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Pitney Bowes Annual Report 2013
1 Elmcroft Road, Stamford, CT 06926-0700 203.356.5000 www.pb.com
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Innovation to enable commerce has been
an essential part of the Pitney Bowes story
for over 93 years. In 2013, we began the
next chapter of our story with a focus on
innovation driven by our clients’ needs as
they navigate the complexities of global
commerce in the 21st century. We are off
to a good start and more opportunity lies
ahead. Our people are pulling together as
a team, executing on our strategies, and
enabling clients to use our technologies
and know-how to compete in their markets.
With the foundation that we have and the
transformation we have begun, the next
chapter promises to be a good one.
Stockholder Information
World Headquarters
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
203.356.5000
www.pb.com
Annual Meeting
Stockholders are cordially invited to attend the Annual
Meeting at 9:00 a.m., Monday, May 12, 2014, at Pitney Bowes
World Headquarters in Stamford, Connecticut. Notice of the
meeting will be mailed or made available to stockholders
of record as of March 14, 2014. Please refer to the Proxy
Statement for information concerning admission to the meeting.
10-K Report
Included in this Annual Report to Stockholders is a copy
of our Annual Report on Form 10-K for the fi scal year
ended December 31, 2013, as fi led with the Securities
and Exchange Commission, and can be viewed at http://
www.investorrelations.com. This Annual Report contains
statements that are forward-looking. These statements are
based on current expectations and assumptions that are
subject to risks and uncertainties. Actual results could differ
materially because of factors discussed in the Forward-
Looking Statements section of the Form 10-K. The CEO/CFO
certifi cations required to be fi led with the SEC under Section
302 of the Sarbanes-Oxley Act of 2002 were fi led as exhibits
to our Annual Report on Form 10-K for the fi scal year ended
December 31, 2013. The CEO certifi cation required to be
submitted to the NYSE pursuant to Section 303A.12(a) of the
NYSE Listed Company Manual was submitted on June 7, 2013.
Copies of our Form 10-K are available to stockholders without
charge upon written request to:
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Stock Exchanges
Pitney Bowes common stock is traded under the symbol
“PBI.” The principal market on which it is listed is the New
York Stock Exchange. The stock is also traded on the Chicago,
Philadelphia, Boston, Pacifi c and Cincinnati stock exchanges.
Investor Inquiries
All investor inquiries about Pitney Bowes should be
addressed to:
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Comments concerning the Annual Report
should be sent to:
Corporate Financial Communications
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Transfer Agent and Registrar
Computershare
PO Box 30170
College Station, TX 77842-3170
Stockholders may call Computershare at (800) 648-8170
www.computershare.com
Stockholder Inquiries
To provide or obtain information concerning transfer
requirements, lost certifi cates, dividends, changes of address
and other matters, please call: (800) 648-8170, TDD phone
service for the hearing impaired (800) 952-9245, for foreign
holders (781) 575-2721; or write to the address above.
Dividend Reinvestment Plan
Owners of Pitney Bowes Inc. common stock may purchase
common stock, $1 par value, with their dividends through the
Dividend Reinvestment Plan. A prospectus and enrollment
card may be obtained by calling (800) 648-8170 or by writing
to the agent at the address above.
Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or write to the agent at the address above.
Duplicate Mailings
If you receive duplicate mailings because you have more than
one account listing, you may wish to save your company money
by consolidating your accounts. Please call (800) 648-8170 or
write to the agent at the address above.
Stock Information
Dividends per common share:
Quarter
First
Second
Third
Fourth
Total
2013
$ .375
$ .1875
$ .1875
$ .1875
$ .9375
Quarterly price ranges of common stock:
2013 Quarter
First
Second
Third
Fourth
2012 Quarter
First
Second
Third
Fourth
High
$ 15.56
$ 16.43
$ 18.82
$ 24.18
High
$ 19.65
$ 17.87
$ 15.27
$ 14.73
2012
$
$
$
$
.375
.375
.375
.375
$ 1.50
Low
$ 10.71
$ 13.12
$ 13.76
$ 18.21
Low
$ 17.45
$ 12.81
$ 12.64
$ 10.34
Pitney Bowes, the Corporate logo, SendSuite Live, Spectrum
and Volly are trademarks of Pitney Bowes Inc. or a subsidiary.
All other trademarks are the property of their respective owners.
The materials used in this publication are recyclable.
The paper is certifi ed to Forest Stewardship Council™ (FSC®) standards.
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Marc B. Lautenbach
President and Chief
Executive Offi cer
Michael Monahan
Executive Vice President
and Chief Financial Offi cer
Fellow shareholders:
In my note to shareholders last year, just four months after
becoming CEO, I wrote that I came to Pitney Bowes because
I saw a company with enormous promise and unique strengths —
a company with immense opportunities ahead if we could make
the right strategic choices and execute with discipline.
We made a good start in 2013. We outlined a strategy to unlock the inherent value of Pitney Bowes for our clients,
shareholders, and employees worldwide. That strategy entails focusing on execution in three areas: stabilizing our
mail business, driving operational excellence, and accelerating our growth.
We have made progress on all three fronts — progress that at this early stage exceeds expectations. Our people
have pulled together, across every corner of our business, in every region of the world, making tough decisions,
improving how we do business, and innovating based on our obvious strengths: from our best-in-class technologies,
to our global client base, to our market-leading position in the modern mailing industry we helped to invent.
While you can measure our progress in many ways, the most obvious is our fi nancial performance — including
a higher stock price and a stronger balance sheet, which are refl ections of what we’ve accomplished. In our effort
to stabilize the mailing business, we increased the rate of growth in our enterprise business while moderating the
decline in our SMB business. Through operational effi ciencies, as well as a new go-to-market strategy in our SMB
business, we reduced SG&A expenses by $71 million in 2013, while reducing our debt by $675 million. In addition,
we saw a signifi cant boost in the business that serves the fastest-growing markets, Digital Commerce, increasing
year-over-year revenue by 18 percent on a constant currency basis in the fourth quarter. A fi nancial analyst who
covers us recently wrote that our company’s “impressive execution on its stated goals … has begun to manifest
in results.” I know that we have much further to go, but I couldn’t agree more.
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Pitney Bowes Annual Report 2013
1
Letter to Shareholders
Senior Management Team
(left to right) Bill Hughes, Lila Snyder, Christoph Stehmann,
Abby Kohnstamm, Roger Pilc, and Mark Shearer
(left to right) Deborah Pfeiffer, Mark Wright, Daniel Goldstein,
Joseph Schmitt, and Johnna Torsone
Since arriving last year at Pitney Bowes, I have been impressed by our capacity for transformation, and I am
pleased with the way the company has risen to the challenge. Our progress is the result of many things, but most
of all, the actions of our people, as well as the goodwill of 1.5 million clients in more than 100 countries, who believe
very strongly in the value we are able to offer. As realists, we know the road is long and that living up to our promise
is not a sprint, but a journey. Nevertheless, we believe our results are clear evidence that we are on the right track
and in excellent position to capture opportunities that seem tailor-made for Pitney Bowes.
By continuing to stabilize the mailing business, we create the opportunity to strengthen the businesses that will
be the fi nancial foundation of our company for the foreseeable future.
As we improve our operations, we have the opportunity to create a level of client service and satisfaction that,
globally, is second to none, while becoming even more effi cient.
Finally, by continuing to support global commerce through a unique range of enabling solutions, we have a clear
capacity for accelerated growth, particularly in the digital world. Overall, digital commerce represents a $40 billion
market opportunity. It is a burgeoning sector that, in many ways (and in many places), is just getting started.
Client-focused innovation
At Pitney Bowes, when we discuss our objectives and how, as a company, we will achieve them, the words that
come to mind — innovation, value, client focus — are hardly uncommon. However, for us, they have very specifi c and
very powerful meaning. They are fundamental to our culture, they are the bedrock of our strategy, and they are the
touchstones of our future success.
Innovation, for example, is not merely a matter of having good ideas that no one else has thought of. It is the creation
of something new at the intersection of business insight and invention — that is, the place where our own ideas
cross paths with what clients actually say they need. In this way we are able to innovate in ways that have unique
client value.
2
Pitney Bowes Annual Report 2013
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Mastering
massive
mail
L & D Mail Masters — a Women’s Business
Enterprise National Council (WBENC)–certifi ed,
full-service direct marketing company whose
clients include Fortune 500 companies, national
sales organizations, universities, healthcare,
and fi nancial and other industries — wanted
to set up the next generation of high-speed
mail processing systems that would allow
them to deliver enhanced capabilities for
their customers, while providing the fl exibility
needed to expand their customer base and
grow revenue.
“We needed a scalable solution that would not
only help us increase operational performance
and lower costs, but would also allow us to adapt
to meet the needs of our growing client base.
It was clear that the Mailstream Productivity
Series Inserting System will help us accomplish
this so we can deliver millions of high-quality
communications each month for our direct
marketing and transactional mailing clients.
We have been a client of Pitney Bowes for 26
years, starting out with a tabletop inserter,”
said President Diane Fischer.
The system enabled the company to increase
productivity, eliminate overtime and train
employees for redeployment to other areas,
boosting overall productivity. For example, in
one 11.5-hour day, one Mailstream Productivity
Series system was able to process 265,000
mailpieces while fi ve legacy systems produced
a combined total of 235,000 mailpieces.
That’s why we work closely with clients worldwide to
understand their businesses, understand what the real issues
are, and innovate based on those issues. It’s why our senior
managers — not just our sales force — reach out to clients
on a regular basis to hear from them, fi rsthand, how Pitney
Bowes can create value.
A perfect example of client-focused value is our ongoing
work with Aon Benfi eld, the world’s leading reinsurance
broker, a company for which modeling risk by geography is
of paramount importance. To help its customers understand
risks, Aon uses our Spectrum® data management solution to
translate common data, such as addresses, into latitudinal
and longitudinal map coordinates. This enables Aon’s
customers, wherever they locate or plan to invest, to
visualize risks, from the likelihood of forest fi res and severe
weather to the propensity for earthquakes and hurricanes.
“Innovation ... is not merely
a matter of having good ideas
that no one else has thought of.
It is the creation of something
new at the intersection of
business insight and invention ...”
Another prime example is the work we’ve done over the
past two years with eBay (see sidebar on page 5), the San
Jose-based multinational e-commerce company, one of the
most successful Internet start-ups of all time. As eBay has
grown from its American roots into a global enterprise,
nothing has become more crucial to users than the ability to
easily conduct transactions and send and receive goods
across international borders. At Pitney Bowes, we have
worked closely with eBay to understand their imperatives
and help them use our global e-commerce and shipping
solutions to overcome obstacles and smooth the way. This,
in turn, is making it easier for eBay to expand its global
footprint by making cross-border commerce simpler, more
transparent, and more satisfying to both buyers and sellers.
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Pitney Bowes Annual Report 2013
3
Letter to Shareholders
Unexpected
transformation
Classic Alaska — Alaska’s premier trading
company, with fi ve locations and more than
100 employees — was looking to expand its
Web-based business. For years, it had run
shipping separately — and manually — out of
each of the stores. It was looking for a single,
automated system, in order to offer its full
inventory to all customers and ship orders
with fewer errors and less expensively.
To automate its process, the company
chose our SendSuite Live™ global logistics
management system. The system provides
complete visibility into all the company’s parcel
carriers, streamlining the process. Whether
shipping a product from store to store or store
to customer, managers can use the system to
quickly determine delivery speed and fi nd the
least expensive carrier. What used to take
6–7 minutes per order now takes about 10
seconds. Since the company ships up to
1,500 packages monthly, the time and labor
savings can be signifi cant.
But the company got more than mere
improvement. “Our initial goal was to expand
our Web business and to fi x an outdated
shipping operation,” said Monte Rostad,
Principal. “With SendSuite Live, we ended
up saving money, driving online sales,
discovering new effi ciencies and improving
customer service. You can’t do much
better than that.”
For some clients, such as INRIX, Pitney Bowes technology
is an important addition to the value proposition they offer
customers. INRIX runs the world’s largest crowd-sourced
traffi c intelligence network, providing 175 million drivers the
up-to-the-minute information they need to fi nd the quickest,
most effi cient way to get from point A to point B. Through our
geocoding software and local search capabilities, INRIX is
quickly able to know exactly where drivers are and where they
want to go. Through our combined expertise, INRIX helps
motorists fi nd the best possible route — anywhere on more
than 4 million miles of road in 40 different countries.
Together, our insight helps reduce drivers’ frustration, saving
them time, fuel, and money every day.
At Pitney Bowes, there is one guiding principle to everything
we do for clients: an idea is only as good as its ability to solve
client problems and create opportunities. Ultimately, it is not
we who determine the value of our solutions, but our clients,
particularly as the business landscape around them changes,
sometimes rapidly.
In creating more value for clients, product innovations tend to
make the biggest splash, whether in mailstream technology,
customer analytics, location intelligence, e-commerce
solutions — or exciting concepts like our advanced Volly™
digital mailbox for managing consumer bills and documents.
Advancing commerce through innovations like this is nothing
new for us; we have been doing it, one way or another, for
93 years.
We believe, however, that to deliver more value to
shareholders, innovation must extend to every corner of
our business, in every part of the world, whether it takes the
form of business process innovations that make us more
effi cient and increase customer satisfaction, or business
model innovation that expands what we can do for clients
and what they can do for themselves.
This broad view of innovation means that everyone at Pitney
Bowes is a potential innovator, no matter where they work in
our organization, and no matter what they do. Innovation is
an enterprise-wide imperative, and it is a challenge, but I
know we are up to the task.
4
Pitney Bowes Annual Report 2013
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Facilitating
global
commerce
Our relationship with eBay — one of
the largest online marketplaces, with
128 million active users globally, and
more than 550 million items listed —
goes back to 2004, when we provided
the company’s U.S. sellers with a
simple, effi cient way to print U.S. Postal
Service postage labels directly from
their eBay or PayPal accounts.
In the same spirit of simplicity and
ease, we are helping to make cross-
border e-commerce transactions for
eBay’s users just as routine as domestic
ones. If you’re an international buyer,
you want your shipping costs to be
reasonable and predictable, you want
to be able to know the location of your
item while it’s en route, and you want
to receive the item in a reasonable
amount of time.
Enter our partnership with eBay on
the Global Shipping Program, started
in 2012. The program uses Pitney
Bowes technology to provide a fully
landed cost quote to international
buyers at checkout, including
transportation, parcel protection,
duties, taxes and any other charge
associated with delivery. Pitney Bowes
screens items for export and import
compliance, and our technology links
domestic and international tracking to
give the buyer a continuous tracking
experience. In 2013, the program
covered 42 countries for items shipped
from the U.S., and there are plans to
serve buyers in many more countries
this year.
A gratifying year
As we move forward, I want to express my thanks to employees across our businesses for the extraordinary
effort they put in this past year. Transformation of our business is hard work, and I appreciate the extraordinary
commitment you’ve shown to the reinvention that will help us to add value for years to come.
I also want to express my gratitude for the coming together of an extraordinary management team, which
combines some of the best people who have worked at Pitney Bowes for years with great people from the
outside who sense a powerful opportunity. I believe they see in the company the same things that I do: an
organization with an unparalleled client base, a very strong group of technologies, and enormous opportunities
based on market trends that we have the will, capabilities, and assets to take advantage of.
Finally, I want to say how grateful I am to you, our shareholders, who understand the promise of this great
company. You will not be disappointed.
Marc B. Lautenbach
President and
Chief Executive Offi cer
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Pitney Bowes Annual Report 2013
5
Summary of Selected Financial Data
For the year
(Dollars in thousands, except per share amounts)
As reported
Revenue
Income from continuing operations
Diluted earnings per share from continuing operations
Net cash provided by operating activities
Depreciation and amortization
Capital expenditures
Cash dividends per share of common stock
Average common and potential common shares outstanding
Total assets
Total debt
Stockholders’ equity (deficit)
Total employees
As adjusted
EBIT
Income from continuing operations
Diluted earnings per share from continuing operations
Free cash flow
EBIT to interest
2013
2012
2011
$ 3,869,401
$
$
$
$
$
$
301,733
1.49
624,824
211,243
137,512
0.94
202,956,738
$ 6,772,708
$ 3,346,295
$
188,403
16,097
$
$
$
$
710,524
380,667
1.88
634,912
3.7
$ 3,915,064
$ 395,684
$
1.96
$ 660,188
$ 255,556
$ 176,586
$
1.50
201,366,139
$ 7,859,891
$ 4,017,375
$ 110,631
27,353
$ 743,690
$ 394,407
$
1.96
$ 769,084
3.9
$ 4,125,341
$ 437,593
$
2.16
$ 948,987
$
272,142
$ 155,980
$
1.48
202,765,947
$ 8,147,104
$ 4,233,909
$
(38,986)
28,683
$ 814,664
$ 503,920
$
2.49
$ 1,058,363
4.1
6
Pitney Bowes Annual Report 2013
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Reconciliation of Reported Consolidated
Results to Adjusted Results
For the year
(Dollars in thousands, except per share amounts)
2013
2012
2011
GAAP income from continuing operations before income taxes,
as reported
$ 403,177
$ 534,312
Restructuring charges and asset impairments
Extinguishment of debt
Sale of leveraged lease assets
Income from continuing operations before income taxes, as adjusted
Provision for income taxes, as adjusted
Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
Income from continuing operations, as adjusted
Interest expense, net
Provision for income taxes, as adjusted
84,344
32,639
—
520,160
121,118
18,375
380,667
190,364
121,118
17,176
—
3,816
555,304
142,521
18,376
394,407
188,386
142,521
Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
18,375
18,376
$ 491,486
118,630
—
7,282
617,398
95,103
18,375
503,920
197,266
95,103
18,375
EBIT
$ 710,524
$ 743,690
$ 814,664
GAAP diluted earnings per share, as reported
Loss (income) from discontinued operations
GAAP diluted earnings per share from continuing operations,
as reported
Restructuring charges and asset impairments
Extinguishment of debt
Sale of leveraged lease assets
Tax adjustments
$
0.70
0.78
1.49
0.29
0.10
—
—
$
2.21
(0.25)
$
3.05
(0.89)
1.96
0.06
—
(0.06)
—
2.16
0.44
—
(0.13)
0.02
Diluted earnings per share from continuing operations, as adjusted
$
1.88
$
1.96
$
2.49
GAAP net cash provided by operating activities, as reported
Capital expenditures
Free cash flow
Payments related to restructuring charges
Tax and other payments on sale of businesses
and leveraged lease assets
Extinguishment of debt
Reserve account deposits
Pension plan contributions
$ 624,824
(137,512)
487,312
59,520
75,545
32,639
(20,104)
—
$ 660,188
(176,586)
$ 948,987
(155,980)
483,602
74,718
114,128
—
1,636
95,000
793,007
107,002
—
—
35,354
123,000
Free cash flow, as adjusted
$ 634,912
$ 769,084
$ 1,058,363
The sum of the earnings per share amounts may not equal the totals above due to rounding.
Management believes this presentation provides a reasonable basis on which to present the adjusted fi nancial information. The Company’s fi nancial results are reported in accordance
with generally accepted accounting principles (GAAP). The earnings per share and free cash fl ow results are adjusted to exclude the impact of special items such as restructuring charges,
asset and goodwill impairment charges and other income and expense that materially impact the comparability of the Company’s results of operations. The use of free cash fl ow has
limitations. GAAP cash fl ow has the advantage of including all cash available to the Company after actual expenditures for all purposes. Free cash fl ow is the amount of cash that
management could have available for discretionary uses if it made different decisions about employing its cash. It adjusts for long-term commitments such as capital expenditures, and for
special items such as cash used for restructuring charges and contributions to its pension funds. All these items use cash that is not otherwise available to the Company and are important
expenditures. Management compensates for these limitations by using a combination of GAAP cash fl ow and free cash fl ow in doing its planning.
The adjusted fi nancial information and certain fi nancial measures such as earnings before interest and taxes (EBIT) and EBIT to interest are intended to be more indicative of the ongoing operations
and economic results of the Company. EBIT excludes interest and taxes and, as a result, has the effect of showing a greater amount of earnings than net income. The Company believes that interest
and taxes, though important, do not refl ect management effectiveness, as these items are largely outside of its control. In assessing performance, the Company uses both EBIT and net income.
This adjusted fi nancial information should not be construed as an alternative to our reported results determined in accordance with GAAP. Further, our defi nition of this adjusted fi nancial
information may differ from similarly titled measures used by other companies.
Pitney Bowes Annual Report 2013
7
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Directors and Corporate Officers*
Directors
Corporate Offi cers
Mark Shearer
Executive Vice President
and President,
Pitney Bowes SMB
Mailing Solutions
Johnna G. Torsone
Executive Vice President
and Chief Human Resources
Offi cer
Mark F. Wright
Executive Vice President
and President, Pitney Bowes
Digital Commerce Solutions
*As of March 13, 2014
Stockholders may visit the Pitney
Bowes corporate governance website
at www.pb.com under Our Company —
Leadership + Governance for information
concerning the Company’s governance
practices, including the Governance
Principles of the Board of Directors,
charters of the committees of the board,
the Company’s Business Practices
Guidelines and the Directors’ Code
of Business Conduct and Ethics.
Marc B. Lautenbach
President and
Chief Executive Offi cer
Patrick M. Brand
Vice President and President,
Pitney Bowes Mailing,
North America
Amy C. Corn
Vice President, Secretary
and Chief Governance Offi cer
Daniel J. Goldstein
Executive Vice President
and Chief Legal and
Compliance Offi cer
Steven J. Green
Vice President — Finance
and Chief Accounting Offi cer
Abby F. Kohnstamm
Executive Vice President
and Chief Marketing Offi cer
Michael Monahan
Executive Vice President
and Chief Financial Offi cer
Roger J. Pilc
Executive Vice President
and Chief Innovation Offi cer
Debbie D. Salce
Vice President and Treasurer
Joseph Schmitt
Vice President
and Chief Information Offi cer
Linda G. Alvarado
President and
Chief Executive Offi cer,
Alvarado Construction, Inc.
Anne M. Busquet
Principal,
AMB Advisors, LLC
Roger Fradin
President and
Chief Executive Offi cer,
Honeywell Automation and
Control Solutions,
Honeywell International Inc.
Anne Sutherland Fuchs
Consultant
S. Douglas Hutcheson
Former Chief Executive Offi cer,
Leap Wireless International, Inc.
Marc B. Lautenbach
President and
Chief Executive Offi cer,
Pitney Bowes Inc.
Eduardo R. Menascé
Retired President,
Enterprise Solutions Group,
Verizon Communications Inc.
Michael I. Roth
Chairman and
Chief Executive Offi cer,
The Interpublic Group of
Companies, Inc.
Non-Executive Chairman,
Pitney Bowes Inc.
David L. Shedlarz
Retired Vice Chairman,
Pfi zer Inc.
David B. Snow, Jr.
Managing Partner
and Chief Executive Offi cer,
Cedar Gate Partners, LLC
8
Pitney Bowes Annual Report 2013
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission file number: 1-3579
PITNEY BOWES INC.
Incorporated in Delaware
1 Elmcroft Road, Stamford, CT 06926-0700
(203) 356-5000
Securities registered pursuant to Section 12(b) of the Act:
I.R.S. Employer Identification No. 06-0495050
Title of Each Class
Common Stock, $1 par value per share
$2.12 Convertible Cumulative Preference Stock (no par value)
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 4% Convertible Cumulative Preferred Stock ($50 par value)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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
No
Indicate by check marks whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files) Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of June 30, 2013, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $2,962,474,793 based on
the closing sale price as reported on the New York Stock Exchange.
Number of shares of common stock, $1 par value, outstanding as of close of business on February 14, 2014: 202,535,480 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be filed with the Securities and Exchange Commission (the Commission) no later than 120 days after our
fiscal year end and to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 12, 2014, are incorporated
by reference in Part III of this Form 10-K.
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PITNEY BOWES INC.
TABLE OF CONTENTS
PART I
PART II
Item 1.
Item 1A.
Business
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
Signatures
Consolidated Financial Statements and Supplemental Data
2
PART I
ITEM 1. BUSINESS
General
Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware in 1920. We are a global provider of technology
solutions helping small, mid-sized and large firms connect to customers to build loyalty and grow revenue. We deliver our solutions on
open platforms to best organize, analyze and apply public and proprietary data to two-way customer communications. We offer solutions
for direct mail, transactional mail, customer engagement management and analytics and e-commerce parcel management, along with
digital channel messaging for the Web, email and mobile applications. We continue to develop and invest in products, software, services
and solutions that help our clients grow their business by more effectively communicating with their customers across physical, digital
and hybrid channels.
For more information about us, our products, services and solutions, visit www.pb.com. Also, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and any amendments thereto filed with, or furnished to, the Securities and Exchange
Commission (the SEC), are available, free of charge, through the Investor Relations section of our website at www.pb.com/investorrelations
or from the SEC's website at www.sec.gov, as soon as reasonably practicable after these reports are electronically filed with, or furnished
to, the SEC. The other information found on our website is not part of this or any other report we file with or furnish to the SEC.
You may also read and copy any document we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington,
DC 20549 or request copies of these documents by writing to the Office of Public Reference. Call the SEC at (800) 732-0330 for further
information on the operations of the Public Reference Room and copying charges.
Our Strategy and Business Segments
Our current strategy is to focus on three critical areas: stabilizing the mailing business, achieving operational excellence and driving
growth within our digital commerce solutions segment. During 2013, we sold our International Management Services business (PBMSi),
North America Management Services business (PBMS NA), Nordic furniture business and International Mailing Services business (IMS).
Further, we made certain organizational changes and realigned our business units to reflect how we manage, review, analyze and measure
our operations. Our business is now organized around three distinct sets of solutions -- Small and Medium Business (SMB) Solutions,
Enterprise Business Solutions and Digital Commerce Solutions. See Note 17 to the Consolidated Financial Statements for financial
information concerning our reporting segments.
Small and Medium Business Solutions
Within SMB Solutions, we provide a full range of mailing equipment and postage meters, maintenance and support services and supplies
that enable our clients to efficiently create mail and evidence postage. We segment our SMB Solutions business between our North
America operations, comprising the U.S. and Canadian businesses, and our International operations. We are a leading provider of postage
meters and have approximately one million meters installed in North America and over three-hundred thousand meters installed elsewhere.
We also offer numerous shipping management solutions that enable our clients to select the best carrier based on need and cost, improve
delivery times, track packages in real-time and reduce transportation and logistics costs. In addition, we offer scalable global logistics
management systems that can be integrated into mail centers, as well as desktop and production shipping environments.
In the United States, we offer our clients who rent or lease our mailing equipment and postage meters a variety of financing solutions.
Through our wholly owned subsidiary, The Pitney Bowes Bank (the Bank), we offer a revolving credit solution that enables our clients
to finance their postage costs and supply purchases. The Bank also provides a deposit solution to those clients that prefer to prepay postage
and earn interest on their deposits. The Bank is chartered as an Industrial Bank under the laws of the State of Utah, and regulated by the
Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions.
This business is characterized by a high level of recurring revenue driven by rental, lease and loan arrangements, contract maintenance
services and supply sales.
Enterprise Business Solutions
Enterprise Business Solutions includes equipment and services that enable large enterprises to process inbound and outbound mail. We
segment our Enterprise Business Solutions group between our Production Mail operations and Presort Services operations.
Production Mail
Our product and service offerings enable our clients to create high-value, relevant and timely communications targeted to their customers.
The core products within this segment include high-speed, high-volume inserting equipment, customized sortation products and high-
speed digital color printing systems. Inserting equipment folds mail pieces and inserts them into envelopes, while sorting equipment
enables clients to sort high-volumes of mail by zip code and realize reduced postage costs.
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With our high-speed digital color printing systems, we offer our clients a "White Paper Factory" solution. Our White Paper Factory
solution is an end-to-end solution that allows our clients to start with a simple roll of white paper, create and print mail pieces, insert
these mail pieces into envelopes formed from the roll of white paper, apply the appropriate postage to the envelope, and finally sort the
envelopes by zip code and realize reduced postage costs. We have a strategic alliance with a major printing products company to offer
our clients high-volume professional quality production printers.
Presort Services
We are a national outsource provider of mail presort services for first-class and standard-class mail in the U.S. and a workshare partner
of the United States Postal Service (USPS). Our Presort Services network provides mailers with end-to-end solutions from pick up at
their location to delivery into the postal system. Approximately 90 billion pieces of U.S. first-class, standard-class and flat mail are
processed annually by third-parties like us and through in-house operations. Through our network of 33 U.S. locations, and with our
fully-customized proprietary technology, we process approximately 15 billion pieces of mail annually and are able to expedite
delivery and optimize postage savings for our clients. Our client volumes represent less than 25% of all automated first-class,
standard-class and flat mail.
mail
Digital Commerce Solutions
Within Digital Commerce Solutions (DCS), we provide a broad range of software solutions, customer engagement and communication
solutions, data management products and solutions, e-commerce parcel management solutions and targeted direct marketing programs.
Our digital commerce solutions are primarily delivered as traditional software licenses, enterprise platforms, software-as-a-service (SaaS)
and on-demand applications.
Our software solutions integrate data quality, geocoding, location intelligence and predictive analytics into every-day workflows and
business systems. Our location intelligence solutions enable our clients to organize and understand the complex relationships between
geographic and other forms of data to drive business decisions. Our products and solutions use predictive analytics, geographic and socio-
demographic characteristics of a consumer base or network to enable our clients to gain a more complete and accurate view of its business
and more efficiently manage operations and drive revenue. Our robust, single-source global geocoding and reverse geocoding technologies
cover more than 200 countries.
Our customer engagement solutions offer our clients a pathway to customer engagement creating value at every step and every touch
point. With our customer engagement solutions, our clients can create, manage and control wide-spread customer communications in a
coordinated, consistent and efficient manner. Coupled with our high-speed, high-volume inserting equipment, sortation products and
digital printing systems, we are able to provide our clients an all-inclusive solution that enables them to create, print and distribute wide-
spread targeted customer communications. Our solutions enable our clients to create positive connected experiences that positively
influence future consumer behavior and generate stronger revenue growth and profits.
Our data management products and solutions, including our postal compliant address quality products, help companies harness and deliver
a deep and broad understanding of their customers and their context, such as location, relationships, propensity, sentiment and influence.
The trusted data and associated insights are crucial for supporting critical business needs such as personalized customer experience,
managing risk and compliance, and improving sales, marketing and service effectiveness. We are one of the market leaders in the data
quality segment with large corporations and government agencies deploying our products in very complex, high-volume, transactional
environments to support their mission-critical business processes.
International markets for e-commerce trade are experiencing significant growth; however, shipping and tracking parcels cross borders
have significantly higher shipping fees, import/export fees, duties, taxes and brokerage fees, strict regulations and restrictions, parcel
tracking issues and complex customs documentation. For most merchants, determining the full costs to ship a parcel internationally can
be difficult and uncertain, and often results in additional costs being charged to the buyer upon delivery or those additional costs being
borne by the merchant.
Our cross-border e-commerce software platform is currently utilized by over 20 merchants enabling millions of transactions, providing
virtually immediate commodity classifications and total landed cost calculations. We offer a suite of services that leverage this platform
and our expertise in shipping management to enable merchants to accurately calculate the total costs to ship a parcel internationally,
comply with all import/export complexities, restrictions, regulations and documentation requirements and provide reliable tracking
information. We will continue to invest in our platform to enhance existing solutions, provide additional solutions and meet evolving
client needs and expectations to capture this growth opportunity.
We offer targeted direct and digital marketing programs to large advertisers that enable them to connect with movers. Through a contract
with the USPS, we produce a "Movers’ Guide" in both printed and digital format with targeted advertisers’ coupons that is available to
movers when they complete a change of address form and a "Welcome Kit" with targeted advertisers’ coupons that is delivered to movers
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at their new address shortly after they move. We also offer digital advertising programs through MyMove.com, a move related web-site
we own and operate.
Our digital mail delivery services include an interactive digital communications exchange in which businesses can communicate with
consumers about important transactions via a variety of participating channels.
Support Services
We have a client care service organization of over 2,000 service technicians in North America and 900 service technicians internationally.
Our technicians diagnose and repair our increasingly complex mailing equipment and sophisticated software solutions. Most of our
support services are provided under annual maintenance contracts.
Sales and Marketing
We have begun implementing a phased roll-out of our new "go-to-market" strategy in our SMB businesses designed to improve the sales
process and reduce costs by providing our clients broader access to products and services though online and direct sales channels. We
also market our products and services through our sales force, direct mailings, outbound telemarketing and independent distributors. We
sell to a variety of business, governmental, institutional and other organizations. We have a broad base of clients and we are not dependent
upon any one client or type of client for a significant part of our total revenue.
Competition
All of our businesses face competition from a number of companies. Our competitors range from large, multinational companies that
compete against many of our businesses to smaller, more narrowly focused regional and local firms. We compete on the basis of technology
and innovation; breadth of product offerings; our ability to design and tailor solutions to specific client needs; performance; client service
and support; price; quality and brand.
We must continue to invest in our current technologies, products and solutions, and in the development of new technologies, products
and solutions in order to maintain and improve our competitive position. As we transition to higher value markets and offerings, and
enter new markets, we will encounter new competitors.
A summary of the competitive environment for our business segments is as follows:
Small & Medium Business Solutions
We are a global market leader in postage meter placements. In addition to competition from other mail machine companies, we face
competition from companies that offer products and services as alternative means of message communications. The principal competitive
factors in these markets include price, product reliability, support services, industry knowledge and expertise and attractiveness of
alternative communication methods. Our competitive advantage includes our breadth of product offerings, our innovative web-based
digital products, customer service and our extensive knowledge of the mailing industry.
Enterprise Business Solutions
Production Mail
We face competition from a small number of companies that offer large production printers, inserters or sorters, but only a few companies
are able to offer all of these products and integrate them into an end-to-end solution. We also face competition for support services from
outsource providers. The principal competitive factors in this business segment include functionality, reliability, productivity, price and
support. We believe we have a competitive advantage as our equipment provides a wider range of features and functionality and greater
productivity than our competitors, which drives a higher investment return for our clients.
Presort Services
We are a significant third-party presort service provider in the United States and the only provider with a national network. We primarily
face competition from smaller regional and local presort providers. We also compete for the business of some large entities which have
the capability to presort their own mailings in-house, but these businesses generally do not compete directly with us for additional business
and volumes. The principal competitive factors in this segment include innovative service, delivery speed, industry experience and
expertise and economies of scale. Our competitive advantage includes our extensive network, size of our presort facilities and our
innovative and proprietary technology that enables us to provide our clients with reliable and accurate services at maximum discounts.
5
Digital Commerce Solutions
The Digital Commerce Solutions segment operates in several highly competitive and rapidly evolving markets. We face competition
from large global companies that offer a broad range of solutions to smaller, more narrowly-focused companies that can design very
targeted solutions. The principal competitive factors in this segment include reliability, functionality and ease of use, scalability, innovation,
support services and price. We compete in this segment based on the accuracy and processing speed of our solutions, particularly those
used in our location intelligence and e-commerce parcel management solutions. The breadth and scalability of our products and solutions,
our single-sourced geocoding and reverse geocoding capabilities, and our ability to identify rapidly changing customer needs and
requirements and develop technologies and solutions to meet these changing needs and requirements are also key factors.
Our direct marketing services products compete for a portion of our clients' overall marketing budget by demonstrating the value of our
products and services relative to other marketing programs available to our advertising clients.
Customer Financing
We offer a variety of finance and payment solutions to our clients to finance their equipment and product purchases, rental and lease
payments, postage replenishment and supplies purchases. We establish credit approval limits and procedures based on the credit quality
of the client and the type of product or service provided to control risk in extending credit to clients. In addition, we utilize an automatic
approval program for certain leases. This program is designed to facilitate low dollar transactions by utilizing historical payment patterns
and losses realized for clients with common credit characteristics. The program defines the criteria under which we will accept a client
without performing a more detailed credit investigation, such as maximum equipment cost, a client's time in business and payment
experience.
We closely monitor the portfolio by analyzing industry sectors and delinquency trends by product line, industry and client to ensure
reserve levels and credit policies reflect current trends. Management continues to closely monitor credit lines and collection resources
and revise credit policies as necessary to be more selective in managing the portfolio.
We provide financing solutions to our clients through the Bank. The Bank's key product offering, Purchase Power, is a revolving credit
solution, which enables clients to rent, lease or purchase products, supplies and services. The Bank also provides a deposit solution to
those clients that prefer to prepay postage and earn interest on their deposits. The Bank is regulated by the Federal Deposit Insurance
Corporation (FDIC) and the Utah Department of Financial Institutions. The Bank's assets consist primarily of cash, finance receivables
and investments and liabilities consist primarily of deposit accounts. At December 31, 2013 and December 31, 2012, the Bank had assets
of $779 million and $796 million, respectively, and liabilities of $734 million and $733 million, respectively.
Our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing companies,
commercial finance companies and commercial banks, to small, specialized firms.
Research, Development and Intellectual Property
We invest in research and development programs to develop new products and service offerings and deliver high value technology,
innovative software and differentiated services in high value segments of the market. We will continue to invest a substantial percentage
of our total research and development budget in the growth areas of our business to develop, among other things, new customer engagement,
location intelligence and e-commerce cross-border parcel management solutions. Our expenditures for research and development were
$110 million, $114 million and $129 million in 2013, 2012 and 2011, respectively.
As a result of our research and development efforts, we have been awarded a number of patents with respect to several of our existing
and planned products. We do not believe our businesses are materially dependent on any one patent or license or any group of related
patents or group of related licenses.
Material Suppliers
We depend on third-party suppliers for a variety of services, components, supplies and a large portion of our product manufacturing. In
certain instances, we rely on single sourced or limited sourced suppliers around the world because the relationship is advantageous due
to quality, price, or there are no alternative sources. We have not historically experienced shortages in services, components or products
and believe that our available sources for materials, components, services and supplies are adequate.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide related to product specifications and business practices involving our
postage meters.
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Employees and Employee Relations
At December 31, 2013, we have approximately 11,400 employees in North America and 4,700 employees internationally. We believe
that our current relations with employees are good. Management follows the policy of keeping employees informed of decisions and
encourages and implements employee suggestions whenever practicable.
Executive Officers of the Registrant
Our executive officers are as follows:
Name
Age
Title
Marc B. Lautenbach
Daniel J. Goldstein
Abby F. Kohnstamm
Michael Monahan
Roger J. Pilc
Mark Shearer
Johnna G. Torsone
Mark F. Wright
52
52
60
53
46
57
63
58
President and Chief Executive Officer
Executive Vice President and Chief Legal and Compliance Officer
Executive Vice President and Chief Marketing Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Innovation Officer
Executive Vice President and President, Pitney Bowes SMB Mailing Solutions
Executive Vice President and Chief Human Resources Officer
Executive Vice President and President, Pitney Bowes Digital Commerce Solutions
Executive
Officer Since
2012
2010
2013
2005
2013
2013
1993
2013
There is no family relationship among the above officers. All of the officers have served in various corporate, division or subsidiary
positions with the Company for at least the past five years except as described below:
Mr. Lautenbach was appointed President and Chief Executive Officer of the Company in December 2012. Before joining Pitney Bowes,
Mr. Lautenbach held numerous positions during his career at IBM, which he joined in 1985. His leadership roles at IBM included serving
as Vice President Small and Medium Business in Asia Pacific from 1998-2000, General Manager of IBM Global Small and Medium
Business from 2000-2005, General Manager of IBM North America from 2005-2010, and Managing Partner, North America, for IBM
Global Business Services.
Mr. Goldstein re-joined the Company in October 2010 as Executive Vice President and Chief Legal and Compliance Officer. From
September 2008 until October 2010, Mr. Goldstein served as the Senior Vice President and General Counsel for GAF Materials Corporation,
International Specialty Products, and ISP Minerals, a group of privately held, commonly owned companies in the building materials,
chemicals and mining industries. Mr. Goldstein originally joined Pitney Bowes in 1999 as Associate General Counsel and was appointed
Vice President, Deputy General Counsel in 2005.
Ms. Kohnstamm joined the Company as Executive Vice President and Chief Marketing Officer in June 2013. Before joining Pitney
Bowes, Ms. Kohnstamm served as President of Abby F. Kohnstamm & Associates, Inc., a marketing and consulting firm.
Mr. Pilc joined the Company as Executive Vice President and Chief Innovation Officer in June 2013. Before joining Pitney Bowes, Mr.
Pilc served as General Manager at CA Technologies, where he was responsible for the company’s Industries, Solutions and Alliances
unit.
Mr. Shearer joined the Company as Executive Vice President and President, Pitney Bowes SMB Mailing Solutions in April 2013. Before
joining Pitney Bowes, Mr. Shearer held numerous positions during his 30 year career at IBM, including general management, business
and product strategy, and marketing. Before his retirement from IBM in 2010, Mr. Shearer served as Vice President, Marketing and
Strategy for IBM’s $20 billion hardware business.
Mr. Wright joined the Company as Executive Vice President and President, Pitney Bowes Software Solutions in April 2013. On February
10, 2014, the board of directors elected him to the office of Executive Vice President and President, Pitney Bowes Digital Commerce
Solutions. Before joining Pitney Bowes, Mr. Wright served as Executive Vice President, Enterprise Solutions Group, Information Global
Solutions, leading 15 business units with $512 million in revenues.
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ITEM 1A. RISK FACTORS
In addition to the disclosures and other information discussed in this report, the following risk factors should be considered in evaluating
our business. We manage and mitigate these risks on a proactive basis, including through the use of an enterprise risk management
program. Nevertheless, the following risk factors, some of which may be beyond our control, could materially impact our business,
financial condition, results of operations, brand and reputation, and may cause future results to be materially different than our current
expectations. These risk factors are not intended to be all inclusive.
We are subject to postal regulations and processes, which could adversely affect our revenue and profitability.
The majority of our revenue is directly or indirectly subject to regulation and oversight by postal authorities worldwide. We depend on
a healthy postal sector in the geographic markets where we do business, which could be influenced positively or negatively by legislative
or regulatory changes in those countries. Our profitability and revenue in a particular country could be affected by adverse changes in
postal regulations, the business processes and practices of individual posts, the decision of a post to enter into particular markets in direct
competition with us and the impact of any of these changes on postal competitors that do not use our products or services. These changes
could affect product specifications, service offerings, client behavior and the overall mailing industry. Further, if we are found to have
violated postal regulations, we could be subject to fines or civil or criminal penalties.
If we are not successful at addressing the challenges that face our mailing business as we transition to more digital offerings and other
services, our results of operations and profitability could be adversely impacted.
The volume of physical mail delivered via traditional postal services has been declining and is projected to continue to decline through
the end of the decade. The historical decline in mail volumes has had an adverse impact on our revenues and profitability and is expected
to continue to influence our revenue and profitability in the future. We have embarked upon a set of new strategies to stabilize our mailing
business by providing our clients broader access to products and services through online and direct sales channels, the introduction of
new products and services and the transition of our current products and services to more digital offerings, while implementing cost
efficiencies in our sales support processes. The margins associated with these digital offerings are typically lower than our traditional
mailing business and there is no guarantee that these offerings will be widely accepted in the marketplace. Further, if they are accepted,
they will face competition from existing and emerging alternative products and services.
Even if the above strategies are successful at stabilizing our mailing business, an accelerated or sudden decline in physical mail volumes
could have an adverse effect on our mailing business. An accelerated or sudden decline could result from, among other things, changes
in our clients' communication behavior, changes in communications technologies or legislation or regulations that mandate electronic
substitution, prohibit certain types of mailings, increase the difficulty of using information or materials in the mail, or impose higher
taxes or fees on mailing or postal services.
If we are not successful at implementing the strategies to stabilize our mailing business, or if physical mail volumes were to experience
an accelerated or sudden decline, our client base, market share and financial results could be negatively impacted.
We may not be successful in the development, marketing and sales of our digital commerce solutions products, which could adversely
affect our revenues and profitability.
We are executing on a strategy to grow revenue significantly in our Digital Commerce Solutions segment, including allocating a significant
percentage of our total research and development budget to this segment to develop, among other things, new customer engagement,
location intelligence and e-commerce cross-border parcel management solutions. The process of developing new technologies, products
and solutions can be costly and uncertain, and if we are not successful at identifying rapidly changing customer needs and developing
new technologies and solutions to meet these needs at competitive prices, our revenue and profitability could be adversely affected.
We depend on third-party suppliers and outsource providers and our business could be adversely affected if we fail to manage these
constituents effectively.
We depend on third-party suppliers and outsource providers for a variety of services, components and supplies, including a large portion
of our product manufacturing and some non-core functions and operations. In certain instances, we rely on single sourced or limited
sourced suppliers and outsourcing vendors around the world because doing so is advantageous due to quality, price or lack of alternative
sources. If production or services were interrupted and we were not able to find alternate third-party suppliers, we could experience
disruptions in manufacturing and operations including product shortages, higher freight costs and re-engineering costs. If outsourcing
services were interrupted, not performed, or the performance was poor, our ability to process, record and report transactions with our
clients and other constituents could be impacted. Such interruptions in the provision of supplies and/or services could impact our ability
to meet client demand, damage our reputation and client relationships and adversely affect our revenue and profitability.
8
Capital market disruptions and credit rating downgrades could adversely affect our ability to provide financing services to our clients
and to fund various discretionary priorities, including business investments, acquisitions and dividend payments.
Our continued ability to provide financing services to our clients for equipment, postage and supplies purchases to our clients is largely
dependent upon our continued access to the U.S. capital markets. We are currently funding our financing activities with a combination
of cash generated from operations, deposits held in the Bank and commercial paper and other borrowings. Our ability to access the U.S.
capital markets and the cost associated with our funding activities is dependent on our credit ratings and market volatility.
A credit ratings downgrade, material capital market disruptions, significant withdrawals by depositors at the Bank, adverse changes to
our industrial loan charter or a significant decline in cash flow could impact our ability to provide competitive finance offerings to our
clients. In addition, if such events occurred, there can be no assurance that liquidity funding sources would be available or sufficient and
that related costs would not adversely impact our ability to fund various discretionary priorities, including business investments,
acquisitions and dividend payments.
Failure to comply with privacy laws and other related regulations could subject us to significant liability and damage our reputation.
Several of our businesses use, process and store proprietary information and confidential data relating to our businesses, clients and
employees. Privacy laws and similar regulations in many jurisdictions where we do business, as well as contractual provisions, require
that we take significant steps to safeguard this information. These laws are continuing to evolve. We have security systems and procedures
in place designed to protect against unauthorized access to such information. However, there is no guarantee that experienced computer
programmers or hackers will not be able to breach our security systems and misappropriate confidential information. Any significant
violations of data privacy, disclosure of other confidential information or failure to comply with any of these laws, regulations or contract
provisions could damage our reputation and business and subject us to significant costs and/or liability. In addition, the cost and operational
consequences of implementing further data protection measures could be significant.
A disruption of our information technology systems could adversely impact our business and operating results.
The continuous and uninterrupted performance of our information technology systems is critical to our ability to support and service our
clients, to support postal services and to manage our business. We maintain secure systems to collect revenue for certain postal services,
which is critical to enable both our systems and the postal systems to run reliably. In addition, we rely extensively on our computer
systems to manage our business. These systems are subject to adverse acts of nature, targeted or random security breaches, cyber-attacks,
computer viruses, vandalism, power loss, computer or communications failures and other unexpected events. Although we have disaster
recovery plans in place to protect our business operations in case of such events, those plans may not be successful. If our information
technology systems are damaged or cease to function properly, we could be prevented from fulfilling orders and servicing clients and
postal services. Also, we may have to make a significant investment to repair or replace these systems, and could suffer loss of critical
data and interruptions or delays in our operations.
Our inability to obtain and protect our intellectual property and defend against claims of infringement by others may negatively impact
our operating results.
We rely on copyright, trade secret, patent and other intellectual property laws in the United States and similar laws in other countries to
establish and protect proprietary rights that are important to our business. If we fail to enforce our intellectual property rights, our business
may suffer. We, our clients, or our suppliers, may be subject to third-party claims of infringement on intellectual property rights. These
claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards,
or face a temporary or permanent injunction prohibiting us from marketing or selling certain products.
We may not realize the anticipated benefits of strategic acquisitions and divestitures, which may harm our financial results.
As we increase our focus towards providing more digital technology and software solutions while maintaining a leadership role in the
mailing industry, we may divest certain businesses or make strategic acquisitions. These divestitures and acquisitions may involve
significant risks and uncertainties, which could have an adverse effect on our operating results, including:
•
•
•
•
•
the loss of key employees or clients of businesses acquired or divested;
significant charges to earnings for employee severance and other restructuring costs, goodwill and asset impairments and legal,
accounting and financial advisory fees;
difficulties in achieving anticipated benefits or synergies from acquisitions and divestitures;
difficulties in integrating newly acquired businesses and operations, including combining product and service offerings and
entering new markets, or reducing fixed costs previously associated with divested assets or businesses; and
difficulties in identifying and separating intellectual property to be divested from intellectual property we wish to keep.
If we are not successful at realizing the anticipated benefits of strategic acquisitions and divestitures, our financial results could be
negatively impacted.
9
If we fail to comply with government contracting regulations, our operating results, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities. Government contracts are subject to extensive and complex
procurement laws and regulations, along with regular audits of contract pricing and our business practices by government agencies. If
we are found to have violated some provisions of these contracts, we could be required to provide a refund, pay significant damages, or
be subject to contract cancellation, civil or criminal penalties, fines or debarment from doing business with the government. Any of these
events could not only affect us financially, but also adversely affect our brand and reputation.
Our operations expose us to the risk of material environmental liabilities, litigation and violations.
We are subject to various federal, state, local and foreign environmental protection and health and safety laws governing, among other
things:
•
•
•
•
•
the generation, storage, use and transportation of hazardous materials;
emissions or discharges of substances into the environment;
the cleanup of contaminated sites;
substances that may be subject to regulation in the manufacture, distribution, use or disposal of our products; and
the health and safety of our employees.
Environmental laws are complex, change frequently and have tended to become more stringent over time. If we are found to have violated
these laws, we could be fined, criminally charged or otherwise sanctioned by regulators. In addition, private parties could bring personal
injury or other claims due to the presence of, or exposure to, hazardous substances. Certain environmental laws can assess liability on
contaminated sites retroactively, on a joint and several basis, and without any finding of noncompliance or fault. From time to time, we
may be involved in litigation over these issues. The amount and timing of costs under environmental laws are difficult to predict and
there can be no assurance that these costs will not materially adversely affect our financial condition, results of operations or cash flows.
We may not realize the anticipated benefits from our planned implementation of a new Enterprise Resource Planning (ERP) system.
We will begin implementing a new ERP system in 2014. The implementation will occur in stages and is expected to provide operating
cost savings through the elimination of redundant systems and strategic efficiencies through the use of a standardized, integrated system.
We will make a significant investment and incur incremental expenses over the course of the implementation of this ERP system. If the
implementation of the system is not successful, the operating cost savings and strategic efficiencies may not be obtained or sustainable.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own or lease numerous facilities worldwide, which house general offices, sales offices, service locations, data centers and call centers.
We conduct research and development, manufacturing and assembly, product management, IT and many other activities at our Global
Technology Center located in Danbury, Connecticut. We also have research and development facilities located in Noida, India and Pune,
India.
Our corporate headquarters is located in a building that we own in Stamford, Connecticut. In the third quarter of 2013, we entered into
an agreement to sell this building. We will lease a smaller corporate headquarters in Stamford, Connecticut and relocate many of our
employees to other facilities located in the Connecticut area by mid-2014.
Management believes that our facilities are well maintained, are in good operating condition and are suitable and adequate for our current
business needs.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.
In December 2013, we received a Civil Investigative Demand (CID) from the Department of Justice (DOJ) pursuant to the False Claims
Act requesting documents and information relating to compliance with certain postal regulatory requirements in our Presort Services
business. We had previously provided information to the DOJ in response to letter requests and continue to provide information in response
to the CID and other requests from the DOJ. Given the current stage of this inquiry, we cannot provide an estimate of any possible losses
or range of loss and we cannot yet predict the ultimate outcome of this matter or its impact, if any, on our business, financial condition
or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded under the symbol "PBI" and is principally traded on the New York Stock Exchange (NYSE). At January 31,
2014, we had 19,566 common stockholders of record. The following table sets forth the high and low sales prices, as reported on the
NYSE, and the cash dividends paid per share of common stock, for the periods indicated.
Year Ended December 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Share Repurchases
Stock Price
High
Low
Dividend Per
Share
$
$
$
$
$
$
$
$
15.56
16.43
18.82
24.18
19.65
17.87
15.27
14.73
$
$
$
$
$
$
$
$
10.71
13.12
13.76
18.21
17.45
12.81
12.64
10.34
$
$
$
$
0.375
0.1875
0.1875
0.1875
0.9375
0.375
0.375
0.375
0.375
1.50
There were no shares of common stock repurchased in 2013 or 2012. However, we may 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. At
December 31, 2013, we have remaining authorization to repurchase up to $50 million of our common stock.
Stock Performance Graph
The accompanying graph and table below compares the most recent five-year share performance of Pitney Bowes, the Standard and
Poor's (S&P) 500 Composite Index and a Peer Group. On a total return basis, assuming reinvestment of all dividends, $100 invested
in our common stock, the S&P 500 Composite Index and the Peer Group on December 31, 2008 would have been worth $132, $228,
and $247, respectively, on December 31, 2013.
Our Peer Group is comprised of the following companies: Agilent Technologies Inc., Alliance Data Systems Corp., Avery Dennison
Corp., Diebold Inc., R.R. Donnelley & Sons Co., DST Systems, Inc., Fiserv Inc., Harris Corp., Iron Mountain Inc., Lexmark
International, Inc., NCR Corp., Pitney Bowes Inc., Rockwell Automation Inc., Unisys Corp. and Xerox Corporation.
All information is based upon data independently provided to us by Standard & Poor's Corporation and is derived from their official
total return calculation. Total return for the S&P 500 Composite Index and the Peer Group is based on market capitalization, weighted
for each year. The stock price performance is not necessarily indicative of future stock price performance.
12
Company Name / Index
Pitney Bowes
S&P 500
Peer Group
Indexed Returns December 31,
2008
$100
$100
$100
2009
$95
$126
$129
2010
$108
$146
$156
2011
$89
$149
$142
2012
$57
$172
$162
2013
$132
$228
$247
13
ITEM 6. SELECTED FINANCIAL DATA
Amounts in the table below have been recast to reflect the results of PBMS, the Nordic furniture business and IMS as discontinued
operations (see Note 19 to the Consolidated Financial Statements). The following table of selected financial data should be read in
conjunction with the more detailed consolidated financial statements and related notes thereto included in Item 8 of this Form 10-K.
Years Ended December 31,
2013
3,869,401
2012
2011
2010
2009
$
3,915,064
$
4,125,341
$
4,217,505
$
4,270,267
Total revenue
Amounts attributable to common stockholders:
Net income from continuing operations
(Loss) income from discontinued operations
Net income - Pitney Bowes Inc.
$
$
$
301,733
(158,898)
142,835
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
$
$
1.50
(0.79)
0.71
Continuing operations
Diluted earnings per share attributable to common stockholders (1):
1.49
(0.78)
0.70
Net income - Pitney Bowes Inc.
Discontinued operations
$
$
Cash dividends paid per share of common stock
$
0.9375
Balance sheet data:
Total assets
Long-term debt
Total debt
Noncontrolling interests (Preferred stockholders'
equity in subsidiaries)
2013
6,772,708
3,346,295
3,346,295
296,370
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
395,684
49,479
445,163
1.97
0.25
2.22
1.96
0.25
2.21
1.50
$
$
$
$
$
$
$
437,593
179,887
617,480
2.17
0.89
3.06
2.16
0.89
3.05
1.48
2012
7,859,891
3,642,375
4,017,375
296,370
December 31,
2011
8,147,104
3,683,909
4,233,909
296,370
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
263,444
28,935
292,379
1.27
0.15
1.42
1.27
0.14
1.41
1.46
2010
8,444,023
4,239,248
4,289,248
296,370
$
$
$
$
$
$
$
$
$
$
$
343,051
80,394
423,445
1.66
0.39
2.05
1.65
0.39
2.04
1.44
2009
8,571,039
4,213,640
4,439,662
296,370
(1) The sum of earnings per share may not equal the totals due to rounding.
14
ITEM 7. 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 contain 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
and Section 21E of the Securities Exchange Act of 1934 in this Form 10-K 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. Factors which could cause future financial performance to differ
materially from the expectations as expressed in any forward-looking statement made by or on our behalf include, without limitation:
declining physical mail volumes
•
• mailers’ utilization of alternative means of communication or competitors’ products
•
access to capital at a reasonable cost to continue to fund various discretionary priorities, including business investments,
acquisitions and dividend payments
timely development and acceptance of new products and services
successful entry into new markets
success in gaining product approval in new markets where regulatory approval is required
changes in postal or banking regulations
interrupted use of key information systems
our ability to successfully implement a new ERP system and fully realize the related savings and efficiencies
third-party suppliers’ ability to provide product components, assemblies or inventories
our success at managing the relationships with our outsource providers, including the costs of outsourcing functions and operations
not central to our business
changes in privacy laws
intellectual property infringement claims
regulatory approvals and satisfaction of other conditions to consummate and integrate any acquisitions
negative developments in economic conditions, including adverse impacts on customer demand
our success at managing customer credit risk
significant changes in pension, health care and retiree medical costs
changes in interest rates, foreign currency fluctuations or credit ratings
income tax adjustments or other regulatory levies for prior audit years and changes in tax laws, rulings or regulations
impact on mail volume resulting from concerns over the use of the mail for transmitting harmful biological agents
changes in international or national political conditions, including any terrorist attacks
acts of nature
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements contained in this report. All table amounts are presented in millions of dollars, unless otherwise stated.
Overview
During the year, we sold our global Management Services business (PBMS), Nordic furniture business and International Mail Services
business (IMS). Further, we made certain organizational changes and realigned our business units and segment reporting to reflect the
clients we serve, the solutions we offer, and how we manage, review, analyze and measure our operations. Our historical results have
been recast to present the operating results of divested businesses as discontinued operations and our segment results have been recast
to conform to our new segment reporting.
Revenue for 2013 decreased 1% to $3,869 million compared to $3,915 million in 2012 as growth in equipment sales, supplies sales and
business services were offset by declines in rentals and financing revenue, software licensing revenue and support services. Rentals and
financing revenue decreased 5% and 7%, respectively, due to a decline in the number of installed meters worldwide and lower equipment
sales in prior periods. Support services revenue decreased 4% due to fewer mailing machines in service and software revenue declined
3% due to constrained public sector spending and lower North America licensing revenue. Equipment sales grew 2% driven by higher
sales of production printers globally and sorting equipment in North America. Supplies sales increased 2% primarily due to the growing
base of production print equipment installations and stabilization of supplies sales for our postage meter business. Business services
revenue increased 6% primarily from increased demand and volumes from our e-commerce cross-border parcel management solutions.
15
Net income from continuing operations and earnings per diluted share for 2013 were $302 million and $1.49, respectively, compared to
$396 million and $1.96, respectively, in 2012. The decrease in 2013 was primarily due to higher restructuring charges and losses related
to the early redemption of debt, as well declines in some of our high margin recurring revenue streams.
For the year, we generated cash flow from operations of $625 million, received $390 million from the sale of businesses and issued $412
million of long-term debt. We used these proceeds to redeem long-term debt of $1,079 million, pay dividends of $207 million and fund
capital investments of $138 million. At December 31, 2013, cash and cash equivalents and short-term investments were $939 million.
Outlook
We continue to focus on three critical areas: stabilizing the mailing business, achieving operational excellence and driving growth in our
Digital Commerce Solutions segment.
Within the Small & Medium Business Solutions group, we expect revenue and profitability growth to continue to be challenged by the
decline in physical mail volumes. However, we anticipate revenue and profitability trends will show continued improvement in 2014,
due in part to the implementation of a new "go-to-market" strategy in North America that provides our clients broader access to products
and services through online and direct sales channels, broader solutions to serve the rapid growth in parcel shipments and a more agile
workforce. In addition, postal agencies in North America recently announced discounts for postage meter users, which are anticipated to
enhance the value proposition of meter usage in North America and further stabilize recurring stream revenues. Within our international
mailing markets, we are continuing to expand sales of our Connect+TM mailing systems. In addition, the stabilization in the international
meter population which began in 2013 is expected to continue in 2014, resulting in the continued improvement in recurring stream revenue
trends.
Within the Enterprise Business Solutions group, we expect demand for our production mail inserter and sortation equipment and high-
speed production print equipment to continue; however, we do not anticipate similar growth rates in 2014 due to significant sales of
production printers during 2013. Within our Presort Services segment, we expect increasing revenue due to workshare improvements
and new sales opportunities.
In our Digital Commerce Solutions segment, we anticipate growth to be driven by continued demand for our location intelligence,
customer data and engagement solutions and increasing volumes associated with our e-commerce cross-border parcel management
solutions.
We will begin work on the initial phases of a new global ERP system in 2014. The implementation of the ERP system will occur in stages
and is anticipated to be a multi-year process. We will make a significant investment and incur incremental expenses over the course of
the implementation of this system. In 2014, we anticipate these expenses could approximate $0.10 per diluted share. The ERP system is
expected to provide operating cost savings through the elimination of redundant systems and strategic efficiencies through the use of a
standardized, integrated system.
Our growth initiatives continue to focus on leveraging our expertise in physical communications with our expanding capabilities in digital
and hybrid communications and developing products, software, services and solutions that help our clients grow their businesses by more
effectively communicating with their customers.
16
Revenue by source and the related cost of revenue are shown in the following tables:
RESULTS OF OPERATIONS
Revenue
Equipment sales
Supplies
Software
Rentals
Financing
Support services
Business services
Total revenue
Cost of revenue
Cost of equipment sales
Cost of supplies
Cost of software
Cost of rentals
Financing interest expense
Cost of support services
Cost of business services
Total cost of revenue
Equipment sales
Year Ended December 31,
% change
2013
2012
2011
2013
2012
$
$
889
290
398
522
461
678
631
$
870
283
413
552
495
708
594
938
308
427
601
547
724
580
$
3,869
$
3,915
$
4,125
2 %
2 %
(3)%
(5)%
(7)%
(4)%
6 %
(1)%
(7)%
(8)%
(3)%
(8)%
(10)%
(2)%
2 %
(5)%
Year Ended December 31,
2013
2012
2011
$
% of revenue
$
% of revenue
$
$
439
91
111
105
81
420
450
1,697
49.4% $
31.5%
27.8%
20.2%
17.6%
61.9%
71.3%
43.9% $
402
88
115
115
81
440
396
1,637
46.2 % $
30.9 %
28.0 %
20.9 %
16.4 %
62.2 %
66.7 %
41.8 % $
$
414
97
119
139
88
452
400
1,709
% of revenue
44.2%
31.6%
27.8%
23.0%
16.0%
62.5%
68.9%
41.4%
Equipment sales revenue increased 2% to $889 million in 2013 compared to 2012. Higher sales of production printers globally and sorting
equipment in North America drove a 4% increase in equipment sales; however, lower mailing equipment sales in North America accounted
for a 2% decrease in equipment sales. Cost of equipment sales as a percentage of revenue increased to 49.4% compared to 46.2% in the
prior year primarily due to a higher mix of production printers, which have a lower margin relative to other products.
Equipment sales revenue decreased 7% to $87 million in 2012 compared to 2011 as worldwide economic conditions continued to impact
customer purchasing behavior. Foreign currency translation had an unfavorable impact on revenue of 1%. Cost of equipment sales as a
percentage of revenue increased to 46.2% compared with 44.2% in the prior year primarily due to a higher mix of lower margin product
sales, pricing pressure on competitive placements and a decline in the number of lease extensions relative to the prior year.
0
Supplies
Supplies revenue increased 2% to $290 million in 2013 compared to 2012, primarily due to supply sales related to the growing base of
production print equipment installations. Supplies sales for our postage meter business were down less than 1% due to higher ink sales
in the U.K. and a slowing decline in worldwide meter population trends. Cost of supplies as a percentage of revenue increased to 31.5%
compared to 30.9% in the prior year primarily due to lower relative margins on supplies for production print equipment.
Supplies revenue decreased 8% to $283 million in 2012 compared to 2011 primarily due to reduced mail volumes, fewer installed meters
worldwide and lower ink and toner sales. Foreign currency translation had a 2% unfavorable impact on revenue. Cost of supplies as a
percentage of revenue was 30.9% compared with 31.6% in the prior year primarily due to a favorable mix of higher margin core supplies
sales.
17
Software
Software revenue decreased 3% to $398 million in 2013 compared to 2012, primarily due to constrained public sector spending, especially
in our international markets, and lower licensing revenue in North America. This decrease was partially offset by licensing revenue from
our digital mail delivery service offering. Cost of software as a percentage of revenue improved slightly to 27.8% compared to 28.0% in
the prior year.
Software revenue decreased 3% to $413 million in 2012 compared to 2011 primarily due to weak economic conditions and constrained
public sector spending in Europe and lower sales in Asia Pacific. Cost of software as a percentage of revenue was relatively unchanged
at 28.0% compared with 27.8% in the prior year.
Rentals
Rentals revenue decreased 5% to $522 million in 2013 compared to 2012, primarily due to a decline in our installed meter base in North
America and a customer-driven change in mix from rental to equipment sales in France. Cost of rentals as a percentage of revenue
improved to 20.2% compared with 20.9% in the prior year mainly due to lower depreciation expense.
Rentals revenue decreased 8% to $552 million in 2012 compared to 2011 primarily due to declines in North America from fewer meters
in service and lower rentals in France due to a customer-driven change in mix from rental to equipment sales. Foreign currency translation
had an unfavorable impact on revenue of 1%. Cost of rentals as a percentage of revenue improved to 20.9% compared with 23.0% in the
prior year primarily due to lower depreciation expense.
Financing
Financing revenue decreased 7% in 2013 compared to 2012, and 10% in 2012 compared to 2011, primarily due to declining equipment
sales in prior periods. Financing interest expense as a percentage of revenue was 17.6%, 16.4% and 16.0% in 2013, 2012 and 2011,
respectively. The year-over-year increases were due to higher effective interest rates. Financing interest expense represents our cost of
borrowing associated with the generation of financing revenue. In computing financing interest expense, we assume a 10:1 leverage ratio
of debt to equity and apply our overall effective interest rate to the average outstanding finance receivables.
Support Services
Support services revenue decreased 4% to $678 million in 2013 compared to 2012, primarily due to a decline in equipment maintenance
revenue resulting from fewer mailing and production machines in service. Cost of support services as a percentage of revenue improved
slightly to 61.9% in 2013 compared with 62.2% in 2012.
Support services revenue decreased 2% to $708 million in 2012 compared to 2011, driven primarily by the impact of foreign currency
translation. Cost of support services as a percentage of revenue improved slightly to 62.2% in 2012 compared with 62.5% in 2011.
Business Services
Business services revenue increased 6% to $631 million in 2013 compared to 2012. Revenue from our cross-border parcel management
solutions increased revenue by 10%, but lower marketing services fees resulting from certain contract renewals decreased revenue by
4%. Cost of business services as a percentage of revenue increased to 71.3% in 2013 compared to 66.7% in 2012 primarily due to
continuing investment in our cross-border parcel management solutions and lower marketing services fees.
Business services revenue increased 2% to $594 million in 2012 compared to 2011. Revenue in our Presort Services operation increased
8%; however, a fire in 2011 adversely impacted 2011 revenue by $20 million. Excluding this impact, revenue in 2012 increased 2%
primarily due to higher standard mail volumes. Cost of business services as a percentage of revenue improved to 66.7% in 2012 compared
to 68.9% in 2011 primarily due to the impact of the fire in 2011.
Selling, general and administrative (SG&A)
SG&A expense decreased 5% in 2013 to $1,432 million compared to 2012 primarily driven by lower employee-related costs resulting
from ongoing restructuring actions and productivity initiatives.
SG&A expense decreased 5% in 2012 to $1,503 million compared to 2011 primarily driven by lower employee-related costs resulting
from ongoing restructuring actions and productivity initiatives, and to a lesser extent, lower intangible asset amortization expense and
credit loss and bad debt provisions.
18
Restructuring charges and asset impairments
In 2013, we initiated actions designed to enhance our responsiveness to changing market conditions, further streamline our business
operations, reduce our cost structure and create long-term flexibility to invest in growth. We anticipate that these primarily cash related
actions will result in restructuring charges in the range of $75 to $125 million, which will be recognized as specific initiatives are approved
and implemented. We anticipate annualized pre-tax benefits of $100 to $125 million, net of investments, from these actions, and expect
to reach this benefit run rate by 2015. These actions resulted in net restructuring charges of $60 million (including $2 million related to
discontinued operations). Also during 2013, we entered into an agreement to sell our corporate headquarters building and recorded a non-
cash asset impairment charge of $26 million. We expect to close on this sale by mid-year 2014.
In 2012, we implemented actions to streamline our business operations and reduce our cost structure that resulted in net restructuring
charges of $23 million (including $6 million related to discontinued operations).
In 2011, restructuring charges represent charges taken in connection with a series of strategic transformation initiatives announced in
2009. These initiatives were designed to transform and enhance the way we operated as a global company, enhance our responsiveness
to changing market conditions and create improved processes and systems and were implemented over a three year period through 2011.
Net restructuring charges were $135 million, including charges related to discontinued operations.
Other expense (income), net
Other expense, net for 2013 of $33 million consists of the costs associated with the early redemption of debt during the year. See Liquidity
and Capital Resources - Financings and Capitalization for a detailed discussion.
Other expense, net in 2012 includes losses of $6 million on a forward rate swap agreement, $2 million on the early redemption of debt
and $4 million on the sale of leveraged lease assets offset by income of $11 million from insurance proceeds received in connection with
the 2011 presort facility fire.
Other income, net in 2011 includes income of $27 million from insurance proceeds received in connection with the presort facility fire
offset by a loss of $7 million on the sale of leveraged lease assets.
Income taxes
See Note 8 to the Consolidated Financial Statements.
Discontinued operations
Discontinued operations include goodwill impairment charges of $101 million, $18 million and $130 million and asset impairment charges
of $15 million, $17 million and $17 million for the years ended December 31, 2013, 2012 and 2011, respectively. See Note 19 to the
Consolidated Financial Statements for further discussion.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
See Note 9 to the Consolidated Financial Statements.
19
Business Segments
During 2013, we changed our reporting segments in response to organizational changes made that realigned our business units to reflect
the clients served and solutions offered and how we manage, review, analyze and measure our operations. Historical segment results have
been recast to conform to our current presentation and to exclude discontinued operations. The principal products and services of each
of our reporting segments are as follows:
Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from the sale, rental and financing of mailing equipment and
supplies for small and medium size businesses to efficiently create mail and evidence postage in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from the sale, rental and financing of mailing equipment and
supplies for small and medium size businesses to efficiently create mail and evidence postage in areas outside North America.
Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale, support and other professional services of our
high-speed, high-volume inserting and sortation equipment and production printer systems to large enterprise clients to process
inbound and outbound mail.
Presort Services: Includes revenue and related expenses from presort mail services for our large enterprise clients to qualify large
mail volumes for postal worksharing discounts.
Digital Commerce Solutions:
Digital Commerce Solutions: Includes the worldwide revenue and related expenses from (i) the sale and support services of non-
equipment-based mailing, customer engagement, geocoding and location intelligence software; (ii) our cross-border e-commerce
solutions; (iii) direct marketing services for targeted clients; and (iv) our digital mail delivery service offering.
Segment earnings before interest and taxes (EBIT) is determined by deducting from segment revenue the related costs and expenses
attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and impairment
charges, which are not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance
at the segment level. Management believes segment EBIT provides investors with an analysis of the company's operating performance
and underlying trends of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore,
should be read in conjunction with our consolidated results of operations. Refer to Note 17 to the Consolidated Financial Statements for
a reconciliation of segment EBIT to income from continuing operations before income taxes.
Revenue and EBIT by business segment are presented in the tables below.
Revenue
Year Ended December 31,
% change
2013
2012
2011
2013
2012
North America Mailing
International Mailing
Small & Medium Business Solutions
$
$
1,723
608
2,331
$
1,819
608
2,427
1,961
659
2,620
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total
512
430
942
480
430
910
511
397
908
596
3,869
$
578
3,915
$
597
4,125
$
(5)%
— %
(4)%
6 %
— %
3 %
3 %
(1)%
(7)%
(8)%
(7)%
(6)%
8 %
— %
(3)%
(5)%
20
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total
Small & Medium Business Solutions
EBIT
Year Ended December 31,
% change
2013
2012
2011
2013
2012
$
$
675
72
747
55
83
138
43
928
$
$
689
76
765
49
106
155
37
957
$
728
93
821
53
101
154
46
$
1,021
(2)%
(6)%
(2)%
12 %
(22)%
(11)%
14 %
(3)%
(5)%
(18)%
(7)%
(7)%
5 %
1 %
(19)%
(6)%
Small & Medium Business Solutions revenue for 2013 was $2,331 million, a decrease of 4% compared to 2012 and EBIT was $747
million, a decrease of 2% compared to 2012. Small and Medium Business Solutions revenue in 2012 was $2,427 million, a decrease of
7% compared to 2011 and EBIT was $765 million, a decrease of 7% compared 2011. Within the Small & Medium Business Solutions
group:
North America Mailing
North America Mailing revenue decreased 5% to $1,723 million in 2013 compared to 2012. Recurring stream revenues, comprised of
supplies, rentals and financing revenue, declined 6% compared to last year and contributed to a 3% decline in North America Mailing
revenue primarily due to fewer meters in service and lower equipment sales in prior periods. Equipment sales and support services revenue
each declined 5% compared to last year and contributed to a 2% decline in North America Mailing revenue. EBIT decreased 2% to $675
million in 2013 compared to 2012 due to the decline in revenue, partially offset by various productivity initiatives. EBIT also benefited
from the progress made in implementing our new "go-to-market" strategy designed to improve the sales process and reduce costs by
providing our clients broader access to products and services through online and direct sales channels.
North America Mailing revenue decreased 7% to $1,819 million in 2012 compared to 2011. The decline was due to a 9% decrease in
recurring stream revenues due to fewer meters in service and lower equipment sales in prior periods and a 6% decline in equipment sales
primarily due to uncertain economic conditions. EBIT decreased 5% to $689 million in 2012 compared to 2011 primarily due to lower
revenues; however, EBIT margin improved as a result of continued productivity improvements and lower credit losses.
International Mailing
International Mailing revenue of $608 million in 2013 was flat compared to 2012 as higher equipment sales, supplies sales and financing
revenue were offset by lower rental revenue. Equipment sales increased 1% compared to last year primarily due to higher sales in France
and Germany, partially offset by lower sales in the U.K. Supplies revenue increased 3% due to a stabilization in our international meter
population, favorable pricing in the U.K. and higher sales in Asia-Pacific. Rentals revenue declined 8% primarily due to a change in mix
from rental to equipment sales in France. EBIT decreased 6% to $72 million in 2013 compared to 2012 primarily due to higher equipment
costs.
International Mailing revenue decreased 8% in 2012 to $608 million compared to 2011, but included an unfavorable impact of 5% from
foreign currency translation. Excluding the effects of foreign currency, equipment sales decreased 5% primarily due to increased concerns
about economic conditions throughout Europe and the Asia Pacific region, and rentals revenue decreased 10% compared to the prior year
primarily due to the change in mix from rentals to equipment sales in France and lower rentals in the U.K. EBIT decreased 18% to $76
million in 2012 compared to 2011 primarily due to an increase in the mix of lower margin product sales. Foreign currency translation
unfavorably impacted EBIT by 5%.
21
Enterprise Business Solutions
Enterprise Business Solutions revenue for 2013 was $942 million, an increase of 3% compared to 2012 and EBIT was $138 million, a
decrease of 11% compared to 2012. Enterprise Business Solutions revenue for 2012 of $910 million was flat compared to 2011, and
EBIT of $155 million was up 1% compared to 2011. Within the Enterprise Business Solutions group:
Production Mail
Production Mail revenue increased 6% in 2013 to $512 million compared to 2012. Higher sales and installations of large production
printers globally and sorters in North America resulted in an 8% increase in Production Mail revenue, while higher supplies sales due to
the growing base of production printers contributed to a 2% increase in Production Mail revenue. Lower support services revenue primarily
due to fewer maintenance contracts on new equipment installations resulted in a 3% decline in Production Mail revenue. EBIT increased
12% to $55 million in 2013 compared to 2012 primarily due to the increase in revenue and productivity improvement initiatives.
Production Mail revenue decreased 6% in 2012 to $480 million compared to 2011 primarily due to global economic uncertainty that
existed throughout the year. Foreign currency translation had an unfavorable impact of 2% on revenue. EBIT decreased 7% to $49 million
compared to 2011 primarily due to the decline in revenue and higher mix of lower margin sales.
Presort Services
Presort Services revenue of $430 million in 2013 was flat compared to 2012 as reduced discounts in certain presort categories offset the
impact of a 2% increase in presort mail volumes. EBIT decreased 22% to $83 million in 2013 compared to 2012 primarily due to a benefit
in 2012 of $11 million from insurance recoveries, as well as margin compression in 2013.
Presort Services revenue increased 8% to $430 million in 2012 compared to 2011. A fire at one of our presort facilities adversely impacted
2011 revenue by $20 million. Excluding this impact, revenue in 2012 increased 2% primarily due to higher standard mail volumes. EBIT
increased 5% to $106 million compared to 2011; however, taking into account the impact of the 2011 fire, EBIT increased 1% primarily
due to the increase in revenue.
Digital Commerce Solutions
Digital Commerce Solutions (DCS) revenue increased 3% to $596 million in 2013 compared to 2012. Revenue from our e-commerce
cross-border parcel management solution and our digital mail delivery service drove a 12% increase in DCS revenue. However, this
revenue growth was partially offset by a decline in worldwide software revenue, which resulted in a 5% decline in DCS revenue, and
lower marketing services fees, which resulted in a 4% decline in DCS revenue. EBIT increased 14% in 2013 to $43 million compared
to 2012 as higher volumes in cross-border parcels helped partially offset the high level of fixed costs and our continuing investment in
this business.
DCS revenue in 2012 decreased 3% to $578 million compared to 2011 primarily due to a decline in worldwide software revenue attributable
to weak economic conditions and constrained public sector spending in Europe. EBIT decreased 19% to $37 million compared to 2011
primarily related to costs to build up the infrastructure for our cross-border parcel management solution offering.
22
LIQUIDITY AND CAPITAL RESOURCES
We believe that existing cash and investments, cash generated from operations and borrowing capacity under our commercial paper
program are currently sufficient to support our cash needs, including discretionary uses such as capital investments, dividends and share
repurchases. Cash and cash equivalents and short-term investments were $939 million at December 31, 2013 and $950 million at
December 31, 2012. 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
The change in cash and cash equivalents is as follows:
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Year Ended December 31,
Change
2013
2012
2011
2013
2012
$
$
625
$
251
(868)
(13)
(5) $
$
660
(87)
(519)
3
57
$
949
(117)
(455)
(5)
372
$
$
(35) $
338
(349)
(16)
(62) $
(289)
30
(64)
8
(315)
Net cash provided by operating activities was $625 million in 2013 compared to $660 million in 2012. The decrease in cash flow from
operations was due to lower income and cash payments related to debt extinguishments. These decreases were partially offset by lower
pension contributions, restructuring payments and increased cash from working capital management.
Net cash provided by operating activities was $660 million in 2012 compared to $949 million in 2011. The decrease in cash provided by
operations was primarily due to higher tax payments in 2012 resulting from the sale of leveraged lease assets, the loss of bonus depreciation
and higher income tax refunds received in 2011. The cash impact of finance and accounts receivables was also $105 million lower in
2012 compared to 2011.
Net cash provided by investing activities was $251 million in 2013 compared to net cash used of $87 million in 2012. The improvement
was mainly due to net proceeds of $390 million from the sale of businesses during 2013 and lower capital expenditures, partially offset
by lower deposits at the Bank. Cash flow in 2012 included proceeds of $106 million from the sale of leveraged lease assets.
Net cash used in investing activities was $87 million in 2012 compared to $117 million in 2011. The decrease in cash used in 2012 was
due to lower net purchases of investment securities partially offset by higher capital expenditures and lower growth in customer deposits.
Net cash used in financing activities was $868 million in 2013 compared to $519 million in 2012. The increase in cash used was due to
higher net repayments of debt partially offset by lower dividend payments. During the year, we paid $1,079 million to redeem long-term
debt and received $412 million from the issuance of new debt. In 2012, we paid $550 million to redeem long-term debt and received
$340 million from the issuance of new debt. Dividend payments were $112 million lower in 2013 compared to 2012. See Dividends
below.
Net cash used in financing activities was $519 million in 2012 compared to $455 million in 2011. The increase in cash used was due to
higher net repayments of debt partially offset by lower share repurchases.
Dividends
We paid dividends to our common stockholders of $189 million ($0.94 per share), $301 million ($1.50 per share) and $300 million ($1.48
per share) in 2013, 2012 and 2011, respectively. Each quarter, our Board of Directors will continue to consider 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.
Financings and Capitalization
We are a Well-Known Seasoned Issuer with the SEC, which allows us to issue debt securities, preferred stock, preference stock, common
stock, purchase contracts, depositary shares, warrants and units in an expedited fashion. We have a commercial paper program that is an
important source of liquidity for us and a committed credit facility of $1.0 billion to support our commercial paper issuances. The credit
facility expires in April 2016. We have not drawn upon the credit facility.
23
At December 31, 2013, there were no outstanding commercial paper borrowings. During the year, commercial paper borrowings averaged
$52 million at a weighted-average interest rate of 0.41% and the maximum amount outstanding at any time was $300 million. In 2012,
commercial paper borrowings averaged $221 million at a weighted-average interest rate of 0.39% and the maximum amount of commercial
paper outstanding at any point in time was $709 million.
In March 2013, we issued $425 million of 6.7% fixed-rate 30-year notes (net proceeds received after fees and discount were $412 million).
Interest is payable quarterly. The notes mature in 2043, but may be redeemed, at our option, in whole or in part, at any time on or after
March 7, 2018 at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. The net proceeds were
used to fund the Tender Offer (see below).
In March 2013, we completed a cash tender offer (the Tender Offer) for a portion of the 4.875% Notes due 2014, the 5.0% Notes due
2015, and the 4.75% Notes due 2016 (the Subject Notes). Holders who validly tendered their notes received the principal amount of the
notes tendered, all accrued and unpaid interest and a premium payment. An aggregate $405 million of the Subject Notes were tendered.
In connection with this Tender Offer, we received $5 million from the unwind of certain interest rate swap agreements and recognized a
net loss of $25 million, consisting primarily of the premium payment.
In June 2013, the $375 million 3.875% notes matured and were redeemed with cash.
In November 2013, we redeemed the remaining $300 million of 4.875% outstanding notes that were scheduled to mature August 2014.
In connection with this redemption, we received $3 million from the unwind of an interest rate swap and recognized a loss of $8 million,
consisting primarily of a premium payment.
During 2012, we borrowed $230 million under term loan agreements. The term loans bear interest at the applicable London Interbank
Offered Rate (LIBOR) plus 2.25% or Prime Rate plus 1.25%, at our option. Interest is paid quarterly and the loans mature in 2015 and
2016. We also issued $110 million of 10-year notes with a coupon rate of 5.25%. Interest is paid quarterly and the notes mature in
November 2022. However, we may redeem some or all of the notes at any time on or after November 2015 at a redemption price equal
to 100% of the principal amount, plus accrued and unpaid interest. The proceeds from these issuances were for general corporate purposes,
including the repayment of 2013 debt maturities.
We have almost $2 billion of debt maturing in the next two to five years. While we fully expect to be able to fund these maturities through
cash redemptions or refinancing these maturities through the U.S. capital markets, these obligations could increase our vulnerability to
adverse market conditions, and impact our ability to refinance existing maturities.
Cash and cash equivalents held by our foreign subsidiaries were $392 million at December 31, 2013 and $219 million at December 31,
2012. Cash and cash equivalents held by our foreign subsidiaries are generally used to support the liquidity needs of these subsidiaries.
Most of these amounts could be repatriated to the U.S. but would be subject to additional taxes. Repatriation of some foreign balances
is restricted by local laws.
Contractual Obligations and Off-Balance Sheet Arrangements
The following summarizes our known contractual obligations and off-balance sheet arrangements at December 31, 2013 and the effect
that such obligations are expected to have on our liquidity and cash flow in future periods:
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Payments due by period
Long-term debt
Interest payments on debt (1)
Non-cancelable operating lease obligations
Purchase obligations (2)
Pension plan contributions (3)
Retiree medical payments (4)
Total
$
$
3,311
1,883
201
170
40
195
5,800
$
— $
176
56
131
40
24
427
$
$
876
305
73
29
—
$
1,100
214
37
10
—
44
1,327
$
40
1,401
$
$
1,335
1,188
35
—
—
87
2,645
The amount and period of future payments related to our income tax uncertainties cannot be reliably estimated and are not included in
the above table. See Note 8 to the Consolidated Financial Statements for further details.
24
(1) Interest payments on debt assume all debt is held to maturity. Certain notes permit us to redeem, or the bondholders to require us to
redeem, some or all of the applicable outstanding notes at par plus accrued interest before the scheduled maturity date.
(2) Purchase obligations include unrecorded agreements to purchase goods or services that are enforceable and legally binding upon us
and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without
penalty.
(3) Represents the amount of contributions we anticipate making to our pension plans during 2014; however, we will assess our funding
alternatives as the year progresses.
(4) Our retiree health benefit plans are non-funded plans and cash contributions are made each year to cover medical claims costs
incurred. The amounts reported in the above table represent our estimate of future benefits payments.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions about
certain items that affect the reported amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the
disclosure of contingent assets and liabilities. The accounting policies below have been identified by management as those accounting
policies that are most critical to our financial statements due to the estimates and assumptions required. Management believes that the
estimates and assumptions used are reasonable and appropriate based on the information available at the time the financial statements
were prepared; however, actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial
Statements for a summary of our accounting policies.
Revenue recognition - Multiple element arrangements
We derive revenue from multiple sources including sales, rentals, financing and services. Certain transactions are consummated at the
same time and can therefore generate revenue from multiple sources. The most common form of these transactions involves a sale or
non-cancelable lease of equipment, a meter rental and an equipment maintenance agreement. As a result, we are required to determine
whether the deliverables in a multiple element arrangement should be treated as separate units of accounting for revenue recognition
purposes, and if so, how the price should be allocated among the delivered elements and when to recognize revenue for each element.
We recognize revenue for delivered elements only when the fair values of undelivered elements are known, customer acceptance has
occurred and payment is probable.
In these multiple element arrangements, revenue is allocated to each of the elements based on relative “selling prices” and the selling
price for each of the elements is determined based on vendor specific objective evidence. We establish vendor specific objective evidence
of selling prices for our products and services based on the prices charged for each element when sold separately in standalone transactions.
The allocation of relative selling price to the various elements impacts the timing of revenue recognition, but does not change the total
revenue recognized. Revenue is allocated to the meter rental and equipment maintenance agreement elements using their respective
selling prices charged in standalone and renewal transactions. For a sale transaction, revenue is allocated to the equipment based on a
range of selling prices in standalone transactions. For a lease transaction, revenue is allocated to the equipment based on the present value
of the remaining minimum lease payments. The amount allocated to equipment is compared to the range of selling prices in standalone
transactions during the period to ensure the allocated equipment amount approximates average selling prices.
Pension benefits
The valuation of our pension assets and obligations and the calculation of net periodic pension expense are dependent on assumptions
and estimates relating to, among other things, the interest rate used to discount the future estimated liability (discount rate) and the
expected rate of return on plan assets. These assumptions are evaluated and updated annually and are described in further detail in Note
18 to the Consolidated Financial Statements.
The discount rate for our largest plan, the U.S. Qualified Pension Plan (the U.S. Plan) is determined by matching the expected cash flows
associated with our benefit obligations to a yield curve based on long-term, high quality fixed income debt instruments available as of
the measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by
using a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from
a large number of high quality corporate bonds. The discount rate used in the determination of net periodic pension expense for 2013
was 4.05% for the U.S. Plan and 4.55% for the U.K. Plan. For 2014, the discount rate used in the determination of net periodic pension
expense for the U.S. Plan and the U.K. Plan will be 4.95% and 4.45%, respectively. A 0.25% increase in the discount rate would decrease
25
annual pension expense by less than $1 million for both the U.S. Plan and the U.K. Plan, and lower the projected benefit obligation of
the U.S. Plan and U.K. Plan by $45 million and $21 million, respectively.
Pension assets are exposed to various risks such as interest rate, market and credit risks. We invest our pension plan assets in a variety
of investment securities in accordance with our strategic asset allocation policy. The expected return on plan assets is based on historical
and expected future returns for current and targeted asset allocations for each asset class in the investment portfolio, adjusted for historical
and expected experience of active portfolio management results, as compared to the benchmark returns. When assessing the expected
future returns for the portfolio, management places more emphasis on the expected future returns than historical returns. The expected
rate of return used in the determination of net periodic pension expense for 2013 was 7.25% for the U.S. Plan and 7.38% for the U.K.
Plan. For 2014, the expected rate of return used in the determination of net periodic pension expense for the U.S. Plan and the U.K. Plan
will be 7.0% and 7.5%, respectively. A 0.25% increase in the expected rate of return on plan return on assets would decrease annual
pension expense for the U.S. Plan by $4 million and the U.K. Plan by $1 million. See Note 18 to the Consolidated Financial Statements
for asset allocations at December 31, 2013 and 2012 and target allocations for 2014.
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized over the life expectancy of
inactive plan participants and affect future pension expense. Net pension expense is also based on a market-related valuation of plan
assets where differences between the actual and expected return on plan assets are amortized to pension expense over a five-year period.
Effective December 31, 2014, benefit accruals for participants in a majority of our U.S. and foreign pension plans will be frozen.
Residual value of leased assets
We provide lease financing for our products primarily through sales-type leases. Equipment residual values are determined at inception
of the lease using estimates of equipment fair value at the end of the lease term. Residual value estimates impact the determination of
whether a lease is classified as an operating lease or sales-type lease. Estimates of future equipment fair value are based primarily on our
historical experience. We also consider forecasted supply and demand for our various products, product retirement and future product
launch plans, end of lease customer behavior, regulatory changes, remanufacturing strategies, used equipment markets, if any, competition
and technological changes.
We evaluate residual values on an annual basis or as changes to the above considerations occur and declines in estimated residual values
considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until the
equipment is remarketed. If the actual residual value of lease assets were 10% lower than management's current estimates, pre-tax income
would be lower by $14 million.
Allowances for doubtful accounts and credit losses
We estimate our credit risk for accounts receivables and finance receivables and provide allowances for estimated losses. We believe that
our credit risk is limited because of our large number of customers, small account balances for most of our customers and customer
geographic and industry diversification. We continuously monitor collections and payments from our customers and evaluate the adequacy
of the applicable allowance based on historical loss experience, past due status, adverse situations that may affect a customer's ability to
pay and prevailing economic conditions. We make adjustments to the reserves as deemed necessary. This evaluation is inherently subjective
and actual results may differ significantly from estimated reserves.
The allowance for doubtful accounts as a percentage of trade receivables was 2.7% at December 31, 2013 and 2012. Holding all other
assumptions constant, a 0.25% increase or decrease in the allowance rate at December 31, 2013 would have changed the 2013 provision
by $1 million.
Total allowance for credit losses as a percentage of finance receivables was 1.8% at December 31, 2013 and 2012. Holding all other
assumptions constant, a 0.25% increase or decrease in the allowance rate at December 31, 2012 would have changed the 2013 provision
by $5 million.
Accounting for income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our annual tax rate is based on our income, statutory tax
rates, tax reserve changes and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant
judgment is required in determining our annual tax rate and in evaluating our tax positions.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. Tax reserves have been established which we believe to be appropriate given the possibility of
tax adjustments. Determining the appropriate level of tax reserves requires us to exercise judgment regarding the uncertain application
26
of tax laws. The amount of reserves is adjusted when information becomes available or when an event occurs indicating a change in the
reserve is appropriate. Future changes in tax reserve requirements could have a material impact on our financial condition or results of
operations.
Significant judgment is also required in determining the amount of valuation allowance to be recorded against deferred tax assets. In
assessing whether a valuation allowance is necessary, and the amount of such allowance, we consider all available evidence for each
jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. As
new information becomes available that would alter our determination as to the amount of deferred tax assets that will ultimately be
realized, we adjust the valuation allowance with a corresponding impact to income tax expense in the period in which such determination
is made.
Useful lives of long-lived assets
We depreciate property, plant and equipment and rental property and equipment principally using the straight-line method over the
estimated useful lives of up to 50 years for buildings, three to 15 years for machinery and equipment, four to six years for rental equipment
and three to five years for computer equipment. Leasehold improvements are amortized over the shorter of the estimated useful life or
the remaining lease term. We amortize capitalized costs related to internally developed software using the straight-line method over the
estimated useful life, which is principally three to 10 years. Intangible assets with finite lives are amortized using the straight-line method
or an accelerated attrition method over their estimated useful lives, which are principally three to 15 years. Our estimates of useful lives
could be affected by changes in regulatory provisions, technology or business plans and changes to the assets' estimated useful lives could
have a material impact on our results of operations.
Impairment review
Long-lived and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use and eventual
disposition of the asset is compared to the asset's carrying amount. We derive the cash flow estimates from our future long-term business
plans and historical experience. If the sum of the expected cash flows is less than the carrying amount, an impairment charge is recorded
for an amount by which the carrying amount exceeds the fair value of the asset. The fair value of the asset is determined using probability
weighted expected discounted cash flow estimates, quoted market prices when available and appraisals, as appropriate. Changes in the
estimates and assumptions incorporated in our impairment assessment could materially affect the determination of fair value and the
associated impairment charge.
Goodwill is tested annually for impairment, during the fourth quarter, or sooner when circumstances indicate an impairment may exist
at the reporting unit level. The impairment test for goodwill is a two-step approach. In the first step, the fair value of each reporting unit
is compared to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value,
the second step of the goodwill impairment test is performed to measure the amount of impairment, if any. In the second step, the fair
value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had been acquired in a business combination
and the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the
amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting
unit's goodwill is then compared to the actual carrying value of goodwill. If the implied fair value of goodwill is less than the carrying
value of goodwill, an impairment loss is recognized for the difference.
Significant estimates and assumptions are used in our goodwill impairment review and include the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting
unit. The fair value of each reporting unit is determined based on a combination of techniques, including the present value of future cash
flows, applicable multiples of competitors and multiples from sales of like businesses. The assumptions used to estimate fair value are
based on projections incorporated in our current operating plans as well as other available information. Our operating plans include
significant assumptions and estimates associated with sales growth, profitability and related cash flows, along with cash flows associated
with taxes and capital spending. The determination of fair value also incorporates a risk-adjusted discount rate based on current interest
rates and the economic conditions of the reporting unit. We consider 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 for each reporting unit. Potential events and circumstances, such as the inability to acquire new clients, downward pressures on
pricing and rising interest rates could have an adverse impact on our assumptions and result in non-cash impairment charges in future
periods.
Based on the results of the annual impairment test performed during the fourth quarter of 2013, we determined that the estimated fair
value of each of the reporting units exceeded their carrying value by 20% or more, except for the software and direct marketing operations
of our DCS segment. The estimated fair value of the software reporting unit exceeded its carrying value by 12% and the estimated fair
27
value of the direct marketing reporting unit exceeded its carrying value by 4%. The goodwill balances related to the software and direct
marketing operations are $684 million and $194 million, respectively. The assumptions used to estimate fair value were based on projections
incorporated in our current operating plans as well as other available information. The inputs used to determine the fair value of the
software and direct marketing operations were classified as Level 3 in the fair value hierarchy. By their nature, projections are uncertain.
Potential events and circumstances, such as declining volumes, loss of client contracts and inability to acquire new clients could have an
adverse effect on our assumptions. We will continue to monitor and evaluate the carrying values of goodwill and intangible assets of
these units, and should actual results differ significantly from our estimates and assumptions, additional non-cash impairment charges
for goodwill could be recorded in 2014.
Stock-based compensation expense
We recognize compensation cost for stock-based awards based on the estimated fair value of the award, net of estimated forfeitures.
Compensation costs for those shares expected to vest are recognized on a straight-line basis over the requisite service period.
The fair value of stock awards is estimated using a Black-Scholes valuation model or Monte Carlo simulation model. These models
require assumptions be made regarding the expected stock price volatility, risk-free interest rate, expected life of the award and dividend
yield. The estimate of stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S.
treasuries with a term equal to the expected life of the stock award. The expected life of the award and expected dividend yield are based
on historical experience.
We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in estimating
the fair value of our stock-based awards. If factors change and we use different assumptions, our stock-based compensation expense
could be different in the future. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by
employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair
value. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.
If our actual forfeiture rate is materially different from our estimate, stock-based compensation expense could be significantly different
from what we have recorded in the current period.
Restructuring
We have undertaken restructuring actions which require management to utilize certain estimates related to the amount and timing of
expenses. If the actual amounts differ from our estimates, the amount of the restructuring charges could be impacted. On a quarterly basis,
we update our estimates of future remaining obligations and costs associated with all restructuring actions and compare these updated
estimates to our current restructuring reserves, and make adjustments if necessary.
Loss contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a
quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any
claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment
of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant
judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As
additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results
of operations and financial position.
28
Legal and Regulatory Matters
Legal
See Legal Proceedings in Item 3 for information regarding our legal proceedings.
Other regulatory matters
As is the case with other large corporations, our tax returns are examined each year by tax authorities in the U.S., other countries and
local jurisdictions in which we have operations. Except for issues arising out of certain partnership investments, the IRS examinations
of tax years prior to 2009 are closed to audit. Other than the pending application of legal principles to specific issues arising in earlier
years, only post-2007 Canadian tax years are subject to examination. Other significant tax filings subject to examination include various
post-2004 U.S. state and local, post-2007 German, and post-2011 French and U.K. tax filings. We have other less significant tax filings
currently under examination or subject to examination. Tax reserves have been established which we believe to be appropriate given the
possibility of tax adjustments. However, the resolution of such matters could have a material impact on our results of operations, financial
position and cash flows. See Note 8 to the Consolidated Financial Statements.
We are currently undergoing unclaimed property audits, which are being conducted by various state authorities. The property subject to
review in this audit process generally includes unclaimed wages, vendor payments and customer receipts. State escheat laws generally
require entities to report and remit abandoned and unclaimed property. Failure to timely report and remit the property can result in the
assessments of additional escheat liability, interest and penalties. We do not expect the outcome of these audits to have a material impact
on our results of operations or financial position.
Foreign Currency Exchange
Over the last three years, approximately one-third of our consolidated revenue was derived from operations outside of the United States.
The functional currency for most of our foreign operations is the local currency. Our largest foreign currency exposures are to the British
pound, Euro, Japanese Yen, Canadian dollar and the Australian dollar. Changes in the value of the U.S. dollar relative to the currencies
of countries in which we operate impact our reported assets, liabilities, revenue and expenses. Exchange rate fluctuations can also impact
the settlement of intercompany receivables and payables between our subsidiaries in different countries. For the years ended December 31,
2013, 2012 and 2011, currency rate movements increased/(decreased) revenue by (0.4)%, (1.1)% and 1.6%, respectively.
We use foreign exchange contracts to mitigate the risk of foreign currency exchange rate fluctuations. We enter into foreign exchange
contracts with only those financial institutions that meet stringent credit requirements as set forth in our derivative policy to mitigate our
exposure to counterparty credit risk. We regularly review our credit exposure balances as well as the creditworthiness of our counterparties.
Maximum risk of loss on these contracts is limited to the amount of the difference between the spot rate at the date of the contract delivery
and the contracted rate. At December 31, 2013, the fair value of our outstanding foreign exchange contracts was a liability value of $2
million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes and foreign currency fluctuations due to our investing and funding activities and
our operations denominated in different foreign currencies.
Our objective in managing our exposure to changing interest rates is to limit the volatility and impact of changing interest rates on earnings
and cash flows. To achieve these objectives, we may enter into interest rate swaps that convert fixed rate interest payments to variable
rates. At December 31, 2013, approximately 93% of our debt represented fixed rate obligations and we had no interest rate swaps in
place. The weighted average rate of our debt at December 31, 2013 was 5.1%. A one-percentage point change in the effective interest
rate of our variable rate debt would have impacted 2013 pre-tax income by $2 million.
Our objective in managing our exposure to foreign currency fluctuations is to reduce the volatility in earnings and cash flows associated
with the effect of foreign exchange rate changes on transactions that are denominated in foreign currencies. Accordingly, we enter into
various contracts, which change in value as foreign exchange rates change, to protect the value of external and intercompany transactions.
The principal currencies actively hedged are the British pound, Euro and Canadian dollar.
We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks. We do
not enter into foreign currency or interest rate transactions for speculative purposes. The gains and losses on these contracts offset changes
in the value of the related exposures.
29
We utilize a "Value-at-Risk" (VaR) model to determine the potential loss in fair value from changes in market conditions. The VaR model
utilizes a “variance/co-variance” approach and assumes normal market conditions, a 95% confidence level and a one-day holding period.
The model includes all of our debt, interest rate derivative contracts and foreign exchange derivative contracts associated with forecasted
transactions. The model excludes all anticipated transactions and firm commitments and account receivables and payables denominated
in foreign currencies, which certain of these instruments are intended to hedge. The VaR model is a risk analysis tool and does not purport
to represent actual losses in fair value that will be incurred by us, nor does it consider the potential effect of favorable changes in market
factors.
During 2013 and 2012, our maximum potential one-day loss in fair value of our exposure to foreign exchange rates and interest rates,
using the variance/co-variance technique described above, was not material.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Supplemental Data" on page 3 of this Form 10-K.
6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we evaluated our disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act))
and internal control over financial reporting. Our CEO and CFO concluded that such disclosure controls and procedures were effective
as of December 31, 2013, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule
15d-15 under the Exchange Act. 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 December 31, 2013.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15
(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with internal control policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control - Integrated Framework (1992). Based on its assessment, management concluded that, as of December 31, 2013, our internal
control over financial reporting was effective based on the criteria issued by COSO in Internal Control - Integrated Framework (1992).
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears in this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2013, that have
materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than information regarding our executive officers disclosed in Part I of this Annual Report, the information required by this Item
is incorporated by reference to our Proxy Statement to be filed in connection with the 2014 Annual Meeting of Stockholders.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our principal executive, financial
and accounting officers, or persons performing similar functions. Our Code of Ethics is posted on our corporate governance website
located at www.pb.com/Our-Company/Leadership-and-Governance/Corporate-Governance. In addition, amendments to the Code of
Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC rules will be disclosed
at the same location as the Code of Ethics.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 2014 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION TABLE
The following table provides information as of December 31, 2013 regarding the number of shares of common stock that may be issued
under our equity compensation plans.
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans excluding
securities reflected in
column (a)
14,526,633
—
14,526,633
$31.78
—
$31.78
19,180,600
—
19,180,600
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
Other than information regarding securities authorized for issuance under equity compensation plans, the information required by this
Item is incorporated by reference to our Proxy Statement to be filed in connection with the 2014 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 2014
Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 2014
Annual Meeting of Stockholders
32
ITEM 15. - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1. Financial statements - see "Index to Consolidated Financial Statements and Supplemental Data" on page 36 of this Form 10-
K.
2. Financial statement schedules - see "Index to Consolidated Financial Statements and Supplemental Data" on page 36 of this
Form 10-K.
3.
Index to Exhibits
Reg. S-K
exhibits
3(a)
3(b)
4(a)
4(b)
4(c)
4(d)
10(a) *
Restated Certificate of Incorporation of Pitney Bowes Inc.
Description
Pitney Bowes Inc. Amended and Restated By-laws (effective May
10, 2013)
Form of Indenture between the Company and SunTrust Bank, as
Trustee
Supplemental Indenture No. 1 dated April 18, 2003 between the
Company and SunTrust Bank, as Trustee
Form of Indenture between the Company and Citibank, N.A., as
Trustee, dated as of February 14, 2005
First Supplemental Indenture, by and among Pitney Bowes Inc.,
The Bank of New York, and Citibank, N.A., to the Indenture, dated
as of February 14, 2005, by and between the Company and
Citibank
Retirement Plan for Directors of Pitney Bowes Inc.
10(b) *
Pitney Bowes Inc. Directors' Stock Plan (as amended and restated
1999)
10(b.1) *
Pitney Bowes Inc. Directors' Stock Plan (Amendment No. 1,
effective as of May 12, 2003)
10(b.2) *
Pitney Bowes Inc. Directors' Stock Plan (Amendment No. 2
effective as of May 1, 2007)
10(c) *
Pitney Bowes Stock Plan (as amended and restated as of January
1, 2002)
10(d) *
Pitney Bowes Inc. 2007 Stock Plan (as amended November 7,
2009)
10(e) *
Pitney Bowes Inc. Key Employees' Incentive Plan (as amended
and restated October 1, 2007) (as amended November 7, 2009)
10(f) *
Pitney Bowes Severance Plan (as amended and restated as of
January 1, 2008)
10(g) *
Pitney Bowes Senior Executive Severance Policy (as amended
and restated as of January 1, 2008)
10(h) *
Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board
of Directors, as amended and restated effective January 1, 2009
10(i) *
Pitney Bowes Inc. Deferred Incentive Savings Plan as amended
and restated effective January 1, 2009
Status or incorporation by reference
Incorporated by reference to Exhibit 3(c) to Form 8-K as filed with
the Commission on May 12, 2011 (Commission file number
1-3579)
Incorporated by reference to Exhibit 3(d) to Form 8-K as filed with
the Commission on May 13, 2013 (Commission file number
1-3579)
Incorporated by reference to Exhibit 4.4 to Registration Statement
on Form S-3 (No. 333-72304) as filed with the Commission on
October 26, 2001
Incorporated by reference to Exhibit 4.1 to Form 8-K as filed with
the Commission on August 18, 2004
Incorporated by reference to Exhibit 4(a) to Registration Statement
on Form S-3ASR (No. 333-151753) as filed with the Commission
on June 18, 2008
Incorporated by reference to Exhibit 4.1 to Form 8-K as filed with
the Commission on October 24, 2007 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(a) to Form 10-K as filed
with the Commission on March 30, 1993 (Commission file number
1-3579)
Incorporated by reference to Exhibit (i) to Form 10-K as filed with
the Commission on March 30, 2000 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10 to Form 10-Q as filed with
the Commission on August 11, 2003 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(b.2) to Form 10-K as filed
with the Commission on March 1, 2007 (Commission file number
1-3579)
Incorporated by reference to Annex 1 to the Definitive Proxy
Statement for the 2002 Annual Meeting of Stockholders filed with
the Commission on March 26, 2002 (Commission file number
1-3579)
Incorporated by reference to Exhibit (v) to Form 10-K as filed with
the Commission on February 26, 2010 (Commission file number
1-3579)
Incorporated by reference to Exhibit (iv) to Form 10-K as filed
with the Commission on February 26, 2010 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(e) to Form 10-K as filed
with the Commission on February 29, 2008 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(f) to Form 10-K as filed
with the Commission on February 29, 2008 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(g) to Form 10-K as filed
with the Commission on February 26, 2009 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(h) to Form 10-K as filed
with the Commission on February 26, 2009 (Commission file
number 1-3579)
33
Reg. S-K
exhibits
10(j) *
Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
Description
Status or incorporation by reference
Incorporated by reference to Annex II to the Definitive Proxy
Statement for the 2006 Annual Meeting of Stockholders filed with
the Commission on March 23, 2006 (Commission file number
1-3579)
10(k) *
Form of Long Term Incentive Award Agreement
Exhibit 10(k)
10(l) *
12
21
23
31.1
31.2
32.1
32.2
Compensation arrangement for Vicki O'Meara dated June 1, 2010 Incorporated by reference to Exhibit 10(a) to Form 10-Q as filed
with the Commission on August 5, 2010 (Commission file number
1-3579)
Exhibit 12
Computation of ratio of earnings to fixed charges
Subsidiaries of the registrant
Consent of experts and counsel
Certification of Chief Executive Officer Pursuant to Rules 13a-14
(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
amended.
Certification of Chief Financial Officer Pursuant to Rules 13a-14
(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
amended.
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
101.INS XBRL Report Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.
The Company has outstanding certain other long-term indebtedness. Such long-term indebtedness does not exceed 10% of the total assets of the Company; therefore,
copies of instruments defining the rights of holders of such indebtedness are not included as exhibits. The Company agrees to furnish copies of such instruments to
the SEC upon request.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 21, 2014
PITNEY BOWES INC.
Registrant
By: /s/ Marc B. Lautenbach
Marc B. Lautenbach
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Marc B. Lautenbach
Marc B. Lautenbach
/s/ Michael Monahan
Michael Monahan
/s/ Steven J. Green
Steven J. Green
/s/ Michael I. Roth
Michael I. Roth
/s/ Linda G. Alvarado
Linda G. Alvarado
/s/ Anne M. Busquet
Anne M. Busquet
/s/ Roger Fradin
Roger Fradin
/s/ Anne Sutherland Fuchs
Anne Sutherland Fuchs
/s/ S. Douglas Hutcheson
S. Douglas Hutcheson
/s/ Eduardo R. Menascé
Eduardo R. Menascé
/s/ David L. Shedlarz
David L. Shedlarz
/s/ David B. Snow, Jr.
David B. Snow, Jr.
President and Chief Executive Officer - Director
February 21, 2014
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
February 21, 2014
Vice President-Finance and Chief Accounting Officer (Principal
Accounting Officer)
February 21, 2014
Non-Executive Chairman - Director
February 21, 2014
Director
Director
Director
Director
Director
Director
Director
Director
35
February 21, 2014
February 21, 2014
February 21, 2014
February 21, 2014
February 21, 2014
February 21, 2014
February 21, 2014
February 21, 2014
PITNEY BOWES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Pitney Bowes Inc.
Consolidated Statements of Income for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Balance Sheets at December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
Page Number
37
38
39
40
41
42
43
93
36
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Pitney Bowes Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive
income, of stockholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Pitney Bowes
Inc. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established
in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Stamford, CT
February 21, 2014
37
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Revenue:
Equipment sales
Supplies
Software
Rentals
Financing
Support services
Business services
Total revenue
Costs and expenses:
Cost of equipment sales
Cost of supplies
Cost of software
Cost of rentals
Financing interest expense
Cost of support services
Cost of business services
Selling, general and administrative
Research and development
Restructuring charges and asset impairments, net
Other interest expense
Interest income
Other expense (income), net
Total costs and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income before attribution of noncontrolling interests
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests
Net income - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
2013
Years Ended December 31,
2012
2011
$
$
$
$
$
$
$
$
889,101
289,808
398,664
522,008
460,786
677,742
631,292
3,869,401
439,205
91,155
110,653
105,463
81,096
419,656
449,932
1,432,401
110,412
84,344
114,740
(5,472)
32,639
3,466,224
403,177
83,069
320,108
(158,898)
161,210
18,375
142,835
301,733
(158,898)
142,835
1.50
(0.79)
0.71
1.49
(0.78)
0.70
$
$
$
$
$
$
$
$
870,537
283,459
412,762
551,607
495,130
707,582
593,987
3,915,064
402,056
87,564
115,388
115,356
81,140
440,039
396,295
1,503,104
114,250
17,176
115,228
(7,982)
1,138
3,380,752
534,312
120,252
414,060
49,479
463,539
18,376
445,163
395,684
49,479
445,163
1.97
0.25
2.22
1.96
0.25
2.21
$
$
$
$
$
$
$
$
938,297
307,762
426,606
601,517
547,269
723,945
579,945
4,125,341
414,280
97,371
118,701
138,600
87,698
452,579
399,754
1,587,437
129,155
118,630
115,363
(5,795)
(19,918)
3,633,855
491,486
35,518
455,968
179,887
635,855
18,375
617,480
437,593
179,887
617,480
2.17
0.89
3.06
2.16
0.89
3.05
See Notes to Consolidated Financial Statements
38
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income - Pitney Bowes Inc.
Other comprehensive income, net of tax:
Years Ended December 31,
2013
2012
2011
$
142,835
$
445,163
$
617,480
Foreign currency translations
Net unrealized gain on cash flow hedges, net of tax of $894, $429 and $1,278,
respectively
Net unrealized (loss) gain on investment securities, net of tax of $(3,689), $81 and
$1,885, respectively
Adjustments to pension and postretirement plans, net of tax of $64,316, $(38,934) and
$(93,251), respectively
Amortization of pension and postretirement costs, net of tax of $19,228, $21,876 and
(46,236)
(2,702)
(53,569)
1,397
(6,282)
661
126
2,007
2,948
122,023
(70,232)
(173,699)
$19,652, respectively
Other comprehensive income (loss)
Comprehensive income - Pitney Bowes Inc.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
35,755
106,657
249,492
18,375
52,579
(19,568)
425,595
18,376
Total comprehensive income
$
267,867
$
443,971
$
34,474
(187,839)
429,641
18,375
448,016
See Notes to Consolidated Financial Statements
39
PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable (net of allowance of $13,149 and $20,219, respectively)
Short-term finance receivables (net of allowance of $24,340 and $25,484, respectively)
Inventories
Current income taxes
Other current assets and prepayments
Assets held for sale
Total current assets
Property, plant and equipment, net
Rental property and equipment, net
Long-term finance receivables (net of allowance of $12,609 and $14,610, respectively)
Investment in leveraged leases
Goodwill
Intangible assets, net
Non-current income taxes
Other assets
Total assets
LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Current income taxes
Current portion of long-term obligations
Advance billings
Total current liabilities
Deferred taxes on income
Tax uncertainties and other income tax liabilities
Long-term debt
Other non-current liabilities
Total liabilities
Noncontrolling interests (Preferred stockholders’ equity in subsidiaries)
Commitments and contingencies (See Note 15)
Stockholders’ equity:
Cumulative preferred stock, $50 par value, 4% convertible
Cumulative preference stock, no par value, $2.12 convertible
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (121,255,390 and 122,453,865 shares, respectively)
Total Pitney Bowes Inc. stockholders’ equity
Total liabilities, noncontrolling interests and stockholders’ equity
See Notes to Consolidated Financial Statements
40
December 31,
2013
December 31,
2012
$
$
$
$
$
$
$
907,806
31,128
469,800
1,102,921
103,580
28,934
147,067
46,976
2,838,212
245,171
226,146
962,363
34,410
1,734,871
120,387
73,751
537,397
6,772,708
1,644,582
157,340
—
425,833
2,227,755
60,667
186,452
3,346,295
466,766
6,287,935
913,276
36,611
728,250
1,188,292
179,678
51,836
114,184
—
3,212,127
385,377
241,192
1,026,489
34,546
2,136,138
166,214
94,434
563,374
7,859,891
1,809,226
240,681
375,000
452,130
2,877,037
69,222
145,881
3,642,375
718,375
7,452,890
296,370
296,370
4
591
323,338
196,977
4,698,791
(574,556)
(4,456,742)
188,403
6,772,708
$
4
648
323,338
223,847
4,744,802
(681,213)
(4,500,795)
110,631
7,859,891
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2013
2012
2011
Cash flows from operating activities:
Net income before attribution of noncontrolling interests
Restructuring payments
Special pension plan contributions
Tax and other payments on sale of businesses and leveraged lease assets
Adjustments to reconcile net income to net cash provided by operating activities:
$
$
$
463,539
(74,718)
(95,000)
(114,128)
Restructuring charges and asset impairments
Goodwill impairment
Depreciation and amortization
Loss on sale of businesses
Gain on sale of leveraged lease assets, net of tax
Stock-based compensation
Proceeds from settlement of derivative instruments
Deferred tax (benefit) provision
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
Decrease in finance receivables
Decrease (increase) in inventories
Decrease (increase) in other current assets and prepayments
Decrease in accounts payable and accrued liabilities
Increase (decrease)
(Decrease) increase in advance billings
Increase (decrease) in other operating capital, net
Net cash provided by operating activities
in current and non-current income taxes
Cash flows from investing activities:
Purchases of available-for-sale investment securities
Proceeds from sales/maturities of available-for-sale investment securities
Short-term and other investments
Capital expenditures
Proceeds from sale of businesses
Proceeds from sale of leveraged lease assets
Net investment in external financing
Reserve account deposits
Proceeds from sale of facility
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Principal payments of long-term obligations
Decrease in notes payable, net
Proceeds from issuance of common stock
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Common stock repurchases
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash interest paid
Cash income tax payments, net of refunds
161,210
(59,520)
—
(75,545)
86,175
101,415
211,243
42,450
—
14,921
8,059
(33,770)
58,980
123,587
67,188
3,172
(95,843)
6,322
(16,450)
21,230
624,824
(376,652)
382,638
14,847
(137,512)
389,680
—
(2,156)
(20,104)
—
250,741
411,613
(1,079,207)
—
6,753
(188,846)
(18,375)
—
(868,062)
(12,973)
(5,470)
913,276
907,806
199,505
224,432
$
$
$
$
$
$
635,855
(107,002)
(123,000)
—
148,151
130,150
272,142
—
(26,689)
18,692
—
34,358
58,951
190,153
(12,830)
16,905
(13,086)
(257,631)
(12,854)
(3,278)
948,987
(406,114)
302,785
6,749
(155,980)
—
101,784
(2,677)
35,354
683
(117,416)
—
—
(50,000)
12,934
(299,579)
(18,375)
(99,997)
(455,017)
(4,679)
371,875
484,363
856,238
202,159
44,528
33,351
18,315
255,556
—
(12,886)
18,227
—
(92,999)
(3,068)
147,165
(599)
(3,131)
(47,023)
116,013
3,767
47,807
660,188
(367,745)
359,266
(7,142)
(176,586)
—
105,506
(1,667)
1,636
—
(86,732)
340,000
(550,000)
—
9,314
(300,578)
(18,376)
—
(519,640)
3,222
57,038
856,238
913,276
190,892
206,285
$
$
$
See Notes to Consolidated Financial Statements
41
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
Preferred
stock
Preference
stock
Common
Stock
Additional
Paid-in
Capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Total
equity
Balance at December 31, 2010
$
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Repurchase of common stock
Balance at December 31, 2011
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Balance at December 31, 2012
Net income - Pitney Bowes Inc.
Other comprehensive income
Cash dividends
Common
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
$
752
$
323,338
$
250,928
$ 4,282,316
$
(473,806) $(4,480,113) $
(96,581)
—
—
—
—
—
(93)
—
—
659
—
—
—
—
—
(11)
—
648
—
—
—
—
—
(57)
—
—
—
—
—
—
—
—
—
—
—
—
—
(27,283)
(2,009)
18,948
—
617,480
—
—
(187,839)
(299,521)
(58)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,865
2,102
—
(99,997)
323,338
240,584
4,600,217
(661,645)
(4,542,143)
—
—
—
—
—
—
—
—
—
—
—
(34,727)
(237)
18,227
445,163
—
(300,527)
(51)
—
—
—
—
(19,568)
—
—
—
—
—
—
—
—
—
41,100
248
—
323,338
223,847
4,744,802
(681,213)
(4,500,795)
—
—
—
—
—
—
—
—
—
—
—
(40,569)
(1,222)
14,921
142,835
—
(188,800)
(46)
—
—
—
—
106,657
—
—
—
—
—
—
—
—
—
42,774
1,279
—
617,480
(187,839)
(299,521)
(58)
8,582
—
18,948
(99,997)
(38,986)
445,163
(19,568)
(300,527)
(51)
6,373
—
18,227
110,631
142,835
106,657
(188,800)
(46)
2,205
—
14,921
Balance at December 31, 2013
$
4
$
591
$
323,338
$
196,977
$ 4,698,791
$
(574,556) $(4,456,742) $
188,403
See Notes to Consolidated Financial Statements
42
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of Pitney Bowes Inc. (we, us, our, or the company) and its
wholly owned subsidiaries. The Consolidated Financial Statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP). Intercompany transactions and balances have been eliminated. Certain prior year
amounts have been reclassified to conform to the current year presentation.
During the year, we sold our International Management Services business (PBMSi), North America Management Services business
(PBMS NA), Nordic furniture business and International Mailing Services business (IMS). Further, we made certain organizational
changes and realigned our business units and segment reporting to reflect the clients we serve, the solutions we offer, and how we manage,
review, analyze and measure our operations. Our historical results have been recast to present the operating results of divested businesses
as discontinued operations and our segment results have been recast to conform to our new segment reporting. The cash flows from
discontinued operations are not separately stated or classified in the accompanying Consolidated Statements of Cash Flows.
Use of Estimates
The preparation of our financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and
liabilities. These estimates and assumptions are based on management's best knowledge of current events, historical experience and other
information available when the financial statements are prepared. These estimates include, but are not limited to, revenue recognition for
multiple element arrangements, goodwill and intangible asset impairment review, allowance for doubtful accounts and credit losses,
residual values of leased assets, useful lives of long-lived and intangible assets, restructuring costs, pensions and other postretirement
costs, income tax reserves, deferred tax asset valuation allowance and loss contingencies. Actual results could differ from those estimates
and assumptions.
Cash Equivalents and Short-Term Investments
Cash equivalents include short-term, liquid investments with maturities of three months or less at the date of purchase. Short-term
investments include investments with a maturity of greater than three months but less than one year from the reporting date.
Investment Securities
Investment securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and are
carried at amortized cost. Investment securities not classified as held-to-maturity are classified as available-for-sale and recorded at fair
value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax. Purchase
premiums and discounts are recognized in interest income using the effective interest method over the terms of the securities. Gains and
losses on the sale of available-for-sale securities are recorded on the trade date and are determined using the specific identification method.
Investment securities are recorded on the Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other
assets depending on the type of investment and maturity.
Accounts Receivable and Allowance for Doubtful Accounts
We estimate our accounts receivable risks and provide an allowance for doubtful accounts accordingly. We evaluate the adequacy of the
allowance based on historical loss experience, aging of receivables, adverse situations that may affect a customer's ability to pay and
prevailing economic conditions and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual
results may differ significantly from estimated reserves. Accounts receivable are generally due within 30 days after the invoice date.
Accounts deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management
deems the account to be uncollectible. We believe that our accounts receivable credit risk is limited because of our large number of
customers, small account balances for most of our customers and customer geographic and industry diversification.
Finance Receivables and Allowance for Credit Losses
Finance receivables are composed of sales-type lease receivables and unsecured revolving loan receivables. We estimate our finance
receivable risks and provide an allowance for credit losses accordingly. We evaluate the adequacy of the allowance for credit losses based
on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a customer's ability to pay,
prevailing economic conditions and our ability to manage the collateral and make adjustments to the allowance as necessary. This
evaluation is inherently subjective and actual results may differ significantly from estimated reserves.
We establish credit approval limits based on the credit quality of the customer 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 unsecured loan receivables that are
43
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
more than 90 days past due. We resume revenue recognition when customer payments reduce the account balance aging to 60 days or
less 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 believe that our finance receivable credit risk is limited because of our large
number of customers, small account balances for most of our customers and customer geographic and industry diversification.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories
and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
Fixed Assets and Depreciation
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over
their estimated useful lives, which are up to 50 years for buildings, three to 15 years for machinery and equipment, four to six years for
rental equipment and three to five years for computer equipment. Major improvements which add to productive capacity or extend the
life of an asset are capitalized while repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized
over the shorter of the estimated useful life or the remaining lease term.
Fully depreciated assets are retained in fixed assets and accumulated depreciation until they are removed from service. In the case of
disposals, assets and related accumulated depreciation are removed from the accounts and the net amounts, less proceeds from disposal,
are included in earnings.
Software Development Costs
We capitalize certain costs of software developed for internal use. Capitalized costs include purchased materials and services, payroll
and personnel-related costs and interest costs. The cost of internally developed software is amortized on a straight-line basis over its
estimated useful life, principally three to 10 years.
Costs incurred for the development of software to be sold, leased or otherwise marketed are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until the product is available for general release to the public.
Capitalized software development costs include purchased materials and services and payroll and personnel-related costs attributable to
programmers, software engineers, quality control and field certifiers. Capitalized software development costs are amortized generally on
a straight-line basis over the product's estimated useful life, principally three to five years. Software development costs capitalized were
$4 million in both 2013 and 2012. Amortization of capitalized software development costs was $8 million, $10 million and $10 million
for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013 and 2012, capitalized software development
costs included in other assets were $5 million and $9 million, respectively.
Research and Development Costs
Research and product development costs, which primarily included personnel-related costs, are expensed as incurred. These costs include
engineering costs related to research and product development activities.
During 2013, we determined that certain research and development costs should have been classified as cost of software. Accordingly,
the Consolidated Statements of Income for the years ended December 31, 2012 and 2011 have been revised to reflect the correct
classification, resulting in a decrease in research and development expenses and a corresponding increase in cost of software of $23
million and $20 million, respectively. This revision did not impact previously reported total costs and expenses, net income or earnings
per share amounts and was not material to any of our previously issued financial statements.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities
assumed be recorded at the date of acquisition at their respective fair values. The fair value of intangible assets is estimated using a cost,
market or income approach. Goodwill represents the excess of the purchase price over the estimated fair values of net tangible and
intangible assets acquired. Finite-lived intangible assets are amortized over their estimated useful lives, principally three to 15 years,
using either the straight-line method or an accelerated attrition method. Operating results of acquired companies are included in the
consolidated financial statements from the date of acquisition.
Impairment Review for Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset and its eventual
disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an impairment
charge is recorded for an amount by which the carrying amount exceeds the fair value of the asset. The fair value of the impaired asset
44
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
is determined using probability weighted expected cash flow estimates, quoted market prices when available and appraisals, as appropriate.
We derive cash flow estimates from our long-term business plans and historical experience.
Impairment Review for Goodwill and Intangible Assets
Goodwill is tested annually for impairment during the fourth quarter or sooner when circumstances indicate an impairment may exist, at
the reporting unit level. A reporting unit is the operating segment, or a business that is one level below that operating segment. Reporting
units are aggregated as a single reporting unit if they have similar economic characteristics. Goodwill is tested for impairment using a
two-step approach. In the first step, the fair value of each reporting unit is determined and compared to the reporting unit's carrying value,
including goodwill. If the fair value of a reporting unit is less than its carrying value, the second step of the goodwill impairment test is
performed to measure the amount of impairment, if any. In the second step, the fair value of the reporting unit is allocated to the assets
and liabilities of the reporting unit as if it had been acquired in a business combination and the purchase price was equivalent to the fair
value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is
referred to as the implied fair value of goodwill. The implied fair value of the reporting unit's goodwill is then compared to the actual
carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized
for the difference. The fair value of a reporting unit is determined based on a combination of various techniques, including the present
value of future cash flows, multiples of competitors and multiples from sales of like businesses.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset and its eventual
disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an impairment
charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset.
The fair value of the asset is determined using probability weighted expected cash flow estimates, quoted market prices when available
and appraisals, as appropriate.
Retirement Plans
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized over the life expectancy of
inactive plan participants and affect future pension cost. Net periodic pension cost includes current service cost, interest cost and return
on plan assets. Net pension cost is also based on a market-related valuation of plan assets where differences between the actual and
expected return on plan assets are amortized to pension cost over a five-year period. We recognize the funded status of pension and other
postretirement benefit plans in the Consolidated Balance Sheets. Gains and losses, prior service costs and credits and any remaining
transition amounts that have not yet been recognized in net periodic benefit cost are recognized in accumulated other comprehensive
income, net of tax, until they are amortized as a component of net periodic benefit cost.
Stock-based Compensation
We measure compensation expense for stock-based awards based on the estimated fair value of the awards expected to vest (net of
estimated forfeitures) and recognize the expense on a straight-line basis over the employee requisite service period. We estimate the fair
value of stock awards using a Black-Scholes valuation model or a Monte Carlo simulation model for those awards that contain a market
condition. We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in
estimating the fair value of our stock awards. Estimates of fair value are not intended to predict actual future events or the value ultimately
realized by employees and subsequent events are not indicative of the reasonableness of the original estimates of fair value.
Revenue Recognition
We derive revenue from multiple sources including sales, rentals, financing and services. Certain transactions are consummated at the
same time and generate revenue from multiple sources. The most common form of these transactions involves the sale or non-cancelable
lease of equipment, a meter rental and an equipment maintenance agreement. In these multiple element arrangements, revenue is allocated
to each of the elements based on relative “selling prices” and the selling price for each of the elements is determined based on vendor
specific objective evidence. We establish vendor specific objective evidence of selling prices for our products and services based on the
prices charged for each element when sold separately in standalone transactions. The allocation of relative selling price to the various
elements impacts the timing of revenue recognition, but does not change the total revenue recognized. Revenue is allocated to the meter
rental and equipment maintenance agreement elements using their respective selling prices charged in standalone and renewal transactions.
For a sale transaction, revenue is allocated to the equipment based on a range of selling prices in standalone transactions. For a lease
transaction, revenue is allocated to the equipment based on the present value of the remaining minimum lease payments. The amount
allocated to equipment is compared to the range of selling prices in standalone transactions during the period to ensure the allocated
equipment amount approximates average selling prices. More specifically, revenue related to our offerings is recognized as follows:
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Sales Revenue
Sales of Equipment
We sell equipment directly to our customers and to distributors (re-sellers) throughout the world. We recognize revenue from these sales
when the risks and rewards of ownership transfer to the customer, which is generally upon shipment or acceptance by the customer. We
recognize revenue from the sale of equipment under sales-type leases as equipment revenue at the inception of the lease. We do not
typically offer any rights of return or stock balancing rights. Sales revenue from customized equipment, mail creation equipment and
shipping products is generally recognized when installed.
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is generally upon delivery.
Standalone Software Sales and Integration Services
We recognize revenue from standalone software licenses upon delivery of the product when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed and determinable and collectability is probable. For software licenses that are included in a lease
contract, we recognize revenue upon shipment of the software unless the lease contract specifies that the license expires at the end of the
lease or the price of the software is deemed not fixed or determinable based on historical evidence of similar software leases. In these
instances, revenue is recognized on a straight-line basis over the term of the lease contract. We recognize revenue from software requiring
integration services at the point of customer acceptance. We recognize revenue related to off-the-shelf perpetual software licenses upon
transfer of title, which is generally upon shipment.
Rentals Revenue
We rent equipment, primarily postage meters and mailing equipment, under short-term rental agreements. Rental revenue includes revenue
from the subscription for digital meter services. We may invoice in advance for postage meter rentals according to the terms of the
agreement. We initially defer these advanced billings and recognize rental revenue on a straight-line basis over the invoice period.
Revenues generated from financing customers for the continued use of equipment subsequent to the expiration of the original lease term
are classified within rentals revenue.
We defer certain initial direct costs incurred in consummating a transaction and recognize these costs over the expected term of the
agreement. Initial direct costs amortized in 2013, 2012 and 2011 were $11 million, $13 million and $19 million, respectively. Initial direct
costs deferred at December 31, 2013 and 2012 were $26 million. These costs are included in rental property and equipment, net on our
Consolidated Balance Sheets.
During the year, we determined that certain revenue previously reported as rentals revenue included a service component and should
have been classified as support services revenue. Accordingly, the Consolidated Statements of Income for the years ended December 31,
2012 and 2011 have been revised to reflect the correct classification, resulting in a decrease in rentals revenue and corresponding increase
in support services revenue of $19 million and $21 million, respectively. This revision did not impact previously reported revenue, net
income or earnings per share amounts and was not material to any of our previously issued financial statements.
Financing Revenue
We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit to our customers
for the purchase of postage and related supplies. We believe that our sales-type lease portfolio contains only normal collection risk.
Accordingly, we record the fair value of equipment as sales revenue, the cost of equipment as cost of sales and the minimum lease
payments plus the estimated residual value as finance receivables. The difference between the finance receivable and the equipment fair
value is recorded as unearned income and is amortized as income over the lease term using the interest method.
Equipment residual values are determined at inception of the lease using estimates of equipment fair value at the end of the lease term.
Estimates of future equipment fair value are based primarily on our historical experience. We also consider forecasted supply and demand
for our various products, product retirement and future product launch plans, end of lease customer behavior, regulatory changes,
remanufacturing strategies, used equipment markets, if any, competition and technological changes. We evaluate residual values on an
annual basis or as changes to the above considerations occur.
Support Services Revenue
We provide support services for our equipment primarily through maintenance contracts. Revenue related to these agreements is recognized
on a straight-line basis over the term of the agreement.
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Business Services Revenue
Business services revenue includes revenue from mail services and marketing services. Mail services include the preparation, sortation
and aggregation of mail to earn postal discounts and expedite delivery and e-commerce solutions for cross border transactions. Marketing
services include direct mail marketing services. Revenue for these services is recognized as the services are provided.
Shipping and Handling
Shipping and handling costs are recognized as incurred and recorded in cost of revenues.
Product Warranties
We provide product warranties in conjunction with the sale of certain products, generally for a period of 90 days from the date of
installation. We estimate our liability for product warranties based on historical claims experience and other currently available evidence.
Our product warranty liability at December 31, 2013 and 2012 was not material.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, internet and retail marketing costs associated with the acquisition of new customers and
recognize these costs over the expected revenue stream ranging from five to nine years. Deferred marketing costs expensed in 2013, 2012
and 2011 were $27 million, $30 million and $34 million, respectively. Deferred marketing costs included in other assets in the Consolidated
Balance Sheets were $59 million and $73 million at December 31, 2013 and 2012, respectively. We review individual marketing programs
for impairment on a quarterly basis or as circumstances warrant.
Restructuring Charges
Costs associated with exit or disposal activities, including lease termination costs and employee severance costs associated with
restructuring, are recognized when they are incurred. The cost and related liability for one-time benefit arrangements is recognized when
they are both probable and reasonably estimable.
Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in interest rates and foreign currency exchange rates. We limit
these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative
instruments to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results. Derivative
instruments typically consist of interest-rate swaps, forward contracts and currency swaps depending upon the underlying exposure. We
do not use derivatives for trading or speculative purposes.
We record our derivative instruments at fair value and the accounting for changes in fair value depends on the intended use of the derivative,
the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge. To qualify as a
hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship must be formally
documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness of the hedge
relationship is evaluated on a retrospective and prospective basis.
The use of derivative instruments exposes us to counterparty credit risk. To mitigate such risks, we enter into contracts with only those
financial institutions that meet stringent credit requirements. We regularly review our credit exposure balances as well as the
creditworthiness of our counterparties. We have not seen a material change in the creditworthiness of those banks acting as derivative
counterparties.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts
of assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that a deferred
tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during
the period in which related temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date of such change.
Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the year. Diluted earnings per
share also includes the dilutive effect of outstanding stock options, market stock units, restricted stock, preference stock, preferred stock
and stock purchase plans.
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Translation of Non-U.S. Currency Amounts
In general, the functional currency of our foreign operations is the local currency. Assets and liabilities of subsidiaries operating outside
the U.S. are translated at rates in effect at the end of the period and revenue and expenses are translated at average monthly rates during
the period. Net deferred translation gains and losses are included as a component of accumulated other comprehensive income.
Loss Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a
quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any
claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment
of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant
judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As
additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results
of operations and financial position. Legal fees are expensed as incurred.
New Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-01, Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities (ASU 2013-01). ASU 2013-01 requires an entity to disclose gross and net information
about transactions that are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar
agreement, regardless of whether the transactions are actually offset in the statement of financial position. The disclosure requirements
are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The
amounts impacting our disclosure were immaterial at December 31, 2013 and 2012.
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires an entity to present either
parenthetically on the face of the financial statements, or in the notes, significant amounts reclassified from each component of accumulated
other comprehensive income and the income statement line items affected by the reclassification. The new standard is effective for annual
reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this standard
resulted in additional disclosures, but did not impact our financial condition, results of operations or cash flows.
In March 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-05, Foreign Currency Matters
(ASU 2013-05). ASU 2013-05 resolves diversity in practice regarding the release into net income of the cumulative translation adjustment
upon derecognition of a subsidiary or a group of assets within a foreign entity. The new guidance is effective for fiscal years beginning
January 1, 2014. We do not expect the application of this new guidance will have a material impact on our financial condition or results
of operations.
In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740) -
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists (ASU 2013-11).
ASU 2013-11 provides explicit guidance regarding the presentation in the statement of financial position of an unrecognized tax benefit
when a net operating loss carryforward or a tax credit carryfoward exists. The new guidance is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2013. We do not expect the application of this new guidance will have a material
impact on our financial position.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2. Inventories
Raw materials and work in process
Supplies and service parts
Finished products
Inventory at FIFO cost
Excess of FIFO cost over LIFO cost
Total inventory, net
3. Fixed Assets
Land
Buildings
Machinery and equipment
Accumulated depreciation
Property, plant and equipment, net
Rental property and equipment
Accumulated depreciation
Rental property and equipment, net
December 31,
2013
2012
$
$
33,920
48,165
38,515
120,600
(17,020)
103,580
$
$
66,221
72,551
68,335
207,107
(27,429)
179,678
December 31,
2013
$
6,797
$
176,200
918,075
1,101,072
(855,901)
245,171
537,128
(310,982)
226,146
$
$
$
$
$
$
2012
22,064
349,061
1,299,475
1,670,600
(1,285,223)
385,377
580,243
(339,051)
241,192
Depreciation expense was $158 million, $177 million and $195 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
During 2013, we entered into an agreement to sell our corporate headquarters building and certain surrounding parcels of land. We
recorded a non-cash impairment charge of $26 million to write-down the carrying value of the building to its fair value. The fair value
of the building was determined based on the estimated selling price less the costs to sell. The inputs used to determine the fair value were
classified as Level 3. The impairment charge was included as restructuring charges and asset impairments in the Consolidated Statements
of Income. We expect to close on the sale by mid-2014. At December 31, 2013, the carrying value of our corporate headquarters building
and surrounding land were classified as assets held for sale in the Consolidated Balance Sheets.
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
4. Finance Assets
Finance Receivables
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 customers for postage and related supplies. Loan receivables are
generally due each month; however, customers may rollover outstanding balances.
Finance receivables at December 31, 2013 and 2012 consisted of the following:
December 31, 2013
December 31, 2012
North
America
International
Total
North
America
International
Total
Sales-type lease receivables
Gross finance receivables
Unguaranteed residual values
Unearned income
Allowance for credit losses
Net investment in sales-type lease receivables
Loan receivables
Loan receivables
Allowance for credit losses
Net investment in loan receivables
$1,456,420
$ 456,759
$1,913,179
$1,581,711
$ 461,510
$2,043,221
121,339
(299,396)
(14,165)
1,264,198
21,553
(101,311)
(9,703)
367,298
142,892
(400,707)
(23,868)
1,631,496
148,664
(316,030)
(16,979)
1,397,366
21,025
(104,258)
(8,662)
369,615
169,689
(420,288)
(25,641)
1,766,981
397,815
(11,165)
386,650
49,054
(1,916)
47,138
446,869
(13,081)
433,788
414,960
(12,322)
402,638
47,293
(2,131)
45,162
462,253
(14,453)
447,800
Net investment in finance receivables
$1,650,848
$ 414,436
$2,065,284
$1,800,004
$ 414,777
$2,214,781
Loan receivables are due in less than one year. Maturities of gross sales-type lease finance receivables at December 31, 2013 were
as follows:
2014
2015
2016
2017
2018
Thereafter
Total
Sales-type Lease Receivables
North America
653,699
$
407,850
243,598
113,614
31,406
6,253
1,456,420
$
International
Total
$
163,361
$
135,496
88,134
49,026
18,806
1,936
456,759
$
$
817,060
543,346
331,732
162,640
50,212
8,189
1,913,179
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Allowance for Credit Losses
Activity in the allowance for credit losses for finance receivables for the years ended December 31, 2013, 2012 and 2011 was as
follows:
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
Balance at December 31, 2010
$
Amounts charged to expense
Accounts written off
Balance at December 31, 2011
Amounts charged to expense
Accounts written off
Balance at December 31, 2012
Amounts charged to expense
Accounts written off
27,792
13,726
(12,857)
28,661
2,276
(13,958)
16,979
4,584
(7,398)
Balance at December 31, 2013
$
14,165
$
$
13,318
$
26,208
$
2,112
$
5,087
(6,366)
12,039
994
(4,371)
8,662
4,553
(3,512)
9,703
$
7,631
(13,567)
20,272
3,278
(11,228)
12,322
9,663
(10,820)
11,165
$
1,610
(1,264)
2,458
903
(1,230)
2,131
1,254
(1,469)
1,916
$
69,430
28,054
(34,054)
63,430
7,451
(30,787)
40,094
20,054
(23,199)
36,949
Aging of Receivables
The aging of finance receivables at December 31, 2013 and 2012 was as follows:
December 31, 2013
< 31 days
> 30 days and < 61 days
> 60 days and < 91 days
> 90 days and < 121 days
> 120 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
$
1,383,253
$
425,923
$
379,502
$
42,573
$
2,231,251
32,102
20,830
6,413
13,822
1,456,420
6,413
13,822
20,235
$
$
$
$
$
$
11,760
5,724
3,979
9,373
456,759
3,979
9,373
13,352
$
$
$
10,464
3,330
1,809
2,710
4,391
1,363
311
416
58,717
31,247
12,512
26,321
397,815
$
49,054
$
2,360,048
— $
4,519
4,519
$
— $
727
727
$
10,392
28,441
38,833
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
$
1,497,797
$
435,780
$
392,108
$
45,324
$
2,371,009
37,348
24,059
6,665
15,842
1,581,711
6,665
15,842
22,507
$
$
$
$
$
$
9,994
5,198
3,327
7,211
461,510
3,327
7,211
10,538
$
$
$
12,666
4,577
2,319
3,290
1,368
285
179
137
61,376
34,119
12,490
26,480
414,960
$
47,293
$
2,505,474
— $
5,609
5,609
$
— $
316
316
$
9,992
28,978
38,970
December 31, 2012
< 31 days
> 30 days and < 61 days
> 60 days and < 91 days
> 90 days and < 121 days
> 120 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score,
where available, and a detailed manual review of the client's financial condition and, when applicable, payment history. Once credit
is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct
follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes.
The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and
enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do
not use a third party to score our International portfolio because the cost to do so is prohibitive, it is a localized process and there is
no single credit score model that covers all countries.
The table below shows the North America portfolio at December 31, 2013 and 2012 by relative risk class (low, medium, high) based
on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including
the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not
scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party, refers
to the relative risk that an account in the next 12 month period may become delinquent.
• Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial
borrowers.
• Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of
all commercial borrowers.
• High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered
to approximate the bottom 30% of all commercial borrowers.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
December 31,
2013
2012
$
1,081,853
$
1,016,413
244,379
51,851
78,337
450,432
43,658
71,208
$
1,456,420
$
1,581,711
$
279,607
$
95,524
11,511
11,173
254,567
136,069
14,624
9,700
$
397,815
$
414,960
Sales-type lease receivables
Risk Level
Low
Medium
High
Not Scored
Total
Loan receivables
Risk Level
Low
Medium
High
Not Scored
Total
Troubled Debt
We maintain a program for U.S. clients in our North America loan portfolio who are experiencing financial difficulties, but are able
to make reduced payments over an extended period of time. Upon acceptance into the program, the client’s credit line is closed and
interest accrual is suspended. There is generally no forgiveness of debt or reduction of balances owed. The balance of loans in this
program, related loan loss allowance and write-offs are insignificant to the overall portfolio.
Leveraged Leases
Our investment in leveraged lease assets consisted of the following:
Rental receivables
Unguaranteed residual values
Principal and interest on non-recourse loans
Unearned income
Investment in leveraged leases
Less: deferred taxes related to leveraged leases
Net investment in leveraged leases
December 31,
2013
2012
$
61,721
$
13,235
(35,449)
(5,097)
34,410
(15,078)
19,332
$
$
83,254
14,177
(55,092)
(7,793)
34,546
(19,372)
15,174
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
5. Intangible Assets and Goodwill
Intangible assets
Intangible assets at December 31, 2013 and 2012 consisted of the following:
December 31, 2013
December 31, 2012
Customer relationships
Supplier relationships
Software & technology
Trademarks & trade names
Non-compete agreements
Gross
Carrying
Amount
$
354,373
29,000
167,009
35,366
7,407
Total intangible assets
$
593,155
$
Accumulated
Amortization
$
(251,388) $
(25,013)
(155,009)
(33,985)
(7,373)
(472,768) $
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
102,985
$
407,901
$
3,987
12,000
1,381
34
29,000
169,632
35,078
7,471
120,387
$
649,082
$
(269,100) $
(22,113)
(151,628)
(32,615)
(7,412)
(482,868) $
138,801
6,887
18,004
2,463
59
166,214
Amortization expense for intangible assets was $37 million, $41 million and $49 million for the years ended December 31, 2013, 2012
and 2011, respectively. The future amortization expense for intangible assets as of December 31, 2013 was as follows:
Year ended December 31,
2014
2015
2016
2017
2018
Thereafter
Total
$
34,437
30,439
23,037
11,374
10,547
10,553
$
120,387
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange
rates, impairments, future acquisitions and accelerated amortization.
54
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Goodwill
The changes in the carrying amount of goodwill, by reporting segment, for the years ended December 31, 2013 and 2012 are shown in
the tables below. Prior year amounts have been recast for the change in reporting segments.
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2012
Impairment
Other (1)
December 31,
2013
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total reportable segments
Discontinued operations
Total goodwill
$
355,874
$
— $
355,874
$
— $
182,746
538,620
120,881
195,140
316,021
876,436
—
—
—
—
—
—
182,746
538,620
120,881
195,140
316,021
876,436
—
—
—
—
—
—
$
4,054
(485)
3,569
(2,821)
—
(2,821)
359,928
182,261
542,189
118,060
195,140
313,200
3,046
879,482
1,731,077
553,526
$
2,284,603
— 1,731,077
(148,465)
405,061
$ (148,465) $ 2,136,138
$
—
(101,415)
(101,415) $ (299,852) $
3,794
(303,646)
1,734,871
—
1,734,871
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2011
Impairment
Other (1)
December 31,
2012
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total reportable segments
Discontinued operations
Total goodwill
$
352,897
$
— $
352,897
$
— $
187,904
540,801
117,351
195,140
312,491
871,596
—
—
—
—
—
—
187,904
540,801
117,351
195,140
312,491
871,596
—
—
—
—
—
—
$
2,977
(5,158)
(2,181)
3,530
—
3,530
355,874
182,746
538,620
120,881
195,140
316,021
4,840
876,436
1,724,888
552,350
2,277,238
— 1,724,888
422,200
$ (130,150) $ 2,147,088
(130,150)
$
$
—
(18,315)
(18,315) $
6,189
1,176
7,365
$
1,731,077
405,061
2,136,138
(1) Primarily represents foreign currency translation adjustments for the period. For discontinued operations in 2013, the adjustment primarily represents the write-off
of remaining goodwill upon the sale of the Management Services business.
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
Accounts payable
Customer deposits
Employee related liabilities
Miscellaneous other
Accounts payable and accrued liabilities
7. Debt
Term loans
3.875% notes due 2013
4.875% notes due 2014 (1)
5.00% notes due 2015 (1)
4.75% notes due 2016 (1)
5.75% notes due 2017
5.60% notes due Mar 2018
4.75% notes due May 2018
6.25% notes due 2019
5.25% notes due 2022 (2)
5.25% notes due 2037 (3)
6.70% notes due 2043 (4)
Other (5)
Total debt
Current portion long-term debt
Long-term debt
$
December 31,
$
2013
270,067
672,440
332,072
370,003
2012
362,938
698,770
356,188
391,330
$
1,644,582
$
1,809,226
December 31,
2013
230,000
$
$
—
—
274,879
370,914
500,000
250,000
350,000
300,000
110,000
500,000
425,000
35,502
2012
230,000
375,000
450,000
400,000
500,000
500,000
250,000
350,000
300,000
110,000
500,000
—
52,375
3,346,295
—
4,017,375
375,000
$
3,346,295
$
3,642,375
Term loans bear interest at the applicable London Interbank Offered Rate (LIBOR) plus 2.25% or Prime Rate plus 1.25%, at our option.
Interest is payable and resets quarterly and the loans mature in 2015 and 2016.
(1) During the first quarter 2013, we completed a cash tender offer (the Tender Offer) for a portion of our 4.875% Notes due 2014 (2014
Notes), our 5.0% Notes due 2015, and our 4.75% Notes due 2016 (the Subject Notes). Holders who validly tendered their notes
received the principal amount of the notes tendered, all accrued and unpaid interest and a premium amount. An aggregate $405
million of the Subject Notes were tendered. Subsequently, in the fourth quarter of 2013, we redeemed the remaining outstanding
2014 Notes that were scheduled to mature August 2014 through the exercise of a make-whole provision. In connection with the
Tender Offer and the early redemption of the 2014 Notes, we recognized an aggregate net loss of $33 million.
At December 31, 2012, we had interest rate swap agreements with an aggregate notional value of $450 million that effectively
converted the fixed rate interest payments on the 2014 Notes into variable interest rates. In connection with the Tender Offer, we
unwound a portion of these interest rate swap agreements, and in connection with redemption of the remaining outstanding notes in
the fourth quarter of 2013, we unwound the remaining interest rate swap agreements. At December 31, 2013, we had no interest rate
swaps outstanding.
(2) These notes may be redeemed, at our option, in whole or in part, at any time on or after November 27, 2015 at par plus accrued
interest.
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
(3) These notes may be redeemed by bondholders, in whole or in part, at par plus accrued interest, in January 2017.
(4) During the first quarter of 2013, we issued $425 million of 6.7% fixed rate notes. Interest is payable quarterly. The notes mature in
2043, but may be redeemed, at our option, in whole or in part, at any time on or after March 7, 2018 at par plus accrued and unpaid
interest. We used the net proceeds from the notes to fund the Tender Offer.
(5) Other consists of the unamortized net proceeds received from unwinding of interest rate swaps, debt discounts and premiums and
the mark-to-market adjustment of interest rate swaps, if applicable.
There were no outstanding commercial paper borrowings at December 31, 2013 or 2012. As of December 31, 2013, we had not drawn
upon our $1.0 billion credit facility. The credit facility expires in April 2016.
Annual maturities of outstanding debt at December 31, 2013 are as follows:
2014
2015
2016
2017
2018
Thereafter
Total
$
$
—
324,879
550,914
500,000
600,000
1,335,000
3,310,793
57
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
8. Income Taxes
Income from continuing operations before taxes consisted of the following:
U.S.
International
Total
Years Ended December 31,
2013
288,660
114,517
403,177
$
$
2012
2011
$
$
387,987
146,325
534,312
$
$
384,602
106,884
491,486
The provision for income taxes from continuing operations consisted of the following:
U.S. Federal:
Current
Deferred
U.S. State and Local:
Current
Deferred
International:
Current
Deferred
Total current
Total deferred
Years Ended December 31,
2013
2012
2011
$
78,315
$
151,984
$
(93,791)
(19,754)
58,561
16,136
168,120
135,305
41,514
27,385
(15,546)
11,839
67,566
(85,401)
(17,835)
(2,604)
(26,273)
(28,877)
63,871
(82,862)
(18,991)
213,251
(92,999)
120,252
$
1,160
34,358
35,518
5,359
(8,026)
(2,667)
33,165
(5,990)
27,175
116,839
(33,770)
Total provision for income taxes
$
83,069
$
Effective tax rate
20.6%
22.5%
7.2%
The effective tax rate for 2013 includes tax benefits of $13 million from an affiliate reorganization, $17 million from tax planning
initiatives, $5 million from the adjustment of non-U.S. tax accounts from prior periods and $4 million from the retroactive effect of 2013
U.S. tax legislation.
The effective tax rate for 2012 includes tax benefits of $32 million from the sale of non-U.S. leveraged lease assets and $47 million from
the resolution of U.S. tax examinations and tax accruals of $43 million for the repatriation of additional non-U.S. earnings that arose as
a result of one-time events including the sale of leveraged lease assets and Canadian tax law changes.
The effective tax rate for 2011 includes tax benefits of $90 million from the IRS tax settlements and $34 million from the sale of non-
U.S. leveraged lease assets.
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The items accounting for the difference between income taxes computed at the federal statutory rate and our provision for income taxes
consist of the following:
Federal statutory provision
State and local income taxes
Impact of non-U.S. leveraged lease asset sales
Other impact of foreign operations
Tax exempt income/reimbursement
Federal income tax credits/incentives
Unrealized stock compensation benefits
Resolution of U.S. tax examinations
Outside basis differences
Other, net
Provision for income taxes
Years Ended December 31,
$
$
2013
141,118
(1,733)
—
(29,865)
(1,672)
(10,282)
2,292
(3,853)
(13,214)
278
$
83,069
$
2012
2011
187,009
(2,071)
(30,367)
21,100
(1,992)
(8,918)
3,456
(47,380)
—
(585)
120,252
$
172,020
12,079
(31,423)
(13,337)
(2,674)
(10,741)
3,538
(94,225)
—
281
$
35,518
Other impacts of foreign operations include income of foreign affiliates taxed at rates other than the 35% U.S. statutory rate, the accrual
or release of tax uncertainty amounts related to foreign operations, the tax impacts of foreign earnings repatriation and the U.S. foreign
tax credit impacts of other foreign income taxed in the U.S.
Deferred tax liabilities and assets consisted of the following:
Deferred tax liabilities:
Depreciation
Deferred profit (for tax purposes) on sale to finance subsidiary
Lease revenue and related depreciation
Amortizable intangibles
Other
Deferred tax liabilities
Deferred tax assets:
Nonpension postretirement benefits
Pension
Inventory and equipment capitalization
Restructuring charges
Long-term incentives
Net operating loss
Tax credit carry forwards
Tax uncertainties gross-up
Other
Valuation allowance
Deferred tax assets
December 31,
2013
2012
$
(54,023)
(142,114)
(249,998)
(79,852)
(73,077)
(599,064)
99,628
43,301
22,824
26,837
28,880
143,839
48,617
35,298
147,709
(122,780)
474,153
$
(65,205)
(157,279)
(306,612)
(104,156)
(35,157)
(668,409)
119,002
117,509
26,778
20,793
35,056
152,617
41,518
28,492
89,406
(142,176)
488,995
Total deferred taxes, net
$
(124,911)
$
(179,414)
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The above amounts are classified as current or long-term in the Consolidated Balance Sheets in accordance with the asset or liability to
which they related or based on the expected timing of the reversal. A valuation allowance was recognized to reduce the total deferred tax
assets to an amount that will more-likely-than-not be realized. The valuation allowance relates primarily to certain foreign, state and local
net operating loss and tax credit carryforwards that are more likely than not to expire unutilized.
We have net operating loss carry forwards of $292 million as of December 31, 2013, of which, $260 million can be carried forward
indefinitely and the remainder expire over the next 15 years In addition, we have tax credit carry forwards of $49 million that expire over
the next 15 years.
As of December 31, 2013 we have not provided for income taxes on $700 million of cumulative undistributed earnings of subsidiaries
outside the U.S. as these earnings will be either indefinitely reinvested or remitted substantially free of additional tax; however, we
estimate that withholding taxes on such remittances would be $3 million. Determination of the liability that would be incurred if these
earnings were remitted to the U.S. is not practicable as there is a significant amount of uncertainty with respect to determining the amount
of foreign tax credits and other indirect tax consequences that may arise from the distribution of these earnings.
Uncertain Tax Positions
A reconciliation of the amount of unrecognized tax benefits is as follows:
Balance at beginning of year
Increases from prior period positions
Decreases from prior period positions
Increases from current period positions
Decreases relating to settlements with tax authorities
Reductions from lapse of applicable statute of limitations
Balance at end of year
2013
146,905
15,777
(6,908)
23,549
(482)
(10,440)
168,401
$
$
2012
2011
$
198,635
$
531,790
11,811
(17,985)
28,255
(1,948)
(71,863)
146,905
67,065
(140,107)
28,686
(18,204)
(270,595)
$
198,635
$
The amount of the unrecognized tax benefits at December 31, 2013, 2012 and 2011 that would affect the effective tax rate if recognized
was $144 million, $123 million and $160 million, respectively.
On a regular basis, we conclude tax return examinations, statutes of limitations expire, and court decisions interpret tax law. We regularly
assess tax uncertainties in light of these developments. As a result, it is reasonably possible that the amount of our unrecognized tax
benefits will decrease in the next 12 months, and we expect this change could be up to 20% of our unrecognized tax benefits. We recognize
interest and penalties related to uncertain tax positions in our provision for income taxes or discontinued operations as appropriate. During
the years ended December 31, 2013, 2012 and 2011, we recorded interest and penalties of $27 million, $(28) million and $(83) million,
respectively. We had $37 million and $11 million accrued for the payment of interest and penalties at December 31, 2013 and 2012,
respectively.
Other Tax Matters
As is the case with other large corporations, our tax returns are examined each year by tax authorities in the U.S., other countries and
local jurisdictions in which we have operations. Except for issues arising out of certain partnership investments, the IRS examinations
of tax years prior to 2009 are closed to audit. Other than the pending application of legal principles to specific issues arising in earlier
years, only post-2007 Canadian tax years are subject to examination. Other significant tax filings subject to examination include various
post-2004 U.S. state and local, post-2007 German, and post-2011 French and U.K. tax filings. We have other less significant tax filings
currently under examination or subject to examination.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. We believe we have established tax reserves that are appropriate given the possibility of tax
adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax
law and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative,
on our results of operations, financial position and cash flows.
On August 27, 2012, the United States Court of Appeals for the Third Circuit overturned a prior Tax Court decision and ruled in favor
of the IRS and adverse to the Historic Boardwalk Hall LLC, a partnership in which we had made an investment in the year 2000. In
January 2014, the Tax Court entered an order to implement the rulings of the Third Circuit. Under the terms of the partnership agreement,
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
we are indemnified against any payments we may be required to make. However, the potential for a difference in the timing of payments
which may be due to taxing authorities and the timing of receipts due to us under the partnership agreement may cause fluctuations in
our cash flows in future periods. Further, if we do not recover under the indemnification provisions of the partnership agreement, the
amount of tax and interest due as a result of this matter could be as much as $100 million.
9. Noncontrolling Interests (Preferred Stockholders’ Equity in Subsidiaries)
Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary, has 300,000 shares, or $300 million, of outstanding perpetual voting
preferred stock (the Preferred Stock) held by certain institutional investors. The holders of the Preferred Stock are entitled as a group to
25% of the combined voting power of all classes of capital stock of PBIH. All outstanding common stock of PBIH, representing the
remaining 75% of the combined voting power of all classes of capital stock, is owned directly or indirectly by the company. The Preferred
Stock is entitled to cumulative dividends at a rate of 6.125% through 2016 after which it becomes callable and, if it remains outstanding,
will yield a dividend that increases by 50% every six months thereafter. No dividends were in arrears at December 31, 2013 or December 31,
2012. There was no change in the carrying value of noncontrolling interests during the years ended December 31, 2013 or 2012.
10. Stockholders' Equity
Preferred Stock
We have two classes of Preferred Stock issued and outstanding: the 4% Preferred Stock (the Preferred Stock) and the $2.12 Preference
Stock (the Preference Stock). The Preferred Stock is entitled to cumulative dividends of $2 per year and can be converted into 24.24
shares of common stock, subject to adjustment in certain events. The Preferred Stock is redeemable at our option at a price of $50 per
share, plus dividends accrued through the redemption date. We are authorized to issue 600,000 shares of Preferred Stock. At December 31,
2013 and 2012, there were 74 shares and 85 shares outstanding, respectively. There are no unpaid dividends in arrears.
The Preference Stock is entitled to cumulative dividends of $2.12 per year and can be converted into 16.53 shares of common stock,
subject to adjustment in certain events. The Preference Stock is redeemable at our option at a price of $28 per share. We are authorized
to issue 5,000,000 shares of Preference Stock. At December 31, 2013 and 2012, there were 21,838 shares and 23,928 shares outstanding,
respectively. There are no unpaid dividends in arrears.
Common Stock
We have 480,000,000 shares of common stock authorized and 323,337,912 shares were issued at December 31, 2013 and 2012. At
December 31, 2013, 39,810,385 shares were reserved for issuance under our stock plans, dividend reinvestment program and for the
conversion of the Preferred Stock and Preference Stock. The following table summarizes the changes in Common Stock and Treasury
Stock:
Balance at December 31, 2010
Repurchases of common stock
Issuance of common stock
Conversions to common stock
Balance at December 31, 2011
Issuance of common stock
Conversions to common stock
Balance at December 31, 2012
Issuance of common stock
Conversions to common stock
Balance at December 31, 2013
Treasury
119,906,910
4,692,200
(963,448)
(48,820)
123,586,842
(1,118,089)
(14,888)
122,453,865
(1,163,668)
(34,807)
121,255,390
Common Stock
203,431,002
(4,692,200)
963,448
48,820
199,751,070
1,118,089
14,888
200,884,047
1,163,668
34,807
202,082,522
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
11. Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2013, 2012 and 2011 was as follows:
Amount Reclassified from AOCI (a)
Years Ended December 31,
2013
2012
2011
Gains (losses) on cash flow hedges
Revenue
Cost of sales
Interest expense
Total before tax
Tax benefit
Net of tax
Unrealized gains (losses) on available for sale securities
Interest income
Tax benefit (provision)
Net of tax
Pension and Postretirement Benefit Plans (b)
Transition credit
Prior service (costs) credit
Actuarial losses
Total before tax
Tax benefit
Net of tax
$
$
$
$
$
$
(835)
332
(2,028)
(2,531)
987
(1,544)
(1,140)
422
(718)
9
(620)
(54,372)
(54,983)
19,228
(35,755)
$
$
$
$
$
$
1,298
(185)
(2,028)
(915)
358
(557)
1,768
(654)
1,114
$
$
$
$
10
$
809
(75,274)
(74,455)
21,876
(52,579)
(166)
(719)
(2,028)
(2,913)
1,135
(1,778)
168
(62)
106
10
2,187
(56,323)
(54,126)
19,652
$
(34,474)
(a) Amounts in parentheses indicate debits (reductions) to income.
(b) These items are included in the computation of net periodic costs of defined benefit pension plans and nonpension postretirement benefit plans (see Note 18 for
additional details).
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Changes in accumulated other comprehensive loss for the years ended December 31, 2013, 2012 and 2011 were as follows:
Unrealized gains
(losses) on
available for sale
securities
Defined benefit
pension plans and
nonpension
postretirement
benefit plans
Gains (losses) on
cash flow hedges
$
(10,445) $
1,439
$
3,054
(106)
2,948
4,387
1,240
(1,114)
126
4,513
(7,000)
Foreign
currency items
137,521
Total
(473,806)
$
(602,321) $
(173,699)
(53,569)
(223,985)
34,474
(139,225)
(741,546)
—
(53,569)
83,952
36,146
(187,839)
(661,645)
(70,232)
(2,702)
(71,590)
52,579
(17,653)
(759,199)
—
(2,702)
81,250
52,022
(19,568)
(681,213)
122,023
(39,489)
75,387
229
1,778
2,007
(8,438)
104
557
661
(7,777)
(147)
Balance January 1, 2011
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (a), (b)
Net other comprehensive income (loss)
Balance at December 31, 2011
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (a), (b)
Net other comprehensive income (loss)
Balance at December 31, 2012
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (a), (b), (c)
Net other comprehensive income (loss)
Balance at December 31, 2013
$
1,544
1,397
(6,380) $
718
(6,282)
(1,769) $
35,755
157,778
(601,421) $
(6,747)
(46,236)
35,014
31,270
106,657
$
(574,556)
(a) Amounts are net of tax. Amounts in parentheses indicate debits to AOCI.
(b) See table above for additional details of these reclassifications.
(c) Foreign currency item amount represents the recognition of deferred translation upon the sale of the U.K. IMS business and PBMSi. Amount was reclassified from
accumulated other comprehensive loss and recorded as discontinued operations in the Consolidated Statements of Income.
12. Stock-Based Compensation
The following table shows stock-based compensation expense included in the Consolidated Statements of Income:
Cost of equipment sales
Cost of support services
Cost of business services
Selling, general and administrative
Research and development
Discontinued operations (1)
Stock-based compensation expense
Tax benefit
Stock-based compensation expense, net of tax
Years Ended December 31,
2013
2012
2011
$
886
$
1,212
$
382
527
11,099
435
1,592
14,921
(5,759)
9,162
$
522
721
15,176
596
—
18,227
(6,061)
12,166
$
$
1,292
557
770
15,689
640
—
18,948
(6,170)
12,778
(1) Amount represents the expense related to the immediate vesting of RSUs and stock options held by employees of PBMS upon the
sale of the business.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Stock Plans
We have a long-term incentive program whereby eligible employees may be granted restricted stock units, non-qualified stock options,
other stock-based awards, cash or any combination thereof. The Executive Compensation Committee of the Board of Directors administers
these plans. We settle employee stock compensation awards with treasury shares. At December 31, 2013, there were 19,180,600 shares
available for future grants under our long-term incentive program.
Restricted Stock Units
Restricted stock units are granted to employees and entitle the holder to shares of common stock as the units vest, typically over a four
year service period. The fair value of the units is determined on the grant date based on the stock price on the grant date less the present
value of expected dividends. The following table summarizes information about restricted stock units during 2013 and 2012:
Restricted stock units outstanding at beginning of the year
Granted
Vested
Forfeited
Restricted stock units outstanding at end of the year
2013
2012
Shares
1,909,160
1,365,798
(1,049,572)
(284,074)
1,941,312
Weighted
average grant
date fair value
17.68
$
10.37
17.52
13.33
13.19
$
Shares
Weighted
average grant
date fair value
1,629,055
$
999,381
(598,543)
(120,733)
1,909,160
$
22.33
14.72
22.27
18.75
17.68
At December 31, 2013, there was $12 million of unrecognized compensation cost related to restricted stock units that is expected to be
recognized over a weighted-average period of 2.2 years. The intrinsic value of restricted stock units outstanding at December 31, 2013
was $45 million. The intrinsic value of restricted stock units vested during 2013, 2012 and 2011 was $15 million, $11 million and $13
million, respectively. The fair value of restricted stock units vested during 2013, 2012 and 2011 was $18 million, $13 million and $15
million, respectively.
Market Stock Units
Each market stock unit award entitles the holder to receive a number of shares, adjusted for the attainment of certain performance and
market conditions. The award vests at the end of a three-year performance period and the actual number of shares the recipient receives
may range from 50% to 200% of the shares awarded. The expense for these awards, net of estimated forfeitures, is recorded over the
performance period based on the fair value of the award, which was determined on the grant date using a Monte Carlo simulation model.
There were no market stock units awarded during 2013.
The following table summarizes information about market stock units during 2013 and 2012:
2013
2012
Market stock units outstanding at beginning of the year
Granted
Forfeited
Market stock units outstanding at the end of the year
Shares
198,145
—
(9,718)
188,427
Weighted
average grant
date fair value
17.91
$
—
17.91
17.91
$
The fair value of market stock units granted in 2012 was determined based on the following assumptions:
Shares
— $
205,013
(6,868)
198,145
Weighted
average grant
date fair value
—
17.91
17.91
17.91
$
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
6.7%
29.7%
0.4%
At December 31, 2013, there was less than $1 million of unrecognized compensation cost related to market stock units that is expected
to be recognized over a weighted-average period of 1.1 years. The intrinsic value of market stock units outstanding at December 31, 2013
was $4 million.
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Stock Options
We may also grant stock options to certain officers and employees at an exercise price equal to the stock price of our common stock on
the grant date. Options vest ratably over three or four years and expire ten years from the date of grant.
The following table summarizes information about stock option activity during 2013 and 2012:
Options outstanding at beginning of the year
Granted
Exercised
Canceled
Expired
Options outstanding at the end of the year
Options exercisable at the end of the year
2013
2012
Per share
weighted
average
exercise prices
35.28
$
21.93
22.09
32.93
32.39
34.90
36.84
$
$
Shares
13,653,245
800,000
(35,461)
(628,731)
(1,392,159)
12,396,894
10,864,753
Per share
weighted
average exercise
prices
Shares
14,471,464
$
600,000
—
(525,361)
(892,858)
13,653,245
11,762,341
$
$
36.42
15.71
—
36.15
40.20
35.28
37.44
At December 31, 2013, there was $1 million of unrecognized compensation cost related to stock options that is expected to be recognized
over a weighted-average period of 2.8 years. The intrinsic value of options outstanding and options exercisable at December 31, 2013
was $7 million and $3 million, respectively. The intrinsic value of options exercised during 2013 was not material.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2013:
Range of per share exercise prices
Shares
Options Outstanding
Options Exercisable
Per share
weighted-average
exercise price
Weighted-average
remaining
contractual life
Shares
Per share
weighted-average
exercise price
Weighted-average
remaining
contractual life
$13.39 - $22.99
$23.00 - $30.99
$31.00 - $38.99
$39.00 - $48.03
2,401,807
$
2,462,402
1,535,814
5,996,871
12,396,894
$
20.32
25.32
36.86
44.16
34.90
7.6 years
6.3 years
4.1 years
1.4 years
3.9 years
1,411,807
$
1,920,261
1,535,814
5,996,871
10,864,753
$
21.42
25.28
36.86
44.16
36.84
6.6 years
5.9 years
4.1 years
1.4 years
3.3 years
We estimate the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value
of stock options include the volatility of our stock price, a risk-free interest rate, the expected dividend yield of our stock and expected
life of the award. Expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on
U.S. treasuries with a term equal to the expected option term. The expected life of the award and expected dividend yield are based on
historical experience. The fair value of stock options granted during the year was determined using the following assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life
Weighted-average fair value per option granted
Years Ended December 31,
2013
2012
2011
7.7%
29.5%
1.8%
7.9 years
$0.88
9.3%
30.0%
1.2%
7.9 years
$0.48
6.1%
26.1%
3.3%
7.4 years
$3.45
The fair value of stock options granted during 2013, 2012 and 2011 was $1 million, less than $1 million and $5 million, respectively.
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Employee Stock Purchase Plan
We maintain a non-compensatory Employee Stock Purchase Plan that enables substantially all U.S. and Canadian employees to purchase
shares of our common stock at an offering price of 95% of the average market price on the offering date. At no time will the exercise
price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. Employees purchased 222,159 shares and
291,859 shares in 2013 and 2012, respectively. We have reserved 4,594,776 common shares for future purchase under the ESPP.
Directors' Stock Plan
Each non-employee director is granted shares of restricted stock on an annual basis. In 2013 and 2012, we granted 19,800 shares and
26,653 shares to non-employee directors, respectively.
13. 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.
The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value
on a recurring basis at December 31, 2013 and 2012. Financial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect their placement within the fair value hierarchy.
Level 1
Level 2
Level 3
Total
December 31, 2013
Assets:
Investment securities
Money market funds / commercial paper
$
403,706
$
224,440
$
— $
628,146
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies
and municipalities
Debt securities - corporate
Mortgage-backed / asset-backed securities
—
—
122,783
—
—
26,536
24,695
17,653
38,264
164,598
—
—
—
—
—
26,536
24,695
140,436
38,264
164,598
Derivatives
Foreign exchange contracts
Total assets
Liabilities:
Investment securities
Mortgage-backed securities
Derivatives
Foreign exchange contracts
Total liabilities
—
526,489
$
1,358
497,544
$
—
— $
1,358
1,024,033
— $
(4,445) $
— $
(4,445)
—
— $
(3,009)
(7,454) $
—
— $
(3,009)
(7,454)
$
$
$
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Level 1
Level 2
Level 3
Total
December 31, 2012
Assets:
Investment securities
Money market funds / commercial paper
$
581,648
$
34,369
$
— $
616,017
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies
and municipalities
Debt securities - corporate
Mortgage-backed / asset-backed securities
Derivatives
Interest rate swaps
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Investment Securities
—
—
124,221
—
—
—
—
25,106
29,359
18,908
43,926
162,375
10,117
2,582
—
—
—
—
—
—
—
25,106
29,359
143,129
43,926
162,375
10,117
2,582
705,869
$
326,742
$
— $
1,032,611
— $
— $
(1,174) $
(1,174) $
— $
— $
(1,174)
(1,174)
$
$
$
The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by
observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:
• Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit,
commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and
are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively
traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified
as Level 2.
• Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds
are classified as Level 2 as they are not separately listed on an exchange.
• Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the
U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. The value of the funds
is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares
outstanding, as reported by the fund manager. These commingled funds are not listed on an exchange in an active market and are
classified as Level 2.
• Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: Debt securities are classified as Level 1 where active,
high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities valued
using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for
identical or comparable securities are classified as Level 2.
• Debt Securities – Corporate: Corporate debt securities are valued using recently executed transactions, market price quotations
where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as
Level 2.
• Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices. When external
index pricing is not observable, these securities are valued based on external price/spread data. These securities are classified as
Level 2.
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Available-For-Sale Securities
At December 31, 2013 and 2012, available-for-sale securities consisted of the following:
U.S. and foreign governments, agencies and municipalities
Corporate
Mortgage-backed / asset-backed securities
Total
December 31, 2013
Gross
unrealized
gains
Gross
unrealized
losses
999
935
1,570
3,504
$
$
(3,372)
(572)
(2,636)
(6,580)
Estimated fair
value
119,430
$
38,264
164,598
$
322,292
Amortized cost
121,803
$
$
37,901
165,664
$
325,368
$
December 31, 2012
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Estimated fair
value
U.S. and foreign governments, agencies and municipalities
$
127,807
$
Corporate
Mortgage-backed / asset-backed securities
Total
41,095
162,180
$
331,082
$
10,163
$
$
3,972
2,851
3,340
(56)
(20)
(3,145)
(3,221)
$
131,723
43,926
162,375
$
338,024
Gross unrealized losses on investment securities that were in a loss position for greater than 12 months were $1 million at December 31,
2013 and less than $1 million at December 31, 2012. We have not recognized an other-than-temporary impairment on any of the investment
securities in an unrealized loss position because we do not intend to sell these securities, it is more likely than not that we will not be
required to sell these securities before recovery of the unrealized losses and we expect to receive the contractual principal and interest
on these investment securities.
At December 31, 2013, the amortized cost and estimated fair value of available-for-sale securities have scheduled maturities as follows:
Within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Total
Amortized cost
41,853
$
46,869
67,160
169,486
Estimated fair
value
$
41,932
47,284
66,140
166,936
$
325,368
$
322,292
The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities as borrowers
have the right to prepay obligations with or without prepayment penalties.
We have not experienced any write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed
or supported by the U.S. government. We have no investments in inactive markets that would warrant a possible change in our pricing
methods or classification within the fair value hierarchy. Further, we have no investments in auction rate securities.
Derivative Instruments
The valuation of foreign exchange derivatives is based on a market approach using observable market inputs, such as forward rates. The
valuation of interest rate swaps is based on an income approach using a model with inputs that are observable or that can be derived from
or corroborated by observable market data. As required by the fair value measurements guidance, we also incorporate counterparty credit
risk and our credit risk into the fair value measurement of our derivative assets and liabilities, respectively. We derive credit risk from
observable data related to credit default swaps.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The fair value of our derivative instruments at December 31, 2013 and 2012 was as follows:
Designation of Derivatives
Balance Sheet Location
2013
2012
December 31,
Derivatives designated as
hedging instruments
Derivatives not designated as
hedging instruments
Other current assets and prepayments:
Foreign exchange contracts
$
546
$
78
Other assets:
Interest rate swaps
Accounts payable and accrued liabilities:
—
10,117
Foreign exchange contracts
(526)
(320)
Other current assets and prepayments:
Foreign exchange contracts
812
2,504
Accounts payable and accrued liabilities:
Foreign exchange contracts
(2,483)
(854)
Total derivative assets
Total derivative liabilities
Total net derivative (liability) asset
1,358
(3,009)
(1,651) $
12,699
(1,174)
11,525
$
Interest Rate Swaps
Derivatives designated as fair value hedges include interest rate swaps related to fixed rate debt. Changes in the fair value of both the
derivative and item being hedged are recognized in earnings. The following represents the results of fair value hedging relationships for
the years ended December 31, 2013 and 2012:
Derivative Instrument
Interest rate swaps
Location of Gain (Loss)
Interest expense
Foreign Exchange Contracts
Year Ended December 31,
Derivative Gain
Recognized in Earnings
Hedged Item Expense
Recognized in Earnings
2013
2012
2013
2012
$
3,798
$
9,994
$
(11,883)
$
(31,137)
We enter into foreign currency 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 accumulated other comprehensive income (AOCI) in the period that the change in fair value occurs and
is reclassified to earnings in the period that the hedged item is recorded in earnings. At December 31, 2013 and 2012, we had outstanding
contracts associated with these anticipated transactions with a notional amount of $26 million and $25 million, respectively. The fair
value of these contracts was a net asset of less than $1 million at December 31, 2013 and a net liability of less than $1 million at December
31, 2012.
The amounts included in AOCI at December 31, 2013 will be recognized in earnings within the next 12 months. No amount of
ineffectiveness was recorded in earnings for these designated cash flow hedges.
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following represents the results of cash flow hedging relationships for the years ended December 31, 2013 and 2012:
Derivative Instrument
Foreign exchange contracts
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
2013
2012
$
241
$
(2,055)
Year Ended December 31,
Location of Gain (Loss)
(Effective Portion)
Revenue
Cost of sales
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
2013
2012
$
$
(835) $
332
(503) $
1,298
(185)
1,113
We also enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans
and related interest that are denominated in a foreign currency. The revaluation of the intercompany loans and interest and the mark-to-
market adjustment on the derivatives are both recorded in earnings. The fair value of these contracts was a net liability of $2 million at
December 31, 2013 and a net asset of $2 million at December 31, 2012. All outstanding contracts at December 31, 2013 mature within
one year.
The following represents the results of our non-designated derivative instruments for the years ended December 31, 2013 and 2012:
Derivatives Instrument
Foreign exchange contracts
Location of Derivative Gain (Loss)
Selling, general and administrative expense
Year Ended December 31,
Derivative Gain (Loss)
Recognized in Earnings
2013
2012
$
(16,574) $
(4,254)
Credit-Risk-Related Contingent Features
Certain derivative instruments contain credit-risk-related contingent features that would require us to post collateral based on a combination
of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At December 31, 2013, the maximum amount
of collateral that we would have been required to post had the credit-risk-related contingent features been triggered was $2 million.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative
instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and
accounts payable approximate fair value because of the short maturity of these instruments.
The fair value of our debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine
the fair value of our debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt
at December 31, 2013 and 2012 was as follows:
Carrying value
Fair value
December 31,
2013
3,346,295
3,539,022
$
$
2012
$
$
4,017,375
4,200,970
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
14. Restructuring Charges and Asset Impairments
The table below shows the activity in our restructuring reserves for the years ended December 31, 2013, 2012 and 2011 and includes
amounts for both continuing operations and discontinued operations.
Severance and
benefits costs
Pension and
Retiree
Medical
Asset
impairments
Other exit
costs
Balance at December 31, 2010
$
101,639
$
— $
— $
Expenses, net
Gain on sale of facility
Cash payments
Non-cash charges
Balance at December 31, 2011
Expenses, net
Cash payments
Balance at December 31, 2012
Expenses, net
Cash payments
Non-cash charges
101,043
—
(97,646)
—
105,036
24,992
(67,488)
62,540
48,373
(52,355)
—
8,178
—
—
(8,178)
—
—
—
—
1,964
—
(1,964)
Balance at December 31, 2013
$
58,558
$
— $
13,528
(601)
601
(13,528)
—
—
—
—
71
—
(71)
— $
$
11,561
12,471
—
(9,957)
—
14,075
(1,627)
(7,230)
5,218
9,961
(7,165)
—
8,014
$
Total
113,200
135,220
(601)
(107,002)
(21,706)
119,111
23,365
(74,718)
67,758
60,369
(59,520)
(2,035)
66,572
In 2013, we initiated actions designed to further enhance our responsiveness to changing market conditions, streamline our business
operations, reduce our cost structure and create long-term flexibility to invest in growth. These actions resulted in restructuring charges
of $67 million. Restructuring charges also include the reversal of $7 million based on a review of our remaining obligations under prior
programs. The majority of the remaining restructuring reserves are expected to be paid over the next 12-24 months. Due to certain
international labor laws and long-term lease agreements, some payments will extend beyond 24 months. We expect to fund these payments
from cash flows from operations.
During 2012, we took actions to further streamline our business operations and reduce our cost structure. These actions consisted primarily
of workforce reductions and resulted in a pre-tax restructuring charge of $38 million. Restructuring charges are net of reversals of $15
million for changes in estimated reserves for prior period programs.
Restructuring charges in 2011 represent charges taken in connection with a series of strategic transformation initiatives announced in
2009. These initiatives were designed to transform and enhance the way we operate as a global company, enhance our responsiveness to
changing market conditions and create improved processes and systems and were implemented over a three year period through 2011.
Asset Impairments
During 2013, we recorded a non-cash impairment charge of $26 million related to an agreement to sell our corporate headquarters building
(see Note 3).
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
15. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.
In December 2013, we received a Civil Investigative Demand (CID) from the Department of Justice (DOJ) pursuant to the False Claims
Act requesting documents and information relating to compliance with certain postal regulatory requirements in our Presort Services
business. We had previously provided information to the DOJ in response to letter requests and continue to provide information in response
to the CID and other requests from the DOJ. Given the current stage of this inquiry, we cannot provide an estimate of any possible losses
or range of loss and we cannot yet predict the ultimate outcome of this matter or its impact, if any, on our business, financial condition
or results of operations.
16. Leases
We lease office facilities, sales and service offices, equipment and other properties under operating lease agreements extending from
three to eight years. Certain leases require us to pay property taxes, insurance and routine maintenance and include renewal options and
escalation clauses. Rental expense was $67 million, $68 million and $78 million in 2013, 2012 and 2011, respectively. Future minimum
lease payments under non-cancelable operating leases at December 31, 2013 were as follows:
Years ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total minimum lease payments
$
55,908
43,089
30,246
21,234
15,660
35,115
$
201,252
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
17. Segment Information
During the year, we sold certain businesses and realigned our segment reporting to reflect the clients we serve, the solutions we offer,
and how we manage, review, analyze and measure our operations (See Note 1). Our historical results have been recast to present the
operating results of divested businesses as discontinued operations and our segment results have been recast to conform to our new
segment reporting. The principal products and services of each of our reporting segments are as follows:
Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from the sale, rental and financing of mailing equipment and
supplies for small and medium size businesses to efficiently create mail and evidence postage in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from the sale, rental and financing of mailing equipment and
supplies for small and medium size businesses to efficiently create mail and evidence postage in areas outside North America.
Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale, support and other professional services of our
high-speed sorting and production print equipment and production mail systems to large enterprise clients to process inbound and
outbound mail.
Presort Services: Includes revenue and related expenses from presort mail services for our large enterprise clients to qualify large
mail volumes for postal worksharing discounts.
Digital Commerce Solutions:
Digital Commerce Solutions: Includes the worldwide revenue and related expenses from (i) the sale and support services of non-
equipment-based mailing, client relationship and communication and location intelligence software; (ii) direct marketing services
for targeted clients; (iii) our cross-border e-commerce solutions; and (iv) our digital mail delivery service offering.
Revenue and segment earnings before interest and taxes (EBIT) for our reportable segments for the years ended December 31, 2013,
2012 and 2011 are presented in the tables below. Segment EBIT is determined by deducting from segment revenue the related costs and
expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses not allocated to a particular
business segment, restructuring charges and impairment charges, which are recognized on a consolidated basis. Management uses segment
EBIT to measure profitability and performance at the segment level. Management believes segment EBIT provides investors with an
analysis of the company's operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of our
overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total revenue
Revenues
Years Ended December 31,
$
2013
1,723,304
608,156
2,331,460
$
2012
1,818,952
607,644
2,426,596
$
2011
1,961,198
659,052
2,620,250
511,544
430,469
942,013
480,718
429,804
910,522
511,595
396,853
908,448
595,928
3,869,401
$
577,946
3,915,064
596,643
4,125,341
$
$
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
EBIT
Years Ended December 31,
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total EBIT
Reconciling items:
Interest, net (1)
Corporate and other expenses
Restructuring charges and asset impairments
Other (expense) income
Income from continuing operations before income taxes
$
(1) Includes financing interest expense, other interest expense and interest income.
$
2013
675,389
71,502
746,891
55,000
83,259
138,259
42,837
927,987
2012
2011
$
688,665
$
727,999
76,139
764,804
48,981
106,170
155,151
37,513
957,468
93,243
821,242
52,817
100,718
153,535
46,419
1,021,196
(197,266)
(233,732)
(118,630)
19,918
$
491,486
(190,364)
(217,463)
(84,344)
(32,639)
403,177
$
(188,386)
(216,456)
(17,176)
(1,138)
534,312
Depreciation and amortization:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total for reportable segments
Reconciliation to consolidated amount:
Discontinued operations
Unallocated amount
Consolidated depreciation and amortization
Years Ended December 31,
2013
2012
2011
$
$
81,238
29,515
110,753
15,740
29,999
45,739
24,361
180,853
16,338
14,052
211,243
$
104,957
$
123,252
26,804
131,761
12,227
26,753
38,980
30,167
200,908
37,863
16,785
255,556
$
29,961
153,213
10,682
25,389
36,071
39,540
228,824
28,662
14,656
272,142
$
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Capital expenditures:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total for reportable segments
Reconciliation to consolidated amount:
Discontinued operations
Unallocated amount
Consolidated capital expenditures
Assets:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Digital Commerce Solutions
Total for reportable segments
Reconciliation to consolidated amount:
Discontinued operations
Cash and cash equivalents
Short-term investments
Other corporate assets
Consolidated assets
Years Ended December 31,
2013
2012
2011
$
57,973
25,386
83,359
2,875
12,512
15,387
25,562
124,308
8,328
4,876
$
$
78,511
29,642
108,153
12,339
17,220
29,559
4,794
142,506
32,849
1,231
57,308
13,905
71,213
11,419
34,931
46,350
5,413
122,976
18,909
14,095
$
137,512
$
176,586
$
155,980
December 31,
2013
2012
2011
$
2,974,025
$
3,101,959
$
3,350,457
856,073
3,830,098
866,620
3,968,579
783,610
4,134,067
305,428
343,206
648,634
1,137,129
5,615,861
—
907,806
31,128
217,913
6,772,708
$
386,338
369,405
755,743
482,265
395,299
877,564
1,179,219
5,903,541
1,191,854
6,203,485
727,732
913,276
36,611
278,731
7,859,891
752,450
856,238
12,971
321,960
8,147,104
$
$
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Geographic Data
Revenue:
United States
Outside United States
Total
Identifiable long-lived assets:
United States
Outside United States
Total
Years Ended December 31,
2013
2012
2011
$
$
$
$
2,654,301
1,215,100
3,869,401
2013
2,210,510
781,313
2,991,823
$
$
$
$
2,669,074
1,245,990
3,915,064
December 31,
2012
2,831,810
836,346
3,668,156
$
$
$
$
2,781,692
1,343,649
4,125,341
2011
2,749,101
910,048
3,659,149
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
18. Retirement Plans and Postretirement Medical Benefits
We have several defined benefit retirement plans. Benefits are primarily based on employees' compensation and years of service. Our
contributions are determined based on the funding requirements of U.S. federal and other governmental laws and regulations. We use a
measurement date of December 31 for all of our retirement plans. U.S. employees hired after January 1, 2005, Canadian employees hired
after April 1, 2005 and U.K. employees hired after July 1, 2005 are not eligible for our defined benefit retirement plans.
Benefit accruals for those participants in our two largest U.S. pension plans with less than 16 years of service as of March 31, 2013 were
frozen on March 31, 2013. Benefit accruals for all participants in our U.K. pension plans were frozen during 2013. Benefit accruals for
those participants in our two largest U.S. pension plans with 16 or more years of service as of March 31, 2013 and all participants in our
Canadian pension plans, will be frozen effective December 31, 2014.
The benefit obligations and funded status of defined benefit pension plans are as follows:
Accumulated benefit obligation
Projected benefit obligation
United States
Foreign
2013
1,611,457
$
2012
2013
2012
$
1,802,811
$
659,602
$
648,439
Benefit obligation at beginning of year
$
1,822,677
$
1,707,390
$
663,826
$
581,904
Service cost
Interest cost
Plan participants' contributions
Actuarial (gain) loss
Foreign currency changes
Settlement / curtailment
Special termination benefits
Benefits paid
Benefit obligation at end of year
13,981
74,370
—
(154,996)
—
(3,275)
548
(130,714)
1,622,591
18,939
81,040
—
145,641
—
6
—
(130,339)
1,822,677
Fair value of plan assets available for benefits
Fair value of plan assets at beginning of year
1,583,932
1,426,536
6,272
27,365
496
(1,224)
(204)
(86)
935
(24,607)
672,773
509,331
62,777
14,509
496
—
(1,428)
(24,607)
561,078
7,763
27,793
1,106
45,537
22,115
(1,489)
601
(21,504)
663,826
438,848
44,928
30,089
1,106
(1,489)
17,353
(21,504)
509,331
60,569
9,892
—
—
—
(130,714)
1,523,679
193,696
94,039
—
—
—
(130,339)
1,583,932
(98,912)
$
(238,745)
$
(111,695)
$
(154,495)
195
(18,097)
(81,010)
(98,912)
$
$
175
(7,456)
(231,464)
(238,745)
$
$
11,951
(1,051)
(122,595)
(111,695)
$
530
(967)
(154,058)
$
(154,495)
$
$
$
77
Actual return on plan assets
Company contributions
Plan participants' contributions
Settlement / curtailment
Foreign currency changes
Benefits paid
Fair value of plan assets at end of year
Funded status
Amounts recognized in Consolidated Balance Sheets
Non-current asset
Current liability
Non-current liability
Net amount recognized
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2013 and 2012:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pretax amounts recognized in AOCI consists of:
Net actuarial loss
Prior service (credit) cost
Transition asset
Total
United States
2013
1,621,164
1,610,029
1,522,057
2012
1,821,300
1,801,433
1,582,379
$
$
$
$
$
$
Foreign
2013
544,875
532,774
421,229
$
$
$
2012
660,110
645,361
505,084
United States
2013
733,943
(135)
—
2012
$
879,323
$
1,229
—
733,808
$
880,552
$
Foreign
2013
200,000
(863)
(59)
199,078
$
$
2012
243,765
(751)
(68)
242,946
$
$
$
$
$
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2014 are as follows:
Net actuarial loss
Prior service cost (credit)
Transition asset
Total
United States
Foreign
24,642
$
8,249
9
—
(61)
(9)
24,651
$
8,179
$
$
The components of net periodic benefit cost for defined benefit pension plans were as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of net transition asset
Amortization of prior service cost
Amortization of net actuarial loss
Special termination benefits
Settlement / curtailment
Net periodic benefit cost
2013
13,981
74,370
(107,608)
—
380
32,494
548
2,638
16,803
$
$
United States
2012
2011
2013
Foreign
2012
$
18,939
$
19,450
$
6,272
$
7,763
$
81,040
(121,623)
—
803
52,957
—
(48)
32,068
87,738
(123,058)
—
147
37,522
1,489
3,036
26,324
$
$
$
27,365
(34,769)
(9)
112
14,445
935
—
14,351
$
27,793
(32,299)
(10)
112
14,103
601
444
18,507
$
2011
7,310
28,329
(31,784)
(10)
170
11,135
277
274
15,701
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were
as follows:
Net actuarial (gain) loss
Prior service credit
Amortization of net actuarial loss
Amortization of prior service cost
Net transition asset
Settlement / curtailment
Total recognized in other comprehensive income
United States
Foreign
2013
(111,232)
—
(32,494)
(380)
—
(2,638)
(146,744)
$
$
2012
2013
2012
$
$
73,701
(127)
(52,957)
(803)
—
48
$
19,862
$
(29,320)
—
(14,445)
(112)
9
—
(43,868)
$
32,596
—
(14,103)
(112)
10
(444)
$
17,947
Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined benefit
pension plans include:
United States
Used to determine benefit obligations
Discount rate
Rate of compensation increase
Used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
Foreign
Used to determine benefit obligations
Discount rate
Rate of compensation increase
Used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
2013
2012
2011
4.95%
3.50%
4.05%
7.25%
3.50%
4.05%
3.50%
4.95%
7.75%
3.50%
4.95%
3.50%
5.60%
8.00%
3.50%
1.45% - 4.60%
1.50% - 3.50%
1.95% - 4.65%
1.50% - 3.50%
1.80% - 6.10%
2.10% - 4.60%
1.95% - 4.65%
3.50% - 7.50%
1.50% - 3.50%
1.80% - 6.10%
3.25% - 7.50%
2.10% - 4.60%
2.00% - 5.50%
4.00% - 7.75%
2.10% - 5.50%
A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and
postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a yield
curve based on long-term, high-quality fixed income debt instruments available as of the measurement date. For the U.K. retirement
benefit plan, our largest foreign plan, the discount rate is determined by discounting each year's estimated benefit payments by an applicable
spot rate, derived from a yield curve created from a large number of high-quality corporate bonds. For our other smaller foreign pension
plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.
The expected return on plan assets is based on historical and expected rates of return for current and planned asset classes in the plans'
investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes.
The overall expected rate of return for the portfolio is based on the asset allocation at the end of the year for our U.S. pension plans and
the target asset allocation for our international pension plans, adjusted for historical and expected experience of active portfolio
management results, when compared to the benchmark returns. When assessing the expected future returns for the portfolio, management
places more emphasis on the expected future returns than historical returns.
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Investment Strategy and Asset Allocation - U.S. Pension Plans
The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and
maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least
7.0%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset
classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options,
forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency
exposure. Investments within the private equity and real estate portfolios are comprised of limited partnership units in primary and
secondary fund of funds and units in open-ended commingled real estate funds, respectively. These types of investment vehicles are used
in an effort to gain greater asset diversification. We do not have any significant concentrations of credit risk within the plan assets. The
pension plans' liabilities, investment objectives and investment managers are reviewed periodically.
The target asset allocation for 2014 and the actual asset allocations at December 31, 2013 and 2012, for the U.S. pension plans are as
follows:
Asset category
U.S. equities
Non-U.S. equities
Fixed income
Real estate
Private equity
Total
Target
allocation
Percent of Plan Assets at
December 31,
2014
2013
2012
11%
11%
68%
2%
8%
16%
14%
60%
4%
6%
14%
15%
61%
4%
6%
100%
100%
100%
The target asset allocation used to manage the investment portfolio is based on the broad asset categories shown above. The plan asset
categories presented in the fair value hierarchy are subsets of the broad asset categories.
Investment Strategy and Asset Allocation - Foreign Pension Plans
Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate
personnel. The investment strategies adopted by our foreign plans vary by country and plan, with each strategy tailored to achieve the
expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local
funding requirements, investment markets and restrictions. The U.K. plan represents 74% of the non-U.S. pension assets. The U.K.
pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding
of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 7.5%. The fund has
established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each
class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures
contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. We do not have
any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment
managers are reviewed periodically.
The target asset allocation for 2014 and the actual asset allocations at December 31, 2013 and 2012, for the U.K. pension plan are as
follows:
Asset category
U.K. equities
Non-U.K. equities
Fixed income
Cash
Total
Target
Allocation
Percent of Plan Assets at
December 31,
2014
2013
2012
30%
35%
35%
—%
100%
33%
35%
31%
1%
100%
32%
31%
36%
1%
100%
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The target asset allocation used to manage the investment portfolio is based on the broad asset categories shown above. The plan asset
categories presented in the fair value hierarchy are subsets of the broad asset categories.
The fair value of the U.K. plan assets was $414 million and $370 million at December 31, 2013 and 2012, respectively, and the expected
long-term weighted average rate of return on these plan assets was 7.38% in 2013 and 7.25% in 2012.
Fair Value Measurements of Plan Assets
The following tables show, by level within the fair value hierarchy, the financial assets and liabilities that are accounted for at fair value
on a recurring basis at December 31, 2013 and 2012, respectively, for the U.S. and foreign pension plans. 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 placement within the fair value hierarchy
levels.
United States Pension Plans
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Mortgage-backed securities
Asset-backed securities
Private equity
Real estate
Securities lending collateral (1)
Total plan assets at fair value
Securities lending payable (1)
Cash
Other
December 31, 2013
Level 1
Level 2
Level 3
Total
$
— $
30,374
$
— $
279,988
—
43,390
—
—
—
—
—
—
165,303
209,674
30,477
568,567
31,738
625
—
—
6,602
—
—
—
—
2,634
—
87,470
67,917
—
30,374
445,291
209,674
73,867
568,567
34,372
625
87,470
67,917
6,602
$
323,378
$
1,043,360
$
158,021
$
1,524,759
(6,602)
634
4,888
$
1,523,679
Fair value of plan assets available for benefits
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
81
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Mortgage-backed securities
Asset-backed securities
Private equity
Real estate
Securities lending collateral (1)
Total plan assets at fair value
Securities lending payable (1)
Cash
Other
December 31, 2012
Level 1
Level 2
Level 3
Total
$
— $
17,363
$
— $
250,303
—
53,984
—
—
—
—
—
—
203,766
200,899
35,461
621,691
39,552
547
—
—
104,375
—
—
—
—
3,191
—
91,805
63,168
—
17,363
454,069
200,899
89,445
621,691
42,743
547
91,805
63,168
104,375
$
304,287
$
1,223,654
$
158,164
$
1,686,105
(104,375)
618
1,584
$
1,583,932
Fair value of plan assets available for benefits
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
Foreign Plans
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Total plan assets at fair value
Cash
Other
Fair value of plan assets available for benefits
December 31, 2013
Level 1
Level 2
Level 3
Total
$
— $
6,058
$
— $
109,403
—
—
—
257,046
104,070
60,204
17,944
—
—
—
—
6,058
366,449
104,070
60,204
17,944
$
109,403
$
445,322
$
— $
554,725
5,285
1,068
561,078
$
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Total plan assets at fair value
Cash
Other
Fair value of plan assets available for benefits
December 31, 2012
Level 1
Level 2
Level 3
Total
$
— $
7,130
$
— $
96,442
—
—
—
213,662
157,332
18,937
6,935
—
—
—
—
7,130
310,104
157,332
18,937
6,935
$
96,442
$
403,996
$
— $
500,438
4,414
4,479
$
509,331
The following information relates to our classification of investments into the fair value hierarchy:
• Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper of
companies and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits. The money
market funds are classified as Level 2 since they are not actively traded on an exchange.
• Equity Securities: Equity securities include U.S. and foreign common stock, American Depository Receipts, preferred stock and
commingled funds. Equity securities classified as Level 1 are valued using active, high volume trades for identical securities. Equity
securities classified as Level 2 represent those not listed on an exchange in an active market. These securities are valued based on
quoted market prices of similar securities.
• Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the
U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Value of the funds is
based on the net asset value (NAV) per unit as reported by the fund manager. NAV is based on the market value of the underlying
investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled fixed income
securities are not listed on an active exchange and are classified as Level 2.
• Debt Securities - U.S. and Foreign Governments, Agencies and Municipalities: Government securities include treasury notes and
bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include
general obligation securities and revenue-backed securities. Debt securities classified as Level 1 are valued using active, high volume
trades for identical securities. Debt securities classified as Level 2 are valued through benchmarking model derived prices to quoted
market prices and trade data for identical or comparable securities.
• Corporate Debt Securities: Investments are comprised of both investment grade debt
The
fair value of corporate debt securities is valued using recently executed transactions, market price quotations where observable, or
bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
and high-yield debt
• Mortgage-Backed Securities (MBS): Investments are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage
obligations, commercial MBS, and commingled funds. These securities are valued based on external pricing indices. When external
index pricing is not observable, MBS are valued based on external price/spread data. If neither pricing method is available, broker
quotes are utilized. When inputs are observable and supported by an active market, MBS are classified as Level 2 and when inputs
are unobservable, MBS are classified as Level 3.
• Asset-Backed Securities (ABS): Investments are primarily comprised of credit card receivables, auto loan receivables, student loan
receivables, and Small Business Administration loans. These securities are valued based on external pricing indices or external price/
spread data and are classified as Level 2.
• Private Equity: Investments are comprised of units in fund-of-fund investment vehicles. Fund-of-funds consist of various private
equity investments and are used in an effort to gain greater diversification. The investments are valued in accordance with the most
appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.
• Real Estate: Investments include units in open-ended commingled real estate funds. Properties that comprise these funds are valued
in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to
determine a fair value.
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
•
Securities Lending Fund: Investment represents a commingled fund through our custodian's securities lending program. The U.S.
pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This
collateral is invested in a short-term fixed income securities commingled fund. The commingled fund is not listed or traded on an
exchange and is classified as Level 2. This amount invested in the fund is offset by a corresponding liability reflected in the U.S.
pension plan's net assets available for benefits.
Level 3 Gains and Losses
The following table summarizes the changes in the fair value of Level 3 assets for the years ended December 31, 2013 and 2012:
Balance at December 31, 2011
Realized (losses) gains
Unrealized (losses) gains
Net purchases, sales and settlements
Balance at December 31, 2012
Realized (losses) gains
Unrealized gains
Net purchases, sales and settlements
Balance at December 31, 2013
Mortgage-backed
securities
Private equity
Real estate
Total
$
$
3,702
(3)
(20)
(488)
3,191
—
205
(762)
2,634
$
$
88,870
(13)
742
2,206
91,805
(1,591)
2,190
(4,934)
87,470
$
57,918
$
150,490
1,780
5,711
(2,241)
63,168
1,939
5,182
(2,372)
67,917
1,764
6,433
(523)
158,164
348
7,577
(8,068)
$
158,021
$
There are no shares of our common stock included in the plan assets of our pension plans.
During 2014, we anticipate making total contributions of $18 million to our U.S. pension plans and $22 million to our foreign pension
plans. We will reassess our funding alternatives as the year progresses.
84
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Nonpension Postretirement Benefits
We provide certain health care and life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. The cost of
these benefits is recognized over the period the employee provides credited service to the company. Employees hired before January 1,
2005 in the U.S. and before April 1, 2005 in Canada become eligible for retiree health care benefits after reaching age 55 or in the case
of employees of Pitney Bowes Management Services after reaching age 60 and with the completion of the required service period. U.S.
employees hired on or after January 1, 2005 and Canadian employees hired on or after April 1, 2005, are not eligible for retiree health
care benefits.
The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:
Benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Actuarial (gain) loss
Foreign currency changes
Plan amendment
Curtailment
Benefits paid
Benefit obligation at end of year (1)
2013
2012
$
282,857
$
285,828
3,684
9,503
4,313
(30,051)
(1,693)
—
(4,839)
(32,621)
231,153
$
3,563
11,187
9,547
4,150
697
8,501
—
(40,616)
282,857
$
(1) The benefit obligation for the U.S. nonpension postretirement plans was $208 million and $256 million at December 31, 2013 and
2012, respectively.
Fair value of plan assets
Fair value of plan assets at beginning of year
Company contribution
Plan participants' contributions
Benefits paid
Fair value of plan assets at end of year
Funded status
Amounts recognized in the Consolidated Balance Sheets
Current liability
Non-current liability
Net amount recognized
2013
2012
— $
28,308
4,313
(32,621)
— $
—
31,069
9,547
(40,616)
—
(231,153)
$
(282,857)
(23,668)
(207,485)
(231,153)
$
$
(25,483)
(257,374)
(282,857)
$
$
$
$
$
85
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service cost
Total
2013
2012
$
$
68,120
2,516
70,636
$
$
109,962
5,564
115,526
The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:
Service cost
Interest cost
Amortization of prior service cost (credit)
Amortization of net actuarial loss
Curtailment
Special termination benefits
Net periodic benefit cost
2013
2012
2011
$
3,684
9,503
128
7,433
2,920
—
$
3,563
$
11,187
(1,724)
8,214
—
—
3,328
13,528
(2,504)
7,666
2,839
300
$
23,668
$
21,240
$
25,157
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income
were as follows:
2013
2012
Net actuarial gain
Amortization of net actuarial (loss) gain
Amortization of prior service (cost) credit
Curtailment
Other adjustments
Total recognized in other comprehensive income
$
$
(34,890)
(7,433)
(128)
(2,920)
481
(44,890)
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2014 are as follows:
Net actuarial loss
Prior service cost
Total
$
$
$
$
(195)
4,631
1,724
—
(651)
5,509
6,092
160
6,252
The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:
Discount rate used to determine benefit obligation
U.S.
Canada
Discount rate used to determine net period benefit cost
U.S.
Canada
2013
2012
2011
4.40%
4.65%
3.65%
3.90%
3.65%
3.90%
4.50%
4.15%
4.50%
4.15%
5.15%
5.15%
86
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 7.0%
for 2013 and 7.5% for 2012. The assumed health care trend rate is 6.5% for 2014 and will gradually decline to 5.0% by the year 2017
and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health
care plans. A 1% change in the assumed health care cost trend rates would have the following effects:
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
Estimated Future Benefit Payments
1% Increase
1% Decrease
$
$
517
8,284
$
$
(451)
(7,662)
Benefit payments expected to be paid, which reflect expected future service, are shown in the table below. Nonpension benefit payments
are net of expected Medicare Part D subsidy.
Years ending December 31,
2014
2015
2016
2017
2018
2019 - 2022
Savings Plans
Pension Benefits
Nonpension
Benefits
$
166,952
$
125,225
124,045
127,236
128,739
673,039
23,669
22,570
21,561
20,612
19,708
87,457
$
1,345,236
$
195,577
We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement.
We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating
employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were $32 million in 2013 and $30
million in 2012.
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
19. Discontinued Operations
Discontinued operations include PBMS, our Nordic furniture business and IMS, which were sold during 2013 and our Capital Services
business, which was sold in 2006.
The following tables show selected financial information included in discontinued operations:
Revenue
Loss from operations
Gain (loss) on sale
(Loss) income before taxes
Tax provision (benefit)
(Loss) income from discontinued operations
Revenue
Income (loss) before taxes
Tax provision (benefit)
(Loss) income from discontinued operations
Revenue
(Loss) income
before taxes
Tax provision (benefit)
(Loss) income from discontinued operations
Year Ended December 31, 2013
IMS
Nordic
furniture
business
Capital
Services
$
23,036
$
37,785
$
— $
Total
700,058
PBMS
639,237
(118,017) $
5,126
(112,891)
41,384
(154,275) $
(3,057) $
(2,717)
(5,774)
(1,064)
(4,710) $
(4,037) $
4,562
525
149
376
$
— $
(125,111)
—
—
289
(289) $
6,971
(118,140)
40,758
(158,898)
Year Ended December 31, 2012
PBMS
920,958
67,458
29,255
38,203
$
$
$
IMS
Nordic
furniture
business
135,222
$
67,994
(40,084) $
(15,003)
(25,081) $
2,839
794
2,045
$
$
$
Capital
Services
Total
— $ 1,124,174
— $
30,213
(34,312)
34,312
(19,266)
$
49,479
Year Ended December 31, 2011
PBMS
IMS
Nordic
furniture
business
948,891
$
155,378
$
48,341
(10,279) $
30,599
(40,878) $
(72,260) $
(23,025)
(49,235) $
5,334
1,493
3,841
Capital
Services
Total
— $ 1,152,610
3,695
(262,464)
266,159
$
$
(73,510)
(253,397)
179,887
$
$
$
$
$
$
$
$
$
$
$
$
The loss from discontinued operations in 2013 includes aggregate goodwill impairment charges of $101 million and asset impairment
charges of $15 million. A goodwill impairment charge of $98 million was recorded for PBMS NA. As a result of lower than expected
operating performance during the first half of 2013 due to the loss of certain customer contracts, pricing pressure on contract renewals
and a longer than originally anticipated sales cycle for some of our new growth areas, future cash flows were estimated to be lower than
originally projected. Given these factors, an interim goodwill impairment test was performed. Based on our review, it was determined
that the carrying value of goodwill exceeded its implied fair value. Accordingly, a goodwill impairment charge of $98 million was
recognized to write-down the carrying value of goodwill to its estimated implied fair value. The fair value of PBMS NA was determined
based on a combination of techniques, including external valuation data, the present value of future cash flows and applicable multiples
of competitors. These inputs were classified as Level 3 in the fair value hierarchy. In 2013, we also recorded goodwill impairment charges
of $2 million in connection with the sale of PBMSi and $1 million in connection with the sale of the Nordic furniture business.
During 2012, in connection with our decision to exit our IMS operations, we conducted a goodwill impairment review. We determined
the fair value of IMS based on third-party written offers to purchase the business as well applying an income approach with revised cash
88
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
flow projections. The inputs used to determine the fair value of IMS were classified as Level 3 in the fair value hierarchy. Based on the
results of our impairment test, a goodwill impairment charge of $18 million and asset impairment charges of $17 million were recorded
to write-down the carrying value of goodwill, intangible assets and other assets to their respective implied fair values.
Income from discontinued operations in 2011 includes aggregate goodwill impairment charges of $130 million and asset impairment
charges of $17 million. Due to the under-performance of IMS, we performed a goodwill impairment review. We determined the fair value
of IMS using a combination of techniques including the present value of future cash flows, multiples of competitors and multiples from
sales of like businesses, and determined that the IMS reporting unit was impaired. The inputs used to determine the fair value of IMS
were classified as Level 3 in the fair value hierarchy. Based on the results of our impairment test, we recorded a goodwill impairment
charge of $46 million and an intangible asset impairment charge of $12 million to write-down the carrying value of goodwill and intangible
assets to their respective implied fair values.
Also in 2011, based on the results of our annual goodwill impairment review, management determined that PBMSi was impaired. The
fair value of PBMSi was determined using a combination of techniques including the present value of future cash flows, derived from
our long-term plans and historical experience, multiples of competitors and multiples from sales of like businesses. The inputs used to
determine the fair value were classified as Level 3 in the fair value hierarchy. Based on the results of our impairment test, we recorded
a goodwill impairment charge of $84 million and intangible asset impairment charge of $5 million to write-down the carrying value of
goodwill and intangible assets to their respective estimated fair values.
The amounts recognized for Capital Services in 2013, 2012 and 2011 relate primarily to tax benefits from the resolution of tax examinations.
89
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
20. Earnings per Share
The calculations of basic and diluted earnings per share are presented below. The amounts below have been revised from the amounts
previously filed to reflect the results of PBMS, the Nordic furniture business and IMS as discontinued operations (see Note 19). The sum
of earnings per share amounts may not equal the totals due to rounding.
Numerator:
Amounts attributable to common stockholders:
Income from continuing operations
(Loss) income from discontinued operations
Net income (numerator for diluted EPS)
Less: Preference stock dividend
Income attributable to common stockholders (numerator for basic EPS)
Denominator (in thousands):
Weighted-average shares used in basic EPS
Effect of dilutive shares:
Preferred stock
Preference stock
Stock plans
Weighted-average shares used in diluted EPS
Basic earnings per share:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Years Ended December 31,
2013
2012
2011
$
$
$
$
$
$
301,733
(158,898)
142,835
(46)
142,789
$
$
395,684
49,479
445,163
(51)
445,112
$
437,593
179,887
617,480
(58)
$
617,422
201,614
200,389
201,976
2
381
960
2
398
577
2
445
343
202,957
201,366
202,766
1.50
(0.79)
0.71
1.49
(0.78)
0.70
$
$
$
$
1.97
0.25
2.22
1.96
0.25
2.21
$
$
$
$
2.17
0.89
3.06
2.16
0.89
3.05
Anti-dilutive options excluded from diluted earnings per share (in thousands):
12,448
13,801
14,016
90
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
21. Quarterly Financial Data (unaudited)
The following table sets forth selected unaudited quarterly data for the years ended December 31, 2013 and 2012. The amounts in the
tables below have been revised from the amounts previously filed to reflect the results of PBMS, the Nordic furniture business and IMS
as discontinued operations (see Note 19). The sum of the quarterly earnings per share amounts may not equal the quarterly total or annual
amount due to rounding.
2013
Revenue
Cost and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations
Net income (loss) before attribution of noncontrolling interests
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
Net income (loss) - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Income from continuing operations
Income (loss) from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income (loss) - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income (loss) - Pitney Bowes Inc.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
929,012
$
970,416
$
938,786
$ 1,031,187
$ 3,869,401
843,475
85,537
18,769
66,768
5,332
72,100
857,167
113,249
25,391
87,858
(92,497)
(4,639)
846,145
92,641
11,370
81,271
(82,204)
(933)
919,437
111,750
27,539
84,211
10,471
94,682
3,466,224
403,177
83,069
320,108
(158,898)
161,210
4,594
4,594
4,594
4,593
18,375
67,506
$
(9,233) $
(5,527) $
90,089
$
142,835
62,174
$
83,264
$
76,677
$
79,618
$
301,733
5,332
(92,497)
(82,204)
10,471
(158,898)
67,506
$
(9,233) $
(5,527) $
90,089
$
142,835
0.31
$
0.41
$
0.38
$
0.39
$
0.03
(0.46)
(0.41)
0.05
0.34
$
(0.05) $
(0.03) $
0.45
$
0.31
$
0.41
$
0.38
$
0.39
$
0.03
(0.46)
(0.40)
0.05
0.33
$
(0.05) $
(0.03) $
0.44
$
1.50
(0.79)
0.71
1.49
(0.78)
0.70
$
$
$
$
$
$
$
91
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2012
Revenue
Cost and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations
Net income before attribution of noncontrolling interests
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
Net income - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Income from continuing operations
Income (loss) from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
975,101
$
974,658
$
949,789
$ 1,015,516
$ 3,915,064
832,017
143,084
8,813
134,271
28,993
163,264
832,413
142,245
45,705
96,540
7,677
104,217
826,659
123,130
30,590
92,540
(11,413)
81,127
889,663
125,853
35,144
90,709
24,222
114,931
3,380,752
534,312
120,252
414,060
49,479
463,539
4,594
4,594
4,594
4,594
18,376
$
158,670
$
99,623
$
76,533
$
110,337
$
445,163
$
$
$
$
$
$
129,677
$
91,946
$
87,946
$
86,115
$
395,684
28,993
7,677
(11,413)
24,222
49,479
158,670
$
99,623
$
76,533
$
110,337
$
445,163
0.65
$
0.46
$
0.44
$
0.43
$
0.14
0.04
(0.06)
0.12
0.79
$
0.50
$
0.38
$
0.55
$
0.65
$
0.46
$
0.44
$
0.43
$
0.14
0.04
(0.06)
0.12
0.79
$
0.50
$
0.38
$
0.55
$
1.97
0.25
2.22
1.96
0.25
2.21
92
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Description
Balance at
beginning of year
Additions
Deductions
Balance at end of
year
Allowance for doubtful accounts
2013
2012
2011
Valuation allowance for deferred tax asset
2013
2012
2011
$
$
$
$
$
$
20,219
25,667
26,649
142,176
111,438
104,441
$
$
$
$
$
$
(1)
(1)
(1)
3,881
13,112
9,161
15,921
40,078
16,709
$
$
$
$
$
$
(10,951)
(18,560)
(10,143)
(2)
(2)
(2)
(35,317)
(9,340)
(9,712)
$
$
$
$
$
$
13,149
20,219
25,667
122,780
142,176
111,438
(1) Includes additions charged to expenses and impacts of foreign exchange.
(2) Includes uncollectible accounts written off and impact of divestitures.
93
Exhibit 12
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
2013
2012
2011
2010
2009
Years Ended December 31,
Income from continuing operations
before income taxes
Add:
Interest expense (1)
Portion of rents representative of the
interest factor
Amortization of capitalized interest
Income as adjusted
Fixed charges:
Interest expense (1)
Portion of rents representative of the
interest factor
Noncontrolling interests (preferred
stock dividends of subsidiaries),
excluding taxes
Total fixed charges
$
403,177
$
534,312
$
491,486
$
458,992
$
555,658
195,836
196,368
203,061
203,911
208,855
22,259
—
22,564
973
25,893
1,535
25,270
1,716
27,064
1,716
621,272
$
754,217
$
721,975
$
689,889
$
793,293
195,836
$
196,368
$
203,061
$
203,911
$
208,855
22,259
22,564
25,893
25,270
27,064
$
$
27,841
27,841
27,507
29,790
32,851
$
245,936
$
246,773
$
256,461
$
258,971
$
268,770
Ratio of earnings to fixed charges (2)
2.53
3.06
2.82
2.66
2.95
(1) Interest expense includes both financing interest expense and other interest expense.
(2) The computation of the ratio of earnings to fixed charges has been computed by dividing income from continuing operations
before income taxes as adjusted by fixed charges. Included in fixed charges is one-third of rent expense as the representative
portion of interest.
PITNEY BOWES INC.
SUBSIDIARIES OF REGISTRANT
The Registrant, Pitney Bowes Inc., a Delaware Corporation, has no parent
The following are subsidiaries of the Registrant
(as of December 31, 2013)
Exhibit 21
Subsidiary Name
Adrema Leasing Corporation
AIT Quest Trustee Ltd
Alternative Mail & Parcel Investments Limited
B. Williams Funding Corp.
B. Williams Holding Corp.
Canadian Office Services (Toronto) Limited
Digital Cement Co.
Digital Cement Inc.
Elmcroft Road Realty Corporation
Emtex Software, Inc.
Encom Europe Limited
Factor Humano y Cadena de Personal
FSL Holdings Inc.
FSL Risk Managers Inc.
Group 1 Software China Ltd.
Harvey Company, L.L.C
Historic Boardwalk Hall, L.L.C.
Horizon Management AB
Horizon Scandinavia AB
Imagitas Security Corporation
Imagitas, Inc.
Mag Systèmes SAS
MapInfo Realty LLC
OLDEMT LIMITED
OLDMS Limited
PB Australia Funding Pty. Limited
PB Equipment Management Inc.
PB European UK LLC
PB Forms, Inc.
PB Historic Renovation LLC
PB Miles Inc.
PB Nova Scotia Holdings Inc.
PB Nova Scotia Holdings II ULC
PB Nova Scotia Holdings ULC
PB Nova Scotia V ULC
PB Nova Scotia VI ULC
PB Nova Scotia VII ULC
PB Nova Scotia II ULC
Country or state of incorporation
Delaware
UK
UK
Delaware
Delaware
Canada
Canada
Delaware
Connecticut
Canada
UK
Mexico
Connecticut
New York
Hong Kong
Delaware
Delaware
Sweden
Sweden
Massachusetts
Delaware
France
New York
UK
UK
Australia
Delaware
Delaware
Nebraska
Delaware
Delaware
Delaware
Canada
Canada
Canada
Canada
Canada
Canada
PB Nova Scotia LP
PB Partnership Financing Inc.
PB Professional Services Inc.
PBDorm Ireland Limited
Pitney Bowes (Asia Pacific) Pte. Ltd
Pitney Bowes (Dormant) Pte Ltd.
Pitney Bowes (Malaysia) Sdn Bhd
Pitney Bowes (Singapore) Pte Ltd.
Pitney Bowes (Switzerland) AG
Pitney Bowes (Thailand) Limited
Pitney Bowes Australia FAS Pty. Limited
Pitney Bowes Australia Pty Limited
Pitney Bowes Austria Ges.m.b.H
Pitney Bowes Batsumi Enterprise (Pty) Ltd.
Pitney Bowes Belgium NV
Pitney Bowes Brasil Equipamentos E Servicos Ltda
Pitney Bowes Canada II LP
Pitney Bowes Canada LP
Pitney Bowes China Inc.
Pitney Bowes Credit Australia Limited
Pitney Bowes Cross Border Services, Inc
Pitney Bowes Danmark A/S (formerly Haro Systemer AS)
Pitney Bowes de Mexico, S.A. de C.V.
Pitney Bowes Deutschland GmbH
Pitney Bowes Document Messaging Technologies Limited (formerly Bell & Howell Limited)
Pitney Bowes Espana, S.A.
Pitney Bowes Europe Limited
Pitney Bowes Finance Ireland Limited
Pitney Bowes Finance Limited (formerly Pitney Bowes Finance plc)
Pitney Bowes Global Financial Services LLC
Pitney Bowes Global Limited
Pitney Bowes Global LLC
Pitney Bowes Holdco Limited
Pitney Bowes Holding SNC
Pitney Bowes Holdings B.V.
Pitney Bowes Holdings Denmark ApS
Pitney Bowes Holdings Limited
Pitney Bowes Hong Kong Limited
Pitney Bowes India Inc.
Pitney Bowes India Private Limited
Pitney Bowes International Funding
Pitney Bowes International Holdings, Inc.
Pitney Bowes International Mail Services Limited
Pitney Bowes Ireland Limited
Pitney Bowes Italia S.r.l.
Pitney Bowes Japan KK
Delaware
Delaware
Delaware
Ireland
Singapore
Singapore
Malaysia
Singapore
Switzerland
Thailand
Australia
Australia
Austria
South Africa
Belgium
Brazil
Canada
Canada
Delaware
Australia
Delaware
Denmark
Mexico
Germany
UK
Spain
UK
Ireland
UK
Delaware
UK
Delaware
UK
France
Netherlands
Denmark
UK
Hong Kong
Delaware
India
Ireland
Delaware
UK
Ireland
Italy
Japan
Pitney Bowes Limited
Pitney Bowes Luxembourg Holding II S.a.r.l.
Pitney Bowes Luxembourg Holding S.a.r.l.
Pitney Bowes Luxembourg SARL
Pitney Bowes Mail and Messaging Systems (Shanghai) Co., Ltd.
Pitney Bowes MapInfo Business Applications Limited (formerly Southbank Systems Limited)
Pitney Bowes MapInfo GDC Limited (formerly Graphical Data Capture Limited)
Pitney Bowes MapInfo Scotland Limited (formerly Moleseye Limited)
Pitney Bowes Middle East FZ-LLC
Pitney Bowes Netherlands B.V.
Pitney Bowes New Zealand Limited
Pitney Bowes Norge AS
Pitney Bowes Nova Scotia ULC
Pitney Bowes of Canada Ltd. - Pitney Bowes du Canada Ltee
Pitney Bowes Oy
Pitney Bowes Polska Sp. z.o.o.
Pitney Bowes Portugal Sociedade Unipessoal, Lda.
Pitney Bowes Presort Services, Inc. (formerly PSI Group, Inc.)
Pitney Bowes Properties Inc.
Pitney Bowes Puerto Rico, Inc.
Pitney Bowes SA (Pty) Ltd.
Pitney Bowes SAS
Pitney Bowes Servicios, S.A. de C.V.
Pitney Bowes Shelton Realty Inc.
Pitney Bowes Software (Beijing) Ltd
Pitney Bowes Software Canada Inc.
Pitney Bowes Software GmbH
Pitney Bowes Software Europe Limited
Pitney Bowes Software Europe Holdco Limited
Pitney Bowes Software Holdings Limited
Pitney Bowes Software Inc.
Pitney Bowes Software India Private Limited
Pitney Bowes Software K. K.
Pitney Bowes Software Latin America Inc.
Pitney Bowes Software Limited
Pitney Bowes Software Private Limited
Pitney Bowes Software Pte Ltd
Pitney Bowes Software Pty Ltd
Pitney Bowes Software SAS
Pitney Bowes Svenska Aktiebolag
Pitney Bowes UK LP
PitneyWorks.com Inc.
PitneyWorks.com L.L.C.
Portrait International, Inc.
Portrait Million Handshakes AS
Portrait Software International Ltd.
UK
Luxembourg
Luxembourg
Luxembourg
Shanghai
UK
UK
UK
Dubai
Netherlands
New Zealand
Norway
Canada
Canada
Finland
Poland
Portugal
Delaware
Connecticut
Puerto Rico
South Africa
France
Mexico
Connecticut
China
Canada
Germany
UK
UK
UK
Delaware
India
Japan
Delaware
UK
India
Singapore
Australia
France
Sweden
UK
Delaware
Delaware
Ohio
Norway
UK
Portrait Software Limited
Portrait Software UK Ltd
Print, Inc.
PrintValue Solutions, Inc.
Quadstone Paramics Ltd
Quadstone Trustee Company Ltd
Technopli SARL
The Pitney Bowes Bank, Inc.
Volly LLC
Wheeler Insurance, Ltd.
UK
UK
Washington
Arizona
Scotland
Scotland
France
Utah
Delaware
Vermont
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-05731,
333-132589, 333-132590, 333-132591, 333-132592, 333-145527, 333-190308) and on Forms S-3 (Registration Nos. 333-183070,
333-176957) of Pitney Bowes Inc. of our report dated February 21, 2014 relating to the financial statements, financial statement
schedule and the effectiveness of internal control over financial reporting, which appears in this Form
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 21, 2014
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Marc B. Lautenbach, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Pitney Bowes Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 21, 2014
/s/ Marc B. Lautenbach
Marc B. Lautenbach
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Michael Monahan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Pitney Bowes Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 21, 2014
/s/ Michael Monahan
Michael Monahan
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Pitney Bowes Inc. (the "Company") on Form 10-K for the year ended December 31,
2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marc B. Lautenbach, Chief
Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Marc B. Lautenbach
Marc B. Lautenbach
President and Chief Executive Officer
Date: February 21, 2014
The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. §1350, and is not being filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into
any filing of the Company.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Pitney Bowes Inc. (the "Company") on Form 10-K for the year ended December 31,
2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Monahan, Chief Financial
Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Michael Monahan
Michael Monahan
Executive Vice President and Chief Financial Officer
Date: February 21, 2014
The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. §1350, and is not being filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into
any filing of the Company.
Innovation to enable commerce has been
an essential part of the Pitney Bowes story
for over 93 years. In 2013, we began the
next chapter of our story with a focus on
innovation driven by our clients’ needs as
they navigate the complexities of global
commerce in the 21st century. We are off
to a good start and more opportunity lies
ahead. Our people are pulling together as
a team, executing on our strategies, and
enabling clients to use our technologies
and know-how to compete in their markets.
With the foundation that we have and the
transformation we have begun, the next
chapter promises to be a good one.
Stockholder Information
World Headquarters
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
203.356.5000
www.pb.com
Annual Meeting
Stockholders are cordially invited to attend the Annual
Meeting at 9:00 a.m., Monday, May 12, 2014, at Pitney Bowes
World Headquarters in Stamford, Connecticut. Notice of the
meeting will be mailed or made available to stockholders
of record as of March 14, 2014. Please refer to the Proxy
Statement for information concerning admission to the meeting.
10-K Report
Included in this Annual Report to Stockholders is a copy
of our Annual Report on Form 10-K for the fi scal year
ended December 31, 2013, as fi led with the Securities
and Exchange Commission, and can be viewed at http://
www.investorrelations.com. This Annual Report contains
statements that are forward-looking. These statements are
based on current expectations and assumptions that are
subject to risks and uncertainties. Actual results could differ
materially because of factors discussed in the Forward-
Looking Statements section of the Form 10-K. The CEO/CFO
certifi cations required to be fi led with the SEC under Section
302 of the Sarbanes-Oxley Act of 2002 were fi led as exhibits
to our Annual Report on Form 10-K for the fi scal year ended
December 31, 2013. The CEO certifi cation required to be
submitted to the NYSE pursuant to Section 303A.12(a) of the
NYSE Listed Company Manual was submitted on June 7, 2013.
Copies of our Form 10-K are available to stockholders without
charge upon written request to:
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Stock Exchanges
Pitney Bowes common stock is traded under the symbol
“PBI.” The principal market on which it is listed is the New
York Stock Exchange. The stock is also traded on the Chicago,
Philadelphia, Boston, Pacifi c and Cincinnati stock exchanges.
Investor Inquiries
All investor inquiries about Pitney Bowes should be
addressed to:
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Comments concerning the Annual Report
should be sent to:
Corporate Financial Communications
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Transfer Agent and Registrar
Computershare
PO Box 30170
College Station, TX 77842-3170
Stockholders may call Computershare at (800) 648-8170
www.computershare.com
Stockholder Inquiries
To provide or obtain information concerning transfer
requirements, lost certifi cates, dividends, changes of address
and other matters, please call: (800) 648-8170, TDD phone
service for the hearing impaired (800) 952-9245, for foreign
holders (781) 575-2721; or write to the address above.
Dividend Reinvestment Plan
Owners of Pitney Bowes Inc. common stock may purchase
common stock, $1 par value, with their dividends through the
Dividend Reinvestment Plan. A prospectus and enrollment
card may be obtained by calling (800) 648-8170 or by writing
to the agent at the address above.
Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or write to the agent at the address above.
Duplicate Mailings
If you receive duplicate mailings because you have more than
one account listing, you may wish to save your company money
by consolidating your accounts. Please call (800) 648-8170 or
write to the agent at the address above.
Stock Information
Dividends per common share:
Quarter
First
Second
Third
Fourth
Total
2013
$ .375
$ .1875
$ .1875
$ .1875
$ .9375
Quarterly price ranges of common stock:
2013 Quarter
First
Second
Third
Fourth
2012 Quarter
First
Second
Third
Fourth
High
$ 15.56
$ 16.43
$ 18.82
$ 24.18
High
$ 19.65
$ 17.87
$ 15.27
$ 14.73
2012
$
$
$
$
.375
.375
.375
.375
$ 1.50
Low
$ 10.71
$ 13.12
$ 13.76
$ 18.21
Low
$ 17.45
$ 12.81
$ 12.64
$ 10.34
Pitney Bowes, the Corporate logo, SendSuite Live, Spectrum
and Volly are trademarks of Pitney Bowes Inc. or a subsidiary.
All other trademarks are the property of their respective owners.
The materials used in this publication are recyclable.
The paper is certifi ed to Forest Stewardship Council™ (FSC®) standards.
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Pitney Bowes Annual Report 2013
1 Elmcroft Road, Stamford, CT 06926-0700 203.356.5000 www.pb.com
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