UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
OR
☐ 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: 1-03579
PITNEY BOWES INC.INC.
(Exact name of registrant as specified in its charter)
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State of incorporation: | Delaware | | I.R.S. Employer Identification No. | 06-0495050 |
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Address:State of incorporation: | Delaware | | I.R.S. Employer Identification No. | 06-0495050 |
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Address of Principal Executive Offices: | 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 |
6.7% Notes due 2043 | | PBI.PRB | | 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 every Interactive Data File required to be submitted 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 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| | | | | | | | | | | | | | | | |
Large accelerated filer | þ☐ | Accelerated filer | oþ | Non-accelerated filer | o |
Smaller reporting company | ☐ | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark 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 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of July 31, 2020, 173,082,121April 30, 2021, 175,493,000 shares of common stock, par value $1 per share, of the registrant were outstanding.
PITNEY BOWES INC.
INDEX
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| Condensed Consolidated Statements of Income (Loss)Loss for the Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019 | |
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| Condensed Consolidated Statements of Comprehensive Income (Loss)Loss for the Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019 | |
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| Condensed Consolidated Balance Sheets at June 30, 2020March 31, 2021 and December 31, 20192020 | |
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| Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended June 30,March 31, 2021 and 2020 and 2019 | |
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Item 6: | Exhibits | |
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)LOSS
(Unaudited; in thousands, except per share amounts)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Revenue: | | | | | | | |
Business services | | | | | $ | 570,454 | | | $ | 444,379 | |
Support services | | | | | 118,697 | | | 122,015 | |
Financing | | | | | 77,812 | | | 89,078 | |
Equipment sales | | | | | 86,803 | | | 76,273 | |
Supplies | | | | | 42,224 | | | 45,709 | |
Rentals | | | | | 19,207 | | | 18,814 | |
Total revenue | | | | | 915,197 | | | 796,268 | |
Costs and expenses: | | | | | | | |
Cost of business services | | | | | 499,534 | | | 374,665 | |
Cost of support services | | | | | 36,717 | | | 39,760 | |
Financing interest expense | | | | | 11,886 | | | 12,489 | |
Cost of equipment sales | | | | | 61,840 | | | 57,359 | |
Cost of supplies | | | | | 11,211 | | | 12,240 | |
Cost of rentals | | | | | 6,447 | | | 6,378 | |
Selling, general and administrative | | | | | 238,102 | | | 248,633 | |
Research and development | | | | | 11,316 | | | 12,116 | |
Restructuring charges | | | | | 2,889 | | | 3,817 | |
Goodwill impairment | | | | | 0 | | | 198,169 | |
Interest expense, net | | | | | 25,158 | | | 25,883 | |
Other components of net pension and postretirement expense (income) | | | | | 350 | | | (151) | |
Other expense, net | | | | | 51,394 | | | 33,487 | |
Total costs and expenses | | | | | 956,844 | | | 1,024,845 | |
Loss from continuing operations before taxes | | | | | (41,647) | | | (228,577) | |
Benefit for income taxes | | | | | (13,992) | | | (10,030) | |
Loss from continuing operations | | | | | (27,655) | | | (218,547) | |
(Loss) income from discontinued operations, net of tax | | | | | (3,886) | | | 10,064 | |
Net loss | | | | | $ | (31,541) | | | $ | (208,483) | |
Basic loss per share (1): | | | | | | | |
Continuing operations | | | | | $ | (0.16) | | | $ | (1.28) | |
Discontinued operations | | | | | (0.02) | | | 0.06 | |
Net loss | | | | | $ | (0.18) | | | $ | (1.22) | |
Diluted loss per share (1): | | | | | | | |
Continuing operations | | | | | $ | (0.16) | | | $ | (1.28) | |
Discontinued operations | | | | | (0.02) | | | 0.06 | |
Net loss | | | | | $ | (0.18) | | | $ | (1.22) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenue: | |
| | |
| | |
| | |
|
Business services | $ | 528,990 |
| | $ | 417,963 |
| | $ | 973,369 |
| | $ | 824,508 |
|
Support services | 113,786 |
| | 127,705 |
| | 235,801 |
| | 256,304 |
|
Financing | 85,462 |
| | 92,419 |
| | 174,540 |
| | 189,462 |
|
Equipment sales | 57,837 |
| | 85,551 |
| | 134,110 |
| | 175,338 |
|
Supplies | 32,773 |
| | 46,490 |
| | 78,482 |
| | 97,443 |
|
Rentals | 18,644 |
| | 18,445 |
| | 37,458 |
| | 40,602 |
|
Total revenue | 837,492 |
| | 788,573 |
| | 1,633,760 |
| | 1,583,657 |
|
Costs and expenses: | | | | | | | |
Cost of business services | 454,311 |
| | 337,918 |
| | 828,976 |
| | 664,964 |
|
Cost of support services | 36,725 |
| | 40,520 |
| | 76,485 |
| | 82,367 |
|
Financing interest expense | 11,939 |
| | 11,043 |
| | 24,428 |
| | 22,407 |
|
Cost of equipment sales | 47,920 |
| | 58,570 |
| | 105,279 |
| | 122,235 |
|
Cost of supplies | 8,379 |
| | 11,758 |
| | 20,619 |
| | 25,308 |
|
Cost of rentals | 6,022 |
| | 8,418 |
| | 12,400 |
| | 18,133 |
|
Selling, general and administrative | 233,631 |
| | 241,467 |
| | 482,264 |
| | 503,136 |
|
Research and development | 7,467 |
| | 13,572 |
| | 19,583 |
| | 26,149 |
|
Restructuring charges and asset impairments | 4,922 |
| | 5,899 |
| | 8,739 |
| | 9,599 |
|
Goodwill impairment | — |
| | — |
| | 198,169 |
| | — |
|
Interest expense, net | 26,446 |
| | 28,019 |
| | 52,329 |
| | 55,621 |
|
Other components of net pension and postretirement cost (income) | 386 |
| | (1,618 | ) | | 235 |
| | (2,256 | ) |
Other (income) expense | (17,375 | ) | | (27 | ) | | 16,112 |
| | 17,683 |
|
Total costs and expenses | 820,773 |
| | 755,539 |
| | 1,845,618 |
| | 1,545,346 |
|
Income (loss) from continuing operations before taxes | 16,719 |
| | 33,034 |
| | (211,858 | ) | | 38,311 |
|
Provision for income taxes | 17,016 |
| | 3,724 |
| | 6,986 |
| | 11,544 |
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(Loss) income from continuing operations | (297 | ) | | 29,310 |
| | (218,844 | ) | | 26,767 |
|
(Loss) income from discontinued operations, net of tax | (3,032 | ) | | (5,613 | ) | | 7,032 |
| | (5,729 | ) |
Net (loss) income | $ | (3,329 | ) | | $ | 23,697 |
| | $ | (211,812 | ) | | $ | 21,038 |
|
Basic (loss) earnings per share (1): | | | | | | | |
Continuing operations | $ | — |
| | $ | 0.17 |
| | $ | (1.28 | ) | | $ | 0.15 |
|
Discontinued operations | (0.02 | ) | | (0.03 | ) | | 0.04 |
| | (0.03 | ) |
Net (loss) income | $ | (0.02 | ) | | $ | 0.13 |
| | $ | (1.24 | ) | | $ | 0.12 |
|
Diluted (loss) earnings per share (1): | | | | | | | |
Continuing operations | $ | — |
| | $ | 0.16 |
| | $ | (1.28 | ) | | $ | 0.15 |
|
Discontinued operations | (0.02 | ) | | (0.03 | ) | | 0.04 |
| | (0.03 | ) |
Net (loss) income | $ | (0.02 | ) | | $ | 0.13 |
| | $ | (1.24 | ) | | $ | 0.12 |
|
(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 (LOSS)LOSS
(Unaudited; in thousands)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Net loss | | | | | $ | (31,541) | | | $ | (208,483) | |
Other comprehensive loss, net of tax: | | | | | | | |
Foreign currency translation, net of tax of $(13) and $(2,817), respectively | | | | | (14,258) | | | (27,735) | |
Net unrealized gain (loss) on cash flow hedges, net of tax of $1,601 and $(58), respectively | | | | | 4,830 | | | (174) | |
Net unrealized (loss) gain on investment securities, net of tax of $(2,956) and $434, respectively | | | | | (8,916) | | | 1,308 | |
| | | | | | | |
Amortization of pension and postretirement costs, net of tax of $3,208 and $2,650, respectively | | | | | 9,937 | | | 8,870 | |
Other comprehensive loss, net of tax | | | | | (8,407) | | | (17,731) | |
Comprehensive loss | | | | | $ | (39,948) | | | $ | (226,214) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net (loss) income | $ | (3,329 | ) | | $ | 23,697 |
| | $ | (211,812 | ) | | $ | 21,038 |
|
Other comprehensive income, net of tax: | | | | | | | |
Foreign currency translation, net of tax of $1,105, $(1,347), $(1,712) and $(423), respectively | 10,099 |
| | 10 |
| | (17,636 | ) | | 21,378 |
|
Net unrealized loss on cash flow hedges, net of tax of $(421), $(80), $(479) and $(24), respectively | (1,271 | ) | | (234 | ) | | (1,445 | ) | | (71 | ) |
Net unrealized gain on investment securities, net of tax of $467, $1,100, $900 and $2,064, respectively | 1,407 |
| | 3,213 |
| | 2,715 |
| | 6,029 |
|
Amortization of pension and postretirement costs, net of tax benefits of $3,502, $2,124, $6,152 and $4,773, respectively | 11,377 |
| | 7,311 |
| | 20,247 |
| | 13,947 |
|
Other comprehensive income, net of tax | 21,612 |
| | 10,300 |
| | 3,881 |
| | 41,283 |
|
Comprehensive income (loss) | $ | 18,283 |
| | $ | 33,997 |
| | $ | (207,931 | ) | | $ | 62,321 |
|
See Notes to Condensed Consolidated Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share and per share amounts)
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 680,727 | | | $ | 921,450 | |
Short-term investments, reported at fair value | 16,200 | | | 18,974 | |
Accounts and other receivables (net of allowance of $20,480 and $18,899, respectively) | 327,755 | | | 389,240 | |
Short-term finance receivables (net of allowance of $17,866 and $18,012, respectively) | 551,061 | | | 568,050 | |
Inventories | 63,680 | | | 65,845 | |
Current income taxes | 44,288 | | | 23,219 | |
Other current assets and prepayments | 124,394 | | | 120,145 | |
| | | |
| | | |
Total current assets | 1,808,105 | | | 2,106,923 | |
Property, plant and equipment, net | 405,226 | | | 391,280 | |
Rental property and equipment, net | 37,708 | | | 38,435 | |
Long-term finance receivables (net of allowance of $17,608 and $17,857 respectively) | 597,012 | | | 605,292 | |
Goodwill | 1,144,064 | | | 1,152,285 | |
Intangible assets, net | 152,265 | | | 159,839 | |
Operating lease assets | 196,843 | | | 201,916 | |
Noncurrent income taxes | 68,732 | | | 72,653 | |
Other assets (includes $383,214 and $355,799, respectively, reported at fair value) | 531,226 | | | 491,514 | |
Total assets | $ | 4,941,181 | | | $ | 5,220,137 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 820,286 | | | $ | 880,616 | |
Customer deposits at Pitney Bowes Bank | 589,406 | | | 617,200 | |
Current operating lease liabilities | 39,587 | | | 39,182 | |
Current portion of long-term debt | 19,972 | | | 216,032 | |
Advance billings | 118,166 | | | 114,550 | |
Current income taxes | 6,839 | | | 2,880 | |
| | | |
| | | |
Total current liabilities | 1,594,256 | | | 1,870,460 | |
Long-term debt | 2,418,885 | | | 2,348,361 | |
Deferred taxes on income | 282,192 | | | 279,451 | |
Tax uncertainties and other income tax liabilities | 37,936 | | | 38,163 | |
Noncurrent operating lease liabilities | 174,798 | | | 180,292 | |
Other noncurrent liabilities | 413,951 | | | 437,015 | |
Total liabilities | 4,922,018 | | | 5,153,742 | |
| | | |
Commitments and contingencies (See Note 14) | 0 | | 0 |
| | | |
Stockholders’ equity: | | | |
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued) | 323,338 | | | 323,338 | |
Additional paid-in capital | 15,269 | | | 68,502 | |
Retained earnings | 5,161,029 | | | 5,201,195 | |
Accumulated other comprehensive loss | (847,538) | | | (839,131) | |
Treasury stock, at cost (149,600,577 and 151,362,724 shares, respectively) | (4,632,935) | | | (4,687,509) | |
Total stockholders’ equity | 19,163 | | | 66,395 | |
Total liabilities and stockholders’ equity | $ | 4,941,181 | | | $ | 5,220,137 | |
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
ASSETS | |
| | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 862,897 |
| | $ | 924,442 |
|
Short-term investments (includes $28,221 and $35,879, respectively, reported at fair value) | 153,221 |
| | 115,879 |
|
Accounts and other receivables (net of allowance of $32,474 and $17,830, respectively) | 391,748 |
| | 373,471 |
|
Short-term finance receivables (net of allowance of $20,999 and $12,556, respectively) | 555,196 |
| | 629,643 |
|
Inventories | 73,653 |
| | 68,251 |
|
Current income taxes | 1,893 |
| | 5,565 |
|
Other current assets and prepayments | 121,924 |
| | 101,601 |
|
Assets of discontinued operations | — |
| | 17,229 |
|
Total current assets | 2,160,532 |
| | 2,236,081 |
|
Property, plant and equipment, net | 375,465 |
| | 376,177 |
|
Rental property and equipment, net | 40,875 |
| | 41,225 |
|
Long-term finance receivables (net of allowance of $17,115 and $7,095 respectively) | 583,839 |
| | 625,487 |
|
Goodwill | 1,132,785 |
| | 1,324,179 |
|
Intangible assets, net | 175,460 |
| | 190,640 |
|
Operating lease assets | 199,162 |
| | 200,752 |
|
Noncurrent income taxes | 68,449 |
| | 71,903 |
|
Other assets (includes $264,500 and $230,442, respectively, reported at fair value) | 379,611 |
| | 400,456 |
|
Total assets | $ | 5,116,178 |
| | $ | 5,466,900 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
|
Current liabilities: | |
| | |
|
Accounts payable and accrued liabilities | $ | 732,048 |
| | $ | 793,690 |
|
Customer deposits at Pitney Bowes Bank | 613,449 |
| | 591,118 |
|
Current operating lease liabilities | 35,432 |
| | 36,060 |
|
Current portion of long-term debt | 163,257 |
| | 20,108 |
|
Advance billings | 122,606 |
| | 101,920 |
|
Current income taxes | 11,723 |
| | 17,083 |
|
Liabilities of discontinued operations | — |
| | 9,713 |
|
Total current liabilities | 1,678,515 |
| | 1,569,692 |
|
Long-term debt | 2,553,490 |
| | 2,719,614 |
|
Deferred taxes on income | 270,376 |
| | 274,435 |
|
Tax uncertainties and other income tax liabilities | 35,928 |
| | 38,834 |
|
Noncurrent operating lease liabilities | 177,901 |
| | 177,711 |
|
Other noncurrent liabilities | 355,388 |
| | 400,518 |
|
Total liabilities | 5,071,598 |
| | 5,180,804 |
|
| | | |
Commitments and contingencies (See Note 14) |
|
| |
|
|
| | | |
Stockholders’ equity: | | | |
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued) | 323,338 |
| | 323,338 |
|
Additional paid-in capital | 68,498 |
| | 98,748 |
|
Retained earnings | 5,188,119 |
| | 5,438,930 |
|
Accumulated other comprehensive loss | (836,262 | ) | | (840,143 | ) |
Treasury stock, at cost (151,737,399 and 152,888,969 shares, respectively) | (4,699,113 | ) | | (4,734,777 | ) |
Total stockholders’ equity | 44,580 |
| | 286,096 |
|
Total liabilities and stockholders’ equity | $ | 5,116,178 |
| | $ | 5,466,900 |
|
See Notes to Condensed Consolidated Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net loss | $ | (31,541) | | | $ | (208,483) | |
Loss (income) from discontinued operations, net of tax | 3,886 | | | (10,064) | |
Restructuring payments | (3,955) | | | (6,047) | |
Adjustments to reconcile net loss to net cash from operating activities: | | | |
Depreciation and amortization | 39,594 | | | 40,719 | |
Allowance for credit losses | 3,992 | | | 15,926 | |
Stock-based compensation | 5,221 | | | 1,521 | |
Restructuring charges | 2,889 | | | 3,817 | |
Amortization of debt fees | 2,644 | | | 2,300 | |
Goodwill impairment | 0 | | | 198,169 | |
Loss on debt refinancing | 51,394 | | | 36,987 | |
| | | |
| | | |
| | | |
Changes in operating assets and liabilities, net of acquisitions/divestitures: | | | |
Accounts and other receivables | 57,642 | | | 7,182 | |
Finance receivables | 27,714 | | | 17,772 | |
Inventories | 1,900 | | | (4,815) | |
Other current assets and prepayments | (7,153) | | | (7,969) | |
Accounts payable and accrued liabilities | (54,022) | | | (104,556) | |
Current and noncurrent income taxes | (17,291) | | | 10,797 | |
Advance billings | 4,267 | | | (4,148) | |
Pension and retiree medical liabilities | (24,775) | | | (28,961) | |
Other, net | 3,518 | | | 10,303 | |
Net cash from operating activities - continuing operations | 65,924 | | | (29,550) | |
Net cash from operating activities - discontinued operations | 0 | | | (37,805) | |
Net cash from operating activities | 65,924 | | | (67,355) | |
Cash flows from investing activities: | | | |
Capital expenditures | (43,328) | | | (25,778) | |
Purchases of investment securities | (64,473) | | | (107,312) | |
Proceeds from sales/maturities of investment securities | 28,008 | | | 104,222 | |
Net investment in loan receivables | (7,316) | | | 1,071 | |
| | | |
Acquisitions, net of cash acquired | 0 | | | (1,281) | |
Other investing activities | 0 | | | 8,081 | |
Net cash from investing activities - continuing operations | (87,109) | | | (20,997) | |
Net cash from investing activities - discontinued operations | 0 | | | (2,502) | |
Net cash from investing activities | (87,109) | | | (23,499) | |
Cash flows from financing activities: | | | |
| | | |
Proceeds from the issuance of debt, net of discount | 1,195,500 | | | 816,544 | |
Principal payments of debt | (1,327,315) | | | (932,600) | |
Premiums and fees paid to refinance debt | (44,418) | | | (32,645) | |
Dividends paid to stockholders | (8,625) | | | (8,523) | |
Decrease in customer deposits at Pitney Bowes Bank | (27,794) | | | (888) | |
| | | |
Other financing activities | (5,648) | | | (2,372) | |
Net cash from financing activities | (218,300) | | | (160,484) | |
Effect of exchange rate changes on cash and cash equivalents | (1,238) | | | (10,032) | |
Change in cash and cash equivalents | (240,723) | | | (261,370) | |
Cash and cash equivalents at beginning of period | 921,450 | | | 924,442 | |
| | | |
| | | |
Cash and cash equivalents at end of period | $ | 680,727 | | | $ | 663,072 | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
Cash flows from operating activities: | |
| | |
|
Net (loss) income | $ | (211,812 | ) | | $ | 21,038 |
|
(Income) loss from discontinued operations, net of tax | (7,032 | ) | | 5,729 |
|
Restructuring payments | (11,365 | ) | | (13,005 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | |
|
Restructuring charges and asset impairments | 8,739 |
| | 9,599 |
|
Loss on disposition of businesses | — |
| | 17,683 |
|
Gain on sale of equity investment | (11,908 | ) | | — |
|
Loss on extinguishment of debt | 36,987 |
| | — |
|
Depreciation and amortization | 81,787 |
| | 77,977 |
|
Goodwill impairment | 198,169 |
| | — |
|
Stock-based compensation | 6,950 |
| | 9,165 |
|
Allowance for credit losses | 27,941 |
| | 14,707 |
|
Amortization of debt fees | 5,054 |
| | 4,924 |
|
Changes in operating assets and liabilities, net of acquisitions/divestitures: | |
| | |
|
(Increase) decrease in accounts receivable | (49,403 | ) | | 18,565 |
|
Decrease in finance receivables | 84,342 |
| | 34,984 |
|
Increase in inventories | (6,306 | ) | | (10,881 | ) |
Increase in other current assets and prepayments | (24,067 | ) | | (33,476 | ) |
Decrease in accounts payable and accrued liabilities | (25,168 | ) | | (53,885 | ) |
Increase in current and noncurrent income taxes | 29,959 |
| | 663 |
|
Increase (decrease) in advance billings | 21,402 |
| | (941 | ) |
Decrease in pension and retiree medical liabilities | (24,164 | ) | | (22,772 | ) |
Other, net | (4,873 | ) | | 1,174 |
|
Net cash provided by operating activities - continuing operations | 125,232 |
| | 81,248 |
|
Net cash (used in) provided by operating activities - discontinued operations | (38,423 | ) | | 5,534 |
|
Net cash provided by operating activities | 86,809 |
| | 86,782 |
|
Cash flows from investing activities: | |
| | |
|
Purchases of available-for-sale securities | (115,565 | ) | | (6,391 | ) |
Proceeds from sales/maturities of available-for-sale securities | 94,425 |
| | 54,964 |
|
Net activity from short-term and other investments | (44,035 | ) | | (1,608 | ) |
Capital expenditures | (59,954 | ) | | (59,187 | ) |
Acquisitions, net of cash acquired | (6,608 | ) | | (4,882 | ) |
Sale of other investments (See Note 8) | 58,248 |
| | — |
|
Increase (decrease) in customer deposits at Pitney Bowes Bank | 22,331 |
| | (8,316 | ) |
Other investing activities | (885 | ) | | (8,591 | ) |
Net cash used in investing activities - continuing operations | (52,043 | ) | | (34,011 | ) |
Net cash used in investing activities - discontinued operations | (2,502 | ) | | (2,140 | ) |
Net cash used in investing activities | (54,545 | ) | | (36,151 | ) |
Cash flows from financing activities: | |
| | |
|
Increase in short-term borrowings | 100,000 |
| | — |
|
Proceeds from the issuance of long-term debt | 816,544 |
| | — |
|
Principal payments of long-term debt | (948,224 | ) | | (25,087 | ) |
Premiums and fees paid to extinguish debt | (32,645 | ) | | — |
|
Dividends paid to stockholders | (17,099 | ) | | (18,346 | ) |
Common stock repurchases | — |
| | (100,000 | ) |
Other financing activities | (3,174 | ) | | (3,337 | ) |
Net cash used in financing activities | (84,598 | ) | | (146,770 | ) |
Effect of exchange rate changes on cash and cash equivalents | (9,211 | ) | | (81 | ) |
Change in cash and cash equivalents | (61,545 | ) | | (96,220 | ) |
Cash and cash equivalents at beginning of period | 924,442 |
| | 867,262 |
|
Cash and cash equivalents at end of period | $ | 862,897 |
| | $ | 771,042 |
|
| | | |
Cash interest paid | $ | 82,732 |
| | $ | 78,280 |
|
Cash income tax payments, net of refunds | $ | 12,176 |
| | $ | 17,348 |
|
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) is a global technology company providing commerce solutions that power billions of transactions. Clients around the world rely on the accuracy and precision delivered by our equipment, solutions, analytics, and application programming interface technology in the areas of ecommerce fulfillment, shipping and returns, cross-border ecommerce, office mailing and shipping, presort services and financing. Pitney Bowes Inc. was incorporated in the state of Delaware in 1920. For more information about us, our products, services and solutions, visit www.pitneybowes.com.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statementscondensed 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, 20192020 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, 2020,2021, particularly in light of the novel coronavirus pandemic (COVID-19) and its effectseffect on domestic and global businesses and economies. 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, 2019 (20192020 (2020 Annual Report). Certain prior year amounts
In the fourth quarter 2020, we determined that based on their nature, certain cash flows from loan receivables classified as cash flows from operating activities should have been reclassified to conformclassified as investment in loans receivables within cash flows from investing activities. It was also determined that certain investment purchases and maturities that were previously reported on a net basis should have been reported on a gross basis. Finally, previously reported cash flows from investing activities resulting from changes in customer deposits at the Pitney Bowes Bank (the Bank) are now reported as cash flows from financing activities. These adjustments were not material to the current year presentation.previously issued 2020 interim financial statements; however, the cash flow statement for the period ended March 31, 2020 has been revised and the impact on our previously issued interim Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 is as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
(unaudited) | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities | | | | | |
Changes in finance receivables | $ | 18,843 | | | $ | (1,071) | | | $ | 17,772 | |
Net cash from operating activities: continuing operations | $ | (28,479) | | | $ | (1,071) | | | $ | (29,550) | |
Net cash from operating activities | $ | (66,284) | | | $ | (1,071) | | | $ | (67,355) | |
| | | | | |
Cash flows from investing activities | | | | | |
Purchases of investment securities | $ | (67,312) | | | $ | (40,000) | | | $ | (107,312) | |
Proceeds from sales/maturities of investment securities | $ | 24,102 | | | $ | 80,120 | | | $ | 104,222 | |
Net change in short-term and other investing activities | $ | 48,431 | | | $ | (48,431) | | | $ | — | |
Net investment in loan receivables | $ | — | | | $ | 1,071 | | | $ | 1,071 | |
Customer deposits at the Bank | $ | (888) | | | $ | 888 | | | $ | — | |
Other investing activities | $ | (230) | | | $ | 8,311 | | | $ | 8,081 | |
Net cash from investing activities: continuing operations | $ | (22,956) | | | $ | 1,959 | | | $ | (20,997) | |
Net cash from investing activities | $ | (25,458) | | | $ | 1,959 | | | $ | (23,499) | |
| | | | | |
Cash flows from financing activities | | | | | |
Customer deposits at the Bank | $ | — | | | $ | (888) | | | $ | (888) | |
Net cash from financing activities | $ | (159,596) | | | $ | (888) | | | $ | (160,484) | |
In August 2019, we entered into a definitive agreement to sell our Software Solutions business and recast prior periods to reflect the operating results of the Software Solutions business as discontinued operations. The sale was completedPITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in December 2019, with the exception of the software business in Australia, which closed in January 2020. See Note 4 for additional information.thousands unless otherwise noted, except per share amounts)
Accounts and other receivables includes other receivables of $61 million at June 30, 2020 and $91 million at December 31, 2019. In January 2019, we sold the direct operations and moved to a dealer model in 6 smaller international markets within Sending Technology Solutions (SendTech Solutions). Other receivables includes gross receivables of $24 million related to these direct operations.
Risks and Uncertainties
The effects of COVID-19 on global economies and businesses continues to impact how we conduct business and our operating results, financial position and cash flows. There stillIts impact on our business remains uncertainty around the severity, durationunpredictable and governments' responses to COVID-19, particularly in the United States as parts of the country are experiencing a resurgence in COVID-19 cases and taking actions to modify re-opening plans. Accordingly,accordingly, we are not able to reasonably estimate the full extent of the impact of the pandemicCOVID-19 on our operating results, financial position and liquidity for the remainder of the year. Actual results could differ significantly from our estimates and assumptions, possibly resulting in additional impairments or other charges in future reporting periods.
We assessed certain accounting matters that require the use of estimates, assumptions and consideration of forecasted financial information in context with the known and projected future impacts of COVID-19. The most significant impacts are included below.
The determination of our provision for credit losses is now impacted by changes in forecasted economic conditions (see Accounting Pronouncements Adopted in 2020 below). The impact of COVID-19 on global economies and businesses resulted in an increased probability of recessionary conditions, delinquency rates and business bankruptcy. As a result, our credit loss provision for the three and six months ended June 30, 2020 was $12 million and $28 million compared to $4 million and $15 million for the three and six months ended June 30, 2019.
At December 31, 2019, the fair value of our Global Ecommerce business exceeded its carrying value by less than 20%. The determination of fair value is based on a number of estimates and assumptions, including, but not limed to, projected revenue growth, profitability and cash flows. During the first quarter of 2020, our Global Ecommerce business experienced weaker than expected performance in part due to the macroeconomic conditions resulting from COVID-19. As a result, we evaluated the Global Ecommerce goodwill for impairment and recorded a non-cash, pre-tax goodwill impairment charge of $198 million in the first quarter of 2020 (see Note 8 for additional information).
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Accounting Pronouncements Adopted in 2020
Effective January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses. We adopted this standard using the modified retrospective transition approach with a cumulative effect adjustment to retained earnings. The adoption of the standard resulted in an increase in the opening reserve balance for Accounts and other receivables of $15 million and the opening reserve balance for finance receivables of $10 million and a net reduction to retained earnings of $22 million. The ASU applies to financial assets measured at amortized cost, including finance receivables, trade and other receivables and investments in debt securities classified as available-for-sale and held-to-maturity. The ASU replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The models to estimate credit losses are required to be based on historical loss experience, current conditions, reasonable and supportable forecasts and current economic outlook.
Activity in the allowance for credit losses for accounts and other receivables for the six months ended June 30, 2020 is presented below. See Note 7 for additional information pertaining to our finance receivables.
|
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 | | Cumulative effect of accounting change | | Amounts charged to expense | | Write-offs, recoveries and currency impact | | Balance at June 30, 2020 |
Allowance for credit losses | $ | 17,830 |
| | $ | 15,336 |
| | $ | 12,692 |
| | $ | (13,384 | ) | | $ | 32,474 |
|
Accounts receivable greater than 365 days past due, subject to certain exceptions, are written off against the allowance, although collection efforts may continue.
Accounting Pronouncements Not Yet Adopted2021
In December 2019, the FASB issuedJanuary 2021 we adopted ASU 2019-12, Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles and also clarifies and amends existing guidance. This standard is effective beginning January 1, 2021, with earlyThe adoption permitted. We do not expectof this standard todid not have a material impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The transition to new reference interest rates will require certain contracts to be modified and the ASU is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The transition to new reference interest rates will require certain contracts to be modified and the ASU is intended to mitigate the effects of this transition. The accommodations provided by the ASU are effective as of March 12, 2020 through December 31, 2022 and may be applied at the beginning of any interim period within that time frame. We are currently assessing the impact this standard will have on our consolidated financial statements.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
2. Revenue
Disaggregated Revenue
The following tables disaggregate our revenue by source and timing of recognition:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | |
Business services | $ | 413,086 | | $ | 143,126 | | $ | 14,242 | | $ | 570,454 | | $ | 0 | | $ | 570,454 | |
Support services | 0 | | 0 | | 118,697 | | 118,697 | | 0 | | 118,697 | |
Financing | 0 | | 0 | | 0 | | 0 | | 77,812 | | 77,812 | |
Equipment sales | 0 | | 0 | | 19,118 | | 19,118 | | 67,685 | | 86,803 | |
Supplies | 0 | | 0 | | 42,224 | | 42,224 | | 0 | | 42,224 | |
Rentals | 0 | | 0 | | 0 | | 0 | | 19,207 | | 19,207 | |
Subtotal | 413,086 | | 143,126 | | 194,281 | | 750,493 | | $ | 164,704 | | $ | 915,197 | |
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | 0 | | 0 | | 77,812 | | 77,812 | | | |
Equipment sales | 0 | | 0 | | 67,685 | | 67,685 | | | |
Rentals | 0 | | 0 | | 19,207 | | 19,207 | | | |
Total revenue | $ | 413,086 | | $ | 143,126 | | $ | 358,985 | | $ | 915,197 | | | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | 0 | | $ | 0 | | $ | 77,538 | | $ | 77,538 | | | |
Products/services transferred over time | 413,086 | | 143,126 | | 116,743 | | 672,955 | | | |
Total | $ | 413,086 | | $ | 143,126 | | $ | 194,281 | | $ | 750,493 | | | |
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | |
Business services | $ | 398,453 |
| $ | 118,127 |
| $ | 12,410 |
| $ | 528,990 |
| $ | — |
| $ | 528,990 |
|
Support services | — |
| — |
| 113,786 |
| 113,786 |
| — |
| 113,786 |
|
Financing | — |
| — |
| — |
| — |
| 85,462 |
| 85,462 |
|
Equipment sales | — |
| — |
| 14,492 |
| 14,492 |
| 43,345 |
| 57,837 |
|
Supplies | — |
| — |
| 32,773 |
| 32,773 |
| — |
| 32,773 |
|
Rentals | — |
| — |
| — |
| — |
| 18,644 |
| 18,644 |
|
Subtotal | 398,453 |
| 118,127 |
| 173,461 |
| 690,041 |
| $ | 147,451 |
| $ | 837,492 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 85,462 |
| 85,462 |
| | |
Equipment sales | — |
| — |
| 43,345 |
| 43,345 |
| | |
Rentals | — |
| — |
| 18,644 |
| 18,644 |
| | |
Total revenue | $ | 398,453 |
| $ | 118,127 |
| $ | 320,912 |
| $ | 837,492 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 58,750 |
| $ | 58,750 |
| | |
Products/services transferred over time | 398,453 |
| 118,127 |
| 114,711 |
| 631,291 |
| | |
Total | $ | 398,453 |
| $ | 118,127 |
| $ | 173,461 |
| $ | 690,041 |
| | |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | |
Business services | $ | 292,323 | | $ | 140,720 | | $ | 11,336 | | $ | 444,379 | | $ | 0 | | $ | 444,379 | |
Support services | 0 | | 0 | | 122,015 | | 122,015 | | 0 | | 122,015 | |
Financing | 0 | | 0 | | 0 | | 0 | | 89,078 | | 89,078 | |
Equipment sales | 0 | | 0 | | 17,130 | | 17,130 | | 59,143 | | 76,273 | |
Supplies | 0 | | 0 | | 45,709 | | 45,709 | | 0 | | 45,709 | |
Rentals | 0 | | 0 | | 0 | | 0 | | 18,814 | | 18,814 | |
Subtotal | 292,323 | | 140,720 | | 196,190 | | 629,233 | | $ | 167,035 | | $ | 796,268 | |
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | 0 | | 0 | | 89,078 | | 89,078 | | | |
Equipment sales | 0 | | 0 | | 59,143 | | 59,143 | | | |
Rentals | 0 | | 0 | | 18,814 | | 18,814 | | | |
Total revenue | $ | 292,323 | | $ | 140,720 | | $ | 363,225 | | $ | 796,268 | | | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | 0 | | $ | 0 | | $ | 78,374 | | $ | 78,374 | | | |
Products/services transferred over time | 292,323 | | 140,720 | | 117,816 | | 550,859 | | | |
Total | $ | 292,323 | | $ | 140,720 | | $ | 196,190 | | $ | 629,233 | | | |
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | |
Business services | $ | 282,319 |
| $ | 128,138 |
| $ | 7,506 |
| $ | 417,963 |
| $ | — |
| $ | 417,963 |
|
Support services | — |
| — |
| 127,705 |
| 127,705 |
| — |
| 127,705 |
|
Financing | — |
| — |
| — |
| — |
| 92,419 |
| 92,419 |
|
Equipment sales | — |
| — |
| 19,384 |
| 19,384 |
| 66,167 |
| 85,551 |
|
Supplies | — |
| — |
| 46,490 |
| 46,490 |
| — |
| 46,490 |
|
Rentals | — |
| — |
| — |
| — |
| 18,445 |
| 18,445 |
|
Subtotal | 282,319 |
| 128,138 |
| 201,085 |
| 611,542 |
| $ | 177,031 |
| $ | 788,573 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 92,419 |
| 92,419 |
| | |
Equipment sales | — |
| — |
| 66,167 |
| 66,167 |
| | |
Rentals | — |
| — |
| 18,445 |
| 18,445 |
| | |
Total revenue | $ | 282,319 |
| $ | 128,138 |
| $ | 378,116 |
| $ | 788,573 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 82,790 |
| $ | 82,790 |
| | |
Products/services transferred over time | 282,319 |
| 128,138 |
| 118,295 |
| 528,752 |
| | |
Total | $ | 282,319 |
| $ | 128,138 |
| $ | 201,085 |
| $ | 611,542 |
| | |
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, 2020 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | |
Business services | $ | 690,776 |
| $ | 258,847 |
| $ | 23,746 |
| $ | 973,369 |
| $ | — |
| $ | 973,369 |
|
Support services | — |
| — |
| 235,801 |
| 235,801 |
| — |
| 235,801 |
|
Financing | — |
| — |
| — |
| — |
| 174,540 |
| 174,540 |
|
Equipment sales | — |
| — |
| 31,621 |
| 31,621 |
| 102,489 |
| 134,110 |
|
Supplies | — |
| — |
| 78,482 |
| 78,482 |
| — |
| 78,482 |
|
Rentals | — |
| — |
| — |
| — |
| 37,458 |
| 37,458 |
|
Subtotal | 690,776 |
| 258,847 |
| 369,650 |
| 1,319,273 |
| $ | 314,487 |
| $ | 1,633,760 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 174,540 |
| 174,540 |
| | |
Equipment sales | — |
| — |
| 102,489 |
| 102,489 |
| | |
Rentals | — |
| — |
| 37,458 |
| 37,458 |
| | |
Total revenue | $ | 690,776 |
| $ | 258,847 |
| $ | 684,137 |
| $ | 1,633,760 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 137,124 |
| $ | 137,124 |
| | |
Products/services transferred over time | 690,776 |
| 258,847 |
| 232,526 |
| 1,182,149 |
| | |
Total | $ | 690,776 |
| $ | 258,847 |
| $ | 369,650 |
| $ | 1,319,273 |
| | |
|
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Global Ecommerce | Presort Services | SendTech Solutions | Revenue from products and services | Revenue from leasing transactions and financing | Total consolidated revenue |
Major products/service lines | | | | | | |
Business services | $ | 548,573 |
| $ | 262,985 |
| $ | 12,950 |
| $ | 824,508 |
| $ | — |
| $ | 824,508 |
|
Support services | — |
| — |
| 256,304 |
| 256,304 |
| — |
| 256,304 |
|
Financing | — |
| — |
| — |
| — |
| 189,462 |
| 189,462 |
|
Equipment sales | — |
| — |
| 40,677 |
| 40,677 |
| 134,661 |
| 175,338 |
|
Supplies | — |
| — |
| 97,443 |
| 97,443 |
| — |
| 97,443 |
|
Rentals | — |
| — |
| — |
| — |
| 40,602 |
| 40,602 |
|
Subtotal | 548,573 |
| 262,985 |
| 407,374 |
| 1,218,932 |
| $ | 364,725 |
| $ | 1,583,657 |
|
| | | | | | |
Revenue from leasing transactions and financing | | | | | | |
Financing | — |
| — |
| 189,462 |
| 189,462 |
| | |
Equipment sales | — |
| — |
| 134,661 |
| 134,661 |
| | |
Rentals | — |
| — |
| 40,602 |
| 40,602 |
| | |
Total revenue | $ | 548,573 |
| $ | 262,985 |
| $ | 772,099 |
| $ | 1,583,657 |
| | |
| | | | | | |
Timing of revenue recognition from products and services | | | | |
Products/services transferred at a point in time | $ | — |
| $ | — |
| $ | 169,666 |
| $ | 169,666 |
| | |
Products/services transferred over time | 548,573 |
| 262,985 |
| 237,708 |
| 1,049,266 |
| | |
Total | $ | 548,573 |
| $ | 262,985 |
| $ | 407,374 |
| $ | 1,218,932 |
| | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Our performance obligations for revenue from products and services are as follows:
Business services includes providing mail processing services, shipping subscription solutions, fulfillment, delivery and return services and cross-border solutions. Revenue for shipping subscription solutions is recognized ratably over the contract period as the client obtains equal benefit from these services through the period. Revenue for mail processing services, fulfillment, delivery and return services and cross-border solutions is recognized over time asusing an output method based on the number of parcels or mail pieces either processed or delivered, depending on the service type, since that measure best depicts the value of goods and services are provided and revenue for shipping subscription solutions is recognized ratablytransferred to the client over the contract period. Contract terms for these services range from one to five years followed by annual renewal periods.
Support services includes providing maintenance, professional and subscription services for our mailing equipment and professional services for our shipping solutions.digital delivery services. Contract terms range from one to five years, depending on the term of the lease contract for the related equipment. Revenue for maintenance and subscription services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.
Equipment sales, excluding sales-type leases, generally includes the sale of mailing and shipping equipment, excluding sales-type leases.equipment. We recognize revenue upon delivery for self-install equipment 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.
Supplies revenue is recognized upon delivery.
Revenue from leasing transactions and financing includes revenue from sales-type leases,and operating leases, finance income, late fees and late fees.
investment income, gains and losses at Pitney Bowes Bank.
Advance Billings from Contracts with Customers
| | | Balance sheet location | | June 30, 2020 | | December 31, 2019 | | Increase/ (decrease) | | Balance sheet location | | March 31, 2021 | | December 31, 2020 | | Increase/ (decrease) |
Advance billings, current | Advance billings | | $ | 113,799 |
| | $ | 92,464 |
| | $ | 21,335 |
| Advance billings, current | Advance billings | | $ | 110,786 | | | $ | 106,498 | | | $ | 4,288 | |
Advance billings, noncurrent | Other noncurrent liabilities | | $ | 1,102 |
| | $ | 1,245 |
| | $ | (143 | ) | Advance billings, noncurrent | Other noncurrent liabilities | | $ | 1,341 | | | $ | 1,277 | | | $ | 64 | |
Advance billings are recorded when cash payments are due in advance of our performance. Revenue is recognized ratably over the contract term. Items in advance billings primarily relate to support services on mailing equipment. Advance billings at both June 30, 2020 and December 31, 2019 also includes $9 million from leasing transactions.
The net increase in advance billings at June 30, 2020 is due to new advance billings recognized during the period in excess of revenue recognized. Revenue recognized during the period includes $75$74 million of advance billings at the beginning of the period. Advance billings, current at March 31, 2021 and December 31, 2020 also includes $7 million and $8 million, respectively, from leasing transactions.
Future Performance Obligations
Future performance obligations include revenue streams bundled with our leasing contracts, primarily maintenance and subscription services. The transaction prices allocated to future performance obligations will be recognized as follows: |
| | | | | | | | | | | | | | | | |
| | Remainder of 2020 | | 2021 | | 2022-2025 | | Total |
SendTech Solutions | | $ | 146,357 |
| | $ | 252,289 |
| | $ | 346,874 |
| | $ | 745,520 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remainder of 2021 | | 2022 | | 2023-2026 | | Total |
SendTech Solutions | | $ | 215,628 | | | $ | 227,979 | | | $ | 272,008 | | | $ | 715,615 | |
The table above does not include revenue related to performance obligations for contracts with terms less than 12 months and expected consideration for those performance obligations where revenue is recognized based on the amount billable to the customer.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
3. Segment Information
Our reportable segments are Global Ecommerce, Presort Services and SendTech Solutions. Global Ecommerce and Presort Services comprise the Commerce Services reporting group.Sending Technology Solutions (SendTech Solutions). The principal products and services of each reportable segment are as follows:
Global Ecommerce: Includes the revenue and related expenses from productsdomestic parcel services, cross-border solutions and services that facilitate domestic retail and ecommerce shipping solutions, including fulfillment and returns, and global cross-border ecommerce transactions.digital delivery services.
Presort Services: Includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail, and Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.
SendTech Solutions: Includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.
Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, asset impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The following tables provide information about our reportable segments and reconciliation of segment EBIT to net (loss) income.loss.
|
| | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Global Ecommerce | $ | 398,453 |
| | $ | 282,319 |
| | $ | 690,776 |
| | $ | 548,573 |
|
Presort Services | 118,127 |
| | 128,138 |
| | 258,847 |
| | 262,985 |
|
Commerce Services | 516,580 |
| | 410,457 |
| | 949,623 |
| | 811,558 |
|
SendTech Solutions | 320,912 |
| | 378,116 |
| | 684,137 |
| | 772,099 |
|
Total revenue | $ | 837,492 |
| | $ | 788,573 |
| | $ | 1,633,760 |
| | $ | 1,583,657 |
|
| | | | | | | | | | | | | | | |
| | | | | Revenue |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Global Ecommerce | | | | | $ | 413,086 | | | $ | 292,323 | |
Presort Services | | | | | 143,126 | | | 140,720 | |
SendTech Solutions | | | | | 358,985 | | | 363,225 | |
Total revenue | | | | | $ | 915,197 | | | $ | 796,268 | |
| | | | | | | | | | | | | | | |
| | | | | EBIT |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Global Ecommerce | | | | | $ | (26,376) | | | $ | (29,475) | |
Presort Services | | | | | 19,051 | | | 15,695 | |
SendTech Solutions | | | | | 114,470 | | | 106,562 | |
Total segment EBIT | | | | | 107,145 | | | 92,782 | |
Reconciliation of Segment EBIT to net loss: | | | | | | | |
Unallocated corporate expenses | | | | | (57,465) | | | (43,722) | |
Restructuring charges | | | | | (2,889) | | | (3,817) | |
Interest expense, net | | | | | (37,044) | | | (38,372) | |
| | | | | | | |
Goodwill impairment | | | | | 0 | | | (198,169) | |
Loss on debt refinancing | | | | | (51,394) | | | (36,987) | |
| | | | | | | |
Transaction costs | | | | | 0 | | | (292) | |
Benefit for income taxes | | | | | 13,992 | | | 10,030 | |
Loss from continuing operations | | | | | (27,655) | | | (218,547) | |
(Loss) income from discontinued operations, net of tax | | | | | (3,886) | | | 10,064 | |
Net loss | | | | | $ | (31,541) | | | $ | (208,483) | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Global Ecommerce | $ | (18,894 | ) | | $ | (15,576 | ) | | $ | (48,369 | ) | | $ | (30,176 | ) |
Presort Services | 12,582 |
| | 15,462 |
| | 28,277 |
| | 30,528 |
|
Commerce Services | (6,312 | ) | | (114 | ) | | (20,092 | ) | | 352 |
|
SendTech Solutions | 104,268 |
| | 124,738 |
| | 210,830 |
| | 247,141 |
|
Total segment EBIT | 97,956 |
| | 124,624 |
| | 190,738 |
| | 247,493 |
|
Reconciliation of Segment EBIT to net (loss) income: | | | | | |
| | |
|
Unallocated corporate expenses | (49,489 | ) | | (45,048 | ) | | (93,211 | ) | | (102,006 | ) |
Restructuring charges and asset impairments | (4,922 | ) | | (5,899 | ) | | (8,739 | ) | | (9,599 | ) |
Interest expense, net | (38,385 | ) | | (39,062 | ) | | (76,757 | ) | | (78,028 | ) |
Gain on sale of equity investment | 11,908 |
| | — |
| | 11,908 |
| | — |
|
Goodwill impairment | — |
| | — |
| | (198,169 | ) | | — |
|
Loss on extinguishment of debt | — |
| | — |
| | (36,987 | ) | | — |
|
Loss on dispositions and transaction costs | (349 | ) | | (1,581 | ) | | (641 | ) | | (19,549 | ) |
Provision for income taxes | (17,016 | ) | | (3,724 | ) | | (6,986 | ) | | (11,544 | ) |
(Loss) income from continuing operations | (297 | ) | | 29,310 |
| | (218,844 | ) | | 26,767 |
|
(Loss) income from discontinued operations, net of tax | (3,032 | ) | | (5,613 | ) | | 7,032 |
| | (5,729 | ) |
Net (loss) income | $ | (3,329 | ) | | $ | 23,697 |
| | $ | (211,812 | ) | | $ | 21,038 |
|
During the three and six months ended June 30, 2020, we received insurance proceeds of $5 million and $9 million, respectively, related to the October 2019 malware attack, a portion of which has been allocated to the business segments.
4. Discontinued Operations
Discontinued operations for the quarter ended March 31, 2021 includes a tax charge related to the sale of our Production Mail business in 2018. Discontinued operations for the quarter ended March 31, 2020 primarily includes the Software Solutions business, sold in December 2019, withgain on the exceptionsale of theour software business in Australia, which closed in JanuaryAustralia.
5. Earnings per Share (EPS)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Numerator: | | | | | | | |
Loss from continuing operations | | | | | $ | (27,655) | | | $ | (218,547) | |
(Loss) income from discontinued operations, net of tax | | | | | (3,886) | | | 10,064 | |
| | | | | | | |
| | | | | | | |
Net loss | | | | | $ | (31,541) | | | $ | (208,483) | |
Denominator: | | | | | | | |
Weighted-average shares used in basic EPS | | | | | 172,856 | | | 170,912 | |
Dilutive effect of common stock equivalents (1) | | | | | 0 | | | 0 | |
Weighted-average shares used in diluted EPS | | | | | 172,856 | | | 170,912 | |
Basic loss per share (2): | | | | | | | |
Continuing operations | | | | | $ | (0.16) | | | $ | (1.28) | |
Discontinued operations | | | | | (0.02) | | | 0.06 | |
Net loss | | | | | $ | (0.18) | | | $ | (1.22) | |
Diluted loss per share (2): | | | | | | | |
Continuing operations | | | | | $ | (0.16) | | | $ | (1.28) | |
Discontinued operations | | | | | (0.02) | | | 0.06 | |
Net loss | | | | | $ | (0.18) | | | $ | (1.22) | |
| | | | | | | |
Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive: | | | | | 6,440 | | | 17,617 | |
(1) Due to the net loss for the three months ended March 31, 2021 and 2020, common stock equivalents of 5,804 and 1,554, respectively, were also excluded from the Production Mail business, sold in July 2018. Selected financial informationcalculation of discontinued operationsdiluted earnings per share as the impact would have been anti-dilutive.
(2) The sum of the earnings per share amounts may not equal the totals due to rounding.
6. Inventories
Inventories are stated at the lower of cost or market. Cost is as follows:determined on the last-in, first-out (LIFO) basis, the first-in, first-out (FIFO) basis or average cost. Inventories consisted of the following:
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Raw materials | $ | 17,879 | | | $ | 16,570 | |
Supplies and service parts | 25,749 | | | 24,061 | |
Finished products | 25,687 | | | 30,849 | |
Inventory at FIFO cost | 69,315 | | | 71,480 | |
Excess of FIFO cost over LIFO cost | (5,635) | | | (5,635) | |
Total inventory, net | $ | 63,680 | | | $ | 65,845 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2019 |
| Software Solutions | | Production Mail | | Total | | Software Solutions | | Production Mail | | Total |
Revenue | $ | — |
| | $ | — |
| | $ | — |
| | $ | 72,206 |
| | $ | — |
| | $ | 72,206 |
|
| | | | | | | | | | | |
Earnings from discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,342 |
| | $ | — |
| | $ | 1,342 |
|
(Loss) gain on sale | (3,416 | ) | | 245 |
| | (3,171 | ) | | — |
| | (8,589 | ) | | (8,589 | ) |
(Loss) income from discontinued operations before taxes | $ | (3,416 | ) | | $ | 245 |
| | (3,171 | ) | | $ | 1,342 |
| | $ | (8,589 | ) | | (7,247 | ) |
Tax benefit | | | | | (139 | ) | | | | | | (1,634 | ) |
Loss from discontinued operations, net of tax | | | | | $ | (3,032 | ) | | | | | | $ | (5,613 | ) |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
7. Finance Assets and Lessor Operating Leases
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2019 |
| Software Solutions | | Production Mail | | Total | | Software Solutions | | Production Mail | | Total |
Revenue | $ | — |
| | $ | — |
| | $ | — |
| | $ | 145,524 |
| | $ | — |
| | $ | 145,524 |
|
| | | | | | | | | | | |
Earnings (loss) from discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,938 |
| | $ | (663 | ) | | $ | 2,275 |
|
Gain (loss) on sale | 6,869 |
| | (167 | ) | | 6,702 |
| | — |
| | (9,257 | ) | | (9,257 | ) |
Income (loss) from discontinued operations before taxes | $ | 6,869 |
| | $ | (167 | ) | | 6,702 |
| | $ | 2,938 |
| | $ | (9,920 | ) | | (6,982 | ) |
Tax benefit | | | | | (330 | ) | | | | | | (1,253 | ) |
Income (loss) from discontinued operations, net of tax | | | | | $ | 7,032 |
| | | | | | $ | (5,729 | ) |
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our clients for postage and supplies and are generally due monthly; however, clients may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method. Annual fees are recognized ratably over the annual period covered and client acquisition costs are expensed as incurred.
Assets of discontinued operations and liabilities of discontinued operations at December 31, 2019 includes the assets and liabilitiesFinance receivables consisted of the software business in Australia.following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| North America | | International | | Total | | North America | | International | | Total |
Sales-type lease receivables | | | | | | | | | | | |
Gross finance receivables | $ | 975,272 | | | $ | 192,273 | | | $ | 1,167,545 | | | $ | 994,985 | | | $ | 211,944 | | | $ | 1,206,929 | |
Unguaranteed residual values | 37,463 | | | 11,667 | | | 49,130 | | | 36,405 | | | 12,140 | | | 48,545 | |
Unearned income | (265,497) | | | (60,413) | | | (325,910) | | | (275,359) | | | (61,686) | | | (337,045) | |
Allowance for credit losses | (22,998) | | | (5,606) | | | (28,604) | | | (22,917) | | | (6,006) | | | (28,923) | |
Net investment in sales-type lease receivables | 724,240 | | | 137,921 | | | 862,161 | | | 733,114 | | | 156,392 | | | 889,506 | |
Loan receivables | | | | | | | | | | | |
Loan receivables | 269,797 | | | 22,985 | | | 292,782 | | | 268,690 | | | 22,092 | | | 290,782 | |
Allowance for credit losses | (6,407) | | | (463) | | | (6,870) | | | (6,484) | | | (462) | | | (6,946) | |
Net investment in loan receivables | 263,390 | | | 22,522 | | | 285,912 | | | 262,206 | | | 21,630 | | | 283,836 | |
Net investment in finance receivables | $ | 987,630 | | | $ | 160,443 | | | $ | 1,148,073 | | | $ | 995,320 | | | $ | 178,022 | | | $ | 1,173,342 | |
5. Earnings per Share (EPS) |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator: | |
| | |
| | |
| | |
|
(Loss) income from continuing operations | $ | (297 | ) | | $ | 29,310 |
| | $ | (218,844 | ) | | $ | 26,767 |
|
(Loss) income from discontinued operations, net of tax | (3,032 | ) | | (5,613 | ) | | 7,032 |
| | (5,729 | ) |
Net (loss) income (numerator for diluted EPS) | (3,329 | ) | | 23,697 |
| | (211,812 | ) | | 21,038 |
|
Less: Preference stock dividend | — |
| | — |
| | — |
| | 8 |
|
(Loss) income attributable to common stockholders (numerator for basic EPS) | $ | (3,329 | ) | | $ | 23,697 |
| | $ | (211,812 | ) | | $ | 21,030 |
|
Denominator: | |
| | |
| | |
| | |
|
Weighted-average shares used in basic EPS | 171,478 |
| | 177,192 |
| | 171,167 |
| | 181,446 |
|
Dilutive effect of common stock equivalents (1) | — |
| | 1,089 |
| | — |
| | 1,192 |
|
Weighted-average shares used in diluted EPS | 171,478 |
| | 178,281 |
| | 171,167 |
| | 182,638 |
|
Basic earnings (loss) per share (2): | |
| | |
| | |
| | |
|
Continuing operations | $ | — |
| | $ | 0.17 |
| | $ | (1.28 | ) | | $ | 0.15 |
|
Discontinued operations | (0.02 | ) | | (0.03 | ) | | 0.04 |
| | (0.03 | ) |
Net (loss) income | $ | (0.02 | ) | | $ | 0.13 |
| | $ | (1.24 | ) | | $ | 0.12 |
|
Diluted earnings (loss) per share (2): | | | | | | | |
Continuing operations | $ | — |
| | $ | 0.16 |
| | $ | (1.28 | ) | | $ | 0.15 |
|
Discontinued operations | (0.02 | ) | | (0.03 | ) | | 0.04 |
| | (0.03 | ) |
Net (loss) income | $ | (0.02 | ) | | $ | 0.13 |
| | $ | (1.24 | ) | | $ | 0.12 |
|
| | | | | | | |
Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive: | 19,963 |
| | 16,297 |
| | 18,297 |
| | 16,077 |
|
| |
(1)
| Dilutive effect of common stock equivalents for the three and six months ended June 30, 2020 was 1,019 and 1,190, respectively; however, is not included in the calculation of diluted earnings per share as the Company is reporting a net loss for both periods. |
| |
(2)
| The sum of the earnings per share amounts may not equal the totals due to rounding. |
Maturities of gross sales-type lease receivables and gross loan receivables at March 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables |
| North America | | International | | Total | | North America | | International | | Total |
Remaining for year ending December 31, 2021 | $ | 297,596 | | | $ | 47,488 | | | $ | 345,084 | | | $ | 219,009 | | | $ | 22,985 | | | $ | 241,994 | |
Year ending December 31, 2022 | 308,902 | | | 65,636 | | | 374,538 | | | 16,057 | | | 0 | | | 16,057 | |
Year ending December 31, 2023 | 204,090 | | | 42,223 | | | 246,313 | | | 10,325 | | | 0 | | | 10,325 | |
Year ending December 31, 2024 | 110,774 | | | 22,887 | | | 133,661 | | | 12,722 | | | 0 | | | 12,722 | |
Year ending December 31, 2025 | 46,934 | | | 10,250 | | | 57,184 | | | 9,470 | | | 0 | | | 9,470 | |
Thereafter | 6,976 | | | 3,789 | | | 10,765 | | | 2,214 | | | 0 | | | 2,214 | |
Total | $ | 975,272 | | | $ | 192,273 | | | $ | 1,167,545 | | | $ | 269,797 | | | $ | 22,985 | | | $ | 292,782 | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
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 consisted of the following:
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Raw materials | $ | 20,021 |
| | $ | 13,514 |
|
Supplies and service parts | 22,787 |
| | 21,840 |
|
Finished products | 34,681 |
| | 36,969 |
|
Inventory at FIFO cost | 77,489 |
| | 72,323 |
|
Excess of FIFO cost over LIFO cost | (3,836 | ) | | (4,072 | ) |
Total inventory, net | $ | 73,653 |
| | $ | 68,251 |
|
7. Finance Assets and Lessor Operating Leases
Finance Assets
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 clients for postage and supplies. Most loan receivables are generally due each month; however, clients may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Client acquisition costs are expensed as incurred.
Finance receivables consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| North America | | International | | Total | | North America | | International | | Total |
Sales-type lease receivables | |
| | |
| | |
| | |
| | |
| | |
|
Gross finance receivables | $ | 998,450 |
| | $ | 196,767 |
| | $ | 1,195,217 |
| | $ | 1,055,852 |
| | $ | 224,202 |
| | $ | 1,280,054 |
|
Unguaranteed residual values | 37,742 |
| | 11,283 |
| | 49,025 |
| | 41,934 |
| | 11,789 |
| | 53,723 |
|
Unearned income | (282,027 | ) | | (58,487 | ) | | (340,514 | ) | | (319,281 | ) | | (65,888 | ) | | (385,169 | ) |
Allowance for credit losses | (26,603 | ) | | (4,743 | ) | | (31,346 | ) | | (10,920 | ) | | (2,085 | ) | | (13,005 | ) |
Net investment in sales-type lease receivables | 727,562 |
| | 144,820 |
| | 872,382 |
| | 767,585 |
| | 168,018 |
| | 935,603 |
|
Loan receivables | | | |
| | |
| | |
| | |
| | |
|
Loan receivables | 254,786 |
| | 18,635 |
| | 273,421 |
| | 298,247 |
| | 27,926 |
| | 326,173 |
|
Allowance for credit losses | (6,482 | ) | | (286 | ) | | (6,768 | ) | | (5,906 | ) | | (740 | ) | | (6,646 | ) |
Net investment in loan receivables | 248,304 |
| | 18,349 |
| | 266,653 |
| | 292,341 |
| | 27,186 |
| | 319,527 |
|
Net investment in finance receivables | $ | 975,866 |
| | $ | 163,169 |
| | $ | 1,139,035 |
| | $ | 1,059,926 |
| | $ | 195,204 |
| | $ | 1,255,130 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Maturities of gross sales-type lease receivables and gross loan receivables at June 30, 2020 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables |
| North America | | International | | Total | | North America | | International | | Total |
Remaining for year ending December 31, 2020 | $ | 220,405 |
| | $ | 41,451 |
| | $ | 261,856 |
| | $ | 216,777 |
| | $ | 18,635 |
| | $ | 235,412 |
|
Year ending December 31, 2021 | 336,863 |
| | 68,465 |
| | 405,328 |
| | 12,032 |
| | — |
| | 12,032 |
|
Year ending December 31, 2022 | 234,552 |
| | 47,971 |
| | 282,523 |
| | 10,414 |
| | — |
| | 10,414 |
|
Year ending December 31, 2023 | 138,308 |
| | 26,324 |
| | 164,632 |
| | 5,582 |
| | — |
| | 5,582 |
|
Year ending December 31, 2024 | 58,803 |
| | 10,403 |
| | 69,206 |
| | 6,807 |
| | — |
| | 6,807 |
|
Thereafter | 9,519 |
| | 2,153 |
| | 11,672 |
| | 3,174 |
| | — |
| | 3,174 |
|
Total | $ | 998,450 |
| | $ | 196,767 |
| | $ | 1,195,217 |
| | $ | 254,786 |
| | $ | 18,635 |
| | $ | 273,421 |
|
Aging of Receivables
The aging of gross finance receivables was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Past due amounts 0 - 90 days | $ | 956,358 | | | $ | 191,298 | | | $ | 265,004 | | | $ | 22,812 | | | $ | 1,435,472 | |
Past due amounts > 90 days | 18,914 | | | 975 | | | 4,793 | | | 173 | | | 24,855 | |
Total | $ | 975,272 | | | $ | 192,273 | | | $ | 269,797 | | | $ | 22,985 | | | $ | 1,460,327 | |
Past due amounts > 90 days | | | | | | | | | |
Still accruing interest | $ | 3,853 | | | $ | 189 | | | $ | 1,466 | | | $ | 66 | | | $ | 5,574 | |
Not accruing interest | 15,061 | | | 786 | | | 3,327 | | | 107 | | | 19,281 | |
Total | $ | 18,914 | | | $ | 975 | | | $ | 4,793 | | | $ | 173 | | | $ | 24,855 | |
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2020 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Past due amounts 0 - 90 days | $ | 974,864 |
| | $ | 194,055 |
| | $ | 246,491 |
| | $ | 18,288 |
| | $ | 1,433,698 |
|
Past due amounts > 90 days | 23,586 |
| | 2,712 |
| | 8,295 |
| | 347 |
| | 34,940 |
|
Total | $ | 998,450 |
| | $ | 196,767 |
| | $ | 254,786 |
| | $ | 18,635 |
| | $ | 1,468,638 |
|
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
|
Still accruing interest | $ | 4,982 |
| | $ | 1,091 |
| | $ | 5,205 |
| | $ | 191 |
| | $ | 11,469 |
|
Not accruing interest | 18,604 |
| | 1,621 |
| | 3,090 |
| | 156 |
| | 23,471 |
|
Total | $ | 23,586 |
| | $ | 2,712 |
| | $ | 8,295 |
| | $ | 347 |
| | $ | 34,940 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Past due amounts 0 - 90 days | $ | 1,032,912 |
| | $ | 220,819 |
| | $ | 294,001 |
| | $ | 27,697 |
| | $ | 1,575,429 |
|
Past due amounts > 90 days | 22,940 |
| | 3,383 |
| | 4,246 |
| | 229 |
| | 30,798 |
|
Total | $ | 1,055,852 |
| | $ | 224,202 |
| | $ | 298,247 |
| | $ | 27,926 |
| | $ | 1,606,227 |
|
Past due amounts > 90 days | |
| | |
| | |
| | |
| | |
|
Still accruing interest | $ | 4,835 |
| | $ | 1,081 |
| | $ | 2,094 |
| | $ | 121 |
| | $ | 8,131 |
|
Not accruing interest | 18,105 |
| | 2,302 |
| | 2,152 |
| | 108 |
| | 22,667 |
|
Total | $ | 22,940 |
| | $ | 3,383 |
| | $ | 4,246 |
| | $ | 229 |
| | $ | 30,798 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Past due amounts 0 - 90 days | $ | 972,266 | | | $ | 208,968 | | | $ | 264,484 | | | $ | 21,932 | | | $ | 1,467,650 | |
Past due amounts > 90 days | 22,719 | | | 2,976 | | | 4,206 | | | 160 | | | 30,061 | |
Total | $ | 994,985 | | | $ | 211,944 | | | $ | 268,690 | | | $ | 22,092 | | | $ | 1,497,711 | |
Past due amounts > 90 days | | | | | | | | | |
Still accruing interest | $ | 5,128 | | | $ | 463 | | | $ | 1,797 | | | $ | 59 | | | $ | 7,447 | |
Not accruing interest | 17,591 | | | 2,513 | | | 2,409 | | | 101 | | | 22,614 | |
Total | $ | 22,719 | | | $ | 2,976 | | | $ | 4,206 | | | $ | 160 | | | $ | 30,061 | |
Allowance for Credit Losses
We estimate an allowance for credit losses based on historical loss experience, the nature of our portfolios, adverse situations that may affect a client's ability to pay, current conditions, reasonable and supportablemanagement forecasts and currentindependent economic outlook.forecasts. Credit losses are estimated at the portfolio level based on asset type and geographic market. Historical loss experience wasis based on actual loss rates over the average term of the asset of five years for sales-type lease receivables and three years for loan receivables (including accrued interest). Additionally, we evaluate current conditions and review third-party economic forecasts on a quarterly basis to determine the impact on the allowance for credit losses. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves. The allowance for credit losses for the six months ended June 30, 2020 considers the current economic conditions and resulting impact on a client's future ability to pay amounts due.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
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. We monitor delinquency rates and have experienced a slight increase in our delinquencies during this current economic situation. However, 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.
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 finance receivables was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at January 1, 2021 | $ | 22,917 | | | $ | 6,006 | | | $ | 6,484 | | | $ | 462 | | | $ | 35,869 | |
| | | | | | | | | |
Amounts charged to expense | 154 | | | 61 | | | 763 | | | 4 | | | 982 | |
Write-offs | (1,024) | | | (371) | | | (1,833) | | | (3) | | | (3,231) | |
Recoveries | 935 | | | 29 | | | 991 | | | 0 | | | 1,955 | |
Other | 16 | | | (119) | | | 2 | | | 0 | | | (101) | |
Balance at March 31, 2021 | $ | 22,998 | | | $ | 5,606 | | | $ | 6,407 | | | $ | 463 | | | $ | 35,474 | |
| | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at December 31, 2019 | $ | 10,920 | | | $ | 2,085 | | | $ | 5,906 | | | $ | 740 | | | $ | 19,651 | |
Cumulative effect of accounting change | 9,271 | | | 1,750 | | | (1,116) | | | (402) | | | 9,503 | |
Amounts charged to expense | 6,892 | | | 1,345 | | | 4,006 | | | 403 | | | 12,646 | |
Write-offs | (1,618) | | | (248) | | | (2,058) | | | (104) | | | (4,028) | |
Recoveries | 592 | | | 31 | | | 691 | | | 0 | | | 1,314 | |
Other | (124) | | | (80) | | | (7) | | | (7) | | | (218) | |
Balance at March 31, 2020 | $ | 25,933 | | | $ | 4,883 | | | $ | 7,422 | | | $ | 630 | | | $ | 38,868 | |
|
| | | | | | | | | | | | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at December 31, 2019 | $ | 10,920 |
| | $ | 2,085 |
| | $ | 5,906 |
| | $ | 740 |
| | $ | 19,651 |
|
Cumulative effect of accounting change | 9,271 |
| | 1,750 |
| | (1,116 | ) | | (402 | ) | | 9,503 |
|
Amounts charged to expense | 9,025 |
| | 1,257 |
| | 4,758 |
| | 208 |
| | 15,248 |
|
Write-offs | (3,536 | ) | | (386 | ) | | (4,542 | ) | | (297 | ) | | (8,761 | ) |
Recoveries | 946 |
| | 44 |
| | 1,386 |
| | 1 |
| | 2,377 |
|
Other | (23 | ) | | (7 | ) | | 90 |
| | 36 |
| | 96 |
|
Balance at June 30, 2020 | $ | 26,603 |
| | $ | 4,743 |
| | $ | 6,482 |
| | $ | 286 |
| | $ | 38,114 |
|
| | | | | | | | | |
| Sales-type Lease Receivables | | Loan Receivables | | |
| North America | | International | | North America | | International | | Total |
Balance at January 1, 2019 | $ | 10,253 |
| | $ | 2,355 |
| | $ | 6,777 |
| | $ | 837 |
| | $ | 20,222 |
|
Amounts charged to expense | 3,660 |
| | 455 |
| | 2,329 |
| | 315 |
| | 6,759 |
|
Write-offs | (3,452 | ) | | (533 | ) | | (4,649 | ) | | (451 | ) | | (9,085 | ) |
Recoveries | 813 |
| | 167 |
| | 1,909 |
| | 4 |
| | 2,893 |
|
Other | 48 |
| | (182 | ) | | 8 |
| | 54 |
| | (72 | ) |
Balance at June 30, 2019 | $ | 11,322 |
| | $ | 2,262 |
| | $ | 6,374 |
| | $ | 759 |
| | $ | 20,717 |
|
Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of a client's credit score, where available, and a detailed manual review of their financial condition and payment history or an automated process for certain small dollar applications. 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 in place trackto ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a proprietary commercial credit score. The relative scores are determined based on a number of factors, including financial information, payment history, company type and ownership structure. A fourth class is shown for accounts that areWe stratify the third party's credit scores of our clients into low, medium and high-risk accounts. Due to timing and other issues, our entire portfolio may not scored. Absencebe scored at period end. We report these amounts as "Not Scored"; however, absence of a score is not indicative of the credit quality of the account. The degreethird-party credit score is used to predict the payment behaviors of risk (low, medium, high), as defined byour clients and the third party, refers to the relative riskprobability that an account maywill become delinquent ingreater than 90 days past due during the next 12 months.subsequent 12-month period.
•Low risk accounts are companies with very good credit scores and are considered to approximate the top 30%a predicted delinquency rate of all commercial borrowers.less than 5%.
•Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.a predicted delinquency rate between 5% and 10%.
•High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.delinquent. The predicted delinquency rate would be greater than 10%.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The table below shows the gross sales-type lease receivable and loan receivable balances by relative risk class and year of origination based on the relative scores of the accounts within each class.class as of March 31, 2021 and December 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Type Lease Receivables | | Loan Receivables | | Total |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | |
Low | $ | 78,458 | | | $ | 235,018 | | | $ | 207,236 | | | $ | 144,994 | | | $ | 70,678 | | | $ | 31,481 | | | $ | 180,586 | | | $ | 948,451 | |
Medium | 13,409 | | | 46,999 | | | 46,899 | | | 31,959 | | | 16,268 | | | 7,235 | | | 74,966 | | | 237,735 | |
High | 1,497 | | | 5,248 | | | 5,142 | | | 3,402 | | | 1,792 | | | 1,024 | | | 5,127 | | | 23,232 | |
Not Scored | 23,202 | | | 61,983 | | | 58,732 | | | 38,207 | | | 23,214 | | | 13,468 | | | 32,103 | | | 250,909 | |
Total | $ | 116,566 | | | $ | 349,248 | | | $ | 318,009 | | | $ | 218,562 | | | $ | 111,952 | | | $ | 53,208 | | | $ | 292,782 | | | $ | 1,460,327 | |
| | | | | | | | | | | | | | | |
| Sales Type Lease Receivables | | Loan Receivables | | Total |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | |
Low | $ | 256,573 | | | $ | 228,344 | | | $ | 165,244 | | | $ | 87,346 | | | $ | 30,518 | | | $ | 12,249 | | | $ | 192,971 | | | $ | 973,245 | |
Medium | 50,785 | | | 49,946 | | | 37,168 | | | 21,388 | | | 6,470 | | | 2,375 | | | 61,625 | | | 229,757 | |
High | 6,182 | | | 5,396 | | | 3,782 | | | 1,974 | | | 1,051 | | | 143 | | | 4,518 | | | 23,046 | |
Not Scored | 80,854 | | | 77,362 | | | 48,704 | | | 24,291 | | | 7,813 | | | 971 | | | 31,668 | | | 271,663 | |
Total | $ | 394,394 | | | $ | 361,048 | | | $ | 254,898 | | | $ | 134,999 | | | $ | 45,852 | | | $ | 15,738 | | | $ | 290,782 | | | $ | 1,497,711 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Type Lease Receivables | | Loan Receivables | | Total |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | |
Low | $ | 136,197 |
| | $ | 252,315 |
| | $ | 199,078 |
| | $ | 118,201 |
| | $ | 49,013 |
| | $ | 19,906 |
| | $ | 187,311 |
| | $ | 962,021 |
|
Medium | 25,754 |
| | 57,452 |
| | 45,269 |
| | 28,693 |
| | 10,886 |
| | 5,688 |
| | 53,748 |
| | 227,490 |
|
High | 3,249 |
| | 6,342 |
| | 5,295 |
| | 3,380 |
| | 1,802 |
| | 323 |
| | 4,210 |
| | 24,601 |
|
Not Scored | 35,880 |
| | 82,099 |
| | 56,596 |
| | 33,466 |
| | 15,450 |
| | 2,883 |
| | 28,152 |
| | 254,526 |
|
Total | $ | 201,080 |
| | $ | 398,208 |
| | $ | 306,238 |
| | $ | 183,740 |
| | $ | 77,151 |
| | $ | 28,800 |
| | $ | 273,421 |
| | $ | 1,468,638 |
|
The majority of the Not Scored amounts above is within our International portfolio. 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, andas there is no single credit score model that covers all countries. International credit applications below $50 thousand are subjected to an automated review process. All other credit applications are manually reviewed. A manual review includes obtaining client financial information, credit reports and other available financial information. Approximately 80% of credit applications are approved or denied through the automated review process. All other credit applications are manually reviewed by obtaining client financial information, credit reports and other available financial information.
Lease Income
Lease income from sales-type leases was as follows:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
Profit recognized at commencement (1) | $ | 21,271 |
| | $ | 36,508 |
| | $ | 51,166 |
| | $ | 73,112 |
| Profit recognized at commencement (1) | | $ | 32,265 | | | $ | 29,908 | |
Interest income | 34,055 |
| | 58,045 |
| | 68,315 |
| | 117,523 |
| Interest income | | 48,496 | | | 53,806 | |
Total lease income from sales-type leases | $ | 55,326 |
| | $ | 94,553 |
| | $ | 119,481 |
| | $ | 190,635 |
| Total lease income from sales-type leases | | $ | 80,761 | | | $ | 83,714 | |
(1) Lease contracts do not include variable lease payments.
The disclosure of total lease income from sales-type leases for the three months ended March 31, 2020 has been revised from $63 million to $84 million. The revision did not have any impact on our Condensed Consolidated Statement of Loss.
Lessor Operating Leases
We also lease mailing equipment under operating leases with terms of one to five years. Maturities of these operating leases are as follows:
| | | | | |
Remaining for year ending December 31, 2021 | $ | 25,005 | |
Year ending December 31, 2022 | 20,449 | |
Year ending December 31, 2023 | 9,175 | |
Year ending December 31, 2024 | 7,692 | |
Year ending December 31, 2025 | 2,499 | |
Thereafter | 37 | |
Total | $ | 64,857 | |
|
| | | |
Remaining for year ending December 31, 2020 | $ | 20,222 |
|
Year ending December 31, 2021 | 27,899 |
|
Year ending December 31, 2022 | 10,881 |
|
Year ending December 31, 2023 | 4,899 |
|
Year ending December 31, 2024 | 1,528 |
|
Thereafter | 200 |
|
Total | $ | 65,629 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
8. Intangible Assets Goodwill and Other AssetsGoodwill
Intangible Assets
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 268,199 | | | $ | (121,634) | | | $ | 146,565 | | | $ | 268,199 | | | $ | (115,010) | | | $ | 153,189 | |
Software & technology | 19,000 | | | (13,300) | | | 5,700 | | | 19,000 | | | (12,350) | | | 6,650 | |
| | | | | | | | | | | |
Total intangible assets | $ | 287,199 | | | $ | (134,934) | | | $ | 152,265 | | | $ | 287,199 | | | $ | (127,360) | | | $ | 159,839 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 268,178 |
| | $ | (101,688 | ) | | $ | 166,490 |
| | $ | 265,665 |
| | $ | (88,550 | ) | | $ | 177,115 |
|
Software & technology | 31,600 |
| | (23,012 | ) | | 8,588 |
| | 31,600 |
| | (19,999 | ) | | 11,601 |
|
Trademarks & other | 13,324 |
| | (12,942 | ) | | 382 |
| | 13,324 |
| | (11,400 | ) | | 1,924 |
|
Total intangible assets | $ | 313,102 |
| | $ | (137,642 | ) | | $ | 175,460 |
| | $ | 310,589 |
| | $ | (119,949 | ) | | $ | 190,640 |
|
Amortization expense was $9 million for both the three months ended June 30,March 31, 2021 and 2020 was $8 million and 2019, and $18$9 million, for both the six months ended June 30, 2020 and 2019.respectively.
Future amortization expense as of June 30, 2020March 31, 2021 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, 2021 | $ | 22,721 | |
Year ending December 31, 2022 | 29,315 | |
Year ending December 31, 2023 | 26,465 | |
Year ending December 31, 2024 | 26,465 | |
Year ending December 31, 2025 | 19,805 | |
Thereafter | 27,494 | |
Total | $ | 152,265 | |
|
| | | |
Remaining for year ending December 31, 2020 | $ | 15,699 |
|
Year ending December 31, 2021 | 30,227 |
|
Year ending December 31, 2022 | 29,281 |
|
Year ending December 31, 2023 | 26,443 |
|
Year ending December 31, 2024 | 26,443 |
|
Thereafter | 47,367 |
|
Total | $ | 175,460 |
|
Goodwill
Changes in the carrying value of goodwill, by reporting segment, are shown in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross value before accumulated impairment | | Accumulated impairment | | December 31, 2020 | | | | | | Currency impact | | March 31, 2021 |
Global Ecommerce | $ | 609,431 | | | $ | (198,169) | | | $ | 411,262 | | | | | | | $ | 0 | | | $ | 411,262 | |
Presort Services | 220,992 | | | 0 | | | 220,992 | | | | | | | 0 | | | 220,992 | |
SendTech Solutions | 520,031 | | | 0 | | | 520,031 | | | | | | | (8,221) | | | 511,810 | |
Total goodwill | $ | 1,350,454 | | | $ | (198,169) | | | $ | 1,152,285 | | | | | | | $ | (8,221) | | | $ | 1,144,064 | |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | Impairment | | Acquisition | | Currency impact | | June 30, 2020 |
Global Ecommerce | $ | 609,431 |
| | $ | (198,169 | ) | | $ | — |
| | $ | — |
| | $ | 411,262 |
|
Presort Services | 212,529 |
| | — |
| | 8,463 |
| | — |
| | 220,992 |
|
Commerce Services | 821,960 |
| | (198,169 | ) | | 8,463 |
| | — |
| | 632,254 |
|
SendTech Solutions | 502,219 |
| | — |
| | — |
| | (1,688 | ) | | 500,531 |
|
Total goodwill | $ | 1,324,179 |
| | $ | (198,169 | ) | | $ | 8,463 |
| | $ | (1,688 | ) | | $ | 1,132,785 |
|
During the first quarter of 2020, our Global Ecommerce reporting unit experienced weaker than expected performance, in part due to the macroeconomic conditions resulting from COVID-19. At December 31, 2019, the fair value of our Global Ecommerce business exceeded its carrying value by less than 20%, and the deteriorating macroeconomic conditions and uncertainty brought on by COVID-19 caused us to evaluate the Global Ecommerce goodwill for impairment.
To test the Global Ecommerce goodwill for impairment, we determined the fair value of the Global Ecommerce reporting unit and compared it to the reporting unit's carrying value, including goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The determination of fair value, and the resulting impairment charge, relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment charge and could result in an additional impairment charge in the future. These estimates and assumptions are considered Level 3 inputs under 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)
We determined that the reporting unit's estimated fair value was less than its carrying value and recorded a non-cash, pre-tax goodwill impairment charge of $198 million in the first quarter to reduce the carrying value of the Global Ecommerce reporting unit to its estimated fair value.
Other Assets
During the second quarter of 2020, we surrendered certain company owned life insurance policies and received proceeds of $46 million. We did not record a gain or loss on the surrender; however, the surrender resulted in a tax expense of $12 million (see Note 13 for further information). Also, during the second quarter of 2020, we sold our interest in an equity investment for $12 million and recognized a gain of $12 million.
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. | 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.
| | | June 30, 2020 | | March 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | |
| | |
| | |
| | |
| Assets: | | | | | | | |
Investment securities | |
| | |
| | |
| | |
| Investment securities | | | | | | | |
Money market funds | $ | 85,243 |
| | $ | 441,600 |
| | $ | — |
| | $ | 526,843 |
| Money market funds | $ | 39,573 | | | $ | 250,390 | | | $ | 0 | | | $ | 289,963 | |
Equity securities | — |
| | 20,822 |
| | — |
| | 20,822 |
| Equity securities | 0 | | | 28,100 | | | 0 | | | 28,100 | |
Commingled fixed income securities | 1,713 |
| | 19,376 |
| | — |
| | 21,089 |
| Commingled fixed income securities | 1,698 | | | 19,027 | | | 0 | | | 20,725 | |
Government and related securities | 39,525 |
| | 18,583 |
| | — |
| | 58,108 |
| Government and related securities | 26,228 | | | 25,396 | | | 0 | | | 51,624 | |
Corporate debt securities | — |
| | 75,557 |
| | — |
| | 75,557 |
| Corporate debt securities | 0 | | | 65,950 | | | 0 | | | 65,950 | |
Mortgage-backed / asset-backed securities | — |
| | 115,742 |
| | — |
| | 115,742 |
| Mortgage-backed / asset-backed securities | 0 | | | 231,863 | | | 0 | | | 231,863 | |
Derivatives | | | | | |
| |
|
| Derivatives | | | |
Interest rate swap | | Interest rate swap | 0 | | | 4,117 | | | 0 | | | 4,117 | |
Foreign exchange contracts | — |
| | 308 |
| | — |
| | 308 |
| Foreign exchange contracts | 0 | | | 1,117 | | | 0 | | | 1,117 | |
Total assets | $ | 126,481 |
| | $ | 691,988 |
| | $ | — |
| | $ | 818,469 |
| Total assets | $ | 67,499 | | | $ | 625,960 | | | $ | 0 | | | $ | 693,459 | |
Liabilities: | |
| | |
| | |
| | |
| Liabilities: | | | | | | | |
Derivatives | |
| | |
| | |
| | |
| Derivatives | | | | | | | |
Interest rate swaps | $ | — |
| | $ | (1,605 | ) | | $ | — |
| | $ | (1,605 | ) | |
| Foreign exchange contracts | — |
| | (1,106 | ) | | — |
| | (1,106 | ) | Foreign exchange contracts | $ | 0 | | | $ | (786) | | | $ | 0 | | | $ | (786) | |
Total liabilities | $ | — |
| | $ | (2,711 | ) | | $ | — |
| | $ | (2,711 | ) | Total liabilities | $ | 0 | | | $ | (786) | | | $ | 0 | | | $ | (786) | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | |
| | |
| | |
| | |
|
Investment securities | |
| | |
| | |
| | |
|
Money market funds | $ | 161,441 |
| | $ | 240,364 |
| | $ | — |
| | $ | 401,805 |
|
Equity securities | — |
| | 21,979 |
| | — |
| | 21,979 |
|
Commingled fixed income securities | 1,656 |
| | 18,404 |
| | — |
| | 20,060 |
|
Government and related securities | 64,572 |
| | 17,478 |
| | — |
| | 82,050 |
|
Corporate debt securities | — |
| | 72,149 |
| | — |
| | 72,149 |
|
Mortgage-backed / asset-backed securities | — |
| | 66,339 |
| | — |
| | 66,339 |
|
Derivatives | |
| | |
| | |
| |
|
|
Foreign exchange contracts | — |
| | 3,256 |
| | — |
| | 3,256 |
|
Total assets | $ | 227,669 |
| | $ | 439,969 |
| | $ | — |
| | $ | 667,638 |
|
Liabilities: | |
| | |
| | |
| | |
|
Derivatives | |
| | |
| | |
| | |
|
Foreign exchange contracts | $ | — |
| | $ | (1,402 | ) | | $ | — |
| | $ | (1,402 | ) |
Total liabilities | $ | — |
| | $ | (1,402 | ) | | $ | — |
| | $ | (1,402 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Investment securities | | | | | | | |
Money market funds | $ | 73,228 | | | $ | 434,791 | | | $ | 0 | | | $ | 508,019 | |
Equity securities | 0 | | | 26,583 | | | 0 | | | 26,583 | |
Commingled fixed income securities | 1,722 | | | 19,669 | | | 0 | | | 21,391 | |
Government and related securities | 16,776 | | | 16,757 | | | 0 | | | 33,533 | |
Corporate debt securities | 0 | | | 71,433 | | | 0 | | | 71,433 | |
Mortgage-backed / asset-backed securities | 0 | | | 220,678 | | | 0 | | | 220,678 | |
Derivatives | | | | | | | |
| | | | | | | |
Foreign exchange contracts | 0 | | | 3,776 | | | 0 | | | 3,776 | |
Total assets | $ | 91,726 | | | $ | 793,687 | | | $ | 0 | | | $ | 885,413 | |
Liabilities: | | | | | | | |
Derivatives | | | | | | | |
Interest rate swap | $ | 0 | | | $ | (2,163) | | | $ | 0 | | | $ | (2,163) | |
Foreign exchange contracts | 0 | | | (1,960) | | | 0 | | | (1,960) | |
Total liabilities | $ | 0 | | | $ | (4,123) | | | $ | 0 | | | $ | (4,123) | |
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 intowithin the fair value hierarchy:
| |
• | •Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. •Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2. •Commingled Fixed Income Securities: Commingled fixed income securities are comprised of mutual funds that invest in a variety of fixed income securities, including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. •Government and Related Securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities. •Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2. •Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2.
Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange.
|
| |
• | Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2.
|
| |
• | Commingled Fixed Income Securities: Commingled fixed income securities are comprised of mutual funds that invest in a variety of fixed income securities, including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange.
|
| |
• | Government and Related Securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.
|
| |
• | Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2.
|
| |
• | Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2.
|
Derivative Securities
| |
• | •Foreign Exchange Contracts: The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties. These securities are classified as Level 2. • The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties. These securities are classified as Level 2. |
| |
• | Interest Rate Swaps: The valuation of interest rate swaps is based on an income approach using inputs that are observable or that can be derived from, or corroborated by, observable market data. These securities are classified as Level 2. |
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
Available-for-sale securities are predominantly held at the Pitney Bowes Bank, whose primary business is to provide financing solutions to clients that rent postage meters and purchase supplies.Bank. Investment securities classified as available-for-sale are recorded at fair value with changes in fair value due to market conditions (i.e., interest rates) recorded in accumulated other comprehensive income (AOCI)loss (AOCL), and changes in fair value due to credit conditions recorded in earnings. Individual securities are considered impaired when the fair value declines below amortized cost. We use a discounted cash flow model to determine the amount ofThere were no unrealized losses due to credit losses. Unrealized losses recorded duringcharged to earnings through the period due to credit conditions were immaterial.three months ended March 31, 2021.
Available-for-sale securities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
Government and related securities | $ | 51,411 | | | $ | 42 | | | $ | (1,377) | | | $ | 50,076 | |
Corporate debt securities | 69,913 | | | 300 | | | (4,263) | | | 65,950 | |
Commingled fixed income securities | 1,712 | | | 0 | | | (14) | | | 1,698 | |
Mortgage-backed / asset-backed securities | 237,827 | | | 303 | | | (6,267) | | | 231,863 | |
Total | $ | 360,863 | | | $ | 645 | | | $ | (11,921) | | | $ | 349,587 | |
| | | June 30, 2020 | | December 31, 2020 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
Government and related securities | $ | 55,576 |
| | $ | 1,289 |
| | $ | (338 | ) | | $ | 56,527 |
| Government and related securities | $ | 31,882 | | | $ | 157 | | | $ | (78) | | | $ | 31,961 | |
Corporate debt securities | 71,689 |
| | 4,558 |
| | (690 | ) | | 75,557 |
| Corporate debt securities | 71,174 | | | 614 | | | (355) | | | 71,433 | |
Commingled fixed income securities | 1,692 |
| | 21 |
| | — |
| | 1,713 |
| Commingled fixed income securities | 1,706 | | | 16 | | | 0 | | | 1,722 | |
Mortgage-backed / asset-backed securities | 113,497 |
| | 2,520 |
| | (275 | ) | | 115,742 |
| Mortgage-backed / asset-backed securities | 220,659 | | | 734 | | | (715) | | | 220,678 | |
Total | $ | 242,454 |
| | $ | 8,388 |
| | $ | (1,303 | ) | | $ | 249,539 |
| Total | $ | 325,421 | | | $ | 1,521 | | | $ | (1,148) | | | $ | 325,794 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
Government and related securities | $ | 80,732 |
| | $ | 1,358 |
| | $ | (114 | ) | | $ | 81,976 |
|
Corporate debt securities | 70,426 |
| | 2,009 |
| | (286 | ) | | 72,149 |
|
Commingled fixed income securities | 1,675 |
| | — |
| | (19 | ) | | 1,656 |
|
Mortgage-backed / asset-backed securities | 65,679 |
| | 960 |
| | (300 | ) | | 66,339 |
|
Total | $ | 218,512 |
| | $ | 4,327 |
| | $ | (719 | ) | | $ | 222,120 |
|
Investment securities in a loss position were as follows:
|
| | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Less than 12 continuous months | $ | 46,650 |
| | $ | 1,192 |
| | $ | 52,521 |
| | $ | 583 |
|
Greater than 12 continuous months | 4,441 |
| | 111 |
| | 9,227 |
| | 136 |
|
Total | $ | 51,091 |
| | $ | 1,303 |
| | $ | 61,748 |
| | $ | 719 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Less than 12 continuous months | $ | 312,002 | | | $ | 11,850 | | | $ | 132,267 | | | $ | 1,072 | |
Greater than 12 continuous months | 2,294 | | | 71 | | | 2,369 | | | 76 | |
Total | $ | 314,296 | | | $ | 11,921 | | | $ | 134,636 | | | $ | 1,148 | |
Our allowance for credit losses on available-for-sale investment securities was not significant at June 30, 2020. At June 30, 2020, approximately 10%March 31, 2021, 34% of totalthe securities in the investment portfolio were in a net loss position. We believe our allowance for credit losses on available-for-sale investment securities is adequate as theour investments are primarily in highly liquid U.S. government and agency securities, high grade corporate bonds and municipal bonds. The majority of our investmentsmortgage-backed securities are in short-term, highly liquid investments, high grade corporate securities andeither guaranteed or supported by the U.S. government securities.Government. We have not recognized an impairment on investment securities in an unrealized loss position because we have the ability and intent to hold these securities until recovery of the unrealized losses or expect towe receive the stated principal and interest at maturity.
Scheduled maturities of available-for-sale securities at March 31, 2021 were as follows:
| | | | | | | | | | | |
| Amortized cost | | Estimated fair value |
Within 1 year | $ | 14,398 | | | $ | 14,401 | |
After 1 year through 5 years | 15,241 | | | 15,266 | |
After 5 years through 10 years | 66,618 | | | 63,185 | |
After 10 years | 264,606 | | | 256,735 | |
Total | $ | 360,863 | | | $ | 349,587 | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Scheduled maturities of available-for-sale securities at June 30, 2020 were as follows:
|
| | | | | | | |
| Amortized cost | | Estimated fair value |
Within 1 year | $ | 26,274 |
| | $ | 26,407 |
|
After 1 year through 5 years | 56,027 |
| | 58,709 |
|
After 5 years through 10 years | 47,838 |
| | 49,663 |
|
After 10 years | 112,315 |
| | 114,760 |
|
Total | $ | 242,454 |
| | $ | 249,539 |
|
The scheduled maturities of mortgage-backed and asset-backed securities may not coincide with the actual payment, as borrowers have the right to prepay obligations.
We have not experienced any significant write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed or supported by the U.S. Government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification within the fair value hierarchy.
Held-to-Maturity Securities
Held-to-maturity securities at June 30, 2020March 31, 2021 and December 31, 2019,2020, include $257$25 million and $383$75 million, respectively, of short-term, highly liquid time deposits. Due to the short-term nature of these securities, the carrying value approximates fair value.
Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We mitigate these exposures by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of exchange rate fluctuations on financial results and manage the cost of debt. We do not use derivatives for trading or speculative purposes. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is included in AOCIAOCL in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged item is recorded in earnings. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges. At both June 30, 2020March 31, 2021 and December 31, 2019,2020, we had outstanding contracts associated with these anticipated transactions with notional amounts of $7 million.$6 million and $8 million, respectively. Amounts included in AOCIAOCL at June 30, 2020March 31, 2021 will be recognized in earnings within the next 12 months.
Interest Rate Swaps
During the quarter, we entered intoWe have interest rate swap agreements with an aggregate notional amount of $500 million that are designated as cash flow hedges. The fair value of the interest rate swaps is recorded as a derivative asset or liability at the end of each reporting period with the change in fair value reflected in AOCI.AOCL.
The fair value of derivative instruments was as follows:
| | | | | | | | | | | | | | | | | | | | |
Designation of Derivatives | | Balance Sheet Location | | March 31, 2021 | | December 31, 2020 |
Derivatives designated as hedging instruments | | | | | | |
Foreign exchange contracts | | Other current assets and prepayments | | $ | 214 | | | $ | 96 | |
| | Accounts payable and accrued liabilities | | (71) | | | (112) | |
| | | | | | |
Interest rate swaps | | Other assets (Other noncurrent liabilities) | | 4,117 | | | (2,163) | |
| | | | | | |
Derivatives not designated as hedging instruments | | | | | | |
Foreign exchange contracts | | Other current assets and prepayments | | 903 | | | 3,680 | |
| | Accounts payable and accrued liabilities | | (715) | | | (1,848) | |
| | | | | | |
| | Total derivative assets | | $ | 5,234 | | | $ | 3,776 | |
| | Total derivative liabilities | | (786) | | | (4,123) | |
| | Total net derivative asset (liability) | | $ | 4,448 | | | $ | (347) | |
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 was as follows:
|
| | | | | | | | | | |
Designation of Derivatives | | Balance Sheet Location | | June 30, 2020 | | December 31, 2019 |
Derivatives designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | $ | 46 |
| | $ | 207 |
|
| | Accounts payable and accrued liabilities | | (214 | ) | | (56 | ) |
| | | | | | |
Interest rate swaps | | Other noncurrent liabilities | | (1,605 | ) | | — |
|
| | | | | | |
Derivatives not designated as hedging instruments | | | | |
| | |
|
Foreign exchange contracts | | Other current assets and prepayments | | 262 |
| | 3,049 |
|
| | Accounts payable and accrued liabilities | | (892 | ) | | (1,346 | ) |
| | | | | | |
| | Total derivative assets | | $ | 308 |
| | $ | 3,256 |
|
| | Total derivative liabilities | | (2,711 | ) | | (1,402 | ) |
| | Total net derivative (liability) asset | | $ | (2,403 | ) | | $ | 1,854 |
|
Results of cash flow hedging relationships were as follows:
|
| | | | | | | | | | | | | | | | | | |
| | 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 | | 2020 | | 2019 | | | 2020 | | 2019 |
Foreign exchange contracts | | $ | (121 | ) | | $ | (320 | ) | | Revenue | | $ | (64 | ) | | $ | (36 | ) |
| | |
| | |
| | Cost of sales | | 32 |
| | 29 |
|
Interest rate swap | | (1,605 | ) | | — |
| | Interest expense | | — |
| | — |
|
| | $ | (1,726 | ) | | $ | (320 | ) | | | | $ | (32 | ) | | $ | (7 | ) |
| | | | | | | | | | |
| | 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 | | 2020 | | 2019 | | | 2020 | | 2019 |
Foreign exchange contracts | | $ | (281 | ) | | $ | 25 |
| | Revenue | | $ | (3 | ) | | $ | 75 |
|
| | |
| | |
| | Cost of sales | | 42 |
| | 45 |
|
Interest rate swap | | (1,605 | ) | | — |
| | Interest expense | | — |
| | — |
|
| | $ | (1,886 | ) | | $ | 25 |
| | | | $ | 39 |
| | $ | 120 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 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 | | 2021 | | 2020 | | | 2021 | | 2020 |
Foreign exchange contracts | | $ | 228 | | | $ | (160) | | | Revenue | | $ | 126 | | | $ | 61 | |
| | | | | | Cost of sales | | (58) | | | 10 | |
Interest rate swap | | 6,280 | | | 0 | | | Interest expense | | 0 | | | 0 | |
| | $ | 6,508 | | | $ | (160) | | | | | $ | 68 | | | $ | 71 | |
| | | | | | | | | | |
| | |
| | | | | | |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
We enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans and related interest that are denominated in a foreign currency. The revaluation of intercompany loans and interest and the corresponding mark-to-market adjustment on derivatives are recorded in earnings. All outstanding contracts at June 30, 2020March 31, 2021 mature within 12 months.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The mark-to-market adjustments of non-designated derivative instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | | | |
| | | | Derivative Gain (Loss) Recognized in Earnings | | | | |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2021 | | 2020 | | | | |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | 553 | | | $ | (4,867) | | | | | |
| | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Three Months Ended June 30, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2020 | | 2019 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | 1,200 |
| | $ | (65 | ) |
| | | | | | |
| | | | Six Months Ended June 30, |
| | | | Derivative Gain (Loss) Recognized in Earnings |
Derivatives Instrument | | Location of Derivative Gain (Loss) | | 2020 | | 2019 |
Foreign exchange contracts | | Selling, general and administrative expense | | $ | (3,667 | ) | | $ | 5,205 |
|
Fair Value of Financial Instruments
Financial instruments not reported at fair value on a recurring basis include cash and cash equivalents, accounts receivable, loan receivables, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable and accounts payable approximate fair value. The fair value of debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of debt are classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of debt was as follows:
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Carrying value | $ | 2,438,857 | | | $ | 2,564,393 | |
Fair value | $ | 2,426,062 | | | $ | 2,479,895 | |
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Carrying value | $ | 2,716,747 |
| | $ | 2,739,722 |
|
Fair value | $ | 2,156,837 |
| | $ | 2,572,794 |
|
10. Restructuring Charges and Asset Impairments
Restructuring Charges
Activity in our restructuring reserves was as follows:
|
| | | | | | | | | | | |
| Severance and benefits costs | | Other exit costs | | Total |
Balance at January 1, 2020 | $ | 11,937 |
| | $ | 69 |
| | $ | 12,006 |
|
Expenses, net | 6,357 |
| | 546 |
| | 6,903 |
|
Cash payments | (10,772 | ) | | (593 | ) | | (11,365 | ) |
Balance at June 30, 2020 | $ | 7,522 |
| | $ | 22 |
| | $ | 7,544 |
|
| | | | | |
Balance at January 1, 2019 | $ | 13,641 |
| | $ | 1,808 |
| | $ | 15,449 |
|
Expenses, net | 7,101 |
| | 707 |
| | 7,808 |
|
Cash payments | (10,786 | ) | | (2,219 | ) | | (13,005 | ) |
Balance at June 30, 2019 | $ | 9,956 |
| | $ | 296 |
| | $ | 10,252 |
|
| | | | | | | | | |
| Severance and other exit costs | | | | |
Balance at January 1, 2021 | $ | 10,063 | | | | | |
Expenses, net | 2,889 | | | | | |
Cash payments | (3,955) | | | | | |
Noncash activity | (227) | | | | | |
Balance at March 31, 2021 | $ | 8,770 | | | | | |
| | | | | |
Balance at January 1, 2020 | $ | 12,006 | | | | | |
Expenses, net | 3,817 | | | | | |
Cash payments | (6,047) | | | | | |
Noncash activity | (763) | | | | | |
Balance at March 31, 2020 | $ | 9,013 | | | | | |
The majority of the restructuring reserves are expected to be paid over the next 12 to 24 months.
Other Charges
Restructuring charges and asset impairments for the six months ended June 30, 2020 and 2019 also includes $2 million of non-cash charges related to asset impairments, pension settlements and facilities abandonment.
11. Debt
Total debt consisted of the following:
|
| | | | | | | | | |
| Interest rate | | June 30, 2020 | | December 31, 2019 |
Notes due October 2021 | 4.625% | | $ | 172,456 |
| | $ | 600,000 |
|
Notes due May 2022 | 5.375% | | 150,000 |
| | 400,000 |
|
Notes due April 2023 | 5.70% | | 275,000 |
| | 400,000 |
|
Notes due March 2024 | 4.625% | | 375,000 |
| | 500,000 |
|
Notes due January 2037 | 5.25% | | 35,841 |
| | 35,841 |
|
Notes due March 2043 | 6.70% | | 425,000 |
| | 425,000 |
|
Term loan due November 2024 | Variable | | 390,000 |
| | 400,000 |
|
Term loan due January 2025 | Variable | | 839,375 |
| | — |
|
Credit Facility | Variable | | 100,000 |
| | — |
|
Other debt | | | 5,052 |
| | 5,108 |
|
Principal amount | | | 2,767,724 |
| | 2,765,949 |
|
Less: unamortized costs, net | | | 50,977 |
| | 26,227 |
|
Total debt | | | 2,716,747 |
| | 2,739,722 |
|
Less: current portion long-term debt | | | 163,257 |
| | 20,108 |
|
Long-term debt | | | $ | 2,553,490 |
| | $ | 2,719,614 |
|
Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. As a result of credit rating downgrades in November 2019 and May 2020, the interest rates on the October 2021 notes and April 2023 notes increased 0.50% and the interest rate on the May 2022 notes increased 0.75%. Further, the interest rates on the October 2021 notes and April 2023 notes will increase an additional 0.25% in the fourth quarter of 2020.
In February 2020, we secured a five-year $850 million term loan maturing January 2025 (the 2025 Term Loan). The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly. In May 2020, we entered into interest rate swap agreements with an aggregate notional amount of $500 million to mitigate the interest rate risk associated with $500 million of our variable-rate term loans. Under the terms of the swap agreements, we pay fixed-rate interest of 0.4443% and receive variable-rate interest based on one-month LIBOR. The variable interest rate under the term loans and the swaps reset monthly.
In March 2020, we purchased under a tender offer $428 million of the October 2021 notes, $250 million of the May 2022 notes, $125 million of the April 2023 notes and $125 million of the March 2024 notes. A $37 million loss was incurred on the early redemption of debt.
During the first half of 2020, we repaid $21 million of principal related to our term loans.
We have a $500 million secured revolving credit facility that expires in November 2024 and contains financial and non-financial covenants. In April 2020, in light of the current macroeconomic environment, we drew down $100 million under the credit facility as a precautionary measure. This borrowing is considered short-term as the amount is due and interest resets monthly. At June 30, 2020, we were in compliance with all covenants.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
11. Debt
12. Pensions and Other Benefit ProgramsTotal debt consisted of the following:
The components of net periodic benefit cost (income) were as follows: | | | | | | | | | | | | | | | | | |
| Interest rate | | March 31, 2021 | | December 31, 2020 |
Notes due October 2021 | 4.875% | | $ | 0 | | | $ | 152,588 | |
Notes due May 2022 | 5.375% | | 72,873 | | | 148,792 | |
Notes due April 2023 | 5.95% | | 96,667 | | | 271,000 | |
Notes due March 2024 | 4.625% | | 267,952 | | | 374,000 | |
Notes due March 2027 | 6.875% | | 400,000 | | | 0 | |
Notes due March 2029 | 7.25% | | 350,000 | | | 0 | |
Notes due January 2037 | 5.25% | | 35,841 | | | 35,841 | |
Notes due March 2043 | 6.70% | | 425,000 | | | 425,000 | |
Term loan due March 2026 | LIBOR + 1.75% | | 380,000 | | | 380,000 | |
Term loan due January 2025 | LIBOR + 5.5% | | 0 | | | 818,125 | |
Term loan due March 2028 | LIBOR + 4.0% | | 450,000 | | | 0 | |
Other debt | | | 4,598 | | | 4,900 | |
Principal amount | | | 2,482,931 | | | 2,610,246 | |
Less: unamortized costs, net | | | 44,074 | | | 45,853 | |
Total debt | | | 2,438,857 | | | 2,564,393 | |
Less: current portion long-term debt | | | 19,972 | | | 216,032 | |
Long-term debt | | | $ | 2,418,885 | | | $ | 2,348,361 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Service cost | $ | 27 |
| | $ | 21 |
| | $ | 399 |
| | $ | 388 |
| | $ | 217 |
| | $ | 228 |
|
Interest cost | 13,179 |
| | 15,708 |
| | 3,407 |
| | 4,308 |
| | 1,242 |
| | 1,637 |
|
Expected return on plan assets | (21,303 | ) | | (23,184 | ) | | (7,969 | ) | | (8,505 | ) | | — |
| | — |
|
Amortization of transition credit | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
| | — |
|
Amortization of prior service (credit) cost | (15 | ) | | (15 | ) | | 59 |
| | 60 |
| | 94 |
| | 81 |
|
Amortization of net actuarial loss | 8,197 |
| | 6,037 |
| | 2,005 |
| | 1,572 |
| | 738 |
| | 503 |
|
Settlement (1) | 612 |
| | 801 |
| | 3,190 |
| | 397 |
| | — |
| | — |
|
Net periodic benefit cost (income) | $ | 697 |
| | $ | (632 | ) | | $ | 1,090 |
| | $ | (1,781 | ) | | $ | 2,291 |
| | $ | 2,449 |
|
Contributions to benefit plans | $ | 1,969 |
| | $ | 2,423 |
| | $ | 580 |
| | $ | 878 |
| | $ | 3,616 |
| | $ | 4,457 |
|
| | | | | | | | | | | |
| 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, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Service cost | $ | 53 |
| | $ | 42 |
| | $ | 798 |
| | $ | 772 |
| | $ | 434 |
| | $ | 483 |
|
Interest cost | 26,358 |
| | 31,586 |
| | 6,925 |
| | 8,796 |
| | 2,487 |
| | 3,291 |
|
Expected return on plan assets | (42,607 | ) | | (46,363 | ) | | (16,177 | ) | | (17,269 | ) | | — |
| | — |
|
Amortization of transition credit | — |
| | — |
| | (2 | ) | | (3 | ) | | — |
| | — |
|
Amortization of prior service (credit) cost | (30 | ) | | (30 | ) | | 120 |
| | 123 |
| | 187 |
| | 161 |
|
Amortization of net actuarial loss | 16,395 |
| | 13,073 |
| | 4,064 |
| | 3,184 |
| | 1,474 |
| | 1,014 |
|
Settlement (1) | 1,001 |
| | 801 |
| | 3,190 |
| | 397 |
| | — |
| | — |
|
Net periodic benefit cost (income) | $ | 1,170 |
| | $ | (891 | ) | | $ | (1,082 | ) | | $ | (4,000 | ) | | $ | 4,582 |
| | $ | 4,949 |
|
Contributions to benefit plans | $ | 3,898 |
| | $ | 4,051 |
| | $ | 8,568 |
| | $ | 9,088 |
| | $ | 8,071 |
| | $ | 9,213 |
|
(1) Approximately $2.6During the first quarter of 2021, we issued a $400 million 6.875% unsecured note due March 2027 and $0.5a $350 million 7.25% unsecured note due March 2029. We also entered into a new seven-year $450 million secured term loan maturing March 2028.
We redeemed the remaining $153 million balance of the October 2021 notes and, under a tender offer, redeemed an aggregate $356 million of total settlement chargesthe May 2022 notes, April 2023 notes and March 2024 notes. We also repaid the remaining $818 million balance of our term loan that was scheduled to mature in January 2025.
We also amended our $500 million secured revolving credit facility and our March 2026 secured term loan to extend their maturities from November 2024 to March 2026. The credit agreement that governs the revolving credit facility and term loans contains financial and non-financial covenants. At March 31, 2021, we were recorded in discontinued operationscompliance with all covenants and restructuring charges, respectively, forthere were 0 outstanding borrowings under the threerevolving credit facility.
A $51 million pre-tax loss was incurred on the refinancing of debt.
Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. Due to a credit downgrade in February 2021, the interest rates on the May 2022 notes and six months ended June 30, 2020the April 2023 notes will increase 0.25% in the second quarter of 2021.
At March 31, 2021, the interest rate of the 2028 Term Loan was 4.1% and approximately $0.3 million and $0.7 million of total settlement charges were recorded in discontinued operations and restructuring charges, respectively, for the three and six months ended June 30, 2019.interest rate on the 2026 Term Loan was 1.9%.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
12. Pensions and Other Benefit Programs
The components of net periodic benefit 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 |
| March 31, | | March 31, | | March 31, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | $ | 26 | | | $ | 26 | | | $ | 395 | | | $ | 399 | | | $ | 224 | | | $ | 217 | |
Interest cost | 10,745 | | | 13,179 | | | 2,961 | | | 3,518 | | | 961 | | | 1,245 | |
Expected return on plan assets | (19,478) | | | (21,304) | | | (7,984) | | | (8,208) | | | 0 | | | 0 | |
Amortization of transition credit | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 0 | |
Amortization of prior service (credit) cost | (15) | | | (15) | | | 67 | | | 61 | | | 32 | | | 93 | |
Amortization of net actuarial loss | 9,638 | | | 8,198 | | | 2,345 | | | 2,059 | | | 1,078 | | | 736 | |
Settlement | 0 | | | 389 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net periodic benefit cost (income) | $ | 916 | | | $ | 473 | | | $ | (2,216) | | | $ | (2,172) | | | $ | 2,295 | | | $ | 2,291 | |
Contributions to benefit plans | $ | 1,015 | | | $ | 1,929 | | | $ | 8,696 | | | $ | 7,988 | | | $ | 3,519 | | | $ | 4,455 | |
| | | | | | | | | | | |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
13. Income Taxes
The effective tax rate for the three and six months ended June 30, 2020March 31, 2021 was 101.8% and (3.3)%, respectivelya benefit of 33.6% and includes benefits of $3 million from an affiliate reorganization and $2 million from the vesting of restricted stock, partially offset by a $12charge of $1 million charge for the surrenderwrite-off of company owned life insurance policies (see Note 8). deferred tax assets associated with the expiration of out-of-the-money stock options.
The effective tax rate for the sixthree months ended June 30,March 31, 2020 alsowas a benefit of 4.4% and includes a benefit of $2 million on the $198 million goodwill impairment charge as the majority of this charge is nondeductible, a benefit of $2 million from the resolution of certain tax examinations and a charge of $3 million for the write-off of deferred tax assets associated with the expiration of out-of-money vested stock options and the vesting of restricted stock.
The effective tax rate for the three and six months ended June 30, 2019 was 11.3% and 30.1%, respectively, and includes benefits from the resolution of certain tax examinations of $3 million and $6 million, respectively. The effective tax rate for the six months ended June 30, 2019 also includes a $2 million tax on the $18 million book loss incurred from the disposition of operations in certain international markets, primarily due to nondeductible basis differences and a charge of $2 million for the write-off of deferred tax assets associated with the expiration of out-of-money vestedout-of-the-money stock options and the vesting of restricted stock.
As is the case with other large corporations, our tax returns are examined 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 unrecognized tax benefits will decrease in the next 12 months, and this decrease could be up to 10% of our unrecognized tax benefits.
The Internal Revenue Service examinations of our consolidated U.S. income tax returns for tax years prior to 2017 are closed to audit; however, various post-2011post-2014 U.S. state and local tax returns are still subject to examination. Inexamination, with some states in appeals from 2011. For our significant non-U.S. jurisdictions, Canada the examination of our tax filings prior to 2015 areis closed to audit. Other significant jurisdictions includeexamination through 2014, France (closedis closed through 2016),2013, Germany (closedis closed through 2016)2016 and the U.K. (closedis closed through 2017).2018. We also have other less significant tax filings currently subject to examination.
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
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, as of March 31, 2021, 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 as of June 30, 2020.flows. However, as litigation is inherently unpredictable, there can be no assurances in this regard.
In December 2018 and then in February 2019, certain of the Company’s officers and directors were named as defendants in 2 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. Both of these are derivative claims related to a prior action filed in Connecticut state court, City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al. (“Livonia”). On October 24, 2019, the court had granted the defendants’ motions to dismiss the Livonia case, and that judgment is now final. Given that the defendants prevailed in the Livonia action, the plaintiffs in the Clem and Devolin actions moved to withdraw their complaints, and on February 20, 2020 the court granted the motions. Both cases have now been dismissed.
WeAt March 31, 2021, we have entered into 3 equipment leases for our Commerce Services operations that will commence in the fourth quarter with aggregate lease payments of approximately $41 million and terms ranging from seventhree to nine years. Aggregate lease payments for the three leases will approximate $30 million.eight years, that have not commenced.
15. Stockholders’ Equity
Changes in stockholders’ equity were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at January 1, 2021 | | | | | $ | 323,338 | | | $ | 68,502 | | | $ | 5,201,195 | | | $ | (839,131) | | | $ | (4,687,509) | | | $ | 66,395 | |
| | | | | | | | | | | | | | | |
Net loss | | | | | — | | | — | | | (31,541) | | | — | | | — | | | (31,541) | |
Other comprehensive loss | | | | | — | | | — | | | — | | | (8,407) | | | — | | | (8,407) | |
Dividends paid ($0.05 per common share) | | | | | — | | | — | | | (8,625) | | | — | | | — | | | (8,625) | |
Issuance of common stock | | | | | — | | | (58,454) | | | — | | | — | | | 54,574 | | | (3,880) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | — | | | 5,221 | | | — | | | — | | | — | | | 5,221 | |
| | | | | | | | | | | | | | | |
Balance at March 31, 2021 | | | | | $ | 323,338 | | | $ | 15,269 | | | $ | 5,161,029 | | | $ | (847,538) | | | $ | (4,632,935) | | | $ | 19,163 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at December 31, 2019 | | | | | $ | 323,338 | | | $ | 98,748 | | | $ | 5,438,930 | | | $ | (840,143) | | | $ | (4,734,777) | | | $ | 286,096 | |
Cumulative effect of accounting change | | | | | — | | | — | | | (21,900) | | | — | | | — | | | (21,900) | |
Net loss | | | | | — | | | — | | | (208,483) | | | — | | | — | | | (208,483) | |
Other comprehensive loss | | | | | — | | | — | | | — | | | (17,731) | | | — | | | (17,731) | |
Dividends paid ($0.05 per common share) | | | | | —�� | | | — | | | (8,523) | | | — | | | — | | | (8,523) | |
Issuance of common stock | | | | | — | | | (30,716) | | | — | | | — | | | 29,166 | | | (1,550) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | — | | | 1,521 | | | — | | | — | | | — | | | 1,521 | |
| | | | | | | | | | | | | | | |
Balance at March 31, 2020 | | | | | $ | 323,338 | | | $ | 69,553 | | | $ | 5,200,024 | | | $ | (857,874) | | | $ | (4,705,611) | | | $ | 29,430 | |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
15. Stockholders’ Equity
16. Accumulated Other Comprehensive Loss
Changes in stockholders’ equityReclassifications out of AOCL were as follows:
| | | | | | | | | | | | | | | |
| | | | | Gain (Loss) Reclassified from AOCL |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Cash flow hedges | | | | | | | |
Revenue | | | | | $ | 126 | | | $ | 61 | |
Cost of sales | | | | | (58) | | | 10 | |
| | | | | | | |
Total before tax | | | | | 68 | | | 71 | |
Income tax provision | | | | | 17 | | | 17 | |
Net of tax | | | | | $ | 51 | | | $ | 54 | |
| | | | | | | |
Available-for-sale securities | | | | | | | |
Financing revenue | | | | | $ | (1) | | | $ | 284 | |
Selling, general and administrative expense | | | | | 42 | | | 0 | |
Total before tax | | | | | 41 | | | 284 | |
Income tax provision | | | | | 10 | | | 71 | |
Net of tax | | | | | $ | 31 | | | $ | 213 | |
| | | | | | | |
Pension and postretirement benefit plans | | | | | | | |
Transition credit | | | | | $ | 0 | | | $ | 1 | |
Prior service costs | | | | | (84) | | | (139) | |
Actuarial losses | | | | | (13,061) | | | (10,993) | |
Settlement | | | | | 0 | | | (389) | |
Total before tax | | | | | (13,145) | | | (11,520) | |
Income tax benefit | | | | | (3,208) | | | (2,650) | |
Net of tax | | | | | $ | (9,937) | | | $ | (8,870) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at April 1, 2020 | $ | 323,338 |
| | $ | 69,553 |
| | $ | 5,200,024 |
| | $ | (857,874 | ) | | $ | (4,705,611 | ) | | $ | 29,430 |
|
Net loss | — |
| | — |
| | (3,329 | ) | | — |
| | — |
| | (3,329 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 21,612 |
| | — |
| | 21,612 |
|
Dividends paid ($0.05 per common share) | — |
| | — |
| | (8,576 | ) | | — |
| | — |
| | (8,576 | ) |
Issuance of common stock | — |
| | (6,484 | ) | | — |
| | — |
| | 6,498 |
| | 14 |
|
Stock-based compensation expense | — |
| | 5,429 |
| | — |
| | — |
| | — |
| | 5,429 |
|
Balance at June 30, 2020 | $ | 323,338 |
| | $ | 68,498 |
| | $ | 5,188,119 |
| | $ | (836,262 | ) | | $ | (4,699,113 | ) | | $ | 44,580 |
|
Changes in AOCL 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 |
| | $ | (917,978 | ) | | $ | (4,696,080 | ) | | $ | 86,450 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 23,697 |
| | — |
| | — |
| | 23,697 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 10,300 |
| | — |
| | 10,300 |
|
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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2021 | $ | (1,411) | | | $ | 402 | | | $ | (851,063) | | | $ | 12,941 | | | $ | (839,131) | |
Other comprehensive income (loss) before reclassifications (1) | 4,881 | | | (8,885) | | | 0 | | | (14,258) | | | (18,262) | |
Reclassifications into earnings (1) | (51) | | | (31) | | | 9,937 | | | 0 | | | 9,855 | |
Net other comprehensive income (loss) | 4,830 | | | (8,916) | | | 9,937 | | | (14,258) | | | (8,407) | |
Balance at March 31, 2021 | $ | 3,419 | | | $ | (8,514) | | | $ | (841,126) | | | $ | (1,317) | | | $ | (847,538) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2020 | $ | 337 | | | $ | 2,849 | | | $ | (819,018) | | | $ | (24,311) | | | $ | (840,143) | |
Other comprehensive (loss) income before reclassifications (1) | (120) | | | 1,521 | | | 0 | | | (27,735) | | | (26,334) | |
Reclassifications into earnings (1) | (54) | | | (213) | | | 8,870 | | | 0 | | | 8,603 | |
Net other comprehensive (loss) income | (174) | | | 1,308 | | | 8,870 | | | (27,735) | | | (17,731) | |
Balance at March 31, 2020 | $ | 163 | | | $ | 4,157 | | | $ | (810,148) | | | $ | (52,046) | | | $ | (857,874) | |
(1) Amounts are net of tax.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at January 1, 2020 | $ | 323,338 |
| | $ | 98,748 |
| | $ | 5,438,930 |
| | $ | (840,143 | ) | | $ | (4,734,777 | ) | | $ | 286,096 |
|
Cumulative effect of accounting changes | — |
| | — |
| | (21,900 | ) | | — |
| | — |
| | (21,900 | ) |
Net loss | — |
| | — |
| | (211,812 | ) | | — |
| | — |
| | (211,812 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 3,881 |
| | — |
| | 3,881 |
|
Dividends paid ($0.10 per common share) | — |
| | — |
| | (17,099 | ) | | — |
| | — |
| | (17,099 | ) |
Issuance of common stock | — |
| | (37,200 | ) | | — |
| | — |
| | 35,664 |
| | (1,536 | ) |
Stock-based compensation expense | — |
| | 6,950 |
| | — |
| | — |
| | — |
| | 6,950 |
|
Balance at June 30, 2020 | $ | 323,338 |
| | $ | 68,498 |
| | $ | 5,188,119 |
| | $ | (836,262 | ) | | $ | (4,699,113 | ) | | $ | 44,580 |
|
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
17. Supplemental Financial Statement Information
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
Activity in the allowance for credit losses on accounts receivables for the three months ended March 31, 2021 and 2020 is presented below. See Note 7 for additional information pertaining to our finance receivables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of year | | Cumulative effect of accounting change | | Amounts charged to expense | | Write-offs, recoveries and other | | Balance at end of period | | Accounts and other receivables | | Other assets |
March 31, 2021 | $ | 35,344 | | | $ | 0 | | | $ | 3,011 | | | $ | (1,314) | | | $ | 37,041 | | | $ | 20,480 | | | $ | 16,561 | |
March 31, 2020 | $ | 17,830 | | | $ | 15,336 | | | $ | 3,280 | | | $ | (7,002) | | | $ | 29,444 | | | $ | 29,444 | | | $ | 0 | |
16. Accumulated
Other Comprehensive Loss (AOCL)expense, net consisted of the following:
Reclassifications out of AOCL were
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Loss on debt refinancing | $ | 51,394 | | | $ | 36,987 | | | | | |
Insurance proceeds | 0 | | | (3,500) | | | | | |
| | | | | | | |
| | | | | | | |
Other expense, net | $ | 51,394 | | | $ | 33,487 | | | | | |
Supplemental cash flow information is as follows:
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 | | |
| | | | | |
Cash interest paid | $ | 39,658 | | | $ | 44,891 | | | |
Cash income tax payments, net of refunds | $ | 2,641 | | | $ | 13,270 | | | |
Finance leased assets obtained in exchange for new lease obligations | $ | 9,477 | | | $ | 2,399 | | | |
|
| | | | | | | | | | | | | | | |
| Gain (Loss) Reclassified from AOCL |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Cash flow hedges | | | | | | | |
Revenue | $ | (64 | ) | | $ | (36 | ) | | $ | (3 | ) | | $ | 75 |
|
Cost of sales | 32 |
| | 29 |
| | 42 |
| | 45 |
|
Total before tax | (32 | ) | | (7 | ) | | 39 |
| | 120 |
|
Income tax (benefit) provision | (8 | ) | | (1 | ) | | 10 |
| | 31 |
|
Net of tax | $ | (24 | ) | | $ | (6 | ) | | $ | 29 |
| | $ | 89 |
|
| | | | | | | |
Available-for-sale securities | | | | | | | |
Interest expense, net | $ | 3,233 |
| | $ | (81 | ) | | $ | 3,517 |
| | $ | (104 | ) |
Income tax provision (benefit) | 805 |
| | (21 | ) | | 876 |
| | (27 | ) |
Net of tax | $ | 2,428 |
| | $ | (60 | ) | | $ | 2,641 |
| | $ | (77 | ) |
| | | | | | | |
Pension and postretirement benefit plans | | | | | | | |
Transition credit | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 3 |
|
Prior service costs | (138 | ) | | (126 | ) | | (277 | ) | | (254 | ) |
Actuarial losses | (10,940 | ) | | (8,112 | ) | | (21,933 | ) | | (17,271 | ) |
Settlement | (3,802 | ) | | (1,198 | ) | | (4,191 | ) | | (1,198 | ) |
Total before tax | (14,879 | ) | | (9,435 | ) | | (26,399 | ) | | (18,720 | ) |
Income tax benefit | (3,502 | ) | | (2,124 | ) | | (6,152 | ) | | (4,773 | ) |
Net of tax | $ | (11,377 | ) | | $ | (7,311 | ) | | $ | (20,247 | ) | | $ | (13,947 | ) |
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Changes in AOCL were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | Available for sale securities | | Pension and postretirement benefit plans | | Foreign currency adjustments | | Total |
Balance at January 1, 2020 | $ | 337 |
| | $ | 2,849 |
| | $ | (819,018 | ) | | $ | (24,311 | ) | | $ | (840,143 | ) |
Other comprehensive (loss) income before reclassifications (1) | (1,416 | ) | | 5,356 |
| | — |
| | (17,636 | ) | | (13,696 | ) |
(Gain) loss reclassified into earnings (1) | (29 | ) | | (2,641 | ) | | 20,247 |
| | — |
| | 17,577 |
|
Net other comprehensive (loss) income | (1,445 | ) | | 2,715 |
| | 20,247 |
| | (17,636 | ) | | 3,881 |
|
Balance at June 30, 2020 | $ | (1,108 | ) | | $ | 5,564 |
| | $ | (798,771 | ) | | $ | (41,947 | ) | | $ | (836,262 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| 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 |
|
(Gain) loss reclassified into earnings (1) | (89 | ) | | 77 |
| | 13,947 |
| | — |
| | 13,935 |
|
Net other comprehensive (loss) income | (71 | ) | | 6,029 |
| | 13,947 |
| | 21,378 |
| | 41,283 |
|
Balance at June 30, 2019 | $ | 120 |
| | $ | 2,968 |
| | $ | (832,514 | ) | | $ | (78,252 | ) | | $ | (907,678 | ) |
(1) Amounts are net of tax.
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Management'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, 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. In particular, the uncertainty around the severity, magnitude and duration of the COVID-19 pandemic (COVID-19), including governments' responses to COVID-19, the efficacy and availability of vaccines, its continuing impact on our operations, employees, the availability and cost of labor and transportation, global supply chain and demand across our and our clients' businesses, as well as any deterioration or instability in global macroeconomic conditions, could cause our actual results to differ than those expressed in any forward-looking statement. Other factors which could cause future financial performance to differ materially from the expectations, and which may also be exacerbated by COVID-19 or a negative change in the economy, include, without limitation:
•declining physical mail volumes
•changes in postal regulations or operations, or the financial health of posts, in the U.S. or other major markets, or significant changes to the broader postal or shipping industry
•the loss of, or significant changes to, our contractual relationshiprelationships with the United States Postal Service (USPS) or USPS' performance under those contracts
•our ability to continue to grow and manage volumes, gain additional economies of scale and improve profitability within our Global Ecommerce and Presort Services segments
•changes in labor and transportation availability and costs
•third-party suppliers' ability to provide products and services required by us and our clients
•competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors
•the loss of some of our larger clients in our Global Ecommerce and Presort Services segments
•expenses and potential impacts resulting from a breach of security, including cyber-attacks or other comparable events
our ability to continue to grow volumes, gain additional economies of scale and improve profitability within our Commerce Services group
the loss of some of our larger clients in our Commerce Services group
•our success at managing customer credit risk
third-party suppliers' ability to provide products and services required by our clients
changes in labor conditions and transportation costs
•capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs
•our success in developing and marketing new products and services and obtaining regulatory approvals, if required
competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors
•the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws
•changes in global political conditions and international trade policies, including the imposition or expansion of trade tariffs
•changes in tax laws, rulings or regulations, including the impact of potential U.S. tax reform
•our success at managing relationships and costs with outsource providers of certain functions and operations
•changes in banking regulations or the loss of our Industrial Bank charter or changes in foreign currency exchange rates and interest rates
•the United Kingdom's exit from the European Union
•intellectual property infringement claims
•the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks
•impact of acts of nature
on the services and solutions we offer
Further information about factors that could materially affect us, including our results of operations and financial condition, is contained in Item 1A. "Risk Factors" in our 20192020 Annual Report, as supplemented by Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
Financial Results Summary - Three and Six Months Ended June 30:March 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | Actual % change | | Constant Currency % Change | | | | | | | | |
Business services | $ | 570,454 | | | $ | 444,379 | | | 28 | % | | 28 | % | | | | | | | | |
Support services | 118,697 | | | 122,015 | | | (3) | % | | (4) | % | | | | | | | | |
Financing | 77,812 | | | 89,078 | | | (13) | % | | (14) | % | | | | | | | | |
Equipment sales | 86,803 | | | 76,273 | | | 14 | % | | 12 | % | | | | | | | | |
Supplies | 42,224 | | | 45,709 | | | (8) | % | | (10) | % | | | | | | | | |
Rentals | 19,207 | | | 18,814 | | | 2 | % | | — | % | | | | | | | | |
Total revenue | $ | 915,197 | | | $ | 796,268 | | | 15 | % | | 14 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % Change | | 2020 | | 2019 | | Actual % change | | Constant Currency % change |
Business services | $ | 528,990 |
| | $ | 417,963 |
| | 27 | % | | 27 | % | | $ | 973,369 |
| | $ | 824,508 |
| | 18 | % | | 18 | % |
Support services | 113,786 |
| | 127,705 |
| | (11 | )% | | (10 | )% | | 235,801 |
| | 256,304 |
| | (8 | )% | | (8 | )% |
Financing | 85,462 |
| | 92,419 |
| | (8 | )% | | (7 | )% | | 174,540 |
| | 189,462 |
| | (8 | )% | | (7 | )% |
Equipment sales | 57,837 |
| | 85,551 |
| | (32 | )% | | (32 | )% | | 134,110 |
| | 175,338 |
| | (24 | )% | | (23 | )% |
Supplies | 32,773 |
| | 46,490 |
| | (30 | )% | | (29 | )% | | 78,482 |
| | 97,443 |
| | (19 | )% | | (19 | )% |
Rentals | 18,644 |
| | 18,445 |
| | 1 | % | | 2 | % | | 37,458 |
| | 40,602 |
| | (8 | )% | | (7 | )% |
Total revenue | $ | 837,492 |
| | $ | 788,573 |
| | 6 | % | | 7 | % | | $ | 1,633,760 |
| | $ | 1,583,657 |
| | 3 | % | | 3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | Actual % change | | Constant currency % change | | | | | | | | |
Global Ecommerce | $ | 413,086 | | | $ | 292,323 | | | 41 | % | | 40 | % | | | | | | | | |
Presort Services | 143,126 | | | 140,720 | | | 2 | % | | 2 | % | | | | | | | | |
SendTech Solutions | 358,985 | | | 363,225 | | | (1) | % | | (3) | % | | | | | | | | |
Total | $ | 915,197 | | | $ | 796,268 | | | 15 | % | | 14 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | % change | | | | | | |
Global Ecommerce | $ | (26,376) | | | $ | (29,475) | | | 11 | % | | | | | | |
Presort Services | 19,051 | | | 15,695 | | | 21 | % | | | | | | |
SendTech Solutions | 114,470 | | | 106,562 | | | 7 | % | | | | | | |
Total Segment EBIT | $ | 107,145 | | | $ | 92,782 | | | 15 | % | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | Actual % change | | Constant currency % change | | 2020 | | 2019 | | Actual % change | | Constant currency % change |
Global Ecommerce | $ | 398,453 |
| | $ | 282,319 |
| | 41 | % | | 41 | % | | $ | 690,776 |
| | $ | 548,573 |
| | 26 | % | | 26 | % |
Presort Services | 118,127 |
| | 128,138 |
| | (8 | )% | | (8 | )% | | 258,847 |
| | 262,985 |
| | (2 | )% | | (2 | )% |
Commerce Services | 516,580 |
| | 410,457 |
| | 26 | % | | 26 | % | | 949,623 |
| | 811,558 |
| | 17 | % | | 17 | % |
SendTech Solutions | 320,912 |
| | 378,116 |
| | (15 | )% | | (15 | )% | | 684,137 |
| | 772,099 |
| | (11 | )% | | (11 | )% |
Total | $ | 837,492 |
| | $ | 788,573 |
| | 6 | % | | 7 | % | | $ | 1,633,760 |
| | $ | 1,583,657 |
| | 3 | % | | 3 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| EBIT |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Global Ecommerce | $ | (18,894 | ) | | $ | (15,576 | ) | | (21 | )% | | $ | (48,369 | ) | | $ | (30,176 | ) | | (60 | )% |
Presort Services | 12,582 |
| | 15,462 |
| | (19 | )% | | 28,277 |
| | 30,528 |
| | (7 | )% |
Commerce Services | (6,312 | ) | | (114 | ) | | >(100%) |
| | (20,092 | ) | | 352 |
| | >(100%) |
|
SendTech Solutions | 104,268 |
| | 124,738 |
| | (16 | )% | | 210,830 |
| | 247,141 |
| | (15 | )% |
Total Segment EBIT | $ | 97,956 |
| | $ | 124,624 |
| | (21 | )% | | $ | 190,738 |
| | $ | 247,493 |
| | (23 | )% |
Revenue increased 6%15% as reported and 7%14% at constant currency forin the first quarter of 2021 compared to the prior year. Businessyear, primarily driven by higher business services revenue resulting from increased 27% driven by significantly higher volumes in our Global Ecommerce business, which more than offset double digit declines in equipment sales, supplies and support services driven in part by the continuing impacts of COVID-19. Insegment. Within our business segments, Global Ecommerce revenue grew 41% as reported and 40% at constant currency due to increased volumes, Presort Services revenue declined 8%increased 2% primarily due to lower First Class andhigher Marketing Mail volumes and SendTech Solutions revenue declined 1% as reported and 3% at constant currency primarily due to lower financing, supplies and support services revenue, partially offset by higher equipment sales and business services revenue. Segment EBIT in the quarter increased 15%, primarily due to lower equipment sales and supplies revenue. Segment EBIT decreased 21%, primarily due to lower revenuea prior year credit loss charge of $10 million in SendTech Solutions higher credit lossesdue to the then-current economic recessionary conditions caused by COVID-19, increased volumes in Global Ecommerce and increased costs attributed to COVID-19.
Revenue increased 3% for the first half of 2020 compared to the prior year. Business services revenue increased 18% due to higher Global Ecommerce volumes but was partially offset by declineslower operating expenses in other revenue line items. In our business segments, Global Ecommerce revenue grew 26% due to increased volumes, Presort Services revenue declined 2% and SendTech Solutions revenue declined 11%. Segment EBIT decreased 23%, primarily due to lower revenue in SendTech Solutions, higher credit losses and the mix of business in Global Ecommerce and increased costs attributed to COVID-19.Services. Refer to Results of Operations section for further information.
Commerce Services EBIT margins inDuring the quarter, we completed a series of transactions to refinance our debt portfolio to decrease our refinancing risk and year-to-date periods were adversely impacted by increased laborcreate strategic flexibility. Refer to Liquidity and postal costs at Global Ecommerce due to the sudden and significant increase in volumes, higher credit losses at Global Ecommerce, lower volumes at Presort Services and increased costs and reduced productivity driven by COVID-19. However, the Global Ecommerce EBIT margin
in the second quarter was improved from the first quarter 2020 and prior year period reflecting scale-related benefits in per unit transportation and warehousing costs. SendTech Solutions EBIT margins in the quarter and year-to-date periods were relatively unchanged compared to the prior year periods despite double-digit declines in revenue, primarily due to lower operating expenses from cost savings initiatives.
Second Quarter Highlights
We drew down $100 million under our revolving credit facility as a precautionary measure and invested these proceeds in highly liquid, short-term investments.
We surrendered certain company owned life insurance (COLI) policies and sold our interest in an equity investmentCapital Resources section for aggregate proceeds of $58 million. We recognized a gain of $12 million on the sale of the equity investment and while the surrender of the COLI policies did not result in a pre-tax gain or loss, the surrender resulted in a $12 million tax charge.
We also received insurance proceeds of $5 million related to the October 2019 malware attack that temporarily disrupted customer access to some services.
In May 2020, we were affected by a Maze ransomware attack. Although the Maze attackers were able to exfiltrate a small amount of our confidential data, working with our third-party security consultants, we were able to successfully thwart the attack before any of our operations could be disrupted or any data encrypted. The attempted attack did not have any impact on our financial results, and we satisfied all regulatory obligations arising out of the attack.further information.
Impacts of COVID-19
The global spread ofBeginning in 2020, COVID-19 and the efforts to contain it adversely affected the U.S.global economies and international economies, impacting demand for a broad variety of goods and services creatingand created disruptions and shortages in global supply chains and causing significant volatilitychains. We implemented measures in financial markets. Our employees worldwide that have the ability to work remotely are doing so. Ourour facilities continue to operate, and many employees continue to report to work at these facilities. We have implemented additional measures to protect the health and safety of our employees and contractors, including staggering shifts and breaks to enhance social distancing, providing personal protection equipment, conducting temperature checks and sanitizing equipment and facilities multiple times a day. Employees that have the ability to work remotely continue to do so and management continues to assess conditions to determine when, and how, these employees should return to their office locations. We continue to manage through supply chain shortages and disruptions and provide enhanced proactive measures in our facilities to protect the health and safety of our employees and contractors.
Beginning primarily in the second quarter of 2020, COVID-19 has impacted our financial results in different ways in each of our businesses. In Global Ecommerce we saw significantly higherexperienced a significant increase in volumes in the quarterand revenue due to the demand for ecommerce solutionssolutions; however, the increase in the current environment. Involumes resulted in higher postal costs driven by capacity constraints and higher labor and transportation costs as many companies competed for these resources. Presort Services experienced a decline in both First Class and Marketing Mail volumes have declined due toand higher labor costs. Global Ecommerce and Presort Services incurred additional costs and experienced lower market demand and changing client behaviors in the current environment. Asproductivity as a result of the additional health and safety measures implemented in all our Commerce Services facilities, we have incurred, and will continue to incur, additional costs and reduced productivity.their facilities.
In SendTech Solutions, the global shut-down of businesses and increase in the number of clients working remotely significantly adversely impacted demand for and usage of our mailing equipment and supplies, as well asand our ability to contact and service clients and perform on-site installations. Despite the negative impacts of COVID-19, we saw improving trends in equipment salesservice and supplies revenues as we exited the quarter. Also, as businesses continue to operate remotely, we are seeing improvement in our cloud-enabled shipping and mailing solutions.
In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed into law in response to market volatility and instability resulting from COVID-19. The CARES Act includes provisions relating to the deferment of the employer portion of certain payroll taxes, net operating loss carryback periods and modifications to the net interest deduction limitations. We continue to assess the impact of these provisions; which we believe could affect the timing of certain cash paymentsinstallations, but not materially impact our financial position or results of operations.
Outlook
The severity, duration and governmental responses of COVID-19 are uncertain, and we are not able to reasonably estimate the full extent of the impact on our operating results, liquidity, cash flows or financial position for the remainder of the year. As COVID-19 continues to affect global economies and how businesses operate, we will continue to take proactive measures to protect the health and safety of our employees, clients, partners and suppliers. These additional safety measures will result in additional expenses and reduced productivity. Corporate and local management will continue to assess conditions to determine when, or how, employees currently working remotely should return to office locations.
Our Commerce Services businesses are more demand-driven and it is difficult to predict how demand and volumes will trend and the impact to productivity throughout the duration of COVID-19. Within Global Ecommerce, domestic parcel delivery volumes have increased significantly due to a global market shift to ecommerce solutions. While we cannot predict the magnitude of volume increases, we expect
this shift to continue throughout the remainder of the year. We signed on over 100 new clients in the second quarter and volumes from these clients will benefit the second half of the year. Cross-border volumes are still experiencing declines and we expect this to continue as long as there are restrictions on international shipments. The sudden and significant increase in volumes resulted in higher labor and postal costs in the second quarter as we needed to react quickly to process and deliver these parcels. However, the higher volumes resulted in scale-related benefits in per unit transportation and warehousing costs. We expect continued improvements in per unit transportation and warehousing costs as volumes increase and improvements in per unit labor costs as the business sizes itself to handle the higher volumes.
In Presort Services, approximately 80% of mail volumes processed are First Class Mail with the remaining 20% primarily Marketing Mail. There were declines in mail volumes from the onset of COVID-19; however, these volume declines started to moderate as we exited the second quarter. For the remainder of the year, we expect volumes of First Class Mail and Marketing Mail to be lower compared to the prior year. As businesses begin to re-open and clients return to their normal behaviors, we expect volumes to improve from current levels; however, the timing and magnitude of this improvement would be contingent on the severity and duration of COVID-19. While currently a small part of total volumes, volumes in Marketing Mail Flats and Bound Printed Matter grew over 30% in the second quarter and we anticipate these volumes will continue to grow throughout the remainder of the year.
Within SendTech Solutions, approximately two-thirds of revenue is recurring in nature and materially contributes to our cash flows. Nonrecurring revenues, primarily equipment sales and to a lesser extent, supplies, will continue to be adversely impacted by COVID-19 due to declining demand and usage. We are unable to predict the duration and magnitude of these declines or determine when, or if, demand and usage will return to normal levels; however, we would expect to see improving trends as more businesses start to re-open. As a result of clients working remotely and the necessity of alternate solutions, we saw an improvement in our cloud-enabled shipping and mailing solutions duringsolutions.
Outlook
Given the second quartercontinuing unpredictability of the severity, magnitude and expect this shiftduration of the COVID-19 pandemic, especially in market preference to continue as clients realizelight of the valueincreasingly widespread outbreak in India, where a majority of our digital capabilities. We continue to monitor cash collections fromresearch and development activities are located, the impact of the pandemic on our recurring revenue streams. There was an increasebusiness, operations and financial performance remains uncertain. The developing global semiconductor chip shortage may also adversely affect our needed supply for SendTech equipment for the remainder of 2021. The extent of that impact will depend upon the duration and severity of the shortage, as well as our success in delinquency rates during the second quartermitigating against its impact. Accordingly, there are some unique factors not within our control that was in-line withcould affect our expectations, butbusiness and current outlook for 2021. However, we believe we are starting to see an improvement in delinquency rates and positive changes in customer payment behaviors. There are no assurances that this improvement in delinquency rates and payment behaviors will continue, or that the impacts of COVID-19 will not result in higher client bankruptcies or account write-offs.
Before the onset of COVID-19 and the resulting economic decline, we had taken steps to reduce and refinance debt, improve liquidity and strengthen our balance sheet that we believe will enable uswell positioned to manage through the current economic downturn. We are taking further actionsconditions and will continue to take proactive steps to manage cash flowsour operations and maintain liquidity, including, butrelated financial impacts.
Despite some of the ongoing uncertainty, we do not limitedexpect the global economy or our individual businesses to prioritizing our capital expenditures to essential and necessary investments and reducing targeted loan originations at Wheeler Financial. We estimate that these actions alone will benefit annual cash flows by approximately $75 million. Referbe affected to the Liquiditysame extent in 2021 as in 2020, which will result in an impact to the comparison of our results to the prior year. Within Global Ecommerce, we expect continued market growth in ecommerce and Capital Resources sectionanticipate revenue growth in 2021, although not at the growth rates experienced throughout 2020. Although we expect margin and profit improvements in 2021 from pricing initiatives and operational improvements within our facilities and network designed to drive efficiencies and increased productivity, we also expect the continued growth of the overall market's needs for further information.both transportation services and labor will create cost challenges. Within Presort Services, we expect the improving volume trends in the second half of 2020 to continue throughout 2021. We anticipate that Presort Services margins will improve in 2021 as a result of productivity initiatives, increased automation and facilities consolidation and optimization. Within SendTech Solutions, we expect revenue to continue to decline, but growth in our cloud-enabled shipping solutions and sales of our multi-purpose devices to partially offset these declines. On a consolidated basis, we expect modest revenue growth in 2021 compared to 2020.
RESULTS OF OPERATIONS
In our Results of Operations discussion, we present and discuss revenue and cost of revenue at the segment level since our revenue and related costs of revenue sources are predominantly specific to the segments. Operating and other expenses are presented and discussed on a consolidated basis as this basis provides a better understanding of the underlying drivers of change in these expense line items or they are not allocated to a specific segment.
In our revenue discussion, we may refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates since the prior period under comparison. We believe that excluding the impacts of currency exchange rates provides investors with a better understanding of the underlying revenue performance. Constant currency change is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year’s exchange rate. Where constant currency measures are not provided, the actual change and constant currency change are the same.
Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, asset impairment charges, goodwill impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.
REVENUE AND SEGMENT EBIT
Global Ecommerce
Global Ecommerce includes the revenue and related expenses from productsdomestic parcel services, cross-border solutions and services that enable domestic and cross-border ecommerce transactions, including shipping, fulfillment and returns.digital delivery services.
| | | Revenue | | Cost of Revenue | | Gross Margin | | Revenue | | Cost of Revenue | | Gross Margin |
| Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended March 31, | | Three Months Ended March 31, | | Three Months Ended March 31, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % change | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | Actual % change | | Constant Currency % change | | 2021 | | 2020 | | 2021 | | 2020 |
Business services | $ | 398,453 |
| | $ | 282,319 |
| | 41 | % | | 41 | % | | $ | 355,861 |
| | $ | 238,854 |
| | 10.7 | % | | 15.4 | % | Business services | $ | 413,086 | | | $ | 292,323 | | | 41 | % | | 40 | % | | $ | 384,308 | | | $ | 265,221 | | | 7.0 | % | | 9.3 | % |
| | | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | | | Segment EBIT | | |
| Three Months Ended June 30, | | | | | | | | | | | | Three Months Ended March 31, | |
| 2020 | | 2019 | | Actual % change | | | | | | | | | | | | 2021 | | 2020 | | Actual % change | |
Segment EBIT | $ | (18,894 | ) | | $ | (15,576 | ) | | (21 | )% | | | | | | | | | | | Segment EBIT | $ | (26,376) | | | $ | (29,475) | | | 11 | % | |
Global Ecommerce revenue increased 41% as reported and 40% at constant currency in the secondfirst quarter of 20202021 compared to the prior year period due to the significant growthincrease in domesticvolumes caused by the onset of COVID-19. Domestic parcel delivery volumes, driven in part, by the market shift to ecommerce solutions as a result of COVID-19,cross-border volumes and higher digital domestic and fulfillment services volumes. This volume growthdelivery volumes contributed revenue growth of 47%22%, while15% and 4%, respectively.
Despite a decline in domestic returns and cross-border volumes contributed a 6% decline in revenue.
Grossgross margin decreasedpercentage, total gross margin increased $2 million compared to 10.7% from 15.4% in the prior year primarily due to the significant increase in revenue. The increased revenue more than offset higher transportation, postal and labor postage and other incremental costs driven by COVID-19.costs.
Segment EBIT for the secondfirst quarter of 20202021 was a loss of $19$26 million compared to a loss of $16$29 million in the prior year period. The increased lossThis increase was primarily driven by incremental costs associated with COVID-19 including higher credit loss expense of $6 million, higher labor and postal costs of $3 million due to the rapid increase in volumesgross margin and incremental costs offrom $1 million related to sanitizing and safety measures. Segment EBIT margin of (4.7)% improved from the prior year period reflecting scale-related benefits in transportation and warehouse costs offset by increased labor and postal costs driven by COVID-19.lower operating expenses.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Cost of Revenue | | Gross Margin |
| Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % change | | 2020 | | 2019 | | 2020 | | 2019 |
Business services | $ | 690,776 |
| | $ | 548,573 |
| | 26 | % | | 26 | % | | $ | 621,082 |
| | $ | 461,312 |
| | 10.1 | % | | 15.9 | % |
| | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | |
| 2020 | | 2019 | | Actual % change | | | | | | | | | | |
Segment EBIT | $ | (48,369 | ) | | $ | (30,176 | ) | | (60 | )% | | | | | | | | | | |
Global Ecommerce revenue increased 26% in the first half of 2020 with higher domestic parcel delivery volumes driven in part, by the market shift to ecommerce solutions as a result of COVID-19, and higher digital domestic and fulfillment services volumes contributing revenue growth of 30%, partially offset by domestic returns volumes contributing a revenue decline of 4%.
Gross margin decreased to 10.1% from 15.9% in the prior year primarily due to a shift in the mix of business and incremental costs driven by COVID-19.
Segment EBIT for the first half of 2020 was a loss of $48 million compared to a loss of $30 million in the prior year period. The increased loss was primarily driven by higher credit loss expense of $8 million, higher labor and postal costs, incremental costs related to sanitizing and safety measures, the shift in the mix of business and incremental costs associated with new facilities that opened during the fourth quarter of 2019.
Presort Services
Presort Services includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail, Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.
| | | Revenue | | Cost of Revenue | | Gross Margin | | Revenue | | Cost of Revenue | | Gross Margin |
| Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended March 31, | | Three Months Ended March 31, | | Three Months Ended March 31, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % change | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | Actual % change | | Constant Currency % change | | 2021 | | 2020 | | 2021 | | 2020 |
Business services | $ | 118,127 |
| | $ | 128,138 |
| | (8 | )% | | (8 | )% | | $ | 93,542 |
| | $ | 97,040 |
| | 20.8 | % | | 24.3 | % | Business services | $ | 143,126 | | | $ | 140,720 | | | 2 | % | | 2 | % | | $ | 108,998 | | | $ | 105,238 | | | 23.8 | % | | 25.2 | % |
| | | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | | | Segment EBIT | | |
| Three Months Ended June 30, | | | | | | | | | | | | Three Months Ended March 31, | |
| 2020 | | 2019 | | Actual % change | | | | | | | | | | | | 2021 | | 2020 | | Actual % change | |
Segment EBIT | $ | 12,582 |
| | $ | 15,462 |
| | (19 | )% | | | | | | | | | | | Segment EBIT | $ | 19,051 | | | $ | 15,695 | | | 21 | % | |
Presort Services revenue decreased 8%increased 2% in the secondfirst quarter of 20202021 compared to the prior year period due to a reduction in volumes. Volumes decreased in the second quarter compared to the prior year primarily due to lower Marketing Mail and First Class Mail, driven by COVID-19, partially offset by higherincreased volumes of Marketing Mail Flats and Bound Printed Matter. Revenue declined 11% due to lower organic volumes but benefited 3% from acquisitions.Mail.
Gross margin decreased to 20.8%23.8% from 24.3% and segment EBIT declined 19% in the second quarter of 2020. The decrease in gross margin was25.2% primarily due to the decline in revenue and increased costs associated with COVID-19, including $2 million for sanitizing and safety measures and quarantine payments. The increased costs were partially offset by improvements in transportation due to ongoing productivity initiatives. Segment EBIT includes $3 million from insurance proceeds related to the malware attack in late 2019. Segment EBIT margin of 10.7% was down 1 percentage point from the prior year period largely driven by reduced volumes and increasedhigher labor costs driven by COVID-19.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Cost of Revenue | | Gross Margin |
| Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % change | | 2020 | | 2019 | | 2020 | | 2019 |
Business services | $ | 258,847 |
| | $ | 262,985 |
| | (2 | )% | | (2 | )% | | $ | 198,781 |
| | $ | 199,002 |
| | 23.2 | % | | 24.3 | % |
| | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | |
| 2020 | | 2019 | | Actual % change | | | | | | | | | | |
Segment EBIT | $ | 28,277 |
| | $ | 30,528 |
| | (7 | )% | | | | | | | | | | |
Presort Services revenue decreased 2%wage increases to address the increase in the first half of 2020 compared to the prior year period due to lower volumes of Marketing Mailcompetition for labor resources, increased depreciation expense on new equipment and First Class Mail, driven by COVID-19. Revenue declined 5% due to lower organic volumes but benefited 3% from acquisitions.
Gross margin decreased to 23.2% from 24.3% and segment EBIT declined $2 million, or 7%, in the first half of 2020. Gross margins were adversely impacted by lower revenue and the incremental costs associated with COVID-19. The declineCOVD-19.
Segment EBIT increased 21% in segment EBIT was driven by lower revenue andthe first quarter of 2021, primarily due to a $2$4 million prior year charge for unrealized losses on certain investment securities driven by market conditions,and lower consulting fees of $1 million, partially offset by $3 million of insurance proceeds related to the malware attackdecline in late 2019.gross margin.
SendTech Solutions
SendTech Solutions includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.
| | | Revenue | | Cost of Revenue | | Gross Margin | | Revenue | | Cost of Revenue | | Gross Margin |
| Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended March 31, | | Three Months Ended March 31, | | Three Months Ended March 31, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % change | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | Actual % change | | Constant Currency % change | | 2021 | | 2020 | | 2021 | | 2020 |
Business services | $ | 12,410 |
| | $ | 7,506 |
| | 65 | % | | 68 | % | | $ | 4,856 |
| | $ | 1,803 |
| | 60.9 | % | | 76.0 | % | Business services | $ | 14,242 | | | $ | 11,336 | | | 26 | % | | 26 | % | | $ | 6,069 | | | $ | 4,185 | | | 57.4 | % | | 63.1 | % |
Support services | 113,786 |
| | 127,705 |
| | (11 | )% | | (10 | )% | | 36,196 |
| | 40,637 |
| | 68.2 | % | | 68.2 | % | Support services | 118,697 | | | 122,015 | | | (3) | % | | (4) | % | | 36,228 | | | 39,628 | | | 69.5 | % | | 67.5 | % |
Financing | 85,462 |
| | 92,419 |
| | (8 | )% | | (7 | )% | | 11,939 |
| | 11,043 |
| | 86.0 | % | | 88.1 | % | Financing | 77,812 | | | 89,078 | | | (13) | % | | (14) | % | | 11,886 | | | 12,489 | | | 84.7 | % | | 86.0 | % |
Equipment sales | 57,837 |
| | 85,551 |
| | (32 | )% | | (32 | )% | | 47,866 |
| | 58,486 |
| | 17.2 | % | | 31.6 | % | Equipment sales | 86,803 | | | 76,273 | | | 14 | % | | 12 | % | | 61,790 | | | 57,348 | | | 28.8 | % | | 24.8 | % |
Supplies | 32,773 |
| | 46,490 |
| | (30 | )% | | (29 | )% | | 8,377 |
| | 11,758 |
| | 74.4 | % | | 74.7 | % | Supplies | 42,224 | | | 45,709 | | | (8) | % | | (10) | % | | 11,211 | | | 12,240 | | | 73.4 | % | | 73.2 | % |
Rentals | 18,644 |
| | 18,445 |
| | 1 | % | | 2 | % | | 6,021 |
| | 8,418 |
| | 67.7 | % | | 54.4 | % | Rentals | 19,207 | | | 18,814 | | | 2 | % | | — | % | | 6,447 | | | 6,378 | | | 66.4 | % | | 66.1 | % |
Total revenue | $ | 320,912 |
| | $ | 378,116 |
| | (15 | )% | | (15 | )% | | $ | 115,255 |
| | $ | 132,145 |
| | 64.1 | % | | 65.1 | % | Total revenue | $ | 358,985 | | | $ | 363,225 | | | (1) | % | | (3) | % | | $ | 133,631 | | | $ | 132,268 | | | 62.8 | % | | 63.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | | | Segment EBIT | | |
| Three Months Ended June 30, | | | | | | | | | | | | Three Months Ended March 31, | |
| 2020 | | 2019 | | Actual % change | | | | | | | | | | | | 2021 | | 2020 | | Actual % change | |
Segment EBIT | $ | 104,268 |
| | $ | 124,738 |
| | (16 | )% | | | | | | | | | | | Segment EBIT | $ | 114,470 | | | $ | 106,562 | | | 7 | % | |
SendTech Solutions revenue decreased 15%1% as reported and 3% at constant currency in the secondfirst quarter of 20202021 compared to the prior year. Equipment salesFinancing revenue decreased 13% as reported and supplies decreased 32% and 29%14% at constant currency respectively,primarily driven by a declining lease portfolio. Supplies revenue declined 8% as the impacts of COVID-19 impacted our ability to contactreported and service clients and perform on-site installations and reduced usage and demand for supplies. Support services revenue decreased 10% at constant currency driven by a declining meter population and financingreduced usage and demand. Support services revenue decreased 7%3% as reported and 4% at constant currency primarily driven by a declining lease portfolio.meter population.
These declines were partially offset by an increase in business services and equipment sales revenue. Business services revenue increased $5$3 million, or 68%26% at constant currency, primarily due to an overall increase inincreased use of our shipping offerings.products. Equipment sales increased 14% as reported and 12% at constant currency driven by a large government deal in the quarter.
The total grossGross margin for the first quarter of 2021 decreased 1 percentage pointslightly to 62.8% from 63.6% compared to the prior year.year period. Business services gross margin decreased to 60.9%57.4% from 76.0%63.1% primarily driven by an increase in sales ofa shift to lower margin solutions.products. Equipment sales gross margin decreased 14 percentage points
increased to 17.2%,28.8% from 24.8% primarily due to lower revenue and the mix of product sales due to delays in scheduling and performing on-site installations of our higher end products. Rentalsengineering costs. Support services gross margin increased to 67.7%69.5% from 54.4%67.5% in the prior period primarily due to lower scrap costs.cost savings in the current year.
We allocate a portionSegment EBIT increased 7% in the first quarter 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. The financing gross margin decreased to 86.0% from 88.1%2021 compared to the prior year, primarily due todriven by a higher effective interest rate.
Segment EBIT decreased 16%$10 million credit loss charge in the second quarter of 2020 compared to the prior year drivendue to economic recessionary conditions caused by the decline in revenueCOVID-19 and lower operating expense of $4 million, partially offset by lower expenses of $15 million from cost savings initiatives, including professional fees of $3 million, marketing and advertising costs of $3 million, travel related expenses of $2 million and research and development costs of $4 million. Segment EBITa decline in gross margin of 32.5% was flat$6 million.
UNALLOCATED CORPORATE EXPENSES
The majority of our SG&A expense is recorded directly or allocated to our reportable segments. Those expenses not recorded directly or allocated to our reportable segments are reported as unallocated corporate expenses. Unallocated corporate expenses primarily represents corporate administrative functions such as finance, marketing, human resources, legal, information technology and innovation.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | Actual % change | | | | | | |
Unallocated corporate expenses | $ | (57,465) | | | $ | (43,722) | | | (31) | % | | | | | | |
The increase in unallocated corporate expenses in the quarter compared to the prior year period as lower costs offset the decline in revenue.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Cost of Revenue | | Gross Margin |
| Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | Actual % change | | Constant Currency % change | | 2020 | | 2019 | | 2020 | | 2019 |
Business services | $ | 23,746 |
| | $ | 12,950 |
| | 83 | % | | 86 | % | | $ | 9,042 |
| | $ | 3,992 |
| | 61.9 | % | | 69.2 | % |
Support services | 235,801 |
| | 256,304 |
| | (8 | )% | | (8 | )% | | 75,823 |
| | 82,400 |
| | 67.8 | % | | 67.9 | % |
Financing | 174,540 |
| | 189,462 |
| | (8 | )% | | (7 | )% | | 24,428 |
| | 22,407 |
| | 86.0 | % | | 88.2 | % |
Equipment sales | 134,110 |
| | 175,338 |
| | (24 | )% | | (23 | )% | | 105,214 |
| | 121,893 |
| | 21.5 | % | | 30.5 | % |
Supplies | 78,482 |
| | 97,443 |
| | (19 | )% | | (19 | )% | | 20,619 |
| | 25,308 |
| | 73.7 | % | | 74.0 | % |
Rentals | 37,458 |
| | 40,602 |
| | (8 | )% | | (7 | )% | | 12,400 |
| | 18,133 |
| | 66.9 | % | | 55.3 | % |
Total revenue | $ | 684,137 |
| | $ | 772,099 |
| | (11 | )% | | (11 | )% | | $ | 247,526 |
| | $ | 274,133 |
| | 63.8 | % | | 64.5 | % |
| | | | | | | | | | | | | | | |
| Segment EBIT | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | |
| 2020 | | 2019 | | Actual % change | | | | | | | | | | |
Segment EBIT | $ | 210,830 |
| | $ | 247,141 |
| | (15 | )% | | | | | | | | | | |
SendTech Solutions revenue decreased 11% in the first half of 2020 compared to the prior year. Equipment sales and supplies decreased 23% and 19% at constant currency, respectively, as the impacts of COVID-19 impacted our ability to contact and service clients and perform on-site installations and reduced usage and demand for supplies. Financing revenue decreased 7% at constant currency,was driven primarily driven by a declining lease portfolio. Support services and rentals revenue decreased 8% and 7% at constant currency, respectively, primarily driven by a declining meter population. Business services revenue increased $11 million, or 86% at constant currency, primarily due to an increase in our shipping offerings, including the SendPro Online product.
The total gross margin remained relatively flat compared to the prior year. Business services gross margin decreased to 61.9% from 69.2%, primarily driven by higher salesvariable compensation-related expenses of lower margin solutions. Equipment sales gross margin decreased 9 percentage points to 21.5%, primarily due to lower revenue and the mix of product sales. Equipment sales margin in the prior year period was impacted by a $9$8 million charge related to a SendPro C tablet replacement program. Rentals gross margin increased to 66.9% from 55.3%, primarily due to lower scrap costs in the current year and a $2 million favorable inventory provision adjustment. Financing gross margin decreased to 86.0% from 88.2% compared to the prior year primarily due to a higher effective interest rate.
Segment EBIT decreased 15% in first half of 2020 compared to the prior year, primarily due to the decline in revenue and higher credit loss provisionsales tax expense of $10$7 million, due to the current economic recessionary conditions and outlook caused by COVID-19, partially offset by lower expenses of $33 million from cost savings initiatives, including lower professional fees of $8 million, lower research and development costs of $6$3 million and lower marketingtravel expenses of $5$1 million.
CONSOLIDATED OPERATING AND OTHER EXPENSES
Selling, general and administrative (SG&A)
SG&A expense of $234$238 million in the quarter decreased 3% compared to the prior period, primarily due to lower travel related expenses of $7 million as we imposed travel restrictions in response to COVID-19, lower professional fees of $5 million due to contract renegotiations and lower marketing expenses of $3 million, partially offset by higher credit loss provision of $8 million. SG&A expense of $482 million in the first half of 2020 decreased 4% compared to the prior period, primarily due to a lower provision for credit losses of $12 million driven by the $10 million prior year charge due to the then-current economic recessionary conditions and outlook caused by COVID-19, lower professional and outsourcing fees of $15 million, lower employee costs of $8$5 million and lower travel related expenses of $7$4 million, partially offset by higher credit loss provisionemployee-related expenses of $13$11 million.
Research and development (R&D)
R&D expense decreased 45%7%, or $6 million, in the second quarter of 2020 and decreased 25%, or $7$1 million in the first halfquarter of 20202021 compared to the prior year period, primarily due to lowera shift in the mix of projects as well as the timing of project spending.
Restructuring charges
Restructuring charges primarily includes costs for employee severance and asset impairments
Restructuring charges and asset impairments for the three months ended June 30, 2020 and 2019 were $5 million and $6 million, respectively, and restructuring charges and asset impairments for the six months ended June 30, 2020 and 2019 were $9 million and $10 million, respectively.facility closures. See Note 10 to the Condensed Consolidated Financial Statements for further information.
Goodwill impairment
We recorded a non-cash, pre-tax goodwill impairment charge of $198 million associated with our Global Ecommerce reporting unit in the first quarter of 2020. See Critical Accounting Estimates for further information.
Other expense, net
Other (income) expense
Other (income) expense, fornet of $51 million in the three months ended June 30, 2020 includes a $12 million gain on the sale of an equity investment and insurance proceeds of $5 million relatedMarch 31, 2021 relates to the 2019 malware attack. Other (income) expense for the six months ended June 30, 2020 includes a $37 million loss on the early extinguishment of debt partially offset by the $12 million gain on the sale of an equity investment and $9 million of insurance proceeds related to the 2019 malware attack. Other (income) expense for the six months ended June 30, 2019 includes a loss of $18 million, primarily from the write-off of cumulative translation adjustments, in connection with the disposition of operations in certain international markets.
Income taxes
Provision for income taxes for the three and six months ended June 30, 2020 includes a tax charge of $12 million in connection with the surrender of company owned life insurance policies for which no pre-tax income or loss was recognized. The provision for income taxes for the six months ended June 30, 2020 also includes a benefit of $2 million on the $198 million goodwill impairment charge as most of this charge is nondeductible.refinancing. See Note 1311 to the Condensed Consolidated Financial Statements and Liquidity and Capital Resources below for further information.
INCOME TAXES AND DISCONTINUED OPERATIONS
Income taxes
The effective tax rate for the three months ended March 31, 2021 was a benefit of 33.6% and includes benefits of $3 million from an affiliate reorganization and $2 million from the vesting of restricted stock, partially offset by a charge of $1 million for the write-off of deferred tax assets associated with the expiration of out-of-the-money stock options.
Discontinued Operations
Loss from discontinuedDiscontinued operations for the three monthsquarter ended June 30, 2020 primarilyMarch 31, 2021 includes a pension settlementtax charge related to the Software Solutions sale. Income from discontinued operations for the six months ended June 30, 2020 primarily includes the gain on the sale of the Australia softwareour Production Mail business which closed in January 2020, and the pension settlement charge related to the Software Solutions sale. See Note 4 to the Condensed Consolidated Financial Statements for further information.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2020,March 31, 2021, we had cash, and cash equivalents and short-term investments of $1 billion, of which $182$697 million. This includes $227 million was held byat our foreign subsidiaries. Cash held by our foreign subsidiaries is generally used to support the liquidity needs of those subsidiaries. Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our clients ability to pay their balances on a timely basis, the length and severity of COVID-19 and its impact on macroeconomic conditions and our ability to take further cost-savingscost savings and cash conservation measures if necessary. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our $500 million revolving credit facility will be sufficient to fund our cash needs for the next 12 months. 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 Flow Summary
Changes in cash and cash equivalents were as follows: | | | | | | | | | | 2021 | | 2020 | | Change |
| 2020 | | 2019 | | Change | |
Net cash provided by operating activities | $ | 86,809 |
| | $ | 86,782 |
| | $ | 27 |
| |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | $ | 65,924 | | | $ | (67,355) | | | $ | 133,279 | |
Net cash used in investing activities | (54,545 | ) | | (36,151 | ) | | (18,394 | ) | Net cash used in investing activities | (87,109) | | | (23,499) | | | (63,610) | |
Net cash used in financing activities | (84,598 | ) | | (146,770 | ) | | 62,172 |
| Net cash used in financing activities | (218,300) | | | (160,484) | | | (57,816) | |
Effect of exchange rate changes on cash and cash equivalents | (9,211 | ) | | (81 | ) | | (9,130 | ) | Effect of exchange rate changes on cash and cash equivalents | (1,238) | | | (10,032) | | | 8,794 | |
Change in cash and cash equivalents | $ | (61,545 | ) | | $ | (96,220 | ) | | $ | 34,675 |
| Change in cash and cash equivalents | $ | (240,723) | | | $ | (261,370) | | | $ | 20,647 | |
Operating Activities
Cash provided by operating activities of $87was $66 million in the first halfthree months of 2020 was flat2021 compared to a use of $67 million in the prior year. Cash flows from continuing operations increased $44year period. The increase of $133 million was primarily due to working capital changes includinghigher collections of accounts receivable, the timing of payments of accounts payable. Cash flows from discontinued operations declined due topayable and accrued liabilities and a $38 million cash payment in the prior year for taxes related to the gain on the sale of our Software Solutions business.
Investing Activities
Cash used in investing activities in the first halfthree months of 20202021 increased $64 million compared to the prior year period primarily driven by increased net purchases of $55investment securities of $42 million, includes $65 million of net investment activity and $60 million in capital expenditures, partially offset by $46 million in proceeds from the surrender of COLI policies, higher customer deposits at the PB Bank of $22 million and proceeds of $12 million from the sale of an equity investment. Cash used in investing activities in the first half of 2019 was $36 million, consisting primarily of capital expenditures of $59$18 million and lower customer deposits at the PB Bank of $8 million, partially offset by net proceeds of $47 million fromincreased investment activities.in loan receivables.
Financing Activities
Cash used in financing activities in the first halfthree months of 2020 was $852021 increased $58 million compared to the prior year period primarily driven by an outflow in customer deposits at PB Bank of $27 million, higher net debt repayments of $16 million and includes payments of $33 million for premiums andhigher fees associated with the early extinguishmentdebt refinancing of debt, net cash of $32 million used for debt activities, including $21 million of scheduled term loan repayments and $17 million of dividend payments.$12 million. See Financings and Capitalization below for additional information. In the first half of 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 dividend payments.
Financings and Capitalization
InDuring the first quarter of 2020,2021, we securedissued a five-year, $850$400 million 6.875% unsecured note due March 2027 and a $350 million 7.25% unsecured note due March 2029. We also entered into a new seven-year $450 million secured term loan scheduled to mature January 2025 (the 2025 Term Loan). The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly. maturing March 2028.
We usedredeemed the net proceeds plus available cash to purchase under a tender offer $428remaining $153 million balance of the October 2021 notes $250and, under a tender offer, redeemed an aggregate $356 million of the May 2022 notes, $125 million of the April 2023 notes and $125 million of the March 2024 notes. We incurred a lossalso repaid the remaining $818 million balance of a $37our term loan that was scheduled to mature in January 2025. In April 2021, we redeemed under the tender offer, an additional $7 million onof the early redemption of debt.May 2022 notes, April 2023 notes and March 2024 notes.
We have aalso amended our $500 million secured revolving credit facility that expires inand our March 2026 secured term loan to extend their maturities from November 2024 to March 2026. The credit agreement that governs the revolving credit facility and term loans contains financial and non-financial covenants. In April 2020, in light of the current macroeconomic environment, we drew down $100 million under the credit facility as a precautionary measure. At June 30, 2020,March 31, 2021, we were in compliance with all covenants.covenants and there were no outstanding borrowings under the revolving credit facility.
A $51 million pre-tax loss was incurred on the refinancing of debt.
Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. AsDue to a result of credit rating downgradesdowngrade in November 2019 and May 2020,February 2021, the interest rates on the October 2021 notes and April 2023 notes increased 0.50% and the interest rate on the May 2022 notes increased 0.75%. Further,and the interest rates on the October 2021 notes and April 2023 notes will increase an additional 0.25% in the fourthsecond quarter of 2020.2021.
Dividends and Share Repurchases
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. We expect to continue to pay a quarterly dividend, however; in light of COVID-19 and the current macroeconomic conditions,dividend; however, no assurances can be given.
We did not repurchase any shares of our common stock during the first half of 2020. We have remaining authorization to repurchase up to $16 million of our common stock.
Contractual Obligations and Off-Balance Sheet Arrangements
WeAt March 31, 2021, we have entered into three equipment leases for our Commerce Services operations that will commence in the fourth quarter with aggregate lease payments of approximately $41 million and terms ranging from seventhree to nine years. Aggregate lease payments for the three leases will approximate $30 million.eight years, that have not commenced.
At June 30, 2020,March 31, 2021, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity.
Critical Accounting Estimates
Goodwill impairment review
During the first quarter of 2020, our Global Ecommerce reporting unit experienced weaker than expected performance, in part due to the macroeconomic conditions resulting from COVID-19. At December 31, 2019, the fair value of our Global Ecommerce business exceeded its carrying value by less than 20% and the deteriorating macroeconomic conditions and uncertainty brought on by COVID-19 caused us to evaluate the Global Ecommerce goodwill for impairment.
To test the Global Ecommerce goodwill for impairment, we determined the fair value of the Global Ecommerce reporting unit and compared it to the reporting unit's carrying value, including goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The determination of fair value, and the resulting impairment charge, relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment charge and could result in an additional impairment charge to be recorded in the future. These estimates and assumptions are considered Level 3 inputs under the fair value hierarchy.
We determined that the reporting unit's estimated fair value was less than its carrying value and recorded a non-cash, pre-tax goodwill impairment charge of $198 million in the first quarter to reduce the carrying value of the Global Ecommerce reporting unit to its estimated fair value.
Regulatory Matters
There have been no significant changes to the regulatory matters disclosed in our 20192020 Annual Report.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosures made in our 20192020 Annual Report.
Item 4: Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding disclosures.
With the participation of our CEO and CFO, management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal controls over financial reporting.reporting as of the end of the period covered by this report. 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 required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. In addition, no changes in internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. Further, we have not experienced any material impact to our internal controls over financial reporting given that most of our employees are working remotely due to COVID-19. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness.
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 June 30, 2020.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
See Note 14 to the Condensed Consolidated Financial Statements.
Item 1A: Risk Factors
There were no material changes to the risk factors identified in our 20192020 Annual Report. However, we are supplementing the risk factors described in Item 1A of our 2019 Annual Report with the following additional risk factor:
Our operations and financial performance are being affected and will continue to be affected by the global coronavirus outbreak. The duration and severity of the COVID-19 crisis is unknown and constantly changing, and a prolonged duration of this crisis or a reoccurrence of COVID-19 or other similar virus in the future could have a significantly material effect on our operations, financial condition and liquidity
The COVID-19 pandemic is negatively impacting, and is expected to continue to negatively impact, our business, operations and financial performance. Given the unpredictability of the severity, magnitude and duration of the COVID-19 pandemic, including various governments’ responses to the pandemic, and its effect on the global economy, the ultimate impact of the pandemic on our business, operations and financial performance remains uncertain. There are many factors, not within our control, which could affect the pandemic’s ultimate outcome on our business and our ability to execute our business strategies and initiatives in the expected time frame. These include, but are not limited to: government, businesses and individuals’ actions in response to the pandemic; an acceleration of the decline on the use of physical mail; the impact of the pandemic on the global economy and economic activity; the changing spending habits of consumers and businesses; disruptions in global supply chains; and significant volatility and disruption of financial markets. A prolonged duration of this crisis or a reoccurrence of the COVID-19 pandemic could exacerbate the impact on our business, operations and financial performance. It is also uncertain the extent to which the COVID-19 will permanently affect aspects of the economy to the detriment of our business, including:
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• | The dramatic acceleration in the decline of physical mail volume in the geographies in which we operate, which adversely affects both our Presort Services and SendTech Solutions businesses. We cannot yet assess the extent to which these declines in mail volumes, and resulting impact to our business, are permanent or temporary. Further detail on the risk of physical mail volume decline, including an acceleration of that decline, is described in the risk factor in our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report) relating to the “The Continuing Decline in the Volume of Physical Mail Delivered via Traditional Postal Services”.
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• | The adverse effect that declines in physical mail are having on the financial health of posts around the world, especially that of the United States Postal Service. If these financial difficulties are not resolved, or if any resolution requires them to operate differently, price in a manner that hurts their competitiveness or reduces postal volume, or causes them to change their contractual relationships with their partners or vendors, these changes could have a material adverse effect on our business. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Significant Disruptions to Postal Operations”.
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• | Significant declines in the retail industry caused by the pandemic. Although our Global Ecommerce business has seen an increase in volume of packages in the short-term, should there be a long-term change in consumer sentiment or purchasing habits it could have a material effect on our retail clients, including some of our largest clients, which could have an adverse impact on our financial performance. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Material Change in Consumer Sentiment or Spending Habits”.
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The decline in frequency of long-distance airplane flights has increased the costs of, and therefore the demand for, products purchased in our Global Ecommerce service’s cross-border business.
The effect that social distancing rules and heightened security policies have inhibited, and will continue to inhibit, our ability to sell products and provide services to our clients, fulfill orders and install equipment on a timely basis and market to prospective new clients.
Increased costs and reduced labor productivity associated with extended safety protocols, including sanitizing facilities and equipment multiple times a day, implemented in our facilities and incremental costs that may be required to hire temporary labor or redirect volumes to other facilities.
We could experience further increases in delinquencies in collections and bankruptcies in our clients, which could affect our cash flow. Client requests for potential payment deferrals or other contract modifications could also reduce the profitability or ongoing cash flow from some of our current customers.
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• | Given the severity of the pandemic, the business continuity plans of our suppliers and third-party service providers may not be sufficient to enable them to satisfy their obligations to us. If they are unable to satisfy these obligations, it could affect our ability to satisfy service or sales obligations to our clients, or it may affect other aspects of our internal operations. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Third-party Suppliers and Outsource Providers”.
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• | A prolonged period of generating lower earnings or cash from operations could result in additional credit rating downgrades, higher costs of borrowing, or limit our access to additional debt. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Future Credit Rating Downgrades or Capital Market Disruptions”.
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As the COVID-19 pandemic continues to adversely affect our business, operations and financial performance, it may also have the effect of heightening many of the other risks described in the risk factors in our 2019 Annual Report, including the risks described above. Further, the COVID-19 pandemic may also affect our business, operations and financial performance in a manner that is not presently known to us.
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. We did not repurchase any shares during the six months ended June 30, 2020purposes and maintaincurrently have Board authorization to repurchase up to $16 million of our common stock.
There were no repurchases of our common stock during the first three months of 2021.
Item 6: Exhibits
| Exhibit Number | | Exhibit Number | Description | | Exhibit Number in this Form 10-Q |
| 3(i)(a) | | 3(i)(a) | | | 3(i)(a) |
3 | | 3 | | | 3 |
| | Exhibit Number | Description | | Exhibit Number in this Form 10-Q | |
3(i)(a) | | | 3(i)(a) | |
3 | | | 3 | |
4.1 | | 4.1 | | | 4.1 |
4.2 | | 4.2 | | | 4.2 |
10.1 | | 10.1 | | | 10.1 |
10.2 | | 10.2 | | | 10.2 |
31.1 | | | 31.1 | 31.1 | | | 31.1 |
31.2 | | | 31.2 | 31.2 | | | 31.2 |
32.1 | | | 32.1 | 32.1 | | | 32.1 |
32.2 | | | 32.2 | 32.2 | | | 32.2 |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | | | 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | | |
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | | | 101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | | |
101.LAB | Inline XBRL Taxonomy Label Linkbase Document | | | 101.LAB | Inline XBRL Taxonomy Label Linkbase Document | | |
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | | | 101.PRE | Inline 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, 2020, formatted in Inline XBRL. (included as Exhibit 101). | | 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL. (included as Exhibit 101). | |
* Pursuant to Item 601(a)(5) 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, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | PITNEY BOWES INC. |
| | |
Date: | May 6, 2021 | |
| | |
| | /s/ Ana Maria Chadwick |
| | |
| | PITNEY BOWES INC.Ana Maria Chadwick |
| | |
Date: | August 3, 2020 | |
| | |
| | /s/ Stanley J. Sutula III |
| | |
| | Stanley J. Sutula III |
| | Executive Vice President and Chief Financial Officer (Principal |
| | |
| | (Duly Authorized Officer and Principal Financial Officer) |
| | |
| | /s/ Joseph R. Catapano |
| | |
| | Joseph R. Catapano |
| | Vice President and Chief Accounting Officer |
| | (Duly Authorized Officer and Principal Accounting Officer) |