |
|
8. Restructuring Charges and Asset Impairments
Restructuring Charges
Activity in our restructuring reserves for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | |
| Severance and benefits costs | | Other exit costs | | Total |
Balance at January 1, 2017 | $ | 28,376 |
| | $ | 281 |
| | $ | 28,657 |
|
Expenses, net | 25,225 |
| | 1,712 |
| | 26,937 |
|
Cash payments | (29,259 | ) | | (717 | ) | | (29,976 | ) |
Balance at September 30, 2017 | $ | 24,342 |
| | $ | 1,276 |
| | $ | 25,618 |
|
| | | | | |
Balance at January 1, 2016 | $ | 43,700 |
| | $ | 3,722 |
| | $ | 47,422 |
|
Expenses, net | 36,791 |
| | 1,660 |
| | 38,451 |
|
Cash payments | (47,241 | ) | | (3,920 | ) | | (51,161 | ) |
Balance at September 30, 2016 | $ | 33,250 |
| | $ | 1,462 |
| | $ | 34,712 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
10. Restructuring Charges and Asset Impairments
Restructuring Charges
Activity in our restructuring reserves for the six months ended June 30, 2019 and 2018 was as follows:
|
| | | | | | | | | | | |
| Severance and benefits costs | | Other exit costs | | Total |
Balance at January 1, 2019 | $ | 13,641 |
| | $ | 1,808 |
| | $ | 15,449 |
|
Expenses, net | 8,379 |
| | 707 |
| | 9,086 |
|
Cash payments | (12,064 | ) | | (2,219 | ) | | (14,283 | ) |
Balance at June 30, 2019 | $ | 9,956 |
| | $ | 296 |
| | $ | 10,252 |
|
| | | | | |
Balance at January 1, 2018 | $ | 42,151 |
| | $ | 1,569 |
| | $ | 43,720 |
|
Expenses, net | 7,990 |
| | 4,417 |
| | 12,407 |
|
Cash payments | (26,942 | ) | | (586 | ) | | (27,528 | ) |
Balance at June 30, 2018 | $ | 23,199 |
| | $ | 5,400 |
| | $ | 28,599 |
|
The majority of the remaining restructuring reserves are expected to be paid over the next 12 to 24 months; however, due to certain international labor laws and long-term lease agreements, some payments will extend beyond 24 months. We expect to fund these payments from cash flows from operations.
Asset Impairments
DuringAsset impairment charges were $1 million for the ninethree and six months ended SeptemberJune 30, 2017, we recorded asset impairment charges of $4 million. For the nine months ended September 30, 2016, asset impairment charges totaled $9 million and consisted primarily of a loss of $5 million on the sale of a facility and an impairment charge of $3 million relating to a building.2019.
9.11. Debt
Total debt at SeptemberJune 30, 20172019 and December 31, 20162018 consisted of the following:
|
| | | | | | | | | |
| Interest rate | | June 30, 2019 | | December 31, 2018 |
Notes due September 2020 | 3.875% | | $ | 300,000 |
| | $ | 300,000 |
|
Notes due October 2021 | 3.875% | | 600,000 |
| | 600,000 |
|
Notes due May 2022 | 4.625% | | 400,000 |
| | 400,000 |
|
Notes due April 2023 | 4.95% | | 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 | 6.7% | | 425,000 |
| | 425,000 |
|
Term loans | Variable | | 605,000 |
| | 630,000 |
|
Other debt | | | 5,210 |
| | 5,297 |
|
Principal amount | | | 3,271,051 |
| | 3,296,138 |
|
Less: unamortized costs, net | | | 26,878 |
| | 30,530 |
|
Total debt | | | 3,244,173 |
| | 3,265,608 |
|
Less: current portion long-term debt | | | 214,927 |
| | 199,535 |
|
Long-term debt | | | $ | 3,029,246 |
| | $ | 3,066,073 |
|
|
| | | | | | | | | |
| Interest rate | | September 30, 2017 | | December 31, 2016 |
Notes due September 2017 | 5.75% | | $ | — |
| | $ | 385,109 |
|
Notes due March 2018 | 5.6% | | 250,000 |
| | 250,000 |
|
Notes due May 2018 | 4.75% | | 350,000 |
| | 350,000 |
|
Notes due March 2019 | 6.25% | | 300,000 |
| | 300,000 |
|
Notes due September 2020 | 3.625% | | 300,000 |
| | — |
|
Notes due October 2021 | 3.375% | | 600,000 |
| | 600,000 |
|
Notes due May 2022 | 3.875% | | 400,000 |
| | — |
|
Notes due April 2023 | 4.7% | | 400,000 |
| | — |
|
Notes due March 2024 | 4.625% | | 500,000 |
| | 500,000 |
|
Notes due January 2037 | 5.25% | | 35,841 |
| | 115,041 |
|
Notes due March 2043 | 6.7% | | 425,000 |
| | 425,000 |
|
Term loans | Variable | | 650,000 |
| | 450,000 |
|
Other debt | | | 5,586 |
| | 5,677 |
|
Principal amount | | | 4,216,427 |
| | 3,380,827 |
|
Less: unamortized debt discount and issuance costs | | | 38,911 |
| | 28,796 |
|
Plus: unamortized interest rate swap proceeds | | | 5,412 |
| | 12,859 |
|
Total debt | | | 4,182,928 |
| | 3,364,890 |
|
Less: current portion long-term debt | | | 620,256 |
| | 614,485 |
|
Long-term debt | | | $ | 3,562,672 |
| | $ | 2,750,405 |
|
In September 2017, we issued $700 million of fixed rate notes and borrowed an additional $350 million under new term loan agreements. The fixed rate notes consisted of $300 million of 3.625% Notes due September 2020 and $400 million of 4.7% Notes due April 2023. Interest is payable semi-annually and is subject to adjustment from time to time based on changes in our credit ratings. Both of these notes may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if any.
The new term loans consist of a $200 million term loan that bears interest at the applicable Eurodollar Rate plus 1.5% and matures in September 2020 and a $150 million term loan that bears interest at the applicable Eurodollar Rate plus 1.125% and matures in August 2018, but includes an option to extend the maturity by one year. For the third quarter of 2017, the effective interest rate for the $200 million term loan was 3.1% and the effective interest rate for the $150 million term loan was 2.4%. The interest rates on these term loanscertain notes are subject to adjustment from time to time based on changes in our credit ratings.
In May 2017, we issued $400 million of 3.875% Notes. Interest is payable semi-annually and is subject to adjustment based on changes in our credit ratings. The notes mature inIn April 2019, Moody's lowered our corporate credit rating from Ba1 to Ba2. As a result, the interest rate on the May 2022 but may be redeemed, atnotes increased 0.25% in the quarter and the interest rates on the September 2020 notes, October 2021 notes and April 2023 notes will increase 0.25% effective after the next interest payment date.
During the first half of 2019, we repaid $25 million of principal related to our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if any.term loans.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The net proceeds from these borrowings were used to repay a $150 million term loan in June 2017 and $385 million of 5.75% Notes in September 2017. Additionally, in October 2017, we redeemed $350 million of 4.75% Notes that were due in May 2018 and funded the Newgistics acquisition (see Note 6).
In January 2017, bondholders of the 5.25% Notes due 2037 caused us to redeem $79 million of the debt outstanding.
10.12. Pensions and Other Benefit Programs
The components of net periodic benefit (income) cost (income) were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Defined Benefit Pension Plans | | Nonpension Postretirement Benefit Plans |
| United States | | Foreign | | |
| Three Months Ended | | Three Months Ended | | Three Months Ended |
| June 30, | | June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Service cost | $ | 21 |
| | $ | 9 |
| | $ | 388 |
| | $ | 575 |
| | $ | 228 |
| | $ | 405 |
|
Interest cost | 15,708 |
| | 15,108 |
| | 4,308 |
| | 4,591 |
| | 1,637 |
| | 1,607 |
|
Expected return on plan assets | (23,184 | ) | | (25,119 | ) | | (8,505 | ) | | (9,118 | ) | | — |
| | — |
|
Amortization of transition credit | — |
| | — |
| | (1 | ) | | (2 | ) | | — |
| | — |
|
Amortization of prior service (credit) cost | (15 | ) | | (15 | ) | | 60 |
| | (18 | ) | | 81 |
| | 88 |
|
Amortization of net actuarial loss | 6,037 |
| | 7,628 |
| | 1,572 |
| | 1,870 |
| | 503 |
| | 881 |
|
Settlement (1) | 801 |
| | — |
| | 397 |
| | — |
| | — |
| | — |
|
Net periodic benefit (income) cost | $ | (632 | ) | | $ | (2,389 | ) | | $ | (1,781 | ) | | $ | (2,102 | ) | | $ | 2,449 |
| | $ | 2,981 |
|
Contributions to benefit plans | $ | 2,423 |
| | $ | 1,906 |
| | $ | 878 |
| | $ | 769 |
| | $ | 4,457 |
| | $ | 4,316 |
|
| | | | | | | | | | | |
| Defined Benefit Pension Plans | | Nonpension Postretirement Benefit Plans |
| United States | | Foreign | | |
| Six Months Ended | | Six Months Ended | | Six Months Ended |
| June 30, | | June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Service cost | $ | 42 |
| | $ | 46 |
| | $ | 772 |
| | $ | 1,164 |
| | $ | 483 |
| | $ | 811 |
|
Interest cost | 31,586 |
| | 30,724 |
| | 8,796 |
| | 9,287 |
| | 3,291 |
| | 3,210 |
|
Expected return on plan assets | (46,363 | ) | | (50,543 | ) | | (17,269 | ) | | (18,304 | ) | | — |
| | — |
|
Amortization of transition credit | — |
| | — |
| | (3 | ) | | (3 | ) | | — |
| | — |
|
Amortization of prior service (credit) cost | (30 | ) | | (30 | ) | | 123 |
| | (37 | ) | | 161 |
| | 176 |
|
Amortization of net actuarial loss | 13,073 |
| | 15,704 |
| | 3,184 |
| | 3,783 |
| | 1,014 |
| | 1,815 |
|
Settlement (1) | 801 |
| | — |
| | 397 |
| | — |
| | — |
| | — |
|
Net periodic benefit (income) cost | $ | (891 | ) | | $ | (4,099 | ) | | $ | (4,000 | ) | | $ | (4,110 | ) | | $ | 4,949 |
| | $ | 6,012 |
|
Contributions to benefit plans | $ | 4,051 |
| | $ | 3,194 |
| | $ | 9,088 |
| | $ | 9,979 |
| | $ | 9,213 |
| | $ | 9,111 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Defined Benefit Pension Plans | | Nonpension Postretirement Benefit Plans |
| United States | | Foreign | | |
| Three Months Ended | | Three Months Ended | | Three Months Ended |
| September 30, | | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 34 |
| | $ | 26 |
| | $ | 587 |
| | $ | 549 |
| | $ | 438 |
| | $ | 512 |
|
Interest cost | 17,122 |
| | 18,452 |
| | 4,809 |
| | 5,366 |
| | 1,780 |
| | 1,994 |
|
Expected return on plan assets | (24,369 | ) | | (25,480 | ) | | (8,214 | ) | | (7,976 | ) | | — |
| | — |
|
Amortization of transition credit | — |
| | — |
| | (2 | ) | | (2 | ) | | — |
| | — |
|
Amortization of prior service (credit) cost | (15 | ) | | (15 | ) | | (18 | ) | | (19 | ) | | 74 |
| | 74 |
|
Amortization of net actuarial loss | 7,229 |
| | 6,779 |
| | 2,055 |
| | 1,302 |
| | 905 |
| | 904 |
|
Settlement (1) | — |
| | 183 |
| | — |
| | — |
| | — |
| | — |
|
Net periodic benefit cost (income) | $ | 1 |
| | $ | (55 | ) | | $ | (783 | ) | | $ | (780 | ) | | $ | 3,197 |
| | $ | 3,484 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
| Defined Benefit Pension Plans | | Nonpension Postretirement Benefit Plans |
| United States | | Foreign | | |
| Nine Months Ended | | Nine Months Ended | | Nine Months Ended |
| September 30, | | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 98 |
| | $ | 80 |
| | $ | 1,688 |
| | $ | 1,622 |
| | $ | 1,290 |
| | $ | 1,534 |
|
Interest cost | 51,488 |
| | 55,354 |
| | 13,993 |
| | 16,773 |
| | 5,321 |
| | 5,977 |
|
Expected return on plan assets | (73,287 | ) | | (76,439 | ) | | (23,956 | ) | | (25,029 | ) | | — |
| | — |
|
Amortization of transition credit | — |
| | — |
| | (6 | ) | | (6 | ) | | — |
| | — |
|
Amortization of prior service (credit) cost | (45 | ) | | (45 | ) | | (53 | ) | | (54 | ) | | 223 |
| | 222 |
|
Amortization of net actuarial loss | 21,725 |
| | 20,336 |
| | 5,981 |
| | 4,018 |
| | 2,693 |
| | 2,711 |
|
Settlement (1) | — |
| | 1,971 |
| | — |
| | — |
| | — |
| | — |
|
Net periodic benefit cost (income) | $ | (21 | ) | | $ | 1,257 |
| | $ | (2,353 | ) | | $ | (2,676 | ) | | $ | 9,527 |
| | $ | 10,444 |
|
(1) IncludedApproximately $0.7 million and $0.3 million of total settlement charges were recorded in restructuring charges and asset impairments, net indiscontinued operations, respectively, for the Condensed Consolidated Statementsthree and six months ended June 30, 2019.
13. Income Taxes
The effective tax rate for the three months ended June 30, 2019 and 2018 was 11.9% and 13.6%, respectively. These rates include benefits from the resolution of Income.
Through September 30, 2017 and 2016, contributions to our U.S. pension plans were $5certain tax examinations of $4 million and $8$3 million, respectively,respectively.
The effective tax rate for the six months ended June 30, 2019 and contributions2018 was 30.1% and 20.8%, respectively. The effective tax rate for the six months ended June 30, 2019 includes a $2 million tax on the $18 million book loss from Market Exits, primarily due to our foreign plans were $11nondeductible basis differences. The effective tax rate for each of the six months ended June 30, 2019 and 2018 includes a benefit of $6 million from the resolution of certain tax examinations and $41a charge of $2 million respectively. Nonpension postretirement benefit plan contributions were $13from the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock.
At December 31, 2018, we had a deferred tax asset valuation allowance of $142 million. It is reasonably possible that within the next 12 months, there may be sufficient positive evidence to release approximately $20 million and $14 million through September 30, 2017 and September 30, 2016, respectively.of the valuation allowance. The release of this allowance would result in a decrease to income tax expense.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
11. Income Taxes
The effective tax rate for the three months ended September 30, 2017 and 2016 was 23.5% and 24.8%, respectively, and the effective tax rate for the nine months ended September 30, 2017 and 2016 was 23.9% and 32.7%, respectively. The effective tax rate for the nine months ended September 30, 2017 and 2016 includes a $4 million and $3 million charge, respectively, from the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock. The effective tax rate for the three and nine months ended September 30, 2017 also includes a $6 million and $20 million benefit, respectively, from the resolution of certain tax examinations. Additionally, the effective tax rate for both the three and nine months ended September 30, 2016 include a $15 million benefit from the resolution of certain tax examinations and a $5 million charge from the establishment of a valuation allowance on tax attribute carryovers.
As is 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. 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 changedecrease could be up to 15%30% of our unrecognized tax benefits.
The IRSInternal Revenue Service (IRS) examinations of our consolidated U.S. income tax returns for tax years prior to 20122017 are closed to audit; however, various post-2006post-2011 U.S. state and local tax returns are still subject to examination. In Canada, the examination of our tax filings prior to 20122014 are closed to audit, except for the pending application of legal principles to specific issues arising in earlier years.audit. Other significant jurisdictions include France which is closed to audit(closed through the end of 2012,2014), Germany which is closed to audit(closed through the end of 20112016) and the UK, which, exceptU.K. (except for an item under appeal, is closed to audit through the end of 2011.2016). We also have other less significant tax filings currently subject to examination.
12.14. 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, customers or others. In management's opinion, the potential liability, if any, that may result from these actions, either individually or collectively, is not reasonably expected to have a material effect on our financial position, results of operations or cash flows.flows as of June 30, 2019. 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 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. 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. Although litigation outcomes are inherently unpredictable, we believe these matters are without merit and intend to defend them vigorously. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time.
13. Stockholders’ Equity (Deficit)15. Leased Assets and Liabilities
Changes in stockholders’ equity (deficit)We lease real estate and equipment under operating and finance lease agreements. Our leases have terms of up to 15 years, some of which may include the option to extend the lease for up to 5 years. At lease commencement, we record a lease liability and corresponding right-of-use asset. Lease liabilities represent the nine months ended September 30, 2017present value of our future lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. Lease payments include fixed payments and 2016 werevariable payments that are tied to an index. Variable payments not tied to an index are excluded from the right-of-use asset and lease liability and primarily include common area maintenance charges, property taxes, insurance and mileage. The present value of our lease liability is determined using our incremental borrowing rate at lease inception. Information regarding our operating and financing leases are as follows:
|
| | | | | | | | | | |
Leases | | Balance Sheet Location | | June 30, 2019 | | December 31, 2018 |
Assets | | | | | | |
Operating | | Operating lease assets | | $ | 180,983 |
| | $ | 156,788 |
|
Finance | | Property, plant and equipment, net | | 11,501 |
| | 10,683 |
|
Total leased assets | | | | $ | 192,484 |
| | $ | 167,471 |
|
| | | | | | |
Liabilities | | | | | | |
Operating | | Current operating lease liabilities | | $ | 34,612 |
| | $ | 37,208 |
|
| | Noncurrent operating lease liabilities | | 154,648 |
| | 127,237 |
|
Finance | | Accounts payable and accrued liabilities | | 2,809 |
| | 2,708 |
|
| | Other noncurrent liabilities | | 7,739 |
| | 7,054 |
|
Total lease liabilities | | | | $ | 199,808 |
| | $ | 174,207 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity (deficit) |
Balance at January 1, 2017 | $ | 1 |
| | $ | 483 |
| | $ | 323,338 |
| | $ | 148,125 |
| | $ | 5,107,734 |
| | $ | (940,133 | ) | | $ | (4,743,208 | ) | | $ | (103,660 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 171,392 |
| | — |
| | — |
| | 171,392 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 121,649 |
| | — |
| | 121,649 |
|
Dividends paid | — |
| | — |
| | — |
| | — |
| | (104,524 | ) | | — |
| | — |
| | (104,524 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | (32,538 | ) | | — |
| | — |
| | 30,202 |
| | (2,336 | ) |
Conversion to common stock | — |
| | (26 | ) | | — |
| | (505 | ) | | — |
| | — |
| | 531 |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | 18,312 |
| | — |
| | — |
| | — |
| | 18,312 |
|
Balance at September 30, 2017 | $ | 1 |
| | $ | 457 |
| | $ | 323,338 |
| | $ | 133,394 |
| | $ | 5,174,602 |
| | $ | (818,484 | ) | | $ | (4,712,475 | ) | | $ | 100,833 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Lease Cost | 2019 | | 2018 | | 2019 | | 2018 |
Operating lease expense | $ | 11,695 |
| | $ | 11,145 |
| | $ | 23,786 |
| | $ | 23,422 |
|
Finance lease expense | | | | | | | |
Amortization of leased assets | 811 |
| | 640 |
| | 1,691 |
| | 1,242 |
|
Interest on lease liabilities | 176 |
| | 125 |
| | 348 |
| | 243 |
|
Variable lease expense | 7,988 |
| | 7,952 |
| | 13,852 |
| | 13,094 |
|
Sublease income | (679 | ) | | (203 | ) | | (1,345 | ) | | (452 | ) |
Total expense | $ | 19,991 |
| | $ | 19,659 |
| | $ | 38,332 |
| | $ | 37,549 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at January 1, 2016 | $ | 1 |
| | $ | 505 |
| | $ | 323,338 |
| | $ | 161,280 |
| | $ | 5,155,537 |
| | $ | (888,635 | ) | | $ | (4,573,305 | ) | | $ | 178,721 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 177,148 |
| | — |
| | — |
| | 177,148 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | 62,673 |
| | — |
| | 62,673 |
|
Dividends paid | — |
| | — |
| | — |
| | — |
| | (105,791 | ) | | — |
| | — |
| | (105,791 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | (27,251 | ) | | — |
| | — |
| | 25,930 |
| | (1,321 | ) |
Conversion to common stock | — |
| | (16 | ) | | — |
| | (321 | ) | | — |
| | — |
| | 337 |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | 16,289 |
| | — |
| | — |
| | — |
| | 16,289 |
|
Repurchase of common stock | — |
| �� | — |
| | — |
| | — |
| | — |
| | — |
| | (197,267 | ) | | (197,267 | ) |
Balance at September 30, 2016 | $ | 1 |
| | $ | 489 |
| | $ | 323,338 |
| | $ | 149,997 |
| | $ | 5,226,894 |
| | $ | (825,962 | ) | | $ | (4,744,305 | ) | | $ | 130,452 |
|
Operating lease expense includes immaterial amounts related to leases with terms of 12 months or less.
|
| | | | | | | | | | | |
Future Lease Payments | Operating Leases | | Finance Leases | | Total |
Remaining for year ending December 31, 2019 | $ | 22,257 |
| | $ | 1,803 |
| | $ | 24,060 |
|
Year ending December 31, 2020 | 42,878 |
| | 3,105 |
| | 45,983 |
|
Year ending December 31, 2021 | 35,937 |
| | 2,712 |
| | 38,649 |
|
Year ending December 31, 2022 | 27,637 |
| | 2,162 |
| | 29,799 |
|
Year ending December 31, 2023 | 21,032 |
| | 1,518 |
| | 22,550 |
|
Thereafter | 89,177 |
| | 813 |
| | 89,990 |
|
Total | 238,918 |
| | 12,113 |
| | 251,031 |
|
Less: present value discount | 49,658 |
| | 1,565 |
| | 51,223 |
|
Lease liability | $ | 189,260 |
| | $ | 10,548 |
| | $ | 199,808 |
|
Operating leases exclude $28 million of minimum lease payments for leases signed but not yet commenced at June 30, 2019.
|
| | | |
Lease Term and Discount Rate | June 30, 2019 | | December 31, 2018 |
Weighted-average remaining lease term | | | |
Operating leases | 7.5 years | | 5.9 years |
Finance leases | 4.1 years | | 3.8 years |
Weighted-average discount rate | | | |
Operating leases | 5.8% | | 4.7% |
Finance leases | 6.6% | | 6.2% |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Cash Flow Information | 2019 | | 2018 | | 2019 | | 2018 |
Operating cash outflows - operating leases | $ | 11,073 |
| | $ | 10,987 |
| | $ | 22,870 |
| | $ | 22,738 |
|
Operating cash outflows - finance leases | $ | 176 |
| | $ | 125 |
| | $ | 348 |
| | $ | 243 |
|
Financing cash outflows - finance leases | $ | 775 |
| | $ | 592 |
| | $ | 1,520 |
| | $ | 1,156 |
|
| | | | | | | |
Leased assets obtained in exchange for new lease obligations | | | | | | | |
Operating leases | $ | 40,907 |
| | $ | 3,998 |
| | $ | 49,060 |
| | $ | 6,994 |
|
Finance leases | $ | 430 |
| | $ | 88 |
| | $ | 2,103 |
| | $ | 1,160 |
|
14. Accumulated Other Comprehensive Income
Reclassifications out of AOCI for the three and nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| Amount Reclassified from AOCI (a) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Gains (losses) on cash flow hedges | | | | | | | |
Revenue | $ | (139 | ) | | $ | 443 |
| | $ | (133 | ) | | $ | (290 | ) |
Cost of sales | (59 | ) | | (301 | ) | | 89 |
| | 69 |
|
Interest expense, net | (507 | ) | | (507 | ) | | (1,521 | ) | | (1,521 | ) |
Total before tax | (705 | ) | | (365 | ) | | (1,565 | ) | | (1,742 | ) |
Benefit for income tax | (274 | ) | | (144 | ) | | (610 | ) | | (679 | ) |
Net of tax | $ | (431 | ) | | $ | (221 | ) | | $ | (955 | ) | | $ | (1,063 | ) |
| | | | | | | |
Gains (losses) on available for sale securities | | | | | | | |
Interest expense, net | $ | (298 | ) | | $ | (1,125 | ) | | $ | (524 | ) | | $ | (1,126 | ) |
Benefit provision for income tax | (110 | ) | | (433 | ) | | (194 | ) | | (433 | ) |
Net of tax | $ | (188 | ) | | $ | (692 | ) | | $ | (330 | ) | | $ | (693 | ) |
| | | | | | | |
Pension and Postretirement Benefit Plans (b) | | | | | | | |
Transition credit | $ | 2 |
| | $ | 2 |
| | $ | 6 |
| | $ | 6 |
|
Prior service costs | (41 | ) | | (40 | ) | | (125 | ) | | (123 | ) |
Actuarial losses | (10,189 | ) | | (9,168 | ) | | (30,399 | ) | | (29,036 | ) |
Total before tax | (10,228 | ) | | (9,206 | ) | | (30,518 | ) | | (29,153 | ) |
Benefit from income tax | (3,484 | ) | | (3,243 | ) | | (10,440 | ) | | (10,362 | ) |
Net of tax | $ | (6,744 | ) | | $ | (5,963 | ) | | $ | (20,078 | ) | | $ | (18,791 | ) |
(a) Amounts in parentheses indicate reductions to income and increases to other comprehensive income (loss).
| |
(b) | Reclassified from accumulated other comprehensive loss into selling, general and administrative expenses. These amounts are included in the computation of net periodic costs (see Note 10 for additional details). |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
16. Stockholders’ Equity
Changes in stockholders’ equity for the three months ended June 30, 2019 and 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at April 1, 2019 | $ | 1 |
| | $ | 388 |
| | $ | 323,338 |
| | $ | 109,166 |
| | $ | 5,267,615 |
| | $ | (918,072 | ) | | $ | (4,696,080 | ) | | $ | 86,356 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 23,697 |
| | — |
| | — |
| | 23,697 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 10,394 |
| | — |
| | 10,394 |
|
Dividends paid ($0.05 per common share) | — |
| | — |
| | — |
| | — |
| | (8,938 | ) | | — |
| | — |
| | (8,938 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | (3,807 | ) | | — |
| | — |
| | 4,024 |
| | 217 |
|
Conversion to common stock | — |
| | (122 | ) | | — |
| | (2,389 | ) | | — |
| | — |
| | 2,511 |
| | — |
|
Redemption of preferred/preference stock | (1 | ) | | (266 | ) | | — |
| | (10 | ) | | — |
| | — |
| | — |
| | (277 | ) |
Stock-based compensation expense | — |
| | — |
| | — |
| | 2,381 |
| | — |
| | — |
| | — |
| | 2,381 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (60,858 | ) | | (60,858 | ) |
Balance at June 30, 2019 | $ | — |
| | $ | — |
| | $ | 323,338 |
| | $ | 105,341 |
| | $ | 5,282,374 |
| | $ | (907,678 | ) | | $ | (4,750,403 | ) | | $ | 52,972 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at April 1, 2018 | $ | 1 |
| | $ | 422 |
| | $ | 323,338 |
| | $ | 119,647 |
| | $ | 5,087,090 |
| | $ | (775,190 | ) | | $ | (4,692,394 | ) | | $ | 62,914 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 51,595 |
| | — |
| | — |
| | 51,595 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (36,614 | ) | | — |
| | (36,614 | ) |
Dividends paid ($0.1875 per common share) | — |
| | — |
| | — |
| | — |
| | (35,097 | ) | | — |
| | — |
| | (35,097 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | (2,660 | ) | | — |
| | — |
| | 2,943 |
| | 283 |
|
Conversion to common stock | — |
| | (7 | ) | | — |
| | (135 | ) | | — |
| | — |
| | 142 |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | 5,880 |
| | — |
| | — |
| | — |
| | 5,880 |
|
Balance at June 30, 2018 | $ | 1 |
| | $ | 415 |
| | $ | 323,338 |
| | $ | 122,732 |
| | $ | 5,103,588 |
| | $ | (811,804 | ) | | $ | (4,689,309 | ) | | $ | 48,961 |
|
Changes in stockholders’ equity for the six months ended June 30, 2019 and 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at January 1, 2019 | $ | 1 |
| | $ | 396 |
| | $ | 323,338 |
| | $ | 121,475 |
| | $ | 5,279,682 |
| | $ | (948,961 | ) | | $ | (4,674,089 | ) | | $ | 101,842 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 21,038 |
| | — |
| | — |
| | 21,038 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 41,283 |
| | — |
| | 41,283 |
|
Dividends paid ($0.10 per common share) | — |
| | — |
| | — |
| | — |
| | (18,346 | ) | | — |
| | — |
| | (18,346 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | (22,731 | ) | | — |
| | — |
| | 20,998 |
| | (1,733 | ) |
Conversion to common stock | — |
| | (130 | ) | | — |
| | (2,558 | ) | | — |
| | — |
| | 2,688 |
| | — |
|
Redemption of preferred/preference stock | (1 | ) | | (266 | ) | | — |
| | (10 | ) | | — |
| | — |
| | — |
| | (277 | ) |
Stock-based compensation expense | — |
| | — |
| | — |
| | 9,165 |
| | — |
| | — |
| | — |
| | 9,165 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (100,000 | ) | | (100,000 | ) |
Balance at June 30, 2019 | $ | — |
| | $ | — |
| | $ | 323,338 |
| | $ | 105,341 |
| | $ | 5,282,374 |
| | $ | (907,678 | ) | | $ | (4,750,403 | ) | | $ | 52,972 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | Preference stock | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at January 1, 2018 | $ | 1 |
| | $ | 441 |
| | $ | 323,338 |
| | $ | 138,367 |
| | $ | 5,074,343 |
| | $ | (794,940 | ) | | $ | (4,710,997 | ) | | $ | 30,553 |
|
Cumulative effect of accounting change | — |
| | — |
| | — |
| | — |
| | (12,207 | ) | | — |
| | — |
| | (12,207 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 111,565 |
| | — |
| | — |
| | 111,565 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (16,864 | ) | | — |
| | (16,864 | ) |
Dividends paid ($0.375 per common share) | — |
| | — |
| | — |
| | — |
| | (70,113 | ) | | — |
| | — |
| | (70,113 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | (24,267 | ) | | — |
| | — |
| | 21,141 |
| | (3,126 | ) |
Conversion to common stock | — |
| | (26 | ) | | — |
| | (521 | ) | | — |
| | — |
| | 547 |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | 9,153 |
| | — |
| | — |
| | — |
| | 9,153 |
|
Balance at June 30, 2018 | $ | 1 |
| | $ | 415 |
| | $ | 323,338 |
| | $ | 122,732 |
| | $ | 5,103,588 |
| | $ | (811,804 | ) | | $ | (4,689,309 | ) | | $ | 48,961 |
|
17. Accumulated Other Comprehensive Income
Reclassifications out of AOCI for the three and six months ended June 30, 2019 and 2018 were as follows:
|
| | | | | | | | | | | | | | | |
| Amount Reclassified from AOCI (1) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
(Losses) gains on cash flow hedges | | | | | | | |
Revenue | $ | (36 | ) | | $ | 79 |
| | $ | 75 |
| | $ | 76 |
|
Cost of sales | 29 |
| | (1 | ) | | 45 |
| | (85 | ) |
Interest expense, net | — |
| | (507 | ) | | — |
| | (1,014 | ) |
Total before tax | (7 | ) | | (429 | ) | | 120 |
| | (1,023 | ) |
Income tax benefit (provision) | 1 |
| | 110 |
| | (31 | ) | | 261 |
|
Net of tax | $ | (6 | ) | | $ | (319 | ) | | $ | 89 |
| | $ | (762 | ) |
| | | | | | | |
(Losses) gains on available for sale securities | | | | | | | |
Interest expense, net | $ | (81 | ) | | $ | 214 |
| | $ | (104 | ) | | $ | 190 |
|
Income tax benefit (provision) | 21 |
| | (54 | ) | | 27 |
| | (48 | ) |
Net of tax | $ | (60 | ) | | $ | 160 |
| | $ | (77 | ) | | $ | 142 |
|
| | | | | | | |
Pension and Postretirement Benefit Plans (2) | | | | | | | |
Transition credit | $ | 1 |
| | $ | 2 |
| | $ | 3 |
| | $ | 3 |
|
Prior service costs | (126 | ) | | (55 | ) | | (254 | ) | | (109 | ) |
Actuarial losses | (8,112 | ) | | (10,379 | ) | | (17,271 | ) | | (21,302 | ) |
Settlements | (1,198 | ) | | — |
| | (1,198 | ) | | — |
|
Total before tax | (9,435 | ) | | (10,432 | ) | | (18,720 | ) | | (21,408 | ) |
Income tax benefit | 2,124 |
| | 2,564 |
| | 4,773 |
| | 5,368 |
|
Net of tax | $ | (7,311 | ) | | $ | (7,868 | ) | | $ | (13,947 | ) | | $ | (16,040 | ) |
| |
(1) | Amounts in parentheses indicate reductions to income and increases to other comprehensive income. |
| |
(2) | Reclassified from AOCI into other components of net pension and postretirement cost (see Note 12 for additional details). |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Changes in AOCI for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2017 | $ | (1,485 | ) | | $ | 120 |
| | $ | (787,813 | ) | | $ | (150,955 | ) | | $ | (940,133 | ) |
Other comprehensive income (loss) before reclassifications (a) | (376 | ) | | 1,921 |
| | (1,482 | ) | | 100,223 |
| | 100,286 |
|
Reclassifications into earnings (a), (b) | 955 |
| | 330 |
| | 20,078 |
| | — |
| | 21,363 |
|
Net other comprehensive income | 579 |
| | 2,251 |
| | 18,596 |
| | 100,223 |
| | 121,649 |
|
Balance at September 30, 2017 | $ | (906 | ) | | $ | 2,371 |
| | $ | (769,217 | ) | | $ | (50,732 | ) | | $ | (818,484 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2019 | $ | 191 |
| | $ | (3,061 | ) | | $ | (846,461 | ) | | $ | (99,630 | ) | | $ | (948,961 | ) |
Other comprehensive income before reclassifications (1) | 18 |
| | 5,952 |
| | — |
| | 21,378 |
| | 27,348 |
|
Reclassifications into earnings (1), (2) | (89 | ) | | 77 |
| | 13,947 |
| | — |
| | 13,935 |
|
Net other comprehensive income | (71 | ) | | 6,029 |
| | 13,947 |
| | 21,378 |
| | 41,283 |
|
Balance at June 30, 2019 | $ | 120 |
| | $ | 2,968 |
| | $ | (832,514 | ) | | $ | (78,252 | ) | | $ | (907,678 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2016 | $ | (3,912 | ) | | $ | 536 |
| | $ | (738,768 | ) | | $ | (146,491 | ) | | $ | (888,635 | ) |
Other comprehensive (loss) income before reclassifications (a) | (705 | ) | | 6,798 |
| | (1,230 | ) | | 37,263 |
| | 42,126 |
|
Reclassifications into earnings (a), (b) | 1,063 |
| | 693 |
| | 18,791 |
| | — |
| | 20,547 |
|
Net other comprehensive income | 358 |
| | 7,491 |
| | 17,561 |
| | 37,263 |
| | 62,673 |
|
Balance at September 30, 2016 | $ | (3,554 | ) | | $ | 8,027 |
| | $ | (721,207 | ) | | $ | (109,228 | ) | | $ | (825,962 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2018 | $ | (406 | ) | | $ | 1,597 |
| | $ | (748,800 | ) | | $ | (47,331 | ) | | $ | (794,940 | ) |
Other comprehensive income (loss) before reclassifications (1) | (511 | ) | | (5,154 | ) | | — |
| | (27,859 | ) | | (33,524 | ) |
Reclassifications into earnings (1), (2) | 762 |
| | (142 | ) | | 16,040 |
| | — |
| | 16,660 |
|
Net other comprehensive income (loss) | 251 |
| | (5,296 | ) | | 16,040 |
| | (27,859 | ) | | (16,864 | ) |
Balance at June 30, 2018 | $ | (155 | ) | | $ | (3,699 | ) | | $ | (732,760 | ) | | $ | (75,190 | ) | | $ | (811,804 | ) |
(a)(1) Amounts are net of tax. Amounts in parentheses indicate debits to AOCI.
(b)(2) See table above for additional details of these reclassifications.
Item 2: Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
Forward-Looking Statements
This Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We want to caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. These forward-looking statements are based on current expectations and assumptions that 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 statements, whether as a result of new information, future events or otherwise.otherwise, except as required by law. Forward-looking statements in this Form 10-Q 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 any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include, without limitation:
the announcement that the Board of Directors of the Company is conducting a review of strategic alternatives and the potential impact of such announcement on the Company's current or potential customers, partners and personnel
the cost of the review process with respect to strategic alternatives and the disruption the process may have on the Company's operations, including the diversion of the attention of the Company's management and employees
declining physical mail volumes
changes in, or loss of, our contractual relationships with the U.S. Postal Service (USPS) or posts in other major markets
changes in postal regulations
competitive factors, including pricing pressures;pressures, technological developments;developments and the introduction of new products and services by competitors and fuel prices
the United Kingdom's potential exit from the European Union (Brexit)
our success in developing and marketing new products and services including digital-based products and services, obtaining regulatory approvalapprovals, if required
changes in banking regulations or the loss of our Industrial Bank charter
changes in labor conditions and transportation costs
macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign currency exchange rates and interest rates
changes in global political conditions and international trade policies, including the market’s acceptanceimposition or expansion of these new products and services
our ability to fully utilize the enterprise business platform in North America, implemented in 2016, and successfully deploy it in major international markets without significant disruption to existing operationstrade tariffs
the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws
a breach of security, including a cyberattackcyber-attack or other comparable event
third-party suppliers' ability to provide products and services required by our clients
our success at managing the relationships with outsource providers, including the costs of outsourcing functions and operations
capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs
changes in postal or banking regulationsour success at managing customer credit risk
integrating newly acquired businesses, including operations and product and service offerings
our ability to continue to grow volumes to gain additional economies of scale
the loss of some of our larger clients in the Global Ecommerce segment
macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign currency exchange rates, interest rates and labor conditions
third-party suppliers' ability to provide product components, assemblies or inventories
our success at managing the relationships with our outsource providers, including the costs of outsourcing functions and operations not central to our businessCommerce Services group
intellectual property infringement claims
our success at managing customer credit risk
significant changes in pension, health care and retiree medical costs
| |
• | significant changes in pension, health care and retiree medical costs |
income tax adjustments or other regulatory levies for prior audit yearsfrom tax audits and changes in tax laws, rulings or regulations
a disruption of our businesses due to changes in international or national political conditions, including the use of the mailpostal system for transmitting harmful biological agents, illegal substances or other terrorist attacks
acts of nature
Overview
Effective January 1, 2019, we adopted Accounting Standards Codification 842, Leases, 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 results have been recast (see Note 1).
We made progress againstcontinue our strategic initiativestransformation to stabilizehigher growth markets that align with our focus on reducing the complexity of mailing and reinvent our mail business, drive operational excellenceshipping. Commerce Services was the largest contributor of revenue and grow our business through digital commerce. We invested in new product developmentaccounted for 48% of revenue for the current quarter compared to increase our digital and web-enabled capabilities, bring our digital capabilities to market and better serve our clients.42% from the prior year period.
In SmallJanuary 2019, we sold the direct operations and Medium Business (SMB) Solutions, latemoved to a dealer model in six smaller markets within the third quarterInternational Mailing segment (Market Exits). We recorded a pre-tax loss on the sale of 2017, we introduced$18 million, primarily due to the SendPro C-series in the U.S. This product leverages the latest cloud technology to securely deliver a digital multi-carrier shipping platform, as well as mailing functionality. The SendPro C-series enables officeswrite-off of all sizes to select the best sending option for parcels, letters and flats, delivering potential savings across carriers, and providing full package tracking capabilities. The introduction of the SendPro C-series was a significant step in our plan to stabilize and reinvent our mail business.
In Enterprise Business Solutions (EBS), we made investments to expand our Presort Services parcel sortation services and our network.
In Digital Commerce Solutions (DCS), we invested in our products and capabilities to bring innovation to our customers. Within Software Solutions, we saw growth in our indirect channel, both in the number of partners in the channel and the revenue generated by these partners. Within Global Ecommerce, we invested in our cross-border solutions, domestic shipping and carrier services capabilities. Our domestic shipping solutions include end-to-end carrier services enabled by our shipping APIs. Shipping APIs allow our clients to integrate shipping functionality into their website or business system. During the third quarter, we added new shipping API features; however, we experienced some stability issues which delayed client adoption.cumulative translation adjustments.
Financial Results Summary - Three Months Ended SeptemberJune 30:
|
| | | | | | | | |
| 2017 | 2016 | Change |
Revenue | $ | 842,820 |
| $ | 839,031 |
| — | % |
Income from continuing operations | $ | 57,358 |
| $ | 70,396 |
| (19 | )% |
Loss from discontinued operations, net of tax | $ | — |
| $ | (291 | ) | 100 | % |
Net income | $ | 57,358 |
| $ | 70,105 |
| (18 | )% |
Earnings per share from continuing operations - diluted | $ | 0.31 |
| $ | 0.35 |
| (11 | )% |
|
| | | | | | | |
| 2019 | 2018 | Change |
Revenue | $ | 860,779 |
| $ | 865,240 |
| (1)% |
Segment earnings before interest and taxes (EBIT) | $ | 126,626 |
| $ | 158,235 |
| (20)% |
Income from continuing operations | $ | 30,278 |
| $ | 50,387 |
| (40)% |
Diluted earnings per share - continuing operations | $ | 0.17 |
| $ | 0.27 |
| (37)% |
Revenue
Revenue was flat.
The results reflectdecreased 1% from the prior year period; however, this included a 2% unfavorable impact from Market Exits and an additional 1% unfavorable impact from foreign currency. Software revenue declined 21% in the quarter due to a lower level of license renewals. Supplies revenue declined 16% due to a worldwide decline in our mailing business. Business services revenue increased 13% due to growth in business servicesCommerce Services, partially offsetting these declines.
Commerce Services revenue grew 13%, driven by growth of 18% in Global Ecommerce and software revenue4% in Presort Services. Small and declines in equipment sales, financing, support services, supplies and rentals revenues.
SMBMedium Business (SMB) Solutions revenue declined 7% as reported and 8% on a constant currency basis., with North America Mailing declining 5% and International Mailing declining 20%. Market Exits and currency adversely impacted International Mailing revenue by 12% and 5%, respectively. Software Solutions revenue declined 9%21%.
Segment EBIT declined 20% from the prior year period as Software Solutions EBIT declined 89%, primarily due to a lower level of license renewals. Within Commerce Services, Global Ecommerce reported an EBIT loss of $16 million compared to a loss of $6 million in the prior year, driven by a shift in the mix of business to faster growing, lower margin services and investments in market growth opportunities. Presort EBIT increased 23%, primarily due to higher volumes and revenue per piece improvement. SMB EBIT declined 6% due to the decline in equipment salesrevenue and declines in recurring revenue streams. International Mailing revenueimpact of Market Exits.
Income from continuing operations declined 3% as reported and 5% on a constant currency basis due to lower recurring revenue streams.
EBS revenue increased 1%. Presort Services revenue grew 4% driven by higher standard mail and parcel volumes processed and higher revenue per piece. Production Mail revenue declined 2% as reported and 3% on a constant currency basis driven by declines in equipment sales and supplies revenue.
DCS revenue grew 19%. Global Ecommerce revenue grew 28% driven by growth in domestic shipping and the UK outbound marketplace. Software Solutions revenue increased 12% as reported and 11% on a constant currency basis due to increased licensing revenue in North America, driven in part, by a large Location Intelligence deal in the quarter.
Net Income
Net income declined 18% driven largely byquarter, primarily due to a decline in gross margins particularly in SMB Solutions, additional investments in Global Ecommerce and higher interest expenserevenue. This decline was partially offset by lower restructuring charges and benefits from productivity initiatives.
Debt activity
In September 2017, we issued $1,050 million of new debt consisting of $700 million of fixed rate notes and $350 million of variable rate term loans. We used the proceeds from these borrowings, along with existing cash, to repay $385 million of fixed rate notes that were due in September 2017, and in October 2017, to redeem $350 million of fixed rate notes that were originally due in May 2018 and to fund the Newgistics acquisition for $475 million.
Financial Results Summary - Nine Months Ended September 30:
|
| | | | | | | | |
| 2017 | 2016 | Change |
Revenue | $ | 2,500,831 |
| $ | 2,519,506 |
| (1 | )% |
Income from continuing operations | $ | 171,392 |
| $ | 192,880 |
| (11 | )% |
Loss from discontinued operations, net of tax | $ | — |
| $ | (1,951 | ) | 100 | % |
Net income | $ | 171,392 |
| $ | 190,929 |
| (10 | )% |
Earnings per share from continuing operations - diluted | $ | 0.92 |
| $ | 0.94 |
| (2 | )% |
Net Cash Provided by Operations | $ | 330,577 |
| $ | 296,359 |
| 12 | % |
Revenue
Revenue declined 1% as reported and was flat on a constant currency basis.
The results reflect growth in business services revenue and software revenue and declines in equipment sales, financing, support services, supplies and rentals revenues.
SMB revenue declined 5%. North America Mailing revenue declined 4% as reported and 5% on a constant currency basis driven by declines in recurring revenue streams. International Mailing revenue declined 9% as reported and 6% on a constant currency basis primarily due to lower equipment sales and recurring revenue streams.
EBS revenue was flat as reported and declined 1% on a constant currency basis. Presort Services revenue grew 4% driven by higher standard mail and parcel volumes processed and higher revenue per piece. Production Mail revenue declined 4% as reported and 3% on a constant currency basis primarily driven by lower support services revenues and equipment sales.
DCS revenue grew 11% as reported and 12% on a constant currency basis. Global Ecommerce revenue grew 20% as reported and 21% on a constant currency basis driven by growth in domestic shipping and the UK outbound marketplace. Software Solutions revenue increased 3% as reported and 4% on a constant currency basis, primarily due to an increase in licensing revenue.
Net Income
Net income declined 10% driven largely by a decline in gross margins, continued investment in our Global Ecommerce business, higher bad debt and credit losses provisions and higher interest expense, partially offset by lower restructuring chargesoperating expenses and a lower effective tax rate. Additionally,
Financial Results Summary - Six Months Ended June 30:
|
| | | | | | | |
| 2019 | 2018 | Change |
Revenue | $ | 1,729,181 |
| $ | 1,761,823 |
| (2)% |
Segment earnings before interest and taxes (EBIT) | $ | 251,187 |
| $ | 324,632 |
| (23)% |
Income from continuing operations | $ | 28,849 |
| $ | 101,870 |
| (72)% |
Diluted earnings per share - continuing operations | $ | 0.16 |
| $ | 0.54 |
| (70)% |
Net cash provided by operations | $ | 86,782 |
| $ | 154,493 |
| (44)% |
For the first nine months of 2016 included $15 million of benefitsyear-to-date period, revenue decreased 2% from the forgivenessprior year period, primarily due to unfavorable impacts of a loan1% from each of currency and a favorable state sales tax adjustment.Market Exits. Business services revenue increased 9% due to growth in Commerce Services; however, this increase was more than offset by declines in all other revenue lines due to declines in our mailing business and lower software license revenue.
Commerce Services revenue grew 9%, driven by growth of 13% in Global Ecommerce and 2% in Presort Services. SMB Solutions revenue declined 9%, with North America Mailing declining 6% and International Mailing declining 20%. Market Exits and currency adversely impacted International Mailing revenue by 10% and 5%, respectively. Software Solutions revenue declined 13%.
Cash Flows
Net cash provided by operations was $331Segment EBIT declined 23% from the prior year period. Within Commerce Services, Global Ecommerce reported an EBIT loss of $30 million compared to $296a loss of $14 million in the prior year.year, and Presort Services EBIT declined 23%. The timingdecline in Global Ecommerce was driven by a shift in the mix of vendor paymentsbusiness to faster growing, lower margin services, investments in market growth opportunities and higher labor, transportation and postal costs. The decline in Presort Services was primarily due to higher labor and transportation costs and lower variable compensation paymentsrevenue per piece. SMB EBIT declined 11% due to the decline in 2017 primarily droverevenue, increased tariff costs and a charge related to a SendPro C tablet replacement program to address an underlying battery longevity issue. Software Solutions EBIT declined 82% due to the increase. Duringdecline in revenue.
Income from continuing operations for the first ninesix months of 2017, we used cash to:2019 declined compared to the prior year period, primarily due to lower margins and revenue and a pre-tax loss of $18 million from Market Exits.
increase investments by $27 million;
pay dividends of $105 million to our common stockholders; and
invest $120 million in capital expenditures.
Outlook
We are taking actions that we expect will set the foundation to drive long-term value, including new client value offerings and spend optimization. We expect revenue to continue to seegrow as we transform our portfolio to growth markets.
Within Global Ecommerce, we expect continued revenue growth from our investments in the expansion of our domestic parcel business and domestic shipping solutions. We anticipate higher shipping volumes during the second half of 2019 as we enter the holiday season. We expect revenue and EBIT growth in Presort Services due to higher volumes, improving margins and operational efficiencies.
In SMB Solutions, we expect continued declines in revenue due to lower mail volumes, lower lease opportunities and a shiftdeclining meter population. However, we expect the magnitude of the decline to be mitigated by the introduction of new services and products, the continued success of our SendPro C product in North America, planned launches in several international markets and by identifying opportunities through natural adjacencies in the business. EBIT and equipment sales margins have been impacted by trade tariffs, and we expect these tariffs to continue to adversely impact the SMB business in the second half of the year.
We are now offering expanded third-party equipment financing alternatives, primarily to our existing SMB clients in the United States, to finance or lease other manufacturers' equipment to meet their business needs. We expect that cash flows will be negatively impacted during the year as we invest in the origination of third-party equipment leases and build a finance receivable portfolio.
Within Software Solutions, we expect continued benefits from our partner channel. We expect revenue growth will be driven by a combination of sales opportunities from customer information, location intelligence, data and customer engagement.
We expect continued progress in our overall portfolioefforts to higher growth, digitalimprove productivity and shipping solutions. However, these opportunities have different margin structures than our legacy businesses and are impacting our financial performance. We also expect the normalization of variable compensation, higher marketing and increased spending on innovation will affect full year earnings in 2017.reduce spend. Over the last five years, we have developedtransformed to a simpler and more digital operating model and have reduced our cost structure by $300 million andstructure. In 2017, we now see an opportunityannounced our intention to reduce our overall cost structuregross spend by an additional $200 million over a 24-month period. We achieved over $150 million of this target in 2018 and expect to recognize the next 24 months. Theseremainder in 2019. A large portion of these gross savings will come from across the organization, including peoplehas been, and programs.
Within SMB Solutions, we expect trends in recurring revenue streams to stabilize with the introduction of the next generation of our SendPro family of products in the U.S. and a refresh of our asset base with new products that combine our mailing offerings with new shipping and parcel capabilities.
Within EBS, we anticipate additional network and parcel services expansion in Presort Services. Production Mail revenue growth is expected towill continue to be, challenged by consolidation and outsourcing, the timing of deals and pricing pressures on services revenue.
Within DCS, we expect to continue to make investments to grow our indirect channel within Software Solutions and build relationships with additional go-to-market partners. We anticipate continued financial investmentsreinvested in Global Ecommerce that will contribute to future growth from expansion of our marketplace sites (sites where multiple sellers provide their offerings), individual retail clients, new client acquisition and expanded service offerings. We will also continue to expand and globalize our cross-border ecommerce offerings by adding new retail clients in multiple outbound markets, which diversifies the business, and helps to mitigate foreign currency risk.
We closed our acquisition of Newgisticsparticularly in October 2017. Newgistics provides parcel delivery, returns, fulfillment and digital commerce solutions for retailers and ecommerce brands. This acquisition provides for expansion into the domestic market for our Global Ecommerce segment while complementing our cross-border offerings. It also aligns with our Presort Services network and builds on strengths of both Global Ecommerce and Presort Services. We plan to leverage Newgistics' existing network and volumes to drive scale across our parcel platform and provide integration of Global Ecommerce and Presort Services. We expect to achieve significant synergies in this transaction and further anticipate cross-sell opportunities across the clients of Newgistics, PresortCommerce Services and Global Ecommerce.our third-party equipment financing initiative.
The Company's Board of Directors, together with management, announced on November 1, 2017 that it is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The Board of Directors has not set a timetable for the process nor has it made any decisions related to any strategic alternatives at this time. There can be no assurance that the exploration of strategic alternatives will result in any particular outcome.
RESULTS OF OPERATIONS
Revenue by source and the related cost of revenue are shown in the following tables:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | Actual % change | | Constant Currency % change | | 2017 | | 2016 | | Actual % change | | Constant Currency % change | 2019 | | 2018 | | Actual % change | | Constant Currency % change | | 2019 | | 2018 | | Actual % change | | Constant currency % change |
Equipment sales | $ | 157,649 |
| | $ | 173,143 |
| | (9 | )% | | (10 | )% | | $ | 479,248 |
| | $ | 485,145 |
| | (1 | )% | | (1 | )% | $ | 85,551 |
| | $ | 93,811 |
| | (9 | )% | | (7 | )% | | $ | 175,338 |
| | $ | 200,519 |
| | (13 | )% | | (11 | )% |
Supplies | 58,296 |
| | 61,306 |
| | (5 | )% | | (6 | )% | | 188,342 |
| | 198,631 |
| | (5 | )% | | (4 | )% | 46,490 |
| | 55,457 |
| | (16 | )% | | (15 | )% | | 97,443 |
| | 115,450 |
| | (16 | )% | | (14 | )% |
Software | 99,600 |
| | 89,087 |
| | 12 | % | | 11 | % | | 264,131 |
| | 257,760 |
| | 2 | % | | 4 | % | 72,206 |
| | 91,703 |
| | (21 | )% | | (20 | )% | | 145,524 |
| | 167,997 |
| | (13 | )% | | (11 | )% |
Rentals | 95,901 |
| | 102,747 |
| | (7 | )% | | (7 | )% | | 291,770 |
| | 309,706 |
| | (6 | )% | | (6 | )% | 18,445 |
| | 19,454 |
| | (5 | )% | | (4 | )% | | 40,602 |
| | 44,419 |
| | (9 | )% | | (7 | )% |
Financing | 81,184 |
| | 87,883 |
| | (8 | )% | | (8 | )% | | 250,582 |
| | 276,915 |
| | (10 | )% | | (9 | )% | 92,419 |
| | 97,129 |
| | (5 | )% | | (4 | )% | | 189,462 |
| | 197,478 |
| | (4 | )% | | (3 | )% |
Support services | 120,479 |
| | 123,954 |
| | (3 | )% | | (4 | )% | | 354,625 |
| | 383,632 |
| | (8 | )% | | (7 | )% | 127,683 |
| | 138,598 |
| | (8 | )% | | (7 | )% | | 256,304 |
| | 279,248 |
| | (8 | )% | | (7 | )% |
Business services | 229,711 |
| | 200,911 |
| | 14 | % | | 14 | % | | 672,133 |
| | 607,717 |
| | 11 | % | | 11 | % | 417,985 |
| | 369,088 |
| | 13 | % | | 14 | % | | 824,508 |
| | 756,712 |
| | 9 | % | | 9 | % |
Total revenue | $ | 842,820 |
| | $ | 839,031 |
| | — | % | | — | % | | $ | 2,500,831 |
| | $ | 2,519,506 |
| | (1 | )% | | — | % | $ | 860,779 |
| | $ | 865,240 |
| | (1 | )% | | — | % | | $ | 1,729,181 |
| | $ | 1,761,823 |
| | (2 | )% | | (1 | )% |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | | | Percentage of Revenue | | | | | | Percentage of Revenue | | | | | Percentage of Revenue | | | | | | Percentage of Revenue |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Cost of equipment sales | $ | 85,647 |
| | $ | 86,147 |
| | 54.3 | % | | 49.8 | % | | $ | 232,398 |
| | $ | 235,741 |
| | 48.5 | % | | 48.6 | % | $ | 58,570 |
| | $ | 58,948 |
| | 68.5 | % | | 62.8 | % | | $ | 122,235 |
| | $ | 121,417 |
| | 69.7 | % | | 60.6 | % |
Cost of supplies | 18,827 |
| | 20,348 |
| | 32.3 | % | | 33.2 | % | | 60,207 |
| | 60,662 |
| | 32.0 | % | | 30.5 | % | 11,758 |
| | 15,738 |
| | 25.3 | % | | 28.4 | % | | 25,308 |
| | 32,685 |
| | 26.0 | % | | 28.3 | % |
Cost of software | 25,713 |
| | 25,698 |
| | 25.8 | % | | 28.8 | % | | 75,816 |
| | 79,496 |
| | 28.7 | % | | 30.8 | % | 23,419 |
| | 26,957 |
| | 32.4 | % | | 29.4 | % | | 46,802 |
| | 51,086 |
| | 32.2 | % | | 30.4 | % |
Cost of rentals | 20,818 |
| | 16,041 |
| | 21.7 | % | | 15.6 | % | | 63,056 |
| | 54,951 |
| | 21.6 | % | | 17.7 | % | 8,418 |
| | 8,464 |
| | 45.6 | % | | 43.5 | % | | 18,133 |
| | 21,212 |
| | 44.7 | % | | 47.8 | % |
Financing interest expense | 12,629 |
| | 12,965 |
| | 15.6 | % | | 14.8 | % | | 38,446 |
| | 41,375 |
| | 15.3 | % | | 14.9 | % | 11,043 |
| | 11,194 |
| | 11.9 | % | | 11.5 | % | | 22,407 |
| | 22,258 |
| | 11.8 | % | | 11.3 | % |
Cost of support services | 70,688 |
| | 74,799 |
| | 58.7 | % | | 60.3 | % | | 217,232 |
| | 224,790 |
| | 61.3 | % | | 58.6 | % | 40,448 |
| | 42,306 |
| | 31.7 | % | | 30.5 | % | | 82,227 |
| | 88,371 |
| | 32.1 | % | | 31.6 | % |
Cost of business services | 166,984 |
| | 140,989 |
| | 72.7 | % | | 70.2 | % | | 470,890 |
| | 417,357 |
| | 70.1 | % | | 68.7 | % | 337,918 |
| | 290,567 |
| | 80.8 | % | | 78.7 | % | | 664,964 |
| | 584,946 |
| | 80.6 | % | | 77.3 | % |
Total cost of revenue | $ | 401,306 |
| | $ | 376,987 |
| | 47.6 | % | | 44.9 | % | | $ | 1,158,045 |
| | $ | 1,114,372 |
| | 46.3 | % | | 44.2 | % | $ | 491,574 |
| | $ | 454,174 |
| | 57.1 | % | | 52.5 | % | | $ | 982,076 |
| | $ | 921,975 |
| | 56.8 | % | | 52.3 | % |
Revenue - 2019 compared to 2018
TheIn this revenue discussion, below referswe may refer to the change in revenue growth on a constant currency basis tobasis. Constant currency measures exclude the impact of changes in foreign currency exchange rates onsince the change in revenue.prior period under comparison. We believe that excluding the useimpacts of a constant currency revenue measureexchange rates provides a better understanding of the underlying revenue performance. Constant currency change is calculated by converting ourthe current period reportednon-U.S. dollar denominated revenue atusing the prior year'syear’s exchange rates.
Revenuerate. Where constant currency measures are not provided, the actual change and Cost of Revenues - 2017 compared to 2016
Equipment salesconstant currency change are the same.
Equipment sales revenuein the quarter decreased 9% in the quarter. On aas reported and 7% at constant currency basis, equipment sales decreased 10%, primarily due to:
8% from lower equipmentcurrency. Equipment sales in North America Mailing accounted for 5% of the decrease, primarily due to timinglower sales of sales and product mix; and
1% from lowerour bottom-of-the-line products. International Mailing equipment sales in Production Mail, primarily from a difficult year-over-year comparison, resulting from a large sorter dealaccounted for 2% of the decline, mainly due to Market Exits.
Equipment sales in the third quarterfirst half of 2016.
Cost2019 decreased 13% as reported and 11% at constant currency. Equipment sales in North America Mailing accounted for 8% of the decrease primarily due to lower sales of our bottom-of-the-line products. International Mailing equipment sales accounted for 3% of the decline mainly due to Market Exits.
Supplies revenue decreased 16% as reported in the quarter and first half of 2019. At constant currency, supplies decreased 15% in the quarter and 14% in the first half of 2019. Market Exits accounted for 5% and 4% of the decline in the quarter and year-to-date periods, respectively, and the remainder of the decline was due to a percentage of equipment sales increased to 54.3%worldwide decline in our mailing business.
Software revenue decreased 21% as reported and 20% at constant currency in the quarter, primarily due to lower margins in North America drivenlicense revenue partially offset by mix of sales.
Equipment saleshigher data updates revenue. Software revenue decreased 1%13% as reported and 11% at constant currency in the first nine monthshalf of 2017,2019, primarily due to:
2%to lower license revenue, as the prior year period benefited from lower equipment sales in International Mailing particularly in Italy and Germany;
1% from lower equipment sales in Production Mail;a large Location Intelligence deal, partially offset by higher data updates and SaaS revenue.
2%Rentals revenue declined 5% as reported and 4% at constant currency in the quarter and decreased 9% as reported and 7% at constant currency in the first half of 2019, primarily due to a worldwide decline in our meter population.
Financing revenue decreased 5% as reported and 4% at constant currency in the quarter, and decreased 4% as reported and 3% at constant currency in the first half of 2019, primarily due to a declining portfolio. Market Exits accounted for 1% of the decline in the quarter and year-to-date periods, respectively.
Support services revenue decreased 8% as reported and 7% at constant currency in both the quarter and first half of 2019, primarily due to a worldwide decline in our meter population.
Business services revenue increased 13% as reported and 14% at constant currency in the quarter and increased 9% in the first half of 2019, primarily due to growth in domestic parcel and shipping solutions volumes, partially offset by lower cross border volumes.
Cost of Revenue - 2019 compared to 2018
Cost of revenue as a percent of revenue in the quarter increased to 57.1% from higher equipment sales52.5% in North America Mailing, reflecting a favorable comparison tothe prior year which was impacted by the enterprise business platform implementation in the second quarter of 2016.
period. Cost of equipment sales as a percentagepercent of equipment sales was flat in the first nine months of 2017 compared to the first nine months of 2016.
Supplies
Supplies revenue decreased 5% in the quarter. On a constant currency basis, supplies revenue decreased 6% primarily due to:
3% from lower supplies revenue in North America Mailing primarily due to a decline in installed mailing equipment and postage volumes;
2% from lower supplies revenue in Production Mail primarily from a difficult year-over-year comparison resulting from a large transaction in the prior year; and
1% from lower supplies revenue in International Mailing.
Cost of supplies as a percentage of supplies revenue decreased to 32.3% in the quarter primarily due to mix of products sold.
Supplies revenue decreased 5% in the first nine months of 2017. On a constant currency basis, supplies revenue decreased 4% primarily due to:
3% from lower supplies revenue in North America Mailing primarily due to a decline in installed mailing equipment and postage volumes; and
1% from a decline in International Mailing revenue.
Cost of supplies as a percentage of supplies revenue increased to 32.0% in68.5% from 62.8%. During the first nine months of 2017quarter, higher tariffs impacted equipment sales margins by 2 percentage points and higher engineering costs impacted equipment sales margins by 1 percentage point. The remaining decline was mainly due to higher mix of lower margin products.
Software
Software revenue increased 12% in the quarter. On a constant currency basis, revenue increased 11% primarily due to higher licensing fees in North America, driven, in part, by improvements in our indirect channel and a large Location Intelligence deal in the quarter.
Software revenue increased 2% in first nine months of 2017. On a constant currency basis, revenue increased 4% primarily due to:
3% from higher licensing revenue; and
1% from higher data revenue.
product mix. Cost of software as a percentagepercent of software revenue decreasedincreased to 25.8% in the quarter and 28.7% in the first nine months of 201732.4% from 29.4%, primarily due to the increasedecline in high margin licensing revenue and cost reduction initiatives.
Rentals
Rentals revenue decreased 7% in the quarter and 6% in the first nine months of 2017 primarily due to a declining meter population.license revenue. Cost of rentals as a percentagepercent of rentals revenue increased to 21.7% for45.6% from 43.5%, primarily due to the quarter and 21.6%decline in revenue.
Cost of revenue as a percent of revenue in the first nine monthshalf of 20172019 increased to 56.8% from 52.3% in the prior year period. Cost of equipment sales as a percent of equipment revenue increased to 69.7% from 60.6%. In the first quarter, we recorded a charge related to a SendPro C tablet replacement program to address an underlying battery longevity issue. This adversely impacted equipment sales margins by five percentage points. In addition, the impact of tariffs reduced equipment sales margins one percentage point and higher engineering costs adversely impacted equipment sales margins by just under one percentage point. Costs of business services as a percent of business services revenue increased to 80.6% from 77.3%, primarily due to higher scrapping costs associated with retiring aging meters.
Financing
Financing revenue decreased 8% in the quarterlabor, transportation and 10% in the first nine months of 2017. On a constant currency basis, financing revenue decreased 8% in the quarter and 9% in the first nine months of 2017 primarily due to a declining portfolio and lower fees.postal costs.
We allocate a portion of our total cost of borrowing to financing interest expense. In computing financing interest expense, we assume an 8:1 debt to equity leverage ratio and apply our overall effective interest rate to the average outstanding finance receivables. Financing interest expense as a percentage of financing revenue increased to 15.6% for the quarter and 15.3% in the first nine months of 2017 primarily due to a higher effective interest rate.
Support Services
Support services revenue decreased 3% in the quarter. On a constant currency basis, support services revenue decreased 4% primarily due to a decline in installed mailing equipment worldwide. Cost of support services as a percentage of support services revenue decreased to 58.7% for the quarter due to improved margins in North America Mailing and Production Mail.
Support services revenue decreased 8% in the first nine months of 2017. On a constant currency basis, support services revenue decreased 7% primarily due to:
6% from a decline in installed mailing equipment worldwide; and
1% from lower maintenance revenue on Production Mail equipment as some in-house mailers moved their mail processing to third-party service bureaus who service their own equipment.
Cost of support services as a percentage of support services revenue increased to 61.3% in the first nine months of 2017 as support services margins were impacted by lower services revenue without corresponding cost reduction.
Business Services
Business services revenue increased 14% in the quarter primarily due to:
11% from growth in Global Ecommerce due to higher cross-border and retail volumes across all lines of business; and
3% from higher volumes of mail processed in Presort Services.
Business services revenue increased 11% in the first nine months of 2017 primarily due to:
8% from growth in Global Ecommerce due to higher cross-border and retail 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 72.7% in the quarter and 70.1% in the first nine months of 2017 primarily due to continued investment in our Global Ecommerce business.
Selling, general and administrative (SG&A)
SG&A expense increased 1% to $304of $279 million in the quarter decreased 4% compared to the prior period, primarily due to higher expenses in Global Ecommercelower professional fees of $9$8 million and lower bad debt expense of $5 million. SG&A expense of $580 million for investments in growth opportunities and the settlementfirst half of a vendor contract dispute, $5 million of higher bad debt and credit loss provisions, $5 million of acquisition/disposition related expenses, and $4 million of higher residual losses on leased equipment due2019, decreased 2% compared to the timing of trade-up activity, partially offset by approximately $18 million of benefits from productivity initiatives.
SG&A expense decreased 1% to $908 million in the first nine months of 2017prior period, primarily due to approximately $49lower employee-related costs of $18 million and lower professional fees of benefits from productivity initiatives and a $6 million pre-tax gain from the sale of technology in the second quarter of 2017, partially offset by $14 million of higher expenses in Global Ecommerce, $11 million of higher marketing expenses and $10 million of higher bad debt and credit loss provisions. Additionally, the first nine months of 2016 included a $10 million benefit from the forgiveness of a loan by the State of Connecticut and a $5 million favorable state sales tax adjustment.$7 million.
Research and development (R&D)
R&D expense increased 12% to $32 milliondecreased 4% in the quarter and 8% in the first half of 2019, primarily due to project timing. R&D expense increased 8% to $97 million for the first nine months of 2017, primarily due to investmentslower spending in Global EcommerceEcommerce.
Restructuring charges and Software Solutions.asset impairments, net
Restructuring charges and asset impairments, net in the three and six months ended June 30, 2019 were $7 million and $11 million, respectively. These charges consisted of $6 million and $10 million, respectively, of restructuring related charges and $1 million of asset impairment charges. Restructuring charges and asset impairments, net in the three and six months ended June 30, 2018 were $12 million and consisted of restructuring related charges. See Note 10 to the Condensed Consolidated Financial Statements for further information.
Other (income) expense
Other (income) expense represents the loss on Market Exits.
Income taxes
See Note 1113 to the Condensed Consolidated Financial Statements.Statements for further information.
Discontinued Operations
See Note 4 to the Condensed Consolidated Financial Statements for further information.
Business segment results - 2017 compared to 2016Segment Results
The principal products and services of each of our reportable segmentssegment are as follows:
Commerce Services:
Global Ecommerce: Includes the revenue and related expenses from global cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns.
Presort Services: Includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail and Bound and Packet Mail (Marketing Mail Flats and Bound Printed Matter) for postal worksharing discounts.
Small & Medium Business (SMB) Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and office shipping solutions, financing, services, supplies and suppliesother applications for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from mailing and office shipping solutions, financing, services and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.
Enterprise BusinessSoftware Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound and outbound mail.
Presort Services: Includes revenue and related expenses from presort mail and parcel services for our large enterprise clients to qualify large mail volumes for postal worksharing discounts.
Digital Commerce Solutions:
Software Solutions: Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, and location intelligence software solutions and related support services.data.
Global Ecommerce: IncludesManagement uses segment earnings before interest and taxes (EBIT) to measure profitability and performance at the worldwide revenuesegment level and related expenses from cross-border ecommerce transactionsbelieves that it provides investors a useful measure of operating performance and domestic retail and ecommerce shipping solutions.
underlying trends of the business. We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, and restructuring charges that areand other items not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance at the segment level. Management believes segment EBIT provides a useful measure to our operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. See Note 2
Segment information for the three and six months ended June 30, 2019 and 2018 is presented below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | Actual % change | | Constant currency % change | | 2019 | | 2018 | | Actual % change | | Constant currency % change |
Global Ecommerce | $ | 282,319 |
| | $ | 239,100 |
| | 18 | % | | 19 | % | | $ | 548,573 |
| | $ | 485,690 |
| | 13 | % | | 14 | % |
Presort Services | 128,138 |
| | 122,730 |
| | 4 | % | | 4 | % | | 262,985 |
| | 257,188 |
| | 2 | % | | 2 | % |
Commerce Services | 410,457 |
| | 361,830 |
| | 13 | % | | 14 | % | | 811,558 |
| | 742,878 |
| | 9 | % | | 10 | % |
North America Mailing | 303,417 |
| | 318,901 |
| | (5 | )% | | (5 | )% | | 618,891 |
| | 659,712 |
| | (6 | )% | | (6 | )% |
International Mailing | 74,699 |
| | 92,806 |
| | (20 | )% | | (15 | )% | | 153,208 |
| | 191,236 |
| | (20 | )% | | (15 | )% |
SMB Solutions | 378,116 |
| | 411,707 |
| | (8 | )% | | (7 | )% | | 772,099 |
| | 850,948 |
| | (9 | )% | | (8 | )% |
Software Solutions | 72,206 |
| | 91,703 |
| | (21 | )% | | (20 | )% | | 145,524 |
| | 167,997 |
| | (13 | )% | | (11 | )% |
Total | $ | 860,779 |
| | $ | 865,240 |
| | (1 | )% | | — | % | | $ | 1,729,181 |
| | $ | 1,761,823 |
| | (2 | )% | | (1 | )% |
|
| | | | | | | | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | % change | | 2019 | | 2018 | | % change |
Global Ecommerce | $ | (15,576 | ) | | $ | (5,993 | ) | | (160 | )% | | $ | (30,176 | ) | | $ | (13,704 | ) | | (120 | )% |
Presort Services | 15,462 |
| | 12,565 |
| | 23 | % | | 30,528 |
| | 39,591 |
| | (23 | )% |
Commerce Services | (114 | ) | | 6,572 |
| | (102 | )% | | 352 |
| | 25,887 |
| | (99 | )% |
North America Mailing | 112,804 |
| | 120,139 |
| | (6 | )% | | 223,417 |
| | 248,707 |
| | (10 | )% |
International Mailing | 11,934 |
| | 13,091 |
| | (9 | )% | | 23,724 |
| | 29,113 |
| | (19 | )% |
SMB Solutions | 124,738 |
| | 133,230 |
| | (6 | )% | | 247,141 |
| | 277,820 |
| | (11 | )% |
Software Solutions | 2,002 |
| | 18,433 |
| | (89 | )% | | 3,694 |
| | 20,925 |
| | (82 | )% |
Total Segment EBIT | $ | 126,626 |
| | $ | 158,235 |
| | (20 | )% | | $ | 251,187 |
| | $ | 324,632 |
| | (23 | )% |
Global Ecommerce
Global Ecommerce revenue increased 18% as reported and 19% at constant currency in the quarter and 13% as reported and 14% at constant currency in the first half of 2019 primarily due to growth in domestic parcel and shipping solutions volumes, partially offset by lower cross border volumes. EBIT for the Condensed Consolidated Financial Statements forquarter was a reconciliationloss of segment EBIT$16 million compared to net income.
Revenuea loss of $6 million in the prior year and EBIT for the threefirst half of 2019 was a loss of $30 million compared to a loss of $14 million in the prior year period. The higher loss was primarily driven by a decline in margins as the business continues to shift to faster growing, lower margin services plus continued investments in market growth opportunities, including marketing programs and nine months ended September 30, 2017new facilities, and 2016higher labor costs. EBIT for the first half of the year was also impacted by reportable segment are presented below:higher postal costs in the first quarter due to a temporary delay in the approval of our Negotiated Service Agreement with the USPS.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Actual % change | | Constant Currency % change | | 2017 | | 2016 | | Actual % change | | Constant Currency % change |
North America Mailing | $ | 319,966 |
| | $ | 349,785 |
| | (9 | )% | | (9 | )% | | $ | 1,016,640 |
| | $ | 1,064,456 |
| | (4 | )% | | (5 | )% |
International Mailing | 93,770 |
| | 96,730 |
| | (3 | )% | | (5 | )% | | 282,150 |
| | 309,297 |
| | (9 | )% | | (6 | )% |
Small & Medium Business Solutions | 413,736 |
| | 446,515 |
| | (7 | )% | | (8 | )% | | 1,298,790 |
| | 1,373,753 |
| | (5 | )% | | (5 | )% |
Production Mail | 104,387 |
| | 106,350 |
| | (2 | )% | | (3 | )% | | 278,912 |
| | 289,649 |
| | (4 | )% | | (3 | )% |
Presort Services | 119,074 |
| | 114,053 |
| | 4 | % | | 4 | % | | 370,203 |
| | 357,214 |
| | 4 | % | | 4 | % |
Enterprise Business Solutions | 223,461 |
| | 220,403 |
| | 1 | % | | 1 | % | | 649,115 |
| | 646,863 |
| | — | % | | 1 | % |
Software Solutions | 99,442 |
| | 89,031 |
| | 12 | % | | 11 | % | | 264,087 |
| | 257,417 |
| | 3 | % | | 4 | % |
Global Ecommerce | 106,181 |
| | 83,082 |
| | 28 | % | | 28 | % | | 288,839 |
| | 241,473 |
| | 20 | % | | 21 | % |
Digital Commerce Solutions | 205,623 |
| | 172,113 |
| | 19 | % | | 19 | % | | 552,926 |
| | 498,890 |
| | 11 | % | | 12 | % |
Total | $ | 842,820 |
| | $ | 839,031 |
| | — | % | | — | % | | $ | 2,500,831 |
| | $ | 2,519,506 |
| | (1 | )% | | — | % |
Presort Services
Presort Services revenue increased 4% in the quarter. Higher volumes of mail processed contributed 2% of the increase, product mix contributed 1% of the increase and higher revenue per piece, primarily related to First Class mail, contributed an additional 1%. EBIT increased 23% in the quarter, primarily due to the increase in revenue and lower labor costs of $1 million, partially offset by higher consulting fees of $1 million.
Presort Services revenue increased 2% in the first half of 2019, primarily due to higher volumes of mail processed. EBIT decreased 23% in the first half of 2019, primarily due to higher transportation costs of $3 million, higher consulting fees of $3 million and higher bad debt expense of $2 million.
|
| | | | | | | | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change |
North America Mailing | $ | 107,777 |
| | $ | 141,968 |
| | (24 | )% | | $ | 369,662 |
| | $ | 449,696 |
| | (18 | )% |
International Mailing | 8,729 |
| | 9,198 |
| | (5 | )% | | 35,967 |
| | 32,842 |
| | 10 | % |
Small & Medium Business Solutions | 116,506 |
| | 151,166 |
| | (23 | )% | | 405,629 |
| | 482,538 |
| | (16 | )% |
Production Mail | 14,920 |
| | 15,696 |
| | (5 | )% | | 31,515 |
| | 35,434 |
| | (11 | )% |
Presort Services | 19,474 |
| | 19,181 |
| | 2 | % | | 69,461 |
| | 69,305 |
| | — | % |
Enterprise Business Solutions | 34,394 |
| | 34,877 |
| | (1 | )% | | 100,976 |
| | 104,739 |
| | (4 | )% |
Software Solutions | 20,912 |
| | 10,329 |
| | > 100 % |
| | 31,216 |
| | 17,908 |
| | 74 | % |
Global Ecommerce | (9,594 | ) | | 1,544 |
| | > (100)% |
| | (17,894 | ) | | (2,608 | ) | | > (100)% |
|
Digital Commerce Solutions | 11,318 |
| | 11,873 |
| | (5 | )% | | 13,322 |
| | 15,300 |
| | (13 | )% |
Total | $ | 162,218 |
| | $ | 197,916 |
| | (18 | )% | | $ | 519,927 |
| | $ | 602,577 |
| | (14 | )% |
Small & Medium Business Solutions
North America Mailing
North America Mailing revenue decreased 9%5% in the quarter, primarily due to:
4% from lower equipment sales due to timing of sales and product mix;
3% from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage volumes; and
2% from lower financing revenue primarilyrentals and 1% from lower supplies due to a declining lease portfolio and lower fees.
North America Mailing revenue decreased 4% in the first nine months of 2017. On a constant currency basis, revenue decreased 5% primarily due to:
3% from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage volumes; and
2% from lower financing revenue primarily due to a declining lease portfolio and lower fees.
EBIT decreased 24% in the quarter and 18% in the first nine months of 2017, primarily due to the decline in revenue and equipment margins.
International Mailing
International Mailing revenue decreased 3% in the quarter. On a constant currency basis, revenue decreased 5% primarily due to:
4% from declines in rentals, financing and support services revenue resulting from a decline in installed mailing equipment and the lease portfolio; and
1% from lower equipment sales, primarily in Italy and Japan.
EBIT decreased 5% in the quarter primarily due to the decline in revenue.
International Mailing revenue decreased 9% in the first nine months of 2017. On a constant currency basis, revenue decreased 6% primarily due to:
3% from lower equipment sales particularly in Italy and Germany; and
3% from declines in rentals, financing and support services revenue resulting from a decline in installed mailing equipment and the lease portfolio.
EBIT increased 10% in the first nine months of 2017, primarily due to lower expenses.
Enterprise Business Solutions
Production Mail
Production Mail revenue decreased 2% in the quarter. On a constant currency basis, revenue decreased 3% primarily due to:
2% from lower equipment sales due primarily to lower inserter equipment placements and a large sorter sale in the third quarter of 2016; and
1% from lower supplies revenue primarily from a difficult year-over-year comparison resulting from a large transaction in the prior year.
Production Mail revenue decreased 4% in the first nine months of 2017. On a constant currency basis, revenue decreased 3% primarily due to:
2% from lower support services revenue as a result of some in-house mailers shifting their mail processing to third-party outsourcers who service their own equipment and;meter population;
1% from lower equipment sales primarily due to lower sorter placements offset partially by higher inserter equipment sales.sales of our bottom-of-the-line products; and
1% from lower financing fees.
EBIT decreased 5%6% in the quarter, primarily due to the decline in revenue and 11%increased costs from tariffs, partially offset by lower operating expenses of $8 million from cost savings initiatives.
North America Mailing revenue decreased 6% in the first nine monthshalf of 2017,2019, primarily due to:
2% from lower rentals, 1% from supplies and 1% from support services, all due to a declining meter population; and
2% from lower equipment sales, primarily due to lower sales of our bottom-of-the-line products.
EBIT decreased 10% in first half of 2019, primarily due to the decline in revenue and lower equipment sales margins due to the mix of equipment sales.
Presort Services
Presort Services revenue increased 4%from a charge in both the quarter and the first nine months of 2017 primarily duequarter related to higher revenue per piece of mail processeda SendPro C tablet replacement program to address an underlying battery longevity issue and higher volumes of Standard Class Mail and parcels processed,increased costs from tariffs, partially offset by lower First Class mail volumes. EBIT increased 2%operating expenses of $12 million from cost savings initiatives.
International Mailing
International Mailing revenue decreased 20% as reported and 15% at constant currency in the quarter primarily due to higherMarket Exits and lower supplies revenue. EBIT was flat
International Mailing revenue decreased 20% as reported and 15% at constant currency in the first nine monthshalf of 2017 compared2019, primarily due to:
10% from Market Exits, and
2% from lower supplies, 1% from lower support services and 1% from lower business services due to a declining meter population.
EBIT decreased 9% in the quarter and 19% during the first half of 2019, primarily due to the first nine months of 2016, as higherdecline in revenue, waspartially offset by increased mail processinglower costs and investments in our new parcel sortation capabilities.due to cost savings initiatives.
Digital Commerce Solutions
Software Solutions
Software revenue increased 12% in the quarter. On adecreased 21% as reported and 20% at constant currency basis, revenue increased 11% primarily due to higher licensing fees in North America, driven in part, by growth in the indirect channel and a large Location Intelligence deal in the quarter.
Software revenue increased 3% in first nine months of 2017. On a constant currency basis, revenue increased 4% primarily due to:
3% from higher licensing revenue; and
1% from higher data revenue.
EBIT increased more than 100% in the quarter and 74% in the first nine months of 2017 primarily due to an increase in high margin licensing revenue.
Global Ecommerce
Global Ecommerce revenue increased 28% in the quarter, primarily due to:
15%22% from lower license revenue, primarily related to the timing of new license deals and renewals; partially offset by
2% from higher domestic ecommerce shipping revenues primarily from carrier services, which are enabled by our Shipping APIs;data updates revenue.
10% from higher cross-border marketplace volumes, particularlySoftware revenue decreased 13% as reported and 11% at constant currency in the UK;first half of 2019, primarily due to:
14% from lower license revenue and a prior year benefit from a large license deal; partially offset by
3% from higher retail volumes.
Global Ecommerce revenue increased 20% in the first nine months of 2017. On a constant currency basis, revenue increased 21% primarily due to:
11% from higher domestic ecommerce shipping revenues;
6% from higher cross-border marketplace volumes, particularly in the UK;data updates and
2% from higher retail volumes. SaaS revenue.
EBIT was a loss of $10 milliondeclined 89% in the quarter and a loss of $18 million82% in the first nine monthshalf of 20172019, primarily due to investmentsthe decline in market growth opportunities, the resolution of a vendor contractual dispute and a specific marketing program with a cross-border client.revenue.
LIQUIDITY AND CAPITAL RESOURCES
We believe that existing cash and investments, cash generated from operations and borrowing capacity under our commercial paper programthrough the capital markets will be sufficient to support our current cash needs, including discretionary uses such as capital investments, dividends, strategic acquisitions and share repurchases. Cash and cash equivalents and short-term investments were $1,742831 million at SeptemberJune 30, 20172019 and $803927 million at December 31, 20162018.We continuously review our credit profile through published credit ratings and the credit default swap market. We also monitor the creditworthiness of those banks acting as derivative counterparties, depository banks or credit providers.
Cash and cash equivalents held by our foreign subsidiaries were $601$165 million at SeptemberJune 30, 20172019 and $475$189 million at December 31, 2016. Cash2018, and cash equivalents held by our foreign subsidiaries are generally used to support the liquidity needs of these subsidiaries. Most of these amounts could be repatriated to the U.S. but would be subject to additional taxes. Repatriation of some foreign balances is restricted by local laws.
Cash Flow Summary
Changes in cash and cash equivalents for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 were as follows: | | | 2017 | | 2016 | | Change | 2019 | | 2018 | | Change |
Net cash provided by operating activities | $ | 330,577 |
| | $ | 296,359 |
| | $ | 34,218 |
| $ | 86,782 |
| | $ | 154,493 |
| | $ | (67,711 | ) |
Net cash used in investing activities | (155,715 | ) | | (71,795 | ) | | (83,920 | ) | (36,151 | ) | | (80,785 | ) | | 44,634 |
|
Net cash provided by financing activities | 715,062 |
| | 116,061 |
| | 599,001 |
| |
Net cash used in financing activities | | (146,770 | ) | | (379,818 | ) | | 233,048 |
|
Effect of exchange rate changes on cash and cash equivalents | 42,457 |
| | 3,933 |
| | 38,524 |
| (81 | ) | | (13,041 | ) | | 12,960 |
|
Change in cash and cash equivalents | $ | 932,381 |
| | $ | 344,558 |
| | $ | 587,823 |
| $ | (96,220 | ) | | $ | (319,151 | ) | | $ | 222,931 |
|
Operating Activities
Cash provided by operating activities in the first half of 2019 declined $68 million compared to the prior year period. Cash flows from continuing operations increased $34decreased $19 million, primarily due to:
Lower variable compensationto lower income from continuing operations of $73 million, partially offset by lower restructuring payments in 2017 attributableof $13 million, a non-cash loss on Market Exits of $18 million, and working capital changes of $22 million, primarily related to 2016 performance;
Timingcollection of accounts receivable and the timing of payments associated with payroll,of accounts payable and accrued liabilities. Cash flows from discontinued operations declined $49 million as we sold the launch of our enterprise business platform and advertising campaignsProduction Mail Business in 2016;July 2018.
Lower restructuring and tax payments; and
A special UK pension contribution of $37 million in 2016.
Investing Activities
Cash flows used in investing activities increased $84in the first half of 2019 was $36 million, consisting primarily due to:
Higher investment activities of $96 million, primarily due to the investment of residual proceeds from the issuance of debt;
Lower proceeds from the sale of assets of $12 million;
Decrease in reserve deposits of $4 million; and
Higher capital expenditures of $4 million;$61 million and a decline in reserve account balances of $8 million partially offset by net proceeds of $47 million from investment activities. Cash used in investing activities in the first half of 2018 was $81 million, consisting primarily of capital expenditures of $79 million.
Lower acquisition spending
Financing Activities
In the first half of $30 million.2019, cash used in financing activities included $100 million to repurchase 17.4 million shares of common stock, $25 million to repay term loan debt and $18 million of common stock dividend payments.
In the first half of 2018, cash was used to repay $260 million of debt and pay dividends of $70 million. Cash flows provided byused in financing activities increased $599was also impacted by the settlement of $46 million primarily due to:related to a timing difference between our investing excess cash at the subsidiary level and our funding of an intercompany transfer at year end.
a net increase of $389 million from debt activity;
$197 million of share repurchases in 2016; and
$9 million of dividends paid to non-controlling interests in 2016.
Financings and Capitalization
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. We have a commercial paper program that is an important source of liquidity for us and a committed credit facility of $1 billion to support our commercial paper issuances. During the second quarterthat expires in January 2021. As of 2017,June 30, 2019, we extended the expiration of the credit facility to 2021 under the same terms and conditions. We have not drawn upon the credit facility.
At September 30, 2017 and December 31, 2016, there were no outstanding commercial paper borrowings. During the quarter, commercial paper borrowings averaged less than $1 million at a weighted average interest rate of 1.7% and the maximum amount of commercial paper outstanding at any point during the quarter was $10 million.
In September 2017, we issued $700 million of fixed rate notes and borrowed an additional $350 million under new term loan agreements. The fixed rate notes consisted of a $300 million of 3.625% notes due September 2020 and $400 million of 4.7% notes due April 2023. Interest is payable semi-annually and are subject to adjustment from time to time based on changes in our credit ratings.
Both of these notes may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if any.
The new term loans consist of a $200 million term loan that bears interest at the applicable Eurodollar Rate plus 1.5% and matures in September 2020 and a $150 million term loan that bears interest at the applicable Eurodollar Rate plus 1.125% and matures in August 2018, but includes an option to extend the maturity by one year. For the third quarter of 2017, the effective interest rate for the $200 million term loan was 3.1% and the effective interest rate for the $150 million term loan was 2.4%. The interest rates on these term loanscertain notes are subject to adjustment from time to time based on changes in our credit ratings.
In May 2017, we issued $400 million of 3.875% Notes. Interest is payable semi-annually and is subject to adjustment based on changes in our credit ratings. The notes mature inIn April 2019, Moody's lowered our corporate credit rating from Ba1 to Ba2. As a result, the interest rate on the May 2022 but may be redeemed, at our option,notes increased 0.25% in whole or in part, at any time at par plus accrued, unpaidthe quarter and the interest rates on the September 2020 notes, October 2021 notes and a make-whole amount, if any.April 2023 notes will increase 0.25% effective after the next interest payment date.
The net proceeds from these borrowings were used to repayIn July 2019, we extended the maturity date of a $150 million term loan in June 2017 and the $385 million 5.75% Notes in September 2017. Additionally, in October 2017, we redeemed the $350 million 4.75% Notes that were due in May 2018 and funded the Newgistics acquisition (see Note 6).from August 2019 to November 2019.
In January 2017, bondholders of the 5.25% Notes due 2037 caused us to redeem $79 million of the debt outstanding.
Dividends and Share Repurchases
In February 2019, our Board of Directors approved an incremental $100 million for share repurchases, raising our authorization level to $121 million. During the nine months ended Septemberfirst half of 2019, we repurchased 17.4 million shares at an aggregate cost of $100 million. At June 30, 2017,2019, we had remaining authorization to repurchase up to $21 million of our common shares. Also, during the first half of the year, we paid dividends to our stockholders of $105$18 million. Each quarter, our Board of Directors considers our recent and projected earnings and other capital needs and priorities in deciding whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends.
WeIn June 2019, we redeemed of all of the outstanding shares of 4% Convertible Cumulative Preferred Stock (Preferred Stock) and $2.12 Convertible Preference Stock (Preference Stock). The redemption of these shares did not repurchase any of our common shares during the quarter. We have a remaining board of directors authorization of $21 million to repurchase shares.material impact on our consolidated financial statements.
Off-Balance Sheet Arrangements
At SeptemberJune 30, 2017,2019, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, results of operations or liquidity.
Critical Accounting Estimates
Finance Receivables and Allowance for Credit LossesGoodwill
Finance receivables are composed of sales-type lease receivables and unsecured revolving loan receivables. We provide an allowance for probable credit losses basedBased on historical loss experience, the nature and volumeyear-to-date operating results of our portfolios, adverse situations that may affectGlobal Ecommerce reporting unit, we performed a client's abilitygoodwill impairment test to pay, prevailing economic conditions and our ability to manageassess the collateral. At September 30, 2017, gross finance receivables aged greater than 90 days have grown since the implementation of our North America enterprise business platform in the third quarter of 2016. We believe the majorityadequacy of the increased delinquency is administrative in nature and the result of a change in our billing format and process under our new enterprise business platform. The billing format under the platform is different and we are continuing to work with clients to reconcile amounts billed under the new format and thus such clients have not made payments. These accounts are considered delinquent in our analysis, but we continue to expect that payment in full will be received. The aging disclosed in Note 5 of the Condensed Consolidated Financial Statements represents full contract value while a smaller portion (approximately 25%) has been billed and recognized in income as of September 30, 2017.
As of September 30, 2017, we had North America sales-type lease receivables aged greater than 90 days with a contractcarrying value of $52 million.goodwill. As of October 31, 2017, we received payments with a contract value of approximately $23 million related to these receivables.
The quality of the portfolio has not changed. Our loan portfolio delinquency has remained fairly constant when compared to loan delinquency in our legacy platform and there has been no significant changes in customers within the portfolio. Also, we use a third party to credit score our lease and loan portfolios. The credit quality of our portfolio as determined by this third party has shown no signs of deterioration suggesting that the increase in delinquency is not a result of our customer'stest, we determined that the estimated fair value of the reporting unit exceeded its carrying value by less than 20%. The assumptions used to estimate fair value were based on projections incorporated in our current operating plans as well as other available information. By their nature, projections are uncertain. Potential events and circumstances, such as declining revenue, loss of client contracts and inability to acquire new clients could have an adverse effect on our assumptions.
The goodwill balance related to the Global Ecommerce reporting unit at June 30, 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.
Property, Plant and Equipment, net
Included in property, plant and equipment, net is $37 million of capitalized software related to the development of a new enterprise resource planning (ERP) system in certain of our international markets. In connection with recent market exits in six international markets and transition to higher growth markets, we are currently reviewing our international infrastructure, including ERP system scope and implementation plans. The time period required to successfully implement a large scale ERP, as well as potential changes to our infrastructure, could necessitate a reduced implementation footprint and impact our ability to pay, but instead is a resultfully recover the value of changes to invoice format and presentation. Accordingly, we do not believe that an increase in the allowance for credit losses as a result of the increase in delinquencies is necessary.this asset.
Regulatory Matters
There have been no significant changes to the regulatory matters disclosed in our 20162018 Annual Report.
Item 3: Quantitative and Qualitative Disclosures aboutAbout Market Risk
There were no material changes to the disclosures made in the 2016our 2018 Annual Report.
Item 4: Controls and Procedures
Disclosure controls and procedures are designed to reasonably assureensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably assureensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.disclosures.
UnderWith the directionparticipation of our CEO and CFO, wemanagement evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal controlcontrols over financial reporting. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information we are required to disclosebe disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods specified in the Exchange Act.periods. In addition, no changes in internal control over financial reporting occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2019.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
See Note 1214 to the Condensed Consolidated Financial Statements.
Item 1A: Risk Factors
There were no material changes to the risk factors identified in our 20162018 Annual Report.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
We periodically repurchase shares of our common stock in the open market to manage the dilution created by shares issued under employee stock plans and for other purposes. In February 2019, the Board of Directors approved an additional $100 million for share repurchases giving us the ability to repurchase up to $121 million of our shares.
The following table provides information about purchases of our common stock during the three months ended SeptemberJune 30, 2017:2019:
|
| | | | | | | | | | |
| | | | | | | |
| Total number of
shares purchased | | Average price
paid per share | | Total number of
shares purchased
as part of
publicly
announced plans or programs | | Approximate
dollar value of
shares that may
be purchased
under the plans or programs (in
thousands) |
Beginning balance | | | | | | | $21,022 |
July 1, 2017 - July 31, 2017 | — |
| | — |
| | — |
| | $21,022 |
August 1, 2017 - August 31, 2017 | — |
| | — |
| | — |
| | $21,022 |
September 1, 2017 - September 30, 2017 | — |
| | — |
| | — |
| | $21,022 |
| — |
| | — |
| | — |
| | |
|
| | | | | | | | | | | |
| Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands) |
Beginning balance | | | | | | | $81,880 |
April 1, 2019 - April 30, 2019 | 2,645,774 |
| | $ | 6.93 |
| | 2,645,774 |
| | $63,553 |
May 1, 2019 - May 31, 2019 | 4,616,043 |
| | $ | 5.17 |
| | 4,616,043 |
| | $39,684 |
June 1, 2019 - June 30, 2019 | 4,532,041 |
| | $ | 4.12 |
| | 4,532,041 |
| | $21,022 |
| 11,793,858 |
| | $ | 5.16 |
| | 11,793,858 |
| | |
Item 6: Exhibits
|
| | | |
Exhibit Number | Description | | Exhibit Number in this Form 10-Q |
2.1 | | | 2.1 |
4.1 | | | 4.1 |
4.2 | | | 4.2 |
4.3 | | | 4.3 |
4.4 | | | 4.4 |
10.1 | Credit Agreement $1,000,000,000, dated as of January 6, 2015, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the “Revolving Credit Agreement”). | | 10.1 |
10.2 |
| | 10.2 |
10.3 | | | 10.3 |
10.4 | | | 10.4 |
10.5 |
| | 10.5 |
10.6 |
| | 10.6 |
10.7 | | | 10.7 |
12 | | | 12 |
31.1 | | | 31.1 |
31.2 | | | 31.2 |
32.1 | | | 32.1 |
32.2 | | | 32.2 |
101.INS | | | |
101.SCH | | | |
101.CAL | | | |
101.DEF | | | |
101.LAB | | | |
101.PRE | | | |
|
| | | |
Exhibit Number | Description | | Exhibit Number in this Form 10-Q |
3(c) | | | 3(c) |
3 | | | 3 |
10 | | | 10 |
31.1 | | | 31.1 |
31.2 | | | 31.2 |
32.1 | | | 32.1 |
32.2 | | | 32.2 |
101.INS | XBRL Report Instance Document | | |
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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL. | | |
* Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish
supplementally a copy of any omitted attachment to the SEC upon request.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| | PITNEY BOWES INC. |
| | |
Date: | November 2, 2017August 6, 2019 | |
| | |
| | /s/ Stanley J. Sutula III |
| | |
| | Stanley J. Sutula III |
| | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| | |
| | /s/ Joseph R. Catapano |
| | |
| | Joseph R. Catapano |
| | Vice President, and Chief Accounting Officer |
| | (Principal Accounting Officer) |