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Poised
for Growth
How we’re transforming Pitney Bowes
and building a platform for delivering
value in the 21st century
Pitney Bowes Annual Report 2016
In 2016, Pitney Bowes continued to set the stage
for long-term growth. In a challenging year, we
nevertheless succeeded in passing key milestones
in our transformation:
1. Launched the Pitney Bowes Commerce Cloud,
which is the foundation for all of our products and
solutions, adding digital capabilities and web-
based solutions that span all of our businesses
2. Introduced several SaaS-based products and
solutions as we continued to reinvent our
mailing business
3. Expanded our partner channels to drive growth
in our software business
4. Continued to expand the reach, scale and volume
of our Global Ecommerce platform
5. Deployed an integrated enterprise business
platform that enhances operating efficiencies,
delivers innovative products and solutions and
facilitates a digital relationship with clients
6. Launched our first television advertising
campaign in 20 years, which raised the awareness
of Pitney Bowes and our transformation to
lead global commerce
(right)
Marc B. Lautenbach
President and Chief
Executive Offi cer
(left)
Michael Monahan
Executive Vice President
and Chief Operating Offi cer
Fellow shareholders:
As we look forward from 2016, the best way to describe where
our company is today is “Poised for Growth .” The transformation
of Pitney Bowes — the hard work we are doing to deliver value
to all of our stakeholders — is still a work in progress. But we
are well along the path we charted four years ago, and ready to
capitalize on the progress we have made during that time.
To be plainspoken, we were disappointed with our fi nancial results in 2016. Our mailing business
in North America was hurt by disruptions from our new enterprise business platform. This platform
represents a complete modernization of our business processes and the accompanying technologies.
It is a profound change in how we do business, and critical for our company going forward. But
change of this magnitude is rarely made without short-term disruptions.
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Pitney Bowes Annual Report 2016 1
Letter to Shareholders
In our software business, we made progress
our strategic agenda. Our core strategy remains
building relationships with new partners, but our
the same since 2013 — stabilize/reinvent our
direct sales were disappointing. While we continue
mailing business, achieve operational excellence
to have a “blue chip” list of clients, we have had
and grow our digital commerce business.
diffi culty selling outside of our existing installed
base. Clearly, this reinforces the necessity of
creating a partner ecosystem that can help take
our best-of-class products and capabilities to
new clients and new markets.
In our core mailing business, we began the
important work of reinvention. We are moving
from a 20th century platform to a 21st century
form factor that digitally connects our clients to
a whole new series of applications and value.
As I refl ect on the year, I walk away with a series
In essence, we are transforming a single,
of lessons. The fi rst is that, while change is a
monolithic, analog application into a digitally-
necessary ingredient of transformation, it is also
connected set of software as a service applications
always diffi cult. Change is disruptive and inevitably
through a single device. Our introduction of the
creates more challenges than you anticipate.
Pitney Bowes Commerce Cloud in April 2016
Second, and a related point, you need to be
is a key component of this vision.
conservative in your judgments about how quickly
change can be incorporated into large enterprises.
Finally, while change is diffi cult, it is critical to our
ability to succeed in the 21st century. Moving
from direct channels to new partners, and
leveraging new digital channels, is critical to our
future. Likewise, if we are going to be a truly digital,
contemporary enterprise in the future, there is
little choice but to modernize our business
processes and technology. Simply said, it is
impossible to be a modern enterprise with multiple
customer relationship management systems
and dozens of general ledger systems.
Achieving Strategic Milestones
Despite our fi nancial performance in 2016, we
were very encouraged by our progress against
The Pitney Bowes Commerce Cloud greatly
enhances our client relationships because it
simplifi es and digitizes those relationships. Clients
have easy access to a full range of solutions and
analytics remotely, whether through personal
computers, mobile devices, connected meters or
customized application programming interfaces
(APIs). What’s more, the Pitney Bowes Commerce
Cloud has accelerated development and
deployment of physical and digital off erings that
leverage the industrial Internet of Things (IoT).
For example, products that gather information from
sensors on production mail machines, leverage
cloud-based analytics and automate a wide range
of tasks — from machine optimization to the
ordering of supplies to predictive analytics — can
also trigger required maintenance and greatly
reduce unplanned downtime.
2
Pitney Bowes Annual Report 2016
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Opening up New Possibilities for Pitney Bowes
“Our new go-to-market approach
is driving growth, innovation and
usiness
successful business
r
outcomes for
our clients.”
Mark Taylor
Senior Vice President,
Software Channels
One mission is to get our solutions into the hands
of more clients by expanding our channel network
to include high-impact partners, specifi cally global
and regional Systems Integrators (SIs). We started
with a culture shift — changing the way everyone
thought about SIs. Once our teams began to work
with our new partners, several benefi ts occurred:
Partners started to innovate with our products in
ways we had not intended. Clients’ problems
became solvable at a greater scale. Creativity was
energized across the organization, and our selling
teams have proven that expanding our channel
network is an imperative for growth.
Reinventing Mailing through the User Experience (UX)
I design client interaction experiences for our Global UX
team — most recently, product installation for our SendPro™
300 solution. This is a digital meter that clients install in two
steps — hardware cable attachment, followed by software
setup — and we had to make sure clients felt confi dent and
in control from start to fi nish. Getting this experience right
from the moment they unpack a product is critical. That’s
why, before anything is released, we test and refi ne based
on client feedback; this ensures that installation is completely
intuitive. The product ships with cling-fi lm that has clear
instructions on the touch screen. It reassures users that a small
delay in initial screen illumination is normal and helps them
complete the confi guration so they can start experiencing
the SendPro 300 solution’s value right away.
“You have to get the details right
to make the client comfortable
from the moment they encounter
a product.”
n
Andy Grossman
Senior UX Interaction
ction
User
Designer, Global User
Experience
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Pitney Bowes Annual Report 2016
3
Letter to Shareholders
A Global Enterprise Business Platform
for Client Success
We’ve transformed our systems and processes
to enable clients to engage and transact with us
in a way they prefer, while managing and growing
their own businesses more eff ectively. Our global
enterprise business platform has a single focus:
helping clients succeed. With this in mind, people
from across Pitney Bowes created this new end-to-
end experience, which involves everything from new
products to supply ordering to technical support,
and everything in-between, including the ability
to self-serve and optimize their relationship with us.
Now, when clients engage with us, they experience
a diff erent Pitney Bowes — one that shows what a
century of innovation is really all about.
“We’ve transformed the client
experience end to end. The
relationship is now the client’s
that’s a
to control — that’s a
l shift.”
very powerful shift.”
Bill O’Dea
Impact Solutions
Architect
In our ongoing push for operational excellence,
progress in developing new channels with solution
it is impossible to overstate the importance of our
providers and Systems Integrators. These new
new enterprise business platform. This platform
channels will take our software solutions to new
not only creates substantial effi ciencies — more
clients and new markets. Since we began this eff ort
than $1 billion over the next decade — it also
a few years ago, we eff ectively doubled our existing
gives us the opportunity to create a whole new
sales force by training more than 200 third-party
client experience and enables many of our new
products, including the SendPro™ solution. Our
sales and technical people on our products and
solutions. We are poised to take advantage of these
SendPro family of off erings provides our clients with
new resources in 2017.
the capability to send packages through multiple
carriers from the same hardware device or software
application that they use to send letters.
Our Global Ecommerce business remains one of
the most compelling opportunities I have witnessed
in my nearly three decades in the technology
In terms of growing our Digital Commerce Solutions
business. Our momentum in this business continued
business for the future, we did make signifi cant
to accelerate in 2016, and we closed the year with
4
Pitney Bowes Annual Report 2016
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Leveraging the Industrial Internet of Things through
the Pitney Bowes Commerce Cloud
“We’re using technology to drive machine productivity —
and clients see the diff erence in their bottom line.”
I help to lead the digital transformation of our production mail business —
an exciting opportunity, because production mail has always been a hardware-
driven business. Our machines produce customer bills and statements for
fi nancial, insurance and telecommunications companies. There is an intense
focus on security, speed, accuracy and precision, and success is measured in
tenths of pennies and fractions of seconds. Right now, we’re leveraging GE’s
Predix IoT platform to connect sensors, machine data and analysis, enabling us
to quickly see problems and help signifi cantly improve print and mail operations.
At one time, Pitney Bowes was selling machines. Now we’re not just selling
machines — we’re selling productivity.
Marie-Pierre Belanger
Vice President, Digital
Solutions and Delivery,
Pitney Bowes DMT
nearly 20 percent growth and no signs of slowing.
Finally, while it doesn’t fi t neatly into any of our
This market opportunity is worth billions of dollars,
three strategic pillars — but will impact virtually
and is growing at double-digit rates.
everything we do — we launched an entirely new
Today, our Global Ecommerce business enables
millions of sellers on eBay to off er products to
customers around the world. It also supports
more than 250 major retailers, including some
of the world’s most iconic brands. As a company,
advertising campaign in 2016. The Craftsmen of
Commerce campaign introduced a transforming
Pitney Bowes to the world and was a powerful
signal that our company intends to lead in the
21st century.
we are uniquely positioned to lead this market
And our progress has not gone unnoticed in the
because of an end-to-end value proposition
industry. We are, for example, winning accolades
that goes from demand generation through the
for leadership in applying the Internet of Things
management of logistics. It is important to note
from leading-edge technology companies and
that this business, too, is enabled by the Pitney
highly-reputed analysts. A few short years ago,
Bowes Commerce Cloud.
this would have been unimaginable.
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Pitney Bowes Annual Report 2016 5
Letter to Shareholders
The Foundation of
a Successful Business
Strategy
& Vision
Brand
Identity
Capital
Allocation
Portfolio
Management
Enterprise
Business
Platform
Team
Products
& Solutions
Channel
Ties That Bind
I am sometimes asked, “What is the relationship among
these businesses?” Obviously, this has been a primary
consideration as we have evaluated our portfolio. And,
throughout our transformation, we have worked to ensure
that our businesses can be advantaged by one another.
As we support the digital transformation of our clients, our
software business enables us to provide key technologies
and functionalities in all of our off erings. Our expertise
in physical commerce is being leveraged to address the
increased shipping needs of a global marketplace as well.
We are combining our unique expertise, experience and
technology in physical and digital commerce to provide new
off erings and new value to clients in all of our markets.
To give one example, our Global Ecommerce business
uses several key technologies developed in our other
businesses, among them Instant Online Postage, single
sign-on and our global carrier libraries. Without these
technologies, we simply could not have grown our Global
Ecommerce business as quickly as we have. Likewise, our
mailing business and Global Ecommerce business both
leverage the Pitney Bowes Commerce Cloud. Of course,
this isn’t to say that our businesses would not be
successful outside of the portfolio — but that there are
clear advantages of scale and capability that would not
be achievable outside the Pitney Bowes family.
In a world of short-term thinking, we have increased our
spending in systems, brand and product development over
the past several years. Clearly, it would have been easier
to forgo these investments and optimize for short-term
results, but equally clear, it would have been the absolute
wrong decision for our long-term shareholders.
6
Pitney Bowes Annual Report 2016
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Connecting Clients and Consumers
around the World
“Every culture is
unique — and
shopping habits
vary. When brands
want to connect
worldwide, we
know how to make
it happen.”
While ecommerce consumers in some countries
prefer to shop through retailer sites, in countries
such as China, an online marketplace like Tmall is
a more common choice. This means that brands
and retailers that want to reach global consumers
need to meet consumers where they are — and our
job at Pitney Bowes is to help ease the way. We make
sure retailers have the right products for the specifi c
marketplace and, once they’re active, we help
optimize the experience. We think of our clients’
success as our own, so we work hard to make sure
everything is right, and that the consumer journey
is simple and seamless.
Sarah Ward
Director, Growth
ctor, Growth
atives —
Initiatives —
bal Marketplace
Global Marketplace
elopments
Developments
Arisa Kuo
Director, Growth
Initiatives — Marketplace
and Global Marketing
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Pitney Bowes Annual Report 2016 7
Letter to Shareholders
Erika Hohlweck
Executive Customer Service
Manager, Pitney Bowes Presort
)
Services (Milwaukee)
C. Leonard Jones
Vice President, Human
Resources, Enterprise
Business Solutions &
Workforce Services,
the Americas
A Winning Culture
“We work with a
lot of people in
a lot of places.
Common values
that span cultures
make us a better
team.”
We’re leading an initiative called Our Winning
Formula, aimed at fostering a high-performance
culture and guiding our interactions with clients,
partners and colleagues. The formula is simple:
Do the right thing, the right way; work as a team;
treat each other with respect; take pride in our
work; be friendly.
Our Presort Services team has over 4,000
employees who speak 17 languages at more than
30 U.S. locations. Through teambuilding, leadership
exercises and professional development programs,
we’re learning that our common values are
so much greater than our diff erences, and it has
greatly benefi ted our work environment and
value we deliver for clients.
8
Pitney Bowes Annual Report 2016
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We have made good progress since we began
possible without the incredible people at
this transformation four years ago. In addition,
Pitney Bowes — from the employees we depend
we have reduced our expenses by almost
on every day, at every level of the enterprise,
$300 million, while substantially reducing our
to the management team we’ve been able to
Days Sales Outstanding and cutting our inventory
draw from some of America’s best technology
in half. We’ve done this, along with growing a
companies. Thanks to the talent, leadership and
new business, Global Ecommerce, from virtually
determination of our people, we are poised to
nothing to more than $400 million, with an
take advantage of that work to turn it into
annual increase of almost 20 percent. And, most
success in the marketplace.
importantly, we have created the conditions for
long-term market success by investing in our
products, our systems, our brand and our people.
One last point: At Pitney Bowes, our goals are
ambitious. Our intent is to go beyond being
commercially successful and to be a great
Of course, our progress has not been a straight
21st century company that becomes a model
line — transformations rarely are. They have
for others, sustained and informed by enduring
an arc: easy wins, followed by long-term
values. Those values have guided everything
initiatives, followed by the creation of long-term
we have done, and will continue to do so.
value. A shareholder who invested four years
ago, at the beginning of our transformation,
would have seen a total shareholder return
of approximately 68 percent, which equates to
an annualized return of more than 13 percent.
To be sure, transformations are not for everyone.
Not only do transformations require a lot of
hard work, you also need a lot of patience and
a little luck. Above all, you have to have resolve
and confi dence in knowing that what you are
doing will yield the result you are expecting.
And when they do work, they create real and
sustainable value.
I am especially proud of the fact that we have
accomplished a decade’s worth of work in less
than half the time. This would not have been
Marc B. Lautenbach
President and
Chief Executive Offi cer
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Pitney Bowes Annual Report 2016
9
Summary of Selected Financial Data
For the year
(Dollars in thousands, except per share amounts)
As reported
Revenue
Net Income
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’ (defi cit) equity
Total employees
As adjusted
EBIT
Net income from continuing operations
Diluted earnings per share from continuing operations
Free cash fl ow
EBIT to interest
2016
2015
2014
$ 3,406,575
92,805
$
$
0.51
$ 490,692
$ 178,486
$ 160,831
$
0.75
188,975,198
$ 5,837,133
$ 3,364,890
$ (103,660)
14,200
$ 631,090
$ 317,402
$
1.68
$ 429,674
4.4x
$ 3,578,060
$ 407,943
$
2.00
$ 515,056
$ 173,312
$ 166,746
$
0.75
200,944,874
$ 6,123,132
$ 2,950,668
$ 178,721
14,837
$ 716,126
$ 351,726
$
1.75
$ 456,474
4.5x
$ 3,821,504
$ 333,755
$
1.47
$ 658,288
$ 198,088
$ 183,318
$
0.75
203,961,446
$ 6,476,599
$ 3,228,903
$
77,259
15,159
$ 730,944
$ 387,414
$
1.90
$ 571,386
4.3x
10
Pitney Bowes Annual Report 2016
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Reconciliation of Reported Consolidated
Results to Adjusted Results
For the year
(Dollars in thousands, except per share data)
2016
2015
2014
Net Income
Less: Preferred stock dividends attributable to noncontrolling interests
$ 111,850
19,045
$ 426,318
18,375
$ 352,130
18,375
Net income — Pitney Bowes Inc.
Loss (income) from discontinued operations, net of tax
Goodwill impairment
Restructuring charges and asset impairments, net
Loss (gain) on sale/disposition of businesses
Preferred stock redemption
Transaction costs related to acquisitions and dispositions
Acquisition/disposition related expenses
Legal settlement
Investment divestiture
Extinguishment of debt
Net income from continuing operations, as adjusted
Preferred stock dividends attributable to noncontrolling interests,
as adjusted
Income from continuing operations after income taxes, as adjusted
Provision for income taxes, as adjusted
Income from continuing operations before income taxes, as adjusted
Interest expense, net
92,805
2,701
169,024
42,343
3,893
6,430
206
—
—
—
—
317,402
15,415
332,817
154,062
486,879
144,211
407,943
(5,271)
—
18,089
(84,250)
—
11,475
7,246
4,250
(7,756)
—
351,726
18,375
370,101
186,651
556,752
159,374
333,755
(33,749)
—
59,349
—
—
—
—
—
(9,774)
37,833
387,414
18,375
405,789
155,705
561,494
169,450
EBIT
$
631,090
$ 716,126
$ 730,944
Diluted earnings per share from continuing operations, as reported
$
Loss (income) from discontinued operations, net of tax
Goodwill impairment
Restructuring charges and asset impairments, net
Loss (gain) on sale/disposition of businesses
Preferred stock redemption
Transaction costs related to acquisitions and dispositions
Acquisition/disposition related expenses
Legal settlement
Investment divestiture
Extinguishment of debt
Diluted earnings per share from continuing operations, as adjusted
Net cash provided by operating activities, as reported
Capital expenditures
Restructuring payments
Pension contribution
Net tax and other payments (receipts)
Reserve account deposits
Acquisition/disposition related expenses
Tax payment related to sale of Imagitas
Cash transaction fees related to acquisitions and dispositions
Extinguishment of debt
Free cash flow
The sum of earnings per share amounts may not equal the totals due to rounding.
0.51
0.01
0.89
0.22
0.02
0.03
—
—
—
—
—
$
1.68
$ 490,692
(160,831)
64,930
36,731
—
(2,183)
—
—
335
—
$ 429,674
$
2.03
(0.03)
—
0.09
(0.42)
—
0.06
0.04
0.02
(0.04)
—
$
1.75
$ 515,056
(166,746)
62,086
—
20,602
(24,202)
10,483
21,224
17,971
—
$ 456,474
$
1.64
(0.17)
—
0.29
—
—
—
—
—
(0.05)
0.19
$
1.90
$ 658,288
(183,318)
56,162
—
(5,737)
(15,666)
—
—
—
61,657
$ 571,386
The Company’s fi nancial results are reported in accordance with generally accepted accounting principles (GAAP); however, the Company uses certain non-GAAP 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, goodwill and asset write-downs and costs related to recent acquisitions and dispositions. 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 the current
underlying operating trends of the business.
Free cash fl ow provides investors insight into the amount of cash that management could have available for other discretionary uses. Free cash fl ow adjusts GAAP cash from operations
for capital expenditures, restructuring payments, unusual tax settlements, contributions to the Company’s pension fund and cash used for other special items.
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 2016 11
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Christoph Stehmann
Executive Vice President
and President,
Enterprise Solutions Group
Stanley J. Sutula III
Executive Vice President
and Chief Financial Offi cer
Johnna G. Torsone
Executive Vice President
and Chief Human Resources
Offi cer
*As of February 1, 2017
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
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 Guidotti
Executive Vice President
and President, Software Solutions
Abby F. Kohnstamm
Executive Vice President
and Chief Marketing Offi cer
Michael Monahan
Executive Vice President
and Chief Operating 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,
Global SMB Solutions
Lila Snyder
Executive Vice President
and President, Global Ecommerce
Linda G. Alvarado
President and
Chief Executive Offi cer,
Alvarado Construction, Inc.
Anne M. Busquet
Principal,
AMB Advisors, LLC
Roger Fradin
Retired 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 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.
12
Pitney Bowes Annual Report 2016
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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, 2016, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $3.3 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 17, 2017: 186,399,332 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 8, 2017, 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.
Business
Item 1A. Risk Factors
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
12
12
12
12
12
15
16
33
33
33
34
34
35
35
35
35
35
36
38
39
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 ability to fully utilize the new enterprise business platform in the United States and successfully implement it internationally
without significant disruptions to existing operations
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
the success of our investment in rebranding the company to build market awareness and create new demand for our products,
services and solutions
changes in postal or banking regulations
• macroeconomic factors, including global and regional business conditions that adversely impact customer demand and foreign
currency exchange rates
•
•
•
•
•
•
•
•
•
•
•
•
•
•
capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable
costs
changes in interest 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
a breach of security, including a cyberattack or other comparable event
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
Risks 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
3
management, location intelligence and customer engagement products and solutions to help our clients market to their customers, and
shipping, mailing, and cross border ecommerce products and solutions that enable the sending of parcels and packages across the
globe. 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.
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, evidence postage and print shipping labels 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 1.2 million meters
installed worldwide. We are also continuing to expand our business to include online offerings without a hardware component. 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. In 2017, we expect to expand our cloud connectivity
solutions currently available for our inserter equipment into our print and sortation machines.
Presort Services
We are a national outsource provider of mail presort services for First-Class, Standard, flat and parcels 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 through our network of operating centers throughout the Unites States and are able to expedite mail delivery
and optimize postage savings for our clients. In 2016, we began offering sortation services for parcel mail and expect to expand this
offering in 2017.
Digital Commerce Solutions
Within the Digital Commerce Solutions group, we provide a broad range of solutions, including customer information management,
location intelligence, customer engagement software and shipping management and cross border ecommerce solutions for businesses of
all sizes. These solutions are delivered as traditional software licenses, enterprise platforms, software-as-a-service (SaaS) or on-demand
applications. Our Digital Commerce Solutions group includes Software Solutions and Global Ecommerce.
Software Solutions
Customer information management solutions help businesses harness and develop 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.
4
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.
Global Ecommerce
Global Ecommerce includes our cross-border ecommerce solutions and retail and warehouse shipping management solutions. Global
Ecommerce provides a full suite of domestic and cross-border solutions that help businesses of all sizes conduct commerce and participate
in the parcel journey from “Anywhere to Everywhere™.” It is our technology, services and industry expertise that have made us an
industry leader in global commerce. We offer a unified commerce platform of capabilities for cross-border, marketplaces and shipping
that center around the consumer. 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 direct merchants as well as a major online marketplace enabling millions of parcels to be shipped to countries and territories worldwide.
Our platform also connects retailers to marketplaces around the world, opening new markets and expanding existing markets for their
goods.
Our shipping management solutions enable clients to reduce transportation and logistics costs, to select the best carrier based on need
and cost, to improve delivery times and to track packages in real-time. Our Shipping API technology, an integral part of the Pitney
Bowes Commerce Cloud, provides easy access to shipping and tracking services that can be easily integrated into any web application
such as online shopping carts or ecommerce sites. We also offer scalable shipping solutions that can be integrated into mail centers for
the office market.
See Item 7, "Management's 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. 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.
We have made, and are continuing to make significant investments in the rebranding of the company. These investments include marketing
and advertising 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.
5
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.
Through our wholly owned subsidiary, The Pitney Bowes Bank (the Bank), we offer a revolving credit solution to our 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. 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 primary 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 and 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, 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 of these competitors specialize in point solutions or freight forwarding
services, are full-service ecommerce business process outsourcers and online marketplaces with international logistic support, or major
global delivery services companies. The principal competitive factors include reliability, functionality, ease of integration and use,
scalability of our platform and our logistics services, 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. In our shipping solutions business, we compete with a wide range of technology providers who help make shipping easier
and more cost-effective for the retailer, warehouse, or office shipper. There are established players in the marketplace who are set-up to
compete against their client base. The remainder of the shipping market is very fragmented with many small companies offering negotiated
carrier rates (primarily with the USPS). The principal competitive factors include technology stability and reliability, innovation, access
to preferred shipping rates, and ease of integration with existing systems.
6
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. As our other product and service offerings evolve, we continually evaluate whether there
are appropriate financing solutions for us to offer our clients. 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.
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. The continued evolution of patent law and the nature of our innovation work may affect the number
of patents we are able to receive for our internal development efforts. 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 $121 million in 2016 and $110
million, in both 2015 and 2014.
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 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, 2016, we have approximately 14,200 employees worldwide. We believe that we maintain strong relationships with our
employees. 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
Stanley J. Sutula III
Johnna G. Torsone
55
55
59
63
56
49
60
44
54
51
66
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 and Chief Operating 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 Financial Officer (1)
Executive Vice President and Chief Human Resources Officer
2012
2010
2016
2013
2005
2013
2013
2016
2016
2017
1993
(1) Effective February 1, 2017, Mr. Sutula assumed the responsibilities of Executive Vice President and Chief Financial Officer. Prior to
that date, Mr. Monahan had the responsibilities of Chief Financial Officer.
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 from 2010-2012.
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. Sutula joined the company as Executive Vice President and Chief Financial Officer in February 2017. Prior to joining the company,
Mr. Sutula was employed at IBM for 28 years where he held several leadership positions in the United States and in Europe. Most
recently, Mr. Sutula was Vice President and Controller.
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.
If we are unable to protect our information technology systems against service interruptions, misappropriation of data, or breaches of
security resulting from cyberattacks 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
9
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. Credit rating downgrades,
an increase in our 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.
The international nature of our Global Ecommerce business 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, the United Kingdom and Australia
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 business, results of operations and financial condition may be negatively impacted by conditions abroad, including local economies,
political environments and fluctuating foreign currencies.
A portion of our revenue is generated from operations outside the United States. Our future revenues, costs and results of operations
could be affected by changes in foreign currency exchange rates as well as by a number of other factors, including changes in economic
conditions from country to country, changes in a country's political conditions, trade protection measures, licensing requirements, local
tax issues, capitalization and other related legal matters. We generally hedge foreign currency denominated transactions primarily through
the use of currency derivative contracts. The use of derivative contracts is intended to mitigate or reduce transactional level volatility in
10
the results of foreign operations, but does not completely eliminate volatility. We do not hedge the translation effect of international
revenues and expenses, which are denominated in currencies other than our U.S. parent functional currency.
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. The continued evolution of patent law and the nature of our innovation work may
affect the number of patents we are able to receive for our internal development efforts.
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 noncompliance in the course of an audit or investigation, we may be subject to various civil
or criminal penalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments
received, fines and debarment from doing business with one or more governments. Any of these events could not only affect us financially,
but also adversely affect our brand and reputation.
We may not realize the anticipated benefits from our implementation of a new enterprise business platform, and the transition to the new
enterprise business platform may not be uninterrupted or error-free.
We have made significant investments in the development and implementation of a new enterprise business platform 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. We implemented this platform for our Canadian operations in the fourth quarter of 2015, and completed the
implementation of this system for our U.S. operations in the second quarter of 2016. We experienced temporary sales productivity and
business disruptions from the implementations in Canada and the United States; however, material disruptions are not expected going
forward.
We may not realize the anticipated benefits of strategic acquisitions and divestitures, which may harm our financial results.
As we look for opportunities to invest in strategic initiatives to drive revenue growth and market share gains 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.
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 brand strategy and identity are important to our global business transformation. Our phased roll-out of the new branding through
advertising campaigns 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 continued
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 we could be subject to significant liabilities.
We are subject to various federal, state, local and foreign environmental protection laws and regulations around the world, including
without limitation, those related to the manufacture, distribution, use, packaging, labeling, recycling or disposal of our products or the
products of our clients for whom we perform services. Environmental rules concerning products and packaging can have a significant
impact on the cost of operations or affect our ability to 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.
11
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.
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 facilities are located in Noida and Pune, 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.
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,
2017, we had 16,276 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.
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Price
High
Low
Dividend Per
Share
$
$
$
$
$
$
$
$
21.60
21.81
19.33
18.20
24.60
23.93
21.64
21.76
$
$
$
$
$
$
$
$
16.24
16.28
16.88
14.22
21.15
20.79
18.59
19.12
$
$
$
$
0.1875
0.1875
0.1875
0.1875
0.75
0.1875
0.1875
0.1875
0.1875
0.75
12
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 2016, we repurchased 10,454,835 shares of our common stock at an average share price of
$18.51. During the fourth quarter of 2016 we did not repurchase any shares of our common stock. We have remaining Board authorization
to repurchase up to $21 million of our common stock.
Stock Performance Graph
We revised our peer group from last year to exclude companies that were no longer a strong fit from a business perspective and included
companies that are better aligned with our diverse business portfolio.
The new peer group is comprised of: Alliance Data Systems Corporation, Deluxe Corporation, Diebold, Incorporated, EchoStar Corp.,
Fidelity National Information Services, Inc., Fiserv, Inc., NCR Corp., NetApp Inc., Pitney Bowes Inc., R.R. Donnelley & Sons Company,
Rockwell Automation Inc., Teradata Corp., Unisys Corporation, The Western Union Company and Xerox Corporation.
The old peer group was 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 change in the value of a $100 investment in Pitney Bowes Inc., the Standard and Poor's (S&P)
500 Composite Index, the new peer group and the old peer group over a five-year period assuming the reinvestment of dividends. On a
total return basis, a $100 investment on December 31, 2011 in Pitney Bowes Inc., the S&P 500 Composite Index, the old peer group and
the new peer group would have been worth $108, $198, $207, and $175, respectively, on December 31, 2016.
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.
13
14
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.
Total revenue
$
3,406,575
$
3,578,060
$
3,821,504
$
3,791,335
$
3,823,713
2016
2015
2014
2013
2012
Years Ended December 31,
Amounts attributable to common stockholders:
Net income from continuing operations
(Loss) income from discontinued operations
Net income - Pitney Bowes Inc.
$
$
95,506
(2,701)
92,805
Basic earnings per share attributable to common stockholders (1):
Continuing operations
$
Discontinued operations
Net income - Pitney Bowes Inc.
$
0.51
(0.01)
0.49
Diluted earnings per share attributable to common stockholders (1):
0.51
Continuing operations
(0.01)
0.49
Net income - Pitney Bowes Inc.
Discontinued operations
$
$
Cash dividends paid per share of common stock
$
0.75
Balance sheet data:
402,672
5,271
407,943
2.01
0.03
2.04
2.00
0.03
2.03
0.75
$
$
$
$
$
$
$
300,006
33,749
333,755
1.49
0.17
1.65
1.47
0.17
1.64
0.75
Total assets (2)
Long-term debt (2)
Total debt (2)
Noncontrolling interests (Preferred stockholders'
equity in subsidiaries)
$
$
$
$
2016
5,837,133
2,750,405
3,364,890
2015
6,123,132
2,489,583
2,950,668
— $
296,370
December 31,
2014
6,476,599
2,904,024
3,228,903
296,370
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
287,612
(144,777)
142,835
1.43
(0.72)
0.71
1.42
(0.71)
0.70
0.94
2013
6,754,371
3,323,231
3,323,231
296,370
$
$
$
$
$
$
$
$
$
$
$
379,107
66,056
445,163
1.89
0.33
2.22
1.88
0.33
2.21
1.50
2012
7,846,867
3,629,349
4,004,349
296,370
(1) The sum of earnings per share may not equal the totals due to rounding.
(2) Certain prior year amounts have been revised to conform to current year presentation.
15
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 2016, we continued to execute on our strategic priorities to stabilize and reinvent our mail business, drive operational excellence
and grow our business through digital commerce. We made acquisitions in our strategic businesses and exited certain markets (Market
Exits) as part of our initiative to simplify our geographic footprint. We launched an advertising campaign to reintroduce the Pitney Bowes
brand and continued to introduce new products including the Pitney Bowes Commerce Cloud, which helps our clients identify customers,
locate new sales opportunities, communicate with their existing and prospective customers, power shipping globally and manage payments
for mailing and shipping. Additionally, we continued to build our partner channels particularly in the software business.
During the year, we deployed our new enterprise business platform in the United States, which is one of the productivity initiatives to
drive operational excellence. As a result of the conversion process and required sales and support training, we experienced reduced
productivity and lost sales, which adversely impacted equipment sales and stream revenues.
Financial Highlights
Revenue -2016 compared to 2015
Revenue for 2016 decreased 5% to $3,407 million compared to $3,578 million in 2015. Of this decrease, 1% is attributable to foreign
currency translation and 1% to Market Exits.
• Equipment sales declined 3%, supplies revenues declined 9%, software revenue declined 10%, rentals revenue declined 7%, financing
income declined 11% and support services revenue declined 8%. Business services revenue increased 3%, partially offsetting these
declines.
• Within SMB, North America Mailing revenue was down 6% and International Mailing revenue was down 9%. In total, SMB revenue
decreased 7% on a reported basis and 6% excluding the impacts of foreign currency translation and Market Exists.
• Within Enterprise Business Solutions, Production Mail revenue decreased 4% and Presort revenue was flat. In total, Enterprise
Business Solutions revenue decreased 2% on a reported basis and was flat excluding the impacts of foreign currency translation and
Market Exists.
• Within DCS, Global Ecommerce revenue increased 18%, but was partially offset by a 10% decrease in Software Solutions revenue.
In total, DCS revenue increased 4% on a reported basis and 6% excluding the impacts of foreign currency translation.
Net Income
Net income and diluted earnings per share from continuing operations for 2016 were $93 million and $0.49, respectively, compared to
$408 million and $2.03, respectively, for 2015. The decrease in net income was primarily due to the $111 million gain on the sale of
Imagitas in 2015, and a $171 million goodwill impairment charge related to our Software Solutions reporting unit, lower revenue and
gross margin, and higher restructuring and asset impairment charges, partially offset by lower selling, general and administrative expenses
in 2016.
16
Cash Flows
Cash and cash equivalents at December 31, 2016 increased $124 million compared to December 31, 2015. Sources and uses of cash
include:
Sources:
• Generated cash from operations of $491 million;
•
Increased net long-term borrowings by $524 million;
• Cash from investment activities of $75 million; and
• Received $18 million for the sale of assets;
Uses:
• Redeemed preferred stock of subsidiary for $300 million;
Spent $197 million to repurchase our common stock;
•
Spent $161 million on capital expenditures;
•
•
Paid dividends of $141 million to our common stockholders and $19 million to noncontrolling interests;
• Repaid $90 million of commercial paper borrowings; and
• Acquired Enroute and Maponics for an aggregate $38 million.
Outlook
We anticipate that the introduction of new products and digital capabilities, the implementation of the new enterprise business platform,
and incremental marketing will continue to provide long term benefits. We expect to see on-going cost-savings through the benefits of
our restructuring actions and our new enterprise business platform. This will be offset, in part, by the normalization of variable
compensation compared to 2016.
Within SMB Solutions, we anticipate that the introduction of new solutions and digital capabilities, particularly those included in the
Pitney Bowes Commerce Cloud, will help further stabilize revenue over the long-term. In addition we plan to introduce technology
upgrades to our meters later in 2017. We do not anticipate further significant disruption in sales productivity from the implementation of
our enterprise platform, and expect to continue realizing the benefits from this platform. Internationally, we anticipate further stabilizing
financial results from cost savings initiatives and rationalization of our geographic footprint.
Within Enterprise Business Solutions, we anticipate revenue and profitability growth in Presort Services due to network expansion and
the January 2017 USPS rate change, which creates a greater incentive for high volume mailers to leverage our solutions. We expect that
Production Mail revenue growth will continue to be challenged by consolidation and outsourcing pressures on services revenue.
Within DCS, we continue to build our partner channel in Software Solutions by adding new regional systems integrators and location
intelligence partners. We continue to invest in expanding the indirect channel and training partner sales and technical resources. Although
it takes time for a partner program to add significantly to our revenue, we do anticipate additional revenue from our partner channel in
2017. We continue to focus on improving direct sales effectiveness to grow the license revenue pipeline and have made changes to the
sales organization structure to expedite this improvement. We anticipate continued growth in our ecommerce business with our existing
marketplace sites (sites where multiple sellers sell) and individual retail clients, new client acquisition and expanded service offerings.
A strong U.S. dollar could continue to affect demand for U.S. goods sold to customers in other countries, but such an impact could
continue to be mitigated by the effects of a weakened British Pound on sales of U.K. goods to customers in other countries. We continue
to expand and globalize our cross-border ecommerce offerings, including the successful launch of our cross-border platform for Australian
retail clients, which diversifies the business and helps to mitigate foreign currency risk.
17
Revenue by source and the related cost of revenue are shown in the following tables:
RESULTS OF OPERATIONS
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
Revenue
% change
Years Ended December 31,
Actual
Constant Currency
2016
2015
2014
2016
2015
2016
2015
$
$
675
263
349
413
366
513
828
$
695
288
386
442
410
555
802
770
300
430
485
433
625
779
$
3,407
$
3,578
$
3,822
(3)%
(9)%
(10)%
(7)%
(11)%
(8)%
3 %
(5)%
(10)%
(4)%
(10)%
(9)%
(5)%
(11)%
3 %
(6)%
(2)%
(7)%
(7)%
(6)%
(10)%
(7)%
4 %
(4)%
(5)%
2 %
(5)%
(6)%
(2)%
(7)%
3 %
(3)%
Cost of Revenue
Years Ended December 31,
2016
2015
2014
$
% of revenue
$
% of revenue
$
$
332
81
106
76
55
296
569
1,515
49.1% $
31.0%
30.4%
18.4%
15.1%
57.7%
68.7%
44.5% $
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
% of revenue
47.5%
31.2%
28.8%
20.1%
18.1%
60.3%
70.0%
44.0%
The discussion below refers to revenue growth on a constant currency basis to exclude the impact of changes in foreign currency exchange
rates since the prior period under comparison. Constant currency measures are intended to help investors better understand the underlying
revenue performance of the business excluding the impacts of shifts in currency exchange rates over the period. Constant currency is
calculated by converting our current quarter reported revenue using the prior year’s exchange rate for the comparable quarter.
Equipment sales
Equipment sales decreased 3% in 2016 compared to 2015. On a constant currency basis, equipment sales decreased 2% primarily due
to:
•
•
•
3% from lower mailing equipment sales in North America, due in part to sales disruption during the second quarter from the
platform cut-over; and
1% from Market Exits; partially offset by
2% from higher sales in our production mail business, primarily due to higher installations of sorter, inserter and print equipment.
Cost of equipment sales as a percentage of equipment sales revenue increased to 49.1% compared to 47.5% in 2015 primarily due to
product mix.
Equipment sales decreased 10% in 2015 compared to 2014. On a constant currency basis, equipment sales decreased 5% primarily due
to:
•
•
•
3% from international mailing equipment sales primarily due to difficult economic circumstances and productivity disruptions
caused by the implementation of our go-to-market strategy in Europe;
1% from lower sales of production mail equipment worldwide; and
1% from lower sales in North America 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 from 2015 to 2014.
18
Supplies
Supplies sales decreased 9% in 2016 compared to 2015. On a constant currency basis, supplies revenue decreased 7% primarily due to:
•
•
•
•
4% from lower North America mailing supplies sales;
1% from lower international mailing supplies, primarily in the U.K. and France;
1% from lower sales in our production mail business; and
1% from Market Exits.
Cost of supplies as a percentage of supplies revenue increased slightly to 31.0% in 2016 compared to 30.8% in 2015 primarily due to
lower revenue and sales productivity issues.
Supplies sales decreased 4% in 2015 compared to 2014, On a constant currency basis, supplies revenue increased 2% primarily due to:
•
•
1% from our worldwide mailing businesses primarily due to productivity improvements and pricing actions; and
1% from 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.
Software
Software revenue decreased 10% in 2016 compared to 2015. On a constant currency basis, software revenue decreased 7% primarily due
to a worldwide decline in licensing revenue. License revenue from our Customer Engagement and our Location Intelligence software
offerings declined but were partly offset by growth in the Customer Information Management software license revenue. Cost of software
as a percentage of software revenue increased to 30.4% in 2016 compared to 29.4% in 2015 primarily due to the decline in high-margin
licensing revenue.
Software revenue decreased 10% in 2015 compared to 2014. On a constant currency basis, software revenue decreased 5% in primarily
due to:
•
•
4% from more significant licensing deals in 2014 compared to 2015; and
1% from 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 declines
in high-margin licensing revenue.
Rentals
Rentals revenue decreased 7% in 2016 compared to 2015 and 9% in 2015 compared to 2014. On a constant currency basis, rentals revenue
decreased 6% in both periods. These decreases are primarily due to a reduction in the number of installed meters worldwide and the
continuing shift by certain customers to less-featured, lower cost machines.
Cost of rentals as a percentage of rentals revenue improved from 20.1% in 2014 to 19.1% in 2015 and to 18.4% in 2016 primarily due
to lower depreciation.
Financing
Financing revenue decreased 11% in 2016 compared to 2015. On a constant currency basis, financing revenue decreased 10% primarily
due to lower mailing equipment sales in prior periods, a declining lease portfolio and lower financing fees as a result of proactive waivers
to allow clients to adjust to new billing formats and timing of invoices being sent as a result of the platform cutover.
Financing revenue decreased 5% in 2015 compared to 2014. On a constant currency basis, financing revenue decreased 2% as a result
of lower equipment sales in prior periods and a declining lease portfolio.
We allocate a portion of our total cost of borrowing to financing interest expense. In computing financing interest expense, we assume
an 8:1 debt to equity leverage ratio (10:1 in 2015 and 2014) and apply our overall effective interest rate to the average outstanding finance
receivables. Finance interest expense decreased 23% in 2016 compared to 2015 primarily due to a decline in our overall effective interest
rate and lower average outstanding finance receivables. Finance interest expense decreased 9% in 2015 compared to 2014 primarily due
to lower average outstanding finance receivables. Financing interest expense as a percentage of financing revenue was 15.1% in 2016,
17.5% in 2015 and 18.1% in 2014.
19
Support Services
Support services revenue decreased 8% in 2016 compared to 2015. On a constant currency basis, revenue decreased 7% primarily due
to:
•
•
•
2% from lower maintenance revenue 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;
2% from the worldwide decline in the number of mailing machines in service and shift to less-featured, lower cost machines;
and
2% from Market Exits.
Cost of support services as a percentage of support services revenue improved to 57.7% in 2016 compared to 58.2% in 2015 primarily
due to expense reductions and productivity initiatives.
Support services revenue decreased 11% in 2015 compared to 2014. On a constant currency basis, revenue decreased 7%, primarily due
to:
•
•
5% from 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; and
2% from Market Exits.
Cost of support services as a percentage of support services revenue improved to 58.2% in 2015 compared to 60.3% in 2014 primarily
due to expense reductions and productivity initiatives.
Business Services
Business services revenue increased 3% in 2016 compared to 2015. On a constant currency basis, revenue increased 4%; however,
excluding the revenue in 2015 from our Imagitas business, which was sold in May 2015, business services revenue increased 11% in
2016 compared to 2015 primarily due to:
•
•
10% from growth in our Ecommerce business from the expansion of our U.S. and U.K. cross-border marketplace business and
retail network, including a full year of operations of Borderfree (acquired June 2015); and
1% from higher shipping solutions services.
Cost of business services as a percentage of business services revenue increased to 68.7% in 2016 and compared to 68.1% in 2015,
primarily due to higher mail processing costs in the presort business.
Business services revenue increased 3% in 2015 compared to 2014. On a constant currency basis, revenue increased 3%. 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% primarily due to:
•
•
4% from additional volumes of packages shipped from our U.K. outbound cross-border service facility; and
2% from higher volumes of mail processed in Presort Services.
Cost of business services as a percentage of business services revenue improved to 68.1% in 2015 and compared to 70% in 2014, primarily
due to operational efficiencies in Presort Services and higher revenue.
Selling, general and administrative (SG&A)
SG&A expense decreased 6% in 2016 compared to 2015 primarily due to lower salaries and benefits expense from our prior restructuring
actions, lower annual variable compensation costs of $36 million, benefits from the new enterprise business platform of $28 million, loan
forgiveness income of $10 million (see Note 11 to the Consolidated Financial Statements), a favorable sales tax adjustment of $5 million
and other productivity and cost-saving initiatives. SG&A expense in 2015 also included a one-time compensation charge of $10 million
related to the acquisition of Borderfree.
SG&A expense decreased 7% in 2015 compared to 2014 despite expenses of $13 million associated with implementation of our enterprise
business platform, 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.
20
Restructuring charges and asset impairments, net
Restructuring charges and asset impairments were $63 million in 2016. During the year, we recorded restructuring charges of $48 million
related primarily to current year restructuring actions and pension settlement charges due to prior restructuring actions. Asset impairment
charges consisted primarily of a loss of $5 million from the sale of a facility and an impairment charge of $4 million related to another
facility.
Restructuring charges and asset impairments of $26 million in 2015 consists of restructuring charges of $21 million and a loss of $5
million on the sale of the corporate headquarters building. See Note 10 to the Consolidated Financial Statements for further details.
Goodwill impairment
In 2016, we recorded a non-cash goodwill impairment charge of $171 million associated with our Software Solutions reporting unit. See
Critical Accounting Estimates section below for further details.
Other (income) expense, net
Other income, net for 2015 includes the gain on the sale of Imagitas of $111 million, transaction costs of $10 million incurred in connection
with the acquisitions of Borderfree and RTC and a charge of $7 million associated with the settlement of a legal matter.
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.
Income taxes
See Note 13 to the Consolidated Financial Statements.
Discontinued operations
Loss from discontinued operations in 2016 was due to an additional expense related to our Management Services business sold in 2013.
Income from discontinued operations in 2015 was due to a favorable tax adjustment related to our Document Imaging Solutions business
sold in 2014.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
See Note 14 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 licensing 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 net income.
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
% change
Years Ended December 31,
Actual
Constant Currency
2016
$ 1,343
407
1,750
405
476
881
348
429
777
—
$ 3,407
2015
$ 1,435
445
1,880
421
474
895
386
362
748
55
$ 3,578
2014
$ 1,492
572
2,064
462
457
919
429
282
711
128
$ 3,822
2016
(6)%
(9)%
(7)%
(4)%
— %
(2)%
(10)%
18 %
4 %
(100)%
(5)%
2015
2016
2015
(4)%
(22)%
(9)%
(9)%
4 %
(3)%
(10)%
29 %
5 %
(6)%
(5)%
(6)%
(3)%
— %
(1)%
(7)%
20 %
6 %
(57)% (100)%
(4)%
(6)%
(3)%
(10)%
(5)%
(4)%
4 %
— %
(5)%
30 %
9 %
(57)%
(3)%
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
2016
2015
2014
2016
2015
$
$
575
47
622
54
95
149
30
19
49
—
820
$
$
647
51
698
48
105
153
49
19
68
10
642
89
731
48
98
146
51
17
68
19
$
929
$
964
(11)%
(9)%
(11)%
12 %
(9)%
(2)%
(38)%
— %
(27)%
(100)%
(12)%
1 %
(42)%
(5)%
1 %
7 %
5 %
(5)%
16 %
— %
(45)%
(4)%
North America Mailing revenue decreased 6% in 2016 compared to 2015 primarily due to:
•
•
•
•
2% from lower financing revenue primarily from declining equipment sales in prior periods and lower fees resulting from
proactive waivers to allow clients to adjust to new billing formats and delayed timing of invoices resulting from the platform
cutover;
1% from lower sales of supplies due to lower demand and sales productivity issues from the platform cutover;
1% from lower rentals revenue and 1% from lower support services revenue, primarily reflecting continuing decline in installed
meters and shift to less-featured lower-cost machines; and
1% from lower equipment sales which were impacted by sales productivity issues from the platform cutover.
EBIT decreased 11% primarily due to the decline in higher margin recurring revenue streams and higher costs due in part to the sales
productivity issues from the platform cutover.
North American Mailing revenue decreased 4% in 2015 compared to 2014. On a constant currency basis, revenue decreased 3% primarily
due to:
•
2% from declines in rentals revenue and support services revenue due to the continuing decline in installed meters and shift by
clients to lower cost, less featured machines; and
1% from a decline in equipment sales 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.
•
Despite the decline in revenue, EBIT increased 1% primarily due to benefits of productivity improvements and cost reduction initiatives
and favorable product mix.
International Mailing
International Mailing revenue declined 9% in 2016 compared to 2015. On a constant currency basis, revenue decreased 5% primarily
due to:
•
•
2% from Market Exits; and
1% decline in each of rental, supplies and support services revenue streams resulting from the continued decline in installed
meters.
EBIT deceased 9% in 2016 compared to 2015, primarily due to the decline in revenue, partially offset by lower costs from cost savings
and productivity initiatives. Foreign currency translation had a 4% adverse impact on EBIT.
23
International Mailing revenue declined 22% in 2015 compared to 2014. On a constant currency basis, revenue decreased 10% primarily
due to:
•
7% from 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; and
3% from Market Exits.
•
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 had a 10% adverse impact
on EBIT.
Enterprise Business Solutions
Production Mail
Production Mail revenue decreased 4% in 2016 compared to 2015. On a constant currency basis, revenue decreased 3% primarily due
to:
•
•
•
3% from Market Exits; and
3% from lower support services revenue as result of some in-house mailers shifting their mail processing to third-party
outsourcers; partially offset by
4% from higher equipment sales due to higher installations of sorter, inserter and print equipment.
Despite the decline in revenue, EBIT increased 12% in 2016 compared to 2015 primarily due to service delivery cost management
initiatives and lower sales and marketing costs.
Production Mail revenue decreased 9% in 2015 compared to 2014. On a constant currency basis, revenue decreased 4% primarily due
to:
•
•
3% decline in support services revenue of as some in-house mailers moved their mail processing to third-party service bureaus
who service some of their own equipment; and
1% decline in equipment sales 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.
Presort Services
Presort Services revenue was flat in 2016 compared to 2015, on both a reported and constant currency basis, as volume growth was offset
by lower revenue per piece of mail from a USPS rate change. EBIT decreased 9% in 2016 compared to 2015 primarily due to lower
margins and increased labor costs.
Presort Services revenue increased 4% in 2015 compared to 2014 primarily due to higher volumes of mail processed. EBIT increased
7% in 2015 compared to 2014 primarily due to the increase in revenue and lower transportation costs.
Digital Commerce Solutions
Software
Software revenue decreased 10% in 2016 compared to 2015. On a constant currency basis, revenue decreased 7% primarily due to a
worldwide decline in licensing revenue. License revenue from our Customer Engagement and our Location Intelligence software offerings
declined but were partly offset by growth in the Customer Information Management software license revenue. EBIT decreased 38%
primarily due to the lower high-margin licensing revenue.
Software revenue decreased 10% in 2015 compared to 2014. On a constant currency basis, revenue decreased 5% 2015 primarily due
to:
•
•
4% from more significant licensing deals in 2014 as compared to 2015; and
1% from declines in maintenance, data and services revenue.
EBIT decreased 5% primarily as a result of lower high-margin licensing revenue.
24
Global Ecommerce
Global Ecommerce revenue increased 18% in 2016 compared to 2015. On a constant currency basis, revenue increased 20% primarily
due to:
•
•
•
23% due to the expansion of our U.S. and U.K. cross-border business and retail network, including the acquisition of Borderfree;
partially offset by
2% decrease related to a one-time recognition of deferred cross-border delivery fees; and
1% from a decline in domestic shipping solutions revenue.
EBIT was flat in 2016 compared to 2015 as higher revenue was offset by $7 million of additional amortization expense from acquisitions,
$6 million of deferred cross border delivery fees recognized in 2015 and additional investments in the business. Foreign currency
translation had a 6% adverse impact on EBIT.
Global Ecommerce revenue increased 29% in 2015 compared to 2014. On a constant currency basis, revenue increased 30%, 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.
EBIT increased 16% in 2015 compared to 2014 as the incremental revenue and margin from Borderfree and the recognition of $6 million
of deferred cross-border delivery fees were partially offset by higher costs from the Borderfree acquisition, including $9 million of
additional amortization expense.
Other
Other includes our Marketing Services business which was sold in May 2015.
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 $803 million at December 31, 2016 and $768
million at December 31, 2015. 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 $475 million and $460 million at December 31, 2016 and December 31,
2015, respectively. 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:
Years Ended December 31,
Change
2016
2015
2014
2016
2015
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
$
$
490
(115)
(224)
(27)
124
$
$
$
515
(303)
(571)
(44)
(403) $
658
(154)
(312)
(29)
163
$
$
(25) $
188
347
17
527
$
(143)
(149)
(259)
(15)
(566)
Cash flows from operations decreased $25 million in 2016 compared to 2015, primarily due to:
• Lower income;
• A special pension plan contribution of $37 million to the U.K. pension plan; and
•
• Lower employee related costs, income tax and interest payments.
Payments associated with the launch of the enterprise business platform and new advertising campaign; partially offset by
25
Cash flows from operations decreased $143 million in 2015 compared to 2014, primarily due:
• 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; partially offset by
• Lower interest and tax payments.
Cash flows used by investing activities improved by $188 million in 2016 compared to 2015, primarily due to:
• Lower acquisitions spending of $356 million;
• Higher cash from investment activities of $142 million;
• An increase in reserve deposits of $22 million; and
• Lower capital expenditures of $6 million; partially offset by
•
• Lower proceeds from asset sales of $34 million.
Proceeds of $292 million from the sale of Imagitas in 2015; and
Cash flows used by investing activities were $149 million higher in 2015 compared to 2014. primarily due to:
• Aggregate payments of $394 million for acquisitions; and
• Higher cash used in investment activities of $10 million; partially offset by
• Higher proceeds from the sale of businesses and other assets of $239 million; and
• Lower capital expenditures of $17 million.
Cash flows used in financing activities improved $347 million in 2016 compared to 2015, primarily due to:
• Higher cash flows from debt activity of $709 million as we had a net issuance of debt of $434 million in 2016 compared to a
net reduction of debt of $275 million in 2015; partially offset by
• Redemption of noncontrolling interests for $300 million; and
• Higher share repurchases of $65 million.
Cash flows used in financing activities increased $259 million in 2015 compared to 2014, primarily due to:
• Higher net payments to reduce debt of $184 million;
• Higher stock repurchases of $82 million.
Financings and Capitalization
We are a Well-Known Seasoned Issuer with the SEC, which allows us to issue debt securities, preferred stock, preference stock, common
stock, purchase contracts, depositary shares, warrants and units in an expedited fashion. We have a commercial paper program that is an
important source of liquidity for us and a committed credit facility of $1.0 billion to support our commercial paper issuances. The credit
facility expires in January 2020, and as of December 31, 2016, we have not drawn upon the credit facility.
In 2016, commercial paper borrowings averaged $206 million at a weighted-average interest rate of 1.03% and the maximum amount of
commercial paper outstanding at any point in time was $410 million. At December 31, 2016, there were no outstanding commercial paper
borrowings. At December 31, 2015, there was $90 million of outstanding commercial paper borrowings with an effective interest rate
of 1.1%.
2016 Activity
In January 2016, we borrowed $300 million under a term loan agreement and applied the proceeds to the repayment of the $371 million,
4.75% notes due January 2016. The new term loans bear interest at the applicable Eurodollar Rate plus 1.5% (1.25% at time of issuance)
and mature in December 2020. In September 2016, we entered into an interest rate swap with a notional amount of $300 million to
mitigate the interest rate risk associated with these variable-rate term loans. Under the terms of the swap agreement, we pay fixed-rate
interest of 0.8826% and receive variable-rate interest based on one-month LIBOR. The variable rate resets monthly.
In March 2016, we satisfied certain employment obligations stipulated in the State of Connecticut Department of Economic and Community
Development loan (issued in 2014), and under the terms of the loan, $10 million was forgiven. We recorded loan forgiveness income in
selling, general and administrative expenses.
26
In September 2016, we issued $600 million of 3.375% fixed-rate notes due in October 2021. Interest is payable semi-annually and is
subject to adjustment from time to time if either Moody's or S&P (or a substitute ratings agency) downgrades (or downgrades and
subsequently upgrades) the credit rating assigned to the notes. The notes mature in October 2021, but may be redeemed, at our option,
in whole or in part, at any time or from time to time at par plus accrued and unpaid interest. The proceeds were used to repay approximately
$300 million of outstanding commercial paper and redeem noncontrolling interests for $300 million (see Note 14 to the Consolidated
Financial Statements).
2015 Activity
We redeemed the $110 million 5.25% notes due November 2022 at par plus accrued but unpaid interest, repaid the $275 million 5% notes
and repaid $130 million of outstanding term loans. We borrowed $150 million under a new term loan that bears interest at the applicable
Eurodollar Rate plus .90%. The Eurodollar Rate on the date of funding was 0.59%. The term loan matures in June 2017.
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.
Debt Maturities
We have $2 billion of debt maturing within the next five years, including $614 million scheduled to mature in 2017. 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 changes in capital market conditions and impact our ability to refinance existing maturities.
Dividends and Share Repurchases
We paid dividends to our common stockholders of $141 million ($0.75 per share), $150 million ($0.75 per share) and $152 million ($0.75
per share) in 2016, 2015 and 2014, 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 purchased $197 million, $150 million and $50 million of our common shares during 2016, 2015 and 2014, respectively. We have
remaining Board authorization to repurchase up to $21 million of our common shares.
27
Contractual Obligations
The following table summarizes our known contractual obligations at December 31, 2016 and the effect that such obligations are expected
to have on our liquidity and cash flow in future periods:
Debt maturities
Interest payments on debt (1)
Noncancelable operating lease obligations
Purchase obligations (2)
Pension plan contributions (3)
Retiree medical payments (4)
Total
Payments due in
Total
2017
2018-19
2020-21
After 2021
$
$
3,381
1,155
189
145
22
150
$
614
148
46
145
22
18
$
901
194
71
—
—
34
$
900
150
33
—
—
32
966
663
39
—
—
66
$
5,042
$
993
$
1,200
$
1,115
$
1,734
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 13 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) 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.
(3) Represents the amount of contributions we anticipate making to our pension plans during 2017; however, we will assess our funding
alternatives as the year progresses.
(4) Our retiree health benefit plans are nonfunded 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, 2016, 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 15 to the Consolidated Financial Statements for detailed
information about our commitments and contingencies.
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
noncancelable 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
28
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
the 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.
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 2016 was 4.55%
for the U.S. Plan and 3.75% for the U.K. Plan. For 2017, the discount rate used in the determination of net periodic pension expense for
the U.S. Plan and the U.K. Plan will be 4.2% and 2.55%, 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 $47 million and $25 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
plan assets used in the determination of net periodic pension expense for 2016 was 7.0% for the U.S. Plan and 6.5% for the U.K. Plan.
For 2017, the expected rate of return on plan assets used in the determination of net periodic pension expense for the U.S. Plan will be
6.75%% and the U.K. Plan will be 6.25%. A 0.25% change in the expected rate of return on plan assets would impact annual pension
expense for the U.S. Plan by $4 million and the U.K. Plan by $1 million.
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.
See Note 12 to the Consolidated Financial Statements for further information about our pension plans.
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.
29
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 $10 million.
Allowances for doubtful accounts and credit losses
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. We provide an allowance
for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect
a client's ability to pay, prevailing economic conditions and our ability to manage the collateral. At December 31, 2016 gross finance
receivables aged greater than 90 days have grown since the implementation of our enterprise business platform in the second quarter of
2016. We believe the majority of the increased delinquency in our sales-type lease portfolio is administrative in nature and the result of
a change in our billing format and process under our new enterprise business platform. The billing format under our new platform is
different and clients are in the process of transitioning to the new format and thus have not made payments timely. These accounts are
considered delinquent under our policies, but we continue to expect full payment. While the aging as disclosed in Note 5 of the Consolidated
Financial Statements represents full remaining contract value only a small portion (approximately 25%) had actually been billed and
recognized in income as of December 31, 2016.
As of December 31, 2016, we had North American sales-type lease receivables aged greater than 90 days with a full contract value of
$63 million. As of February 15, 2017, we have received payments with a contract value of $31 million related to these receivables.
The quality of the portfolio has not changed. Our unsecured revolving loan portfolio delinquency has remained fairly constant when
compared to the loan portfolio delinquency in our legacy platform and there have been no significant changes in customers within the
portfolio itself. Also, we use a third party to credit score our lease and loan portfolios. The credit quality of our portfolio as determined
by this third party has shown no signs of deterioration suggesting that the increase in delinquency is not as a result of our customer's
ability to pay, but instead is a result of changes made to invoice format and presentation. Accordingly, we believe that the allowance for
credit losses is adequate.
The allowance for doubtful accounts as a percentage of trade receivables was 3.1% at December 31, 2016 and 2.1% at December 31,
2015. Holding all other assumptions constant, a 0.25% change in the allowance rate at December 31, 2016 would have changed the 2016
provision by $1 million.
Total allowance for credit losses as a percentage of finance receivables was 1.3% at both December 31, 2016 and December 31, 2015.
Holding all other assumptions constant, a 0.25% change in the allowance rate at December 31, 2016 would have changed the 2016
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.
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
30
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 Step 1, 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, then Step 2 of the goodwill impairment test is performed to measure the amount of impairment, if any. In Step 2, 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.
During the third quarter, based on the operating results of our Software Solutions reporting unit, we performed Step 1 of the goodwill
impairment test to assess the adequacy of the carrying value of goodwill. At that time, we determined that the estimated fair value of the
reporting unit exceeded its carrying value by 15% and the measurement of a goodwill impairment charge was not necessary. The
assumptions used to estimate fair value were based on projections of revenue and earnings growth, including a strong sales pipeline,
operating cash flows, discount rate and market multiples. Additionally, we launched several initiatives during 2016 that we expected
would drive revenue and earnings growth in the future, including the development of a new partner channel, the reorganization of the
sales organization to improve sales efficiency and the pipeline of deals, the improvement of processes for acquiring new clients and the
implementation of a more disciplined marketing strategy for new products.
During the fourth quarter, however; our Software Solutions reporting unit experienced weaker than expected performance. Based on
this and including the soft operating results of 2016, we performed a goodwill impairment test that indicated the fair value of the Software
Solutions reporting unit was less than its carrying value. We engaged a third party to perform Steps 1 and 2 of the goodwill impairment
test and determined that the implied fair value of goodwill was less than the recorded goodwill and as a result recorded a non-cash, pre-
tax goodwill impairment charge of $171 million to write down the carrying value of goodwill to its estimated fair value.
Actual results may differ from those used in our valuations and this non-recurring fair value measurement is a “Level 3” measurement
under the fair value hierarchy. At December 31, 2016, the fair value of our Software unit now exceeds the recorded carrying value by
over $125 million.
During the fourth quarter, we also conducted our annual impairment review of all our reporting units. Based on the results of this review,
we concluded that the estimated fair value of each of our reporting units, other than Software Solutions, were substantially in excess of
their respective carrying values.
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, expected life of the award and dividend
yield. The expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S.
31
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.
Restructuring
Our restructuring actions 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 13 to the Consolidated
Financial Statements for regulatory matters regarding our tax returns.
Foreign Currency Exchange
During 2016, we derived 24% 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 and Canadian dollar
(see Note 8 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, 2016, 2015 and 2014, the translation of foreign currencies to U.S. dollar decreased
revenues by 1.0%, 4.0% and 0.4%, respectively.
32
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, 2016, 96% of our debt was fixed rate obligations at a weighted average interest rate of 4.6%. Our variable rate debt
had a weighted average interest rate at December 31, 2016 of 1.80%. A one-percentage point change in the effective interest rate of our
variable rate debt would not have had a material impact on our 2016 pre-tax income.
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 2016 and 2015, 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.
33
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, 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, 2016. 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, 2016, the internal control over financial reporting was effective based on the criteria issued by COSO in Internal
Control - Integrated Framework (2013).
We implemented a new enterprise business platform in the U.S. in 2016, after having implemented in Canada during the fourth quarter
of 2015. The implementation involved changes to our financial systems and other systems and accordingly, necessitated changes to our
internal controls. Management has reviewed the controls affected by the implementation of the enterprise business platform and has made
appropriate changes to internal controls as part of the implementation.
The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears in this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2016, that have
materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
34
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 2017 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 be filed in connection with the 2017 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 2017 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, 2016 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)
11,112,119
—
11,112,119
$24.81
—
$24.81
18,361,915
—
18,361,915
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 2017 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 2017 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 2017 Annual
Meeting of Stockholders.
35
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.3) *
Pitney Bowes Inc. Directors' Stock Plan (Amended and Restated
effective May 12, 2014)
10(c) *
Pitney Bowes Stock Plan (as amended and restated as of January
1, 2002)
10(d) *
Pitney Bowes Inc. 2007 Stock Plan (as amended November 7,
2009)
10(e) *
Pitney Bowes Inc. Key Employees' Incentive Plan (as amended
and restated 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)
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
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 10(b.3) to Form 10-K filed
with the Commission on February 22, 2016 (Commission file
number 1-3579)
Incorporated by reference to Annex 1 to the Definitive Proxy
Statement for the 2002 Annual Meeting of Stockholders filed with
the Commission on March 26, 2002 (Commission file number
1-3579)
Incorporated by reference to Exhibit (v) to Form 10-K 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)
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)
36
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)
Incorporated by reference to Exhibit 10(o) to Form 10-K filed with
the Commission on February 22, 2016 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10(p) to Form 10-K filed with
the Commission on February 22, 2016 (Commission file number
1-3579)
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
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)*
Pitney Bowes Executive Equity Deferral Plan dated November 7,
2014
10(q)*
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
* 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.
37
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, 2017
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
Title
Date
President and Chief Executive Officer - Director
February 22, 2017
/s/ Stanley J. Sutula III
Stanley J. Sutula III
Executive Vice President, Chief Financial Officer (Principal
Financial Officer)
February 22, 2017
/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.
Vice President-Finance and Chief Accounting Officer (Principal
Accounting Officer)
February 22, 2017
Non-Executive Chairman - Director
February 22, 2017
Director
Director
Director
Director
Director
Director
Director
Director
Director
38
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Pitney Bowes Inc.
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
Page Number
40
41
42
43
44
45
46
91
39
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive
income, of stockholders’ deficit (equity) and of cash flows present fairly, in all material respects, the financial position of Pitney Bowes
Inc. and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2016 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, 2016, 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 accounts for debt issuance
costs as of December 31, 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Stamford, CT
February 22, 2017
40
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
Goodwill impairment
Interest expense, net
Other expense (income), net
Total costs and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests
Net income - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Dividends declared per share of common stock
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
2016
Years Ended December 31,
2015
2014
$
$
$
$
$
$
$
$
$
675,451
262,682
348,661
412,738
366,547
512,820
827,676
3,406,575
331,942
81,420
105,841
76,040
55,241
295,685
568,509
1,200,327
121,306
63,296
171,092
88,970
536
3,160,205
246,370
131,819
114,551
(2,701)
111,850
19,045
92,805
95,506
(2,701)
92,805
0.51
(0.01)
0.49
0.51
(0.01)
0.49
0.75
$
$
$
$
$
$
$
$
$
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
See Notes to Consolidated Financial Statements
41
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:
Years Ended December 31,
2016
2015
2014
$
111,850
$
426,318
$
19,045
92,805
18,375
407,943
352,130
18,375
333,755
Foreign currency translations
Net unrealized gain on cash flow hedges, net of tax of $1,513, $484, and $1,080,
respectively
Net unrealized (loss) gain on available for sale securities, net of tax of $(244), $(1,427)
and $2,775, respectively
Adjustments to pension and postretirement plans, net of tax of $(14,430), $13,844 and
$(106,336), respectively
Amortization of pension and postretirement costs, net of tax of $17,550, $15,966, and
$15,643, respectively
Other comprehensive loss
(4,464)
(88,137)
(93,368)
2,427
(416)
777
(2,430)
1,691
4,735
(73,141)
19,146
(212,818)
24,096
(51,498)
28,165
(42,479)
28,160
(271,600)
Comprehensive income - Pitney Bowes Inc.
$
41,307
$
365,464
$
62,155
See Notes to Consolidated Financial Statements
42
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 $14,372 and $9,997, respectively)
Short-term finance receivables (net of allowance of $13,323 and $15,480, respectively)
Inventories
Current income taxes
Other current assets and prepayments
Total current assets
Property, plant and equipment, net
Rental property and equipment, net
Long-term finance receivables (net of allowance of $7,177 and $6,210, respectively)
Goodwill
Intangible assets, net
Noncurrent income taxes
Other assets
Total assets
LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ (DEFICIT) 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’ (deficit) 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 (137,669,194 and 127,816,704 shares, respectively)
Total Pitney Bowes Inc. stockholders’ (deficit) equity
Total liabilities, noncontrolling interests and stockholders’ (deficit) equity
See Notes to Consolidated Financial Statements
December 31,
2016
December 31,
2015
$
$
$
$
$
$
$
764,522
38,448
455,527
893,950
92,726
11,373
68,637
2,325,183
314,603
188,054
673,207
1,571,335
165,172
74,806
524,773
5,837,133
1,378,822
34,434
614,485
299,878
2,327,619
204,289
61,276
2,750,405
597,204
5,940,793
640,190
127,388
476,583
918,383
88,824
6,584
67,400
2,325,352
330,088
177,515
760,657
1,745,957
187,378
70,294
525,891
6,123,132
1,448,321
16,620
461,085
353,025
2,279,051
205,668
68,429
2,489,583
605,310
5,648,041
—
296,370
1
483
323,338
148,125
5,107,734
(940,133)
(4,743,208)
(103,660)
5,837,133
$
1
505
323,338
161,280
5,155,537
(888,635)
(4,573,305)
178,721
6,123,132
43
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Restructuring payments
Special pension plan contribution
Net tax (payments) receipts from other investments
Adjustments to reconcile net income to net cash provided by operating activities:
$
Restructuring charges and asset impairments
Goodwill impairment
Depreciation and amortization
Loss (gain) on sale of businesses
Gain on sale of leveraged lease assets, net of tax
Gain on debt forgiveness
Stock-based compensation
Deferred tax provision
Changes in operating assets and liabilities, net of acquisitions/divestitures:
Decrease (increase) in accounts receivable
Decrease in finance receivables
(Increase) decrease in inventories
Increase in other current assets and prepayments
Decrease in accounts payable and accrued liabilities
(Decrease) increase in current and non-current income taxes
(Decrease) increase 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
Net change in short-term and other 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 investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Principal payments of long-term obligations
(Decrease) increase in short-term borrowings
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Common stock repurchases
Redemption of noncontrolling interests
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) 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
$
$
$
Years Ended December 31,
2016
2015
2014
111,850
(64,930)
(36,731)
—
63,296
171,092
178,486
5,786
—
(10,000)
14,882
3,940
44,022
119,883
(6,995)
(14,203)
(64,880)
(1,035)
(40,248)
16,477
490,692
(212,810)
211,696
75,654
(160,831)
17,671
(2,183)
—
(37,842)
(6,908)
(115,553)
894,744
(371,007)
(90,000)
(140,608)
(18,528)
(197,267)
(300,000)
(1,433)
(224,099)
(26,708)
124,332
640,190
764,522
150,567
127,299
$
$
426,318
(62,086)
—
(20,602)
25,782
—
173,312
(105,826)
(2,152)
—
21,049
40,184
(35,925)
95,341
(7,621)
(10,557)
(102,655)
21,567
1,344
57,583
515,056
(205,256)
207,063
(69,017)
(166,746)
52,110
(24,202)
289,211
(393,695)
7,339
(303,193)
150,950
(516,070)
90,000
(150,114)
(18,375)
(131,719)
—
4,603
(570,725)
(44,387)
(403,249)
1,043,439
640,190
165,287
138,877
$
$
$
$
$
$
352,130
(56,162)
—
5,737
83,466
—
198,088
(28,151)
—
—
17,446
1,454
45,511
117,902
9,104
(6,961)
(53,100)
(52,080)
(18,695)
42,599
658,288
(680,582)
628,727
(5,637)
(183,318)
—
(15,666)
102,392
—
(577)
(154,661)
508,525
(599,850)
—
(151,611)
(18,375)
(50,003)
—
(530)
(311,844)
(29,082)
162,701
880,738
1,043,439
180,250
203,193
See Notes to Consolidated Financial Statements
44
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) 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, 2013
$
4
$
591
$ 323,338
$
196,977
$ 4,715,564
$
(574,556) $ (4,456,742) $
205,176
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common
Preference
Issuances of common stock
—
—
—
—
—
—
—
—
—
—
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 income
Cash dividends
Common
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Repurchase of common stock
Balance at December 31, 2015
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
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(27,081)
(970)
17,446
—
(7,520)
333,755
—
—
(271,600)
(151,567)
(44)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(43)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(37,705)
(916)
21,049
—
407,943
—
—
(42,479)
(150,073)
(41)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28,697
1,016
333,755
(271,600)
(151,567)
(44)
1,616
—
—
17,446
(50,003)
(50,003)
—
—
—
—
—
34,487
959
—
(7,520)
77,259
407,943
(42,479)
(150,073)
(41)
(3,218)
—
21,049
(131,719)
(131,719)
548
323,338
178,852
4,897,708
(846,156)
(4,477,032)
505
323,338
161,280
5,155,537
(888,635)
(4,573,305)
178,721
—
—
—
—
—
(22)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(27,856)
(456)
15,157
—
92,805
—
—
(51,498)
(140,570)
(38)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
26,886
478
—
92,805
(51,498)
(140,570)
(38)
(970)
—
15,157
(197,267)
(197,267)
Balance at December 31, 2016
$
1
$
483
$ 323,338
$
148,125
$ 5,107,734
$
(940,133) $ (4,743,208) $
(103,660)
See Notes to Consolidated Financial Statements
45
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.
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.
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.
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue
revenue recognition for lease receivables that are more than 120 days past due and for 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. At December 31, 2016 and 2015, approximately 70% of our
inventories were stated under the LIFO method.
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, 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 Step 1, 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, then Step 2 of the goodwill impairment test is
performed to measure the amount of impairment, if any. In Step 2, the fair value of the reporting unit is allocated to the assets and liabilities
of the reporting unit as if it had been acquired in a business combination and the purchase price was equivalent to the fair value of the
reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the
implied fair value of goodwill. The implied fair value of the reporting unit's goodwill is then compared to the actual carrying value of
goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized for the
difference. The fair value of a reporting unit is determined based on a combination of various techniques, including the present value of
future cash flows, multiples of competitors and multiples from sales of like businesses.
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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
noncancelable 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
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
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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 $7 million, $8 million and $10 million in 2016, 2015 and 2014, respectively.
Initial direct costs included in rental property and equipment, net in the Consolidated Balance Sheets at December 31, 2016 and 2015
were $11 million and $13 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.
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 $15 million, $18 million and $23 million in 2016, 2015 and 2014, respectively.
Deferred marketing costs included in other assets in the Consolidated Balance Sheets at December 31, 2016 and 2015 were $38 million
and $43 million, respectively. We review individual marketing programs for impairment on a quarterly basis or as circumstances warrant.
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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
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.
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Reclassification
During the second quarter of 2016, we determined that certain amounts included in finance receivables and rental property and equipment
should be classified as accounts receivable and other current assets and prepayments. Accordingly, the Consolidated Balance Sheet as
of December 31, 2015 was revised to increase accounts receivable by $19 million and prepaid and other current assets by $3 million and
reduce rental property and equipment by $3 million, short-term finance receivables by $17 million and long-term finance receivables by
$2 million. The Consolidated Statement of Cash Flows for the years ended December 31, 2015 and 2014 have also been adjusted
accordingly, but the impact was not material.
During 2016, we determined that certain investments were classified as cash and cash equivalents. Accordingly the Consolidated Balance
Sheet as of December 2015 has been revised to reduce cash and cash equivalents and increase short-term investments by $10 million.
Additionally, the Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014 have also been revised to
reflect the reduction in cash and cash equivalents and increase to short-term investments.
New Accounting Pronouncements
New Accounting Pronouncements - Standards Adopted in 2016
In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (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. We
adopted this standard as of January 1, 2016, and there was no impact to the consolidated financial statements.
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. We adopted this standard as of January 1, 2016, and there was
no impact to the consolidated financial statements.
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. We adopted this standard effective January
1, 2016 and recast the Condensed Consolidated Balance Sheet at December 31, 2015 to reduce other assets and long-term debt by $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. We adopted this standard
as of January 1, 2016, and there was no impact to the financial statements.
New Accounting Pronouncements - Standards Not Yet Adopted
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Inter-entity Transfers of Assets other than Inventory, which requires
tax expense to be recognized from the sale of intra-entity assets, other than inventory, when the transfer occurs, even though the effects
of the transaction are eliminated in consolidation. Under current guidance, the tax effects of transfers are deferred until the transferred
asset is sold or otherwise recovered through use. The standard is effective for interim and annual periods beginning after December 15,
2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard
will have on our consolidated financial statements.
In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the
Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in presentation and classification of certain cash receipts
and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning
after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the
impact this standard will have on our consolidated statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a “current expected credit
loss” (CECL) model which requires companies to measure all expected credit losses for financial instruments held at the reporting date
based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model
and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
credit exposures. This standard is effective for interim and annual periods beginning after December 15, 2019. We are currently assessing
the impact this standard will have on our financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting. The standard includes multiple provisions intended to simplify various aspects of the accounting for share-
based payments. The standard is effective for interim and annual periods beginning after December 15, 2016 and early adoption is
permitted. We will adopt this standard in the first quarter of 2017 and do not believe this standard will have a significant impact on our
financial statements or disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This standard, among other things, will require lessees to recognize almost
all leases on their balance sheet as a right-of-use asset and a lease liability and result in enhanced disclosures. The standard is effective
for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact
this standard will have on our financial statements and disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities. This standard primarily affects the accounting for equity investments, financial liabilities under the fair value option,
and the presentation and disclosure requirements for financial instruments. The standard is effective for interim and annual periods
beginning after December 15, 2017, and early adoption is permitted. We are currently assessing the impact this standard will have on our
financial statements and 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). Inventory measured using the last-in, first-out (LIFO) basis is not impacted by the new guidance. The standard is
effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. We do not believe this
standard will have any impact on our financial statements or disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which 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. In addition, the standard requires enhanced disclosures about the nature, amount, timing and uncertainty
of revenue. There were several amendments to the standard during 2016, including clarification of the accounting for licenses of intellectual
property and identifying performance obligations. The standard is effective beginning January 1, 2018 and can be adopted either
retrospectively to each reporting period presented or retrospectively with a cumulative effect adjustment at the date of the initial application.
We plan to adopt the standard retrospectively with a cumulative effect adjustment.
We are continuing to assess all potential impacts of the standard across all of our business segments and believe that the most significant
impact will be in our Software Solutions segment related to the timing of software licenses and certain other ancillary revenue streams. In
addition, we currently capitalize certain costs associated with the acquisition of new customers and recognize these costs over their
expected revenue stream of eight years. Under the new standard, these costs will be expensed as incurred. Also, we are continuing to
review our sales commission plans to determine which payments may be capitalized. We plan to use the practical expedient that allows
companies to expense costs to obtain a contract when the estimated amortization period is less than one year.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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 licensing 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. 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
Revenues
Years Ended December 31,
2016
2015
2014
$
1,342,673
$
1,435,140
$
1,491,927
406,797
1,749,470
404,703
475,582
880,285
348,234
428,586
776,820
—
3,406,575
2,589,535
817,040
3,406,575
$
$
$
445,328
1,880,468
421,178
473,612
894,790
385,908
362,087
747,995
54,807
3,578,060
2,681,285
896,775
3,578,060
572,440
2,064,367
462,199
456,556
918,755
428,662
281,643
710,305
128,077
3,821,504
2,743,957
1,077,547
3,821,504
$
$
$
$
$
$
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 EBIT
Reconciling items:
Interest, net
Unallocated corporate expenses
Goodwill Impairment
Restructuring charges and asset impairments, net
Acquisition/disposition related expenses
Other (expense) income, net
Income from continuing operations before income taxes
Provision for income taxes
(Loss) income from discontinued operations, net of tax
Net income
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
Unallocated amount
Total depreciation and amortization
54
EBIT
Years Ended December 31,
2016
2015
2014
$
575,080
$
646,913
$
642,521
46,547
621,627
54,061
95,258
149,319
30,159
19,200
49,359
—
51,070
697,983
48,254
104,655
152,909
48,531
19,229
67,760
10,569
88,710
731,231
47,543
98,230
145,773
51,193
16,633
67,826
19,240
820,305
929,221
964,070
(144,211)
(189,215)
(171,092)
(63,296)
(5,585)
(536)
246,370
131,819
(2,701)
111,850
(159,374)
(213,095)
—
(25,782)
(14,983)
94,838
610,825
189,778
5,271
(169,450)
(233,126)
—
(84,560)
—
(45,738)
431,196
112,815
33,749
$
426,318
$
352,130
Depreciation and amortization
Years Ended December 31,
2016
2015
2014
60,066
19,431
79,497
4,421
27,929
32,350
14,621
30,607
45,228
—
157,075
21,411
178,486
$
58,141
$
23,262
81,403
4,075
27,305
31,380
18,151
21,025
39,176
2,057
154,016
19,296
$
173,312
$
68,291
30,629
98,920
7,740
28,462
36,202
20,653
8,073
28,726
4,928
168,776
29,312
198,088
$
$
$
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
Unallocated amount
Total capital expenditures
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
Total assets
Identifiable long-lived assets:
United States
Outside United States
Total
Capital expenditures
Years Ended December 31,
2016
2015
2014
$
83,547
$
3,163
86,710
1,599
17,537
19,136
4,617
15,647
20,264
—
126,110
34,721
$
60,621
11,196
71,817
3,418
17,096
20,514
1,688
17,321
19,009
857
112,197
54,549
70,358
13,966
84,324
801
17,457
18,258
3,573
6,356
9,929
2,538
115,049
68,269
$
160,831
$
166,746
$
183,318
Assets
December 31,
2016
2015
2014
$
1,930,640
$
2,421,095
$
2,614,123
532,624
2,463,264
239,358
373,443
612,801
645,349
585,226
1,230,575
—
4,306,640
764,522
38,448
727,523
5,837,133
441,443
61,214
502,657
$
$
$
594,540
3,015,635
244,156
374,647
618,803
858,308
580,662
1,438,970
—
5,073,408
640,190
127,388
282,146
6,123,132
434,557
73,046
507,603
$
$
$
687,233
3,301,356
266,831
346,850
613,681
884,190
117,744
1,001,934
210,171
5,127,142
1,043,439
59,814
246,204
6,476,599
387,453
94,455
481,908
$
$
$
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
3. Earnings per Share
The calculations of basic and diluted earnings per share for the years ended December 31, 2016, 2015 and 2014 are presented below. The
sum of earnings per share amounts may not equal the totals due to rounding.
Numerator:
Net income from continuing operations
(Loss) income from discontinued operations
Net income (numerator for diluted EPS)
Less: Preference stock dividend
Income attributable to common stockholders (numerator for basic EPS)
Denominator (in thousands):
Weighted-average shares used in basic EPS
Effect of dilutive shares:
Preferred stock
Preference stock
Stock plans
Weighted-average shares used in diluted EPS
Basic earnings per share:
Continuing operations
Discontinued operations
Net income attributable to Pitney Bowes Inc.
Diluted earnings per share:
Continuing operations
Discontinued operations
Net income attributable to Pitney Bowes Inc.
Years Ended December 31,
2016
2015
2014
95,506
(2,701)
92,805
38
$
402,672
$
300,006
5,271
407,943
41
33,749
333,755
44
92,767
$
407,902
$
333,711
187,945
199,835
201,992
—
300
730
1
321
788
188,975
200,945
0.51
(0.01)
0.49
0.51
(0.01)
0.49
$
$
$
$
2.01
0.03
2.04
2.00
0.03
2.03
$
$
$
$
1
344
1,624
203,961
1.49
0.17
1.65
1.47
0.17
1.64
$
$
$
$
$
$
Anti-dilutive options excluded from diluted earnings per share (in thousands):
8,126
8,079
7,322
4. Inventories
Inventories at December 31, 2016 and 2015 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
December 31,
2016
2015
$
$
28,541
6,498
45,152
24,678
104,869
(12,143)
92,726
$
$
25,803
6,408
44,323
24,618
101,152
(12,328)
88,824
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
5. 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. During the second quarter of 2016, we determined that certain finance receivables with
a net investment of $35 million at December 31, 2015 classified as a sales type lease receivable should have been classified as loan
receivables. Accordingly, prior period amounts have been revised to reflect this change.
Finance receivables at December 31, 2016 and 2015 consisted of the following:
Sales-type lease receivables
Gross finance receivables
Unguaranteed residual values
Unearned income
Allowance for credit losses
December 31, 2016
December 31, 2015
North
America
International
Total
North
America
International
Total
$ 1,088,053
$
273,262
$ 1,361,315
$ 1,157,189
$
303,854
$ 1,461,043
90,190
13,655
103,845
100,000
15,709
115,709
(223,908)
(60,458)
(284,366)
(247,854)
(68,965)
(316,819)
(8,247)
(2,647)
(10,894)
(6,606)
(3,542)
(10,148)
Net investment in sales-type lease receivables
946,088
223,812
1,169,900
1,002,729
247,056
1,249,785
Loan receivables
Loan receivables
Allowance for credit losses
Net investment in loan receivables
374,147
(8,517)
365,630
32,716
(1,089)
31,627
406,863
399,193
(9,606)
(10,024)
397,257
389,169
41,604
(1,518)
40,086
440,797
(11,542)
429,255
Net investment in finance receivables
$ 1,311,718
$
255,439
$ 1,567,157
$ 1,391,898
$
287,142
$ 1,679,040
Loans receivable are due within one year. Maturities of gross sales-type lease finance receivables at December 31, 2016 were as
follows:
2017
2018
2019
2020
2021
Thereafter
Total
Sales-type Lease Receivables
North America
International
Total
$
545,429
$
113,195
$
658,624
279,843
164,616
74,556
19,211
4,398
1,088,053
$
$
66,992
45,895
28,609
15,719
2,852
273,262
346,835
210,511
103,165
34,930
7,250
1,361,315
$
57
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, 2016, 2015 and 2014 was as follows:
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
Balance at December 31, 2013
$
14,165
$
9,703
$
11,165
$
1,916
$
Amounts charged to expense
Accounts written off
Balance at December 31, 2014
Amounts charged to expense
Accounts written off
Balance at December 31, 2015
Amounts charged to expense
Accounts written off
4,346
(8,386)
10,125
1,189
(4,708)
6,606
5,136
(3,495)
Balance at December 31, 2016
$
8,247
$
866
(5,546)
5,023
890
(2,371)
3,542
1,161
(2,056)
2,647
$
10,237
(10,334)
11,068
8,286
(9,330)
10,024
6,238
(7,745)
8,517
$
1,626
(1,754)
1,788
1,023
(1,293)
1,518
836
(1,265)
1,089
$
36,949
17,075
(26,020)
28,004
11,388
(17,702)
21,690
13,371
(14,561)
20,500
Aging of Receivables
The aging of finance receivables at December 31, 2016 and 2015 was as follows:
December 31, 2016
1 - 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
$
$
$
$
1,025,313
62,740
1,088,053
8,831
53,909
62,740
$
$
$
$
269,247
4,015
273,262
972
3,043
4,015
$
$
$
$
369,773
4,374
374,147
$
$
32,420
296
32,716
$
$
1,696,753
71,425
1,768,178
— $
4,374
4,374
$
— $
296
296
$
9,803
61,622
71,425
As of December 31, 2016, we had North American sales-type lease receivables aged greater than 90 days with a full contract value
of $63 million. As of February 15, 2017, we have received payments with a contract value of $31 million related to these receivables.
December 31, 2015
1 - 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
$
$
$
$
1,138,031
19,158
1,157,189
5,041
14,117
19,158
$
$
$
$
298,772
5,082
303,854
1,617
3,465
5,082
$
$
$
$
395,573
3,620
399,193
$
$
41,117
487
41,604
$
$
1,873,493
28,347
1,901,840
— $
3,620
3,620
$
— $
487
487
$
6,658
21,689
28,347
58
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, 2016 and 2015 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,
2016
2015
$
879,823
$
135,953
22,600
49,677
1,088,053
296,598
53,647
7,216
16,686
374,147
$
$
$
$
$
$
886,198
192,645
37,573
40,773
1,157,189
295,725
85,671
10,810
6,987
399,193
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
6. Fixed Assets
Fixed assets at December 31, 2016 and 2015 consisted of the following:
Land
Buildings
Machinery and equipment
Accumulated depreciation
Property, plant and equipment, net
Rental property and equipment
Accumulated depreciation
Rental property and equipment, net
December 31,
2016
2015
$
9,908
$
185,431
802,992
998,331
(683,728)
314,603
400,913
(212,859)
188,054
$
$
$
$
$
$
9,908
218,261
984,634
1,212,803
(882,715)
330,088
404,348
(226,833)
177,515
Depreciation expense was $138 million, $136 million and $165 million for the years ended December 31, 2016, 2015 and 2014,
respectively.
Included in Machinery and equipment is $192 million of capitalized software as of December 31, 2016.
7. Acquisitions, Divestiture, Intangible Assets and Goodwill
Acquisitions
In July 2016, we acquired Maponics for $24 million, net of cash acquired. Maponics provides comprehensive boundary information and
geospatial data that support location-based services and analytics and will be reported within our Software Solutions segment.
In January 2016, we acquired Enroute for $14 million in cash. Additional cash payments may also be required during 2017-2019 based
on the achievement of certain annual revenue targets for 2016-2018. Enroute is a software-as-a-service enterprise retail and fulfillment
solutions company and is reported within our Global Ecommerce segment.
In June 2015, we acquired Borderfree, Inc. ("Borderfree") for $381 million, net of $92 million of cash acquired. During the second quarter
of 2016, we obtained new information about facts and circumstances that existed as of the acquisition date and increased accounts payable
and accrued expenses and goodwill acquired in the Borderfree acquisition by $2 million. On a supplemental pro forma basis, had we
acquired Borderfree on January 1, 2015, our revenues would have been $47 million higher for 2015. The impact on our earnings would
not have been material.
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 expense (income), net in the Consolidated Statements of Income.
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Intangible assets
Intangible assets at December 31, 2016 and 2015 consisted of the following:
December 31, 2016
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer relationships
Software & technology
Trademarks & other
$
445,039
$
150,037
36,212
Total intangible assets, net
$
631,288
$
(300,906) $
(136,508)
(28,702)
(466,116) $
144,133
$
437,459
$
13,529
7,510
149,591
35,314
165,172
$
622,364
$
(272,353) $
(135,198)
(27,435)
(434,986) $
165,106
14,393
7,879
187,378
During the year, we acquired intangible assets with a fair value of $19 million in connection with the acquisitions of Enroute and Maponics.
Amortization expense for intangible assets was $40 million, $37 million and $34 million for the years ended December 31, 2016, 2015
and 2014, respectively. The future amortization expense for intangible assets at December 31, 2016 is as follows:
Year ended December 31,
2017
2018
2019
2020
2021
Thereafter
Total
$
29,391
27,200
23,848
18,740
18,946
47,047
$
165,172
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange
rates, acquisitions, divestitures and impairment charges.
Goodwill
During the third quarter, based on the operating results of our Software Solutions reporting unit, we performed Step 1 of the goodwill
impairment test to assess the adequacy of the carrying value of goodwill. At that time, we determined that the estimated fair value of the
reporting unit exceeded its carrying value by 15% and the measurement of a goodwill impairment charge was not necessary. The
assumptions used to estimate fair value were based on projections of revenue and earnings growth, including a strong sales pipeline,
operating cash flows, discount rate and market multiples. Additionally, we launched several initiatives during 2016 that we expected
would drive revenue and earnings growth in the future, including the development of a new partner channel, the reorganization of the
sales organization to improve sales efficiency and the pipeline of deals, the improvement of processes for acquiring new clients and the
implementation of a more disciplined marketing strategy for new products.
During the fourth quarter, however; our Software Solutions reporting unit experienced weaker than expected performance. Based on this
and including the soft operating results in 2016, we performed a goodwill impairment test that indicated the fair value of the Software
Solutions reporting unit was less than its carrying value. We engaged a third party to perform Steps 1 and 2 of the goodwill impairment
test and determined that the implied fair value of goodwill was less than the recorded goodwill and as a result recorded a non-cash, pre-
tax goodwill impairment charge of $171 million to write down the carrying value of goodwill to its estimated fair value.
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The changes in the carrying amount of goodwill, by reporting segment, for the years ended December 31, 2016 and 2015 are shown in
the tables below.
Gross value
before
accumulated
impairment
Accumulated
impairment
December
31, 2015
Acquisition
Impairment
Other (1)
December 31,
2016
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
$ 296,053
$
— $ 296,053
$
— $
— $
148,351
444,404
105,757
196,890
302,647
674,976
323,930
998,906
—
—
—
—
—
—
—
—
148,351
444,404
105,757
196,890
302,647
674,976
323,930
998,906
—
—
—
—
—
11,908
9,421
21,329
—
—
—
—
—
(171,092)
—
(171,092)
(3,215) $
(2,785)
(6,000)
(4,658)
—
(4,658)
(14,201)
—
(14,201)
292,838
145,566
438,404
101,099
196,890
297,989
501,591
333,351
834,942
$ (171,092) $ (24,859) $ 1,571,335
Total goodwill
$1,745,957
$
— $1,745,957
$
21,329
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2014
Acquisition
Other (1)
December 31,
2015
North America Mailing
$ 309,448
$
— $ 309,448
$
— $
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total goodwill
162,146
471,594
110,837
195,140
305,977
677,008
23,910
700,918
—
—
—
—
—
—
—
—
162,146
471,594
110,837
195,140
305,977
677,008
23,910
700,918
194,232
$ 1,672,721
$
—
194,232
— $ 1,672,721
—
—
—
1,750
1,750
5,792
300,020
305,812
—
$ 307,562
296,053
148,351
444,404
105,757
196,890
302,647
674,976
323,930
(13,395) $
(13,795)
(27,190)
(5,080)
—
(5,080)
(7,824)
—
(7,824)
(194,232)
998,906
—
$ (234,326) $ 1,745,957
(1) Primarily represents foreign currency translation adjustments. For 2015, Other represents the write-off of remaining goodwill upon the sale of Imagitas.
8. 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, 2016 and 2015. 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.
62
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, 2016
Assets:
Investment securities
Money market funds / commercial paper
$
114,471
$
217,175
$
— $
331,646
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies
and municipalities
Debt securities - corporate
Mortgage-backed / asset-backed securities
Derivatives
Interest rate swaps
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Assets:
Investment securities
—
1,536
116,822
—
—
—
—
24,571
22,132
19,358
69,891
158,996
1,588
637
—
—
—
—
—
—
—
24,571
23,668
136,180
69,891
158,996
1,588
637
232,829
$
514,348
$
— $
747,177
— $
— $
(3,717) $
(3,717) $
— $
— $
(3,717)
(3,717)
Level 1
Level 2
Level 3
Total
December 31, 2015
$
$
$
Money market funds / commercial paper
$
41,215
$
302,779
$
— $
343,994
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies
and municipalities
Debt securities - corporate
Mortgage-backed / asset-backed securities
—
—
102,235
—
—
24,538
22,571
12,566
62,884
178,234
—
—
—
—
—
24,538
22,571
114,801
62,884
178,234
Derivatives
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Investment Securities
—
143,450
$
1,716
605,288
$
—
— $
1,716
748,738
— $
— $
(5,387) $
(5,387) $
— $
— $
(5,387)
(5,387)
$
$
$
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.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
• 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.
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, 2016 and 2015, available-for-sale securities consisted of the following:
December 31, 2016
Gross
unrealized
gains
Gross
unrealized
losses
Amortized cost
U.S. and foreign governments, agencies and municipalities
$
136,316
$
Corporate
Commingled fixed income securities
Mortgage-backed / asset-backed securities
Total
69,376
1,568
159,312
366,572
$
$
1,571
1,180
—
1,566
4,317
$
$
(1,707)
(665)
(32)
(1,882)
(4,286)
December 31, 2015
Estimated fair
value
$
136,180
69,891
1,536
158,996
366,603
$
U.S. and foreign governments, agencies and municipalities
Corporate
Mortgage-backed / asset-backed securities
Total
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Estimated fair
value
$
$
114,265
63,140
177,821
355,226
$
$
1,804
823
1,901
4,528
$
$
(1,268)
(1,079)
(1,488)
(3,835)
$
$
114,801
62,884
178,234
355,919
Investment securities that were in a loss position for 12 or more continuous months at December 31, 2016 had aggregate unrealized
holding losses of less than $1 million and an estimated fair value of $12 million. Investment securities that were in a loss position for
less than 12 continuous months at December 31, 2016 had aggregate unrealized holding losses of $4 million and an estimated fair value
of $171 million.
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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.
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, 2016, 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
Estimated fair
value
$
42,487
$
42,523
110,252
58,866
154,967
110,595
58,871
154,614
$
366,572
$
366,603
The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities as borrowers
have the right to prepay obligations with or without prepayment penalties.
We have not experienced any write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed
or supported by the U.S. government. We have no investments in inactive markets that would warrant a possible change in our pricing
methods or classification within the fair value hierarchy.
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 exchange rate fluctuations on financial results and manage the related cost of debt. We do not use
derivatives for trading or speculative purposes. We record derivative instruments at fair value and the accounting for changes in the fair
value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk
exposure it is designed to hedge.
Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between
affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow
hedges is included in AOCI in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged
item is recorded in earnings. At both December 31, 2016 and 2015, we had outstanding contracts associated with these anticipated
transactions with a notional amount of $13 million.
The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency
spot and forward rates and yield curves. We 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. We have
not seen a material change in the creditworthiness of those banks acting as derivative counterparties.
Interest Rate Swaps
In September 2016, we entered into an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated
with our $300 million variable-rate term loans. The swap is designated as a cash flow hedge. The effective portion of the gain or loss on
the cash flow hedge 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. Under the terms of the swap agreement, we pay fixed-rate interest of 0.8826% and receive
variable-rate interest based on one-month LIBOR. The variable interest rate resets monthly.
The valuation of our interest rate swap is based on the income approach using a model with inputs that are observable or that can be
derived from or corroborated by observable market data.
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The fair value of our derivative instruments at December 31, 2016 and 2015 was as follows:
Designation of Derivatives
Balance Sheet Location
2016
2015
December 31,
Derivatives designated as hedging instruments
Foreign exchange contracts
Other current assets and prepayments
$
Accounts payable and accrued liabilities
Interest rate swaps
Other non-current assets
$
487
(136)
1,588
Derivatives not designated as hedging instruments
Foreign exchange contracts
Other current assets and prepayments
Accounts payable and accrued liabilities
150
(3,581)
Total derivative assets
Total derivative liabilities
Total net derivative liability
2,225
(3,717)
(1,492) $
$
217
(208)
—
1,499
(5,179)
1,716
(5,387)
(3,671)
The amounts included in AOCI at December 31, 2016 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, 2016 and 2015:
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
Derivative Instrument
2016
2015
Foreign exchange contracts
Interest Rate Swap
$
$
496
1,588
$
$
Year Ended December 31,
Location of Gain (Loss)
(Effective Portion)
887
Revenue
Cost of sales
—
Interest Expense
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
2016
2015
$
$
(68) $
222
—
154
$
1,082
558
—
1,640
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, 2016 mature over the next
three months.
The following represents the results of our non-designated derivative instruments for the years ended December 31, 2016 and 2015:
Derivatives Instrument
Location of Derivative Gain (Loss)
2016
2015
Foreign exchange contracts
Selling, general and administrative expense
$
(2,382) $
(6,849)
Year Ended December 31,
Derivative Gain (Loss)
Recognized in Earnings
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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, 2016, the maximum amount of
collateral that we would have been required to post had the credit-risk-related contingent features been triggered was not material.
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, 2016 and 2015 was as follows:
Carrying value
Fair value
9. Supplemental Balance Sheet Information
The following table shows selected balance sheet information at December 31, 2016 and 2015:
Other assets:
Long-term investments
Other
Total
Accounts payable and accrued liabilities:
Accounts payable
Customer deposits
Employee related liabilities
Other
Total
December 31,
2016
2015
$
$
3,364,890
3,412,581
$
$
2,950,668
3,084,561
$
$
$
December 31,
2016
2015
425,732
99,041
524,773
$
$
412,369
113,522
525,891
293,538
$
688,772
205,901
190,611
302,113
665,339
255,893
224,976
$
1,378,822
$
1,448,321
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
10. Restructuring Charges and Asset Impairments
The table below shows the activity in our restructuring reserves for the years ended December 31, 2016 and 2015:
Severance and
benefits costs
Other exit
costs
Total
Balance at December 31, 2014
$
81,836
$
8,343
$
Expenses, net
Cash payments
Balance at December 31, 2015
Expenses, net
Cash payments
Balance at December 31, 2016
$
19,078
(57,214)
43,700
44,510
(59,834)
28,376
$
251
(4,872)
3,722
1,655
(5,096)
281
$
90,179
19,329
(62,086)
47,422
46,165
(64,930)
28,657
Restructuring charges also include pension settlement charges of $2 million and $1 million in 2016 and 2015, respectively.
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
In 2016, asset impairment charges consist primarily of a loss of $5 million from the sale of a facility and an impairment charge of $4
million related to another facility. 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.
11. Debt
Commercial paper
Notes due January 2016
Notes due September 2017
Notes due March 2018
Notes due May 2018
Notes due March 2019
Notes due October 2021
Notes due March 2024
Notes due January 2037
Notes due March 2043
Term loans
Other debt
Principal amount
Less: unamortized discount and issuance costs
Plus: unamortized interest rate swap proceeds
Total debt
Less: current portion long-term debt
Long-term debt
Interest rate
2016
variable
$
December 31,
— $
—
4.75%
5.75%
5.6%
4.75%
6.25%
3.375%
4.625%
5.25%
6.7%
Variable
2015
90,000
370,914
385,109
250,000
350,000
300,000
—
500,000
115,041
425,000
150,000
15,758
2,951,822
23,617
22,463
2,950,668
461,085
$ 2,489,583
385,109
250,000
350,000
300,000
600,000
500,000
115,041
425,000
450,000
5,677
3,380,827
28,796
12,859
3,364,890
614,485
$ 2,750,405
In January 2016, we borrowed $300 million under a term loan agreement and applied the proceeds to the repayment of the $371 million
4.75% notes due January 2016. The new term loans bear interest at the applicable Eurodollar Rate plus 1.5% (1.25% at issuance) and
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
mature in December 2020. The effective interest rate of these loans at December 31, 2016 were 2.2%. In September 2016, we entered
into an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated with these variable rate term
loans. Under the terms of the swap agreement, we pay fixed rate interest of 0.8826% and receive variable rate interest based on one-
month LIBOR. The variable rate resets monthly.
In March 2016, we satisfied certain employment obligations stipulated in the State of Connecticut Department of Economic and Community
Development loan (issued in 2014), and under the terms of the loan, $10 million was forgiven. We recorded loan forgiveness income in
selling, general and administrative expenses.
In September 2016, we issued $600 million of 3.375% fixed-rate notes due in October 2021. Interest is payable semi-annually and is
subject to adjustment from time to time if either Moody's or S&P (or a substitute ratings agency) downgrades (or downgrades and
subsequently upgrades) the credit rating assigned to the notes. The notes mature in October 2021, but may be redeemed, at our option,
in whole or in part, at any time or from time to time, at par plus accrued and unpaid interest. The proceeds were used to repay approximately
$300 million of outstanding commercial paper and redeem noncontrolling interests for $300 million (see Note 14).
The 4.625% Notes due March 2024 may be redeemed, at any time, 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 provided bondholders the ability to redeem, in whole or in part, at par plus accrued interest, the notes in
January 2017. In December 2016, we were notified that $79 million of these notes would be redeemed by bondholders.
We have a commercial paper program and a committed credit facility of $1 billion to support commercial paper issuances. There were
no outstanding commercial paper borrowings as of December 31, 2016. There were $90 million of commercial paper borrowings at
December 31, 2015. The credit facility expires in January 2020.
Annual maturities of outstanding debt at December 31, 2016 are as follows:
2017
2018
2019
2020
2021
Thereafter
Total
$
614,485
600,177
300,177
300,147
600,000
965,841
$
3,380,827
12. Retirement Plans and Postretirement Medical Benefits
We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S.
under various defined benefit retirement plans. Benefit accruals under most of our significant defined benefit plans have been frozen.
We also provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible
retirees and their dependents. Employees hired before January 1, 2005 in the U.S. and April 1, 2005 in Canada become eligible for retiree
medical benefits after reaching age 55 and with the completion of the required service period. The cost of these 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
$
1,677,288
$
1,688,982
$
675,566
$
635,600
United States
Foreign
2016
2015
2016
2015
Projected benefit obligation
Benefit obligation - beginning of year
Service cost
Interest cost
Plan participants' contributions
Actuarial loss (gain)
Foreign currency changes
Plan amendments
Settlement / curtailment
Special termination benefits
Benefits paid
$
1,689,885
$
1,868,176
$
647,112
$
715,287
105
73,699
—
31,764
—
—
(5,887)
—
(111,469)
1,678,097
$
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)
$
$
$
$
$
2,148
21,886
6
127,054
(88,138)
—
—
(423)
(21,473)
688,172
2,229
24,261
8
(15,375)
(53,945)
—
—
79
(25,432)
$
647,112
530,112
$
574,992
68,067
40,872
6
(423)
(69,871)
(21,473)
547,290
11,744
(1,045)
(151,581)
(140,882)
$
$
$
11,383
14,194
8
—
(45,033)
(25,432)
530,112
11,566
(1,031)
(127,535)
(117,000)
Benefit obligation - end of year
$
Fair value of plan assets available for benefits
Fair value of plan assets - beginning of year
$
1,460,790
$
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
Noncurrent asset
Current liability
Noncurrent liability
Funded status
110,954
9,694
—
(5,887)
—
(111,469)
1,464,082
310
(7,937)
(206,388)
(214,015)
$
$
$
$
$
$
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2016 and 2015:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
United States
Foreign
2016
1,677,675
1,676,866
1,463,350
$
$
$
2015
1,689,476
1,688,573
1,460,111
$
$
$
2016
2015
$
$
$
578,588
565,992
425,962
$
$
$
540,984
529,593
412,418
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
Foreign
2016
2015
2016
2015
$
$
$
873,523
(452)
—
873,071
$
880,123
(512)
—
879,611
$
$
342,169
(667)
(32)
341,470
$
$
255,994
(740)
(40)
255,214
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2017 are as follows:
Net actuarial loss
Prior service credit
Transition asset
Total
United States
Foreign
$
$
29,071
(60)
—
$
8,279
(77)
(8)
29,011
$
8,194
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
Net periodic benefit cost (income)
$
United States
2016
2015
2014
2016
Foreign
2015
$
105
$
134
$
6,908
$
2,148
$
2,229
$
73,699
(101,918)
—
(60)
27,220
—
2,109
1,155
74,331
(104,004)
—
(60)
29,272
—
1,243
77,655
(103,822)
—
9
25,369
—
4,528
$
916
$
10,647
$
21,886
(32,615)
(8)
(73)
5,264
52
24,261
(35,421)
(9)
(66)
5,926
79
110
(3,236) $
—
(3,001) $
2014
3,565
28,518
(39,137)
(10)
(57)
8,268
1,238
—
2,385
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were
as follows:
Net actuarial loss (gain)
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
2016
2015
2016
2015
22,728
—
(27,220)
60
—
(2,109)
(6,541)
$
$
(8,003)
(428)
(29,272)
60
—
(1,243)
(38,886)
$
$
91,549
—
(5,264)
73
8
(110)
86,256
$
$
8,663
—
(5,926)
66
9
—
2,812
$
$
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
2016
2015
2014
4.2%
N/A
4.55%
7.0%
N/A
4.55%
N/A
4.15%
7.0%
N/A
4.15%
N/A
4.95%
7.0%
3.5%
0.70% - 3.65%
1.50% - 2.50%
1.15% - 3.95%
1.50% - 3.50%
1.10% - 3.80%
1.50% - 3.50%
1.15% - 3.95%
3.75% - 6.51%
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%
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 2017, we anticipate making total contributions of $8 million to our U.S. pension plans and $14 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
6.75%. 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 2017,
and the actual asset allocations at December 31, 2016 and 2015 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,
2017
2016
2015
15%
15%
60%
5%
5%
17%
13%
60%
6%
4%
12%
10%
68%
6%
4%
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 total foreign 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 6.25%. 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 2017, and the actual asset allocations at December 31, 2016 and 2015 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,
2017
2016
2015
21%
19%
40%
10%
10%
—%
22%
19%
41%
8%
9%
1%
23%
20%
40%
10%
5%
2%
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 $410 million and $399 million at December 31, 2016 and 2015, respectively, and the expected
long-term weighted average rate of return on these plan assets was 6.50% in 2016 and 7.0% in 2015.
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, 2016 and 2015, 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, 2016
Level 1
Level 2
Level 3
Total
$
2,604
$
6,609
$
— $
184,254
—
214,068
—
—
—
—
—
—
140,691
358,776
21,126
367,369
12,636
1,436
—
—
174,651
—
—
—
—
1,236
—
49,637
87,852
—
$
400,926
$
1,083,294
$
138,725
$
9,213
324,945
358,776
235,194
367,369
13,872
1,436
49,637
87,852
174,651
1,622,945
(174,651)
18,164
(2,376)
Fair value of plan assets available for benefits
$
1,464,082
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
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
$
— $
7,493
$
— $
174,664
—
143,449
—
—
—
—
—
—
318,113
$
$
140,270
205,246
21,424
592,111
14,810
2,535
—
—
154,690
1,138,579
$
—
—
—
—
1,592
—
63,577
82,569
—
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
1,460,790
(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
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
Derivatives
Total plan assets at fair value
Cash
Other
Fair value of plan assets available for benefits
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Real estate
Derivatives
December 31, 2016
Level 1
Level 2
Level 3
Total
$
— $
6,811
$
— $
32,295
—
—
—
—
—
—
181,943
69,022
29,363
150,767
—
—
—
—
—
—
—
34,483
36,779
—
6,811
214,238
69,022
29,363
150,767
34,483
36,779
—
$
32,295
$
437,906
$
71,262
$
541,463
4,262
1,565
$
547,290
December 31, 2015
Level 1
Level 2
Level 3
Total
$
— $
7,596
$
— $
33,855
—
—
—
—
—
183,110
138,220
73,573
27,279
—
—
—
—
—
—
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
Total plan assets at fair value
$
33,855
$
429,778
$
Cash
Other
Fair value of plan assets available for benefits
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.
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
• Debt Securities - U.S. and Foreign Governments, Agencies and Municipalities: Government securities include treasury notes and
bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include
general obligation securities and revenue-backed securities. Debt securities classified as Level 1 are valued using active, high volume
trades for identical securities. Debt securities classified as Level 2 are valued through benchmarking model derived prices to quoted
market prices and trade data for identical or comparable securities.
• 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, 2016 and 2015:
United States Pension Plans
Balance at December 31, 2014
Realized gains
Unrealized gains
Net purchases, sales and settlements
Balance at December 31, 2015
Realized gains
Unrealized gains (losses)
Net purchases, sales and settlements
Balance at December 31, 2016
Mortgage-backed
securities
Private equity
Real estate
Total
2,102
10
28
(548)
1,592
8
38
(402)
1,236
$
$
81,246
14,288
(6,844)
(25,113)
63,577
10,200
(7,540)
(16,600)
49,637
$
$
74,747
1,027
7,043
(248)
82,569
1,280
4,815
(812)
87,852
$
158,095
15,325
227
(25,909)
147,738
11,488
(2,687)
(17,814)
$
138,725
$
$
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
Unrealized gains
Net purchases, sales and settlements
Foreign currency gain/(loss)
Balance at December 31, 2016
Nonpension Postretirement Benefits
Diversified
growth funds
Real estate
Total
$
— $
— $
—
(119)
20,632
20,513
2,561
19,028
(5,323)
36,779
(1,685)
40,862
39,177
459
1,436
(6,589)
$ 34,483
(1,804)
61,494
59,690
3,020
20,464
(11,912)
$ 71,262
$
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
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
2016
2015
$
211,878
$
253,980
2,046
7,969
4,241
(13,934)
409
(22,837)
189,772
$
— $
18,596
4,241
(22,837)
— $
2,455
8,799
4,332
(31,253)
(3,289)
(23,146)
211,878
—
18,814
4,332
(23,146)
—
(18,127)
(171,645)
(189,772)
$
$
(19,406)
(192,472)
(211,878)
$
$
$
$
$
(1) The benefit obligation for the U.S. nonpension postretirement plans was $174 million and $198 million at December 31, 2016 and 2015, respectively.
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service cost
Total
77
2016
2015
$
$
41,625
1,763
43,388
$
$
59,174
2,060
61,234
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
Net periodic benefit cost
2016
2015
2014
$
$
$
2,046
7,969
297
3,615
$
2,455
8,799
297
7,528
13,927
$
19,079
$
2,683
9,951
159
5,949
18,742
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income
were as follows:
2016
2015
Net actuarial gain
Amortization of net actuarial loss
Amortization of prior service cost
Total recognized in other comprehensive income
$
$
(13,934)
(3,615)
(297)
(17,846)
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2017 are as follows:
Net actuarial loss
Prior service cost
Total
$
$
$
$
(31,253)
(7,528)
(297)
(39,078)
297
3,537
3,834
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
2016
2015
2014
3.90%
3.65%
4.20%
3.95%
4.20%
3.95%
3.90%
3.80%
3.90%
3.80%
4.40%
4.65%
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 6.0%
for 2016 and 6.0% for 2015. The assumed health care trend rate is 7.0% for 2017 and will gradually decline to 5.0% by the year 2025
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
$
$
330
7,295
$
$
(276)
(6,212)
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,
2017
2018
2019
2020
2021
Thereafter
Savings Plans
Pension Benefits
Nonpension
Benefits
$
126,344
$
126,720
125,486
127,550
125,103
624,809
18,155
17,450
16,884
16,231
15,640
65,887
$
1,256,012
$
150,247
We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement.
We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating
employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were $32 million in 2016 and $28
million in 2015.
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
13. Income Taxes
Income from continuing operations before taxes consisted of the following:
U.S.
International
Total
Years Ended December 31,
2016
2015
2014
$
$
169,493
76,877
246,370
$
$
516,233
94,592
610,825
$
$
356,017
75,179
431,196
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,
2016
2015
2014
$
95,598
$
115,557
$
(1,559)
94,039
19,941
135,498
9,409
4,757
14,166
22,872
742
23,614
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
127,879
3,940
149,594
40,184
111,361
1,454
$
131,819
$
189,778
$
112,815
Effective tax rate
53.5%
31.1%
26.2%
The effective tax rate for 2016 includes tax benefits of $15 million from the resolution of tax examinations, $58 million charge associated
with the goodwill impairment and a $6 million charge from the establishment of a valuation allowance on tax attribute carryovers.
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.
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 incentives/credits/exempt income
Release of other tax uncertainties
Outside basis differences
Goodwill impairments
Other, net
Provision for income taxes
Years Ended December 31,
2016
2015
2014
$
86,229
$
213,789
$
150,920
9,208
(13,806)
(10,735)
—
—
58,022
2,901
17,769
(6,492)
(12,130)
—
(27,110)
—
3,952
(1,379)
(12,668)
(19,232)
(5,856)
—
—
1,030
$
131,819
$
189,778
$
112,815
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.. The 2016 goodwill impairment significantly increased the 2016 tax rate as nearly
all of the goodwill that was impaired had no tax basis.
Deferred tax liabilities and assets at December 31, 2016 and 2015 consisted of the following:
Deferred tax liabilities:
Depreciation
Deferred profit (for tax purposes) on sale to finance subsidiary
Lease revenue and related depreciation
Intangible assets
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
81
December 31,
2016
2015
(93,475)
(98,247)
(137,665)
(113,128)
(27,340)
(469,855)
71,101
105,564
13,318
6,980
17,923
97,194
53,181
18,273
79,799
463,333
(127,095)
336,238
(133,617)
$
(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)
$
$
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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.
We have net operating loss carryforwards of $279 million as of December 31, 2016, of which, $225 million can be carried forward
indefinitely and the remainder expire over the next 15 years. In addition, we have tax credit carryforwards of $53 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, 2016 we have not provided for income taxes on $850 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 $12 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
2016
2015
2014
$
139,249
$
132,495
$
172,594
—
(21,207)
10,867
(1,791)
(2,390)
124,728
$
7,637
(16,753)
23,533
(3,831)
(3,832)
139,249
$
9,090
(33,692)
17,704
(22,127)
(11,074)
$
132,495
The amount of the unrecognized tax benefits at December 31, 2016, 2015 and 2014 that would affect the effective tax rate if recognized
was $104 million, $117 million and $109 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 25% 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 less
than $1 million, $(4) million and $2 million related to uncertain tax positions in our provision for income taxes for the years ended
December 31, 2016, 2015 and 2014, respectively. We had $9 million and $10 million accrued for the payment of interest and penalties
at December 31, 2016 and 2015, 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-2006 State and Local taxes. In Canada, the
examination of our tax filings prior to 2011 are closed to audit, except for the pending application of legal principles to specific issues
arising in earlier years. Other significant jurisdictions include France, closed through the end of 2012, Germany, closed through the end
of 2011 and the U.K., closed through the end of 2011, except for an item under appeal. 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)
14. Noncontrolling Interests (Preferred Stockholders’ Equity in Subsidiaries)
We redeemed all of the PBIH Preferred Stock, which had a recorded balance of $296 million, for $300 million on November 1, 2016.
The excess was recorded to Preferred stock dividends of subsidiaries attributable to noncontrolling interests. Prior to the redemption,
Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary of the company, had 300,000 shares of outstanding perpetual voting
preferred stock valued at $300 million held by certain institutional investors (PBIH Preferred Stock). The PBIH Preferred Stock was
entitled to cumulative dividends at a rate of 6.125%. The holders of PBIH Preferred Stock were 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, was owned directly or indirectly by the company.
15. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others. In management's
opinion, it is not reasonably possible that the potential liability, if any, that may result from these actions, either individually or collectively,
will have a material effect on our financial position, results of operations or cash flows. However, as litigation is inherently unpredictable,
there can be no assurances in this regard.
16. 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 $45 million, $47 million and $55 million in 2016, 2015 and 2014, respectively. Future minimum lease payments under
non-cancelable operating leases at December 31, 2016 were as follows:
Years ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
$
45,892
39,953
31,191
20,519
12,670
38,720
$
188,945
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
17. Stockholders' (Deficit) 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. There were
12 shares of Preferred Stock outstanding at December 31, 2016 and 2015, 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, 2016 and 2015, there were 17,832 shares and 18,660 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, 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
Balance at December 31, 2015
Repurchases of common stock
Issuance of common stock
Conversions to common stock
December 31, 2016
Common Stock
Outstanding
202,082,522
(1,863,262)
781,032
27,672
201,027,964
(6,476,796)
943,686
26,354
195,521,208
(10,633,235)
767,060
13,685
185,668,718
Treasury Stock
121,255,390
1,863,262
(781,032)
(27,672)
122,309,948
6,476,796
(943,686)
(26,354)
127,816,704
10,633,235
(767,060)
(13,685)
137,669,194
At December 31, 2016, 32,453,416 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)
18. Accumulated Other Comprehensive Income (Loss)
Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014 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,
2016
2015
2014
$
$
$
$
$
$
68
(222)
(2,028)
(2,182)
(850)
(1,332)
(1,126)
(433)
(693)
8
(164)
(38,370)
(38,526)
(14,430)
(24,096)
$
$
$
$
$
$
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)
(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 12 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 income (loss) for the years ended December 31, 2016, 2015 and 2014 were as follows:
Balance January 1, 2014
$
(6,380) $
(1,769) $
(601,421) $
35,014
$
(574,556)
Cash flow
hedges
Available-for-
sale securities
Pension and
postretirement
benefit plans
Foreign
currency
adjustments
Total
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, 2014
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, 2015
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (loss) (a), (b), (c)
1,146
545
1,691
(4,689)
546
231
777
(3,912)
1,095
1,332
Net other comprehensive income (loss)
Balance at December 31, 2016
2,427
(1,485) $
$
4,010
725
4,735
2,966
(1,715)
(715)
(2,430)
536
(1,109)
(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)
(73,141)
(4,464)
(77,619)
693
(416)
120
$
24,096
(49,045)
(787,813) $
—
(4,464)
(150,955) $
26,121
(51,498)
(940,133)
(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.
19. 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
Restructuring
Stock-based compensation expense
Tax benefit
Stock-based compensation expense, net of tax
Years Ended December 31,
2016
2015
2014
$
$
$
525
131
$
998
211
394
525
12,127
1,180
275
15,157
(5,820)
9,337
$
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
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, 2016, there were 18,361,915 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 year service period.
The following table summarizes information about restricted stock units during 2016 and 2015:
Outstanding - beginning of the year
Granted
Vested
Forfeited
Outstanding - end of the year
2016
2015
Shares
Weighted
average grant
date fair value
Shares
Weighted
average grant
date fair value
1,727,214
$
826,546
(822,290)
(122,011)
1,609,459
$
18.30
17.20
19.91
19.97
17.50
1,819,239
$
809,436
(802,284)
(99,177)
1,727,214
$
16.41
21.15
16.88
17.93
18.30
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,
2016, there was $9 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, 2016 was $23 million. The intrinsic value of RSUs vested
during 2016, 2015 and 2014 was $14 million, $18 million and $18 million, respectively. The fair value of RSUs vested during 2016,
2015 and 2014 was $21 million, $14 million and $10 million, respectively. During 2014, we granted 685,994 RSUs at a weighted average
fair value of $23.62.
Non-employee directors receive restricted stock units which are convertible into shares of common stock one year from date of grant. In
2016 and 2015, we granted 54,855 and 12,824 restricted stock units, respectively, to non-employee directors.
Performance Stock Units
The following table summarizes share information about Performance stock units (PSUs) during 2016:
Outstanding - beginning of the year
Granted
Performance adjustments
Forfeited
Outstanding - end of the year
Years Ended December 31,
2016
2015
1,107,515
889,599
(1,400,425)
(216,791)
379,898
606,715
725,330
(188,774)
(35,756)
1,107,515
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.
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
As a result of current year and projected company performance against pre-established targets for the PSU awards, our current estimate
of the number of shares that will ultimately be awarded is significantly less than our estimate at the beginning of the year. At December
31, 2016, there was no unrecognized compensation cost related to currently outstanding PSU awards.
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, 2016,
there was less than $3 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-
average period of 2.0 years. The intrinsic value of options outstanding and options exercisable at December 31, 2016 was not significant.
No stock options were exercised in 2015 or 2016.
The following table summarizes information about stock option activity during 2016 and 2015:
Options outstanding - beginning of the year
Granted
Canceled
Expired
Options outstanding - end of the year
Options exercisable - end of the year
2016
2015
Per share
weighted
average
exercise prices
Per share
weighted
average exercise
prices
Shares
Shares
8,771,600
$
1,758,760
(157,176)
(1,250,422)
9,122,762
7,140,772
$
$
31.26
16.87
19.48
42.62
27.13
27.47
10,708,694
$
200,000
(100,200)
(2,036,894)
8,771,600
8,054,932
$
$
34.27
24.79
31.59
46.42
31.26
32.14
The following table provides additional information about stock options outstanding and exercisable at December 31, 2016:
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
3,926,391
$
2,511,223
2,055,824
629,324
9,122,762
$
18.82
25.26
37.89
48.03
27.13
6.5
3.8
.88
.09
4.1
2,197,735
$
2,257,889
2,055,824
629,324
7,140,772
$
20.22
25.33
38.90
48.00
29.66
4.6
3.23
.88
.90
2.7
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.
The follow table lists the weighted average of assumptions used to calculate the fair value of stock options granted during 2016 and 2015:
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)
88
Years Ended December 31,
2016
2015
4.5%
29.0%
1.6%
7 years
$2.85
$5,013
3.4%
29.0%
2.0%
7.0 years
$3.38
$676
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 147,680 shares and
131,769 shares in 2016 and 2015, respectively. We have reserved 2,921,057 common shares for future purchase under the ESPP.
20. Quarterly Financial Data (unaudited)
2016
Revenue
Cost of revenues
Operating expenses (1)
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
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
Loss from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders (2):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders (2):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
844,589
$
835,886
$
839,031
$
887,069
$ 3,406,575
365,241
379,684
99,664
37,024
62,640
—
62,640
372,144
370,504
93,238
33,394
59,844
(1,660)
58,184
376,987
368,451
93,593
23,197
70,396
400,306
526,888
(40,125)
38,204
(78,329)
1,514,678
1,645,527
246,370
131,819
114,551
(291)
(750)
(2,701)
70,105
(79,079)
111,850
4,594
4,594
4,593
5,264
$
58,046
$
53,590
$
65,512
$
(84,343) $
19,045
92,805
$
$
$
$
$
$
58,046
—
58,046
0.30
—
0.30
0.30
—
0.30
$
$
$
$
$
$
55,250
(1,660)
53,590
0.29
(0.01)
0.28
0.29
(0.01)
0.28
$
$
$
$
$
$
65,803
(291)
65,512
0.35
—
0.35
0.35
—
0.35
$
$
$
$
$
$
(83,593) $
95,506
(750)
(2,701)
(84,343) $
92,805
(0.45) $
—
(0.45) $
(0.45) $
—
(0.45) $
0.51
(0.01)
0.49
0.51
(0.01)
0.49
(1) Fourth quarter operating expense amount include an adjustment to reverse previously recognized variable compensation expense of $36 million and a non-cash
goodwill impairment charge of $171 million
(2) 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)
2015
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.
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
385,182
286,256
209,453
52,351
157,102
(739)
376,205
356,784
136,552
42,676
93,876
—
85,206
156,363
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
157
80,612
0.40
—
0.40
0.40
—
0.40
$
$
$
$
$
$
152,509
(739)
151,770
0.76
—
0.75
0.75
—
0.75
$
$
$
$
$
$
89,282
—
89,282
0.45
—
0.45
0.44
—
0.44
$
$
$
$
$
$
80,426
5,853
86,279
0.40
0.03
0.43
0.41
0.03
0.44
$
$
$
$
$
$
402,672
5,271
407,943
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.
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
2016
2015
2014
Valuation allowance for deferred tax asset
2016
2015
2014
$
$
$
$
$
$
9,997
12,455
13,149
132,624
116,935
122,780
$
$
$
$
$
$
6,797
430
3,197
6,523
21,232
636
$
$
$
$
$
$
(2,422)
(2,888)
(3,891)
(12,052)
(5,543)
(6,481)
$
$
$
$
$
$
14,372
9,997
12,455
127,095
132,624
116,935
91
Exhibit 12
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
2016
2015
2014
2013
2012
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
$
246,370
$
610,825
$
431,196
$
383,954
$
511,770
148,044
162,909
174,661
195,368
196,368
14,927
—
15,807
—
18,367
—
22,259
—
22,564
973
409,341
$
789,541
$
624,224
$
601,581
$
731,675
148,044
$
162,909
$
174,661
$
195,368
$
196,368
14,927
15,807
18,367
22,259
22,564
$
$
30,917
29,830
29,878
27,841
27,841
$
193,888
$
208,546
$
222,906
$
245,468
$
246,773
Ratio of earnings to fixed charges (2)
2.11
3.79
2.80
2.45
2.96
(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, 2016)
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
Enroute Systems Corporation
FSL Holdings Inc.
FSL Risk Managers Inc.
Group 1 Software China Ltd.
Harvey Company, L.L.C
MapInfo Realty LLC
Maponics, LLC
OLDEMT LIMITED
OldEurope Limited
OldMS Limited
OLDPBIMS LIMITED
OldPBSL
OLDPBIMS Limited
PB Equipment Management Inc.
PB European UK LLC
PB Nova Scotia Holdings Inc.
PB Nova Scotia Holdings ULC
PB Nova Scotia VI ULC
PB Nova Scotia VII ULC
PB Nova Scotia II ULC
PB Professional Services Inc.
PB US Can LLC
PB Worldwide Inc,
Pitney Bowes (Asia Pacific) Pte. Ltd
Pitney Bowes (Switzerland) AG
Pitney Bowes Australia FAS Pty Limited
Pitney Bowes Australia Pty Limited
Pitney Bowes Brasil Equipamentos e Servicos Ltda
Country or state of incorporation
United Kingdom
Delaware
Australia
Canada
China
Ireland
Israel
United Kingdom
Delaware
Delaware
Connecticut
Deleware
Connecticut
New York
Hong Kong
Delaware
New York
Vermont
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Delaware
Delaware
Delaware
Canada
Canada
Canada
Canada
Delaware
Delaware
Delaware
Singapore
Switzerland
Australia
Australia
Brazil
Pitney Bowes Canada II 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 Funding SRL
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 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 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 LLC
Pitney Bowes Software (Beijing) Ltd
Pitney Bowes Software Canada Inc.
Pitney Bowes Software Europe Limited
Pitney Bowes Software Holdings Limited
Pitney Bowes Software Inc.
Pitney Bowes Software India Private Limited
Pitney Bowes Software Pte. Ltd
Pitney Bowes Software Pty Ltd
Pitney Bowes Software SAS
Pitney Bowes Svenska Aktiebolag
Pitney Bowes UK LP
PitneyWorks.com Inc.
Canada
Australia
Denmark
Germany
Ireland
United Kingdom
Barbados
Delaware
United Kingdom
Delaware
United Kingdom
France
United Kingdom
India
United Kingdom
Ireland
Delaware
Ireland
Italy
Japan
United Kingdom
Luxembourg
Luxembourg
New Zealand
Norway
Canada
Canada
Finland
Poland
Delaware
Connecticut
Puerto Rico
France
Connecticut
China
Canada
United Kingdom
United Kingdom
Delaware
India
Singapore
Australia
France
Sweden
United Kingdom
Delaware
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
Technopli SARL
The Pitney Bowes Bank, Inc.
Wheeler Insurance, Ltd.
Delaware
Ohio
Norway
United Kingdom
United Kingdom
Scotland
United Kingdom
France
Utah
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, 2017 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, 2017
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, 2017
/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, Stanley J. Sutula III, 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, 2017
/s/ Stanley J. Sutula III
Stanley J. Sutula III
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Pitney Bowes Inc. (the "Company") on Form 10-K for the year ended December 31,
2016 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, 2017
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,
2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanley J. Sutula III, Executive
Vice President 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/ Stanley J. Sutula
Stanley J. Sutula III
Executive Vice President and Chief Financial Officer
Date: February 22, 2017
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 8, 2017, 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 10, 2017. 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,
2016, 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, 2016. 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, 2016.
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, and SendPro are trademarks of
Pitney Bowes Inc. or a subsidiary.
All other trademarks are the property of their respective owners.
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Transfer Agent and Registrar
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
Stockholders may call Broadridge at (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) 399-2074; 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
2016
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.75
Quarterly price ranges of common stock:
2016 Quarter
First
Second
Third
Fourth
2015 Quarter
First
Second
Third
Fourth
High
$ 21.60
$ 21.81
$ 19.33
$ 18.20
High
$ 24.60
$ 23.93
$ 21.64
$ 21.76
2015
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.75
Low
$ 16.24
$ 16.28
$ 16.88
$ 14.22
Low
$ 21.15
$ 20.79
$ 18.59
$ 19.12
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3001 Summer Street, Stamford, CT 06926 203.356.5000 www.pitneybowes.com