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We Do the
Right Thing,
The Right Way.
Pitney Bowes Annual Report 2017
“It’s amazing to see this
iconic American enterprise
transforming itself into a digital,
21st century company.”
Marc Benioff
Chairman and CEO
Salesforce
“Companies like Ticketmaster
and Pitney Bowes are driving
innovation.”
John Rethans
Digital Transformation
Strategy Lead
Google
We Do the
Right Thing,
The Right Way.
Catalyst CEO
Champions for
Change 2017
Drucker Institute’s
Management
Top 250
Over the past 5 years,
the Pitney Bowes
Foundation has donated
$15.8M in support of
literacy and education
eff orts and employee
matching gifts
Marc B. Lautenbach
President and Chief
Executive Officer
Fellow shareholders:
Pitney Bowes is transforming into a different company.
A company that continues to focus on mailing, but growing into
shipping — a logical adjacency for our company. Shipping is a
market that is large and is growing. As you think about Pitney
Bowes, for almost 100 years we worked to take the complexity
out of mailing for our clients. Today, we are endeavoring to do
the same in the area of shipping. With the advent of ecommerce,
shipping has become a vital and complex activity for our clients.
Two-day “free” shipping, cross-border shipping, how to handle
returns and other like functions are difficult but necessary
capabilities in the new world of ecommerce.
1
Pitney Bowes Annual Report 2017 Letter to Shareholders
As I write this letter to you, there are two
competing narratives regarding our transformation.
The first narrative is that Pitney Bowes is struggling
to transform ourselves. Indeed, we have struggled
to make our annual objectives in 2016 and 2017.
In some ways, this is what would be expected.
The business landscape is littered with companies
who failed to transform. We all know them.
Iconic companies that fail to manage through
the inevitable disruptions that all businesses
face sooner or later. As the CEO of the company,
I own our performance for the past two years. As
shareholders, you should know Pitney Bowes has
a clear culture of accountability and our interests
are directly aligned with our shareholders.
The other narrative is that Pitney Bowes is a
profoundly different company than when we
started this transformation journey. We have moved
the portfolio to growth. In 2017, we had our fastest
revenue growth since 2007. Even lifting out the
Newgistics acquisition, which was a game changer,
we grew revenue. This is in stark contrast to 2012,
when our revenue declined by 4 percent. We have
moved the portfolio to growth while reducing
debt by approximately $500 million and we are
poised to reduce debt by another $500 million
in 2018. We have also moved to growth while
simultaneously decreasing our expense by nearly
$300 million, with more to come to make our
company even more efficient. And, we have
2
Our Arc of Transformation
First Five Years
$1B+
Capital returned
to shareholders
~$1B
Acquired strategic assets
~$800M
Divested non-core assets
~$500M
Reduction in debt
$300M
Taken out of SG&A
$100M
Reduction in gross
inventory
Invested in brand,
platform, processes
and products
Stabilized and
reinvented mailing
business with
new solutions
Moved to growth
through shipping
Pitney Bowes Annual Report 2017 decreased our expense while investing more in
Our value proposition to our shareholders is
our brand, our products and our systems.
clear: We have moved our company to markets
Increasing revenue by increasing investments in
a company’s capabilities is not unusual. Increasing
revenue by increasing capabilities, decreasing
with strong growth and our portfolio is balanced
between growth and profitability. We continue
to have meaningful opportunities to drive
efficiency and we will continue to invest to create
debt and decreasing expense all at the same time
long-term value for our shareholders.
is unusual. Moreover, we did all of that and
still returned more than $1 billion of capital to
Our new SendPro® C-Series product is perhaps
our shareholders.
the most vivid symbol of the new Pitney Bowes.
The SendPro C-Series product replaces our core
So which narrative is true? Of course, both
mail meter offering. The SendPro C-Series is sold by
narratives are correct. The only difference is that
new channels, delivered by new cloud capabilities
the former narrative is a short-term dynamic.
and enabled by our new business systems. The
Investing in brands, products and systems is not
SendPro C-Series product is based on the Google
something that produces a short-term benefit;
Android operating system, with an open platform
however, it is necessary if you are trying to create
for third-party developers to use to create related
long-term value. Investing in the long term
applications that provide new value for our clients.
is not a guarantee of success, but not investing
I like to think of it as a “start-up” SaaS initiative
in the long term is a recipe for failure.
There is an orthodoxy in business literature that
successful companies balance short- and long-term
interests. I am not so sure that orthodoxy is
necessarily borne out empirically. Jeff Bezos,
founder of Amazon, has said that when confronted
with a choice between short-term GAAP earnings
and creating long-term value, Amazon will always
with digitally delivered capabilities — some
from Pitney Bowes and others from third-party
developers. I think Mr. Pitney and Mr. Bowes
would be proud. Early days for this new product,
for sure, but early returns are positive. More
importantly, this new product is a metaphor for
our transformation — purposefully cultivating
the capabilities to create long-term value.
choose the latter. I am not trying to compare
Likewise, as I mentioned, the acquisition of
Pitney Bowes to Amazon, and I am certainly not
Newgistics was a game changer for Pitney Bowes.
trying to compare myself to Jeff Bezos. That said,
Newgistics’ domestic parcel delivery and returns
I think Jeff has it exactly right.
business fits neatly between our cross-border
3
Pitney Bowes Annual Report 2017 Letter to Shareholders
“Our value proposition
to our shareholders is
clear: We have moved
our company to
markets with strong
growth and our
portfolio is balanced
between growth
and profitability.”
4
ecommerce and our parcel initiative in our mail
presort businesses. Newgistics provides new
capabilities and new clients that will benefit from
our complementary ecommerce capabilities.
Further, Newgistics accelerates our efforts to
drive scale in our shipping businesses. The creation
of Commerce Services — ecommerce, including
Newgistics, combined with Presort — launches
a new and powerful business to serve the fast-
growing ecommerce market.
Finally, both our mailing and shipping businesses
draw on our software business, especially its focus
on addresses and data and insights, building off
of addresses to help businesses of all sizes succeed.
And, importantly, our software business returned
to growth in 2017.
In the beginning of this letter, I said Pitney Bowes
in “most ways” was a profoundly different company.
Pitney Bowes has new capabilities and is a company
that is growing; important differences to be sure.
What is not different is that Pitney Bowes is a
company committed to doing the right thing, the
right way. One of the Company’s earliest CEOs,
Walter Wheeler, first articulated what has remained
our North Star: Pitney Bowes is committed to
doing the right thing, the right way.
This commitment takes many different forms.
Investing in the long term is “doing the right thing,
the right way.” However, when we are at our best,
Pitney Bowes Annual Report 2017 doing the right thing, the right way informs all
To paraphrase an iconic leader of another great
company, to succeed in a changing world, you
must be prepared to change everything about
your company except for your values. There is
much that has changed and needs to continue to
change at Pitney Bowes. We are not done, but one
thing you can count on is that Pitney Bowes will
always try to do the right thing, the right way.
Marc B. Lautenbach
President and
Chief Executive Officer
of our actions.
One thing I learned from a very wise CEO is
that corporations must continually answer four
questions: (1) Why would investors invest in your
business? (2) Why would communities allow you
to do business in their communities? (3) Why
would customers buy your products? and finally,
(4) Why would employees work for your business?
Doing the right thing, the right way informs the
answer to all of these questions.
There is an ongoing debate about the role of
business in society in the 21st century. From my
perspective, it is impossible to do right by your
shareholders if you do not do right by your clients,
your employees and your communities.
In 2018, Pitney Bowes is taking a portion of
the tax reform benefit and investing $18 million
to increase the hourly wage for many of our
employees, not once but annually. Likewise, we
are taking cash that has been trapped overseas
and using it to reduce our debt. And for nearly
a hundred years, Pitney Bowes has been
committed to investing in and building stronger,
more resilient communities as part of our core
values. These are all examples of balancing
stakeholder needs and endeavoring to do the
right thing, the right way.
5
Pitney Bowes Annual Report 2017 Summary of Selected Financial Data
For the year
(in thousands, except per share data)
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’ equity (deficit)
Total employees
As adjusted
EBIT
Net income from continuing operations
Diluted earnings per share from continuing operations
Free cash flow
EBIT to interest
2017
2016
2015
$ 3,549,948
$ 261,340
$
1.39
$ 495,813
$ 182,336
$ 170,990
$
0.75
187,435
$ 6,678,715
$ 3,830,335
$ 188,561
14,700
$ 513,517
$ 264,769
$
1.41
$ 383,977
3.1x
$ 3,406,575
$
$
92,805
0.51
$ 496,122
$ 178,486
$ 160,831
$
0.75
188,975
$ 5,837,133
$ 3,364,890
$ (103,660)
14,200
$ 631,090
$ 317,402
$
1.68
$ 435,104
4.4x
$ 3,578,060
$ 407,943
$
2.00
$ 522,989
$ 173,312
$ 166,746
$
0.75
200,945
$ 6,123,132
$ 2,950,668
$ 178,721
14,837
$ 716,126
$ 351,726
$
1.75
$ 464,407
4.5x
6
Pitney Bowes Annual Report 2017
Reconciliation of Reported Consolidated
Results to Adjusted Results
For the year
(amounts in thousands, except per share data)
2017
2016
2015
Net Income
Less: Preferred stock dividends attributable to noncontrolling interests
$
261,340
—
$ 111,850
19,045
$ 426,318
18,375
Net income — Pitney Bowes Inc.
Loss (income) from discontinued operations, net of tax
Restructuring charges and asset impairments, net
Tax legislation
Goodwill impairment
Impact of divestiture transactions
Transaction costs
Sale of technology
Extinguishment of debt
Preferred stock redemption
Acquisition related compensation expense
Legal settlement
Investment divestiture
Net income from continuing operations, as adjusted
Preferred stock dividends attributable to noncontrolling interests,
as adjusted
Provision for income taxes, as adjusted
Interest expense, net
261,340
—
39,671
(38,774)
—
—
5,762
(5,605)
2,375
—
—
—
—
264,769
—
84,586
164,162
92,805
2,701
42,343
—
169,024
3,893
206
—
—
6,430
—
—
—
317,402
15,415
154,062
144,211
407,943
(5,271)
18,089
—
—
(84,250)
11,475
—
—
—
7,246
4,250
(7,756)
351,726
18,375
186,651
159,374
EBIT
$ 513,517
631,090
$ 716,126
Diluted earnings per share, as reported
$
Loss (income) from discontinued operations, net of tax
Restructuring charges and asset impairments, net
Tax legislation
Goodwill impairment
Impact of divestiture transactions
Transaction costs
Sale of technology
Extinguishment of debt
Preferred stock redemption
Acquisition related compensation expense
Legal settlement
Investment divestiture
Diluted earnings per share from continuing operations, as adjusted
Net cash provided by operating activities, as reported
Capital expenditures
Restructuring payments
Payments related to investment divestiture
Pension contribution
Reserve account deposits
Acquisition related compensation expense
Tax payment related to sale of Imagitas
Cash transaction fees
1.39
—
0.21
(0.21)
—
—
0.03
(0.03)
0.01
—
—
—
—
$
1.41
$ 495,813
(170,990)
40,804
—
—
10,954
—
—
7,396
$
0.49
0.01
0.22
—
0.89
0.02
—
—
—
0.03
—
—
—
$
1.68
$ 496,122
(160,831)
64,930
—
36,731
(2,183)
—
—
335
$
2.03
(0.03)
0.09
—
—
(0.42)
0.06
—
—
—
0.04
0.02
(0.04)
$
1.75
$ 522,989
(166,746)
62,086
20,602
—
(24,202)
10,483
21,224
17,971
Free cash flow
$ 383,977
$ 435,104
$ 464,407
The sum of earnings per share amounts may not equal the totals due to rounding.
The Company’s financial 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 flow 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 flow provides investors insight into the amount of cash that management could have available for other discretionary uses. Free cash flow 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 financial information should not be construed as an alternative to our reported results determined in accordance with GAAP. Further, our definition of adjusted financial
measures may differ from similarly titled measures used by other companies.
7
Pitney Bowes Annual Report 2017
Christoph Stehmann
Executive Vice President,
International, SMB Solutions
Stanley J. Sutula III
Executive Vice President and
Chief Financial Officer
Johnna G. Torsone
Executive Vice President and
Chief Human Resources Officer
*As of March 2, 2018
Stockholders may visit the
Pitney Bowes corporate governance
website at www.pitneybowes.com
under Our Company — Our Leadership
& Governance — Corporate
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 Officers*
Directors
Corporate Officers
Marc B. Lautenbach
President and
Chief Executive Officer
Joseph Catapano
Vice President, Chief
Accounting Officer
Jason Dies
Executive Vice President and
President, SMB Solutions
Daniel J. Goldstein
Executive Vice President,
Chief Legal Officer and
Corporate Secretary
Robert Guidotti
Executive Vice President and
President, Software Solutions
Abby F. Kohnstamm
Executive Vice President and
Chief Marketing Officer
Michael Monahan
Executive Vice President and
Chief Operating Officer
Roger J. Pilc
Executive Vice President and
Chief Innovation Officer
Debbie D. Salce
Vice President and Treasurer
Joseph Schmitt
Vice President and
Chief Information Officer
Lila Snyder
Executive Vice President and
President, Commerce Services
Linda G. Alvarado
President and
Chief Executive Officer,
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
Retired Chief Executive Officer,
Laser, Inc.
Marc B. Lautenbach
President and
Chief Executive Officer,
Pitney Bowes Inc.
Eduardo R. Menascé
Co-Chairman,
The Taylor Companies
Michael I. Roth
Chairman and
Chief Executive Officer,
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,
Pfizer Inc.
David B. Snow, Jr.
Chairman and
Chief Executive Officer,
Cedar Gate Technologies, Inc.
8
Pitney Bowes Annual Report 2017 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, 2017
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, a smaller reporting company, or
an emerging growth 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
Emerging growth company
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with
new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
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, 2017, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $2.8 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 January 31, 2018: 186,779,761 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 7, 2018, are incorporated by
reference in Part III of this Form 10-K.
1
PITNEY BOWES INC.
TABLE OF CONTENTS
PART I
Page Number
Item 1.
Item 1A. Risk Factors
Business
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships, Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
PART IV
Consolidated Financial Statements and Supplemental Data
3
10
13
13
14
14
15
17
18
33
33
34
34
34
35
35
35
35
35
36
37
38
2
PART I
Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report) contains statements that are forward-looking. We want to caution readers that any
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 may change based on various factors. These forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties and actual results could differ materially. Words such as "estimate," "target," "project," "plan,"
"believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking
statement made by or on our behalf include, without limitation:
•
•
•
•
•
•
•
•
any potential impact from the announcement that the Board of Directors of the Company is conducting a review of strategic
alternatives
declining physical mail volumes
competitive factors, including pricing pressures; technological developments and the introduction of new products and services
by competitors
our success in developing new products and services, including digital-based products and services, obtaining regulatory approval
if required
the market’s acceptance of new products and services
our ability to fully utilize the enterprise business platform in North America, implemented in 2016, and successfully deploy it
in major international markets without significant disruption to existing operations
the continued availability and security of key information technology systems and the cost to comply with information security
requirements and privacy laws
a breach of security, including a cyberattack or other comparable event
• macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign
currency exchange rates, interest rates, labor conditions and fuel prices
third-party suppliers' ability to provide products and services required by our clients
our success at managing the relationships with our outsource providers, including the costs of outsourcing functions and operations
not central to our business
changes in postal or banking regulations, including changes in, or loss of, our contractual relationships with the U.S. Postal
Service
integrating newly acquired businesses, including operations and product and service offerings
the loss of some of our larger clients in the Global Ecommerce segment
intellectual property infringement claims
our success at managing customer credit risk
capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable
costs
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, including
the impact of the Tax Cuts and Jobs Act of 2017
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.
3
ITEM 1. BUSINESS
General
Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware in 1920. We are a global technology company
offering innovative products and solutions that help our clients navigate the complex world of commerce. We offer customer information
management, location intelligence and customer engagement products and solutions to help our clients market to their customers, and
shipping, mailing, fulfillment, returns 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 and technology globally with about 1.1
million meters installed worldwide. We are also continuing to expand our business to include on-line and software-as-a-service (SaaS)
offerings delivered via our newest meters, desktop computers and mobile devices. Our latest hardware systems are designed with an
open platform architecture to enable access to additional value to clients via online or SaaS offerings delivered directly through the device.
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. We will be expanding our cloud connectivity solutions
that are currently available for our inserter equipment to become available for our print and sortation machines.
Presort Services
We are a national outsource provider of mail presort services for First-Class, Standard and flats 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 16 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.
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, SaaS or on-demand applications. Our Digital
Commerce Solutions group includes Software Solutions and Global Ecommerce.
Software Solutions
Software Solutions help clients sharpen, refine, and polish business solutions that enable billions of transactions in a connected borderless
world of commerce.
Data solutions enable clients to identify addresses, locations, businesses and individuals. Our address centric approach provides us the
ability to verify, standardize, locate and enrich addresses with information actionable insights. Accuracy of data is foundational to many
4
business processes including risk and fraud, onboarding and marketing. Our client value for data quality and insights is foundational to
businesses operations and helping organizations to better serve their customers.
Customer information management solutions help businesses identify high-value customers and prospects, and develop a deep and broad
understanding of their customers to provide a single view of the customer in context to their location, relationships, propensity, sentiment
and influence. By understanding who their customers are, and what they do, businesses can in turn understand preferences and purchasing
behaviors, detect fraudulent activity and increase marketing effectiveness and services. 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 precisely locate customers all around the world, 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 and location, geographic and socio-demographic data to add context and insight, making
it possible to pinpoint the best placement for retail sites, improve risk assessment and efficiently deploy infrastructure resources more
efficiently to better serve their customers, solve business problems, deliver location-based services and ultimately drive business growth.
Customer engagement solutions provide our clients with the tools to communicate with their customers in more personalized and relevant
ways that enhance customer interactions across the entire customer lifecycle. Through personalized, impactful and timely physical and
digital interactions, businesses can improve customer satisfaction, reduce support costs and drive sales. 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 domestic retail and ecommerce shipping solutions, including
fulfillment and returns. 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 ecommerce. We offer a unified ecommerce 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 major online marketplaces enabling millions of parcels to be shipped
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, select the best carrier based on need and
cost, improve delivery times and track packages in real-time. Our shipping application programming interface (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.
The acquisition of Newgistics adds fulfillment, delivery and returns capabilities to our suite of ecommerce solutions. The Newgistics
platform provides services that create a seamless post-purchase experience for consumers and retailers. Newgistics capabilities are
utilized by retailers and by logistics partners to enhance or complete their products and services. See Note 7 to the Consolidated Financial
Statements.
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 services for 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 and web and partner channels.
5
Competition
All of our businesses face competition from a number of companies. Our competitors range from large, multinational companies that
compete against many of our businesses to smaller, more narrowly focused regional and local firms. We compete on the basis of technology
and innovation; breadth of product offerings; our ability to design and tailor solutions to specific client needs; performance; client service
and support; price; quality and brand.
We must continue to invest in our current technologies, products and solutions, and in the development of new technologies, products
and solutions in order to maintain and improve our competitive position. We will encounter new competitors as we transition to higher
value markets and offerings and enter new markets.
A summary of the competitive environment for each of our business segments is as follows:
North America Mailing and International Mailing
We face significant competition from other mail equipment and software companies, companies that offer products and services as
alternative means of message communications and companies 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 the rental fee for certain mailing equipment and to purchase postage, products, supplies and services. The
Bank also provides an interest-bearing deposit solution to those clients 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 is 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 service.
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. In addition, we see a competitive threat from companies who can offer both domestic and cross-
border solutions in a single package which creates leverage for those competitors on pricing. The principal competitive factors include
reliability, functionality, ease of integration and use, scalability, innovation, support services and price. We compete based on the accuracy,
6
reliability and scalability of our platform and logistics services, and our ability to provide our clients and their customers a one-stop full-
service cross-border ecommerce experience. We also compete, within shipping solutions, with a wide range of technology providers who
help make shipping easier and more cost-effective. There are established players in the marketplace as well as 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.
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 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 behaviors of clients with similar credit characteristics. This program defines 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. Our businesses are not materially dependent on any one patent or
license or group of related patents or licenses. Research and development expenditures were $130 million in 2017, $121 million in 2016
and $110 million 2015.
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 believe that our available sources for services, components, supplies and
manufacturing are adequate. Additionally, we often use third-parties to provide services to clients and there is a risk that if their systems
fail, then our offerings will be affected.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide related to product specifications and business practices involving our
postage meters and in the U.S. for our presort services. 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 trade regulations worldwide related to our cross-border shipping services.
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, 2017, we have approximately 14,700 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.
7
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 filed 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.
8
Executive Officers of the Registrant
Our executive officers are:
Name
Age
Title
Executive
Officer Since
Marc B. Lautenbach
Jason C. Dies
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
56
48
56
60
64
57
50
61
45
55
52
67
President and Chief Executive Officer
Executive Vice President and President, SMB Solutions
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
Executive Vice President and President, Commerce Services
Executive Vice President, International SMB Solutions
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Human Resources Officer
2012
2017
2010
2016
2013
2005
2013
2013
2016
2016
2017
1993
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. Dies was appointed to the office of Executive Vice President and President, SMB Solutions in October 2017. He joined the company
in 2015 as President, Document Messaging Technologies (DMT). Prior to joining the company, Mr. Dies was employed at IBM where
he held several leadership positions in North America, Europe, and Asia across diverse business units.
Mr. Guidotti was appointed Executive Vice President and President, Software Solutions in January 2016. Before joining Pitney Bowes,
Mr. Guidotti held a series of executive positions at IBM including General Manager, Software Sales where he was responsible for the
$23 billion worldwide Software portfolio.
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. Effective March 1, 2018, Mr. Shearer will retire from Pitney Bowes.
Ms. Snyder was elected to the office of Executive Vice President and President, Global Ecommerce in January 2016. She joined the
company in November 2013 as President of 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.
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 Europe. Most recently,
Mr. Sutula was Vice President and Controller.
9
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 are dependent 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, 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. Many of our new offerings depend upon the approval of postal organizations in different geographies, and if those
products are not approved or if there are significant conditions to approval, which are not eventually lifted, it may adversely affect revenue
and profitability. These changes could affect product specifications, service offerings, client behavior and the overall mailing and shipping
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 have 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. The scope of the laws that may be applicable to us is often
uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection
Regulation (GDPR), which greatly increases the jurisdictional reach of European Union law and adds a broad array of requirements for
handling personal data, including the public disclosure of significant data breaches, becomes effective in May 2018. Other countries have
enacted or are enacting data localization laws that require data to stay within their borders. All of these evolving compliance and operational
requirements impose significant costs that are likely to increase over time.
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.
10
Our systems and those of our partners are also subject to adverse acts of nature, computer viruses, denial-of-service attacks, vandalism,
power loss, computer or communications failures and other unexpected events. We have business continuity and disaster recovery plans
in place to protect our business operations in case of such events; however, there can be no guarantee that these plans will function as
designed. If our information technology systems are damaged or cease to function properly, we could be prevented from fulfilling orders
and servicing clients and postal services. Also, we may have to make a significant investment to repair or replace these systems, and
could suffer loss of critical data and interruptions or delays in our operations.
We depend on third-party suppliers and outsource providers and our business could be adversely affected if we fail to manage these
vendors effectively.
We depend on third-party suppliers and outsource providers for a variety of services, components and supplies, including a large portion
of our product manufacturing, the hosting of our software-as-a-service offerings, as well as the logistics portion of our ecommerce
business, and some non-core functions and operations. Some of our suppliers may also be our competitors in other contexts. 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 significant 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,
including a cybersecurity event, 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.
As we transform our businesses to more digital and commerce services, our profit margins will be lower and if we cannot reduce our
costs, our earnings could be impacted.
Our financial performance, including our profit margins, can be impacted depending on the mix of products or services we sell during a
given period. Similarly, within each segment, if we experience lower sales of products or services that generally carry higher profit
margins, our financial performance, including profit margins and net earnings, could be negatively impacted. We have seen a greater
mix of DCS revenue, which has lower margins compared to our SMB revenue. We expect our overall profit margins to continue to be
impacted as a result of this change in mix.
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.
11
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 revenue and profitability in our global ecommerce segment depends upon the successful integration of the Newgistics acquisition
and on the market acceptance of our newer offerings.
If we are unable to realize the expected cost and revenue benefits from integrating Newgistics into our existing presort and global
ecommerce segments we are expecting to gain by virtue of being able to offer both United States domestic ecommerce services along
with cross-border services, it could adversely affect our revenue and profitability. Further, if our growing shipping API services do not
continue to gain rapid market acceptance, it could adversely affect both revenue and profitability.
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
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 in North America, and the
transition to the new enterprise business platform may not be uninterrupted or error-free in other locations.
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 have implemented this platform in our North American operations and have begun developing the platform
internationally. There is no guarantee that when we implement this platform in our international operations, we will not experience
temporary disruptions similar to those that occurred with the North America implementation.
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;
12
•
•
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.
We are exploring and evaluating strategic alternatives and there can be no assurance that we will be successful in identifying, or completing
any strategic alternative or that any such strategic alternative will yield additional value for shareholders.
Our Board of Directors has commenced a review of strategic alternatives which could result, among other things, in a sale, a merger, a
consolidation or business combination, an asset divestiture, a partnering or other collaboration agreement, or potential acquisitions or
recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There can be no
assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction or transactions.
In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of
exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively
manage the process, our business, financial condition and results of operations could be adversely effected. Any potential transaction
would be dependent upon a number of factors that may be beyond our control, including among other factors, market conditions, industry
trends, regulatory limitations and the interest of third parties in our business.
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.
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, call centers and parcel and mail processing facilities. 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 in good operating condition and adequate for our current business needs.
13
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.
14
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,
2018, we had 15,545 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.
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Share Repurchases
Stock Price
High
Low
Dividend Per
Share
$
$
$
$
$
$
$
$
16.60
16.26
15.31
14.34
21.60
21.81
19.33
18.20
$
$
$
$
$
$
$
$
12.31
13.24
12.40
9.50
16.24
16.28
16.88
14.22
$
$
$
$
0.1875
0.1875
0.1875
0.1875
0.75
0.1875
0.1875
0.1875
0.1875
0.75
We periodically have repurchased shares of our common stock to manage the dilution created by shares issued under employee stock
plans and for other purposes. During 2017, we did not repurchase any shares of our common stock. We have remaining Board of Directors
authorization to purchase $21 million of our common stock.
Stock Performance Graph
Our 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 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 S&P MidCap 400 and the peer group over a five-year period assuming the reinvestment of dividends. On a
total return basis, a $100 investment on December 31, 2012 in Pitney Bowes Inc., the S&P 500 Composite Index, the S&P MidCap 400
and the peer group would have been worth $132, $208, $201, and $198 respectively, on December 31, 2017.
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 and S&P MidCap 400 Composite Indexes 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.
15
16
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data should be read in conjunction with the more detailed consolidated financial statements and
related notes thereto included in Item 8 of this Form 10-K.
Years Ended December 31,
2017
3,549,948
2016
2015
2014
2013
$
3,406,575
$
3,578,060
$
3,821,504
$
3,791,335
Total revenue
Amounts attributable to common stockholders:
Net income from continuing operations
(Loss) income from discontinued operations
Net income - Pitney Bowes Inc.
$
$
$
261,340
—
261,340
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
$
$
1.40
—
1.40
Diluted earnings per share attributable to common stockholders (1):
1.39
Continuing operations
$
Discontinued operations
Net income - Pitney Bowes Inc.
Cash dividends paid per share of common stock
Balance sheet data:
Total assets
Long-term debt
Total debt
Noncontrolling interests (Preferred stockholders'
equity in subsidiaries)
$
$
$
$
$
$
—
1.39
0.75
2017
6,678,715
3,559,278
3,830,335
$
$
$
$
$
$
$
$
$
$
95,506
(2,701)
92,805
0.51
(0.01)
0.49
0.51
(0.01)
0.49
0.75
$
$
$
$
$
$
$
402,672
5,271
407,943
2.01
0.03
2.04
2.00
0.03
2.03
0.75
2016
5,837,133
2,750,405
3,364,890
December 31,
2015
6,123,132
2,489,583
2,950,668
$
$
$
$
$
$
$
$
$
$
$
$
$
$
300,006
33,749
333,755
1.49
0.17
1.65
1.47
0.17
1.64
0.75
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
— $
— $
296,370
(1) The sum of earnings per share may not equal the totals due to rounding.
17
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
involves 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 2017, we started to see the benefits of our strategic initiatives as revenue grew compared to prior year. Excluding revenue from
Newgistics, which we acquired in October 2017, revenue increased slightly over last year.
In Small and Medium Business (SMB) Solutions, we introduced the SendPro C-series in the U.S. This product leverages the latest cloud
technology to securely deliver a digital multi-carrier shipping platform, as well as mailing functionality. The SendPro C-series enables
offices of all sizes to select the best sending option for parcels, letters and flats, delivering potential savings across carriers, and providing
full package tracking capabilities. The introduction of the SendPro C-series was a significant step in our plan to stabilize and reinvent
our mail business.
In Enterprise Business Solutions (EBS), Production Mail revenue grew slightly due to higher equipment sales, partially offset by lower
support services revenue. Revenue for Presort Services increased due to higher volumes. During the year, we continued to make investments
to expand our Presort Services network.
Within Digital Commerce Solutions (DCS), Global Ecommerce experienced significant revenue growth, as we continued to add new
clients, stabilize our shipping APIs, invest in our cross-border solutions, domestic shipping and carrier services capabilities. Revenue
growth also benefited from the acquisition of Newgistics in October 2017. Newgistics provides parcel delivery, returns, fulfillment and
digital commerce solutions for retailers and ecommerce brands. In Software Solutions, our partner channel continued to grow as we
shifted more of our sales opportunities to this channel.
Financial Highlights
Financial Results Summary - Twelve Months Ended December 31:
Revenue
Income from continuing operations
Net income
Earnings per share from continuing operations - diluted
Net Cash Provided by Operations
2017
2016
Change
$ 3,549,948 $ 3,406,575
4%
$
$
$
$
261,340 $
114,551
261,340 $
92,805
1.39 $
0.51
>100%
>100%
>100%
495,813 $
496,122
—%
Revenue
• Revenue increased 4%, on a reported and constant currency basis reflecting growth in business services, software and equipment
sales and declines in financing, support services, supplies and rentals.
•
SMB revenue declined 5% on a reported and constant currency basis. North America Mailing revenue declined 5% on a reported
and constant currency basis driven by declines in recurring revenue streams. International Mailing revenue declined 7% as reported
and 6% on a constant currency basis primarily due to lower equipment sales and recurring revenue streams.
• EBS revenue increased 3% on a reported and constant currency basis. Presort Services revenue grew 5% driven by higher standard
mail and parcel volumes and higher revenue per piece. Production Mail revenue increased 1% as reported and was flat on a constant
currency basis as the higher equipment sales were offset by lower support services revenue.
• DCS revenue grew 32% on a reported and constant currency basis. Global Ecommerce revenue grew 63% on a reported and constant
currency basis driven by the acquisition of Newgistics, growth in cross-border retail and marketplace volumes and growth in domestic
shipping. In the fourth quarter, we stabilized our shipping APIs, which also positively impacted the growth in domestic shipping.
Software Solutions revenue increased 1% as reported and 2% on a constant currency basis, primarily due to an increase in licensing
revenue.
18
Net Income
Net income and earnings per share increased significantly over last year primarily due to an after-tax goodwill impairment charge of
$169 million in 2016. Also, net income in 2017 benefited from a net provisional one-time benefit of $39 million from the enactment of
the Tax Cuts and Jobs Act of 2017. See Note 13 to the Consolidated Financial Statements.
Cash Flows
In 2017, we generated cash flows from operations of $496 million and raised net proceeds from the issuance of debt of $472 million. We
used this cash primarily to:
• Acquire Newgistics for $471 million;
•
•
Spend $171 million on capital expenditures; and
Pay dividends of $139 million to our stockholders.
Outlook
We anticipate continuing the shift in our overall portfolio to higher growth, digital and shipping solutions. We expect our offerings related
to shipping services will become a larger contributor to overall revenue. We expect Global Ecommerce revenue, before the incremental
revenue from Newgistics, to continue to grow largely from growth in our domestic shipping APIs, carrier services offerings and cross-
border volume expansion.
We expect Software Solutions to continue to improve its performance driven by the indirect channel, and in 2018, we will be working
with our partners to expand our customer base. Within Production Mail and Presort Services, we expect revenue to continue to perform
around the market ranges. Within SMB, the new SendPro products are expected to improve trends in equipment sales and stream revenues
in North America. We also plan on introducing new and expanded finance offerings to our clients.
The acquisition of Newgistics provides for expansion into the domestic market for our Global Ecommerce segment while complementing
our cross-border offerings. It also aligns with our Presort Services network and builds on the strengths of our Global Ecommerce and
Presort Services segments. We plan to leverage Newgistics' existing network and volumes to drive scale across our parcel platform and
synergies with our Global Ecommerce and Presort Services segments. We further anticipate cross-selling opportunities across the clients
of Newgistics, Presort Services and Global Ecommerce. We report Newgistics in our Global Ecommerce segment and, in January 2018,
we reorganized our reporting groups to form the Commerce Services group, which will be comprised of our Presort Services and Global
Ecommerce segments.
While we expect 2018 revenue to grow, we also expect our overall gross profit margins to contract as our portfolio mix shifts to higher
revenue growth areas, but lower-margin businesses. Over the last five years, we have developed a simpler and more digital operating
model. In that time, we have reduced our cost structure by $300 million. In the fourth quarter of 2017, we announced that we intend to
reduce our overall cost structure by an additional $200 million over a 24 month period. These cost reductions will come from across the
organization, including people and programs.
As a result of the Tax Cuts and Jobs Act of 2017 and the recording of tax benefits from the resolution of certain tax examinations in 2017,
we expect our annual effective income tax rate for 2018 to be comparable to 2017. In addition, as a result of the legislation, we intend to
repatriate approximately $0.5 billion of cash held in our foreign subsidiaries back to the U.S. and use this cash to reduce debt.
In November 2017, the Company's Board of Directors, together with management, announced that it is conducting a process to explore
and evaluate strategic alternatives to further enhance shareholder value. There can be no assurance that the exploration of strategic
alternatives will result in any particular outcome.
19
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
2017
2016
2015
2017
2016
2017
2016
$
$
680
253
353
386
331
479
1,068
3,550
$
$
675
263
349
413
366
513
828
695
288
386
442
410
555
802
$
3,407
$
3,578
1 %
(4)%
1 %
(6)%
(10)%
(7)%
29 %
4 %
(3)%
(9)%
(10)%
(7)%
(11)%
(8)%
3 %
(5)%
— %
(4)%
2 %
(7)%
(9)%
(7)%
29 %
4 %
(2)%
(7)%
(7)%
(6)%
(10)%
(7)%
4 %
(4)%
Cost of Revenue
Years Ended December 31,
2017
2016
2015
$
341
83
102
84
51
289
773
1,723
$
$
% of revenue
50.1% $
32.8%
28.9%
21.8%
15.3%
60.4%
72.4%
48.5% $
$
332
81
106
76
55
296
569
1,515
% of revenue
$
331
49.1 % $
89
31.0 %
114
30.4 %
84
18.4 %
72
15.1 %
323
57.7 %
68.7 %
546
44.5 % $ 1,559
% of revenue
47.6%
30.8%
29.4%
19.1%
17.5%
58.2%
68.1%
43.6%
The discussion below refers to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes
in foreign currency exchange rates since the prior period under comparison and 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 period reported revenue using the prior year’s exchange rate for the comparable period.
Equipment sales
Equipment sales increased 1% in 2017 compared to 2016, however were flat on a constant currency basis, primarily due to:
•
•
1% from higher equipment sales in Production Mail; and
1% from higher equipment sales in North America Mailing, reflecting a favorable comparison to prior year, which was impacted by
the enterprise business platform implementation in the second quarter of 2016; offset by
2% from lower equipment sales in International Mailing particularly in Europe.
•
Cost of equipment sales as a percentage of equipment sales revenue increased to 50.1% primarily due to lower equipment sales margins
in Production Mail and North America Mailing.
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 enterprise
business platform implementation; and
1% from the exit of certain geographic markets in 2016 (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% primarily due to product mix.
20
Supplies
Supplies revenue decreased 4% in 2017 compared to 2016 primarily from the decline in installed mailing equipment and postage volumes
in North America Mailing.
Cost of supplies as a percentage of supplies revenue increased to 32.8% in 2017 primarily due to higher mix of lower margin products.
Supplies revenue 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% primarily due to lower revenue and sales productivity
issues.
Software
Software revenue increased 1% (2% on a constant currency basis) in 2017 compared to 2016 primarily due to higher software licensing,
data and SaaS revenue. Cost of software as a percentage of software revenue decreased to 28.9% in 2017 primarily due to the increase
in high margin licensing revenue and cost reduction initiatives.
Software revenue decreased 10% in 2016 compared to 2015. On a constant currency basis, software revenue decreased 7% in 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 our customer information management offerings. Cost of software as a percentage
of software revenue increased to 30.4% primarily due to the decline in high margin licensing revenue.
Rentals
Rentals revenue decreased 6% (7% on a constant currency basis) in 2017 compared to 2016 and 7% (6% on a constant currency basis)
in 2016 compared to 2015. Both of these declines were primarily due to a declining meter population.
Cost of rentals as a percentage of rentals revenue increased to 21.8% in 2017 primarily due to higher scrapping costs associated with
retiring aging meters. Cost of rentals as percentage of rental revenue improved to 18.4% in 2016 primarily due to lower depreciation.
Financing
Financing revenue decreased 10% (9% on a constant currency basis) in 2017 compared to 2016 primarily due to lower mailing equipment
sales in prior periods, a declining lease portfolio and lower fees.
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 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.
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 in 2017 and 2016 (10:1 in 2015) and apply our overall effective interest rate to the average outstanding
finance receivables. Finance interest expense decreased 7% in 2017 compared to 2016 primarily due to lower 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.
21
Support Services
Support services revenue decreased 7% in 2017 compared to 2016 primarily due to:
•
•
6% from a decline in installed mailing equipment worldwide; and
1% from lower maintenance revenue on Production Mail equipment as some in-house mailers in the prior year moved their mail
processing to third-party service bureaus who service their own equipment.
Cost of support services as a percentage of support services revenue increased to 60.4% in 2017 primarily due to the decline in support
services revenue.
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 primarily due to expense reductions and
productivity initiatives.
Business Services
Business services revenue increased 29% in 2017 compared to 2016 primarily due to:
•
•
•
17% from the acquisition of Newgistics;
9% from growth in Global Ecommerce due to higher cross-border and retail volumes; and
3% from higher volumes of mail processed in Presort Services.
Cost of business services as a percentage of business services revenue increased to 72.4% in 2017 primarily due to continued investment
in our Global Ecommerce business and the additional costs of Newgistics.
Business services revenue increased 3% in 2016 compared to 2015. On a constant currency basis, revenue increased 4%. Business
Services revenue for 2016 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 11% 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; and
1% from higher shipping solutions services.
•
Cost of business services as a percentage of business services revenue increased to 68.7% in 2016, primarily due higher mail processing
costs in Presort Services.
Selling, general and administrative (SG&A)
SG&A expense increased 3%, or $37 million, in 2017 compared to 2016. Contributing to this increase was higher compensation-related
costs of $28 million due to the reinstatement of our annual variable compensation program and higher stock-based compensation expense.
Each of these programs are tied to our performance against pre-established targets and costs in 2016 were significantly lower than in
2017. Additionally, expenses in Global Ecommerce were $21 million higher as we continue to invest in the growth of this business, we
incurred $17 million of additional expense from Newgistics, $9 million of higher marketing expenses, $9 million of higher residual losses
on leased equipment due to the timing of trade-up activity and $9 million of transaction costs, primarily related to the acquisition of
Newgistics. Offsetting these increases was approximately $63 million of benefits from productivity initiatives and a $6 million pre-tax
gain from the sale of technology. Additionally, 2016 included loan forgiveness income of $10 million and a favorable state sales tax
adjustment of $5 million.
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, 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.
22
Restructuring charges and asset impairments, net
Restructuring charges and asset impairments were $59 million in 2017, consisting of $55 million of restructuring related charges and $4
million of asset impairment charges.
Restructuring charges and asset impairments were $63 million in 2016. During the year, we recorded restructuring charges of $48 million
related to 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.
Goodwill impairment
In 2016, we recorded a non-cash pre-tax goodwill impairment charge of $171 million associated with our Software Solutions reporting
unit.
Other (income) expense, net
Other income, net for 2017 includes a loss on the early extinguishment of debt. See Note 11 to the Consolidated Financial Statements.
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.
Income taxes
We recorded a net provisional one-time non-cash benefit of $39 million in our provision for income taxes related to the enactment of the
Tax Cuts and Jobs Act of 2017. The net benefit is comprised of a provisional $130 million benefit from the remeasurement of net U.S.
deferred tax liabilities arising from a lower U.S. corporate tax rate, offset by a provisional $91 million charge related primarily to a U.S.
tax on unremitted earnings of our foreign subsidiaries. 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
We redeemed all of the PBIH Preferred Stock in November 2016.
23
Business Segments
Effective January 1, 2017, we revised our segment reporting to reflect a change in how we manage and report office shipping solutions,
which were previously reported within the Global Ecommerce segment. The needs of retail and ecommerce clients differ from those of
office shipping clients. Accordingly, we now report the results for office shipping solutions within Small & Medium Business Solutions
and the retail and ecommerce shipping solutions remain in Global Ecommerce. 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 mailing and office solutions, financing services and supplies
for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the
sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from mailing and office solutions, financing services and supplies
for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the
sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.
Enterprise 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 services for large enterprise clients to qualify large mail volumes
for postal worksharing discounts.
Digital Commerce Solutions:
Software Solutions: Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer
information, and location intelligence software solutions and related support services.
Global Ecommerce: Include the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic
retail and ecommerce shipping solutions, including fulfillment and returns.
We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment
EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items, which are not allocated to a particular
business segment. Management uses segment EBIT to measure profitability and performance at the segment level and believes that it
provides a useful measure of operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of
our overall consolidated performance and therefore, should be 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. The sum of the individual segments in the tables above may
not equal the totals due to rounding.
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
2017
$ 1,357
384
1,740
407
498
905
352
552
905
—
$ 3,550
2016
$ 1,427
412
1,839
405
476
881
348
339
688
—
$ 3,407
24
2015
$ 1,530
450
1,980
421
474
895
386
263
649
55
$ 3,578
2017
(5)%
(7)%
(5)%
1 %
5 %
3 %
1 %
63 %
32 %
— %
4 %
2016
(7)%
(8)%
(7)%
(4)%
— %
(2)%
(10)%
29 %
6 %
(100)%
(5)%
Constant Currency
2017
2016
(5)%
(7)%
(6)%
(5)%
(5)%
(6)%
— %
(3)%
5 %
— %
3 %
(1)%
2 %
(7)%
63 %
31 %
32 %
8 %
— % (100)%
4 %
(4)%
EBIT
Years Ended December 31,
% change
2017
2016
2015
2017
2016
$
$
498
48
546
51
98
148
42
(18)
24
—
718
$
$
593
45
638
54
95
149
30
3
33
—
663
49
712
48
105
153
49
5
54
10
$
820
$
929
(16)%
7 %
(14)%
(7)%
2 %
(1)%
38 %
> (100)%
(29)%
— %
(13)%
(11)%
(9)%
(10)%
12 %
(9)%
(2)%
(38)%
(40)%
(38)%
(100)%
(12)%
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
North America Mailing revenue decreased 5% in 2017 compared to 2016 primarily due to:
•
3% from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage volumes;
and
2% from lower financing revenue primarily due to a declining lease portfolio and lower fee income.
•
EBIT decreased 16% primarily due to the decline in revenue and margins.
North America Mailing revenue decreased 7% 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.
International Mailing
International Mailing revenue declined 7% (6% on a constant currency basis) in 2017 compared to 2016 primarily due to:
•
•
3% from lower equipment sales particularly in Europe; and
3% from declines in rentals, financing and support services revenue resulting from a decline in installed mailing equipment and the
lease portfolio.
EBIT increased 7% in 2017 compared to 2016, primarily due to higher equipment margins and lower expenses.
International Mailing revenue declined 8% 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 resulting from the continued decline in installed meters.
EBIT decreased 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.
25
Enterprise Business Solutions
Production Mail
Production Mail revenue increased 1% in 2017 compared to 2016. Revenue was flat on a constant currency basis primarily due to:
•
1% from higher equipment sales as a significant deal for printers and sorters closed and were installed in the fourth quarter of 2017;
partially offset by
1% from lower support services revenue as result of some in-house mailers shifting their mail processing to third-party outsourcers
who service their own equipment in the prior year.
•
EBIT decreased 7% in 2017 compared to 2016 primarily due to lower equipment sales margins due to the mix of equipment sales.
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.
Presort Services
Presort Services revenue increased 5% in 2017 compared to 2016 primarily due to higher volumes and revenue per piece of mail processed.
EBIT increased 2% in 2017 compared to 2016 primarily due to higher revenue.
Presort Services revenue was flat in 2016 compared to 2015 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.
Digital Commerce Solutions
Software Solutions
Software revenue increased 1% (2% on a constant currency basis) in 2017 compared to 2016 primarily due to higher software licensing,
data and SaaS revenue. EBIT increased 38% primarily due to an increase in high margin licensing revenue.
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.
Global Ecommerce
Global Ecommerce revenue increased 63% in 2017 compared to 2016 primarily due to:
•
•
•
•
41% from the acquisition of Newgistics;
12% from higher domestic ecommerce shipping revenues;
6% from higher cross-border marketplace volumes, particularly in the UK; and
4% from higher retail volumes.
EBIT was a loss of $18 million in 2017 primarily due to investments in market growth opportunities and additional amortization expense
from the acquisition of Newgistics.
Global Ecommerce revenue increased 29% in 2016 compared to 2015. On a constant currency basis, revenue increased 31% primarily
due to the expansion of our U.S. and U.K. cross-border business and retail network, including the acquisition of Borderfree.
EBIT declined 40% 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.
26
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 $1,058 million at December 31, 2017 and $803
million at December 31, 2016. 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 $608 million and $475 million at December 31, 2017 and December 31,
2016, respectively. Cash and cash equivalents held by our foreign subsidiaries are generally used to support the liquidity needs of these
subsidiaries.
Cash Flow Summary
The change in cash and cash equivalents is as follows:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Years Ended December 31,
Change
2017
2016
2015
2017
2016
$
$
$
496
(663)
368
44
244
$
496
(116)
(230)
(27)
124
$
$
$
523
(303)
(579)
(44)
(403) $
— $
(27)
(547)
598
71
122
$
187
349
17
526
The amounts in the table above may not foot or recalculate due to rounding.
Cash flows from operations was flat in 2017 compared to 2016 as lower restructuring payments and pension contributions were offset
by changes in working capital.
Cash flows from operations decreased $27 million in 2016 compared to 2015, primarily due:
• Lower income;
• A special pension plan contribution of $37 million to the U.K. pension plan; and
•
• Lower employee related costs and income tax payments.
Payments associated with the launch of the enterprise business platform and new advertising campaign; partially offset by
Cash flows used by investing activities increased $547 million in 2017 compared to 2016, primarily due to:
• Higher acquisitions spending of $445 million;
• Lower cash from investment activities of $94 million;
• Lower proceeds from asset sales of $12 million;
• Higher capital expenditures of $10 million; partially offset by
• An increase in reserve deposits of $13 million.
Cash flows used by investing activities were $187 million lower 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 from financing activities were $598 million higher in 2017 compared to 2016, primarily due to:
• The payment of $300 million in 2016 to redeem a noncontrolling interest;
•
• Higher net cash flows from debt activities of $38 million; and
Share repurchases of $197 million in 2016;
27
•
In 2017, other financing activities of $35 million includes $46 million related to a timing difference between our investing excess
cash at a subsidiary level and our funding of an intercompany cash transfer. This amount was partially offset by payments related
to the early extinguishment of debt and withholding tax associated with stock-based compensation.
Cash flows used in financing activities decreased $349 million in 2016 compared to 2015, primarily due to:
• Higher cash from debt activities of $709 million as we had net borrowings of debt of $434 million in 2017 compared to net
repayments of debt of $275 million in 2016; partially offset by
• Redemption of noncontrolling interests for $300 million; and
• Higher share repurchases of $65 million.
Financings and Capitalization
We are a "Well-Known Seasoned Issuer" within the meaning of Rule 405 under the Securities Act, which allows us to issue debt securities,
preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units in an expedited fashion. We
have a commercial paper program that is an important source of liquidity for us and a committed credit facility of $1 billion to support
our commercial paper issuances. The credit facility expires in January 2021, and as of December 31, 2017 we have not drawn upon the
credit facility.
At December 31, 2017 and 2016, there were no outstanding commercial paper borrowings. During the fourth quarter of 2017, commercial
paper borrowings averaged $5 million at a weighted average interest rate of 1.8% and the maximum amount of commercial paper
outstanding at any point during the quarter was $30 million.
2017 Activity
In September 2017, we issued $300 million of 3.625% Notes due September 2020 and $400 million of 4.7% Notes due April 2023.
Interest is payable semi-annually and is subject to adjustment from time to time based on changes in our credit ratings. Both of these
notes may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if
any.
In September 2017, we also borrowed $350 million under term loan agreements. The new term loans consist of a $200 million term loan
that bears interest at the applicable Eurodollar Rate plus 1.5% and matures in September 2020 and a $150 million term loan that bears
interest at the applicable Eurodollar Rate plus 1.125% and matures in August 2018, but includes an option to extend the maturity by one
year. For the fourth quarter of 2017, the effective interest rate for the $200 million term loan was 2.78% and the effective interest rate
for the $150 million term loan was 2.49%. The interest rates on these term loans are subject to adjustment from time to time based on
changes in our credit ratings.
In May 2017, we issued $400 million of 3.875% Notes. Interest is payable semi-annually and is subject to adjustment based on changes
in our credit ratings. The notes mature in May 2022, but may be redeemed, at our option, in whole or in part, at any time at par plus
accrued, unpaid interest and a make-whole amount, if any. Subsequent to the issuance of these notes, we experienced a change in our
credit rating, resulting in an increase in the fixed rate of 0.25% to 4.125%.
In 2017, we repaid a $150 million term loan, the $385 million of 5.75% Notes due in September 2017 and early redeemed the $350
million 4.75% Notes that were due May 2018. Additionally, bondholders of the 5.25% Notes due 2037 caused us to redeem $79 million
of the outstanding notes.
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 loan bears interest at the applicable Eurodollar Rate plus 1.5% (1.25% at time of
issuance, and adjusted to 1.5% based on a change in our credit ratings) and matures 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.
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 based on changes in our credit ratings. The notes may be redeemed, at our option, in whole or in
28
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.
Debt Maturities
We have $2.5 billion of debt due within the next five years, including $270 million scheduled to mature in 2018. 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 $139 million ($0.75 per share), $141 million ($0.75 per share) and $150 million ($0.75
per share) in 2017, 2016 and 2015, 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 did not repurchase shares during 2017. We purchased $197 million and $132 million of our common shares during 2016 and 2015,
respectively. We have remaining authorization to repurchase up to $21 million of our shares.
Contractual Obligations
The following table summarizes our known contractual obligations at December 31, 2017 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
Total
2018
2019-20
2021-22
After 2022
Payments due in
$
$
3,866
1,293
218
241
19
146
270
167
48
202
19
18
$
1,230
$
1,000
$
287
69
31
—
34
191
38
4
—
31
1,366
648
64
4
—
63
$
5,783
$
724
$
1,651
$
1,264
$
2,145
The amounts in the table above may not foot or recalculate due to rounding.
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.
(2) Includes unrecorded agreements to purchase goods and 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 2018. We will assess our funding alternatives
as the year progresses and this amount is subject to change.
(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 payments.
Off-Balance Sheet Arrangements
At December 31, 2017, 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.
29
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
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 discount rate (interest rate used to discount the future estimated liability) 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 obligation 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 2017 was 4.2%
for the U.S. Plan and 2.55% for the U.K. Plan. For 2018, the discount rate used in the determination of net periodic pension expense for
the U.S. Plan and the U.K. Plan will be 3.7% and 2.4%, 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 $27 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 2017 was 6.75% for the U.S. Plan and 6.25% for the U.K. Plan.
30
For 2018, the expected rate of return on plan assets used in the determination of net periodic pension expense for the U.S. Plan will be
7.0% and the U.K. Plan will be 6.25%. 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 primarily over the life expectancy
of 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. Plan benefits for participants in a majority of our U.S. and foreign pension plans are frozen.
See Note 12 to the Consolidated Financial Statements for further information about our pension plans.
Residual value of leased assets
Equipment residual values are determined at the 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. Fair value estimates
of equipment at the end of the lease term are based primarily on our historical experience. We also consider forecasted supply and demand
for our products, product retirement and product launch plans, client behavior, regulatory changes, remanufacturing strategies, used
equipment markets, competition and technological changes.
We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered
"other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until the equipment
is remarketed. If the actual residual value of leased assets were 10% lower than management's current estimates, pre-tax income would
be lower by $9 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. The aging disclosed in Note 5 of the
Consolidated Financial Statements represents full contract value while approximately 30% of the balance greater than 90 days had actually
been billed as of December 31, 2017.
As of December 31, 2017, North American sales-type lease receivables aged greater than 90 days had a full contract value of $53 million.
As of February 15, 2018, we received payments with a contract value of $28 million related to these receivables.
Total allowance for credit losses as a percentage of finance receivables was 1% at both December 31, 2017 and 2016. Holding all other
assumptions constant, a 0.25% change in the allowance rate at December 31, 2017 would have reduced pre-tax income by $4 million.
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.
The allowance for doubtful accounts as a percentage of trade receivables was 3% at both December 31, 2017 and 2016. Holding all other
assumptions constant, a 0.25% change in the allowance rate at December 31, 2017 would have reduced pre-tax income by $1 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. The impact of the Tax Cuts and Jobs Act of 2017
consists of preliminary estimates and are subject to change. Our determination of the impact of this legislation is based on currently
available information and interpretations, which are subject to further updates. If interpretations change as we learn more, there could be
a material impact to our consolidated financial statements.
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.
31
Significant judgment is also required in determining the amount of deferred tax assets that will ultimately be realized and corresponding
deferred tax asset valuation allowance. When estimating the necessary valuation 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 through income tax expense.
Impairment review
Long-lived and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. The estimated future undiscounted cash flows expected to result from the use and eventual
disposition of the assets is compared to the carrying value. We derive the cash flow estimates from our long-term business plans and
historical experience. If the sum of the undiscounted cash flows is less than the asset's carrying value, an impairment charge is recorded
for an amount by which the carrying value exceeds its fair value. The fair value of the impaired asset is determined using probability
weighted expected cash flow estimates, quoted market prices when available and appraisals, as appropriate. Changes in the estimates
and assumptions incorporated in our impairment assessment could materially affect the determination of fair value and the associated
impairment charge.
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or sooner when circumstances indicate
an impairment may exist. The impairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting
unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value an impairment loss is recognized
for the difference, not to exceed the carrying amount of goodwill.
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 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 fourth quarter, we 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 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.
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.
32
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 and timing 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.
New Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for a discussion of new accounting standards.
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 2017, we derived 23% of our consolidated revenue from operations outside the United States. The functional currency for most
of our foreign operations is the local currency. 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. The translation of foreign currencies to U.S. dollar
did not have a material impact on revenues for the year ended December 31, 2017, and decreased revenues by 1.0% and 4.0% for the
years ended December 31, 2016 and 2015, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes and foreign currency fluctuations. Our objective in managing exposure to foreign
currency is to reduce the volatility in earnings and cash flows associated with fluctuations in foreign currency exchange rates on transactions
denominated in foreign currencies. Accordingly, we enter into forward contracts, which change in value as foreign currency exchange
rates change, and are intended to offset the corresponding change in value of the underlying external and intercompany transactions. The
principal currencies actively hedged are the British Pound, Euro and Japanese Yen.
At December 31, 2017, 91% of our debt was fixed rate obligations with a weighted average interest rate of 4.43%. Our variable rate debt
had a weighted average interest rate at December 31, 2017 of 2.64%. A one-percentage point change in the effective interest rate of our
variable rate debt would not have had a material impact on our 2017 pre-tax income.
We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks and do
not enter into foreign currency or interest rate transactions for speculative purposes.
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 public debt and foreign exchange derivative contracts. 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 2017 and 2016, 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.
33
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.
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, 2017.
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, 2017. 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, 2017, the internal control over financial reporting was effective based on the criteria issued by COSO in Internal
Control - Integrated Framework (2013).
Pursuant to SEC guidance, a recently acquired business may be omitted from the scope of the assessment of the effectiveness of internal
control over financial reporting in the year of acquisition. Accordingly, the Newgistics business was excluded from our evaluation of the
effectiveness of internal control over financial reporting as of December 31, 2017. Excluded assets and total revenue represented 2% of
assets and less than 4% of total revenue as of and for the year ended December 31, 2017.
The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report 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, 2017, 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 2018 Annual Meeting of Stockholders.
Code of Ethics
We have Business Practices Guidelines (BPG) that apply to all our officers and other employees and a Code of Business Conduct and
Ethics (the Code) that applies to our Board of 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 2018 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 2018 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, 2017 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)
10,495,039
—
10,495,039
$21.67
—
$21.67
15,725,806
—
15,725,806
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 2018 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 2018 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 2018 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 41 of this Form 10-
K.
2. Financial statement schedules - see "Index to Consolidated Financial Statements and Supplemental Data" on page 41 of this
Form 10-K.
3.
Index to Exhibits
Reg. S-K
exhibits
3(a)
Restated Certificate of Incorporation of Pitney Bowes Inc.
Description
3(b)
Pitney Bowes Inc. Amended and Restated By-laws (effective May 10,
2013)
4(a)
Form of Indenture between the Company and SunTrust Bank, as Trustee
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
4(b)
4(d)
Supplemental Indenture No. 1 dated April 18, 2003 between the Company
and SunTrust Bank, as Trustee
Incorporated by reference to Exhibit 4.1 to Form 8-K filed with
the Commission on August 18, 2004
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
Incorporated by reference to Exhibit 4.1 to Form 8-K filed with
the Commission on October 24, 2007 (Commission file number
1-3579)
10(a) * 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) *
10(h) *
Pitney Bowes Senior Executive Severance Policy (as amended and restated
as of September 11, 2017)
Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board of
Directors, as amended and restated effective January 1, 2009
10(i) *
Pitney Bowes Inc. Deferred Incentive Savings Plan as amended and restated
effective January 1, 2009
10(j) *
Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
10(k) *
Form of Long Term Incentive Award Agreement
10(l) ** Agreement and Plan of Merger, dated as of September 6, 2017, among
Pitney Bowes Inc., Neutron Acquisition Corp., NGS Holdings, Inc. and
Littlejohn Fund IV, L.P., solely in its capacity as stockholder representative
36
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)
Exhibit 10(g)
Incorporated by reference to Exhibit 10(g) to Form 10-K filed
with the Commission on February 26, 2009 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(h) to Form 10-K filed
with the Commission on February 26, 2009 (Commission file
number 1-3579)
Incorporated by reference to Annex II to the Definitive Proxy
Statement for the 2006 Annual Meeting of Stockholders filed
with the Commission on March 23, 2006 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(k) to Form 10-K filed
with the Commission on February 25, 2013 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 2.1 to Form 8-K filed with
the Commission on September 7, 2017 (Commission file
number 1-3579)
Reg. S-K
exhibits
10(m)*
Description
Pitney Bowes Director Equity Deferral plan dated November 8, 2013
(effective May 12, 2014)
10(o)*
Pitney Bowes Executive Equity Deferral Plan dated November 7, 2014
10(p)*
Pitney Bowes Inc. 2013 Stock Plan
Status or incorporation by reference
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)
Incorporated by reference to Exhibit 10.1 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
10(q)
10(r)
10(s)
10(t)
10(u)
10(v)
Credit Agreement $1,000,000,000, dated as of January 6, 2015, by and
among the company, JPMorgan Chase Bank, N.A., as administrative
agent, and the lenders party thereto (the “Revolving Credit Agreement”).
First Amendment to the Revolving Credit Agreement, dated as of May
31, 2017, by and among the company, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto.
Second Amendment to the Revolving Credit Agreement, dated as of
September 12, 2017, by and among the company, JPMorgan Chase
Bank, N.A., as administrative agent, and the lenders party thereto.
Incorporated by reference to Exhibit 10.2 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10.3 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
Credit Agreement $300,000,000, dated as of January 6, 2015, by and
among the company, JPMorgan Chase Bank, N.A., as administrative
agent, and the lenders party thereto (the “$300M Term Loan”).
Incorporated by reference to Exhibit 10.4 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
First Amendment to the $300M Term Loan, dated as of September 12,
2017, by and among the company, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto.
Incorporated by reference to Exhibit 10.5 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
Credit Agreement $200,000,000, dated as of September 12, 2017, by and
among the company, JPMorgan Chase Bank, N.A., as administrative
agent, and the lenders party thereto.
Incorporated by reference to Exhibit 10.6 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
10(w)
Term Loan Facility $150,000,000, dated as of August 30, 2017, by and
between the company and The Bank of Tokyo-Mitsubishi-UFJ, Ltd.
Incorporated by reference to Exhibit 10.7 to Form 10-Q filed
with the Commission on November 2, 2017 (Commission file
number 1-3579)
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.
Exhibit 12
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Exhibit 32.1
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Exhibit 32.2
101.INS XBRL Report Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.
** Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish a supplementary copy of any
omitted attachment to the SEC upon request
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.
ITEM 16. FORM 10-K SUMMARY
None
37
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Pitney Bowes Inc.
Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
Signatures
Page Number
39
41
42
43
44
45
46
89
90
38
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Pitney Bowes Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Pitney Bowes Inc. and its subsidiaries (the “Company”) as of December
31, 2017 and December 31, 2016, and the related consolidated statements of income, comprehensive income, stockholders’ equity and
cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule
listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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 described in Management’s Report on Internal Control over Financial Reporting, management has excluded Newgistics from its
assessment of internal control over financial reporting as of December 31, 2017 because it was acquired by the Company in a purchase
business combination during 2017. We have also excluded Newgistics from our audit of internal control over financial reporting.
Newgistics is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit
of internal control over financial reporting represent 2% and 4%, respectively, of the related consolidated financial statement amounts
as of and for the year ended December 31, 2017.
39
Definition and Limitations of Internal Control over Financial Reporting
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 LLC
Stamford, CT
February 22, 2018
We have served as the Company’s auditor since 1934.
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.
2017
Years Ended December 31,
2016
2015
$
$
$
$
$
$
$
$
$
679,803
252,824
352,595
386,348
331,416
478,536
1,068,426
3,549,948
340,745
82,992
101,969
84,270
50,665
288,976
773,052
1,237,739
129,767
59,431
—
113,497
3,856
3,266,959
282,989
21,649
261,340
—
261,340
—
261,340
261,340
—
261,340
1.40
—
1.40
1.39
—
1.39
0.75
$
$
$
$
$
$
$
$
$
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
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 income (loss), net of tax:
Foreign currency translations
Net unrealized gain on cash flow hedges, net of tax of $678, $1,513, and $484,
respectively
Net unrealized gain (loss) on available for sale securities, net of tax of $944, $(244) and
$(1,427), respectively
Adjustments to pension and postretirement plans, net of tax of $3,089, $(17,550) and
$13,844, respectively
Amortization of pension and postretirement costs, net of tax of $13,936, $14,430, and
$15,966, respectively
Other comprehensive income (loss)
Comprehensive income - Pitney Bowes Inc.
Years Ended December 31,
2017
2016
2015
$
261,340
$
111,850
$
—
261,340
19,045
92,805
426,318
18,375
407,943
106,391
(4,464)
(88,137)
1,079
1,477
2,427
(416)
777
(2,430)
12,185
(73,141)
19,146
26,828
147,960
24,096
(51,498)
28,165
(42,479)
$
409,300
$
41,307
$
365,464
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 $15,985 and $14,372 respectively)
Short-term finance receivables (net of allowance of $12,187 and $13,323, 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 $6,446 and $7,177, respectively)
Goodwill
Intangible assets, net
Noncurrent income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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
Commitments and contingencies (See Note 14)
Stockholders' equity (deficit):
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 (136,734,174 and 137,669,194 shares, respectively)
Total Pitney Bowes Inc. stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)
December 31,
2017
December 31,
2016
$
$
$
$
1,009,021
48,988
524,424
828,003
89,679
58,439
77,954
2,636,508
379,044
185,741
652,087
1,952,444
272,186
59,909
540,796
6,678,715
1,486,741
8,823
271,057
288,372
2,054,993
234,643
116,551
3,559,278
524,689
6,490,154
1
441
323,338
138,367
5,229,584
(792,173)
(4,710,997)
188,561
6,678,715
$
$
$
$
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
1
483
323,338
148,125
5,107,734
(940,133)
(4,743,208)
(103,660)
5,837,133
See Notes to Consolidated Financial Statements
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 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 technology
Gain on sale of leveraged lease assets, net of tax
Gain on debt forgiveness
Stock-based compensation
Deferred tax (benefit) provision
Changes in operating assets and liabilities, net of acquisitions/divestitures:
(Increase) decrease in accounts receivable
Decrease in finance receivables
Decrease (increase) in inventories
Decrease (increase) in other current assets and prepayments
Decrease in accounts payable and accrued liabilities
(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 available-for-sale securities
Net change in short-term and other investments
Capital expenditures
Proceeds from sale of assets
Reserve account deposits
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 provided by (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,
2017
2016
2015
261,340
(40,804)
—
—
59,431
—
182,336
—
(6,085)
—
—
24,389
(23,882)
(20,590)
125,991
5,565
8,743
(14,084)
(16,013)
(26,029)
(24,495)
495,813
(125,055)
113,501
(8,284)
(170,990)
5,458
10,954
—
(482,853)
(5,751)
(663,020)
1,436,660
(964,550)
—
(139,490)
—
—
—
35,127
367,747
43,959
244,499
764,522
1,009,021
169,279
53,247
$
$
$
$
111,850
(64,930)
(36,731)
—
63,296
171,092
178,486
5,786
—
—
(10,000)
14,882
3,940
22,559
119,883
(6,995)
7,260
(59,450)
(1,035)
(40,248)
16,477
496,122
(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)
(6,863)
(229,529)
(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)
(94,722)
21,567
1,344
57,583
522,989
(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)
—
(3,330)
(578,658)
(44,387)
(403,249)
1,043,439
640,190
165,287
138,877
See Notes to Consolidated Financial Statements
44
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
Preferred
stock
Preference
stock
Common
Stock
Additional
Paid-in
Capital
Retained
earnings
Accumulated
other
comprehensive
loss
Treasury
stock
Total equity
Balance at December 31, 2014
$
1
$
548
$ 323,338
$
178,852
$ 4,897,708
$
(846,156) $ (4,477,032) $
77,259
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Repurchase of common stock
Balance at December 31, 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
Balance at December 31, 2016
Net income - Pitney Bowes Inc.
Other comprehensive income
Cash dividends
Common
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
(43)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(37,705)
(916)
21,049
—
407,943
—
—
(42,479)
(150,073)
(41)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
34,487
959
—
407,943
(42,479)
(150,073)
(41)
(3,218)
—
21,049
(131,719)
(131,719)
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)
483
323,338
148,125
5,107,734
(940,133)
(4,743,208)
(103,660)
—
—
—
—
—
(42)
—
—
—
—
—
—
—
—
—
—
—
—
(33,316)
(831)
24,389
261,340
—
—
147,960
(139,454)
(36)
—
—
—
—
—
—
—
—
—
—
—
—
31,338
873
—
261,340
147,960
(139,454)
(36)
(1,978)
—
24,389
Balance at December 31, 2017
$
1
$
441
$ 323,338
$
138,367
$ 5,229,584
$
(792,173) $ (4,710,997) $
188,561
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, pension 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 Investments
Cash equivalents include highly-liquid interest-earning investments with a maturity of three months or less at the date of purchase. Short-
term investments include investments with an original maturity of greater than three months but less than one year from the reporting
date.
Our investment securities are primarily classified as available-for-sale and recorded at fair value, with unrealized gains and losses,
excluding other-than-temporary impairments, reported in other comprehensive income, net of tax. Purchase premiums and discounts are
amortized 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 using the specific identification method. 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 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
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.
We estimate the probable losses on accounts receivable and provide an allowance for doubtful accounts. Our estimate is based on historical
loss experience, the age of the receivables, specific troubled accounts and other currently available information. We continually evaluate
the adequacy of the allowance for doubtful accounts and make adjustments as necessary.
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. Our estimate is based on historical loss experience, the nature and volume of our
portfolios, specific troubled accounts, and our ability to manage the collateral. We continually evaluate the adequacy of the allowance
for credit losses and make adjustments as necessary.
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.
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories
and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
Fixed Assets
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over
their estimated useful lives, which are up to 50 years for buildings, 10 to 20 years for building improvements, three to 12 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 for materials and services, payroll and other personnel-related costs and interest in the development of internal
use software. These costs are amortized on a straight-line basis over three to 10 years.
Intangible assets
Finite-lived intangible assets are amortized using either the straight-line method or an accelerated attrition method. Estimated useful lives
range from one to 15 years.
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. The impairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting
unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value an impairment loss is recognized
for the difference, not to exceed the carrying amount of goodwill.
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 primarily over the life expectancy of 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 based on the fair value of our common stock on the grant date, less the present value of expected dividends or using a Black-
Scholes valuation model or a Monte Carlo simulation model. The determination of fair value requires 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
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
the 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. The majority of stock-based
compensation expense is recorded in selling, general and administrative expense.
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" determined based on vendor specific objective evidence
(VSOE). We establish VSOE of selling prices 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 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
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. At December 31, 2017 and 2016, there were $10 million and $11 million, respectively, of initial direct costs included
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
in rental property and equipment, net in the Consolidated Balance Sheets. Amortization of initial direct costs was $5 million, $7 million
and $8 million in 2017, 2016 and 2015, 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 fair value at the end of the lease term. Fair value
estimates are based primarily on historical experience. We also consider forecasted supply and demand for products, product retirement
and launch plans, client behavior, regulatory changes, remanufacturing strategies, used equipment markets competition and technological
changes. We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values
considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until the
equipment is remarketed.
Support Services 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 and is
recognized as services are provided.
We also evaluate the appropriateness of recording revenue on a gross basis when we act as a principal in a transaction or net basis when
we act as an agent between a client and vendor. We consider several factors in determining whether we are acting as principal or agent
such as whether we are the primary obligor to the client, have control over the pricing 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. At December 31, 2017 and 2016, deferred marketing costs were $36 million and $38 million, respectively. Amortization
of deferred marketing costs was $13 million, $15 million and $18 million in 2017, 2016 and 2015, respectively. We review individual
marketing programs for impairment on a quarterly basis or as circumstances warrant.
Restructuring Charges
Costs associated with restructuring actions include employee severance, other employee separation costs and contract termination costs,
including leases. These costs are recognized when a liability is 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. 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.
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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 estimating the
necessity and amount of a valuation 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. We adjust the valuation allowance through
income tax expense when new information becomes available that would alter our determination of the amount of deferred tax assets
that will ultimately be realized.
Earnings per Share
Basic earnings per share is computed on the weighted-average number of common shares outstanding during the year. Diluted earnings
per share is computed based on the weighted-average number of common shares plus the dilutive effect of preference and preferred
shares, stock awards and employee 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.
New Accounting Pronouncements
New Accounting Pronouncements - Standards Adopted in 2017
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended to
reduce diversity in practice in the presentation and classification of certain cash receipts and cash payments by providing guidance on
certain 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 elected to early adopt this standard effective October 1, 2017.
Accordingly, a $7 million premium payment associated with the early extinguishment of debt was classified as financing activities in the
Consolidated Statements of Cash Flows for the year ended December 31, 2017.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill
Impairment, which eliminates Step 2 of the current two-step goodwill impairment test and requires only a one-step quantitative impairment
test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed
the total goodwill allocated to that reporting unit). The ASU is effective for interim and annual periods beginning after December 15,
2019, and early adoption is permitted. We elected to early adopt this standard effective January 1, 2017. The adoption of this standard
had no impact on our consolidated financial statements or disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting. The standard includes multiple provisions intended to simplify various aspects of the accounting for share-
based payments. We retroactively adopted this ASU effective January 1, 2017. Accordingly, the Condensed Consolidated Statement of
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Cash Flows for the years ended December 31, 2016 and 2015 has been recast to reclassify cash payments of $5 million and $8 million,
respectively, from operating activities to financing activities.
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 under LIFO is not impacted by the new guidance. This standard became effective January 1,
2017 and there was no impact on our consolidated financial statements or disclosures.
New Accounting Pronouncements - Standards Not Yet Adopted
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging
Activities. The ASU changes the recognition and presentation requirements of hedge accounting and reduces the cost and complexity of
applying hedge accounting by easing the requirements for effectiveness testing and hedge documentation. We will early adopt this standard
as of January 1, 2018 and there will be no impact on our consolidated financial statements as of that date. The impact on our consolidated
financial statements will depend on the facts and circumstances of any future transactions.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting. The ASU provides guidance about which changes to
terms and conditions of a share-based payment award require an entity to apply modification accounting. The standard is effective
beginning January 1, 2018 and would be applied prospectively to awards modified on or after the effective date.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium
Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held
at a premium, requiring the premium to be amortized to the earliest call date. The standard will be applied on a modified retrospective
basis through a cumulative effect adjustment as of the beginning of the period of adoption. The standard is effective beginning January
1, 2019, however early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial
statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Benefit Cost. The ASU requires the service cost component of net periodic benefit cost to be
presented in the same income statement line item as other employee compensation costs. Other components of the net periodic benefit
cost are to be presented separately, in an appropriately titled line item outside of any subtotal of operating income or disclosed in the
footnotes. The standard also limits the amount eligible for capitalization to the service cost component. The standard is effective beginning
January 1, 2018. The adoption of this standard will impact how net periodic pension costs are reported on the face of our income statement,
but will not have an impact on our income from continuing operations or net income.
In January 2017, the FASB issued ASU 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution
Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. The ASU
requires separate disclosure in the statement of net assets available for benefits and the statement of changes in net assets available for
benefits of changes in any interests held in a Master Trust and other enhanced disclosures. The standard is effective beginning January
1, 2019. We are currently evaluating the impact of this standard on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business with
the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as an acquisition or disposal
of assets or a business. The standard is effective beginning January 1, 2018. The impact on our consolidated financial statements will
depend on the facts and circumstances of any future transactions.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-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 beginning January 1, 2018. The adoption of this standard will
not have a material impact on our consolidated financial statements.
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 expected credit losses for all financial instruments held at the reporting date
based on historical experience, current conditions and reasonably supportable forecasts. This replaces the existing incurred loss model
and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet
credit exposures. This standard is effective beginning January 1, 2020. We are currently assessing the impact this standard will have on
our consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This standard, among other things, requires lessees to recognize almost all
leases on their balance sheet as a right-of-use asset and a lease liability and provide enhanced disclosures. The standard is effective
beginning January 1, 2019. We are currently assessing the impact this standard will have on our consolidated financial statements and
disclosures.
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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 beginning January 1, 2018.
The adoption of this standard will not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires companies to recognize revenue
when or as control of a promised good or service is transferred to a client 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. The standard is effective beginning January 1, 2018 and can be adopted either retrospectively to each
reporting period presented or on a modified retrospective basis with a cumulative effect adjustment at the date of the initial application.
We will adopt the standard on the modified retrospective basis with a cumulative effect adjustment, which will not be material to the
consolidated financial statements.
Based on our assessment of the standard, we will not have changes in revenue recognition for the majority of our product and service
offerings. The standard will have the most impact on the timing of certain revenues in our Software Solutions segment. Specifically, for
certain data subscription offerings, the portion of the transaction price allocated to the initial data set will be recognized as revenue at the
time of initial delivery rather than over the subscription period, and for certain software licenses, revenue will be recognized ratably over
the specific contract term rather than predominately at the time of billing and delivery.
With regard to costs, we concluded that certain marketing costs associated with the acquisition of new customers will be expensed as
incurred rather than recognized over their expected revenue stream of eight years. Additionally, certain sales commission plans will
qualify for capitalization under the new standard. We have elected to use the practical expedient that allows companies to expense costs
to obtain a contract when the estimated amortization period is less than one year.
We have implemented internal controls, accounting policies, and systems to facilitate the preparation of financial information that will
be required under the new standard. We do not expect the adoption of this standard will have a material impact to our consolidated
financial statements on an ongoing basis.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2. Segment Information
Effective January 1, 2017, we revised our segment reporting to reflect a change in how we manage and report office shipping solutions,
which were previously reported within the Global Ecommerce segment. The needs of retail and ecommerce clients differ from those of
office shipping clients. Accordingly, we now report the results for office shipping solutions within Small & Medium Business Solutions
and the retail and ecommerce shipping solutions remain in Global Ecommerce. 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 mailing and office solutions, financing services and supplies
for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the
sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from mailing and office solutions, financing services and supplies
for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the
sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.
Enterprise 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 services for large enterprise clients to qualify large mail volumes
for postal worksharing discounts.
Digital Commerce Solutions:
Software Solutions: Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer
information, and location intelligence software solutions and related support services.
Global Ecommerce: Include the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic
retail and ecommerce shipping solutions, including fulfillment and returns.
We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment
EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items, which are not allocated to a particular
business segment. Management uses segment EBIT to measure profitability and performance at the segment level and believes that it
provides a useful measure of operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of
our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The
following tables provide information about our reportable segments.
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 revenue
Geographic data:
United States
Outside United States
Total
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
Other
Total EBIT
Reconciling items:
Interest, net
Unallocated corporate expenses
Goodwill impairment
Restructuring charges and asset impairments, net
Gain on sale of technology
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
54
Revenues
Years Ended December 31,
$
2017
1,356,561
383,670
1,740,231
2016
2015
$
1,427,094
$
1,530,060
411,642
1,838,736
449,828
1,979,888
407,194
497,901
905,095
352,380
552,242
904,622
—
404,703
475,582
880,285
348,234
339,320
687,554
—
421,178
473,612
894,790
385,908
262,667
648,575
54,807
$
3,549,948
$
3,406,575
$
3,578,060
$
$
2,738,711
811,237
3,549,948
$
$
2,589,535
817,040
3,406,575
$
$
2,681,285
896,775
3,578,060
EBIT
Years Ended December 31,
2017
497,809
48,164
545,973
50,513
97,506
148,019
41,635
(17,899)
23,736
—
717,728
(164,162)
(204,211)
—
(59,431)
6,085
(9,164)
(3,856)
282,989
21,649
—
261,340
$
$
2016
2015
$
592,978
$
663,031
44,806
637,784
54,061
95,258
149,319
30,159
3,043
33,202
—
820,305
(144,211)
(189,215)
(171,092)
(63,296)
—
(5,585)
(536)
246,370
131,819
(2,701)
111,850
$
49,071
712,102
48,254
104,655
152,909
48,531
5,110
53,641
10,569
929,221
(159,374)
(213,095)
—
(25,782)
—
(14,983)
94,838
610,825
189,778
5,271
426,318
$
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 depreciation and amortization
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
$
Depreciation and amortization
Years Ended December 31,
2017
2016
2015
$
64,803
18,562
83,365
2,686
26,541
29,227
8,978
36,662
45,640
—
158,232
24,104
$
60,066
19,431
79,497
4,421
27,929
32,350
14,621
30,607
45,228
—
157,075
21,411
58,141
23,262
81,403
4,075
27,305
31,380
18,151
21,025
39,176
2,057
154,016
19,296
$
182,336
$
178,486
$
173,312
Capital expenditures
Years Ended December 31,
2017
2016
2015
$
$
69,131
11,982
81,113
2,893
20,860
23,753
9,181
26,810
35,991
—
$
83,547
$
3,163
86,710
1,599
17,537
19,136
4,617
15,647
20,264
—
60,621
11,196
71,817
3,418
17,096
20,514
1,688
17,321
19,009
857
140,857
30,133
170,990
$
126,110
34,721
160,831
$
112,197
54,549
166,746
55
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
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
Assets
December 31,
2016
2015
$
2,066,480
$
2,562,816
532,647
2,599,127
239,358
373,443
612,801
645,349
449,363
1,094,712
4,306,640
764,522
38,448
727,523
594,564
3,157,380
244,156
374,647
618,803
858,308
438,917
1,297,225
5,073,408
640,190
127,388
282,146
$
2017
1,959,206
552,570
2,511,776
260,977
387,701
648,678
658,737
1,016,045
1,674,782
4,835,236
1,009,021
48,988
785,470
$
6,678,715
$
5,837,133
$
6,123,132
$
$
506,064
58,250
564,314
$
$
441,443
61,214
502,657
$
$
434,557
73,046
507,603
56
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, 2017, 2016 and 2015 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
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,
2017
2016
2015
$
261,340
$
—
261,340
36
95,506
(2,701)
92,805
38
$
402,672
5,271
407,943
41
$
261,304
$
92,767
$
407,902
186,332
1,103
187,435
187,945
1,030
188,975
199,835
1,110
200,945
$
$
$
$
1.40
—
1.40
1.39
—
1.39
$
$
$
$
0.51
(0.01)
0.49
0.51
(0.01)
0.49
$
$
$
$
2.01
0.03
2.04
2.00
0.03
2.03
Anti-dilutive options excluded from diluted earnings per share (in thousands):
10,267
8,126
8,079
4. Inventories
Inventories at December 31, 2017 and 2016 consisted of the following:
Raw materials
Work in process
Supplies and service parts
Finished products
Inventory at FIFO cost, net
Excess of FIFO cost over LIFO cost
Total inventory, net
December 31,
2017
2016
$
$
30,166
4,981
45,366
21,765
102,278
(12,599)
89,679
$
$
28,541
6,498
45,152
24,678
104,869
(12,143)
92,726
57
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 on loan receivables is recognized using the effective
interest method. Annual fees are initially deferred and recognized ratably over the annual period covered. Customer acquisition costs
are expensed as incurred.
Finance receivables at December 31, 2017 and 2016 consisted of the following:
Sales-type lease receivables
Gross finance receivables
Unguaranteed residual values
Unearned income
Allowance for credit losses
December 31, 2017
December 31, 2016
North
America
International
Total
North
America
International
Total
$ 1,023,549
$
292,059
$ 1,315,608
$ 1,088,053
$
273,262
$ 1,361,315
74,093
14,202
88,295
90,190
13,655
103,845
(216,720)
(62,325)
(279,045)
(223,908)
(60,458)
(284,366)
(7,721)
(2,794)
(10,515)
(8,247)
(2,647)
(10,894)
Net investment in sales-type lease receivables
873,201
241,142
1,114,343
946,088
223,812
1,169,900
Loan receivables
Loan receivables
Allowance for credit losses
Net investment in loan receivables
339,373
(7,098)
332,275
34,492
(1,020)
33,472
373,865
374,147
(8,118)
(8,517)
365,747
365,630
32,716
(1,089)
31,627
406,863
(9,606)
397,257
Net investment in finance receivables
$ 1,205,476
$
274,614
$ 1,480,090
$ 1,311,718
$
255,439
$ 1,567,157
Loans receivable are due within one year. Maturities of gross sales-type lease finance receivables at December 31, 2017 were as
follows:
2018
2019
2020
2021
2022
Thereafter
Total
Sales-type Lease Receivables
North America
513,886
$
262,303
154,581
70,307
18,340
4,132
1,023,549
$
International
Total
$
130,804
$
74,546
49,203
27,443
9,104
959
292,059
$
$
644,690
336,849
203,784
97,750
27,444
5,091
1,315,608
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Allowance for Credit Losses
Activity in the allowance for credit losses for the years ended December 31, 2017, 2016 and 2015 was as follows:
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
Balance at December 31, 2014
$
10,125
$
5,023
$
11,068
$
1,788
$
Amounts charged to expense
Accounts written off
Balance at December 31, 2015
Amounts charged to expense
Accounts written off
Balance at December 31, 2016
Amounts charged to expense
Accounts written off
1,189
(4,708)
6,606
5,136
(3,495)
8,247
7,544
(8,070)
Balance at December 31, 2017
$
7,721
$
890
(2,371)
3,542
1,161
(2,056)
2,647
1,280
(1,133)
2,794
$
8,286
(9,330)
10,024
6,238
(7,745)
8,517
6,273
(7,692)
7,098
$
1,023
(1,293)
1,518
836
(1,265)
1,089
510
(579)
1,020
$
28,004
11,388
(17,702)
21,690
13,371
(14,561)
20,500
15,607
(17,474)
18,633
Aging of Receivables
The aging of finance receivables at December 31, 2017 and 2016 was as follows:
December 31, 2017
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
$
$
$
$
971,002
52,547
1,023,549
10,807
41,740
52,547
$
$
$
$
286,170
5,889
292,059
1,738
4,151
5,889
$
$
$
$
330,503
8,870
339,373
$
$
34,239
253
34,492
$
$
1,621,914
67,559
1,689,473
— $
8,870
8,870
$
— $
253
253
$
12,545
55,014
67,559
As of December 31, 2017, North American sales-type lease receivables aged greater than 90 days had a full contract value of $53
million. As of February 15, 2018, we received payments with a contract value of $28 million related to these receivables.
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
$
$
$
$
366,726
7,421
374,147
$
$
32,420
296
32,716
$
$
1,693,706
74,472
1,768,178
— $
7,421
7,421
$
— $
296
296
$
9,803
64,669
74,472
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Credit Quality
The extension 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, 2017 and 2016 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. Some accounts are not scored; however, 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 may become delinquent in the next 12 month period.
• 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,
2017
2016
$
819,776
$
148,000
21,728
34,045
1,023,549
262,646
56,744
6,791
13,192
339,373
$
$
$
$
$
$
879,823
135,953
22,600
49,677
1,088,053
296,598
53,647
7,216
16,686
374,147
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
6. Fixed Assets
Fixed assets at December 31, 2017 and 2016 consisted of the following:
Land
Buildings
Capitalized software
Machinery and equipment
Accumulated depreciation
Property, plant and equipment, net
Rental property and equipment
Accumulated depreciation
Rental property and equipment, net
December 31,
2017
2016
$
9,333
$
207,024
224,753
703,924
1,145,034
(765,990)
379,044
394,627
(208,886)
185,741
$
$
$
$
$
$
9,908
185,431
192,395
610,597
998,331
(683,728)
314,603
400,913
(212,859)
188,054
Depreciation expense was $149 million, $140 million and $136 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
7. Acquisitions, Divestiture, Intangible Assets and Goodwill
Acquisitions
In October 2017, we acquired Newgistics for $471 million, net of cash acquired. Newgistics provides parcel delivery, returns, fulfillment
and digital commerce solutions for retailers and ecommerce brands. Newgistics is reported within our Global Ecommerce segment.
The allocation of the purchase price to the fair values of assets acquired and liabilities assumed was as follows:
Accounts receivable
Other current assets
Fixed assets
Goodwill
Intangible assets
Accounts payable and other current liabilities
Deferred taxes, net
Other assets and liabilities, net
$
$
36,195
16,051
26,933
330,272
135,640
(21,500)
(52,363)
(688)
470,540
Goodwill represents the excess of the purchase price over the fair values of assets acquired and liabilities assumed. Goodwill is primarily
attributable to expected growth opportunities, synergies and other benefits that we believe will result from combining the operations of
Newgistics with our operations. Goodwill from the Newgistics acquisition is not deductible for tax purposes.
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Intangible assets acquired consisted of the following:
Customer relationships
Developed technology
Tradenames
Other
Total intangible assets, net
Value
$
111,600
Amortization
period
10 years
19,000
4,300
5 years
3 years
740
1-3 years
$
135,640
The operating results of Newgistics are included in our consolidated results from the date of acquisition. Consolidated revenue for the
year ended December 31, 2017 includes $140 million from Newgistics. Earnings from Newgistics included in our consolidated earnings
were not significant. On a pro forma basis, had we acquired Newgistics on January 1, 2016, revenue would have been $341 million and
$481 million higher for the years ended December 31, 2017 and 2016, respectively. The impact on 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.
Intangible assets
Intangible assets at December 31, 2017 and 2016 consisted of the following:
December 31, 2017
December 31, 2016
Customer relationships
Software & technology
Trademarks & other
Gross
Carrying
Amount
$
526,149
173,141
42,505
Total intangible assets, net
$
741,795
$
Accumulated
Amortization
$
(292,500) $
(144,742)
(32,367)
(469,609) $
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
233,649
$
445,039
$
28,399
10,138
150,037
36,212
272,186
$
631,288
$
(300,906) $
(136,508)
(28,702)
(466,116) $
144,133
13,529
7,510
165,172
Amortization expense for intangible assets was $34 million, $38 million and $37 million for the years ended December 31, 2017, 2016
and 2015, respectively. The future amortization expense for intangible assets at December 31, 2017 is as follows:
Year ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
$
$
42,564
38,838
34,251
30,631
29,223
96,679
272,186
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.
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Goodwill
The changes in the carrying amount of goodwill, by reporting segment, for the years ended December 31, 2017 and 2016 are shown 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
Gross value
before
accumulated
impairment
$ 354,000
145,566
499,566
101,099
196,890
297,989
672,683
272,189
944,872
Total goodwill
$1,742,427
Accumulated
impairment
$
December
31, 2016
— $ 354,000
Acquisition
$
— $
Impairment
Other (1)
— $
14,905
—
—
—
—
—
(171,092)
—
(171,092)
145,566
499,566
101,099
196,890
297,989
501,591
272,189
—
—
—
7,891
7,891
—
330,272
330,272
—
—
—
—
—
—
—
—
December 31,
2017
368,905
$
158,203
527,108
107,489
204,781
312,270
510,605
602,461
12,637
27,542
6,390
—
6,390
9,014
—
773,780
$ (171,092) $1,571,335
$ 338,163
$
— $
42,946
$ 1,952,444
9,014
1,113,066
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2015
Acquisition
Impairment
Other (1)
December 31,
2016
North America Mailing
$ 357,215
$
— $
357,215
$
— $
International Mailing
Small & Medium Business Solutions
Production Mail
Presort Services
Enterprise Business Solutions
Software Solutions
Global Ecommerce
Digital Commerce Solutions
148,351
505,566
105,757
196,890
302,647
674,976
262,768
937,744
—
—
—
—
—
—
—
—
148,351
505,566
105,757
196,890
302,647
674,976
262,768
937,744
—
—
—
—
—
11,908
9,421
21,329
Total goodwill
$1,745,957
$
— $ 1,745,957
$ 21,329
(1) Primarily represents foreign currency translation adjustments.
—
— $ (3,215) $ 354,000
145,566
—
499,566
—
101,099
—
(2,785)
(6,000)
(4,658)
—
(4,658)
(14,201)
—
(14,201)
773,780
$ (171,092) $ (24,859) $1,571,335
—
(171,092)
—
(171,092)
297,989
501,591
196,890
272,189
During the fourth quarter of 2016, 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.
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.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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. 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, 2017 and 2016.
Assets:
Investment securities
Money market funds / commercial paper
$
143,349
$
542,568
$
— $
685,917
Level 1
Level 2
Level 3
Total
December 31, 2017
Equity securities
Commingled fixed income securities
Government and related securities
Corporate debt securities
Mortgage-backed / asset-backed securities
Derivatives
Interest rate swap
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Assets:
Investment securities
—
1,569
116,041
—
—
—
—
40,717
4,516
18,587
75,109
158,202
1,776
122
—
—
—
—
—
—
—
40,717
6,085
134,628
75,109
158,202
1,776
122
260,959
$
841,597
$
— $
1,102,556
— $
— $
(335) $
(335) $
— $
— $
(335)
(335)
Level 1
Level 2
Level 3
Total
December 31, 2016
$
$
$
Money market funds / commercial paper
$
114,471
$
217,175
$
— $
331,646
Equity securities
Commingled fixed income securities
Government and related securities
Corporate debt securities
Mortgage-backed / asset-backed securities
Derivatives
Interest rate swap
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
—
1,536
116,822
—
—
24,571
22,132
19,358
69,891
158,996
—
—
232,829
$
1,588
637
514,348
$
—
—
—
—
—
—
—
— $
24,571
23,668
136,180
69,891
158,996
1,588
637
747,177
— $
— $
(3,717) $
(3,717) $
— $
— $
(3,717)
(3,717)
$
$
$
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Investment Securities
The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by
observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:
• Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit,
commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and
are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively
traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified
as Level 2.
• Equity Securities: comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2.
• Commingled Fixed Income Securities: comprised of mutual funds that invest in a variety of fixed income securities including
securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair
value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares
outstanding, as reported by the fund manager. These mutual funds are classified as Level 2.
• Government and related securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities
exist. Valuation adjustments are not applied to these securities. Debt securities 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.
• Corporate Debt Securities: 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.
Available-For-Sale Securities
At December 31, 2017 and 2016, available-for-sale securities consisted of the following:
Government and related securities
Corporate debt securities
Commingled fixed income securities
Mortgage-backed / asset-backed securities
Total
Government and related securities
Corporate debt securities
Commingled fixed income securities
Mortgage-backed / asset-backed securities
Total
December 31, 2017
Gross
unrealized
gains
Gross
unrealized
losses
1,984
1,724
—
1,348
5,056
$
$
(1,090)
(227)
(40)
(1,642)
(2,999)
Estimated fair
value
132,766
$
75,109
1,756
158,202
367,833
$
Amortized cost
131,872
$
73,612
1,796
158,496
365,776
$
$
$
December 31, 2016
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Estimated fair
value
$
$
136,316
69,376
1,568
159,312
$
366,572
$
1,571
1,180
—
1,566
4,317
$
$
(1,707)
(665)
(32)
(1,882)
(4,286)
$
136,180
69,891
1,536
158,996
$
366,603
Investment securities in a loss position for 12 or more continuous months at December 31, 2017 had aggregate unrealized holding losses
of $2 million and an estimated fair value of $116 million. Investment securities in a loss position for less than 12 continuous months at
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
December 31, 2017 had aggregate unrealized holding losses of $1 million and an estimated fair value of $91 million. We have not
experienced any write-offs in our investment portfolio.
Investment securities 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 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.
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, 2017, scheduled maturities of available-for-sale securities were as follows:
Within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Total
Amortized cost
38,624
$
Estimated fair
value
$
38,414
111,756
68,599
146,797
111,704
69,154
148,561
$
365,776
$
367,833
The actual maturities may not coincide with scheduled maturities as certain securities contain early redemption features and/or allow for
the prepayment of obligations with or without penalty.
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 anticipated inventory purchases between affiliates
and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges
is included in accumulated other comprehensive income (AOCI) in the period that the change in fair value occurs and is reclassified to
earnings in the period that the hedged item is recorded in earnings. At December 31, 2017 and 2016, outstanding contracts associated
with these anticipated transactions had a notional amount of $10 million and $13 million, respectively. The valuation of foreign exchange
derivatives is based on a market approach using observable market inputs, such as foreign currency spot and forward rates and yield
curves.
Interest Rate Swaps
We have 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 loan. 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 an income
approach using inputs that are observable or that can be derived from, or corroborated by, observable market data.
66
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, 2017 and 2016 was as follows:
Designation of Derivatives
Balance Sheet Location
2017
2016
December 31,
Derivatives designated as hedging instruments
Foreign exchange contracts
Other current assets and prepayments
$
Accounts payable and accrued liabilities
$
57
(144)
487
(136)
Interest rate swap
Other non-current assets
1,776
1,588
Derivatives not designated as hedging instruments
Foreign exchange contracts
Other current assets and prepayments
Accounts payable and accrued liabilities
Total derivative assets
Total derivative liabilities
Total net derivative liability
65
(191)
1,898
(335)
1,563
$
150
(3,581)
2,225
(3,717)
(1,492)
$
The amounts included in AOCI at December 31, 2017 will be recognized in earnings within the next 12 months. No amount of
ineffectiveness was recorded in earnings for these designated cash flow hedges.
The following represents the results of cash flow hedging relationships for the years ended December 31, 2017 and 2016:
Derivative Instrument
Foreign exchange contracts
Interest rate swap
$
$
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
2017
2016
(650) $
496
Years Ended December 31,
Location of Gain (Loss)
(Effective Portion)
Revenue
Cost of sales
1,776
$
1,588
Interest Expense
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
2017
2016
$
$
(179) $
(32)
—
(211) $
(68)
222
—
154
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, 2017 mature over the next
three months.
The following represents the results of our non-designated derivative instruments for the years ended December 31, 2017 and 2016:
Derivatives Instrument
Foreign exchange contracts
Location of Derivative Gain (Loss)
Selling, general and administrative expense
Years Ended December 31,
Derivative Gain (Loss)
Recognized in Earnings
2017
2016
$
(2,203) $
(2,382)
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, 2017, we were not required to
post any collateral.
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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, 2017 and 2016 was as follows:
Carrying value
Fair value
9. Supplemental Balance Sheet Information
The following table shows selected balance sheet information at December 31, 2017 and 2016:
Other assets:
Long-term investments
Other
Total
Accounts payable and accrued liabilities:
Accounts payable
Customer deposits
Employee related liabilities
Other
Total
December 31,
2017
3,830,335
3,718,986
$
$
2016
$
$
3,364,890
3,412,581
$
$
$
December 31,
2017
2016
435,612
105,184
540,796
$
$
425,732
99,041
524,773
302,101
$
693,004
260,116
231,520
293,538
688,772
205,901
190,611
$
1,486,741
$
1,378,822
10. Restructuring Charges and Asset Impairments
The table below shows the activity in our restructuring reserves for the years ended December 31, 2017 and 2016:
Balance at December 31, 2015
Expenses, net
Cash payments
Balance at December 31, 2016
Expenses, net
Cash payments
Balance at December 31, 2017
Severance and
benefits costs
Other exit
costs
Total
$
$
43,700
44,510
(59,834)
28,376
53,322
(39,547)
42,151
$
$
3,722
1,655
(5,096)
281
2,545
(1,257)
1,569
$
$
47,422
46,165
(64,930)
28,657
55,867
(40,804)
43,720
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.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Asset impairment
During 2017, we recorded asset impairment charges of $4 million. In 2016, asset impairment charges consisted primarily of a loss of $5
million from the sale of a facility and an impairment charge of $5 million related to another facility.
11. Debt
Notes due September 2017
Notes due March 2018
Notes due May 2018
Notes due March 2019
Notes due September 2020
Notes due October 2021
Notes due May 2022
Notes due April 2023
Notes due March 2024
Notes due January 2037
Notes due March 2043
Term loans
Other debt
Principal amount
Less: unamortized costs, net
Total debt
Less: current portion long-term debt
Long-term debt
Interest rate
5.75%
December 31,
2017
2016
$
— $
385,109
5.60%
4.75%
6.25%
3.625%
3.625%
4.125%
4.70%
4.625%
5.25%
6.70%
Variable
250,000
—
300,000
300,000
600,000
400,000
400,000
500,000
35,841
425,000
650,000
5,476
250,000
350,000
300,000
—
600,000
—
—
500,000
115,041
425,000
450,000
5,677
3,866,317
3,380,827
35,982
15,937
3,830,335
3,364,890
271,057
614,485
$ 3,559,278
$ 2,750,405
In September 2017, we issued $300 million of 3.625% Notes due September 2020 and $400 million of 4.70% Notes due April 2023.
Interest is payable semi-annually and is subject to adjustment from time to time based on changes in our credit ratings. Both of these
notes may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if
any.
In September 2017, we also borrowed $350 million under term loan agreements. The new term loans consist of a $200 million term loan
that bears interest at the applicable Eurodollar Rate plus 1.5% and matures in September 2020 and a $150 million term loan that bears
interest at the applicable Eurodollar Rate plus 1.125% and matures in August 2018, but includes an option to extend the maturity by one
year. For the fourth quarter of 2017, the effective interest rate for the $200 million term loan was 2.78% and the effective interest rate
for the $150 million term loan was 2.49%. The interest rates on these term loans are subject to adjustment from time to time based on
changes in our credit ratings.
In May 2017, we issued $400 million of 3.875% Notes. Interest is payable semi-annually and is subject to adjustment based on changes
in our credit ratings. As a result of a change in our credit ratings, the fixed rate on these notes subsequently increased 0.25% to 4.125%.
The notes mature in May 2022, but may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest
and a make-whole amount, if any. In addition, the fixed rate on the $600 million notes due October 2021 also increased by 0.25% to
3.625% due to the change in our credit rating.
In 2017, we repaid a $150 million term loan, the $385 million of 5.75% Notes due in September 2017 and we early redeemed the $350
million 4.75% Notes, that were due May 2018. As a result of the early redemption of these Notes, we incurred a $4 million loss, which
is recorded in Other expense. Additionally, bondholders of the 5.25% Notes due 2037 caused us to redeem $79 million of the outstanding
notes.
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, 2017 and 2016. The credit facility expires in January 2021.
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Annual maturities of outstanding debt at December 31, 2017 are as follows:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
270,000
500,000
730,476
600,000
400,000
1,365,841
3,866,317
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.
Retirement Plans
The benefit obligations and funded status of defined benefit pension plans are as follows:
Accumulated benefit obligation
Projected benefit obligation
United States
Foreign
2017
1,726,824
$
2016
2017
2016
$
1,677,288
$
737,580
$
675,566
Benefit obligation - beginning of year
$
1,678,097
$
1,689,885
$
688,172
$
647,112
Service cost
Interest cost
Plan participants' contributions
Actuarial loss
Foreign currency changes
Settlement
Benefits paid
Benefit obligation - end of year
Fair value of plan assets
Fair value of plan assets - beginning of year
Actual return on plan assets
Company contributions
Plan participants' contributions
Settlement
Foreign currency changes
Benefits paid
Fair value of plan assets - end of year
132
68,611
—
92,789
—
—
(111,892)
1,727,737
1,464,082
199,749
5,968
—
—
—
(111,892)
1,557,907
$
$
$
105
73,699
—
31,764
—
(5,887)
(111,469)
1,678,097
1,460,790
110,954
9,694
—
(5,887)
—
(111,469)
1,464,082
$
$
$
2,274
18,836
6
2,098
64,236
—
(24,249)
751,373
547,290
46,542
13,081
6
—
50,040
(24,249)
632,710
$
$
$
2,148
21,886
6
127,054
(88,138)
(423)
(21,473)
688,172
530,112
68,067
40,872
6
(423)
(69,871)
(21,473)
547,290
$
$
$
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Amounts recognized in the Consolidated Balance Sheets
Noncurrent asset
Current liability
Noncurrent liability
Funded status
$
$
392
(8,362)
(161,860)
(169,830)
$
$
310
(7,937)
(206,388)
(214,015)
$
$
19,139
(1,188)
(136,614)
(118,663)
$
11,744
(1,045)
(151,581)
$
(140,882)
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2017 and 2016:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service credit
Transition asset
Total
United States
2017
1,727,292
1,726,378
1,557,069
2016
1,677,675
1,676,866
1,463,350
$
$
$
United States
2017
835,265
(391)
—
$
2016
873,523
(452)
—
$
$
$
$
834,874
$
873,071
$
$
$
$
$
$
Foreign
2017
614,371
601,412
476,825
$
$
$
2016
578,588
565,992
425,962
Foreign
2017
321,914
(597)
(24)
321,293
$
$
2016
342,169
(667)
(32)
341,470
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2018 are as follows:
Net actuarial loss
Prior service credit
Transition asset
Total
United States
Foreign
$
$
32,303
(60)
—
$
7,304
(72)
(7)
32,243
$
7,225
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
Amortization of net actuarial loss
Special termination benefits
Settlement
Net periodic benefit (income) cost
United States
2017
2016
2015
2017
$
$
$
132
68,611
(97,656)
—
(60)
28,954
—
—
(19) $
105
73,699
(101,918)
—
(60)
27,220
—
2,109
1,155
$
$
134
74,331
(104,004)
—
(60)
29,272
—
1,243
916
$
$
2,274
18,836
(32,242)
(8)
(71)
8,052
—
—
(3,159) $
$
Foreign
2016
$
2,148
21,886
(32,615)
(8)
(73)
5,264
52
110
(3,236) $
2015
2,229
24,261
(35,421)
(9)
(66)
5,926
79
—
(3,001)
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were
as follows:
Net actuarial (gain) loss
Amortization of net actuarial loss
Amortization of prior service credit
Net transition asset
Settlement
Total recognized in other comprehensive income
United States
Foreign
2017
2016
2017
2016
$
$
(9,304)
(28,954)
60
—
—
(38,198)
$
$
22,728
(27,220)
60
—
(2,109)
(6,541)
$
$
(12,202)
(8,052)
71
8
—
(20,175)
$
91,549
(5,264)
73
8
(110)
$
86,256
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
2017
2016
2015
3.69%
N/A
4.20%
6.75%
N/A
4.20%
N/A
4.55%
7.00%
N/A
4.55%
N/A
4.15%
7.0%
N/A
0.65% - 3.35%
1.50% - 2.50%
0.70% - 3.65%
1.50% - 2.50%
1.15% - 3.95%
1.50% - 3.50%
0.70% - 3.65%
3.75% - 6.25%
1.50% - 3.30%
1.15% - 3.95%
3.75% - 6.51%
1.50% - 3.50%
1.10% - 3.80%
4.00% - 7.00%
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 2018, we estimate making contributions of $8 million to our U.S. pension plans and $11 million to our foreign pension plans.
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Investment Strategy and Asset Allocation - U.S. Pension Plans
The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and
maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least
7.0%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset
classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options,
forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency
exposure. We do not have any significant concentrations of credit risk within the plan assets. Investment objectives and investment
managers are reviewed periodically. Target and actual allocations for 2018, 2017 and 2016 for the U.S. pension plans were as follows:
Asset category
U.S. equities
Non-U.S. equities
Fixed income
Real estate
Private equity
Total
Target
allocation
Percent of Plan Assets at
December 31,
2018
2017
2016
15%
15%
60%
5%
5%
15%
15%
62%
6%
2%
17%
13%
60%
6%
4%
100 %
100%
100%
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. Investment objectives and investment managers are reviewed periodically. Target and actual asset allocations
for the U.K. Plan for 2018, 2017 and 2016 were 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,
2018
2017
2016
10%
30%
40%
10%
10%
—%
100%
10%
29%
41%
9%
9%
2%
100%
22%
19%
41%
8%
9%
1%
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 $477 million and $410 million at December 31, 2017 and 2016, respectively, and the expected
long-term weighted average rate of return on these plan assets was 6.25% in 2017 and 6.5% in 2016.
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Fair Value Measurements of Plan Assets
The following tables show the U.S. and foreign pension plans' assets at December 31, 2017 and 2016:
United States Pension Plans
Money market funds
Equity securities
Commingled fixed income securities
Government and related securities
Corporate debt securities
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
Money market funds
Equity securities
Commingled fixed income securities
Government and related securities
Corporate debt securities
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
December 31, 2017
Level 1
Level 2
Level 3
Total
$
8,810
$
9,350
$
— $
152,815
—
295,404
—
—
—
—
—
150,043
377,078
20,473
418,908
19,223
—
—
152,179
—
—
—
—
—
38,362
91,352
—
18,160
302,858
377,078
315,877
418,908
19,223
38,362
91,352
152,179
$
457,029
$
1,147,254
$
129,714
$
1,733,997
(152,179)
5,186
(29,097)
$
1,557,907
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
14,072
—
—
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
15,308
49,637
87,852
174,651
1,622,945
(174,651)
18,164
(2,376)
1,464,082
(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
Government and related securities
Corporate debt securities
Real estate
Diversified growth funds
Total plan assets at fair value
Cash
Other
Fair value of plan assets
Money market funds
Equity securities
Commingled fixed income securities
Government and related securities
Corporate debt securities
Real estate
Diversified growth funds
Total plan assets at fair value
Cash
Other
Fair value of plan assets
December 31, 2017
Level 1
Level 2
Level 3
Total
$
— $
13,375
$
— $
—
—
—
—
—
$
—
— $
226,032
213,844
66,115
24,889
—
—
544,255
$
—
—
—
—
41,601
44,024
85,625
$
$
13,375
226,032
213,844
66,115
24,889
41,601
44,024
629,880
2,203
627
632,710
December 31, 2016
Level 1
Level 2
Level 3
Total
$
— $
6,811
$
— $
32,295
—
—
—
—
—
181,943
69,022
29,363
150,767
—
—
$
32,295
$
437,906
$
—
—
—
—
34,483
36,779
71,262
$
$
6,811
214,238
69,022
29,363
150,767
34,483
36,779
541,463
4,262
1,565
547,290
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.
• Equity Securities: Equity securities include U.S. and foreign stocks, American Depository Receipts, preferred stock and commingled
funds. There are no shares of our common stock included in the plan assets of our pension plans.
• Commingled Fixed Income Securities: Mutual funds that invest in fixed income securities of the U.S. government and its agencies,
corporate debt, mortgage-backed securities and asset-backed securities. Fair value 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.
• Government and Related Securities: Government and related 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. Fair value is based on benchmarking model derived prices to quotes market prices and trade data for
identical comparable securities.
• Corporate Debt Securities: Investments are comprised of both investment grade debt and high-yield debt. The fair value of corporate
debt securities is determined using recently executed transactions, market price quotations where observable, or bond spreads.
• Mortgage-Backed Securities (MBS)/Asset-Backed Securities (ABS): MBS are 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- external price/spread data or broker quotes. ABS are investments are primarily comprised of credit card
receivables, auto loan receivables, student loan receivables, and Small Business Administration loans.
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
• 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.
• 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.
• 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.
•
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. 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, 2017 and 2016:
United States Pension Plans
Balance at December 31, 2015
Realized gains
Unrealized gains (losses)
Net purchases, sales and settlements
Balance at December 31, 2016
Realized gains
Unrealized gains (losses)
Net purchases, sales and settlements
Balance at December 31, 2017
Foreign Pension Plans
Balance at December 31, 2015
Unrealized gains
Net purchases, sales and settlements
Foreign currency loss
Balance at December 31, 2016
Unrealized gains
Net purchases, sales and settlements
Foreign currency gain
Balance at December 31, 2017
MBS & ABS
Private equity
Real estate
Total
$
1,592
$
63,577
$
82,569
$
147,738
8
38
(402)
1,236
25
49
(1,310)
$
— $
10,200
(7,540)
(16,600)
49,637
9,226
(2,334)
(18,167)
38,362
1,280
4,815
(812)
87,852
980
2,397
123
11,488
(2,687)
(17,814)
138,725
10,231
112
(19,354)
$
91,352
$
129,714
Real estate
Diversified
growth funds
Total
$
39,177
$
20,513
$ 59,690
459
1,436
(6,589)
34,483
2,159
1,481
3,478
41,601
$
2,561
3,020
19,028
(5,323)
36,779
3,551
—
3,694
44,024
20,464
(11,912)
71,262
5,710
1,481
7,172
$ 85,625
$
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Nonpension Postretirement Benefits
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 loss (gain)
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
2017
2016
$
189,772
$
211,878
1,727
7,100
3,820
5,134
1,066
(19,778)
188,841
$
— $
15,958
3,820
(19,778)
— $
2,046
7,969
4,241
(13,934)
409
(22,837)
189,772
—
18,596
4,241
(22,837)
—
(17,712)
(171,129)
(188,841)
$
$
(18,127)
(171,645)
(189,772)
$
$
$
$
$
(1) The benefit obligation for the U.S. nonpension postretirement plans was $172 million and $174 million at December 31, 2017 and 2016, respectively.
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service cost
Total
2017
2016
$
$
43,160
1,466
44,626
$
$
41,625
1,763
43,388
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
2017
2016
2015
$
$
1,727
7,100
297
3,600
12,724
$
$
2,046
7,969
297
3,615
13,927
$
$
2,455
8,799
297
7,528
19,079
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income
were as follows:
77
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2017
2016
Net actuarial loss (gain)
Amortization of net actuarial loss
Amortization of prior service cost
Total recognized in other comprehensive income
$
$
5,134
(3,600)
(297)
1,237
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2018 are as follows:
Net actuarial loss
Prior service cost
Total
$
$
$
$
(13,934)
(3,615)
(297)
(17,846)
3,736
351
4,087
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
2017
2016
2015
3.55%
3.35%
3.90%
3.65%
3.90%
3.65%
4.20%
3.95%
4.20%
3.95%
3.90%
3.80%
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 7.0%
for 2017 and 6.0% for 2016. The assumed health care trend rate is 7.0% for 2018 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
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, are expected to be paid.
Years ending December 31,
2018
2019
2020
2021
2022
Thereafter
Savings Plans
1% Increase
1% Decrease
$
$
323
7,672
$
$
(269)
(6,479)
Pension Benefits
Nonpension
Benefits
$
$
132,626
129,051
130,201
128,257
128,221
628,715
1,277,071
$
$
17,693
17,163
16,554
15,952
15,347
63,303
146,012
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 $31 million in 2017 and $32
million in 2016.
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
13. Income Taxes
Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act of 2017 (the Act) was enacted on December 22, 2017 and most provisions are effective January 1, 2018. The
Act lowers the U.S. corporate income tax rate from 35% to 21%, implements a territorial tax system in the U.S. and imposes a one-time
tax on the unremitted earnings of our foreign subsidiaries payable over eight years beginning in 2018.
The Securities and Exchange Commission recognized the complexity of reflecting the impacts of the Act and, on December 22, 2017,
issued guidance in Staff Accounting Bulletin No. 118 (SAB 118) Income Tax Accounting Implications of the Tax Cuts and Jobs Act. SAB
118 clarified the accounting for income taxes related to the Act if information is not yet available or complete, and provides for up to a
one year measurement period in which to complete the required income tax analyses and accounting. In accordance with SAB 118, our
measurement of the income tax effects of the Act is not complete, but we have made a provisional estimate of the income tax effects of
the Act.
As a result of the Act and in accordance with SAB 118, we recorded a net provisional one-time non-cash benefit of $39 million, which
is comprised of a provisional $130 million benefit from the remeasurement of net U.S. deferred tax liabilities arising from a lower U.S.
tax rate, offset by a provisional $91 million charge related primarily to the U.S. tax on unremitted earnings of our foreign subsidiaries.
Our estimates of the impact of the Act are based on current calculations and interpretations, as well as assumptions and expectations
relating to the Act, which are subject to adjustment based on further guidance and factual changes during the measurement period.
As a result of the treatment of foreign earnings under the Act, we have reconsidered our permanent investment position and provisionally
concluded we will no longer assert indefinite investment with respect to our foreign unremitted earnings as of December 31, 2017.
Income from continuing operations before taxes consisted of the following:
U.S.
International
Total
Years Ended December 31,
2017
195,291
87,698
282,989
$
$
2016
2015
$
$
169,493
76,877
246,370
$
$
516,233
94,592
610,825
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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,
2017
2016
2015
$
46,836
$
(48,449)
(1,613)
461
15,460
15,921
(1,766)
9,107
7,341
95,598
(1,559)
94,039
$
115,557
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
45,531
(23,882)
127,879
3,940
149,594
40,184
$
21,649
$
131,819
$
189,778
Effective tax rate
7.7%
53.5%
31.1%
The effective tax rate for 2017 includes provisional tax benefits of $39 million from the Act, and tax benefits of $30 million from the
resolution of certain tax examinations.
The effective tax rate for 2016 includes tax benefits of $15 million from the resolution of tax examinations, a $58 million charge associated
with the goodwill impairment and a $6 million charge for 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.
A reconciliation of 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
Outside basis differences
Goodwill impairments
Remeasurement of U.S. deferred tax liability
U.S. tax on unremitted earnings
Other, net
Provision for income taxes
Years Ended December 31,
2017
2016
2015
$
$
99,045
7,327
(31,573)
(16,292)
—
—
(129,612)
90,916
1,838
21,649
$
$
86,229
9,208
(13,806)
(10,735)
—
58,022
—
—
2,901
213,789
17,769
(6,492)
(12,130)
(27,110)
—
—
—
3,952
$
131,819
$
189,778
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. In 2017, as a result of the Act, the remeasurement of U.S. deferred tax liabilities
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
and the U.S. tax on unremitted earnings were accrued as provisional estimates. 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, 2017 and 2016 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
December 31,
2017
2016
$
$
(77,415)
(60,340)
(133,908)
(106,488)
(22,468)
(400,619)
48,387
66,270
11,380
12,476
11,544
108,006
82,285
9,920
51,436
401,704
(178,156)
223,548
(177,071)
$
(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)
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 $287 million as of December 31, 2017, 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 $82 million, of which $49
million can be carried forward indefinitely and the remainder expire over the next five to 15 years.
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
81
2017
124,728
528
(31,470)
5,951
(6,953)
(3,017)
89,767
$
$
2016
2015
$
139,249
$
132,495
—
(21,207)
10,867
(1,791)
(2,390)
124,728
$
7,637
(16,753)
23,533
(3,831)
(3,832)
139,249
$
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The amount of the unrecognized tax benefits at December 31, 2017, 2016 and 2015 that would affect the effective tax rate if recognized
was $74 million, $104 million and $117 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 $(4)
million, less than $1 million and $(4) million related to uncertain tax positions in our provision for income taxes for the years ended
December 31, 2017, 2016 and 2015 respectively. We had $4 million and $9 million accrued for the payment of interest and penalties at
December 31, 2017 and 2016, 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 2013
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 2012 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 2012 and the U.K., closed through the end of 2015, 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.
14. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, 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.
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
15. Leases
We lease office space and equipment 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 $46 million, $45 million
and $47 million in 2017, 2016 and 2015, respectively. Future minimum lease payments under non-cancelable operating leases at
December 31, 2017 were as follows:
Years ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
16. Stockholders' Equity (Deficit)
Preferred and Preference Stock
$
47,820
39,107
30,180
22,266
15,256
63,685
$
218,314
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 both December 31, 2017 and 2016. 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, 2017 and 2016, there were 16,301 shares and 17,832 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, 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
Balance at December 31, 2016
Issuance of common stock
Conversions to common stock
Balance at December 31, 2017
Common Stock
Outstanding
201,027,964
(6,476,796)
943,686
26,354
195,521,208
(10,633,235)
767,060
13,685
185,668,718
881,480
53,540
186,603,738
Treasury Stock
122,309,948
6,476,796
(943,686)
(26,354)
127,816,704
10,633,235
(767,060)
(13,685)
137,669,194
(881,480)
(53,540)
136,734,174
At December 31, 2017, 33,691,570 shares were reserved for issuance under our stock plans, dividend reinvestment program and the
conversion of Preferred Stock and Preference Stock.
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
17. Accumulated Other Comprehensive Income (Loss)
Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015 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 (benefit) provision
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,
2017
2016
2015
$
$
$
$
$
$
(179)
(32)
(2,028)
(2,239)
(872)
(1,367)
(520)
(201)
(319)
8
(166)
(40,606)
(40,764)
(13,936)
(26,828)
$
$
$
$
$
$
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)
(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).
84
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, 2017, 2016 and 2015 were as follows:
Balance January 1, 2015
$
(4,689) $
2,966
$
(786,079) $
(58,354) $
Cash flow
hedges
Available-for-
sale securities
Pension and
postretirement
benefit plans
Foreign
currency
adjustments
Total
(846,156)
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, 2015
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, 2016
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, 2017
$
546
231
777
(3,912)
1,095
1,332
2,427
(1,485)
(288)
1,367
1,079
(406) $
(1,715)
(715)
(2,430)
536
(1,109)
693
(416)
120
1,158
319
1,477
1,597
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)
24,096
(49,045)
(787,813)
—
(4,464)
(150,955)
26,121
(51,498)
(940,133)
12,185
106,391
119,446
26,828
—
28,514
39,013
(748,800) $
106,391
(44,564) $
147,960
(792,173)
$
(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.
18. Stock-Based Compensation Plans
We have a long-term incentive program whereby eligible employees may be granted restricted stock units, non-qualified stock options
and performance stock units. The Executive Compensation Committee of the Board of Directors administers these plans. We settle stock
awards with treasury shares. At December 31, 2017, there were 15,725,806 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 RSUs during 2017 and 2016:
Outstanding - beginning of the year
Granted
Vested
Forfeited
Outstanding - end of the year
2017
2016
Shares
1,609,459
1,995,473
(784,295)
(169,584)
2,651,053
Weighted
average grant
date fair value
17.50
$
13.24
19.42
14.76
$
14.16
Shares
1,727,214
826,546
(822,290)
(122,011)
1,609,459
Weighted
average grant
date fair value
$
$
18.30
17.20
19.91
19.97
17.50
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,
2017, there was $15 million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-
average period of 1.8 years. The intrinsic value of RSUs outstanding at December 31, 2017 was $28 million. The intrinsic value of RSUs
vested during 2017, 2016 and 2015 was $26 million, $14 million and $18 million, respectively. The fair value of RSUs vested during
85
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2017, 2016 and 2015 was $14 million, $21 million and $14 million, respectively. During 2015, we granted 809,436 RSUs at a weighted
average fair value of $21.15.
Non-employee directors receive restricted stock units which are convertible into shares of common stock one year from date of grant. In
2017 and 2016, we granted 63,090 and 54,855 restricted stock units, respectively, to non-employee directors.
Performance Stock Units
Performance stock units (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.
The following table summarizes share information about PSUs during 2017:
Outstanding - beginning of the year
Granted
Performance adjustments
Forfeited
Outstanding - end of the year
Years Ended December 31,
2017
379,898
1,073,934
(226,154)
(82,653)
1,145,025
2016
1,107,515
889,599
(1,400,425)
(216,791)
379,898
Total share-based compensation expense for PSUs is recognized ratably over the service based on the product of the number shares
expected to be awarded and the fair value of an award, determined using a Monte Carlo simulation model. The fair value of an award
and the number of shares expected to be awarded is updated 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.
Stock Options
Stock options are granted 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 years and expire ten years from the date of grant. At December 31, 2017, there was $4 million of unrecognized
compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.7 years. The intrinsic
value of options outstanding and options exercisable at December 31, 2017 was not significant. No stock options were exercised in 2017
or 2016.
The following table summarizes information about stock option activity during 2017 and 2016:
Options outstanding - beginning of the year
Granted
Canceled
Expired
Options outstanding - end of the year
Options exercisable - end of the year
2017
2016
Per share
weighted
average
exercise prices
27.13
$
13.16
20.34
46.88
21.67
$
Shares
9,122,762
2,553,510
(63,517)
(1,117,716)
10,495,039
6,690,250
$
25.57
Per share
weighted
average exercise
prices
$
$
$
31.26
16.87
19.48
42.62
27.13
27.47
Shares
8,771,600
1,758,760
(157,176)
(1,250,422)
9,122,762
7,140,772
86
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following table provides additional information about stock options outstanding and exercisable at December 31, 2017:
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
$13.11 - $14.26
$14.27 - $21.89
$21.90 - $24.77
$24.78 - $36.96
2,653,510
$
2,347,595
2,683,597
2,810,337
10,495,039
$
13.17
17.07
23.29
31.98
21.67
8.9 years
7.2 years
2.3 years
1.8 years
4.9 years
100,000
$
1,296,316
2,683,597
2,610,337
6,690,250
$
13.39
17.22
23.29
32.53
25.57
4.9 years
6.4 years
2.3 years
1.3 years
2.8 years
The fair value of stock options is determined 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 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
Employee Stock Purchase Plan
Years Ended December 31,
2017
2016
5.7%
29.7%
2.3%
7 years
$2.00
$5,107
4.5%
29.0%
1.6%
7 years
$2.85
$5,013
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 150,629 shares and
147,680 shares in 2017 and 2016, respectively. We have reserved 2,770,428 common shares for future purchase under the ESPP.
19. Quarterly Financial Data (unaudited)
2017
Revenue
Cost of revenues
Operating expenses
Income from continuing operations before income taxes
Provision for income taxes
Net income - Pitney Bowes Inc.
Basic earnings per share (1)
Diluted earnings per share (1)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
836,640
$
821,371
$
842,820
$ 1,049,117
$ 3,549,948
374,174
365,917
96,549
31,416
65,133
0.35
0.35
$
$
$
382,565
384,953
53,853
4,952
48,901
0.26
0.26
$
$
$
401,306
366,549
74,965
17,607
57,358
0.31
0.31
$
$
$
564,624
426,871
57,622
(32,326)
89,948
0.48
0.48
$
$
$
1,722,669
1,544,290
282,989
21,649
261,340
1.40
1.39
$
$
$
(1) The sum of earnings per share amounts may not equal the totals due to rounding.
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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
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
Net income (loss) - Pitney Bowes Inc.
$
58,046
$
53,590
$
65,512
$
(84,343) $
4,594
4,594
4,593
5,264
19,045
92,805
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.
$
$
$
$
$
$
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 includes 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 earnings per share amounts may not equal the totals due to rounding.
88
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
2017
2016
2015
Valuation allowance for deferred tax asset
2017
2016
2015
$
$
$
$
$
$
14,372
9,997
12,455
127,095
132,624
116,935
$
$
$
$
$
$
9,770
6,797
430
53,782
6,523
21,232
$
$
$
$
$
$
(8,157)
(2,422)
(2,888)
(2,721)
(12,052)
(5,543)
$
$
$
$
$
$
15,985
14,372
9,997
178,156
127,095
132,624
89
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, 2018
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, 2018
/s/ Stanley J. Sutula III
Stanley J. Sutula III
Executive Vice President, Chief Financial Officer (Principal
Financial Officer)
February 22, 2018
/s/ Joseph R. Catapano
Joseph R. Catapano
/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, Chief Accounting Officer (Principal Accounting
Officer)
February 22, 2018
Non-Executive Chairman - Director
February 22, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
90
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
Exhibit 12
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
2017
2016
2015
2014
2013
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
$
282,989
$
246,370
$
610,825
$
431,196
$
383,954
171,845
148,044
162,909
174,661
195,368
15,340
—
14,927
—
15,807
—
18,367
—
22,259
973
470,174
$
409,341
$
789,541
$
624,224
$
602,554
171,845
$
148,044
$
162,909
$
174,661
$
195,368
15,340
14,927
15,807
18,367
22,259
$
$
—
30,917
29,878
29,878
27,841
$
187,185
$
193,888
$
208,594
$
222,906
$
245,468
Ratio of earnings to fixed charges (2)
2.51
2.11
3.79
2.80
2.45
(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, 2017)
Exhibit 21
Subsidiary Name
Alternative Mail & Parcels Investments Ltd
AtLast Holdings Inc.
B. Williams Funding Corp.
Borderfree Canada, Inc.
Borderfree Limited
Borderfree Research and Development Ltd.
Borderfree Trading (Shanghai) Co., 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
Country or state of incorporation
United Kingdom
Colorado
Delaware
Canada
Ireland
Israel
China
United Kingdom
Delaware
Delaware
Connecticut
Deleware
Connecticut
New York
Hong Kong
Delaware
Intreprinderea Cu Capital Strain "Tacit Knowledge" S.R.L (Moldova)
Republic of Moldova
MapInfo Realty LLC
MOUNT VERDE INSURANCE COMPANY, INC.
Newgistics, Inc.
NGS Holdings, Inc.
NGS Intermediate Holdings, Inc.
OLDEMT LIMITED
OldEurope Limited
OldMS Limited
OLDPBIMS Limited
OldPBSL
PB Can LP II
PB Can US Holding LLC
PB Equipment Management Inc.
PB European UK LLC
PB Nova Scotia Holding Inc.
PB Nova Scotia Holdings ULC
PB Nova Scotia II ULC
PB Nova Scotia VI ULC
PB Nova Scotia VII ULC
PB Professional Services Inc.
PB US Can LLC
PB Worldwide Inc,
New York
Vermont
Delaware
Delaware
Delaware
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Canada
Delaware
Delaware
Delaware
Delaware
Canada
Canada
Canada
Canada
Delaware
Delaware
Delaware
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
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 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 PayCo Australia PTY LTD
Pitney Bowes PayCo Canada Ltd.
Pitney Bowes PayCo EMR Limited
Pitney Bowes PayCo Holdings Limited
Pitney Bowes PayCo Hong Kong Limited
Pitney Bowes PayCo Japan KK
Pitney Bowes PayCo Korea Ltd
Pitney Bowes PayCo Mexico, S. DE R.L. DE C.V.
Pitney Bowes PayCo Singapore Pte Ltd
Pitney Bowes PayCo Switzerland GmbH
Pitney Bowes PayCo UK Limited
Pitney Bowes PayCo US Inc.
Pitney Bowes Polska Sp. z.o.o.
Pitney Bowes Presort Services, Inc.
Singapore
Switzerland
Australia
Australia
Brazil
Canada
Australia
Denmark
Germany
Ireland
United Kingdom
Barbados
Delaware
United Kingdom
Delaware
United Kingdom
France
United Kingdom
India
United Kingdom
Delaware
Ireland
Italy
Japan
United Kingdom
Luxembourg
Luxembourg
New Zealand
Norway
Canada
Canada
Finland
Australia
Canada
United Arab Emirates
Ireland
Hong Kong
Japan
South Korea
Mexico
Singapore
Switzerland
United Kingdom
Delaware
Poland
Delaware
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.
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 Limited
Tacit Knowledge Latin America, S. de R.L de C.V.
Tacit Knowledge Ltd. (UK)
Tacit Knowledge, Inc.
Technopli SARL
The Pitney Bowes Bank, Inc.
Wheeler Insurance, Ltd.
Connecticut
Puerto Rico
France
Connecticut
China
Canada
United Kingdom
United Kingdom
Delaware
India
Singapore
Australia
France
Sweden
United Kingdom
Delaware
Delaware
Ohio
Norway
United Kingdom
United Kingdom
Scotland
United Kingdom
Mexico
United Kingdom
California
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,
333-66735, 333-132589, 333-132590, 333-132591, 333-132592, 333-145527, 333-190308) and on Forms S-3 (Registration Nos.
333-183070, 333-216744, 333-198756) of Pitney Bowes Inc. of our report dated February 22, 2018 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, 2018
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, 2018
/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, 2018
/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,
2017 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, 2018
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,
2017 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 III
Stanley J. Sutula III
Executive Vice President and Chief Financial Officer
Date: February 22, 2018
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.
This page intentionally left blank.
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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 7, 2018, 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 9, 2018. Please refer to the Proxy Statement for
information concerning admission to the meeting.
10-K Report
Included in this Annual Report to Stockholders is a copy of our
Annual Report on Form 10-K for the fi scal year ended December 31,
2017, as fi led 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 diff er materially because of factors discussed in the
Forward-Looking Statements section of the Form 10-K. The CEO/
CFO certifi cations required to be fi led with the SEC under Section
302 of the Sarbanes-Oxley Act of 2002 were fi led as exhibits
to our Annual Report on Form 10-K for the fi scal year ended
December 31, 2017. The CEO certifi cation required to be
submitted to the NYSE pursuant to Section 303A.12(a) of the
NYSE Listed Company Manual was submitted on June 7, 2017.
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 certifi ed to Forest Stewardship Council® (FSC®) standards.
Pitney Bowes, the Corporate Logo and other secondary marks are
trademarks of Pitney Bowes Inc. All other trademarks are the intellectual
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 certifi cates, dividends, changes of address
and other matters, please call: (800) 648-8170, TDD phone
service for the hearing impaired (855) 627-5080, for foreign
holders (720) 414-6868; or write to an address above.
Dividend Reinvestment Plan
Owners of Pitney Bowes Inc. common stock may purchase
common stock, $1 par value, with their dividends through the
Dividend Reinvestment Plan. A prospectus and enrollment card
may be obtained by calling (800) 648-8170 or (720) 414-6868
(int’l) or by writing to the agent at an address above.
Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or (720) 414-6868 (int’l) or write to the agent
at an address above.
Duplicate Mailings
If you receive duplicate mailings because you have more than
one account listing, you may wish to save your company money
by consolidating your accounts. Please call (800) 648-8170 or
(720) 414-6868 (int’l) or write to the agent at an address above.
Stock Information
Dividends per common share:
Quarter
First
Second
Third
Fourth
Total
2017
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.75
Quarterly price ranges of common stock:
2017 Quarter
First
Second
Third
Fourth
2016 Quarter
First
Second
Third
Fourth
High
$ 16.60
$ 16.26
$ 15.31
$ 14.34
High
$ 21.60
$ 21.81
$ 19.33
$ 18.20
2016
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.1875
$ 0.75
Low
$ 12.31
$ 13.24
$ 12.40
$ 9.50
Low
$ 16.24
$ 16.28
$ 16.88
$ 14.22
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3001 Summer Street, Stamford, CT 06926 203.356.5000 www.pitneybowes.com