We’re
Pitney Bowes,
the Craftsmen
of Commerce.
Pitney Bowes Annual Report 2015
The world of commerce
needs craftsmen.
The world of
commerce is
complex. Now
more than
ever, you need
craftsmen to
get it right.
Commerce is filled with regulations,
risk, compliance issues and chaos. It’s
also filled with reward, growth and great
opportunity. To succeed, you need
precision and accuracy. The skills of a
craftsman. That’s us. Trusted craftsmen
who help 1.5 million small businesses
and 90% of the Fortune 500 power
their commerce across the physical
and digital landscape. We’re one of
the only companies who can help
you do business in both these worlds.
As craftsmen, we take great pride in
what we do. Always creating, shaping,
refining and optimizing. For a world
of commerce that demands precision
and nothing less. Pitney Bowes, the
Craftsmen of Commerce.
pitneybowes.com/craftsmenofcommerce
We are on a multi-year journey to unlock
greater value for clients and shareholders.
We’ve made steady progress in delivering
new value in new ways by combining our
strong foundation in physical commerce
with our growing capabilities in digital
commerce. We’re excited about the
meaningful opportunities ahead as we
continue to transform and leverage our
unique strengths.
One of the ways that we are taking
advantage of those growth opportunities
is by actively telling our story.
We’re a company who understands the
evolving complexities of modern commerce.
We’re a company who is skilled, committed
and positioned to partner with clients on
their success. We’re Pitney Bowes, the
Craftsmen of Commerce.TM
Lift the flap for more on why
commerce needs craftsmen.
Pitney Bowes Annual Report 2015 Marc B. Lautenbach
President and
Chief Executive Officer
Michael Monahan
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
Fellow shareholders:
Three years ago, we set a course to transform our business and
to build a bridge for Pitney Bowes to our second century. We
had no illusions that it would be easy. We knew there would be
challenges — that doing it right would take time, effort and a
sustained commitment. But we knew that if any company had the
capacity for transformation, it was Pitney Bowes. We had the right
businesses and opportunities to work with, and the evidence is
growing that we were right.
When we first automated business mail in 1920 — an industry we still lead 96 years later — our
founders had a singular mission that remains our overarching focus today: enabling commerce. Successive
generations built on this foundation, moving forward, innovating, always adapting — to new business
models, disruptive technologies and ever-changing client needs. They left us a great legacy of leadership
and excellence. Now it is our generation’s turn to take advantage of new opportunities and build the
kind of value that similarly endures.
That’s what our transformation has been about, and what it will continue to be about — creating value that
lasts not for a quarter or two but for decades to come — that enables us to begin a second century the way
we began the first one, as an innovator and market-maker with an unwavering focus on client needs.
1
Pitney Bowes Annual Report 2015 Automating Healthcare Communications to
Make it More Personal and Secure
A leading healthcare management services company, WESTMED
Practice Partners, needed a better way to process growing volumes
of transactional documents for physician networks and hospitals.
The New York-based company turned to Pitney Bowes to automate
patient bills and other communications, while enhancing document
integrity and patient confidentiality. The Pitney Bowes RelayTM
Inserting System combines mailing and digital technologies that
reduce the costs of document creation and distribution, consolidate
print operations and eliminate manual errors. In addition to increasing
operation efficiencies, our solution allows WESTMED to include
personalized content with each document, such as reminders for
preventive care, helping to drive one-on-one relationships that are
more satisfying and productive.
This inserter is part of the RelayTM Multi-Channel Communications
Suite, a cloud-based communications hub that we launched in 2015.
It provides a great example of utilizing our digital technologies to
create new value for our mailing clients.
Using Digital
Technologies to
Reinvent Mail
2
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 Our opportunities have never been greater than they
are today. The world of commerce we serve is more
exciting and complex than ever. It crosses borders
and cultures, and is becoming more accessible, fluid,
mobile, personal, customized and competitive. Clients
need Pitney Bowes to be craftsmen of commerce — to
facilitate cross-border commerce, to find and reach
the best customers, to leverage mountains of data
for intelligence and insight, and to keep sensitive
information secure. Most important, they depend on
us to tailor communications and deliver them the right
way to the right people. This builds relationships that
are not just more numerous, but also more satisfying
and productive.
Transformation, however, is not about building an
entirely new company. It’s about building on what has
always made us great while also taking advantage of
new opportunities and addressing the evolving needs
of our clients. This means leading not only in areas
where we’ve always excelled, but extending our
leadership into new realms, delivering physical and
digital solutions that enable clients to succeed today.
A Year of Progress
So how are we doing? Three years in, we continue to
make good progress against our long-term strategy:
to stabilize mail, improve operational efficiency and
grow our business by leveraging digital commerce.
We have made great strides in stabilizing mail. Now
we’re turning our attention to reinventing these core
businesses to deliver more value. By updating our
go-to-market approach and sharpening our geographic
focus in our major markets, we’re able to deliver a
better client experience and do it cost effectively. This
has resulted in enhanced sales productivity, improving
trends in equipment sales, and continued moderation
of the declines in recurring revenue. We saw continued
steady performance in Presort as we processed more
mail volumes and expanded the geographic reach
of our unique network of processing centers. In SMB
“Since our founding,
Pitney Bowes has been
about doing the right
thing, the right way.
This management team
and this transformation
are about building long-
term value for all of
our shareholders and
creating a platform
for our company to
have a successful
second century. We
will be unwavering
in our determination
to be true to our
company’s legacy.”
3
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 Our robust cross-
border ecommerce
platform enables
200+
clients
To sell into
220
countries and territories
And accept orders in
70+
currencies
4
and Production Mail we introduced new product
solutions and offerings such as Relay™ Multi-Channel
Communications Suite (see sidebar, p. 2), the
AcceleJet™ Printing and Finishing solution, and
Epic™ Inserter, all of which use digital technology
to create new capabilities.
We continued to improve our operational excellence
by reducing costs and improving management
of our assets. Since 2013, for example, we have
cut our inventory in half. Overall, we reduced Sales,
General and Administrative costs by 7 percent in
2015, and by more than $200 million since our
transformation started. We are poised to deliver
even more improvements in the years to come
through the combination of benefits from our
previous actions and the global implementation of
our new ERP system. ERP rolled out in Canada last
fall and is on track for a U.S. rollout in the first half
of 2016. The resulting global integrated platform
will enable us to enhance the client experience,
better leverage our scale, streamline processes and
improve operating efficiencies.
The Digital Commerce Solutions group led our
company’s revenue growth in 2015 with a 9 percent
increase on a constant currency basis — fueled by
a 30 percent year-over-year revenue gain in Global
Ecommerce, including incremental revenue from the
Borderfree acquisition, on a constant currency basis. We
also repositioned this portfolio for longer-term growth
through the acquisition of Borderfree and several other
companies, as well as the divestiture of Imagitas. The
acquisition of Borderfree allowed us to combine our
complementary strengths in enabling cross-border
commerce for large marketplaces and for retailers (see
sidebar, p. 5). Together we have created a unique and
robust cross-border ecommerce platform that provides
more than 200 clients with the ability to sell into 220
countries and territories, and accept orders in 70+
currencies. Our comprehensive end-to-end offerings,
capabilities and experience take the complexity out of
doing business across borders, from demand
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 Supporting Business
Anywhere to
Everywhere
Retailer Extends Reach Worldwide with
Pitney Bowes’ Ecommerce Platform
Even when a shopper is 8,000 miles from Neiman Marcus’
Dallas flagship store, she still can count on the same exceptional
experience from this luxury retailer. Neiman Marcus, synonymous
with the finest merchandise and superior customer service,
reaches discriminating shoppers across the globe through our
BorderfreeTM Retail solution. The Borderfree Retail solution
provides an end-to-end cross-border shopping experience that
goes beyond ordering and delivery. Our network of technology
and services provides localization, fully landed cost and
compliance, payment options, managed risk, logistics
management and customer care to ensure the shopper has
the best possible experience.
generation to customer care. We believe our portfolio
of businesses is now well-focused and positioned going
forward. I am very optimistic about this market and the
growth this business is likely to capture.
As with any long-term transformation, we had our
challenges during the past year. Progress rarely moves
in a straight line. The strong dollar had an impact on
results. So did missed opportunities in our software
business. However, we are forcefully addressing our
challenges, improving our execution and expanding
into new markets. Our clients tell us we have the right
products, and I firmly believe we have a good strategy
and are on the right track.
The evidence of our progress over the last three
years is clear and compelling. We have focused on
the basics, sold underperforming businesses, and
dramatically simplified our business model. The net
result is that during this three-year period, we have
created more than $1.5 billion of market capitalization,
paid off more than $1 billion of debt, grown our
Digital Commerce Solutions business at a 12 percent
compound annual growth rate, and performed near
the top of our peer group in terms of total shareholder
return. There is more to do for sure, but much has
been accomplished.
Leveraging Unique Strengths
As I wrote at the beginning, I can think of few companies
that have greater potential than Pitney Bowes.
Very few legacy companies like ours have the
technological edge we do, or the ability to move
that technology into their core business to create
more value. Likewise, very few emerging software
companies have access to 1.5 million existing small
business accounts, as well as the 90 percent of the
Fortune 500 who have been our longtime clients.
5
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 Combining Physical
and Digital Capabilities to
Make the Complex Clear
Healthcare Company Uses Interactive
Video to Inform and Inspire
For more than 80 years, BlueCross BlueShield of North Carolina (BCBSNC) has
been providing healthcare insurance to people statewide. Today it has more
than 3.9 million customers, and nothing is more important than making sure
they understand and make the most of their coverage.
Seeking a better way to cut through the complexities of healthcare and enable
people to make better decisions, BCBSNC turned to Pitney Bowes and its
interactive EngageOne® Video solution. The video technology uses big data
and predictive analytics to create a customized presentation that allows an
individual to interact with it in real time. With this highly personalized and
interactive platform, the company was able to produce videos that shaped
content to each customer’s profile, policy and interests. Customers now receive
EngageOne videos that help them understand the details of their plans and
printed billing statements, select healthcare providers, locate pharmacies and
compare prescription drug prices. They can also ask for more information
about topics of their choice, share information with dependents and set up
autopay so that they never miss a payment.
“Our people
are dedicated,
determined,
resolute and
passionate about
what they do.
They are upholding
our tradition of
doing the right
thing, the right way,
while delivering
value in entirely
new ways. They
are more than
employees — they
are true craftsmen
of commerce.”
6
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 Our technologies, assets and expertise in physical
and digital commerce are a significant advantage
across our portfolio. They enable our mail business
to leverage digital technology from our software
business to create innovative products (see sidebar,
p. 6), and our software business to leverage mail
business channels to sell digital products to our
worldwide base. At the same time, we’re creating
economies of scale that give us the reach to serve
clients of all sizes. All of this works together — but
that’s only half the story.
Today, disruption is accelerating as our clients
embrace new software and applications, cloud
computing, mobility, big data and the power of social
media. Because of our mix of businesses, we are able
to take advantage of all these trends, whether by
making it easier for clients to expand through
ecommerce in faraway markets, simplify overseas
shipping to make the consumer experience easy
and seamless, or use location intelligence technology
to help sales teams better understand markets and
enable social media companies to enhance the
user experience.
The rise of the Internet of Things, for example,
makes data mining and analytics important. By
connecting machines to machines and other devices,
the Internet of Things produces a layer of data that
clients can use in a variety of ways, from anticipating
customer needs and increasing operational efficiency
to reducing downtime. The partnership we unveiled
with GE this past fall enables us to bring new value
to our high-volume production mailers (see sidebar,
p. 8). All told, we are responding to what clients
increasingly need by taking advantage of the
synergies among our businesses.
Updating Our Brand
Of course, it’s not enough to be more relevant than
ever in the rapidly changing world of commerce.
We also have to make sure that client perceptions
Since our
transformation
began:
12%
revenue CAGR in Digital
Commerce Solutions
Created
$1.5B+
in market capitalization since
the end of 2012
Reduced SG&A
$200M
$1B+
in debt reduction
30%
total shareholder return
based on 3-year CAGR
7
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 Leveraging
the Industrial
Internet to
Bring New
Value
Pitney Bowes Collaborates with GE to
Optimize Production Mail Operations
Pitney Bowes is joining forces with GE to bring the power of the
Industrial Internet to production mail, using technology that connects
and gathers intelligence from sensors, machine data, people and
processes to optimize operations and drive higher performance.
Pitney Bowes’ ClarityTM Solutions Suite, running on GE’s Predix
platform, is able to integrate and organize data to support real-time
insight, predictive analytics and prescriptive maintenance. Using this
cloud-based SaaS solution, clients can raise machine efficiency by
as much as 10 percent, increasing runtime capacity and reducing
downtime risk. Clarity can also predict and resolve maintenance
issues before outages occur and optimize workflow by analyzing
interactions between operators, machines and jobs. What’s more,
by continuously aggregating data, Clarity only gets smarter — and
more valuable — over time.
“Production mail is all about getting the right information, in the
right envelope, to the right client at precisely the right time — and
doing it millions of times a day,” says Jason Dies, president of Pitney
Bowes Document Messaging Technologies. “Clarity provides views
and insights that were never possible before, from the performance
of a single motor in a mail machine to productivity benchmarks from
leading print and mail operations the world over. It’s arguably the
most significant innovation since the invention of automated
sorting equipment itself.”
8
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 keep up with the transformation of our enterprise. That
is why we’ve made a substantial investment in updating
our brand, launching the first major Pitney Bowes ad
campaign — “Craftsmen of Commerce” — in more than
a decade.
Craftsmen of Commerce is rooted as much in tradition
as it is in transformation. It circles back to the idea that
everything we do has its roots in what we have always
done. It highlights traditions that remain as relevant as
ever — accuracy, precision, attention to detail — but
describes how we’re adding leading-edge technology to
create a powerful value proposition in the 21st century.
This investment in our brand helps solidify our position
as a leading technology company that uniquely straddles
the intersecting worlds of physical and digital commerce.
As a result, there are clients worldwide who will see
Pitney Bowes in a whole new way. This is vital to our
success, both in our traditional businesses and in the
businesses that will drive our future growth.
Building a Bridge to Our Second Century
There is a growing orthodoxy in business today that
executives, investors and other stakeholders are overly
focused on the short term at the expense of the long-
term value. There is ample evidence to support this
thesis. Pitney Bowes proudly stands apart from this
trend. In a year with macroeconomic challenges, the
expedient thing to do would have been to “pause”
our ERP project, defer our much-needed rebranding
campaign and slash development. These would
have been the easy things to do, but they would
not have been the right things to do.
Since our founding, Pitney Bowes has been about
doing the right thing, the right way. This management
team and this transformation are about building long-
term value for all of our shareholders and creating a
platform for our company to have a successful second
century. We will be unwavering in our determination
to be true to our company’s legacy.
Our Greatest Advantage
Midway through our transformation, it is clear to
me that the success we’ve had is based on some very
important advantages: solid, integrated businesses with
highly relevant products … a vision and strategy that
are resonating extremely well with our clients … a strong
balance sheet that enables us to invest in innovation
and growth … and a business model that creates new
market opportunities. Very few companies have all of
these assets.
When I think about what best symbolizes our year,
it is the new clients we’ve added, including a list of
world-class retailers who have come to us because
of our ecommerce platform. You can tell a lot about
a company by the company it keeps, and I’m proud of
the work we’ve done to attract these global clients.
This roster looks great in the business press, and it
says a lot about our progress.
But what most people don’t see — and what gratifies
me the most as I travel around the company — is the
engagement and enthusiasm of our people. They
have embraced the responsibility of moving our
company forward — of creating lasting value for
our shareholders by delivering real value to clients
worldwide. Our people are dedicated, determined,
resolute and passionate about what they do. They are
upholding our tradition of doing the right thing, the
right way, while delivering value in entirely new ways.
They are more than employees — they are true
craftsmen of commerce.
Marc B. Lautenbach
President and
Chief Executive Officer
9
Pitney Bowes Annual Report 2015Pitney Bowes Annual Report 2015 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
Dividends per share of common stock
Weighted average diluted shares outstanding
Total assets
Total debt
Stockholders’ equity
Total employees
As adjusted
EBIT
Income from continuing operations
Diluted earnings per share from continuing operations
Free cash fl ow
EBIT to interest
2015
2014
2013
$ 3,578,060
$ 402,672
2.00
$
514,639
$
$ 173,312
$ 166,329
0.75
$
200,944,874
$ 6,141,642
$ 2,968,997
$ 178,721
14,837
$ 716,126
$ 351,726
1.75
$
$ 456,474
4.5
$ 3,821,504
$ 300,006
$
1.47
$ 655,526
$ 198,088
$ 180,556
$
0.75
$ 3,791,335
$ 287,612
$
1.42
$ 624,824
$ 211,243
$ 137,512
$
0.94
203,961,446
202,956,738
$ 6,499,702
$ 3,252,006
$
77,259
15,159
$ 730,944
$ 387,414
$
1.90
$ 571,386
4.3
$ 6,777,436
$ 3,346,295
$ 205,176
16,097
$ 687,924
$ 366,547
$
1.81
$ 634,912
3.7
10
Pitney Bowes Annual Report 2015
48328_TXT.indd 10
48328_TXT.indd 10
3/11/16 3:50 PM
3/11/16 3:50 PM
Reconciliation of Reported Consolidated
Results to Adjusted Results
For the year
(Dollars in thousands, except per share data)
Income from continuing operations before income taxes, as reported
Restructuring charges and asset impairments, net
Gain on sale/disposition of businesses
Acquisition and disposition transaction costs
Legal settlement
Acquisition-related compensation expense
Investment divestiture
Extinguishment of debt
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
Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
2015
2014
2013
$ 431,196
84,560
$ 383,954
84,344
$ 610,825
25,782
(107,268)
9,930
6,900
10,483
100
—
556,752
186,651
18,375
351,726
159,374
186,651
—
—
—
—
(15,919)
61,657
561,494
155,705
18,375
387,414
169,450
155,705
—
—
—
—
—
32,639
500,937
116,015
18,375
366,547
186,987
116,015
18,375
18,375
18,375
EBIT
$ 716,126
$ 730,944
$ 687,924
Diluted earnings per share from continuing operations, as reported
$
Restructuring charges and asset impairments, net
Gain on sale/disposition of businesses
Acquisition and disposition transaction costs
Legal settlement
Acquisition-related compensation expense
Investment divestiture
Extinguishment of debt
2.00
0.09
(0.42)
0.06
0.02
0.04
(0.04)
—
$
1.47
0.29
$
1.42
0.29
—
—
—
—
(0.05)
0.19
—
—
—
—
—
0.10
Diluted earnings per share from continuing operations, as adjusted
$
1.75
$
1.90
$
1.81
Net cash provided by operating activities, as reported
Capital expenditures
Restructuring payments
Net tax and other payments (receipts)
Reserve account deposits
Acquisition-related compensation payment
Tax payment related to sale of Imagitas
Cash transaction fees related to acquisitions and dispositions
Extinguishment of debt
Free cash fl ow, as adjusted
$ 514,639
(166,329)
62,086
20,602
(24,202)
10,483
21,224
17,971
—
$ 655,526
(180,556)
56,162
(5,737)
(15,666)
—
—
—
$ 624,824
(137,512)
59,520
75,545
(20,104)
—
—
—
61,657
32,639
$ 456,474
$ 571,386
$ 634,912
The sum of earnings per share amounts may not equal the totals due to rounding.
The Company’s fi nancial results are reported in accordance with generally accepted accounting principles (GAAP). The Company uses measures such as adjusted earnings before interest and
taxes (EBIT), adjusted earnings per share, adjusted income from continuing operations and free cash fl ow to exclude the impact of special items like restructuring charges, tax adjustments,
and goodwill and asset write-downs, because, while these are actual Company expenses, they can mask underlying trends associated with its business. Such items are often inconsistent
in amount and frequency and as such, the adjustments allow an investor greater insight into, and are intended to be more indicative of, the current fundamental operating trends, ongoing
operations and economic results of the Company.
Free cash fl ow measures have limitations, which management compensates for by using a combination of GAAP cash fl ow and free cash fl ow in doing its planning. However, free cash fl ow
provides investors insight into the amount of cash that management could have available for other discretionary uses. It adjusts GAAP cash from operations for capital expenditures, as well
as special items like cash used for restructuring charges, unusual tax settlements or payments and contributions to pension funds.
The 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 adjusted fi nancial
measures may diff er from similarly titled measures used by other companies.
Pitney Bowes Annual Report 2015
11
48328_TXT.indd 11
48328_TXT.indd 11
3/11/16 3:50 PM
3/11/16 3:50 PM
Christoph Stehmann
Executive Vice President,
and President, Enterprise
Solutions Group
Johnna G. Torsone
Executive Vice President
and Chief Human Resources
Offi cer
Mark F. Wright
Executive Vice President,
Strategic Growth Initiatives
Stockholders may visit the
Pitney Bowes corporate governance
website at www.pitneybowes.com
under Our Company — Meet Our
Leaders — 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.
Directors and Corporate Offi cers
Directors
Corporate Offi cers
Linda G. Alvarado
President and
Chief Executive Offi cer,
Alvarado Construction, Inc.
Anne M. Busquet
Principal,
AMB Advisors, LLC
Roger Fradin
Vice Chairman,
Honeywell International Inc.
Anne Sutherland Fuchs
Consultant
S. Douglas Hutcheson
Chief Executive Offi cer,
Laser, Inc.
Marc B. Lautenbach
President and
Chief Executive Offi cer,
Pitney Bowes Inc.
Eduardo R. Menascé
Co-Chairman,
The Taylor Companies
Michael I. Roth
Chairman and
Chief Executive Offi cer,
The Interpublic Group of
Companies, Inc.
Non-Executive Chairman,
Pitney Bowes Inc.
Linda S. Sanford
Retired Senior Vice President,
Enterprise Transformation,
International Business Machines
Corporation (IBM)
David L. Shedlarz
Retired Vice Chairman,
Pfi zer Inc.
David B. Snow, Jr.
Chairman and
Chief Executive Offi cer,
Cedar Gate Technologies, Inc.
Marc B. Lautenbach
President and
Chief Executive Offi cer
Daniel J. Goldstein
Executive Vice President,
Chief Legal Offi cer and
Corporate Secretary
Steven J. Green
Vice President Finance
and Chief Accounting Offi cer
Robert E. Guidotti
Executive Vice President
and President, Software Solutions
Abby F. Kohnstamm
Executive Vice President
and Chief Marketing Offi cer
Michael Monahan
Executive Vice President,
Chief Operating Offi cer
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
Mark L. Shearer
Executive Vice President
and President,
Pitney Bowes SMB
Solutions
Lila Snyder
Executive Vice President,
and President, Global Ecommerce
12
Pitney Bowes Annual Report 2015
48328_TXT.indd 12
48328_TXT.indd 12
3/11/16 3:50 PM
3/11/16 3:50 PM
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, 2015
Commission file number: 1-3579
PITNEY BOWES INC.
Incorporated in Delaware
3001 Summer Street, Stamford, CT 06926
(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, 2015, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $4.2 billion 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 18, 2016: 191,560,676 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 9, 2016, are incorporated by
reference in Part III of this Form 10-K.
1
PITNEY BOWES INC.
TABLE OF CONTENTS
PART I
Page Number
Item 1.
Item 1A. Risk Factors
Business
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
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. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships, Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
Signatures
Consolidated Financial Statements and Supplemental Data
3
9
13
13
13
13
13
16
17
32
32
32
33
33
34
34
34
34
34
35
37
38
2
PART I
Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report) contains statements that are forward-looking. We want to caution readers that any
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 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
competitive factors, including pricing pressures, technological developments and introduction of new products and services by
competitors
our success in developing new products and services, including digital-based products and services, obtaining regulatory approval
if required, and the market’s acceptance of these new products and services
our ability to successfully implement and transition to a new Enterprise Resource Planning (ERP) system in the United States
without significant disruption to existing operations
the success of our investment in rebranding the company to build market awareness and create new demand for our businesses
changes in postal or banking regulations
• macroeconomic factors, including global and regional business conditions that adversely impact customer demand, access to
capital markets at reasonable costs, changes in interest rates, foreign currency exchange rates and fuel prices
•
•
•
•
•
•
•
•
•
•
•
the continued availability and security of key information systems and the cost to comply with information security requirements
and privacy laws
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
the loss of some of our larger clients in the Global Ecommerce segment
integrating newly acquired businesses including operations and product and service offerings
intellectual property infringement claims
our success at managing customer credit risk
significant changes in pension, health care and retiree medical costs
income tax adjustments or other regulatory levies for prior audit years and changes in tax laws, rulings or regulations
a disruption of our businesses due to changes in international or national political conditions, including the use of the mail for
transmitting harmful biological agents or other terrorist attacks
acts of nature
Other risks that may also adversely impact us are more fully described under Item 1A. "Risk Factors" in this Annual Report.
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 technology company
offering innovative products and solutions that help our clients navigate the complex world of commerce. We offer customer information
management, location intelligence and customer engagement products and solutions to help our clients market to their customers, and
shipping and mailing, and cross border ecommerce products and solutions that enable the sending of parcels and packages across the
globe. More than 1.5 million clients around the world rely on our products, solutions and services. For more information about us, our
products, services and solutions, visit www.pb.com.
3
Our Strategy and Business Segments
Our business is organized around three distinct sets of solutions -- Small and Medium Business Solutions (SMB), Enterprise Business
Solutions and Digital Commerce Solutions (DCS).
Small and Medium Business Solutions
We are a global leader in providing a full range of equipment, software, supplies and services that enable our clients to efficiently create
physical and digital mail and evidence postage for the sending of mail, flats and parcels. We segment the SMB Solutions group between
our North America operations, comprising the U.S. and Canadian businesses, and our International operations, comprising all other SMB
businesses globally. We are a leading provider of mailing systems globally with about 900,000 meters installed in our North America
operations and over 300,000 meters installed elsewhere. This business is characterized by a high level of recurring revenue driven by
rental, lease and loan arrangements, contract support services and supplies sales.
Enterprise Business Solutions
Our Enterprise Business Solutions group includes equipment and services that enable large enterprises to process inbound and outbound
mail. The Enterprise Business Solutions group includes our Production Mail operations and Presort Services operations.
Production Mail
Our product and service offerings enable clients to integrate all areas of print and mail into an end-to-end production environment from
message creation to dispatch while realizing cost savings on postage. The core products within this segment include high-speed, high-
volume inserting equipment, customized sortation products for mail and parcels and high-speed digital color printing systems that create
high-value, relevant and timely communications targeted to our clients' customers. Beginning in 2016, we will offer new services and
technical innovations including cloud connectivity for machines.
Presort Services
We are a national outsource provider of mail presort services for first-class, standard-class and flat mail in the U.S. and a workshare
partner of the United States Postal Service (USPS). Our Presort Services network and fully-customized proprietary technology provides
our clients with end-to-end solutions from pick up at their location to delivery into the postal system network. We process approximately
15 billion pieces of mail annually and are able to expedite mail delivery and optimize postage savings for our clients.
Digital Commerce Solutions
Within the Digital Commerce Solutions group, we provide a broad range of solutions, including customer information management,
location intelligence and customer engagement software and shipping management and cross border ecommerce solutions for businesses
of all sizes. These solutions are primarily delivered as traditional software licenses, enterprise platforms, software-as-a-service (SaaS)
and on-demand applications. Our Digital Commerce Solutions group includes Software Solutions and Global Ecommerce.
Software Solutions
Customer information management solutions help businesses 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 allow our
clients to deliver a personalized customer experience across multiple channels, manage risk and compliance, and improve sales, marketing
and service effectiveness. We are one of the market leaders in the data quality segment. Large corporations and government agencies rely
on our products in complex, high-volume, transactional environments to support their business processes.
Location intelligence solutions enable our clients to organize and understand the complex relationships between location, geographic
and other forms of data to drive business decisions and customer experiences. Our location intelligence solutions use predictive analytics,
location, geographic and socio-demographic characteristics, which enable our clients to harness the power of location to better serve their
customers, solve business problems, deliver location-based services and ultimately drive business growth.
Customer engagement solutions provide clients with insight and understanding into customer behavior and interactions across the entire
customer lifecycle, enabling them to orchestrate impactful, relevant and timely physical and digital interactions. When coupled with our
inserting, sortation and digital print products, we are able to provide clients an all-inclusive solution that enables them to create, print
and distribute wide-spread targeted customer communications. Our customer engagement solutions enable our clients to create connected
experiences that positively influence future consumer behavior and generate business growth.
4
Global Ecommerce
Global Ecommerce includes our cross-border ecommerce solutions and shipping management solutions. Our cross-border ecommerce
technology and services platforms enable retailers to transact with consumers globally. With our proprietary technology, we are able to
manage all aspects of the international shopping and shipping experience, including multi-currency pricing, payment processing, fraud
management, calculation of fully landed costs by quoting duty, taxes and shipping at checkout, compliance with product restrictions,
export complexities and documentation requirements for customs clearance and brokerage and global logistics services. Our cross-border
ecommerce software platforms are currently utilized by over 250 direct merchants as well as a major online marketplace enabling millions
of parcels to be shipped to over 200 countries and territories worldwide. In 2015, we expanded our cross-border ecommerce capabilities
through the acquisition of Borderfree, Inc. See Note 3 to the Consolidated Financial Statements.
Shipping management solutions enable clients to reduce transportation and logistics costs, select the best carrier based on need and cost,
improve delivery times and track packages in real-time. We also offer scalable global logistics management systems that can be integrated
into mail centers for the office and retail markets, as well as desktop and production shipping environments.
See Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to the Consolidated
Financial Statements for additional segment and geographic information.
Client Service
We have a client care service organization that provides telephone, online and on-site support to diagnose and repair our increasingly
complex mailing equipment, production printers and sophisticated software solutions. Most of our support services are provided under
annual contracts.
Sales and Marketing
We market our products and services through a direct and inside sales force, direct mailings, telemarketing, independent dealers and
distributors and web channels. We sell to a variety of business, governmental, institutional and other organizations, and in our Ecommerce
business only, we also sell to consumers as well as a variety of businesses. We have a broad base of clients and are not dependent upon
any one client or type of client for a significant part of our total revenue.
In 2014, we began a phased roll-out in our SMB Solutions operations of a strategy designed to provide clients broader access to products
and services, improve the sales process and reduce costs by shifting more of our client coverage from field sales to inside sales. During
2015, we successfully rolled out this strategy worldwide and in 2016, we will begin shifting more client coverage activity to web channels.
We have made, and are continuing to make, significant investments in the rebranding of the company. These investments include marketing
and advertising spending designed to build market awareness and client demand for our products and services, and enhance our operational
and go-to-market changes, including how we sell to and service clients.
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. We will encounter new competitors as we transition to higher
value markets and offerings and enter new markets.
A summary of the competitive environment for each of our business segments is as follows:
North America Mailing and International Mailing
We face significant competition from other mail equipment and software companies, companies that offer products and services as
alternative means of message communications and non-traditional competitors that offer shipping and mailing products and services
through online solutions. The principal competitive factors include the composition of offerings between software and hardware solutions,
pricing, available financing and payment offerings, product reliability, support services, industry knowledge and expertise and
attractiveness of alternative communication methods. Our competitive advantage includes our breadth of physical and web-based digital
offerings, customer service and our extensive knowledge of the shipping and mailing industry.
5
Through our wholly owned subsidiary, The Pitney Bowes Bank (the Bank), we offer a revolving credit solution to our SMB clients in
the United States that enables them to pay for postage, the rental of certain mailing equipment and purchase products, supplies and
services. The Bank also provides an interest-bearing deposit solution to those clients in the United States who prefer to prepay postage.
We also provide similar revolving credit solutions to our clients in Canada and the U.K but do not offer these through the Bank in overseas
markets. Our financing operations face competition, in varying degrees, from large, diversified financial institutions, including leasing
companies, commercial finance companies and commercial banks, as well as small, specialized firms. Not all our competitors are able
to offer these financing and payment solutions to their customers and we believe these solutions differentiate us from our competitors
and are a source of competitive advantage. 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.
Production Mail
We face competition from other companies that offer large production printers, inserters or sorters. We also face competition from the
fact that some companies choose to outsource although those outsource providers can also be our customers. Our competitive advantage
lies in our ability to offer all of these products and services and integrate them into an end-to-end solution. The principal competitive
factors include functionality, reliability, productivity, price and support.
Presort Services
We face competition from regional and local presort providers, service bureaus that offer presort solutions as part of a larger bundle of
outsourcing services and large entities that have the capability to presort their own mailings in-house. The principal competitive factors
include innovative service, delivery speed, industry expertise and economies of scale. Our competitive advantage includes our extensive
network of presort facilities capable of processing significant volumes of mail and our innovative and proprietary technology that enables
us to provide our clients with reliable and accurate services at maximum discounts.
Software Solutions
We operate in several highly competitive and rapidly evolving markets and face competition ranging from large global companies that
offer a broad suite of solutions to smaller, more narrowly-focused companies that can design very targeted solutions. The principal
competitive factors include reliability, functionality and ease of integration and use, scalability, innovation, support services and price.
We compete based on the accuracy and processing speed of our solutions, particularly those used in our location intelligence solutions,
the breadth and scalability of our products and solutions, our geocoding and reverse geocoding capabilities, and our ability to identify
rapidly changing customer needs and develop technologies and solutions to meet these changing needs.
Global Ecommerce
The market for international ecommerce software and fulfillment services is highly fragmented, and includes competitors of various
sizes, including companies with greater financial resources than us, some that specialize in point solutions or freight forwarding services,
full-service ecommerce business process outsourcers and online marketplaces with international logistic support. In addition, major global
delivery services companies are acquiring the technology to improve their cross border ecommerce shipping capabilities. The principal
competitive factors include reliability, functionality and ease of integration and use, scalability, innovation, support services and price.
We compete based on the accuracy, reliability and scalability of our platform, and our ability to provide our clients and their customers
a one-stop full-service cross border ecommerce experience.
Financing Solutions
We offer a variety of finance and payment solutions to 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 a systematic decision
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.
6
Research, Development and Intellectual Property
We invest in research and development programs to develop new products and solutions, enhance the effectiveness and functionality of
existing products and solutions and deliver high value technology, innovative software and differentiated services in high value segments
of the market. 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. However, our businesses are not materially dependent on any one patent or license or group of related
patents or licenses. Research and development expenditures were $110 million, in each of 2015, 2014 and 2013.
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. We are further subject to the regulations of the State of Utah Department of Financial Institutions and the FDIC with
respect to the operations of the Bank and certain company affiliates that provide services to the Bank. We are also subject to the regulations
of transportation, customs and other trade authorities worldwide related to the cross-border shipment of equipment, materials and parcels.
In addition, we are subject to regulations worldwide concerning data privacy and security for our businesses that use, process and store
certain personal, confidential or proprietary data.
Employees and Employee Relations
At December 31, 2015, we have approximately 10,500 employees in North America and 4,300 employees internationally. We believe
that our current relations with employees are good. Management keeps employees informed of decisions and encourages and implements
employee suggestions whenever practicable.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto filed
with, or furnished to, the Securities and Exchange Commission (the SEC), 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.
7
Executive Officers of the Registrant
Our executive officers are as follows:
Name
Age
Title
Executive
Officer Since
Marc B. Lautenbach
Daniel J. Goldstein
Robert Guidotti
Abby F. Kohnstamm
Michael Monahan
Roger J. Pilc
Mark L. Shearer
Lila Snyder
Christoph Stehmann
Johnna G. Torsone
Mark F. Wright
54
54
58
62
55
48
59
43
53
65
58
President and Chief Executive Officer
Executive Vice President and Chief Legal Officer and Corporate Secretary
Executive Vice President and President, Software Solutions
Executive Vice President and Chief Marketing Officer
Executive Vice President, Chief Operating Officer 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 President, Global Ecommerce
Executive Vice President and President, Enterprise Solutions Group
Executive Vice President and Chief Human Resources Officer
Executive Vice President, Strategic Growth Initiatives
2012
2010
2016
2013
2005
2013
2013
2016
2016
1993
2013
There are no family relationships among the above officers. All of the officers have served in various executive 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. Guidotti was appointed Executive Vice President and President, Software Solutions in January 2016. Before joining Pitney Bowes,
Mr. Guidotti has been in the software industry for over 20 years and held a series of executive positions at IBM including General Manager,
Software Sales where he was responsible for sales, technical sales, and channels for the $23 billion Software portfolio worldwide.
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, he served as Vice President, Marketing and Strategy for
IBM’s hardware business.
Ms. Snyder was elected to the office of Executive Vice President by the board of directors in January 2016. She joined the company in
November 2013 as President, Document Messaging Technologies (DMT) and became President, Global Ecommerce in June 2015. Prior
to joining Pitney Bowes, Ms. Snyder was a Partner at McKinsey & Company, Inc. In her 15 years at McKinsey, she focused on serving
clients in the technology, media and communications sectors and was the leader of McKinsey's Stamford office.
8
Mr. Wright joined the company as Executive Vice President and President, Pitney Bowes Software Solutions in April 2013. He was
elected Executive Vice President and President, Pitney Bowes Digital Commerce Solutions in February 2014. In January 2016 he was
elected Executive Vice President, Strategic Growth Initiatives. Before joining Pitney Bowes, Mr. Wright served as Executive Vice
President, Enterprise Solutions Group for Infor Global Solutions.
ITEM 1A. RISK FACTORS
Our operations face certain risks that should be considered in evaluating our business. We manage and mitigate these risks on a proactive
basis, 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.
A significant portion of our revenue and profitability 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 revenue and profitability 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.
If we are not able to respond to the continuing decline in the volume of physical mail delivered via traditional postal services, our results
of operations and profitability could be adversely impacted.
Declining 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 continue to employ strategies for stabilizing the mailing business which include new product and service
offerings, transitioning our current products and services to more digital offerings and providing our clients broader access to products
and services through online and direct sales channels. There is no guarantee that these offerings will be widely accepted in the marketplace,
and they will likely face competition from existing and emerging alternative products and services.
Further, an accelerated or sudden decline in physical mail volumes could have an adverse effect on our mailing business. An accelerated
or sudden decline could result from, among other things, changes in our clients' communication behavior, changes in communication
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 meeting the continuing challenges faced in our mailing business, or if physical mail volumes were to experience
an accelerated or sudden decline, our financial results could be negatively impacted.
We may not realize the anticipated benefits from our implementation of a new Enterprise Resource Planning (ERP) system, and the
transition to the new ERP system may not be uninterrupted or error-free.
We have made, and will continue to make, significant investments in the development and implementation of a new ERP system that is
expected to provide operating cost savings through the elimination of redundant systems and strategic efficiencies through the use of a
standardized, integrated system. In the fourth quarter of 2015, we completed the implementation of the ERP system for our Canadian
operations and will begin implementing this system in the U.S. in 2016. If the implementation of the ERP system in the U.S. is not
successful, or is delayed, the expected operating cost savings and strategic efficiencies may be delayed or may not be obtained or sustainable
and may prevent us from introducing new products or services.
Further, the transition to the new ERP system will affect numerous systems necessary for the company's operation. If we fail to correctly
implement one or more components of the ERP system, we could experience significant disruption to our operations. Such disruptions
could include, among other things, temporary loss of data, inability to process certain orders, failure of systems to communicate with
each other and the inability to track or reconcile key data.
9
If we are unable to protect our information technology systems against service interruptions, misappropriation of data, or breaches of
security resulting from cyber-attacks or other events, or we encounter other unforeseen difficulties in the operation of our information
technology systems, our operations could be disrupted, our reputation may be harmed and we could be subject to legal liability or
regulatory enforcement action.
We rely on the continuous and uninterrupted performance of our information technology systems to support numerous business processes
and activities, to support and service our clients, to support consumer transactions and to support postal services. Several of our businesses
use, process and store proprietary information and sensitive or confidential data relating to our businesses, our clients, consumers and
our employees. Privacy laws and similar regulations in many jurisdictions where we do business require that we take significant steps to
safeguard such information, and such legal requirements continue to evolve. In today's environment there are numerous risks to
cybersecurity and privacy, including individual and groups of criminal hackers, industrial espionage, employee errors and/or malfeasance
and technological errors. These cyber threats are constantly evolving, thereby increasing the difficulty of detecting and successfully
defending against them. We have security systems and procedures in place designed to ensure the continuous and uninterrupted
performance of our information technology systems and protect against unauthorized access to such information. However, there is no
guarantee that these security measures will prevent or detect the unauthorized access by experienced computer programmers, hackers or
others. Successful breaches could, among other things, result in the unauthorized disclosure, theft and misuse of company, client, consumer
and employee sensitive and confidential information, disrupt the performance of our information technology systems and deny services
to our clients. Additionally, we could be exposed to potential liability, litigation, governmental inquiries, investigations or regulatory
enforcement actions, our brand and reputation damaged, and we could be subject to the payment of fines or other penalties, legal claims
by our clients and significant remediation costs.
Our systems are also subject to adverse acts of nature, computer viruses, vandalism, power loss, computer or communications failures
and other unexpected events. We have business continuity and disaster recovery plans in place to protect our business operations in case
of such events; however, there can be no guarantee that these plans will function as designed. 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.
We depend on third-party suppliers and outsource providers and our business could be adversely affected if we fail to manage these
vendors 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, the hosting of our software-as-a-service offerings, as well as the logistics portion of our cross-border
ecommerce business, 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, consumers
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.
Capital market disruptions and credit rating downgrades could adversely affect our ability to provide competitive financing services to
our clients and to fund various discretionary priorities.
Our financing activities include, among other things, providing competitive financing offerings to our clients and funding various
discretionary priorities, such as business investments, strategic acquisitions, share repurchases and dividend payments. We fund these
activities through a combination of cash generated from operations, deposits held in the Bank, commercial paper borrowings and long-
term borrowings.
Our ability to fund these activities is dependent, in part, upon our ability to borrow and the cost of borrowing in U.S. capital markets.
This ability and the cost, in turn, is dependent upon our credit ratings and is subject to capital market volatility. A credit ratings downgrade,
an increase in the company's credit default swap spread, 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 and fund other financing activities, which in turn, could adversely affect our revenue, profitability and
financial condition.
10
The international nature of our Global Ecommerce segment subjects us to increased customs and regulatory risks from cross-border
transactions, and fluctuations in foreign currency exchange rates. Further, the loss of any of our largest clients in our Global Ecommerce
segment could have a material adverse effect on the segment.
International sales generated by our clients processing transactions through our platform are the primary source of both revenue and profit
for the Global Ecommerce segment. Our Global Ecommerce segment is subject to significant trade regulations, taxes, and duties throughout
the world. Any changes to these regulations could potentially impose increased documentation and delivery requirements, increase costs,
delay delivery times, and subject us to additional liabilities, which could negatively impact our ability to compete in international markets
and adversely impact our revenues and profitability.
The operating results of, and sales generated from, many of our clients’ internationally focused websites running on our platform are
exposed to foreign exchange rate fluctuations. Currently, our platforms are located in the United States and United Kingdom and a majority
of consumers making purchases through these platforms are in a limited number of foreign countries. A strengthening of the U.S. Dollar
or British Pound relative to currencies in the countries where we do the most business impacts our ability to compete internationally as
the cost of similar international products improves relative to the cost of U.S. and U.K. retailers' products. A strong U.S. Dollar or British
Pound would likely result in a decrease in international sales volumes, which would adversely affect the segment's revenue and profitability.
The Global Ecommerce segment is dependent on a relatively small number of significant clients and business partners for a large portion
of its revenue. The loss of any of these larger clients or business partners, or a substantial reduction in their use of our products or services,
could have a material adverse effect on the revenue and profitability of the segment. There can be no assurance that our larger clients
and business partners will continue to utilize our products or services at current levels, or that we would be able to replace any of these
clients or business partners with others who can generate revenue at current levels.
Our inability to obtain and protect our intellectual property and defend against claims of infringement by others may negatively impact
our operating results.
Our business success depends in part upon protecting our intellectual property rights, including proprietary technology developed or
obtained through acquisitions. We rely on copyrights, patents, trademarks and trade secrets and other intellectual property laws to establish
and protect our proprietary rights. If we are unable to protect our intellectual property rights, our competitive position may suffer which
could adversely affect our revenue and profitability.
From time to time, third-parties may claim that we, our clients, or our suppliers, have infringed their intellectual property rights. These
claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards,
or face a temporary or permanent injunction prohibiting us from marketing or selling certain products.
If we fail to comply with government contracting regulations, our 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 and investigations by government agencies. If one or more government
agencies discovers instances of contractual non-compliance in the course of an audit or investigation, we may be subject to various civil
or criminal penalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments
received, fines and debarment from doing business with one or more governments. Any of these events could not only affect us financially,
but also adversely affect our brand and reputation.
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 make strategic acquisitions or divest certain businesses. These acquisitions and divestitures may involve
significant risks and uncertainties, which could have an adverse effect on our operating results, including:
•
•
•
•
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 businesses;
the loss of key employees or clients of businesses acquired or divested; and
significant charges to earnings for employee severance and other restructuring costs, goodwill and asset impairments and legal,
accounting and financial advisory fees.
11
Our investment in rebranding the company and enhancing marketing programs to build the market awareness necessary to create demand
for our businesses may not result in increased revenue and could adversely affect our profitability.
Our new brand strategy and identity are important to the next phase of our global business transformation. Our phased roll-out of the
new branding through an advertising campaign, which is now entering a new phase in its progress, is integrated into the way we sell and
service clients, and acquire new clients, including sales collateral and the digital experience of getting information, service performance
and transacting on our website. These factors are important to maintaining acceptance of our products and services by our existing clients
and achieving increased acceptance with new clients. We expect increased spending in brand development and marketing promotion
activities and if this increased spending does not result in increased revenue sufficient to offset these expenses, our profitability could be
adversely affected.
Our operational costs could increase from changes in environmental regulations, or it could be subject to significant liabilities.
We are subject to various federal, state, local and foreign environmental protection laws and regulations around the world, including
without limitation, those related to the manufacture, distribution, use, packaging, labeling, recycling or disposal of our products or the
products of our clients for whom we perform services. Environmental rules concerning products and packaging can have a significant
impact on the cost of operations or affect our ability to do business in certain countries. We are also subject to laws concerning use,
discharge or disposal of materials. All of these laws are complex, change frequently and have tended to become more stringent over time.
If we are found to have violated these laws, we could be fined, criminally charged, otherwise sanctioned by regulators, or we could be
subject to liability and clean-up costs. These risk can apply to both current and legacy operations and sites. From time to time, we may
be involved in litigation over these issues. The amount and timing of costs under environmental laws are difficult to predict and there
can be no assurance that these costs will not have an adverse effect our financial condition, results of operations or cash flows.
12
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own or lease numerous facilities worldwide, which house general offices, including our corporate headquarters located in Stamford,
Connecticut, sales offices, service locations, data centers and call centers. We conduct research and development, manufacturing and
assembly, product management, information technology and many other activities at our Global Technology Center located in Danbury,
Connecticut. Our other primary research and development facility is located in Noida, India. 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 provided information to the DOJ in response to letter requests and the CID. On October 9, 2015, we reached a settlement
with the DOJ without any admission of liability, for $7 million, net of recoveries.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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,
2016, we had 17,989 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.
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Price
High
Low
Dividend Per
Share
$
$
$
$
$
$
$
$
24.60
23.93
21.64
21.76
26.63
28.23
28.37
25.68
$
$
$
$
$
$
$
$
21.15
20.79
18.59
19.12
21.01
24.06
24.63
22.38
$
$
$
$
0.1875
0.1875
0.1875
0.1875
0.75
0.1875
0.1875
0.1875
0.1875
0.75
13
Share Repurchases
We may periodically repurchase shares of our common stock to manage the dilution created by shares issued under employee stock plans
and for other purposes. For the full year 2015, we repurchased 6,655,196 shares of our common stock at an average share price of $20.35.
The following table provides information about our purchases of our common stock during the three months ended December 31, 2015:
Beginning balance
October 2015
November 2015
December 2015
Number of
shares purchased
Average price
paid per share
Number of
shares
purchased
as part of a
publicly
announced plan
Approximate
dollar value of
shares that may
be purchased
under the plan (in
thousands) (1)
—
—
1,744,600
1,744,600
$
$
—
—
20.31
20.31
—
—
1,744,600
1,744,600
$100,000
$100,000
$100,000
$64,567
(1) In September 2015, we received authorization from our Board of Directors to repurchase $100 million of our common stock. The
plan does not have an expiration date.
In February 2016, we received authorization from our Board of Directors to repurchase an additional $150 million of outstanding stock.
Stock Performance Graph
Our peer group is comprised of: Alliance Data Systems Corporation, Diebold, Incorporated, DST Systems Inc., EchoStar Corp., Fidelity
National Information Services, Inc., Fiserv, Inc., Harris Corporation, Iron Mountain Inc., Lexmark International Inc., NCR Corp., Pitney
Bowes Inc., R.R. Donnelley & Sons Company, Rockwell Automation Inc., Unisys Corporation, The Western Union Company and Xerox
Corporation.
The accompanying graph shows the annual changes for the five-year period based on the assumption that $100 was invested in Pitney
Bowes, the Standard and Poor's (S&P) 500 Composite Index and our peer group, and that all dividends were reinvested. On a total return
basis, $100 invested in Pitney Bowes, the S&P 500 Composite Index and our peer group on December 31, 2010 would have been worth
$115, $181, $173, respectively, on December 31, 2015.
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 each peer group is based on market capitalization, weighted for
each year. The stock price performance is not necessarily indicative of future stock price performance.
14
15
ITEM 6. SELECTED FINANCIAL DATA
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,
2015
3,578,060
2014
2013
2012
2011
$
3,821,504
$
3,791,335
$
3,823,713
$
4,030,669
$
$
$
$
$
$
$
$
$
$
$
300,006
33,749
333,755
1.49
0.17
1.65
1.47
0.17
1.64
0.75
$
$
$
$
$
$
$
287,612
(144,777)
142,835
1.43
(0.72)
0.71
1.42
(0.71)
0.70
0.9375
2014
6,499,702
2,927,127
3,252,006
296,370
December 31,
2013
6,777,436
3,346,295
3,346,295
296,370
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
379,107
66,056
445,163
1.89
0.33
2.22
1.88
0.33
2.21
1.50
2012
7,834,798
3,642,375
4,017,375
296,370
$
$
$
$
$
$
$
$
$
$
$
418,967
198,513
617,480
2.07
0.98
3.06
2.07
0.98
3.05
1.48
2011
8,162,622
3,683,909
4,233,909
296,370
Total revenue
Amounts attributable to common stockholders:
Net income from continuing operations
Income (loss) from discontinued operations
Net income - Pitney Bowes Inc.
$
$
$
402,672
5,271
407,943
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
$
$
2.01
0.03
2.04
Diluted earnings per share attributable to common stockholders (1):
2.00
Continuing operations
$
Discontinued operations
Net income - Pitney Bowes Inc.
Cash dividends paid per share of common stock
Balance sheet data:
Total assets
Long-term debt
Total debt
Noncontrolling interests (Preferred stockholders'
equity in subsidiaries)
0.03
2.03
0.75
2015
6,141,462
2,507,912
2,968,997
296,370
$
$
$
$
$
$
(1) The sum of earnings per share may not equal the totals due to rounding.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes. This
discussion and analysis contains forward-looking statements based on management's current expectations, estimates and projections and
involve risks and uncertainties. Our actual results may differ significantly from those currently expressed in our forward-looking statements
as a result of various factors, including those factors described under "Forward-Looking Statements" and "Risk Factors" contained
elsewhere in this Annual Report. All table amounts are presented in thousands of dollars, unless otherwise stated.
Overview
During 2015, we continued to execute on our strategic priorities to stabilize our mail business, drive operational excellence and grow
our business through digital commerce. We expanded our marketing efforts to build awareness of our unique capabilities and refreshed
our brand identity, completed our transition to a larger inside sales organization (part of our changes in our go-to-market strategy) in
major markets, launched several new products and repositioned our portfolio through acquisitions and divestitures. We acquired a provider
of cross-border ecommerce solutions through a proprietary technology and services platform that enables retailers to transact with
consumers around the world, a provider of technology that enables clients to provide personalized interactive video communications to
their customers, and expanded our presort sites. We also sold our marketing services business, Imagitas, and exited certain geographic
markets as part of our initiative to simplify our geographic footprint. We also continued to reduce costs through our restructuring initiatives
and worked to implement our new global enterprise resource planning (ERP) system, which was launched in Canada in the fourth quarter
of 2015.
The U.S. dollar remained strong against other currencies throughout the year, which adversely affected our reported revenues and
profitability, both from a translation perspective as well as a competitive perspective, as the cost of our international competitors’ products
and solutions improved relative to products and solutions manufactured or sold from the U.S. The current strength of the dollar relative
to other currencies also affected demand for U.S. goods sold to consumers in other countries through our global ecommerce operations.
In the second quarter, we acquired Borderfree and sold Imagitas. As a result we realigned our segment reporting. Our business continues
to be organized around three distinct sets of solutions - Small and Medium Business (SMB) Solutions, Enterprise Business Solutions and
Digital Commerce Solutions (DCS). There were no changes to SMB Solutions or Enterprise Business Solutions. Within DCS, we now
report Software Solutions and Global Ecommerce as reportable segments. Imagitas, previously included in DCS, is now reported in Other.
Revenue for 2015 decreased 6% to $3,578 million compared to $3,822 million in 2014. Revenue was negatively impacted by 3% due
to foreign currency translation, 2% from the sale of Imagitas and 1% from the exit of non-core product lines in Norway and the transition
in certain European countries to a dealer network in the third quarter of 2014 (Divested Businesses). Revenue benefited by 2% from the
acquisition of Borderfree.
On a reported basis, equipment sales declined 10%, support services declined 11%, software declined 10%, rentals revenue declined 9%,
financing declined 5% and supplies declined 4%. Partially offsetting these declines, was revenue growth in business services of 3%.
Excluding the impacts of foreign currency, equipment sales declined 5%, primarily due to continued weakness in our international markets
reflecting difficult economic circumstances and productivity disruptions caused by the implementation of our go-to-market strategy
primarily in France. Support services revenue declined 7% and rentals revenue declined 6% due to fewer mailing machines in service
and a shift by customers to lower cost, less featured mailing machines. Support services revenue was also impacted by lower maintenance
contracts on production mail equipment as some in-house mailers moved their mail processing to third-party service bureaus who service
some of their own equipment. Software revenue declined 5% primarily due to the inclusion of significant North America licensing deals
in 2014. These declines were partially offset by revenue growth in business services of 3% primarily due to the acquisition of Borderfree
and higher volumes of mail processed in presort services.
Looking at our operating segments, SMB Solutions revenue declined 9% primarily due to the unfavorable impact from foreign currency
translation of 4%, the continuing decline in installed meters and shift by clients to lower cost, less fully featured machines and declines
in our international mailing operations due to difficult economic circumstances and productivity disruptions. Enterprise Business Solutions
revenue decreased 3%, primarily due to the unfavorable impact from currency translation of 3% and lower service revenue in Production
Mail, partially offset by increased volumes in Presort Services. DCS revenue increased 5% primarily due to the acquisition of Borderfree
and higher volume of packages shipped from our U.K. outbound cross-border service facility, which began in the fourth quarter of 2014,
partially offset by lower software licensing revenue due to the inclusion of significant large licensing deals in 2014.
17
Net income from continuing operations and earnings per diluted share for the year were $403 million and $2.00, respectively, compared
to $300 million and $1.47, respectively, in 2014. The increase was primarily due to improving gross margins and lower selling, general
and administrative expenses due in part to the benefits of our restructuring actions, changes in our go-to-market strategy and other
productivity initiatives. A 5% increase in the effective tax rate partially offset these benefits.
We generated cash flow from operations of $515 million, received proceeds of $292 million from the sale of Imagitas and $52 million
from the sale of our former corporate headquarters building and other assets, and issued $90 million of commercial paper. We used cash
of $394 million to acquire businesses, $365 million to reduce debt, $166 million to fund capital investments, $168 million to pay dividends
to our stockholders and noncontrolling interests and $132 million to repurchase our common stock. At December 31, 2015, cash and cash
equivalents was $651 million.
Outlook
Our growth initiatives continue to focus on leveraging our expertise in physical and digital communications, hybrid communications and
the development of products, software, services and solutions that help our clients connect with customers to power commerce and grow
their businesses.
In 2016, we will continue to invest in the implementation of our ERP system in the United States and launch a new advertising campaign.
We anticipate the continued benefits from our restructuring actions, synergies from acquisitions, the benefits of the go-to-market strategy
in major markets and expected benefits from the implementation of the new ERP system should mostly offset these incremental costs.
In February 2016, we received additional authorization to repurchase an additional $150 million of our common stock and expect to
repurchase up to $215 million of our common stock during 2016.
During 2015, we experienced a considerable strengthening of the U.S. dollar. A continuing strong U.S. dollar could adversely affect our
reported revenues and profitability, both from a translation perspective and as a competitive perspective, as the cost of international
competitors’ products and solutions improves relative to products and solutions sold from the U.S. A strengthening dollar could also
continue to affect demand for U.S. goods sold to consumers in other countries through our global ecommerce operations.
Within SMB Solutions, the introduction of new solutions and services is being well-received in the marketplace and we anticipate further
stabilization in revenue through further product upgrades and launches in 2016. Internationally, the implementation of our go-to-market
strategy is now complete in our major markets and as a result we expect stabilizing trends in those markets. We will also focus on the
transition and training of a new sales organization, which is expected to improve productivity.
Within Enterprise Business Solutions, we expect continued revenue and profitability growth in Presort Services due to client expansion
and higher processed mail volumes; however, we anticipate that Production Mail revenue growth will continue to be challenged by the
uncertain macroeconomic environment in Europe and declining services revenue.
Within DCS, we anticipate increased demand in Software Solutions due to new industry-specific solutions, expansion of our partner
channel and improved sales efficiencies, and revenue growth in Global Ecommerce from our retail business and continued demand for
our shipping solutions driven by new client acquisitions and expanded services provided to existing clients should further enhance our
performance. In January 2016, we acquired a cloud-based, software-as-a-service enterprise retail and fulfillment solutions company.
18
Revenue by source and the related cost of revenue are shown in the following tables:
RESULTS OF OPERATIONS
Revenue
Years Ended December 31,
% change
2015
2014
2013
2015
2014
$
$
695
288
386
442
410
555
802
$
770
300
430
485
433
625
779
868
286
398
512
449
647
631
$
3,578
$
3,822
$
3,791
(10)%
(4)%
(10)%
(9)%
(5)%
(11)%
3 %
(6)%
(11)%
5 %
8 %
(5)%
(4)%
(3)%
23 %
1 %
Cost of Revenue
Years Ended December 31,
2015
2014
2013
$
% of revenue
$
% of revenue
$
$
331
89
114
84
72
323
546
1,559
47.6% $
30.8%
29.4%
19.1%
17.5%
58.2%
68.1%
43.6% $
366
94
124
97
78
377
545
1,681
47.5 % $
31.2 %
28.8 %
20.1 %
18.1 %
60.3 %
70.0 %
44.0 % $
$
423
89
111
100
78
400
450
1,651
% of revenue
48.7%
31.3%
27.8%
19.6%
17.3%
61.9%
71.3%
43.5%
Equipment sales
Supplies
Software
Rentals
Financing
Support services
Business services
Total 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
Equipment sales decreased 10% in 2015 compared to 2014. Foreign currency translation adversely affected equipment sales by 5%.
Excluding the impact of foreign currency, equipment sales declined 3% in international markets primarily due to difficult economic
circumstances and productivity disruptions caused by the implementation of our go-to-market strategy in Europe and lower sales of
production mail equipment worldwide. Sales in North America declined 1% due to the continuing trend of clients to extend existing
leases rather than purchase new equipment. Cost of equipment sales as a percentage of equipment sales revenue of 47.6% was comparable
to the prior year.
Equipment sales decreased 11% in 2014 compared to 2013. Approximately half of this decrease came from lower sales of production
mail inserters and high-speed printers due to significant installations of this equipment in 2013 and half came from lower sales in our
SMB group due to a temporary distraction from the transition to an inside sales organization and reassignment of accounts and resources
in North America, the impact of Divested Businesses and lower sales in France. Cost of equipment sales as a percentage of equipment
sales revenue decreased to 47.5% compared to 48.7% in the prior year primarily due to the decline in sales of production printers, which
have a lower margin relative to other products.
Supplies
Supplies revenue decreased 4% in 2015 compared to 2014. Foreign currency translation adversely impacted supplies revenue by 6%.
Excluding the impact of foreign currency, supplies revenue increased 2% due to productivity improvements and pricing actions in our
North America mailing business and higher sales of supplies for production printers. Cost of supplies as a percentage of supplies revenue
improved to 30.8% in 2015 compared to 31.2% in 2014 primarily due to a greater mix of higher margin core supplies.
Supplies revenue increased 5% in 2014 compared to 2013. Targeted outreach to customers and pricing actions contributed to a 3% increase
and the remaining 2% was due to the growing base of production print equipment. Cost of supplies as a percentage of supplies revenue
was virtually unchanged at 31.2% in 2014 compared to 31.3% in 2013.
19
Software
Software revenue decreased 10% in 2015 compared to 2014. Foreign currency translation adversely impacted software revenue by 5%.
Software revenue in 2015 compared to 2014 was also impacted by 4% due to more significant licensing deals in 2014 compared to 2015.
Excluding the impact of foreign currency and the significant licensing deals in 2014, software revenue declined 1%, primarily due to
declines in maintenance, data and services revenue. Cost of software as a percentage of software revenue increased to 29.4% in 2015
compared to 28.8% in 2014 primarily due to the decline in high-margin licensing revenue.
Software revenue increased 8% in 2014 compared to 2013, primarily due to a 33% increase in worldwide licensing revenue from our
software solutions products, particularly enterprise location intelligence. Cost of software as a percentage of software revenue increased
to 28.8% compared to 27.8% in the prior year primarily due to investments in the specialization of the software sales channel and higher
production costs.
Rentals
Rentals revenue decreased 9% in 2015 compared to 2014. Foreign currency translation adversely impacted rentals revenue by 3%.
Excluding the impact of foreign currency, rentals revenue declined 6% primarily due to the continuing decline in the number of installed
meters and shift by clients to less-featured, lower cost machines. Cost of rentals as a percentage of rentals revenue improved to 19.1%
in 2015 compared to 20.1% in 2014 primarily due to lower depreciation.
Rentals revenue decreased 5% in 2014 compared to 2013. Rentals revenue declined 4% due to a reduction in the number of installed
meters and clients downgrading to lower cost, less functional machines and 1% due to lower rentals revenue in France. Cost of rentals
as a percentage of rentals revenue increased to 20.1% compared to 19.6% in the prior year primarily due to a higher proportion of fixed
costs as a percentage of revenue.
Financing
Financing revenue decreased 5% in 2015 compared to 2014. Foreign currency translation accounted for 3% of the decrease and lower
equipment sales in prior periods and a declining lease portfolio accounted for the remaining decrease. Financing revenue decreased 4%
in 2014 compared to 2013 as a result of declining equipment sales in prior years.
We allocate a portion of our total cost of borrowing to financing interest expense. In computing financing interest expense, we assume
a 10:1 debt to equity leverage ratio and apply our overall effective interest rate to the average outstanding finance receivables. Due to
declining equipment sales in prior periods, average outstanding finance receivables declined. As a result, financing interest expense
declined 9% in 2015 compared to 2014. Financing interest expense as a percentage of financing revenue improved to 17.5% in 2015
compared to 18.1% in 2014. Financing interest expense as a percentage of financing revenue increased in 2014 as compared to 2013 due
to an increase in our overall effective interest rate.
Support Services
Support services revenue decreased 11% in 2015 compared to 2014, primarily due to 5% from foreign currency translation and 2% from
Divested Businesses. Support services revenue was also impacted by lower maintenance contracts on production mail equipment as some
in-house mailers moved their mail processing to third-party service bureaus who service some of their own equipment. Cost of support
services as a percentage of support services revenue decreased to 58.2% in 2015 compared to 60.3% in 2014 primarily due to expense
reductions and productivity initiatives.
Support services revenue decreased 3% in 2014 compared to 2013 primarily due to declines in our mailing business due to fewer installed
mailing machines in North America and the impact of Divested Businesses. Cost of support services as a percentage of support services
revenue improved to 60.3% in 2014 compared to 61.9% in 2013 primarily due to continued focus on expense reductions and productivity
initiatives.
Business Services
Business services revenue increased 3% in 2015 compared to 2014. Business services revenue for 2015 was impacted by the sale of
Imagitas in May 2015 and the acquisition of Borderfree in June 2015. Excluding the impacts of these transactions, business services
revenue increased 5% in 2015 compared to 2014. Higher volumes of mail processed in Presort Services increased business services
revenue 2% and additional volumes of packages shipped from our U.K. outbound cross-border service facility increased business services
revenue 4%. Cost of business services as a percentage of business services revenue improved to 68.1% in 2015 and compared to 70.0%
in 2014, primarily due to operational efficiencies in Presort Services and higher revenue.
20
Business services revenue increased 23% in 2014 compared to 2013. Higher volumes in our global ecommerce solutions contributed to
a 17% increase, higher volumes of first-class mail processed and improved operational efficiencies in our Presort Services business
contributed to a 4% increase and higher marketing services fees due to new clients contributed to a 2% increase. Cost of business services
as a percentage of business services revenue improved to 70.0% in 2014 compared to 71.3% in 2013 as margin improvement in our
presort operations and marketing services more than offset our continuing investment in our global ecommerce solutions.
Selling, general and administrative (SG&A)
SG&A expense decreased 7% in 2015 compared to 2014 despite expenses of $13 million associated with implementation of our ERP
system, a one-time compensation charge of $10 million for the accelerated vesting and settlement of Borderfree stock-based compensation
awards, additional amortization expense of $9 million related to the acquisition of Borderfree and costs of $5 million related to the exit
of certain geographic markets during the fourth quarter of 2015. The overall decrease in SG&A expense is primarily due to our focus on
operational excellence and the benefits of productivity and cost-cutting initiatives. Foreign currency translation also reduced SG&A
expenses by 4% in 2015.
SG&A expense decreased 3% in 2014 compared to 2013 primarily due to the benefits of our restructuring actions and productivity
initiatives and lower depreciation expense. These benefits were partially offset by expenses of $36 million incurred in connection with
expanded branding and marketing programs and the planned implementation of an ERP system.
Restructuring charges and asset impairments, net
Restructuring charges and asset impairments of $26 million in 2015 consists of a restructuring charge of $21 million and a loss of $5
million on the sale of the corporate headquarters building. See Note 12 to the Consolidated Financial Statements for further details.
Other (income) expense, net
Other income, net for 2015 includes the gain on the sale of Imagitas of $112 million, transaction costs of $10 million incurred in connection
with the acquisitions of Borderfree and RTC (see Note 3 to the Consolidated Financial Statements) and a charge of $7 million associated
with the settlement of a legal matter (see Note 17 to the Consolidated Financial Statements).
Other expense, net for 2014 includes costs of $62 million incurred in connection with the early redemption of debt offset by $16 million
recognized in connection with the divestiture of a partnership investment.
Other expense, net for 2013 includes costs associated with the early redemption of debt.
Income taxes
See Note 15 to the Consolidated Financial Statements.
Discontinued operations
See Note 4 to the Consolidated Financial Statements.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
See Note 16 to the Consolidated Financial Statements.
21
Business Segments
The principal products and services of each of our reportable segments are as follows:
Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from the sale, rental, financing and servicing of mailing equipment,
software and supplies for small and medium businesses to efficiently create physical and digital mail and evidence postage for the
sending of mail, flats and parcels in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from the sale, rental, financing and servicing of mailing equipment,
software and supplies for small and medium businesses to efficiently create physical and digital mail and evidence postage for the
sending of mail, flats and parcels in areas outside the U.S. and Canada.
Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation
equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound
and outbound mail.
Presort Services: Includes revenue and related expenses from presort mail services for our large enterprise clients to qualify large
mail volumes for postal worksharing discounts.
Digital Commerce Solutions:
Software Solutions: Includes the worldwide revenue and related expenses from the sale of non-equipment-based mailing, customer
information engagement, location intelligence and customer engagement solutions and related support services.
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce and shipping solutions.
We determine segment EBIT by deducting the related costs and expenses attributable to the segment from segment revenue. Segment
EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items, 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 a useful measure of our operating performance and underlying trends of the businesses. Segment EBIT may not
be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of
operations. See Note 2 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.
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total
Revenue
Years Ended December 31,
% change
2015
2014
2013
2015
2014
1,435
445
1,880
421
474
895
386
362
748
55
3,578
$
$
1,492
572
2,064
462
457
919
429
282
711
128
3,822
$
$
1,555
603
2,158
512
430
942
395
170
565
126
3,791
(4)%
(22)%
(9)%
(9)%
4 %
(3)%
(10)%
29 %
5 %
(57)%
(6)%
(4)%
(5)%
(4)%
(10)%
6 %
(2)%
9 %
66 %
26 %
1 %
1 %
$
$
22
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total
Small & Medium Business Solutions
North America Mailing
EBIT
Years Ended December 31,
% change
2015
2014
2013
2015
2014
$
$
647
51
698
48
105
153
49
19
68
10
$
929
$
642
89
731
48
98
146
51
17
68
19
964
$
$
641
72
712
55
83
138
48
1
49
6
905
1 %
(42)%
(5)%
1 %
7 %
5 %
(5)%
16 %
— %
(45)%
(4)%
— %
24 %
3 %
(14)%
18 %
5 %
7 %
>100%
39 %
229 %
6 %
North America Mailing revenue decreased 4% in 2015 compared to 2014. Foreign currency translation had a 1% unfavorable impact on
revenue. Excluding the impact of foreign currency, rentals revenue and support services revenue decreased 5% and 7%, respectively, due
to the continuing decline in installed meters and shift by clients to lower cost, less fully featured machines. Equipment sales decreased
3% primarily due to the decline in the first half of the year caused by declining mail volumes and the continuing trend of clients to extend
existing leases rather than purchasing new equipment. Partially offsetting these declines was a 3% increase in supplies sales due to
productivity improvements and pricing actions. Despite the decline in revenue, EBIT increased 1% primarily due to the benefits of
productivity improvements and cost reduction initiatives and a favorable product mix.
North America Mailing revenue decreased 4% in 2014 compared to 2013. This decrease was due to lower rentals revenue and support
services revenue due to a decline in the number of installed meters in service and lower equipment sales primarily due to a temporary
distraction due to the transition to an inside sales organization and reassignment of accounts and resources. Financing revenue also
declined due to lower equipment sales in current and prior years, but was offset by higher supply sales due to sales efficiencies and
favorable pricing. Despite the decline in revenue, EBIT remained relatively flat due to cost savings from the transition to an inside sales
organization and other ongoing productivity initiatives and cost reductions.
International Mailing
International Mailing revenue decreased 22% in 2015 as compared to 2014. Revenue was unfavorably impacted by 12% from foreign
currency translation and 3% from Divested Businesses. Excluding the impacts of foreign currency and Divested Businesses, revenue
decreased 7%. International Mailing results have been adversely impacted throughout the year by difficult economic circumstances in
many of our international markets and productivity disruptions caused by the implementation of our go-to-market strategy in certain
European markets, particularly in France. EBIT decreased 42% in 2015 as compared to 2014, primarily due to the decline in revenue
and reduced margins due to productivity disruptions and incremental costs of transitioning the sales organization in France. Foreign
currency translation unfavorably impacted EBIT by 10% in 2015.
International Mailing revenue decreased 5% in 2014 compared to 2013 primarily due to the impact of Divested Businesses and lower
equipment sales and rentals in France. EBIT increased 24% in 2014 compared to 2013 primarily due to productivity and cost reduction
initiatives and savings from the transition to an inside sales organization in certain European markets.
23
Enterprise Business Solutions
Production Mail
Production Mail revenue decreased 9% in 2015 compared to 2014. Revenue was unfavorably impacted by 5% from foreign currency
translation and by less than 1% from Divested Businesses. Excluding the impacts of foreign currency and Divested Businesses, production
mail revenue decreased 3% primarily due to declines in support services revenue of 5% as some in-house mailers moved their mail
processing to third-party service bureaus who service some of their own equipment. Equipment sales decreased 1% compared to the prior
year as lower sales in Europe and Asia-Pacific were mostly offset by higher sales in the United States. Despite the decline in revenue,
EBIT increased 1% in 2015 compared to 2014 primarily due to a higher margin product mix and ongoing cost reduction initiatives.
Production Mail revenue decreased 10% in 2014 compared to 2013 primarily due to a 19% decline in equipment sales due to significant
installations of production mail inserters and high-speed printers to certain enterprise customers in 2013. Support services revenue also
declined but was more than offset by higher supplies revenue due to the growing base of production printers. EBIT decreased 14% in
2014 compared to 2013 primarily due to the decline in revenue.
Presort Services
Presort Services revenue increased 4% in 2015 compared to 2014 primarily due to a 6% increase in the volume of mail processed. EBIT
increased 7% in 2015 compared to 2014 primarily due to the increase in revenue and lower transportation costs.
Presort Services revenue increased 6% in 2014 compared to 2013 primarily due to a 2% increase in the volume of first-class mail processed
and improved operational efficiencies. EBIT increased 18% in 2014 compared to 2013 primarily due to the increase in revenue and
improved operational efficiencies.
Digital Commerce Solutions
Software
Software Solutions revenue decreased 10% in 2015 compared to 2014. Foreign currency translation unfavorably impacted revenue by
5%. Software revenue in 2015 compared to 2014 was also impacted by 4% due to more significant licensing deals in 2014 as compared
to 2015. Excluding the impact of foreign currency and significant licensing deals in 2014, software revenue declined 1%, primarily due
to declines in maintenance, data and services revenue. EBIT decreased 5% primarily as a result of lower high-margin licensing revenue.
Software Solutions revenue increased 9% in 2014 compared to 2013, primarily due to a higher worldwide licensing revenue from our
software solutions products, particularly enterprise location intelligence. Licensing revenue increased 36% in North America and 29%
internationally, primarily due to product enhancements and investments in the specialization of the software sales channel. EBIT increased
7% primarily due to the increase in revenue.
Global Ecommerce
Global Ecommerce revenue increased 29% in 2015 compared to 2014 primarily due to the acquisition of Borderfree and higher volumes
of packages shipped from our U.K. outbound cross-border service facility, which began in the fourth quarter of 2014. Volumes of packages
shipped from our U.S. outbound cross-border service facility were lower than the prior year and continue to be pressured by a strong
U.S. dollar. EBIT increased 16% in 2015 compared to 2014 as synergy savings from the Borderfree acquisition and recognition of $6
million of deferred cross-border delivery fees were more than offset by the incremental costs related to the Borderfree acquisition including
$9 million of additional amortization expense.
Global Ecommerce revenue increased 66% in 2014 compared to 2013 due to an increase in the number of orders processed and parcels
shipped. Late in the third quarter of 2014, we began outbound ecommerce services from the U.K., which had a small benefit to the full-
year revenue. EBIT increased significantly in 2014 compared to 2013 primarily due to the increase in revenue and improved operating
leverage which offset fixed costs and continued investments in global ecommerce technology and infrastructure.
Other
Other includes our Marketing Services business which was sold in May 2015.
24
LIQUIDITY AND CAPITAL RESOURCES
We believe that existing cash and investments, cash generated from operations and borrowing capacity under our commercial paper
program will be sufficient to support our current cash needs, including discretionary uses such as capital investments, dividends, share
repurchases and acquisitions. Cash and cash equivalents and short-term investments were $768 million at December 31, 2015 and $1,103
million at December 31, 2014. We continuously review our credit profile through published credit ratings and the credit default swap
market. We also monitor the creditworthiness of those banks acting as derivative counterparties, depository banks or credit providers.
Cash and cash equivalents held by our foreign subsidiaries were $470 million at both December 31, 2015 and December 31, 2014. 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.
Cash Flow Summary
The change in cash and cash equivalents is as follows:
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Years Ended December 31,
Change
2015
2014
2013
2015
2014
$
$
$
514
(303)
(571)
(44)
(404) $
655
(147)
(312)
(29)
167
$
$
625
$
241
(868)
(13)
(15) $
(141) $
(156)
(259)
(15)
(571) $
30
(388)
556
(16)
182
Cash flows from operations decreased $141 million in 2015 compared to 2014, primarily due to the timing of payments of accounts
payable and accrued liabilities including, higher employee-related payments, and higher inventory purchases, primarily for parts and
supplies in the U.S. and U.K., lower collections of accounts receivable due to timing and amounts received in the prior year for transition
services in connection with the sale of our Management Services business. These decreases were partially offset by lower interest and
tax payments.
Cash flows from operations increased $30 million in 2014 compared to 2013, primarily due to higher income and lower tax and interest
payments partially offset by higher cash payments related to the early repayment of debt and changes in working capital accounts, primarily
due to lower cash flows from changes in inventory and accounts receivable. Cash management initiatives implemented in 2013 significantly
improved working capital and cash flows from operations. In 2014, we continued to see benefits from changes in accounts receivable
and inventory; however, the benefits were not as dramatic as in 2013. The timing of payments for accounts payables and accrued liabilities
partially offset these reductions in cash flow from working capital.
Cash flows used by investing activities were $156 million higher in 2015 compared to 2014. In 2015, we paid $394 million for acquisitions,
purchased short term investments of $69 million, received proceeds of $292 million from the sale of Imagitas and $52 million from the
sale of our former corporate headquarters building and other assets. During 2014, we received proceeds of $102 million from the sale of
businesses.
Cash flows from investing activities were $388 million lower in 2014 compared to 2013. In 2014, we received $102 million from the
sale of businesses compared to $390 million in 2013. Higher cash outflows of $48 million for the purchase of available for sale investments
and $43 million of higher capital expenditures primarily due to spending on our global ERP system also contributed to the decrease in
cash flows from investing activities in 2014.
Cash flows used in financing activities increased $259 million in 2015 due to higher net payments to reduce debt and higher stock
repurchases in 2015. During 2015, we reduced total debt by $275 million and repurchased $132 million of our common shares compared
to a net reduction in total debt of $91 million and share repurchases of $50 million in 2014. Cash flows from financing activities increased
$556 million in 2014 due to the timing of debt activity. See Financing and Capitalization section below for a detailed discussion of our
debt activity for 2015, 2014 and 2013.
25
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. At December
31, 2015, there was $90 million of outstanding commercial paper borrowings with an effective interest rate of 1.1%. In 2015, commercial
paper borrowings averaged $66 million at a weighted-average interest rate of 0.6% and the maximum amount of commercial paper
outstanding at any point in time was $291 million. During 2014, we did not borrow under our commercial paper program. The credit
facility was renewed in January 2015 and expires in January 2020. We have not drawn upon the credit facility.
2015 Activity
We redeemed the $110 million 5.25% notes due November 2022 at par plus accrued but unpaid interest and repaid the $275 million 5%
notes. We also repaid $130 million of outstanding term loans and borrowed $150 million under a new term loan. The new term loan bears
interest at the applicable Eurodollar Rate plus .90%. The Eurodollar Rate on the date of funding was .59%. The term loan matures in
December 2016 but can be extended to June 2017 at our option.
In January 2016, we borrowed $300 million under a new term loan and used the proceeds to repay a portion of the $371 million, 4.75%
notes due January 15, 2016. The remaining portion was repaid through cash from operations. The new term loan bears interest at the
applicable Eurodollar Rate plus 1.25% and matures in December 2020. The Eurodollar Rate on the date of funding was .62%.
2014 Activity
We issued $500 million of 4.625% fixed rate 10-year notes. The notes mature in March 2024, but may be redeemed, at any time, in whole
or in part, at our option. If the notes are redeemed prior to December 15, 2023, the redemption price will be equal to the sum of 100%
of the principal amount, accrued and unpaid interest and a make-whole payment. Net proceeds of $493 million received after fees and
discounts were used to fund the 2014 Tender Offer (see below).
We redeemed an aggregate $500 million of the 5.75% Notes due 2017 and the 5.25% Notes due 2037 through a cash tender offer (the
2014 Tender Offer). Holders who validly tendered their notes received the principal amount, all accrued and unpaid interest and a premium
payment. We incurred expenses of $62 million, consisting of the call premium, the write-off of unamortized costs and bank transaction
fees.
We also repaid $100 million of outstanding term loans and received a loan of $16 million from the State of Connecticut in connection
with the relocation of our corporate headquarters. The loan consisted of a $15 million development loan and $1 million jobs-training
grant that is subject to refund if certain conditions are not met. The loan requires monthly interest payments through November 2020 and
principal and interest payments from December 2020 through maturity in November 2024. In 2015, we satisfied the conditions under
the jobs-training grant.
2013 Activity
We issued $425 million of 6.7% fixed-rate 30-year notes. The notes mature in March 2043, but may be redeemed, in whole or in part, at
our option any time on or after March 2018 at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest.
Net proceeds of $412 million received after fees and discounts were used to fund the 2013 Tender Offer (see below).
We redeemed an aggregate $405 million of the 4.875% notes due 2014, the 5.0% notes due 2015, and the 4.75% notes due 2016 through
a cash tender offer (the 2013 Tender Offer). Holders who validly tendered their notes received the principal amount, all accrued and
unpaid interest and a premium payment. We received $5 million from the unwinding of certain interest rate swap agreements and recognized
a net loss of $25 million, consisting primarily of the premium payment.
We redeemed $375 million of maturing 3.875% notes and an additional $300 million of 4.875% notes that were scheduled to mature in
August 2014. In connection with the early redemption of the notes, we received $3 million from the unwinding of an interest rate swap
and incurred expenses of $8 million, consisting primarily of a premium payment.
Debt Maturities
We have $2 billion of debt maturing within the next five years. While we fully expect to be able to fund these maturities with cash or by
refinancing through the U.S. capital markets, these obligations could increase our vulnerability to adverse market conditions and impact
our ability to refinance existing maturities. In addition, in October 2016, the $300 million of outstanding Preferred Stock of one of our
subsidiaries is redeemable at our option. If we do not redeem, the dividend rate increases 50% and will increase 50% every six months
thereafter. We are currently evaluating various alternatives to redeem or refinance the Preferred Stock. See Note 16` to the Consolidated
Financial Statements.
26
Dividends and Share Repurchases
We paid dividends to our common stockholders of $150 million ($0.75 per share), $152 million ($0.75 per share) and $189 million ($0.94
per share) in 2015, 2014 and 2013, respectively. Each quarter, our Board of Directors considers our recent and projected earnings and
other capital needs and priorities in deciding whether to approve the payment, as well as the amount of a dividend. There are no material
restrictions on our ability to declare dividends.
We repurchased $132 million of our common shares during 2015 and $50 million of our common shares during 2014. At December 31,
2015, we had authorization to repurchase up to $65 million of our common shares. In February 2016, we received authorization to
repurchase an additional $150 million of outstanding stock. We expect to repurchase up to $215 million of our common stock during
2016.
Contractual Obligations
The following table summarizes our known contractual obligations at December 31, 2015 and the effect that such obligations are expected
to have on our liquidity and cash flow in future periods:
Commercial paper borrowings
Debt maturities
Interest payments on debt (1)
Preferred stock (2)
Non-cancelable operating lease obligations
Purchase obligations (3)
Pension plan contributions (4)
Retiree medical payments (5)
Total
Total
2016
2017-18
2019-20
After 2020
Payments due in
$
90
$
90
$
— $
— $
2,862
1,261
300
202
203
55
166
371
133
300
40
188
55
19
1,135
205
—
57
15
—
37
301
119
—
37
—
—
34
—
1,055
804
—
68
—
—
76
$
5,139
$
1,196
$
1,449
$
491
$
2,003
The amount and period of future payments related to our income tax uncertainties cannot be reliably estimated and are not included in
the above table. See Note 15 to the Consolidated Financial Statements for further details.
(1) Assumes all debt is held to maturity. Certain notes are redeemable, either at our option or the bondholders, at par plus accrued interest
before the scheduled maturity date.
(2) Represents outstanding Preferred Stock of one of our subsidiaries that is redeemable at our option. If we do not redeem by October
30, 2016, the dividend rate increases 50% and will increase 50% every six months thereafter.
(3) Includes 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.
(4) Represents the amount of contributions we anticipate making to our pension plans during 2016; however, we will assess our funding
alternatives as the year progresses.
(5) 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.
Off-Balance Sheet Arrangements
At December 31, 2015, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future
effect on our financial condition, results of operations or liquidity. See Note 17 to the Consolidated Financial Statements for detailed
information about our commitments and contingencies.
27
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 (VSOE). We establish VSOE 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.
We also have multiple element arrangements containing only software and software related elements. Under these arrangements, revenue
is allocated based on VSOE, which is based on company specific stand-alone sales data or renewal rates. If we cannot obtain VSOE for
any undelivered software element, revenue is deferred until all deliverables have been delivered or until VSOE can be determined for
any remaining undelivered software elements. When the fair value of a delivered element cannot be established, but fair value evidence
exists for the undelivered software elements, we use the residual method to recognize revenue. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements
and recognized as revenue.
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
14 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 pool of corporate long-term, high-quality fixed income debt instruments available as of the
measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by using
a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from a large
number of high quality corporate bonds. The discount rate used in the determination of net periodic pension expense for 2015 was 4.15%
for the U.S. Plan and 3.7% for the U.K. Plan. For 2016, the discount rate used in the determination of net periodic pension expense for
the U.S. Plan and the U.K. Plan will be 4.55% and 3.75%, respectively. A 0.25% change in the discount rate would impact annual pension
expense by less than $1 million for both the U.S. Plan and the U.K. Plan, and the projected benefit obligation of the U.S. Plan and U.K.
Plan by $43 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. The expected rate of return on
28
plan assets used in the determination of net periodic pension expense for 2015 was 7.0% for both the U.S. Plan and the U.K. Plan. For
2016, the expected rate of return on plan assets used in the determination of net periodic pension expense for the U.S. Plan will be 7.0%
and the U.K. Plan will be 6.5%. A 0.25% change in the expected rate of return on plan assets would impact annual pension expense for
the U.S. Plan by $4 million and the U.K. Plan by $1 million. See Note 14 to the Consolidated Financial Statements for information about
the allocation of pension assets.
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 recognized in the calculation of the market-related
value of assets over a five-year period. Effective December 31, 2014, plan benefits for participants in a majority of our U.S. and foreign
pension plans were frozen.
Residual value of leased assets
We provide financing for our equipment sales primarily through sales-type leases. Equipment residual values are determined at inception
of the lease using estimates of fair value at the end of the lease term. Residual value estimates impact the determination of whether a
lease is classified as an operating lease or a sales-type lease. Estimates of equipment fair value at end of lease term 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 client behavior, regulatory changes, remanufacturing strategies, used equipment markets, if any,
competition and technological changes.
We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered
"other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until the equipment
is remarketed. If the actual residual value of leased assets were 10% lower than management's current estimates, pre-tax income would
be lower by $11 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 low because of the geographic and industry diversification of our clients and small account balances for most of our
clients. We continuously monitor collections and payments from our clients and evaluate the adequacy of the applicable allowance based
on historical loss experience, past due status, adverse situations that may affect a client's ability to pay and prevailing economic conditions
and 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 2.0% at December 31, 2015 and 2.4% at December 31,
2014. Holding all other assumptions constant, a 0.25% change in the allowance rate at December 31, 2015 would have changed the 2015
provision by $1 million.
Total allowance for credit losses as a percentage of finance receivables was 1.3% at December 31, 2015 and 1.5% at December 31, 2014.
Holding all other assumptions constant, a 0.25% change in the allowance rate at December 31, 2015 would have changed the 2015
provision by $4 million.
Income taxes and valuation allowance
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our annual tax rate is based on income, statutory tax rates,
tax reserve changes and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment
is required in determining the annual tax rate and in evaluating our tax positions.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. Tax reserves have been established that 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 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 historical operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies.
29
If new information becomes available that would alter our estimate of the amount of deferred tax assets that will ultimately be realized,
we adjust the valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.
Impairment review
Long-lived and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. The estimated future undiscounted cash flows expected to result from the use and eventual
disposition of the assets is compared to the carrying value. We derive the cash flow estimates from our long-term business plans and
historical experience. If the sum of the undiscounted cash flows is less than the asset's carrying value, an impairment charge is recorded
for an amount by which the carrying value exceeds its fair value. The fair value of the impaired asset is determined using probability
weighted expected cash flow estimates, quoted market prices when available and appraisals, as appropriate. 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 at the reporting unit level during the fourth quarter or sooner when circumstances indicate
an impairment may exist. The impairment test for goodwill is 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.
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, 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 also 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 2015, we determined that the estimated fair
value of each of the reporting units exceeded their carrying value by more than 20%.
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 to be made regarding the expected stock price volatility, risk-free interest rate, life of the award and dividend yield.
The expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S. Treasuries
with a term equal to the expected life of the stock award. The expected life of the award and dividend yield are based on historical
experience.
We believe that the valuation techniques and the underlying assumptions are appropriate in estimating the fair value of our stock-based
awards. If factors change causing our assumptions to change, 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.
30
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.
Legal and Regulatory Matters
See Legal Proceedings in Item 3 for information regarding our legal proceedings and Other Tax Matters in Note 15 to the Consolidated
Financial Statements for regulatory matters regarding our tax returns.
Foreign Currency Exchange
During 2015, we derived 25% of our consolidated revenue from operations outside 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, Canadian dollar,
Australian dollar and Japanese Yen (see Note 10 to the Consolidated Financial Statements for information regarding our foreign exchange
derivative instruments). 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, 2015, 2014 and 2013, the translation of
foreign currencies to U.S. dollar decreased revenues by 4.0%, 0.4% and 0.4%, respectively. A continuing strong U.S. dollar could adversely
affect our reported revenues and profitability, both from a translation perspective as well as a competitive perspective, as the cost of
international competitors' products and solutions improve relative to products and solutions sold from the U.S. A strengthening dollar
could also continue to affect the demand for U.S. goods sold to consumers in other countries through our global ecommerce solutions.
31
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 exposure to foreign currency fluctuations is to
reduce the volatility in earnings and cash flows associated with the effect of foreign currency exchange rate changes on transactions that
are denominated in foreign currencies. Accordingly, we enter into various contracts, which change in value as foreign currency exchange
rates change, to protect the value of external and intercompany transactions. The principal currencies actively hedged are the British
pound and Euro.
At December 31, 2015, 92% of our debt was fixed rate obligations at a weighted average interest rate of 5.2%. Our variable rate debt,
which consists of commercial paper and term loans, had a weighted average interest rate at December 31, 2015 of 1.35%. A one-percentage
point change in the effective interest rate of our variable rate debt would not have had a material impact on our 2015 pre-tax income. To
limit the volatility and impact of changing interest rates on earnings and cash flows, we may from time to time enter into interest rate
swap agreements that convert fixed rate interest payments to variable rates and vice versa. During 2015 and 2014, we did not enter into
any interest rate swap agreements.
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 are intended
to offset changes in the value of the related exposures.
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, firm commitments and accounts receivables and payables denominated in
foreign currencies, which certain of these instruments are intended to hedge. The VaR model is a risk analysis tool and does not purport
to represent actual losses in fair value that will be incurred, nor does it consider the potential effect of favorable changes in market factors.
During 2015 and 2014, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Supplemental Data" in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
32
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act)), that are designed to reasonably assure that information required to be disclosed in reports filed
or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms, and to reasonably assure that such information is accumulated and communicated to
management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding
required disclosure.
Any system of controls and procedures, no matter how well designed and operated, can provide only reasonable (and not absolute)
assurance of achieving the desired control objectives. Management, under the direction of our CEO and CFO, evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as required by Rule 13a-15 or Rule 15d-15 under the Exchange
Act. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective
as of December 31, 2015.
We acquired Borderfree in a purchase business combination on in June 2015 as described in Note 3 to our Consolidated Financial
Statements included in this Form 10-K. We are in the process of reviewing and evaluating the business and internal controls and processes
of Borderfree and are implementing our internal control structure over this acquired business. Our evaluation and integration efforts will
continue into 2016.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15
(f) and 15d-15(f) under the Exchange Act. Management assessed the effectiveness of the internal control over financial reporting as of
December 31, 2015. 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 (2013). Based on its assessment, management concluded
that, as of December 31, 2015, the internal control over financial reporting was effective based on the criteria issued by COSO in Internal
Control - Integrated Framework (2013).
Pursuant to SEC guidance, a recently acquired business may be omitted from the scope of assessment of the effectiveness of internal
control over financial reporting in the year of acquisition. Accordingly, the recently acquired Borderfree business was excluded from our
evaluation of the effectiveness of internal control over financial reporting as of December 31, 2015. The Borderfree business represents
8% of total assets and less than 2% of total revenue.
The effectiveness of our internal control over financial reporting as of December 31, 2015 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 were no changes in our internal control over financial reporting during the three months ended December 31, 2015, that have
materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
33
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 2016 Annual Meeting of Stockholders.
Code of Ethics
We have a Business Practices Guidelines (BPG) that applies to all our officers and other employees. Our Board of Directors also has a
Code of Business Conduct and Ethics (the Code) that applies to our directors. The BPG and the Code are posted on our corporate
governance website located at www.pb.com/us/our-company/leadership-and-governance/corporate-governance.html. Amendments to
either the BPG or the Code and any waiver from a provision of the BPG or the Code requiring disclosure will be disclosed on our corporate
governance website.
Audit Committee; Audit Committee Financial Expert
The information regarding the Audit committee, its members and the Audit Committee financial experts is incorporated by reference to
our Proxy Statement to filed in connection with the 2016 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our Proxy Statement to be filed in connection with the 2016 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, 2015 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)
11,606,329
—
11,606,329
$28.18
—
$28.18
20,092,604
—
20,092,604
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 2016 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 2016 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 2016 Annual
Meeting of Stockholders.
34
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1. Financial statements - see "Index to Consolidated Financial Statements and Supplemental Data" on page 37 of this Form 10-
K.
2. Financial statement schedules - see "Index to Consolidated Financial Statements and Supplemental Data" on page 37 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(b.3) *
Pitney Bowes Inc. Directors' Stock Plan (Amended and Restated
effective May 12, 2014)
Status or incorporation by reference
Incorporated by reference to Exhibit 3(c) to Form 8-K filed with
the Commission on May 12, 2011 (Commission file number
1-3579)
Incorporated by reference to Exhibit 3(d) to Form 8-K 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) filed with the Commission on
October 26, 2001
Incorporated by reference to Exhibit 4.1 to Form 8-K 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) filed with the Commission
on June 18, 2008
Incorporated by reference to Exhibit 4.1 to Form 8-K filed with
the Commission on October 24, 2007 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(a) to Form 10-K filed with
the Commission on March 30, 1993 (Commission file number
1-3579)
Incorporated by reference to Exhibit (i) to Form 10-K filed with
the Commission on March 30, 2000 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10 to Form 10-Q 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 filed
with the Commission on March 1, 2007 (Commission file number
1-3579)
Exhibit 10(b.3)
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)
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 filed with
the Commission on February 26, 2010 (Commission file number
1-3579)
Incorporated by reference to Exhibit (iv) to Form 10-K filed with
the Commission on February 26, 2010 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(e) to Form 10-K filed with
the Commission on February 29, 2008 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(f) to Form 10-K filed with
the Commission on February 29, 2008 (Commission file number
1-3579)
35
Reg. S-K
exhibits
10(h) *
Description
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
10(j) *
Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
10(k) *
Form of Long Term Incentive Award Agreement
10(l)*
10(m)*
10(o)*
Stock purchase agreement dated May 11, 2015 between Pitney
Bowes Inc. and Red Ventures HoldCo, LP.
Agreement and plan of mergers dated May 5, 2015, by and among
Pitney Bowes Inc., BrickBreaker Acquisition Corp and Borderfree
Inc.
Pitney Bowes Director Equity Deferral plan dated November 8,
2013 (effective May 12, 2014)
10(p)*
10(q)*
Pitney Bowes Executive Equity Deferral Plan dated November 7,
2014
Pitney Bowes Inc. 2013 Stock Plan
12
21
23
31.1
31.2
32.1
32.2
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
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
Status or incorporation by reference
Incorporated by reference to Exhibit 10(g) to Form 10-K filed with
the Commission on February 26, 2009 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(h) to Form 10-K filed with
the Commission on February 26, 2009 (Commission file number
1-3579)
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)
Incorporated by reference to Exhibit 10(k) to Form 10-K filed with
the Commission on February 21, 2014 (Commission file number
1-3579)
Incorporated by reference to Exhibit 2.1 to Form 8-K filed May
11, 2015 (Commission file number 1-3579)
Incorporated by reference to Exhibit 2.1 to Form 8-K filed May
7, 2015 (Commission file number 1-3579)
Exhibit 10(o)
Exhibit 10(p)
Incorporated by reference to Annex A to the Definitive Proxy
Statement for the 2013 Annual Meeting of Stockholders filed with
the Commission on March 25, 2013 (Commission file number
1-3579)
Exhibit 12
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
* 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.
36
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 22, 2016
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
/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/ Linda S. Sanford
Linda S. Sanford
/s/ David L. Shedlarz
David L. Shedlarz
/s/ David B. Snow, Jr.
David B. Snow, Jr.
Title
Date
President and Chief Executive Officer - Director
February 22, 2016
Executive Vice President, Chief Operating Officer and Chief
Financial Officer (Principal Financial Officer)
February 22, 2016
Vice President-Finance and Chief Accounting Officer (Principal
Accounting Officer)
February 22, 2016
Non-Executive Chairman - Director
February 22, 2016
Director
Director
Director
Director
Director
Director
Director
Director
Director
37
February 22, 2016
February 22, 2016
February 22, 2016
February 22, 2016
February 22, 2016
February 22, 2016
February 22, 2016
February 22, 2016
February 22, 2016
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Pitney Bowes Inc.
Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
Page Number
39
40
41
42
43
44
45
91
38
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, 2015 and 2014, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2015 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, 2015, based on
criteria established in Internal Control - Integrated Framework (2013) 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.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies deferred tax
assets and liabilities as of December 31, 2015.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for discontinued
operations in 2014.
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.
As described in the Report of Management on Internal Control over Financial Reporting, management has excluded Borderfree from its
assessment of internal control over financial reporting as of December 31, 2015 because it was acquired by the Company in a purchase
business combination during 2015. We have also excluded Borderfree from our audit of internal control over financial reporting. Borderfree
is a wholly-owned subsidiary whose total consolidated assets and total consolidated net revenues represent approximately 8% and
approximately 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2015.
/s/PricewaterhouseCoopers LLP
Stamford, CT
February 22, 2016
39
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
Interest expense, net
Other (income) expense, net
Total costs and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
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
Income (loss) 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.
Dividends declared per share of common stock
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
2015
Years Ended December 31,
2014
2013
$
$
$
$
$
$
$
$
$
695,159
288,103
386,506
441,663
410,035
554,764
801,830
3,578,060
331,069
88,802
113,580
84,188
71,791
322,960
546,201
1,279,961
110,156
25,782
87,583
(94,838)
2,967,235
610,825
189,778
421,047
5,271
426,318
18,375
407,943
402,672
5,271
407,943
2.01
0.03
2.04
2.00
0.03
2.03
0.75
$
$
$
$
$
$
$
$
$
770,371
300,040
429,743
484,629
432,859
625,135
778,727
3,821,504
365,724
93,675
123,760
97,338
78,562
377,003
544,729
1,378,400
109,931
84,560
90,888
45,738
3,390,308
431,196
112,815
318,381
33,749
352,130
18,375
333,755
300,006
33,749
333,755
1.49
0.17
1.65
1.47
0.17
1.64
0.75
$
$
$
$
$
$
$
$
$
867,593
285,730
398,664
512,493
448,906
646,657
631,292
3,791,335
422,580
89,365
110,653
100,335
77,719
400,038
449,932
1,420,096
110,412
84,344
109,268
32,639
3,407,381
383,954
77,967
305,987
(144,777)
161,210
18,375
142,835
287,612
(144,777)
142,835
1.43
(0.72)
0.71
1.42
(0.71)
0.70
0.9375
See Notes to Consolidated Financial Statements
40
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Less: Preferred stock dividends attributable to noncontrolling interests
Net income - Pitney Bowes Inc.
Other comprehensive (loss) income, net of tax:
Foreign currency translations
Net unrealized gain on cash flow hedges, net of tax of $484, $1,080 and $894,
respectively
Net unrealized (loss) gain on available for sale securities, net of tax of $(1,427), $2,775
and $(3,689), respectively
Adjustments to pension and postretirement plans, net of tax of $13,844, $(106,336) and
$64,316, respectively
Amortization of pension and postretirement costs, net of tax of $15,966, $15,643 and
$19,228, respectively
Other comprehensive (loss) income
Comprehensive income - Pitney Bowes Inc.
Years Ended December 31,
2015
2014
2013
$
426,318
$
352,130
$
18,375
407,943
18,375
333,755
161,210
18,375
142,835
(88,137)
(93,368)
(46,236)
777
(2,430)
1,691
4,735
1,397
(6,282)
19,146
(212,818)
122,023
28,165
(42,479)
28,160
(271,600)
$
365,464
$
62,155
$
35,755
106,657
249,492
See Notes to Consolidated Financial Statements
41
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 $9,262 and $10,742, respectively)
Short-term finance receivables (net of allowance of $15,514 and $19,108, 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 $6,249 and $9,002, respectively)
Goodwill
Intangible assets, net
Noncurrent 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 noncurrent liabilities
Total liabilities
Noncontrolling interests (Preferred stockholders’ equity in subsidiaries)
Commitments and contingencies (See Note 17)
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 (127,816,704 and 122,309,948 shares, respectively)
Total Pitney Bowes Inc. stockholders’ equity
Total liabilities, noncontrolling interests and stockholders’ equity
See Notes to Consolidated Financial Statements
42
December 31,
2015
December 31,
2014
$
$
$
$
$
$
$
650,557
117,021
457,327
935,170
88,824
6,584
64,325
—
2,319,808
330,088
180,662
763,054
1,745,957
187,378
70,294
544,221
6,141,462
1,448,321
16,620
461,085
353,025
2,279,051
205,668
68,429
2,507,912
605,310
5,666,370
1,054,118
49,135
437,275
1,000,304
84,827
28,584
57,173
52,271
2,763,687
285,091
200,380
819,721
1,672,721
82,173
98,806
577,123
6,499,702
1,572,971
30,527
324,879
386,846
2,315,223
114,950
86,127
2,927,127
682,646
6,126,073
296,370
296,370
1
505
323,338
161,280
5,155,537
(888,635)
(4,573,305)
178,721
6,141,461
$
1
548
323,338
178,852
4,897,708
(846,156)
(4,477,032)
77,259
6,499,702
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2015
2014
2013
Cash flows from operating activities:
Net income
Restructuring payments
Tax and other payments on sale of businesses and leveraged lease assets
Net tax (payments) receipts from other investments
Adjustments to reconcile net income to net cash provided by operating activities:
$
$
426,318
(62,086)
—
(20,602)
Restructuring charges and asset impairments
Goodwill impairment
Depreciation and amortization
(Gain) 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 provision (benefit)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net of acquisitions/divestitures
Decrease in finance receivables
(Increase) decrease in inventories
(Increase) decrease in other current assets and prepayments
Decrease in accounts payable and accrued liabilities
Increase (decrease) in current and non-current income taxes
Increase (decrease) in advance billings
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available-for-sale securities
Proceeds from sales/maturities of investment securities
Purchases of held-to-maturity investments
Capital expenditures
Proceeds from sale of assets
Reserve account deposits and other
Proceeds from sale of businesses, net of cash transferred
Acquisitions, net of cash acquired
Other investing activities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Principal payments of long-term obligations
Increase in short-term borrowings
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Common stock repurchases
Other financing activities
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
25,782
—
173,312
(105,826)
(2,152)
21,049
—
40,184
(13,844)
96,611
(7,621)
(10,787)
(111,953)
21,567
1,344
43,343
514,639
(205,256)
207,063
(69,329)
(166,329)
52,110
(24,202)
289,211
(393,695)
7,339
(303,088)
150,950
(516,070)
90,000
(150,114)
(18,375)
(131,719)
4,603
(570,725)
(44,387)
(403,561)
1,054,118
650,557
165,287
138,877
$
$
$
$
$
$
See Notes to Consolidated Financial Statements
43
352,130
(56,162)
—
5,737
83,466
—
198,088
(28,151)
—
17,446
—
1,454
45,046
119,668
9,104
(10,106)
(51,080)
(52,080)
(18,695)
39,661
655,526
(680,582)
628,727
—
(180,556)
—
(15,666)
102,392
—
(1,585)
(147,270)
508,525
(599,850)
—
(151,611)
(18,375)
(50,003)
(530)
(311,844)
(29,082)
167,330
886,788
1,054,118
180,250
203,193
$
$
$
$
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
(374,230)
370,631
—
(137,512)
—
(20,104)
389,680
—
12,691
241,156
411,613
(1,079,207)
—
(188,846)
(18,375)
—
6,753
(868,062)
(12,973)
(15,055)
901,843
886,788
199,505
224,432
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Preferred
stock
Preference
stock
Common
Stock
Additional
Paid-in
Capital
Retained
earnings
Accumulated
other
comprehensive
loss
Treasury
stock
Total
equity
Balance at December 31, 2012
$
4
$
648
$ 323,338
$
223,847
$ 4,761,575
$
(681,213) $(4,500,795) $
127,404
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, 2013
Net income - Pitney Bowes Inc.
Other comprehensive income
Cash dividends
Common
Preference
Issuances of common stock
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
(57)
—
591
—
—
—
—
—
Conversions to common stock
(3)
(43)
Stock-based compensation
Repurchase of common stock
Repurchase of subsidiary shares from
noncontrolling interest
Balance at December 31, 2014
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
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(40,569)
(1,222)
14,921
142,835
—
—
106,657
(188,800)
(46)
—
—
—
—
—
—
—
—
—
—
—
—
42,774
1,279
142,835
106,657
(188,800)
(46)
2,205
—
—
14,921
323,338
196,977
4,715,564
(574,556)
(4,456,742)
205,176
—
—
—
—
—
—
—
—
—
—
—
—
—
(27,081)
(970)
17,446
—
(7,520)
333,755
—
—
(271,600)
(151,567)
(44)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28,697
1,016
333,755
(271,600)
(151,567)
(44)
1,616
—
—
17,446
(50,003)
(50,003)
—
(7,520)
—
—
—
548
323,338
178,852
4,897,708
(846,156)
(4,477,032)
77,259
—
—
—
—
—
(43)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(37,705)
(916)
21,049
—
407,943
—
—
(42,479)
(150,073)
(41)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
407,943
(42,479)
(150,073)
(41)
34,487
(3,218)
959
—
—
21,049
(131,719)
(131,719)
Balance at December 31, 2015
$
1
$
505
$ 323,338
$
161,280
$ 5,155,537
$
(888,635) $(4,573,305) $
178,721
See Notes to Consolidated Financial Statements
44
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 of Pitney Bowes Inc. (we, us, our, or the company) and its wholly owned subsidiaries
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.
As a result of the acquisition of Borderfree, Inc. (Borderfree) in June 2015 and the sale of our Marketing Services business, Imagitas, in
May 2015 (see Note 3), we realigned our segment reporting to conform to the way we now manage our segments and recast prior period
amounts to conform to the current year presentation (see Note 2). Our business continues to be organized around three distinct sets of
solutions – Small and Medium Business (SMB) Solutions, Enterprise Business Solutions and Digital Commerce Solutions (DCS). Under
the new segment reporting, there were no changes to SMB Solutions or Enterprise Business Solutions; however, within DCS, our Software
Solutions operations and Global Ecommerce operations are reported as reportable segments. The Other segment is comprised of Imagitas.
Imagitas was previously reported in DCS.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and
liabilities. These estimates and assumptions are based on management's best knowledge of current events, historical experience and other
information available when the financial statements are prepared. These estimates include, but are not limited to, revenue recognition for
multiple element arrangements, the allocation of purchase price to tangible and intangible assets acquired and liabilities assumed in
business combinations, 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, stock-based compensation expense and loss contingencies. Actual results could differ
from those estimates and assumptions.
Cash Equivalents and Short-Term Investments
Cash equivalents include 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 reported in other comprehensive income, net of tax. Purchase premiums and discounts are
recognized in interest income using the effective interest method over the term of the security. 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 in the Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the
investment's maturity.
Accounts Receivable and Allowance for Doubtful Accounts
We estimate the probable losses on accounts receivable and provide an allowance for doubtful accounts. The estimate of probable losses
is based on historical loss experience, aging of receivables, adverse situations that may affect a client's ability to pay and prevailing
economic conditions. We continually evaluate the adequacy of the allowance for doubtful accounts and make adjustments as necessary.
The assumptions used in determining an estimate of probable losses are 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 low because of the geographic and industry diversification of our clients and small account balances
for most of our clients.
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Finance Receivables and Allowance for Credit Losses
Finance receivables are composed of sales-type lease receivables and unsecured revolving loan receivables. We estimate the probable
losses and provide an allowance for credit losses. The estimate of probable losses is based on historical loss experience, the nature and
volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to
manage the collateral. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The
assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from
estimated reserves.
We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue
revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90
days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance
receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management
deems the account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry
diversification of our clients and small account balances for most of our clients.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories
and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
Fixed Assets
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over
their estimated useful lives, which are 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.
We capitalize certain costs of software developed for internal use. Capitalized costs include purchased materials and services, payroll
and personnel-related costs and interest. The cost of internally developed software is amortized on a straight-line basis over its estimated
useful life, principally three to 10 years
Intangible assets
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.
Research and Development Costs
Research and product development costs include engineering costs related to research and product development activities and are expensed
as incurred.
Impairment Review for Long-lived and Finite-Lived Intangible Assets
Long-lived assets and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. The estimated undiscounted future cash flows expected to result from the use and
eventual disposition of the asset is compared to the asset's carrying value. If the sum of the undiscounted cash flows is less than the asset's
carrying value, an impairment charge is recorded for an amount by which the asset's carrying value exceeds its fair value. The fair value
of the impaired asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and
appraisals, as appropriate. We derive cash flow estimates from our long-term business plans and historical experience.
Impairment Review for Goodwill
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or sooner when circumstances indicate
an impairment may exist. 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
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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.
Retirement Plans
Net periodic benefit cost includes current service cost, interest cost, expected return on plan assets and the amortization of actuarial gains
and losses. Actuarial gains and losses arise from actual experiences that differ from previous assumptions as well as changes in assumptions
including expected return on plan assets, discount rates used to measure pension and other postretirement obligations and life expectancy.
The expected return on assets is measured using the market-related value of assets, which is a calculated value that recognizes changes
in the fair value of plan assets over five years. Actuarial gains and losses are recognized in other comprehensive income, net of tax, and
amortized to benefit cost over the life expectancy of inactive plan participants. The funded status of pension and other postretirement
benefit plans is recognized in the Consolidated Balance Sheets.
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 requisite service period. The fair value of stock awards
is estimated using a Black-Scholes valuation model or a Monte Carlo simulation model. These models require assumptions be made
regarding the expected stock price volatility, risk-free interest rate, life of the award and dividend yield. The expected stock price volatility
is based on historical price changes of our stock. The risk-free interest rate is based on U.S. Treasuries with a term equal to the expected
life of the stock award. The expected life of the award and expected dividend yield are based on historical experience. We believe that
the valuation techniques and underlying assumptions are appropriate in estimating the fair value of stock awards.
Revenue Recognition
We derive revenue from multiple sources including sales, rentals, financing and services. Certain transactions are consummated at the
same time and can therefore generate revenue from multiple sources. The most common form of these transactions involves a sale or
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 (VSOE). We establish VSOE 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:
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 client, which is generally upon shipment or acceptance by the customer. We
recognize revenue from the sale of equipment under sales-type leases as equipment sales 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 generally recognized upon delivery.
Standalone Software Sales and Integration Services
We also have multiple element arrangements containing only software and software related elements. Software related elements may
include maintenance and support services, data subscriptions, training and integration services. Under these multiple element
arrangements, we allocate revenue based on VSOE for software related elements and use the residual method to determine the amount
of software licenses revenue. Under the residual method, the fair-value of the undelivered elements is deferred and the remaining portion
of the arrangement consideration is allocated to the delivered elements and recognized as revenue. The majority of our software license
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
arrangements are bundled with maintenance and support services and we establish VSOE of fair value using a bell-shaped curve analysis
for maintenance and support services renewal rates. If we cannot obtain VSOE for any undelivered software element, revenue is deferred
until all deliverables have been delivered or until VSOE can be determined for any remaining undelivered software elements.
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 generally
upon shipment.
Rentals Revenue
We rent equipment, primarily postage meters and mailing equipment, under short-term rental agreements. Rentals 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 rentals revenue on a straight-line basis over the invoice period.
Revenues generated from financing clients for the continued use of equipment subsequent to the expiration of the original lease are
recognized as rentals revenue.
We capitalize certain initial direct costs incurred in consummating a rental transaction and recognize these costs over the expected term
of the agreement. Amortization of initial direct costs was $8 million, $10 million and $11 million in 2015, 2014 and 2013, respectively.
Initial direct costs included in rental property and equipment, net in the Consolidated Balance Sheets at December 31, 2015 and 2014
were $20 million and $22 million, respectively.
Financing Revenue
We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit to our clients
for the purchase of postage and 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 historical experience. We also consider forecasted supply and demand
for various products, product retirement and launch plans, regulatory changes, remanufacturing strategies, used equipment markets, if
any, competition and technological changes. We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines
in estimated residual values considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values
are not recognized until the equipment is remarketed.
Support Services 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.
Business Services Revenue
Business services revenue includes revenue from presort mail services, global ecommerce solutions and shipping solutions. Prior to our
divestiture of Imagitas in May 2015, business services revenue also included revenues from direct marketing services. Revenue for these
services were recognized as the services were provided.
We also evaluate whether it is appropriate to record revenue on a gross basis when we are acting as a principal in the transaction or net
of costs when we are acting as an agent between the client and the vendor. We consider several factors in determining whether we are
acting as principal or agent such as whether we are the primary obligor to the client, have control over the pricing and have credit risk.
Shipping and Handling
Shipping and handling costs are recognized as incurred and recorded in cost of revenues.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Deferred Marketing Costs
We capitalize certain costs associated with the acquisition of new customers and recognize these costs over the expected revenue stream
of eight years. Amortization of deferred marketing costs was $18 million, $23 million and $27 million in 2015, 2014 and 2013, respectively.
Deferred marketing costs included in other assets in the Consolidated Balance Sheets at December 31, 2015 and 2014 were $43 million
and $49 million, respectively. We review individual marketing programs for impairment on a quarterly basis or as circumstances warrant.
Restructuring Charges
Costs associated with restructuring actions and other exit or disposal activities include employee severance and other employee separation
costs and lease termination costs. These costs are recognized when a liability has been incurred, which is generally upon communication
to the affected employees or exit from a leased facility, and the amount to be paid is both probable and reasonably estimable. The rates
used in determining severance accruals are based on company policy, historical experience and negotiated settlements.
Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We limit
these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative
instruments to limit the effects of currency exchange rate fluctuations on financial results and manage the related cost of debt. We do not
use derivatives for trading or speculative purposes.
We record 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. 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 of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date of such
change. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. In 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.
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 stock awards, preference stock, preferred stock and stock purchase plans.
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
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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.
Reclassification
In 2015, we determined that certain investments were classified as cash and cash equivalents. Accordingly, the Consolidated Balance
Sheet at December 2014 has been revised to reduce cash and cash equivalents by $25 million, and increase short-term investments by
$17 million and other assets by $8 million. Additionally, the Consolidated Statements of Cash Flows for the years ended December 31,
2014 and 2013 have also been revised to reduce cash and cash equivalents and increase short-term investments and other assets for certain
investment accounts.
During 2015, we determined that certain customer deposits at December 31, 2014 within current liabilities should have been classified
as either a current asset or a non-current liability. Accordingly, the Consolidated Balance Sheet at December 31, 2014 has been revised
by increasing accounts receivable by $23 million, accounts payable and accrued liabilities by $14 million and other non-current liabilities
by $9 million.
New Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-17, Balance
Sheet Classification of Deferred Taxes, which requires all deferred tax assets and liabilities to be presented as noncurrent in the balance
sheet. The ASU is effective for interim and annual periods beginning after December 15, 2016, and can be applied either prospectively
or retrospectively. Early adoption is permitted. We have elected to retrospectively adopt this ASU effective December 31, 2015.
Accordingly, the Consolidated Balance Sheet at December 31, 2014 has been revised by reducing current income tax assets by $12 million
and current income tax liabilities by $60 million and increasing noncurrent income taxes by $2 million and deferred taxes on income by
$50 million.
In September 2015, the FASB issued ASU 2015-16, Business Combinations - Simplifying the Accounting for Measurement-Period
Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new
guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized
in the reporting period in which the adjustment is identified. Consistent with existing guidance, the new guidance requires an acquirer
to disclose the nature and amount of measurement period adjustments. The ASU is effective for interim and annual periods beginning
after December 15, 2015 and requires that measurement period adjustments be applied prospectively. Early adoption is permitted. We
will adopt this standard in the first quarter of 2016 and currently do not expect the adoption of this standard will have a significant impact
on our consolidated financial statements or disclosures.
In July 2015, the FASB issued ASU 2015-11, Inventory - Simplifying the Measurement of Inventory, which requires inventory to be
measured at the lower of cost and net realizable value (estimated selling price less reasonably predictable costs of completion, disposal
and transportation). Prior to this guidance, inventory was measured at the lower of cost or market (where market was defined as replacement
cost, with a ceiling of net realizable value and a floor of net realizable value of inventory, less a normal profit margin). Inventory measured
using LIFO is not impacted by the new guidance. The ASU is effective for fiscal years beginning after December 15, 2016 and interim
periods therein. Early adoption is permitted. We do not believe this standard will have a significant impact on our consolidated financial
statements or disclosures.
In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software, Customer's Accounting for
Fees Paid in a Cloud Computing Arrangement, which provides guidance on fees paid by an entity in a cloud computing arrangement
and whether an arrangement includes a license to the underlying software. This standard is effective for fiscal periods beginning after
December 15, 2015. We will adopt this standard in the first quarter of 2016 and the adoption of this standard will not have a significant
impact on our consolidated financial statements or disclosures.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs
to be presented in the balance sheet as a direct deduction from the associated debt liability. This standard is effective for fiscal periods
beginning after December 15, 2015. We will adopt this standard in the first quarter of 2016. Upon adoption, debt issuance costs currently
recorded as other assets in the Consolidated Balance Sheets will be reclassified as a reduction in long-term debt. At December 31, 2015,
debt issuance costs included in other assets in the Consolidated Balance Sheet was $18 million.
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items, which removes the concept of
extraordinary items, thereby eliminating the need for companies to assess transactions for extraordinary treatment. The standard retained
the presentation and disclosure requirements for items that are unusual in nature and/or infrequent in occurrence. The standard is effective
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
for fiscal periods beginning after December 15, 2015. We will adopt this standard in the first quarter of 2016 and the adoption of this
standard will not have an impact on our consolidated financial statements or disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard requires companies to recognize
revenue for the transfer of goods and services to customers in amounts that reflect the consideration the company expects to receive in
exchange for those goods and services. The standard will also result in enhanced disclosures about revenue. In July 2015, the FASB
approved a one-year deferral of the effective date. This standard is now effective for fiscal periods beginning after December 15, 2017.
The standard can be adopted either retrospectively or as a cumulative-effect adjustment. Companies are permitted to adopt the standard
as early as the original public entity effective date (fiscal periods beginning after December 15, 2016). Early adoption prior to that date
is prohibited. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.
2. Segment Information
The principal products and services of each of our reportable segments are as follows:
Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from the sale, rental, financing and servicing of mailing equipment,
software and supplies for small and medium businesses to efficiently create physical and digital mail and evidence postage for the
sending of mail, flats and parcels in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from the sale, rental, financing and servicing of mailing equipment,
software and supplies for small and medium businesses to efficiently create physical and digital mail and evidence postage for the
sending of mail, flats and parcels in areas outside the U.S. and Canada.
Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation
equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound
and outbound mail.
Presort Services: Includes revenue and related expenses from presort mail services for our large enterprise clients to qualify large
mail volumes for postal worksharing discounts.
Digital Commerce Solutions:
Software Solutions: Includes the worldwide revenue and related expenses from the sale of non-equipment-based mailing, customer
information management, location intelligence and customer engagement solutions and related support services.
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce and shipping solutions.
We determine segment earnings before interest and taxes (EBIT) by deducting from segment revenue the related costs and expenses
attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and asset 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 a useful measure of our operating performance and underlying trends
of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction
with our consolidated results of operations.
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following tables provide information about our reportable segments.
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total revenue
Geographic Data:
United States
Outside United States
Total
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total EBIT
Reconciling items:
Interest, net
Unallocated corporate expenses
Restructuring charges and asset impairments, net
Acquisition/disposition related expenses
Other income (expense), net
Revenues
Years Ended December 31,
$
2015
1,435,140
445,328
1,880,468
2014
2013
$
1,491,927
$
1,555,585
572,440
2,064,367
602,582
2,158,167
421,178
473,612
894,790
385,908
362,087
747,995
54,807
462,199
456,556
918,755
428,662
281,643
710,305
128,077
511,544
430,469
942,013
395,038
169,908
564,946
126,209
$
3,578,060
$
3,821,504
$
3,791,335
$
$
2,681,285
896,775
3,578,060
$
$
2,743,957
1,077,547
3,821,504
$
$
2,654,301
1,137,034
3,791,335
EBIT
Years Ended December 31,
2015
646,913
$
2014
2013
$
642,521
$
640,830
51,070
697,983
48,254
104,655
152,909
48,531
19,229
67,760
10,569
929,221
(159,374)
(213,095)
(25,782)
(14,983)
94,838
88,710
731,231
47,543
98,230
145,773
51,193
16,633
67,826
19,240
964,070
71,516
712,346
55,000
83,259
138,259
47,707
1,214
48,921
5,856
905,382
(169,450)
(233,126)
(84,560)
—
(45,738)
431,196
$
(186,987)
(217,458)
(84,344)
—
(32,639)
383,954
Income from continuing operations before income taxes
$
610,825
$
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total for reportable segments
Reconciliation to consolidated amount:
Unallocated amount
Discontinued operations
$
Depreciation and amortization
Years Ended December 31,
2015
2014
2013
$
58,141
23,262
81,403
4,075
27,305
31,380
18,151
21,025
39,176
2,057
$
68,291
30,629
98,920
7,740
28,462
36,202
20,653
8,073
28,726
4,928
81,238
29,515
110,753
15,740
29,999
45,739
16,237
3,592
19,829
4,532
154,016
168,776
180,853
19,296
—
29,312
—
14,052
16,338
Consolidated depreciation and amortization
$
173,312
$
198,088
$
211,243
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total for reportable segments
Reconciliation to consolidated amount:
Unallocated amount
Discontinued operations
Consolidated capital expenditures
Capital expenditures
Years Ended December 31,
2015
2014
2013
$
$
60,204
11,196
71,400
3,418
17,096
20,514
1,688
17,321
19,009
857
111,780
54,549
—
166,329
$
$
67,596
13,966
81,562
801
17,457
18,258
3,573
6,356
9,929
2,538
112,287
68,269
—
180,556
$
$
57,973
25,386
83,359
2,875
12,512
15,387
3,406
19,111
22,517
3,045
124,308
4,876
8,328
137,512
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total for reportable segments
Reconciliation to consolidated amount:
Cash and cash equivalents
Short-term investments
Other corporate assets
Discontinued operations
Consolidated assets
Identifiable long-lived assets:
United States
Outside United States
Total
Assets
December 31,
2014
2013
$
2,614,123
$
2,767,743
687,233
3,301,356
266,831
346,850
613,681
884,190
117,744
1,001,934
210,171
5,127,142
1,054,118
49,135
261,294
—
856,073
3,623,816
305,428
343,206
648,634
866,319
154,402
1,020,721
221,292
5,514,463
886,788
52,146
222,641
101,398
$
2015
2,421,095
594,540
3,015,635
244,156
374,647
618,803
858,308
580,662
1,438,970
—
5,073,408
650,557
117,021
300,476
—
$
6,141,462
$
6,499,702
$
6,777,436
$
$
437,704
73,046
510,750
$
$
391,311
94,160
485,471
$
$
351,772
119,545
471,317
3. Business Combinations and Divestiture
Business Combinations
Borderfree
In June 2015, we acquired 100% of the outstanding shares of Borderfree. Borderfree provides cross-border ecommerce solutions through
a proprietary technology and services platform that enables retailers to transact with consumers around the world. Borderfree is reported
within our Global Ecommerce segment (see Note 2). The purchase price was $381 million, net of $92 million of cash acquired. In addition,
we also paid $10 million for the accelerated vesting and settlement of Borderfree stock-based compensation awards and $8 million of
transaction costs. The expense related to Borderfree stock-based compensation awards was recognized as selling, general and
administrative expenses and the transaction costs were recognized within other (income) expense, net in the Consolidated Statements of
Income.
The allocation of the purchase price to the fair values of assets acquired and liabilities assumed was as follows:
Accounts receivable
Fixed assets
Goodwill
Intangible assets
Accounts payable and other current liabilities
Deferred taxes, net
Other assets and liabilities, net
54
$
$
13,860
7,329
300,020
137,500
(35,785)
(40,798)
(677)
381,449
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Goodwill represents the excess of the purchase price over the fair values of assets acquired and liabilities assumed. Goodwill is primarily
attributable to expected growth opportunities, synergies and other benefits that we believe will result from combining the operations of
Borderfree with our operations. Goodwill is not deductible for tax purposes.
Intangible assets acquired consisted of the following:
Customer relationships
Developed technology
Trade names
Value
116,200
12,600
8,700
137,500
$
$
Amortization
period
10 years
5 years
5 years
The results of operations of Borderfree are included in our consolidated results from the date of acquisition. Our consolidated operating
results for the year ended December 31, 2015 includes revenue of $63 million from Borderfree operations. On a supplemental pro forma
basis, had we acquired Borderfree on January 1, 2014, revenue would have been $47 million and $125 million higher for the years ended
December 31, 2015 and 2014, respectively. The impact on earnings would not have been material.
Other Acquisitions
In October 2015, we acquired the net assets of Zip Mail Services, Inc. (Zip Mail) for $6 million in cash plus additional payments totaling
$1 million during the period 2016-2017. Zip Mail acts as an intermediary between customers and the U.S. Postal Service. Zip Mail
offers mailing services that include presorting of first class, standard class and flat mail. Zip Mail is reported within our Presort Services
segment.
In May 2015, we acquired Real Time Content, Inc. (RTC) for $6 million, net of cash acquired. RTC provides technology that enables
clients to provide personalized interactive video communications to their customers. RTC is reported within our Software Solutions
segment.
In January 2016, we acquired Enroute Systems Corporation (Enroute) for $14 million in cash plus potential additional payments during
the periods 2017-2019 based on the achievement of revenue targets during the periods 2016-2018. Enroute is a cloud-based, software-
as-a-service enterprise retail and fulfillment solutions company. Enroute will be reported within our Global Ecommerce segment.
Divestiture
In May 2015, we sold Imagitas for net proceeds of $292 million. We recognized a pre-tax gain of $111 million, which was reported within
other (income) expense, net in the Consolidated Statements of Income.
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
4. Discontinued Operations
Discontinued operations include the results of our Document Imaging Solutions (DIS) business sold in 2014 and our Management Services
business (PBMS), Nordic furniture business and International Mailing business (IMS) sold in 2013. Discontinued operations also include
certain tax benefits related to our Capital Services business that was sold in 2006.
Income from discontinued operations in 2015 of $5.3 million primarily includes a favorable tax adjustment related to the sale of DIS.
Income (loss) from discontinued operations for 2014 and 2013 are shown in the following tables.
Revenue
(Loss) income from operations
Gain on sale
Income before taxes
Tax (benefit) provision
Net income
Capital Services, net of tax
Income from discontinued operations
$
$
$
Year Ended December 31, 2014
Nordic
furniture
business
PBMS
IMS
— $
— $
— $
308
$
509
$
(245) $
2,778
2,533
(6,931)
9,464
1,994
2,302
851
$
1,451
$
—
509
141
368
$
DIS
19,858
2,123
24,733
26,856
18,184
8,672
Total
19,858
2,695
29,505
32,200
12,245
19,955
13,794
33,749
$
$
$
$
Revenue
$
639,237
$
23,036
$
37,785
$
78,066
$
778,124
Year Ended December 31, 2013
PBMS
IMS
Nordic
furniture
business
DIS
Total
(4,037) $
4,562
525
149
376
19,223
$ (105,888)
—
19,223
5,102
6,971
(98,917)
45,571
$
14,121
$ (144,488)
(289)
$ (144,777)
(Loss) income from operations
Gain (loss) on sale
(Loss) income before taxes
Tax provision (benefit)
Net (loss) income
Capital Services, net of tax
Loss from discontinued operations
$ (118,017) $
5,126
(112,891)
41,384
$ (154,275) $
(3,057) $
(2,717)
(5,774)
(1,064)
(4,710) $
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
5. Earnings per Share
The calculations of basic and diluted earnings per share for the years ended December 31, 2015, 2014 and 2013 are presented below. The
sum of earnings per share amounts may not equal the totals due to rounding.
Numerator:
Amounts attributable to common stockholders:
Net income from continuing operations
Income (loss) 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 attributable to Pitney Bowes Inc.
Diluted earnings per share:
Continuing operations
Discontinued operations
Net income attributable to Pitney Bowes Inc.
Years Ended December 31,
2015
2014
2013
$
402,672
$
300,006
$
287,612
5,271
407,943
41
33,749
333,755
44
(144,777)
142,835
46
$
407,902
$
333,711
$
142,789
199,835
201,992
201,614
1
321
788
200,945
1
344
1,624
203,961
2
381
960
202,957
$
$
$
$
2.01
0.03
2.04
2.00
0.03
2.03
$
$
$
$
1.49
0.17
1.65
1.47
0.17
1.64
$
$
$
$
1.43
(0.72)
0.71
1.42
(0.71)
0.70
Anti-dilutive options excluded from diluted earnings per share (in thousands):
8,079
7,322
12,448
6. Inventories
Inventories at December 31, 2015 and 2014 consisted of the following:
Raw materials
Work in Process
Supplies and service parts
Finished products
Inventory at FIFO cost
Excess of FIFO cost over LIFO cost
Total inventory, net
57
December 31,
2015
2014
$
$
25,803
6,408
44,323
24,618
101,152
(12,328)
88,824
$
$
30,986
6,189
33,760
26,992
97,927
(13,100)
84,827
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
7. 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 clients for postage and supplies. Loan receivables are generally due
each month; however, customers may rollover outstanding balances. Interest is recognized on loan receivables using the effective
interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Customer
acquisition costs are expensed as incurred.
Finance receivables at December 31, 2015 and 2014 consisted of the following:
Sales-type lease receivables
Gross finance receivables
Unguaranteed residual values
Unearned income
Allowance for credit losses
December 31, 2015
December 31, 2014
North
America
International
Total
North
America
International
Total
$ 1,212,390
$
308,099
$ 1,520,489
$ 1,286,624
$
366,669
$ 1,653,293
100,000
15,709
115,709
105,205
18,291
123,496
(252,522)
(68,965)
(321,487)
(270,196)
(83,110)
(353,306)
(6,735)
(3,614)
(10,349)
(10,281)
(5,129)
(15,410)
Net investment in sales-type lease receivables
1,053,133
251,229
1,304,362
1,111,352
296,721
1,408,073
Loan receivables
Loan receivables
Allowance for credit losses
Net investment in loan receivables
363,672
(9,896)
353,776
41,604
(1,518)
40,086
405,276
376,987
(11,414)
(10,912)
393,862
366,075
47,665
(1,788)
45,877
424,652
(12,700)
411,952
Net investment in finance receivables
$ 1,406,909
$
291,315
$ 1,698,224
$ 1,477,427
$
342,598
$ 1,820,025
Loans receivables are due within one year. Maturities of gross sales-type lease finance receivables at December 31, 2015 were as
follows:
2016
2017
2018
2019
2020
Thereafter
Total
Sales-type Lease Receivables
North America
551,403
$
340,562
200,836
91,091
23,320
5,178
1,212,390
$
International
Total
$
122,350
$
87,141
56,907
31,073
9,274
1,354
308,099
$
$
673,753
427,703
257,743
122,164
32,594
6,532
1,520,489
58
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 the years ended December 31, 2015, 2014 and 2013 was as follows:
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
Balance at December 31, 2012
$
16,979
$
8,662
$
12,322
$
2,131
$
Amounts charged to expense
Accounts written off
Balance at December 31, 2013
Amounts charged to expense
Accounts written off
Balance at December 31, 2014
Amounts charged to expense
Accounts written off
4,584
(7,398)
14,165
4,346
(8,230)
10,281
1,189
(4,735)
Balance at December 31, 2015
$
6,735
$
4,553
(3,512)
9,703
866
(5,440)
5,129
890
(2,405)
3,614
$
9,663
(10,820)
11,165
10,237
(10,490)
10,912
8,286
(9,302)
9,896
$
1,254
(1,469)
1,916
1,626
(1,754)
1,788
1,023
(1,293)
1,518
$
40,094
20,054
(23,199)
36,949
17,075
(25,914)
28,110
11,388
(17,735)
21,763
Aging of Receivables
The aging of finance receivables at December 31, 2015 and 2014 was as follows:
December 31, 2015
Less than 30 days
31 - 60 days
61 - 90 days
> 90 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
December 31, 2014
Less than 30 days
31 - 60 days
61 - 90 days
> 90 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
$
1,147,455
$
291,777
$
348,730
$
39,259
$
1,827,221
27,037
18,740
19,158
1,212,390
5,041
14,117
19,158
$
$
$
7,496
3,744
5,082
308,099
1,617
3,465
5,082
Sales-type Lease Receivables
North
America
International
1,217,623
23,242
24,198
21,561
1,286,624
5,931
15,630
21,561
$
$
$
$
347,236
6,207
4,494
8,732
366,669
2,517
6,215
8,732
59
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8,010
3,312
3,620
1,435
423
487
43,978
26,219
28,347
363,672
$
41,604
$
1,925,765
— $
3,620
3,620
$
— $
487
487
$
6,658
21,689
28,347
Loan Receivables
North
America
International
Total
359,672
9,245
3,498
4,572
376,987
$
$
— $
4,572
4,572
$
45,678
1,201
413
373
47,665
$
$
1,970,209
39,895
32,603
35,238
2,077,945
— $
373
373
$
8,448
26,790
35,238
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an 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, given that it is a localized process and
there is no single credit score model that covers all countries.
The table below shows the North America portfolio at December 31, 2015 and 2014 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.
Sales-type lease receivables
Low
Medium
High
Not Scored
Total
Loan receivables
Low
Medium
High
Not Scored
Total
December 31,
2015
2014
$
926,387
$
192,645
37,573
55,785
1,212,390
260,204
85,671
10,810
6,987
363,672
$
$
$
$
$
$
936,979
230,799
45,202
73,644
1,286,624
259,436
96,243
10,913
10,395
376,987
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
8. Fixed Assets
Fixed assets at December 31, 2015 and 2014 consisted of the following:
Land
Capitalized Software
Buildings
Machinery and equipment
Accumulated depreciation
Property, plant and equipment, net
Rental property and equipment
Accumulated depreciation
Rental property and equipment, net
December 31,
2015
2014
$
9,908
$
87,102
218,261
897,532
1,212,803
(882,715)
330,088
407,495
(226,833)
180,662
$
$
$
$
$
$
9,908
44,152
213,196
879,222
1,146,478
(861,387)
285,091
462,244
(261,864)
200,380
Depreciation expense was $136 million, $165 million and $158 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
9. Intangible Assets and Goodwill
Intangible assets
Intangible assets at December 31, 2015 and 2014 consisted of the following:
December 31, 2015
December 31, 2014
Customer relationships
Supplier relationships
Software & technology
Trademarks & other
Total intangible assets, net
$
622,364
$
Gross
Carrying
Amount
$
437,459
Accumulated
Amortization
$
(272,353) $
—
149,591
35,314
—
(135,198)
(27,435)
(434,986) $
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
165,106
$
337,438
$
—
14,393
7,879
29,000
160,825
33,079
187,378
$
560,342
$
(263,121) $
(27,913)
(154,610)
(32,525)
(478,169) $
74,317
1,087
6,215
554
82,173
Amortization expense for intangible assets was $37 million, $34 million and $37 million for the years ended December 31, 2015, 2014
and 2013, respectively. The future amortization expense for intangible assets at December 31, 2015 was as follows:
Year ended December 31,
2016
2017
2018
2019
2020
Thereafter
Total
$
$
38,165
27,400
24,800
21,741
17,025
58,247
187,378
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange
rates, acquisitions, divestitures and impairment charges.
61
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, 2015 and 2014 are shown in
the tables below. Prior year amounts have been recast for the change in reportable segments.
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total goodwill
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total reportable segments
Discontinued operations
Total goodwill
Gross value
before
accumulated
impairment
Accumulated
impairment
$
309,448
$
162,146
471,594
110,837
195,140
305,977
677,008
23,910
700,918
December 31,
2014
309,448
— $
—
—
—
—
—
—
—
—
162,146
471,594
110,837
195,140
305,977
677,008
23,910
700,918
Acquisition
Other (1)
$
— $
—
—
—
1,750
1,750
5,792
300,020
305,812
—
$
307,562
$
December 31,
2015
296,053
148,351
444,404
105,757
196,890
(13,395) $
(13,795)
(27,190)
(5,080)
—
(5,080)
(7,824)
—
(7,824)
998,906
(194,232)
—
(234,326) $ 1,745,957
323,930
302,647
674,976
194,232
$ 1,672,721
$
—
194,232
— $ 1,672,721
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2013
Other (1)
December 31,
2014
$
326,664
$
— $
326,664
$
182,261
508,925
118,060
195,140
313,200
685,251
23,910
709,161
—
—
—
—
—
—
—
—
182,261
508,925
118,060
195,140
313,200
685,251
23,910
709,161
194,232
1,725,518
9,353
$ 1,734,871
$
194,232
—
— 1,725,518
—
9,353
— $ 1,734,871
$
(17,216) $
(20,115)
(37,331)
(7,223)
—
(7,223)
(8,243)
309,448
162,146
471,594
110,837
195,140
305,977
677,008
23,910
700,918
(8,243)
194,232
—
(52,797)
1,672,721
(9,353)
—
(62,150) $ 1,672,721
(1) Primarily represents foreign currency translation adjustments. For 2015, Other represents the write-off of remaining goodwill upon the sale of Imagitas. For 2014,
the adjustment in discontinued operations primarily represents the write-off of remaining goodwill upon sale.
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
10. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from
the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities
measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities
in active markets or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and may be derived from internally developed
methodologies based on management's best estimates.
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, 2015 and 2014. 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.
Assets:
Investment securities
Money market funds / commercial paper
$
41,215
$
292,412
$
— $
333,627
Level 1
Level 2
Level 3
Total
December 31, 2015
—
—
102,235
—
—
—
24,538
22,571
12,566
62,884
178,234
1,716
—
—
—
—
—
—
24,538
22,571
114,801
62,884
178,234
1,716
143,450
$
594,921
$
— $
738,371
— $
— $
(5,387) $
(5,387) $
— $
— $
(5,387)
(5,387)
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
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
$
$
$
63
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, 2014
Assets:
Investment securities
Money market funds / commercial paper
$
505,643
$
193,986
$
— $
699,629
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
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Investment Securities
—
—
113,974
—
—
—
27,409
24,077
24,006
67,448
156,614
1,386
—
—
—
—
—
—
27,409
24,077
137,980
67,448
156,614
1,386
619,617
$
494,926
$
— $
1,114,543
— $
— $
(2,988) $
(2,988) $
— $
— $
(2,988)
(2,988)
$
$
$
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.
Investment securities include investments held by The Pitney Bowes Bank (the Bank), whose primary business is to provide financing
solutions to clients that rent postage meters and purchase supplies. The Bank's assets and liabilities consist primarily of cash, finance
receivables, short and long-term investments and deposit accounts.
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The Bank's investment securities are classified as available-for-sale and recorded at fair value in the Consolidated Balance Sheets as cash
and cash equivalents, short-term investments and other assets depending on the type of investment and maturity. Unrealized holding gains
and losses are recorded in accumulated other comprehensive income (AOCI), net of tax.
Available-For-Sale Securities
At December 31, 2015 and 2014, available-for-sale securities consisted of the following:
U.S. and foreign governments, agencies and municipalities
Corporate
Mortgage-backed / asset-backed securities
Total
Amortized cost
114,265
$
63,140
177,821
$
355,226
$
December 31, 2015
Gross
unrealized
gains
Gross
unrealized
losses
$
1,804
$
823
1,901
4,528
$
December 31, 2014
Estimated fair
value
114,801
$
62,884
178,234
$
355,919
(1,268)
(1,079)
(1,488)
(3,835)
U.S. and foreign governments, agencies and municipalities
$
135,839
$
Corporate
Mortgage-backed / asset-backed securities
Total
66,170
155,330
$
357,339
$
2,905
1,569
2,362
6,836
$
$
(764)
(291)
(1,078)
(2,133)
$
137,980
67,448
156,614
$
362,042
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Estimated fair
value
Investment securities that were in a loss position for 12 or more continuous months at December 31, 2015 had aggregate unrealized
holding losses of $2 million and an estimated fair value of $36 million. Investment securities that were in a loss position for less than 12
continuous months at December 31, 2015 had aggregate unrealized holding losses of $2 million and an estimated fair value of $146
million.
Investment securities that were in a loss position for 12 or more continuous months at December 31, 2014 had aggregate unrealized
holding losses of $1 million and an estimated fair value of $42 million. Investment securities that were in a loss position for less than 12
continuous months at December 31, 2014 had aggregate unrealized holding losses of $1 million and an estimated fair value of $88 million.
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, 2015, 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
47,014
$
74,649
53,432
180,131
355,226
$
Estimated fair
value
$
$
46,987
75,123
53,753
180,056
355,919
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.
At December 31, 2015, we had approximately $70 million of time deposits that are classified as held-to-maturity and are included in
short-term investments because they mature in the next six months. The cost of these investments approximates fair value. We had no
held-to-maturity investments at December 31, 2014.
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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.
Derivative Instruments
The valuation of foreign exchange derivatives is based on a market approach using observable market data inputs, such as foreign currency
spot and forward rates and yield curves. 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 in the credit default swap market.
The fair value of our derivative instruments at December 31, 2015 and 2014 was as follows:
Designation of Derivatives
Balance Sheet Location
2015
2014
December 31,
Derivatives designated as hedging instruments
Foreign exchange contracts
Derivatives not designated as hedging instruments
Foreign exchange contracts
Other current assets and prepayments
$
Accounts payable and accrued liabilities
$
217
(208)
762
—
Other current assets and prepayments
Accounts payable and accrued liabilities
1,499
(5,179)
Total derivative assets
Total derivative liabilities
Total net derivative liability
1,716
(5,387)
(3,671) $
$
624
(2,988)
1,386
(2,988)
(1,602)
Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between
affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow
hedges is included in AOCI in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged
item is recorded in earnings. At December 31, 2015 and 2014, we had outstanding contracts associated with these anticipated transactions
with a notional amount of $13 million and $18 million, respectively.
The amounts included in AOCI at December 31, 2015 will be recognized in earnings within the next 12 months. No amount of
ineffectiveness was recorded in earnings for these designated cash flow hedges.
The following represents the results of cash flow hedging relationships for the years ended December 31, 2015 and 2014:
Derivative Instrument
Foreign exchange contracts
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
2015
2014
$
887
$
1,878
Year Ended December 31,
Location of Gain (Loss)
(Effective Portion)
Revenue
Cost of sales
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
2015
2014
$
$
1,082
558
1,640
$
$
1,276
(140)
1,136
We also enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans
and related interest that are denominated in a foreign currency. The revaluation of the intercompany loans and interest and the mark-to-
market adjustment on the derivatives are both recorded in earnings. All outstanding contracts at December 31, 2015 mature over the next
three months.
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following represents the results of our non-designated derivative instruments for the years ended December 31, 2015 and 2014:
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
2015
2014
$
(6,849) $
(4,701)
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, 2015, the maximum amount of
collateral that we would have been required to post had the credit-risk-related contingent features been triggered was $5 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, 2015 and 2014 was as follows:
December 31,
2015
2,968,997
3,102,890
$
$
2014
$
$
3,252,006
3,440,383
December 31,
2015
2014
$
$
$
$
327,282
$
125,190
91,749
544,221
302,113
665,339
255,893
224,976
1,448,321
$
$
$
332,452
149,092
95,579
577,123
268,527
661,167
319,963
323,314
1,572,971
Carrying value
Fair value
11. Supplemental Balance Sheet Information
The following table shows selected balance sheet information at December 31, 2015 and 2014:
Other assets:
Long-term investments
Deferred charges
Other
Total
Accounts payable and accrued liabilities:
Accounts payable
Customer deposits
Employee related liabilities
Miscellaneous other
Total
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
12. Restructuring Charges and Asset Impairments
The table below shows the activity in our restructuring reserves for the years ended December 31, 2015 and 2014:
Severance and
benefits costs
Other exit
costs
Total
Balance at December 31, 2013
$
58,558
$
8,014
$
Expenses, net
Cash payments
Balance at December 31, 2014
Expenses, net
Cash payments
Balance at December 31, 2015
$
74,325
(51,047)
81,836
19,078
(57,214)
43,700
$
5,444
(5,115)
8,343
251
(4,872)
3,722
$
66,572
79,769
(56,162)
90,179
19,329
(62,086)
47,422
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.
Asset impairment
During 2015, we sold our world headquarters building for $39 million and recorded a loss on the sale of $5 million. The loss was recognized
in restructuring charges and asset impairments, net in the Consolidated Statements of Income.
13. Debt
Commercial paper
Notes due March 2015
Notes due January 2016
Notes due September 2017
Notes due March 2018
Notes due May 2018
Notes due March 2019
Notes due November 2022
Notes due March 2024
Notes due January 2037
Notes due March 2043
Term loans
Other debt
Principal amount
Less: unamortized discount
Plus: unamortized interest rate swap proceeds
Total debt
Less: current portion long-term debt
Long-term debt
68
December 31,
Interest rate
1.1%
2015
90,000
$
2014
$
—
5.0%
4.75%
5.75%
5.6%
4.75%
6.25%
5.25%
4.625%
5.25%
6.7%
Variable
—
370,914
385,109
250,000
350,000
300,000
—
500,000
115,041
425,000
150,000
15,758
2,951,822
5,288
22,463
2,968,997
461,085
$ 2,507,912
274,879
370,914
385,109
250,000
350,000
300,000
110,000
500,000
115,041
425,000
130,000
16,000
3,226,943
6,653
31,716
3,252,006
324,879
$ 2,927,127
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
In November 2015 we redeemed the $110 million 5.250% notes due November 2022 at a par plus accrued and unpaid interest.
We also repaid the $130 million term loans outstanding at December 31, 2014 and borrowed $150 million under new a term loan. The
term loan bears interest at the applicable Eurodollar Rate plus 0.90%. Interest is payable and resets quarterly and the loans mature in
December 2016 but may be extended through June 2017 at our option. At December 31, 2015, the weighted-average interest rate of the
term loans was 1.4%.
During 2015, we also repaid the $275 million, 5% notes that matured in March 2015.
In October 2014, we received a loan from the State of Connecticut Department of Economic and Community Development. The loan
consisted of a $15 million development loan and $1 million jobs-training grant that is subject to refund if certain conditions are not met.
We satisfied the conditions related to the $1 million jobs-training grant during 2015.
The 4.625% Notes due March 2024 may be redeemed, at anytime, at our option, in whole or in part, at par plus accrued interest and a
make-whole payment.
The 6.7% Notes due March 2043 may be redeemed, at our option, in whole or in part, at par plus accrued interest any time on or after
March 2018, respectively.
The 5.25% Notes due 2037 may be redeemed by bondholders, in whole or in part, at par plus accrued interest in January 2017.
We have a commercial paper program and a committed credit facility of $1 billion to support commercial paper issuances. There were
$90 million of commercial paper borrowings at December 31, 2015. As of December 31, 2015, we had not drawn upon the credit facility.
The credit facility expires in January 2020.
In January 2016, we borrowed $300 million under a term loan and used the proceeds to repay a portion of the $371 million, 4.75% notes
due January 15, 2016. The remaining portion of the loan was repaid using cash from operations. The new term loan bears interest at the
applicable Eurodollar Rate plus 1.25% and matures in December 2020.
Annual maturities of outstanding debt at December 31, 2015 are as follows:
2016
2017
2018
2019
2020
Thereafter
Total
$
$
461,085
535,277
600,168
300,168
412
1,054,712
2,951,822
14. Retirement Plans and Postretirement Medical Benefits
We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S.
under various defined benefit retirement plans. Benefit accruals under most of our defined benefit plans, including our two largest U.S.
pension plans, our U.K. pension plans and Canadian pension plans, have been frozen.
We also provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible
retirees and their dependents. Employees hired before January 1, 2005 in the U.S. and April 1, 2005 in Canada become eligible for retiree
medical benefits after reaching age 55 and with the completion of the required service period. The cost of these benefits is recognized
over the period the employee provides credited service to the company.
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Retirement Plans
The benefit obligations and funded status of defined benefit pension plans are as follows:
Accumulated benefit obligation
Projected benefit obligation
United States
Foreign
2015
1,688,982
$
2014
2015
2014
$
1,866,914
$
635,600
$
698,176
Benefit obligation - beginning of year
$
1,868,176
$
1,622,591
$
715,287
$
672,773
Service cost
Interest cost
Plan participants' contributions
Actuarial (gain) loss
Foreign currency changes
Plan Amendments
Settlement / curtailment
Special termination benefits
Benefits paid
Benefit obligation - end of year
Fair value of plan assets available for benefits
Fair value of plan assets - beginning of year
Actual return on plan assets
Company contributions
Plan participants' contributions
Settlement / curtailment
Foreign currency changes
Benefits paid
Fair value of plan assets - end of year
Amounts recognized in the Consolidated Balance Sheets
Non-current asset
Current liability
Non-current liability
Funded status
134
74,331
—
(131,179)
—
(428)
(3,678)
—
(117,471)
1,689,885
1,593,463
(19,173)
7,649
—
(3,678)
—
(117,471)
1,460,790
271
(9,088)
(220,277)
(229,094)
$
$
$
$
$
6,908
77,655
—
306,718
—
—
(16,867)
—
(128,829)
1,868,176
$
$
2,229
24,261
8
(15,375)
(53,945)
—
—
79
(25,432)
647,112
3,565
28,518
59
89,695
(52,750)
—
—
1,238
(27,811)
$
715,287
$
1,523,679
$
574,992
$
561,078
195,946
19,534
—
(16,867)
—
(128,829)
1,593,463
300
(6,590)
(268,423)
(274,713)
$
$
$
$
$
$
11,383
14,194
8
—
(45,033)
(25,432)
530,112
11,566
(1,031)
(127,535)
(117,000)
$
$
$
67,306
15,323
59
—
(40,963)
(27,811)
574,992
5,813
(1,008)
(145,100)
(140,295)
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2015 and 2014:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
United States
2015
1,689,476
1,688,573
1,460,111
$
$
$
2014
1,867,788
1,866,525
1,592,774
$
$
$
$
$
$
Foreign
2015
540,984
529,593
412,418
$
$
$
2014
583,317
566,365
437,209
70
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 credit
Transition asset
Total
United States
2015
880,123
(512)
—
879,611
$
$
$
2014
918,641
(144)
—
918,497
$
$
$
Foreign
2015
255,994
(740)
(40)
255,214
$
$
2014
253,257
(806)
(49)
252,402
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2016 are as follows:
Net actuarial loss
Prior service credit
Transition asset
Total
United States
Foreign
$
$
26,824
(60)
—
$
5,804
(66)
(9)
26,764
$
5,729
The components of net periodic benefit cost (income) 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 (credit) cost
Amortization of net actuarial loss
Special termination benefits
Settlement / curtailment
United States
2015
2014
2013
2015
Foreign
2014
$
134
$
6,908
$
13,981
$
2,229
$
3,565
$
74,331
(104,004)
—
(60)
29,272
—
1,243
77,655
(103,822)
—
74,370
(107,608)
—
9
25,369
—
4,528
380
32,494
548
2,638
24,261
(35,421)
(9)
(66)
5,926
79
—
(3,001) $
28,518
(39,137)
(10)
(57)
8,268
1,238
—
2013
6,272
27,365
(34,769)
(9)
112
14,445
935
—
Net periodic benefit cost (income)
$
916
$
10,647
$
16,803
$
2,385
$
14,351
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 credit (cost)
Net transition asset
Settlement / curtailment
Total recognized in other comprehensive income
United States
Foreign
2015
2014
2015
2014
(8,003)
(428)
(29,272)
60
—
(1,243)
(38,886)
$
$
214,593
—
(25,369)
(9)
—
(4,528)
184,687
$
$
8,663
—
(5,926)
66
9
—
2,812
$
$
61,525
—
(8,268)
57
10
—
53,324
$
$
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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
2015
2014
2013
4.55%
N/A
4.15%
7.00%
N/A
4.15%
N/A
4.95%
7.00%
3.50%
4.95%
3.50%
4.05%
7.25%
3.50%
1.15% - 3.95%
1.50% - 3.50%
1.10% - 3.80%
1.50% - 3.50%
1.45% - 4.60%
1.50% - 3.50%
1.10% - 3.80%
4.00% - 7.00%
1.50% - 3.50%
1.45% - 4.60%
3.75% - 7.50%
1.50% - 3.50%
1.95% - 4.65%
3.50% - 7.50%
1.50% - 3.50%
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 pool
of corporate long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for our largest
foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by using a model that discounts each year's estimated benefit
payments by an applicable spot rate derived from a yield curve created from a large number of high quality corporate bonds. For our
other smaller foreign pension plans, the discount rate is selected based on high-quality fixed income indices available in the country in
which the plan is domiciled.
The expected return on plan assets is based on 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 target asset allocation of our global pension plans, adjusted for historical
and expected experience of active portfolio management results, when compared to the benchmark returns.
During 2016, we anticipate making total contributions of $9 million to our U.S. pension plans and $46 million to our foreign pension
plans. We will reassess our funding alternatives as the year progresses.
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 2016
and the actual asset allocations at December 31, 2015 and 2014, for the U.S. pension plans are as follows:
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Target
allocation
Percent of Plan Assets at
December 31,
2016
2015
2014
15%
15%
60%
5%
5%
12%
10%
68%
6%
4%
12%
9%
69%
5%
5%
100%
100%
100%
Asset category
U.S. equities
Non-U.S. equities
Fixed income
Real estate
Private equity
Total
Investment Strategy and Asset Allocation - Foreign Pension Plans
Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate
personnel. Investment strategies vary by country and plan, with each strategy tailored to achieve the expected rate of return within an
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 75% 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 6.5%. 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 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 2016 and the actual asset allocations at December 31, 2015 and 2014, for the U.K. pension plan are as follows:
Asset category
U.K. equities
Non-U.K. equities
Fixed income
Real estate
Diversified growth
Cash
Total
Target
Allocation
Percent of Plan Assets at
December 31,
2016
2015
2014
20%
20%
40%
10%
10%
—%
23%
20%
40%
10%
5%
2%
28%
29%
40%
—%
—%
3%
100%
100%
100%
The target asset allocation used to manage the investment portfolios is based on the broad asset categories shown above. The plan asset
categories presented in the fair value hierarchy are subsets of the broad asset categories.
The fair value of the U.K. plan assets was $399 million and $427 million at December 31, 2015 and 2014, respectively, and the expected
long-term weighted average rate of return on these plan assets was 7.00% in 2015 and 7.50% in 2014.
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, 2015 and 2014, 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. There are no shares of our common stock included in the plan assets of our pension plans.
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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, 2015
Level 1
Level 2
Level 3
Total
$
— $
7,493
$
— $
174,664
—
143,449
—
—
—
—
—
—
140,270
205,246
21,424
592,111
14,810
2,535
—
—
154,690
—
—
—
—
1,592
—
63,577
82,569
—
$
318,113
$
1,138,579
$
147,738
$
7,493
314,934
205,246
164,873
592,111
16,402
2,535
63,577
82,569
154,690
1,604,430
(154,690)
4,072
6,978
Fair value of plan assets available for benefits
$
1,460,790
December 31, 2014
Level 1
Level 2
Level 3
Total
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
Fair value of plan assets available for benefits
$
— $
10,758
$
— $
180,069
—
184,209
—
—
—
146,716
261,571
25,131
598,927
20,401
2,158
—
—
—
364,278
—
—
131,901
1,197,563
$
$
$
—
—
—
—
2,102
—
81,246
74,747
—
158,095
$
$
10,758
326,785
261,571
209,340
598,927
22,503
2,158
81,246
74,747
131,901
1,719,936
(131,901)
4,621
807
1,593,463
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Foreign Plans
December 31, 2015
Level 1
Level 2
Level 3
Total
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Real estate
Diversified growth funds
Total plan assets at fair value
Cash
Other
Fair value of plan assets available for benefits
$
— $
7,596
$
— $
33,855
—
—
—
—
—
33,855
$
$
183,110
138,220
73,573
27,279
—
—
429,778
—
—
—
—
39,177
20,513
59,690
$
$
$
7,596
216,965
138,220
73,573
27,279
39,177
20,513
523,323
6,376
413
530,112
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, 2014
Level 1
Level 2
Level 3
Total
$
— $
6,684
$
— $
99,570
—
—
—
190,924
151,017
85,711
26,154
—
—
—
—
6,684
290,494
151,017
85,711
26,154
$
99,570
$
460,490
$
— $
560,060
10,859
4,073
$
574,992
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. They 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
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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.
• Debt Securities – Corporate: 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-funds 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.
• Diversified Growth Funds: Investments are comprised of units in commingled diversified growth funds. These investments are valued
based on the net asset value (NAV) per unit as reported by the fund manager, and are classified as Level 3 due to the unobservable
inputs used to determine a fair value.
•
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, 2015 and 2014:
United States Pension Plans
Balance at December 31, 2013
Realized gains
Unrealized gains
Net purchases, sales and settlements
Balance at December 31, 2014
Realized gains
Unrealized gains (losses)
Net purchases, sales and settlements
Balance at December 31, 2015
Mortgage-backed
securities
Private equity
Real estate
Total
2,634
12
59
(603)
2,102
10
28
(548)
1,592
$
$
87,470
11,174
1,886
(19,284)
81,246
14,288
(6,844)
(25,113)
63,577
$
$
67,917
285
6,140
405
74,747
1,027
7,043
(248)
82,569
$
$
158,021
11,471
8,085
(19,482)
158,095
15,325
227
(25,909)
147,738
$
$
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Foreign Pension Plans
Balance at December 31, 2014
Unrealized gains
Net purchases, sales and settlements
Balance at December 31, 2015
Nonpension Postretirement Benefits
Diversified
growth funds
Real estate
Total
$
— $
— $
(119)
20,632
20,513
(1,685)
40,862
39,177
—
(1,804)
61,494
59,690
The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:
Benefit obligation
Benefit obligation - beginning of year
Service cost
Interest cost
Plan participants' contributions
Actuarial (gain) loss
Foreign currency changes
Curtailment
Benefits paid
Benefit obligation - end of year (1)
Fair value of plan assets
Fair value of plan assets - beginning of year
Company contribution
Plan participants' contributions
Benefits paid
Fair value of plan assets - end of year
Amounts recognized in the Consolidated Balance Sheets
Current liability
Non-current liability
Funded status
2015
2014
$
253,980
$
231,153
2,455
8,799
4,332
(31,253)
(3,289)
—
(23,146)
211,878
$
— $
18,814
4,332
(23,146)
— $
2,683
9,951
5,418
37,532
(2,096)
(2,160)
(28,501)
253,980
—
23,083
5,418
(28,501)
—
(19,406)
(192,472)
(211,878)
$
$
(22,113)
(231,867)
(253,980)
$
$
$
$
$
(1) The benefit obligation for the U.S. nonpension postretirement plans was $198 million and $231 million at December 31, 2015 and 2014, respectively.
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service cost
Total
2015
2014
$
$
59,174
2,060
61,234
$
$
97,955
2,356
100,311
77
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:
Service cost
Interest cost
Amortization of prior service cost
Amortization of net actuarial loss
Curtailment
Net periodic benefit cost
$
2015
2014
2013
$
2,455
8,799
297
7,528
—
$
2,683
9,951
159
5,949
—
3,684
9,503
128
7,433
2,920
$
19,079
$
18,742
$
23,668
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income
were as follows:
Net actuarial (gain) loss
Curtailment
Amortization of net actuarial loss
Amortization of prior service cost
Other adjustments
2015
2014
$
$
(31,253)
—
(7,528)
(297)
37,532
(2,160)
(5,949)
(159)
412
Total recognized in other comprehensive income
$
(39,078)
$
29,676
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2016 are as follows:
Net actuarial loss
Prior service cost
Total
$
$
5,438
297
5,735
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
2015
2014
2013
4.20%
3.95%
3.90%
3.80%
3.90%
3.80%
4.40%
4.65%
4.40%
4.65%
3.65%
3.90%
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 6.0%
for 2015 and 6.5% for 2014. The assumed health care trend rate is 6.0% for 2016 and will gradually decline to 5.0% by the year 2019
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
1% Increase
1% Decrease
$
$
389
7,841
$
$
(326)
(6,730)
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, are expected to be paid.
Years ending December 31,
2016
2017
2018
2019
2020
2021 - 2025
Savings Plans
Pension Benefits
Nonpension
Benefits
$
125,403
$
123,478
124,090
125,622
127,960
644,862
19,475
18,799
18,088
17,515
16,846
75,468
$
1,271,415
$
166,191
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 $28 million in 2015 and $25
million in 2014.
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
15. Income Taxes
Income from continuing operations before taxes consisted of the following:
U.S.
International
Total
Years Ended December 31,
2015
516,233
94,592
610,825
$
$
2014
2013
$
$
356,017
75,179
431,196
$
$
288,660
95,294
383,954
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
Total provision for income taxes
Years Ended December 31,
2015
2014
2013
$
115,557
$
19,941
135,498
11,243
16,094
27,337
22,794
4,149
26,943
71,683
6,941
78,624
7,186
(9,307)
(2,121)
32,492
3,820
36,312
$
78,315
(19,754)
58,561
5,359
(8,026)
(2,667)
28,063
(5,990)
22,073
149,594
40,184
111,361
1,454
111,737
(33,770)
$
189,778
$
112,815
$
77,967
Effective tax rate
31.1%
26.2%
20.3%
The effective tax rate for 2015 includes tax benefits of $20 million from the disposition of Imagitas and $3 million from the retroactive
effect of 2015 tax legislation.
The effective tax rate for 2014 includes tax benefits of $22 million from the resolution of tax examinations and $5 million from the
retroactive effect of 2014 U.S. tax legislation.
The effective tax rate for 2013 includes tax benefits of $13 million from an affiliate reorganization, $17 million from tax planning initiatives
and $5 million from the adjustment of non-U.S. tax accounts from prior periods and the retroactive effect of 2013 U.S. tax legislation.
80
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
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,
2015
213,789
$
$
17,769
(6,492)
(1,171)
(10,959)
2,658
—
(27,110)
1,294
$
189,778
$
2014
2013
150,920
(1,379)
(12,668)
(1,327)
(17,905)
2,318
(5,856)
—
(1,288)
112,815
$
134,389
(1,733)
(28,238)
(1,672)
(10,282)
2,292
(3,853)
(13,214)
278
$
77,967
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 foreign income taxed in the U.S.
Deferred tax liabilities and assets at December 31, 2015 and 2014 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
Gross 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
Gross deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Total deferred taxes, net
December 31,
2015
2014
$
$
(69,622)
(108,061)
(188,231)
(119,453)
(41,149)
(526,516)
79,861
104,166
14,934
14,238
22,111
111,351
54,183
21,191
96,412
518,447
(132,624)
385,823
(140,693)
$
(60,282)
(114,633)
(205,683)
(74,034)
(64,900)
(519,532)
82,181
141,492
18,502
35,432
25,718
102,686
47,493
22,851
125,512
601,867
(116,935)
484,932
(34,600)
$
A valuation allowance is 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.
81
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
We have net operating loss carryforwards of $310 million as of December 31, 2015, of which, $251 million can be carried forward
indefinitely and the remainder expire over the next 15 years. In addition, we have tax credit carryforwards of $54 million, of which $39
million can be carried forward indefinitely and the remainder expire over the next 10 to 15 years.
As of December 31, 2015 we have not provided for income taxes on $860 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 $13 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
2015
132,495
7,637
(16,753)
23,533
(3,831)
(3,832)
139,249
$
$
2014
2013
$
172,594
$
151,098
9,090
(33,692)
17,704
(22,127)
(11,074)
132,495
$
15,777
(6,908)
23,549
(482)
(10,440)
$
172,594
The amount of the unrecognized tax benefits at December 31, 2015, 2014 and 2013 that would affect the effective tax rate if recognized
was $117 million, $109 million and $148 million, respectively.
On a regular basis, we conclude tax return examinations, statutes of limitations expire, and court decisions interpret tax law. We regularly
assess tax uncertainties in light of these developments. As a result, it is reasonably possible that the amount of our unrecognized tax
benefits will decrease in the next 12 months, and we expect this change could be up to 15% of our unrecognized tax benefits. We recognize
interest and penalties related to uncertain tax positions in our provision for income taxes. We recognized interest and penalties of $(4)
million, $2 million and $27 million related to uncertain tax positions in our provision for income taxes for the years ended December 31,
2015, 2014 and 2013, respectively. We had $10 million and $11 million accrued for the payment of interest and penalties at December 31,
2015 and 2014, 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. and other global taxing
jurisdictions in which we have operations. The IRS examinations of our consolidated U.S. income tax returns for tax years prior to 2012
are closed to audit. Additionally, in the U.S. we are subject to examination on various post-2005 State and Local taxes. In Canada, the
examination of our tax filings prior to 2009 are closed to audit, except for the pending application of legal principles to specific issues
arising in earlier years. Other significant jurisdictions in which we have, or have recently completed, tax examinations include France,
closed through the end of 2012, Germany closed through the end of 2011 and except for an item under appeal the U.K. closed through
the end of 2011. We have other less significant tax filings currently subject to examination.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. We believe we have established tax reserves that are appropriate given the possibility of tax
adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax law
and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative, on
our results of operations, financial position and cash flows.
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
16. Noncontrolling Interests (Preferred Stockholders’ Equity in Subsidiaries)
Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary of the company, has 300,000 shares of outstanding perpetual voting
preferred stock valued at $300 million held by certain institutional investors (PBIH Preferred Stock). The holders of PBIH 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 PBIH Preferred Stock is entitled to cumulative dividends at a rate of 6.125% through April 30, 2016. Commencing
October 30, 2016, the PBIH Preferred Stock is redeemable, in whole or in part, at the option of PBIH. If the PBIH Preferred Stock is not
redeemed in whole prior to October 30, 2016, the dividend rate increases 50% and will increase 50% every six months thereafter. No
dividends were in arrears at December 31, 2015 or December 31, 2014.
17. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others. In management's
opinion, the potential liability, if any, that may result from these actions, either individually or collectively, is not reasonably expected to
have a material effect on our financial position, results of operations or cash flows. However, as litigation is inherently unpredictable,
there can be no assurances in this regard.
In 2015, we finalized the settlement with the Department of Justice relating to an investigation it had conducted regarding compliance
with certain postal regulatory requirements in our Presort Services business without any admission of liability by the Company. As a
result of the settlement, we recorded a charge of $7 million, net of estimated recoveries in 2015. This charge is recorded in other (income)
expense, net in the Consolidated Statements of Income.
18. Leases
We lease office facilities, sales and service offices, equipment and other properties under operating lease agreements with varying terms.
Certain leases require us to pay property taxes, insurance and routine maintenance and include renewal options and escalation clauses.
Rent expense was $47 million, $55 million and $67 million in 2015, 2014 and 2013, respectively. Future minimum lease payments under
non-cancelable operating leases at December 31, 2015 were as follows:
Years ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total minimum lease payments
$
$
39,782
31,178
26,087
21,874
14,916
67,782
201,619
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
19. Stockholders' Equity
Preferred and Preference 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,
2015 and 2014, there were 12 shares and 24 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, 2015 and 2014, there were 18,660 shares and 20,237 shares outstanding,
respectively. There are no unpaid dividends in arrears.
Common and Treasury Stock
The following table summarizes the changes in shares of Common Stock outstanding and Treasury Stock:
Balance at December 31, 2012
Issuance of common stock
Conversions to common stock
Balance at December 31, 2013
Repurchases of common stock
Issuance of common stock
Conversions to common stock
Balance at December 31, 2014
Repurchases of common stock
Issuance of common stock
Conversions to common stock
December 31, 2015
Common Stock
Outstanding
200,884,047
Treasury Stock
122,453,865
1,163,668
(1,163,668)
34,807
(34,807)
202,082,522
(1,863,262)
781,032
27,672
201,027,964
(6,476,796)
943,686
26,354
121,255,390
1,863,262
(781,032)
(27,672)
122,309,948
6,476,796
(943,686)
(26,354)
195,521,208
127,816,704
At December 31, 2015, 35,377,289 shares were reserved for issuance under our stock plans, dividend reinvestment program and the
conversion of Preferred Stock and Preference Stock.
84
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
20. Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2015, 2014 and 2013 were as
follows:
Gains (losses) on cash flow hedges
Revenue
Cost of sales
Interest expense
Total before tax
Tax benefit
Net of tax
Gains (losses) on available for sale securities
Interest income
Tax provision (benefit)
Net of tax
Pension and Postretirement Benefit Plans (b)
Transition asset
Prior service costs
Actuarial losses
Total before tax
Tax benefit
Net of tax
Amounts Reclassified from AOCI (a)
Years Ended December 31,
2015
2014
2013
$
1,082
$
551
(2,028)
(395)
(164)
(231)
1,134
419
715
9
(171)
(43,969)
(44,131)
(15,966)
(28,165)
$
$
$
$
$
$
$
$
$
$
1,276
(140)
(2,028)
(892)
(347)
(545)
(1,149)
(424)
(725)
10
(111)
(43,702)
(43,803)
(15,643)
(28,160)
$
$
$
$
$
$
(835)
332
(2,028)
(2,531)
(987)
(1,544)
(1,140)
(422)
(718)
9
(620)
(54,372)
(54,983)
(19,228)
(35,755)
(a) Amounts in parentheses indicate reductions to income and increases to other comprehensive income (loss).
(b) Reclassified from accumulated other comprehensive loss into selling, general and administrative expenses. These amounts are included in the computation of net
periodic costs of defined benefit pension plans and nonpension postretirement benefit plans (see Note 14 for additional details).
85
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, 2015, 2014 and 2013 were as follows:
Balance January 1, 2013
$
(7,777) $
4,513
$
(759,199) $
81,250
$
Cash flow
hedges
Available-for-
sale securities
Pension and
postretirement
benefit plans
Foreign
currency
adjustments
Total
(681,213)
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (loss) (a), (b)
Net other comprehensive income (loss)
Balance at December 31, 2013
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (loss) (a), (b), (c)
Net other comprehensive income (loss)
Balance at December 31, 2014
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (loss) (a), (b), (c)
(147)
1,544
1,397
(6,380)
1,146
545
1,691
(4,689)
546
231
Net other comprehensive income (loss)
Balance at December 31, 2015
777
(3,912) $
$
(7,000)
718
(6,282)
(1,769)
4,010
725
4,735
2,966
(1,715)
(715)
(2,430)
536
$
122,023
(39,489)
75,387
35,755
157,778
(601,421)
(6,747)
(46,236)
35,014
31,270
106,657
(574,556)
(212,818)
(89,584)
(297,246)
28,160
(184,658)
(786,079)
(3,784)
(93,368)
(58,354)
25,646
(271,600)
(846,156)
19,146
(91,436)
(73,459)
28,165
47,311
(738,768) $
3,299
(88,137)
(146,491) $
30,980
(42,479)
(888,635)
(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 certain businesses.
21. Stock-Based Compensation Plans
The following table shows stock-based compensation expense included in the Consolidated Statements of Income:
Cost of equipment sales
Cost of software
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,
2015
2014
2013
$
$
998
211
786
845
16,460
1,749
—
21,049
(8,083)
12,966
$
1,004
$
95
607
694
14,028
1,018
—
17,446
(6,699)
10,747
$
$
886
—
382
527
11,099
435
1,592
14,921
(5,759)
9,162
(1) Amount represents the expense related to the immediate vesting of restricted stock units and stock options held by employees of PBMS upon the sale of the business.
86
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, 2015, there were 20,092,604 shares
available for future grants under our long-term incentive program.
Restricted Stock Units
Restricted stock units (RSUs) entitle the holder to shares of common stock as the units vest, typically over a three or four year service
period. The following table summarizes information about restricted stock units during 2015 and 2014:
Outstanding - beginning of the year
Granted
Vested
Forfeited
Outstanding - end of the year
2015
2014
Shares
1,819,239
809,436
(802,284)
(99,177)
1,727,214
Weighted
average grant
date fair value
16.41
$
21.15
16.88
17.93
18.30
$
Shares
Weighted
average grant
date fair value
1,941,312
$
685,994
(713,886)
(94,181)
1,819,239
$
13.19
23.62
14.50
15.11
16.41
The fair value of RSUs is determined based on the stock price on the grant date less the present value of expected dividends. At December 31,
2015, there was $13 million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-
average period of 1.6 years. The intrinsic value of RSUs outstanding at December 31, 2015 was $36 million. The intrinsic value of RSUs
vested during 2015, 2014 and 2013 was $18 million, $18 million and $15 million, respectively. The fair value of RSUs vested during
2015, 2014 and 2013 was $14 million, $10 million and $18 million, respectively. During 2013, we granted 1,365,798 RSUs at a weighted
average fair value of $10.37.
Non-employee directors receive restricted stock units which are convertible into shares of common stock one year from date of grant. In
2015 and 2014, 12,824 and 34,344 restricted stock units were awarded to non-employee directors, respectively.
Performance Stock Units
The following table summarizes share information about Performance stock units (PSUs) during 2015:
Outstanding - beginning of the year
Granted
Performance adjustments
Forfeited
Outstanding - end of the year
Years Ended December 31,
2015
606,715
725,330
(188,774)
(35,756)
1,107,515
2014
—
493,255
113,460
—
606,715
PSUs are stock awards where the number of shares ultimately received by the employee is conditional upon the attainment of certain
performance targets as well as total shareholder return relative to peer companies. PSUs vest at the end of a three-year service period and
the actual number of shares awarded may range from 0% to 200% of the target award. However, the final determination of the number
of shares to be issued is made by our Board of Directors, who may reduce, but not increase, the ultimate number of shares to be awarded
(negative discretion). PSUs are accounted for as variable awards until the end of the service period when the grant date is established.
Total share-based compensation expense for PSUs is determined by the product of the number of shares eligible to be awarded and
expected to vest and the fair value of the award, determined using a Monte Carlo simulation model, commencing at the inception of the
requisite service period. During the performance period, the compensation expense for PSUs is re-computed using the fair value of the
award, determined using a Monte Carlo simulation model each balance sheet date. Due to the variability of these awards, significant
fluctuations in share-based compensation expense recognized from one period to the next are possible. At December 31, 2015, there was
$14 million of unrecognized compensation cost related to PSUs that will be recognized over 1.7 years.
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Stock Options
Stock options may be granted to certain officers and employees at an exercise price equal to or greater than 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. At December 31, 2015,
there was less than $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, 2015 was $3 million and
$2 million, respectively. No stock options were exercised in 2015. The intrinsic value of options exercised during 2014 was not material.
The following table summarizes information about stock option activity during 2015 and 2014:
Options outstanding - beginning of the year
Granted
Exercised
Canceled
Expired
Options outstanding - end of the year
Options exercisable - end of the year
2015
2014
Per share
weighted
average
exercise prices
34.27
$
24.79
—
31.59
46.42
31.26
32.14
$
$
Shares
10,708,694
200,000
—
(100,200)
(2,036,894)
8,771,600
8,054,932
Per share
weighted
average exercise
prices
Shares
12,396,894
$
—
(137,072)
(114,925)
(1,436,203)
10,708,694
9,808,694
$
$
34.90
—
22.78
36.05
40.06
34.27
35.60
The following table provides additional information about stock options outstanding and exercisable at December 31, 2015:
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 - $45.99
$46.00 - $48.03
2,290,103
$
2,538,566
3,311,665
631,266
8,771,600
$
20.23
25.26
40.30
48.03
31.26
5.6 years
4.7 years
1.2 years
1.1 years
3.4 years
1,880,102
$
2,231,899
3,311,665
631,266
8,054,932
$
20.50
25.36
40.30
48.03
32.14
5.3 years
4.1 years
1.2 years
1.1 years
2.9 years
We estimate the fair value of stock options using a Black-Scholes valuation model. Key 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 and expected life of the award.
The risk-free interest rate is based on U.S. treasuries with a term equal to the expected option term. The expected stock price volatility,
life of the award and expected dividend yield are based on historical experience. In 2014 there were no stock options granted and in 2013,
we granted 800,000 options at a weighted average exercise price of $21.93.
The fair value of stock options granted during 2015 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
Fair value of options granted (in thousands)
3.4%
29.0%
2.0%
7 years
$3.38
$676
88
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 131,769 shares and
87,606 shares in 2015 and 2014, respectively. We have reserved 3,068,737 common shares for future purchase under the ESPP.
22. Quarterly Financial Data (unaudited)
2015
Revenue
Cost of revenues
Operating 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 (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.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
890,681
$
880,891
$
869,541
$
936,947
$ 3,578,060
390,525
364,560
135,596
50,547
85,049
157
85,206
385,182
286,256
209,453
52,351
157,102
(739)
156,363
376,205
356,784
136,552
42,676
93,876
—
93,876
406,679
401,044
129,224
44,204
85,020
5,853
90,873
1,558,591
1,408,644
610,825
189,778
421,047
5,271
426,318
4,594
4,593
4,594
4,594
18,375
80,612
$
151,770
$
89,282
$
86,279
$
407,943
80,455
$
152,509
$
89,282
$
80,426
$
402,672
157
(739)
—
5,853
5,271
80,612
$
151,770
$
89,282
$
86,279
$
407,943
0.40
$
0.76
$
0.45
$
0.40
$
—
—
—
0.03
0.40
$
0.75
$
0.45
$
0.43
$
0.40
$
0.75
$
0.44
$
0.41
$
—
—
—
0.03
0.40
$
0.75
$
0.44
$
0.44
$
2.01
0.03
2.04
2.00
0.03
2.03
$
$
$
$
$
$
$
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
89
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
937,497
$
958,450
$
941,644
$
983,913
$ 3,821,504
2014
Revenue
Cost of revenues
Operating expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income 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 from discontinued operations
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.
$
$
$
$
$
$
$
409,866
473,129
54,502
8,036
46,466
2,801
49,267
4,594
423,159
396,814
138,477
46,335
92,142
6,717
98,859
4,594
421,544
378,563
141,537
25,310
116,227
20,655
136,882
426,222
461,011
96,680
33,134
63,546
3,576
67,122
1,680,791
1,709,517
431,196
112,815
318,381
33,749
352,130
4,593
4,594
18,375
44,673
$
94,265
$
132,289
$
62,528
$
333,755
41,872
$
87,548
$
111,634
$
58,952
$
300,006
2,801
6,717
20,655
3,576
33,749
44,673
$
94,265
$
132,289
$
62,528
$
333,755
0.21
$
0.43
$
0.55
$
0.29
$
0.01
0.03
0.10
0.02
0.22
$
0.47
$
0.65
$
0.31
$
0.21
$
0.43
$
0.55
$
0.29
$
0.01
0.03
0.10
0.02
0.22
$
0.46
$
0.65
$
0.31
$
1.49
0.17
1.65
1.47
0.17
1.64
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
90
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Description
Balance at
beginning of year
Additions charged
to expense
Deductions
Balance at end of
year
Allowance for doubtful accounts
2015
2014
2013
Valuation allowance for deferred tax asset
2015
2014
2013
$
$
$
$
$
$
10,742
13,149
20,219
116,935
122,780
142,176
$
$
$
$
$
$
1,408
2,041
3,881
21,232
636
15,921
$
$
$
$
$
$
(2,888)
(4,448)
(10,951)
(5,543)
(6,481)
(35,317)
$
$
$
$
$
$
9,262
10,742
13,149
132,624
116,935
122,780
91
Exhibit 12
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
2015
2014
2013
2012
2011
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
$
610,825
$
431,196
$
383,954
$
511,770
$
465,616
162,909
174,661
195,836
196,368
203,061
15,807
—
18,367
—
22,259
—
22,564
973
25,893
1,535
789,541
$
624,224
$
602,049
$
731,675
$
696,105
162,909
$
174,661
$
195,836
$
196,368
$
203,061
15,807
18,367
22,259
22,564
25,893
$
$
29,830
29,878
27,841
27,841
27,507
$
208,546
$
222,906
$
245,936
$
246,773
$
256,461
Ratio of earnings to fixed charges (2)
3.79
2.80
2.45
2.96
2.71
(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, 2015)
Exhibit 21
Subsidiary Name
Alternative Mail & Parcels Investments Ltd
B. Williams Funding Corp.
Borderfree Australia Pty. Ltd.
Borderfree Canada, Inc.
Borderfree China Co., Ltd.
Borderfree Limited
Borderfree Research and Development Ltd.
Borderfree UK Limited
Borderfree, Inc.
BoxHop LLC
Elmcroft Road Realty Corporation
Factor Humano y Cadena de Personal, S.A. de C.V.
FSL Holdings Inc.
FSL Risk Managers Inc.
Group 1 Software China Ltd.
Harvey Company, L.L.C
Mag Systèmes SAS
MapInfo Realty LLC
OLDEMT LIMITED
OldEurope Limited
OldMS Limited
OLDPBIMS LIMITED
OldPBSL
OLDPBIMS Limited
PB Equipment Management Inc.
PB European UK LLC
PB Historic Renovation LLC
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
PB Nova Scotia LP
PB Professional Services Inc.
PB Worldwide Inc,
PBDorm Ireland Limited
Country or state of incorporation
United Kingdom
Delaware
Australia
Canada
China
Ireland
Israel
United Kingdom
Delaware
Delaware
Connecticut
Mexico
Connecticut
New York
Hong Kong
Delaware
France
New York
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Delaware
Delaware
Delaware
Delaware
Canada
Canada
Canada
Canada
Canada
Canada
Delaware
Delaware
Delaware
Ireland
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 Australia FAS Pty Limited
Pitney Bowes Australia Pty Limited
Pitney Bowes Brasil Equipamentos e Servicos Ltda
Pitney Bowes Canada II LP
Pitney Bowes Canada LP
Pitney Bowes Credit Australia Limited
Pitney Bowes Danmark A/S
Pitney Bowes Deutschland GmbH
Pitney Bowes Finance Ireland Limited
Pitney Bowes Finance Limited
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 Limited
Pitney Bowes Hong Kong Limited
Pitney Bowes India Private Limited
Pitney Bowes International Finance Limited
Pitney Bowes International Funding
Pitney Bowes International Holdings, Inc.
Pitney Bowes Ireland Limited
Pitney Bowes Italia S.r.l.
Pitney Bowes Japan K.K.
Pitney Bowes Limited
Pitney Bowes Luxembourg Holding II S.a.r.l.
Pitney Bowes Luxembourg Holding S.a.r.l.
Pitney Bowes Mail and Messaging Systems (Shanghai) Co., Ltd.
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 Presort Services, Inc.
Pitney Bowes Properties Inc.
Pitney Bowes Puerto Rico, Inc.
Pitney Bowes SAS
Pitney Bowes Shelton Realty Inc.
Pitney Bowes Software (Beijing) Ltd
Pitney Bowes Software Canada Inc.
Singapore
Singapore
Malaysia
Singapore
Switzerland
Australia
Australia
Brazil
Canada
Canada
Australia
Denmark
Germany
Ireland
United Kingdom
Delaware
United Kingdom
Delaware
United Kingdom
France
United Kingdom
Hong Kong
India
United Kingdom
Ireland
Delaware
Ireland
Italy
Japan
United Kingdom
Luxembourg
Luxembourg
China
New Zealand
Norway
Canada
Canada
Finland
Poland
Delaware
Connecticut
Puerto Rico
France
Connecticut
China
Canada
Pitney Bowes Software Europe Limited
Pitney Bowes Software GmbH
Pitney Bowes Software Holdings Limited
Pitney Bowes Software Inc.
Pitney Bowes Software India Private Limited
Pitney Bowes Software K. K.
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 Limited
Portrait Software Limited
Quadstone Paramics Ltd
Real Time Content Ltd
Schooner Acq. Corp.
Technopli SARL
The Pitney Bowes Bank, Inc.
Volly LLC
Wheeler Insurance, Ltd.
United Kingdom
Germany
United Kingdom
Delaware
India
Japan
Singapore
Australia
France
Sweden
United Kingdom
Delaware
Delaware
Ohio
Norway
United Kingdom
United Kingdom
Scotland
United Kingdom
Delaware
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,
333-198759) of Pitney Bowes Inc. of our report dated February 22, 2016 relating to the financial statements, financial statement
schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 22, 2016
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 22, 2016
/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 22, 2016
/s/ Michael Monahan
Michael Monahan
Executive Vice President, Chief Operating Officer 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,
2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marc B. Lautenbach, President
and 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 22, 2016
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,
2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Monahan, Executive
Vice President, Chief Operating Officer and 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, Chief Operating Officer
and Chief Financial Officer
Date: February 22, 2016
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.
Stockholder Information
World Headquarters
Pitney Bowes Inc.
3001 Summer Street, Stamford, CT 06926
203.356.5000
www.pitneybowes.com
Annual Meeting
Stockholders are cordially invited to attend the Annual Meeting
at 9:00 a.m., Monday, May 9, 2016, at the Hyatt Regency Hotel,
1800 East Putnam Ave., Old Greenwich, Connecticut. Notice of
the meeting will be mailed or made available to stockholders of
record as of March 11, 2016. 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 fiscal year ended December 31,
2015, as filed with the Securities and Exchange Commission (SEC).
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 certifications required to be filed with the SEC under Section
302 of the Sarbanes-Oxley Act of 2002 were filed as exhibits
to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2015. The CEO certification required to be
submitted to the NYSE pursuant to Section 303A.12(a) of the
NYSE Listed Company Manual was submitted on June 2, 2015.
Copies of our Form 10-K are available without charge at
www.pb.com/investorrelations or upon written request to:
Investor Relations
Pitney Bowes Inc.
3001 Summer Street, Stamford, CT 06926
Stock Exchange
Pitney Bowes common stock is traded under the symbol “PBI.”
The principal market on which it is listed is the New York Stock
Exchange.
Investor Inquiries
All investor inquiries about Pitney Bowes should be addressed to:
Investor Relations
Pitney Bowes Inc.
3001 Summer Street, Stamford, CT 06926
Comments concerning the Annual Report
should be sent to:
Corporate Communications
Pitney Bowes Inc.
3001 Summer Street, Stamford, CT 06926
The materials used in this publication are recyclable.
The paper is certified to Forest Stewardship Council® (FSC®) standards.
Pitney Bowes, the Corporate logo, Craftsmen of Commerce, Relay, EngageOne,
Clarity, AcceleJet, Epic and Borderfree are trademarks of Pitney Bowes Inc. or
a subsidiary. All other trademarks are the property of their respective owners.
.
d
e
v
r
e
s
e
r
s
t
h
g
i
r
l
l
A
.
c
n
I
s
e
w
o
B
y
e
n
t
i
P
6
1
0
2
–
5
1
0
2
©
k
r
o
Y
w
e
N
,
l
e
u
q
e
S
:
n
g
i
s
e
D
Transfer Agent and Registrar
(effective April 1, 2016)
Regular Mail: Broadridge Corporate Issuer Solutions
PO Box 1342
Brentwood, NY 11717
Overnight Mail: Broadridge Corporate Issuer Solutions
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Email: shareholder@broadridge.com
Website: https://shareholder.broadridge.com/PBI
For inquiries prior to April 1, 2016, please contact (800) 648-8170.
Stockholder Inquiries
To provide or obtain information concerning transfer
requirements, lost certificates, dividends, changes of address
and other matters, please call: (800) 648-8170, TDD phone
service for the hearing impaired (855) 627-5080, for foreign
holders (720) 414-6868; or write to an 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 (720) 414-6868
(int’l) or by writing to the agent at an address above.
Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or (720) 414-6868 (int’l) or write to the agent
at an 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
(720) 414-6868 (int’l) or write to the agent at an address above.
Stock Information
Dividends per common share:
Quarter
First
Second
Third
Fourth
Total
2015
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.75
Quarterly price ranges of common stock:
2015 Quarter
First
Second
Third
Fourth
2014 Quarter
First
Second
Third
Fourth
High
$ 24.60
$ 23.93
$ 21.64
$ 21.76
High
$ 26.63
$ 28.23
$ 28.37
$ 25.68
2014
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.75
Low
$ 21.15
$ 20.79
$ 18.59
$ 19.12
Low
$ 21.01
$ 24.06
$ 24.63
$ 22.38
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
5
3001 Summer Street, Stamford, CT 06926 203.356.5000 www.pitneybowes.com