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Leading for
the Long Term
Pitney Bowes Annual Report 2018
Pitney Bowes is transformed and continues to transform. The capabilities
we set out to build six years ago are starting to generate significant results.
And as our recent moves show, we are not done working on increasing our
ability to deliver long-term value.
%
32
of total revenues in 2018 came from
shipping, up from 2% in 2012.
Commerce Services revenue
approaching half of PBI
total revenue.
Nearly
300,000
IoT devices now in the
marketplace.
2nd
consecutive
year of
revenue
growth.
Software achieved
2nd consecutive year
of revenue growth.
In 2018, while moving the company
to growth, we reduced structural
spend by more than
$150M
Drucker Institute’s
Management Top 250
Marc B. Lautenbach
President and Chief
Executive Officer
Fellow shareholders:
One of the most persistent issues facing corporate leadership is
managing the tension between short-term and long-term perspectives
and which approach — or which combination of the two — gives a
company the best chance for success.
We are building a foundation to give Pitney Bowes the opportunity
for long-term success. This foundation is focused on pivoting to
growing markets where we have the right to win, successful
innovation, doing right by our employees, good governance and
being good corporate citizens. That is why the title of this year’s
annual report is Leading for the Long Term.
Let me be clear about two points up front. First, no one — the Pitney Bowes Board of Directors, senior
management, employees or myself — is happy about the current stock price. With that said, our focus
has been and will continue to be to take the actions to create long-term value. Investing in your
employees, your products, your brand and your systems, and making the hard decisions about your
portfolio, are not necessarily things that drive short-term results, but they are necessary to create value
for the long term. Second, investing for the long term is not an absolution for execution missteps. For
sure, we have not been perfect, but what I will say is our mistakes have been errors of commission in
our attempt to move the company forward.
1
Pitney Bowes Annual Report 2018 Letter to Shareholders
Pivoting to Markets Where We Can Win and Grow
Pitney Bowes has focused its transformation on moving
the company to logical adjacencies — shipping, financial
services to our clients for other mission-critical assets,
and digital technologies that are synergistic to our
core — where we have the right to win. One of the
critical mistakes companies make in transforming is to
either reach too far, or to forget their core. We will not
make either of those mistakes. We are investing in
markets that are logical for Pitney Bowes to participate
in and we continue to invest in our core business to
enhance our franchise mail businesses.
The history of transformations is clear — revenue
growth is the most important factor in creating long-
term value and market leadership. Simply put, you
cannot save your way to prosperity. Our results for
2018 demonstrate just how much progress we have
made on that score. Pitney Bowes turned in our second
consecutive year of revenue growth. In fact, our revenue
performance during the past two years is our best in
a decade.
Doing Right by Our Employees
One of the most important investments we make, of
course, is in our people. Pitney Bowes has long enjoyed
a special relationship with our team. This reservoir of
goodwill manifests itself in large and small ways every
day. Each year, we survey our employees on their level
of engagement. Employee engagement, like revenue
growth, is another critical factor in successful
transformations. We benchmark ourselves against other
companies going through transitions as well as against
high-performance companies. Pitney Bowes enjoys
scores well beyond other companies going through
transformation. And on measures such as innovation,
diversity and inclusion, we compare favorably to high-
performance companies.
Let me give you two examples of actions that have
fostered our employee engagement. First, Pitney Bowes
took half of the benefits we received from the reduction
in tax rates last year and put those dollars into our hourly
employees’ wages. This was not a “one time” bonus,
2
T H O U G H T L E A D E R S H I P
Two of our studies are
helping to map the
shipping and ecommerce
landscape.
The Pitney Bowes Parcel Shipping
Index compiles the industry’s most
comprehensive parcel shipping report,
along with shipping-related insights,
across 13 countries representing
3.7 billion people. The 2018 Pitney Bowes
Global Ecommerce Study is based on
surveys of more than 13,000 consumers
in 12 markets, combined with surveys
of more than 650 retailers in the US, UK
and Australia. The results are intended
to help guide retailers and marketplaces
in their investment decisions and
go-to-market strategies.
Pitney Bowes Annual Report 2018 but a permanent increase in the hourly wage for the
majority of our US employees. We have more work to
do here, but it was the right thing to do for our business
and our team.
Second, when I joined Pitney Bowes in 2012 we
increased our focus on developing the skills of our
employees. As a result, just over 40 percent of our
internal openings are now filled by our own employees
rather than outside hires. To be sure, bringing in talent
from outside the company continues to have an
important place at Pitney Bowes because they provide
outside perspectives and functional expertise, but our
internal “fill rates” are now better than the industry
average. Building our employees’ skills is the right thing
for the business and the right thing for our team.
Serving Our Clients
If any business is going to be successful in the long
term, it must take the necessary steps to serve its clients
well and deliver a superior customer experience. This
has been at the core of our transformation from the
beginning. While we still have more work to do, we
have made important progress.
Our Global Ecommerce business and our Software and
Data business, for example, made important strides in
achieving better client satisfaction in 2018, and our
Presort Services business has earned best-in-class client
satisfaction scores since I have been at Pitney Bowes.
In our SMB business, we have invested in our billing
systems and our capabilities to serve our clients better.
More work to do, but we are starting to see signs of
success. We are getting better marks from our clients on
managing specific transactions and that is the first sign
of building strong and lasting long-term relationships.
Fostering Innovation
Pitney Bowes has been an innovative company since our
inception. Almost 100 years ago we created an industry
around mail meters. That industry continues today. In
the 1970s, Pitney Bowes made an important innovation
in our business model by layering a financial services
business around our core business. To this day, the
financial services business continues to be a powerful
part of our financial model.
During the past six years we have focused on
innovations that drive more commercial success at an
accelerated pace. In 2012, less than 5 percent of our
revenue was from “new” products. Today, we generate
20 percent of our revenue from new products. In fact,
we have organically created two businesses and
grown their revenue from virtually zero to more than
$100 million.
In our SMB business, we continue to build on the success
of our digitally connected SendPro® device that delivers
mailing, shipping and other third-party applications.
The product is based on the Google Android ® operating
system. We have shipped more than 70,000 SendPro
devices in less than two years. We have nearly 300,000
IoT (Internet of Things)–connected devices in the
marketplace today.
In our Global Ecommerce business, we brought new
capabilities to our suite of offerings, including inbound
shipping from China and date-certain delivery, which
has become the standard in the marketplace of
ecommerce companies. These capabilities build on our
Newgistics fulfillment network. We continued to add to
that network, opening four new sites in 2018, including
a state-of-the-art, fully automated facility in Greenwood,
Indiana. The Newgistics capabilities continue to enjoy
very strong commercial success. Many of our shipping
capabilities are enabled by our Application Programming
Interface (API) technologies. Our shipping API business
has gone from a standing start to over $100 million
in just a few short years.
Innovation is also at the heart of our software business.
In 2018 we made important product announcements
in our location intelligence products and in our data
delivery capabilities.
Best-of-Class Governance
Pitney Bowes’ long-standing philosophy and commitment
to diversity and inclusion globally extends to our Board
of Directors. A strong independent Board brings critical
3
Pitney Bowes Annual Report 2018 Letter to Shareholders
E X PA N D I N G O U R E CO M M E R C E C A PA B I L I T I E S
We opened a highly automated
Fulfillment, Delivery and Returns
Super Center.
The new 450,000-square-foot facility, strategically located in
Greenwood, Indiana, was built from scratch as a key node in
our growing ecommerce shipping network.
thinking and a multitude of perspectives to the strategic
decisions facing the company. At Pitney Bowes, we
have shown our commitment to board diversity with
the recent addition of two women directors, bringing
the total number of women directors to five of 13, or
38 percent — a leader in the industry. The Pitney Bowes
Board of Directors carefully considers its own
composition and Board refreshment over time. This
year the Board reviewed the emerging trends for Board
refreshment and decided to change its Governance
Principles from a mandatory retirement age to an
annual, multifaceted review to maintain a mix of tenure
among its directors between short-, medium- and
longer-tenured directors. This goes along with its
annual assessment of the skills and contributions of
each current director.
Partnering with Our Communities
The final component of our foundation is our
relationship with the communities where we live
and do business around the world. Our community
approach is aligned with our culture and with
21st-century best practices in corporate citizenship.
We help to build stronger communities through a
focus on education and the purposeful community
involvement of our employees. As a technology
company, we deeply understand the importance of
fostering a new generation of innovators, creative
problem solvers and collaborators around the world.
It all builds on our core belief that every child needs
and deserves the opportunity for a strong education.
Launched in 2014, our Dedication to Education
team volunteer program continues to engage more
employees and communities worldwide. Last year, it
grew to 47 Pitney Bowes sites, nine countries and
94-plus team volunteer projects. Also, in the last year,
Pitney Bowes Foundation literacy and education grants
served 155,000 students and 4,100 teachers and
provided 4.3 million hours of student enrichment.
Through our matching gifts program, we supported
more than 1,800 nonprofit organizations globally, and
our employees provided 52,000 hours of service to
our communities.
Creating Long-Term Value for Shareholders
In the end, all of this work is focused on one objective:
increased long-term value for our shareholders. That’s
the rationale for the transformation journey we are on.
It is the point of the investments we’re making in our
business, our people, our clients and our communities.
It is why we are committed to leading for the long term.
4
Pitney Bowes Annual Report 2018 Although many companies transform by taking on debt
or increasing expense, we chose to take a different path.
The ultimate destination in our journey will be increased
profit and cash. To that end, we have worked hard to
build the financial foundation for long-term success.
Revenue growth is an important milestone — and it will
remain a key focus — but it ultimately has to be
profitable growth. During the past six years, we have
decreased our expense by nearly $400 million, reduced
inventory by 80 percent and reduced our debt-related
obligations by more than $1 billion, while returning over
$1 billion dollars to our shareholders and investing in
our products, systems and our people. We have done
all of this while achieving revenue growth.
2018 was a year of stabilization in terms of our profit
and cash performance, but we clearly have more work
to do. We will continue to invest in our business and in
growth, but more of our focus is now turning to
realize the profits from the work we have done.
As we approach our centennial next year — a milestone
few companies reach — it might be reasonable to say
that Pitney Bowes is a good example of a company
built for the long term. But we don’t take longevity for
granted. It has to be earned through an unrelenting
commitment to create long-term value for our
shareholders, employees, clients and communities.
Rest assured, we will continue to be guided by
the principle of creating long-term value and we
understand fully that success is never guaranteed.
But, I like our chances.
Marc B. Lautenbach
President and
Chief Executive Officer
P R O D U C T I N N OVAT I O N
SendPro® all-in-one,
multi-application device
is a complete sending
solution.
The SendPro sending device for office
mailing and package shipping eliminates
guesswork and allows our clients to process
mail and send packages all from one place.
The flagship product has already reached
more than 70,000 in sales, and — leveraging
an Android-based open platform — now
supports third-party apps and advanced
technology such as machine learning, IoT
and analytics.
5
Pitney Bowes Annual Report 2018 Summary of Selected Financial Data
For the year
(dollars 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
Diluted earnings per share
Free cash flow
EBIT to interest
EBITDA
2018
2017
2016
$ 3,522,380
$ 223,665
$
1.06
$ 392,262
$ 203,293
$ 191,444
$
0.75
188,382
$ 5,972,903
$ 3,265,608
$ 239,472
$ 3,123,272
$ 261,340
$
1.18
$ 495,813
$ 179,650
$ 168,097
$
0.75
187,435
$ 6,687,420
$ 3,830,335
$ 188,561
13,300
14,700
$ 442,090
$ 218,672
$
1.16
$ 318,106
2.8x
$ 446,455
$ 220,658
$
1.18
$ 354,516
2.7x
$ 2,981,323
$
$
92,805
0.40
$ 496,122
$ 174,065
$ 159,232
$
0.75
188,975
$ 5,837,133
$ 3,364,890
$ (103,660)
14,200
$ 560,597
$ 273,253
$
1.45
$ 340,631
3.9x
$ 645,383
$ 626,105
$ 734,662
6
Pitney Bowes Annual Report 2018
Reconciliation of Reported Consolidated
Results to Adjusted Results
For the year
(amounts in thousands, except per share data)
2018
2017
2016
Net Income
Less: Preferred stock dividends attributable to noncontrolling interests
$ 223,665
—
$ 261,340
—
$ 111,850
19,045
Net income — Pitney Bowes Inc.
Income from discontinued operations, net of tax
Pension settlement
Restructuring charges and asset impairments, net
Tax legislation
State tax valuation allowance — Production Mail Business sale
Transaction costs
Loss on extinguishment of debt
Gain on sale of technology
Goodwill impairment
Impact of divestiture transactions
Preferred stock redemption
Adjusted net income
Preferred stock dividends attributable to noncontrolling interests,
as adjusted
Provision for income taxes, as adjusted
Interest expense, net
EBIT
Depreciation and amortization
EBITDA
Diluted earnings per share
Income from discontinued operations, net of tax
Pension settlement
Restructuring charges and asset impairments, net
Tax legislation
State tax valuation allowance — Production Mail Business sale
Transaction costs
Loss on extinguishment of debt
Gain on sale of technology
Goodwill impairment
Impact of divestiture transactions
Preferred stock redemption
Adjusted diluted earnings per share
Net cash provided by operating activities
Net cash provided by (used in) operating activities —
discontinued operations
Capital expenditures
Restructuring payments
Pension plan contribution
Reserve account deposits
Transaction costs paid
223,665
(23,687)
23,402
20,950
(36,909)
2,628
2,690
5,933
—
—
—
—
218,672
—
63,661
159,757
442,090
203,293
261,340
(39,978)
—
37,248
(38,774)
—
4,052
2,375
(5,605)
—
—
—
220,658
—
61,635
164,162
446,455
179,650
92,805
(17,036)
—
40,522
—
—
206
—
—
146,433
3,893
6,430
273,253
15,415
127,718
144,211
560,597
174,065
$ 645,383
$ 626,105
$ 734,662
$
1.19
(0.13)
0.12
0.11
(0.20)
0.01
0.01
0.03
—
—
—
—
$
1.16
$ 392,262
29,103
(191,444)
52,974
—
21,008
14,203
$
1.39
(0.21)
—
0.20
(0.21)
—
0.02
0.01
(0.03)
—
—
—
$
0.49
(0.09)
—
0.21
—
—
—
—
—
0.77
0.02
0.03
$
1.18
$
1.45
$ 495,813
$ 496,122
(29,004)
(168,097)
37,454
—
10,954
7,396
(93,213)
(159,232)
62,071
36,731
(2,183)
335
Free cash flow
$ 318,106
$ 354,516
$ 340,631
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 before interest, taxes, depreciation and amortization (EBITDA), adjusted earnings per share, adjusted net income 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 the 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 2018
*As of March 1, 2019
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
Bill Borrelle
Senior Vice President and
Chief Marketing 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
Roger J. Pilc
Executive Vice President and
Chief Innovation Officer
Debbie D. Salce
Vice President and Treasurer
Joseph Schmitt
Senior Vice President,
Enterprise Information
Technology and Operations
Lila Snyder
Executive Vice President and
President, Commerce Services
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
Linda G. Alvarado
President and
Chief Executive Officer,
Alvarado Construction, Inc.
Anne M. Busquet
Principal,
AMB Advisors, LLC
Robert M. Dutkowsky
Executive Chairman
and Advisor to CEO,
Tech Data
Roger Fradin
Retired Vice Chairman,
Honeywell International Inc.
Anne Sutherland Fuchs
Consultant
Mary J. Steele Guilfoile
Chairman,
MG Advisors, Inc.
S. Douglas Hutcheson
Senior Advisor of Technology,
Media and Telecom for
Searchlight Capital
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 2018 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, 2018
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 on its corporate website, if any, every Interactive Data File required to be
submitted 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 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," "smaller reporting company," and "emerging growth
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, 2018, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $1.6 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, 2019: 188,243,432 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 6, 2019, are incorporated by
reference in Part III of this Form 10-K.
1
PITNEY BOWES INC.
TABLE OF CONTENTS
PART I
Page Number
3
8
12
12
13
13
14
15
16
30
30
30
30
31
32
32
32
32
32
33
35
36
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
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.
Item 9A. Controls and Procedures
Item 9B. Other Information
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Financial Statements and Supplementary Data
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Item 11.
Item 12.
Executive Compensation
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.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
Consolidated Financial Statements and Supplemental Data
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,
except as required by law. Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-
looking statements in documents attached that are incorporated by reference speak only as of the date of those documents.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed
or incorporated by reference in our filings with the Securities and Exchange Commission. Factors which could cause future financial
performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include,
without limitation:
•
•
•
•
•
•
•
declining physical mail volumes
changes in postal regulations or changes in, or loss of, our contractual relationships with the U.S. Postal Service (USPS) or posts
in other major markets
competitive factors, including pricing pressures; technological developments and the introduction of new products and services
by competitors
the United Kingdom's likely exit from the European Union (Brexit)
our success in developing and marketing new products and services and obtaining regulatory approvals, if required
changes in banking regulations or the loss of our Industrial Bank charter
changes in labor conditions and transportation costs
• macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign
currency exchange rates and interest rates
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in global political conditions and international trade policies, including the imposition or expansion of trade tariffs
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 cyber-attack or other comparable event
third-party suppliers' ability to provide products and services required by our clients
our success at managing the relationships with outsource providers, including the costs of outsourcing functions and operations
capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable
costs
our success at managing customer credit risk
integrating newly acquired businesses, including operations and product and service offerings
the loss of some of our larger clients in our Commerce Services group
intellectual property infringement claims
significant changes in pension, health care and retiree medical costs
income tax adjustments or other regulatory levies from tax audits and changes in tax laws, rulings or regulations
the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks
acts of nature
Further information about factors that could materially affect us, including our results of operations and financial condition, is
contained in Item 1A. "Risk Factors" in this Annual Report.
3
ITEM 1. BUSINESS
General
Pitney Bowes Inc. (we, us, our, or the company), is 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. Pitney Bowes Inc. was incorporated in the state of Delaware in 1920. For more information about
us, our products, services and solutions, visit www.pb.com.
Business Segments
Our business is organized around three distinct sets of solutions -- Commerce Services, Small and Medium Business Solutions (SMB
Solutions), and Software Solutions.
Commerce Services
Our Commerce Services group includes our cross-border solutions, shipping solutions, fulfillment, delivery and return services and
presort services. The Commerce Services group includes our Global Ecommerce and Presort Services segments.
Global Ecommerce
Global Ecommerce includes our cross-border ecommerce solutions, domestic retail and ecommerce shipping solutions and fulfillment,
delivery and return services. 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, from simple solutions that allow a customer to print shipping
labels to full service solutions from time of order to time of delivery and return. 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 all duty, tax and shipping costs 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 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. Powered by our shipping application programming interface (API)
technology, an integral part of the Pitney Bowes Commerce Cloud, we can provide easy access to shipping and tracking services that can
be easily integrated into any web application such as online shopping carts or ecommerce sites and provide guaranteed delivery times
and flexible payment options. We do not perform the physical shipping function; however, our technology allows users to select the best
shipper based on need and cost.
Presort Services
We are a workshare partner of the USPS and national outsource provider of mail sortation services that allow clients to qualify large
volumes of First-Class Mail, Marketing Mail and Bound and Packet Mail (Standard Flats and Bound Printed Matter) for postal worksharing
discounts. We process over 16 billion pieces of mail annually through our network of operating centers throughout the United States.
Our Presort Services network and fully-customized proprietary technology provides clients with end-to-end solutions from pick up at
their location to delivery into the postal system network, expedited mail delivery and optimal postage savings.
Small and Medium Business Solutions
We are a global leader in providing a full range of equipment, technology, supplies and services that enable our clients to efficiently create
mail, evidence postage and help simplify and save on the sending, tracking and receiving of mail, flats and parcels. We are a leading
global provider of sending systems and technology. Our cloud enabled infrastructure provides software-as-a-service (SaaS) offerings
delivered online and via connected or mobile devices. Our latest offerings are designed on an open platform architecture that leverages
partnerships with other innovative companies as well as an ecosystem of developers to deliver new value to our clients. Within the SMB
Solutions group is the North America Mailing segment, comprised of the sending operations in the U.S. and Canada, and the International
Mailing segment, comprised of all other sending businesses globally.
4
We will begin offering expanded third-party leasing solutions to our existing SMB client base in the United States in 2019. Under this
program, in addition to leasing options for our mailing equipment products, we will offer leasing alternatives for our existing SMB client
base to lease other manufacturers' equipment to meet their business needs.
Software Solutions
Within Software Solutions, we offer data, customer information management, location intelligence and customer engagement solutions.
These solutions are delivered as on-premise licenses or on-demand/SaaS applications.
Data solutions enable businesses to identify addresses, locations, businesses and individuals. Our address-centric approach provides us
the ability to verify, standardize, locate and enrich both physical and digital addresses with actionable insights. The quality and accuracy
of data is foundational to many business processes, including the identification and mitigation of risk and fraud, the onboarding of and
marketing to customers and potential customers, and helping organizations better serve their customers.
Customer information management solutions help businesses identify high-value customers and prospects, develop a deep and broad
understanding of their customers and provide a single view of the customer in context to their location, relationships 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 businesses to 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 to better serve their customers, solve business problems, deliver
location-based services and drive business growth.
Customer engagement solutions enable businesses 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. Our customer engagement solutions
enable businesses to create connected experiences that positively influence future consumer behavior and generate business growth.
Seasonality
As our business continues to transform and shipping becomes a bigger part of our financial performance, a larger percentage of our
revenue and earnings will be earned in the fourth quarter relative to the other quarters, driven primarily by the impact of the holiday
season on Commerce Services.
Client Service
We provide call-center, online and on-site support services for our products and solutions. Most of our support services are provided
under maintenance contracts.
Sales and Marketing
We market our products, solutions and services through a direct and inside sales force, global and regional partner channels, direct mailings
and web-based offerings.
Competition
All of our businesses face competition from a number of companies. Our competitors range from large, multinational companies that
compete against many of our businesses to smaller, more narrowly focused regional and local firms. We compete on the basis of technology
and innovation; breadth of product offerings; our ability to design and tailor solutions to specific client needs; performance; client service
and support; price; quality and brand.
We must continue to invest in our current technologies, products and solutions, and in the development of new technologies, products
and solutions in order to maintain and improve our competitive position. We will encounter new competitors as we transition to higher
value markets and offerings and enter new markets.
5
A summary of the competitive environment for each of our business segments is as follows:
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. We also 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, reliability
and scalability of our platform and logistics services, our ability to provide clients and their customers a one-stop full-service ecommerce
experience and the ability to provide a more customized shipping solution to smaller businesses than some of our larger competitors in
the industry. 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.
Presort Services
We face competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service
bureaus that offer presort solutions as part of a larger bundle of outsourcing services. While not necessarily competitors in the traditional
sense, large mail owners have the capability to presort their own mailings in-house. The principal competitive factors include innovative
service, delivery speed, tracking and reporting, industry expertise and economies of scale. Our competitive advantages include our
extensive network of presort facilities capable of processing significant volumes and our innovative and proprietary technology that
enables us to provide our clients with reliable, secure and precise services offering maximum postage discounts.
North America Mailing and International Mailing
We face significant competition from other mail equipment and software providers, companies that offer products and services as alternative
means of message communications and those that offer shipping and mailing products and services through on-line solutions. Additionally,
as competitive alternative communication methods in comparison to mail grow, our SMB Solutions operations could be affected. We
differentiate ourselves in many areas including: 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, services and supplies. 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 not 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.
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 and price. We compete
based on the accuracy, breadth, scalability and processing speed of our products and solutions, our geocoding and reverse geocoding
capabilities, our expertise in address validation, and our ability to identify rapidly changing customer needs and develop technologies
and solutions to meet these changing needs.
Financing Solutions
We offer a variety of solutions that enable clients to finance equipment and product purchases, make rental and lease payments, replenish
postage and purchase supplies. As 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
6
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.
In 2019, we will begin offering expanded third-party leasing solutions to our existing SMB client base in the United States. Under this
program, we will offer leasing alternatives for our existing SMB client base to lease other manufacturers' equipment to meet their business
needs. By offering this program to our existing SMB clients, we will be able to leverage our extensive credit review and history of these
clients to establish credit limits and control risk.
Research, Development and Intellectual Property
We invest in research and development activities 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 historical research and development efforts, we have been awarded a number of patents with respect to
several of our innovations and products. However, as we transition our business to more software and service-based offerings and patent
laws make it more difficult to obtain patent protection, we now rely more on trade secrets and confidentiality. Our businesses are not
materially dependent on any one patent or license or group of related patents or licenses.
Third-party Suppliers
We depend on third-party suppliers for a variety of services and product components and other vendors to enable our product and shipping
solutions. In certain instances, we rely on single-sourced or limited-sourced suppliers and vendors 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.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide related to product specifications of our postage meters. Our Presort
Services business practices are also subject to regulations of the USPS. The operations of the Bank and certain company affiliates that
provide services to the Bank are subject to the regulations of the Utah Department of Financial Institutions and the FDIC. We are also
subject to transportation, customs and trade regulations worldwide related to our cross-border shipping services and regulations 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, 2018, we have approximately 13,300 employees worldwide. We believe that we maintain strong relationships with our
employees. Management keeps employees informed of decisions and encourages and implements employee suggestions whenever
practicable.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto filed
with, or furnished to, the Securities and Exchange Commission (the SEC), are available, free of charge, through the Investor Relations
section of our website at www.pb.com/investorrelations or from the SEC's website at www.sec.gov, as soon as reasonably practicable
after these reports are electronically filed with, or furnished to, the SEC. The other information found on our website is not part of this
or any other report we file with or furnish to the SEC.
7
Executive Officers of the Registrant
Our executive officers are:
Name
Age
Title
Marc B. Lautenbach
Jason C. Dies
Daniel J. Goldstein
Robert Guidotti
Roger J. Pilc
Lila Snyder
Christoph Stehmann
Stanley J. Sutula III
Johnna G. Torsone
57
49
57
61
51
46
56
53
68
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 Innovation Officer
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
Executive
Officer Since
2012
2017
2010
2016
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. Snyder was elected to the office of Executive Vice President and President, Commerce Services in January 2016. She joined the
company in November 2013 as President, 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.
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.
Significant disruptions to postal operations or adverse changes to our relationships with posts in the United States or elsewhere could
adversely affect our financial results.
We are dependent on a healthy postal sector in the geographic markets where we operate both our mailing and shipping businesses,
particularly in the United States. A significant portion of our revenue also depends on our contractual relationships with posts. Changes
in the financial viability of the major posts, or the statutes and regulations determining how they operate, or changes in our contractual
relationships with these posts, could materially adversely affect the financial performance of the businesses we conduct with them.
8
We are subject to postal regulations and processes, which could adversely affect our financial results.
A significant portion of our business is subject to regulation and oversight by the USPS and posts in other major markets. These postal
authorities have the power to regulate our current products and services and regulate and approve many of our new or future product and
service offerings. If our new or future product and service offerings are not approved, if there are significant conditions to approval or,
if regulations on our existing products or services are changed, our financial performance could be adversely impacted.
If we are not able to respond to the continuing decline in the volume of physical mail delivered via traditional postal services, our financial
performance could be adversely impacted.
Traditional mail volumes continue to decline and impact our current and future financial results. However, we have employed, and will
continue to employ, strategies to stabilize the mailing business, including introducing new digital product and service offerings and
providing 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 communication behavior, technologies, reductions to the Universal
Service Obligation (USO) under which national posts, including the USPS, deliver to every address in a country with similar pricing and
frequency, and 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 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 performance could be adversely impacted.
If we or our suppliers are unable to protect our information technology systems against misappropriation of data, or breaches of security
resulting from cyberattacks or other similar events, our operations could be disrupted, our reputation may be harmed, the confidentiality
of our data and intellectual property may be violated, and we could be subject to legal liability or regulatory enforcement action.
We depend on the security of our and our suppliers' information technology systems to support numerous business processes and activities,
to support and service our clients and to support consumer transactions and postal services. Several of our businesses use, process and
store proprietary information and personal, sensitive or confidential data relating to consumers and our businesses, clients and employees.
Privacy laws and similar regulations in many jurisdictions where we do business require that we take significant steps to safeguard such
information, and 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 became effective in May 2018, 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 to supervisory authorities and affected
parties. 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.
There are numerous risks to cybersecurity and privacy, including individual and groups of criminal hackers, industrial espionage, denial
of service attacks, computer viruses, vandalism and employee errors and/or malfeasance. 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 to protect against
unauthorized access to information. We also require our suppliers who host our information technology systems or have access to sensitive
data to have appropriate security measures in place. 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. Although
we maintain insurance coverage relating to cybersecurity incidents, we may incur costs or financial losses that are either not insured
against or not fully covered through our insurance.
As we increase our reliance on cloud-based applications for both our internal and external services, if we or our suppliers encounter
unforeseen interruptions or difficulties in the operation of those applications, our operations could be disrupted, our reputation and
relationships may be harmed and our financial performance may be impacted.
Our business relies upon the continuous and uninterrupted performance of our, and our suppliers', cloud-based applications and systems
to support numerous business processes, to service our clients and to support consumer transactions and postal services. Our applications
and systems, and those of our partners, may be subject to interruptions due to technological errors, system capacity constraints, software
9
errors or defects, human errors, computer or communications failures, power loss, adverse acts of nature and other unexpected events.
We have business continuity and disaster recovery plans in place to protect our business operations in case of such events and we also
require our suppliers to have the same. Nonetheless, there can be no guarantee that these plans will function as designed. If we are unable
to limit interruptions or successfully correct them in a timely manner or at all, it could result in lost revenue, loss of critical data, significant
expenditures of capital, a delay or loss in market acceptance of our services and damage to our reputation, brand and relationships, any
of which could have an adverse effect on our business and financial performance.
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 and product components, the hosting of our software-
as-a-service offerings, 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, or these third-party suppliers choose to terminate their relationship with us or make material changes to their businesses
or if certain of their costs were to increase and we were not able to find alternate suppliers, we could experience significant disruptions
in manufacturing and operations (including product shortages, higher freight costs and re-engineering costs) as well as increased costs
in the logistics portion of our ecommerce business. 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 financial performance.
The transformation of our businesses to more digital and commerce services will result in a decline in our overall profit margins. If we
cannot increase our volumes while at the same time reduce our costs, our financial performance could be impacted.
As we transform our businesses to more digital and commerce services, the revenue contribution from our Commerce Services segments
have increased relative to our SMB Solutions and Software Solutions segments and is expected to continue to increase in the future. The
profit margins in Commerce Services are lower than the profit margins in SMB Solutions and Software Solutions. Additionally, rising
labor and transportation costs have a bigger impact on profit margins in Commerce Services as compared to SMB Solutions and Software
Solutions because in Commerce Services we rely on a significant number of hourly workers at our facilities and on third parties to transport
packages on behalf of our clients. Margin improvement within Commerce Services is highly dependent on increasing volumes and
lowering costs. Accordingly, if we cannot obtain sufficient scale by increasing our volumes while at the same time reducing our costs in
Commerce Services significantly enough to improve profit margins, our overall financial performance could be adversely impacted.
Future credit rating downgrades or capital market disruptions could adversely affect our ability to maintain adequate liquidity 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, dividend payments and share repurchases. We fund these
activities through a combination of cash generated from operations, deposits held at the Bank and access to capital markets. Our ability
to access the U.S. capital markets and the associated cost of borrowing is dependent upon our credit ratings and is subject to capital
market volatility. Given our current credit rating, we may not have immediate or sufficient access to the U.S. capital markets, and when
we do access the U.S. capital markets, we may experience reduced financial or strategic flexibility as well as higher costs. To support
our long-term strategic initiatives, our leverage may continue to increase, which could result in further credit rating downgrades. A
significant decline in cash flows, further credit rating downgrades, material capital market disruptions, significant withdrawals by
depositors at the Bank, adverse changes to our industrial loan charter or an increase in our credit default swap spread could impact our
ability to maintain adequate liquidity to provide competitive finance offerings to our clients, refinance maturing debt and fund other
financing activities, which in turn, could adversely affect our financial performance.
The international nature of our Global Ecommerce business exposes us to increased customs and regulatory risks from cross-border
transactions and foreign exchange rate fluctuations. The loss of any of our largest clients in our Global Ecommerce segment could have
a material adverse effect on the 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 financial
performance.
The 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 U.S., U.K. and Australia and a majority of consumers making purchases
10
through these platforms are in a limited number of foreign countries. A strengthening of the U.S. Dollar or British Pound relative to
currencies in the countries where we do the most business impacts our ability to compete internationally as the cost of similar international
products improves relative to the cost of U.S. and U.K. retailers' products. A strong U.S. Dollar or British Pound would likely result in
a decrease in international sales volumes, which would adversely affect the segment's revenue and profitability.
The Global Ecommerce segment receives a large portion of its revenue from a relatively small number of clients and business partners.
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 international operations may be adversely impacted by the United Kingdom's likely exit from the European Union.
In March 2017, the U.K. issued a formal notification of its intention to leave the European Union (EU). The U.K. is expected to exit the
EU (Brexit) on March 29, 2019, unless an extension is agreed upon by the parties. Approximately 12% of our consolidated revenue is
generated from counties in the EU, including the U.K. Although the ultimate outcome of Brexit is unknown, the effects of Brexit may
adversely impact global economic conditions, contribute to instability in global financial and foreign exchange markets, impact trade
and commerce, including the imposition of additional tariffs and duties and require additional documentation and inspection checks of
the movement of goods between the U.K. and EU countries, leading to delays at ports of entry and departure. In particular, Brexit may
have an adverse effect on cross-border ecommerce both into and out of the U.K. Brexit may also affect our supply chain for our International
Mailing segment. Any of these and other changes, implications or consequences of Brexit could adversely affect our financial performance.
Our operations may be negatively impacted by the recent developments in trade policies and tariffs.
We source certain parts and components used in our mailing products from manufacturers located outside of the U.S. and we sell certain
of our products to customers located outside the U.S. The U.S. Administration has increased tariffs on certain goods imported into the
U.S. from countries that we source parts and components from and has raised the possibility of imposing significant additional tariff
increases. The announcement of tariffs on imported goods has triggered actions by certain foreign governments and may trigger additional
actions by those and other foreign governments. These types of bilateral tariffs could materially increase the cost of certain import products,
impact or limit the availability of such products, and/or decrease demand for certain of our products, which could adversely affect our
financial performance. The tariffs already imposed have increased our costs and if such tariffs are increased any further, it will increase
our costs even more.
Our business depends on our ability to attract and retain employees at a reasonable cost to meet the needs of our business and to
consistently deliver highly differentiated competitive offerings.
Given the rapid growth of the ecommerce industry, there has been intense competition for employees in the shipping, transportation and
logistics industry, including drivers and factory employees. There is also significant competition for the talent needed to continue to
develop our products. If we are unable to find and retain sufficient employees at a reasonable cost, or if the compensation required grows
too rapidly, it may adversely affect our financial performance.
Our inability to obtain and protect our intellectual property and defend against claims of infringement by others may negatively impact
our financial performance.
Our businesses are not materially dependent on any one patent or license or group of related patents and licenses; however, 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. As we transition our business to more software and service-based offerings, product clearance and patent protection
of these innovations are more difficult to obtain and we face increased risk of patent infringement assertions. 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
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.
11
If we fail to comply with government contracting regulations, our financial performance, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities, including the USPS. 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 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 fully realize the anticipated benefits of strategic acquisitions and divestitures which may harm our financial performance.
As we transition our business to sustainable long-term growth, we may make strategic acquisitions or divest certain businesses. These
actions may involve significant risks and uncertainties, which could have an adverse effect on our financial performance, including:
•
•
•
•
•
difficulties in achieving anticipated benefits or synergies;
difficulties in integrating any newly acquired businesses and operations, including combining product and service offerings and
entering new markets, or reducing fixed costs previously associated with divested businesses;
the loss of key employees or clients of businesses acquired or divested;
significant charges for employee severance and other restructuring costs, legal, accounting and financial advisory fees; and
possible goodwill and asset impairment charges as divestitures and changes in our business model may adversely affect the
recoverability of certain long-lived assets and valuation of our operating segments.
Our capital investments to develop new products and offerings or expand our current operations may not yield the anticipated benefits.
As we transform the company’s businesses, we are making significant capital investments in new products, services, and facilities. If
we are not successful in these new product or service introductions at the levels anticipated when making the investments, there may be
an adverse effect on our financial performance.
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 risks 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 on our financial performance.
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. Our research and
development facilities are located in Noida and Pune, India and Shelton, Connecticut. Management believes that our facilities are in good
operating condition and adequate for our current business needs.
12
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.
In August 2018, the Company, certain of its directors, officers and several banks who served as underwriters, were named as defendants
in City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al., a putative class action lawsuit filed in Connecticut
state court. The complaint asserts claims under the Securities Act of 1933, as amended, on behalf of those who purchased notes issued
by the Company in connection with a September 13, 2017 offering, alleging, among other things, that the Company failed to make certain
disclosures relating to components of its third quarter 2017 performance at the time of the notes offering. The complaint seeks compensatory
damages and other relief. In addition, in December 2018 and then in February 2018 certain of the Company’s officers and directors were
named as defendants in two virtually identical derivative actions purportedly brought on behalf of the Company, Clem v. Lautenbach et
al. and Devolin v. Lautenbach et al. These two actions, both filed by the same counsel in Connecticut state court allege, among other
things, breaches of fiduciary duty relating to these same disclosures, and seek compensatory damages and other relief derivatively for
the benefit of the Company. Although litigation outcomes are inherently unpredictable, we believe these matters are without merit and
intend to defend them vigorously. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
13
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,
2019, we had 14,808 common stockholders of record.
Share Repurchases
We periodically repurchase shares of our common stock to manage the dilution created by shares issued under employee stock plans and
for other purposes. During 2018, we did not repurchase any shares of our common stock. On February 4, 2019, the Board of Directors
authorized an additional $100 million share repurchase giving us the ability to repurchase up to $121 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, 2013 in Pitney Bowes Inc., the S&P 500 Composite Index, the S&P MidCap 400
and the peer group would have been worth $33, $150, $134, and $126 respectively, on December 31, 2018.
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.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data should be read in conjunction with the more detailed consolidated financial statements and
related notes thereto included in Item 8 of this Form 10-K. Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts
with Customers on a modified retrospective basis with a cumulative effect adjustment at the date of initial application. Accordingly,
periods prior to January 1, 2018, have not been restated and are presented under the prior guidance (see Note 1 to the Consolidated
Financial Statements). Also during 2018, we sold our Document Messaging Technology production mail business and supporting software
(the Production Mail Business) and the operating results of the Production Mail Business have been reclassified as a discontinued operation
(see Note 4 to the Consolidated Financial Statements).
Years Ended December 31,
2018
3,522,380
2017
2016
2015
2014
$
3,123,272
$
2,981,323
$
3,135,234
$
3,326,373
Total revenue
Amounts attributable to common stockholders:
Income from continuing operations
Income from discontinued operations
Net income - Pitney Bowes Inc.
$
$
$
199,978
23,687
223,665
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
$
$
1.07
0.13
1.19
Diluted earnings per share attributable to common stockholders (1):
1.06
Continuing operations
$
Discontinued operations
Net income - Pitney Bowes Inc.
Cash dividends paid per share of common stock
Balance sheet data:
Total assets
Long-term debt
Total debt
Noncontrolling interests (Preferred stockholders'
equity in subsidiaries)
$
$
$
$
$
$
0.13
1.19
0.75
2018
5,972,903
3,066,073
3,265,608
$
$
$
$
$
$
$
$
$
$
221,362
39,978
261,340
1.19
0.21
1.40
1.18
0.21
1.39
0.75
$
$
$
$
$
$
$
75,769
17,036
92,805
0.40
0.09
0.49
0.40
0.09
0.49
0.75
2017
6,687,420
3,559,278
3,830,335
December 31,
2016
5,837,133
2,750,405
3,364,890
$
$
$
$
$
$
$
$
$
$
$
$
$
363,623
44,320
407,943
1.82
0.22
2.04
1.81
0.22
2.03
0.75
2015
6,123,132
2,489,583
2,950,668
$
$
$
$
$
$
$
$
$
$
$
246,951
86,804
333,755
1.22
0.43
1.65
1.21
0.43
1.64
0.75
2014
6,476,599
2,904,024
3,228,903
296,370
— $
— $
— $
296,370
(1) The sum of earnings per share may not equal the totals due to rounding.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with our risk factors, 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. 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 millions of dollars, except per share data.
Overview
We continue to make solid progress in our transformation to higher growth markets that align with our focus on reducing the complexity
of mailing and shipping. In line with our transformation and strategic focus on shipping, we sold our Production Mail Business in July
2018. Proceeds from the sale were approximately $340 million and were used primarily to repay debt.
Financial Results Summary - Twelve Months Ended December 31:
Revenue
Segment earnings before interest and taxes (EBIT)
Income from continuing operations
Net income
Earnings per share from continuing operations - diluted
Net cash provided by operations
2018
2017
Change
$
$
$
$
$
$
3,522 $
3,123
623 $
200 $
224 $
1.06 $
392 $
661
221
261
1.18
496
13 %
(6)%
(10)%
(14)%
(10)%
(21)%
Revenue increased 13% over the prior year, representing the second consecutive year of overall revenue growth. The increase in revenue
was driven by growth of 47% in Commerce Services, as Global Ecommerce increased 85% and Presort Services grew 4%. Revenue in
our SMB Solutions business declined 6%, but we continue to see stabilization in the decline in recurring stream revenues. Software
Solutions revenue increased 3%, primarily due to higher data license revenue.
Segment earnings before interest and taxes declined 6% largely due to the overall portfolio shift to higher growth, but lower margin,
digital and shipping solutions and continued investments in Commerce Services. Commerce Services EBIT declined 48% primarily due
to higher labor and transportation costs and the cost of a marketing mail pilot program in Presort Services. SMB EBIT declined 2%
primarily due to declining revenues partially offset by cost savings. Software Solutions EBIT increased 39% primarily due to higher data
license revenue and cost savings. Segment EBIT is determined by deducting from segment revenue the related costs and expenses
attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items not
allocated to a particular business segment. See Note 3 to the Consolidated Financial Statements for a reconciliation of Segment EBIT to
net income reported on a GAAP basis.
Income from continuing operations declined 10% from the prior year driven by lower overall margins as our portfolio continues to shift
to higher growth, but lower margin businesses, and a $32 million non-cash pension settlement charge, partially offset by lower selling,
general and administrative costs and lower restructuring costs.
During the year, we received net proceeds of $270 million from the sale of the Production Mail Business and repatriated $550 million
of cash from our foreign subsidiaries. Cash was used to repay $570 million of debt, pay dividends of $140 million to our stockholders,
and invest $191 million in capital expenditures. Cash and cash equivalents at December 31, 2018 was $867 million.
Outlook
We will continue to execute our transformation strategy around our three core principles: invest in offerings that reduce the complexity
of mailing and shipping for our clients; continue to focus on operational excellence initiatives to reduce costs; and integrate and leverage
technologies across the enterprise.
We expect revenue to grow as we continue to transform the portfolio to higher growth businesses. Within Global Ecommerce, we expect
revenue growth from the expansion of our domestic parcel and fulfillment business, growth in domestic shipping solutions and cross sale
opportunities of our cross-border products. Higher volumes of bound and packet mail are expected to generate revenue growth at Presort
Services.
16
In SMB Solutions, we expect continued declines in revenue due to lower mail volumes and lower lease opportunities. However, we
expect the magnitude of the decline to be mitigated by the continued success of our SendPro C-Series product in North America and
planned launches in several international markets and the introduction of new services and products, including expanded third-party
finance offerings and value-added shipping capabilities.
Within Software Solutions, revenue growth will be driven by a combination of sales opportunities from our indirect channel, software
and data license deals, SaaS revenue and maintenance revenue.
We will begin offering expanded third-party finance offerings to our existing SMB client base in the United States in 2019. Under this
program, in addition to leasing options for our mailing equipment products, we will offer financing alternatives to lease other manufacturers'
equipment to meet their business needs. We expect that cash flows will be reduced by $50 million to $70 million in 2019 as we invest in
the origination of third-party equipment leases and build a finance receivable portfolio.
We expect continued progress in our efforts to improve productivity and reduce spend. Over the last five years, we have transformed to
a more digital operating model and have reduced our cost structure. Last year, we announced our intention to reduce gross spend by $200
million over a 24-month period. We recognized over $150 million of this target in 2018 and expect to recognize the remainder in 2019.
A large portion of these gross savings has been, and will continue to be, reinvested in the business, particularly in Commerce Services
and our third-party financing initiative. We are also addressing immediate challenges such as higher labor and transportation costs.
In January 2019, we sold the direct operations and moved to a dealer model in six smaller markets within International Mailing. The
impact on 2019 revenue is estimated to be about $40 million and the impact on earnings will not be significant. Proceeds from the sale
were not material.
As our business continues to transform to higher growth markets, we need to increase our financial flexibility to be able to pursue
opportunities in growth markets and create value for our shareholders. Accordingly, our Board of Directors approved a first quarter 2019
dividend on our common stock of $0.05 per share; down from our historical $0.1875 quarterly dividend per share, and authorized an
incremental $100 million share repurchase. These changes in our capital allocation strategy more appropriately reflect our business profile
today and are designed to provide a competitive return to our shareholders while ensuring financial flexibility to support our long-term
growth strategy.
17
Revenue by source and the related cost of revenue are shown in the following tables:
RESULTS OF OPERATIONS
Equipment sales
Supplies
Software
Rentals
Financing
Support services
Business services
Total revenue
Cost of equipment sales
Cost of supplies
Cost of software
Cost of rentals
Financing interest expense
Cost of support services
Cost of business services
Total cost of revenue
Revenue
% change
Years Ended December 31,
Actual
Constant Currency
2018
2017
2016
$
$
430
218
341
363
315
293
1,562
3,522
$
$
477
231
332
384
331
300
1,068
480
242
326
410
366
329
828
$
3,123
$
2,981
2018
(10)%
(6)%
3 %
(5)%
(5)%
(2)%
46 %
13 %
2017
(1)%
(4)%
2 %
(6)%
(10)%
(9)%
29 %
5 %
2018
(10)%
(7)%
3 %
(6)%
(5)%
(3)%
46 %
12 %
2017
(1)%
(4)%
2 %
(7)%
(10)%
(9)%
29 %
5 %
Cost of Revenue
Years Ended December 31,
2018
2017
2016
$
182
61
101
86
49
168
1,246
1,893
$
$
% of revenue
42.2% $
27.9%
29.5%
23.8%
15.5%
57.3%
79.8%
53.7% $
$
201
66
95
83
51
164
773
1,433
% of revenue
$
42.2 % $
203
28.7 %
66
28.6 %
96
21.5 %
74
15.3 %
55
54.7 %
166
569
72.4 %
45.9 % $ 1,229
% of revenue
42.3%
27.1%
29.5%
18.1%
15.1%
50.5%
68.7%
41.2%
The discussion below may also refer 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 provide a better understanding
of the underlying revenue performance excluding the impacts of currency exchange rates on reported revenue. Constant currency change
is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year’s exchange rate. Where constant
currency measures are not provided, the actual change and constant currency change are the same.
Equipment sales
Equipment sales decreased 10% in 2018 compared to 2017, primarily due to:
•
•
8% from lower equipment sales in North America Mailing reflecting a decline in sales of our higher-end products; and
2% from lower equipment sales in International Mailing, primarily due to lower sales in the U.K. and France.
Cost of equipment sales as a percentage of equipment sales revenue of 42.2% was flat to prior year.
Equipment sales decreased 1% in 2017 compared to 2016 primarily due to:
•
•
2% from lower equipment sales in International Mailing particularly in Europe; partially offset by
1% from higher equipment sales in North America Mailing reflecting a favorable comparison to the 2016 period, which was impacted
by the implementation of the enterprise business platform.
Cost of equipment sales as a percentage of equipment sales revenue of 42.2% was consistent with the prior year.
Supplies
Supplies revenue decreased 6% on a reported basis and 7% on a constant currency basis in 2018 compared to 2017, driven by a 4%
decline North America Mailing and 3% decline in International Mailing due to a global decline in installed mailing equipment and postage
volumes. Cost of supplies as a percentage of supplies revenue improved to 27.9% in 2018 compared to 28.7% due to a favorable mix of
sales in North America Mailing.
18
Supplies revenue decreased 4% in 2017 compared to 2016 primarily from a decline in installed mailing equipment and postage volumes
in North America Mailing. Cost of supplies as a percentage of supplies revenue increased to 28.7% primarily due to higher mix of lower
margin products.
Software
Software revenue increased 3% in 2018 compared to 2017 primarily due to higher data licensing revenue. Cost of software as a percentage
of software revenue increased to 29.5% in 2018 as data licenses have slightly lower margins than traditional software licenses due to
royalty payments that are made on data licenses.
Software revenue increased 2% 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 28.6% primarily due to the increase in high margin licensing revenue and cost
reduction initiatives.
Rentals
Rentals revenue decreased 5% (6% on a constant currency basis) in 2018 compared to 2017 and 6% (7% on a constant currency basis)
in 2017 compared to 2016 primarily due to a declining meter population.
Cost of rentals as a percentage of rentals revenue increased to 23.8% in 2018 and increased to 21.5% in 2017 primarily due to higher
scrapping costs associated with retiring aging meters.
Financing
Financing revenue decreased 5% in 2018 compared to 2017 and 10% in 2017 compared to 2016 primarily due to a declining portfolio
and lower fees.
We allocate a portion of our total borrowing costs to financing interest expense. In computing financing interest expense, we assume an
8:1 debt to equity leverage ratio and apply our overall effective interest rate to the average outstanding finance receivables.
Support Services
Support services revenue decreased 2% (3% on a constant currency basis) in 2018 compared to 2017 and 9% in 2017 compared to 2016
primarily due to a worldwide decline in installed mailing equipment. Cost of support services as a percentage of support services revenue
increased to 57.3% in 2018 and increased to 54.7% in 2017 primarily due to the decline in support services revenue.
Business Services
Business services revenue increased 46% in 2018 compared to 2017 primarily due to:
•
•
39% from the acquisition of Newgistics;
5% from growth in Global Ecommerce driven by higher revenue from shipping solutions, partially offset by lower cross-border
revenue due to lower volumes; and
2% from higher volumes of mail processed in Presort Services.
•
Cost of business services as a percentage of business services revenue increased to 79.8% in 2018 primarily due to continued investment
in Global Ecommerce, higher labor and transportation costs in Commerce Services of $40 million driven by increased competition for
labor and transportation resources due to the rapid growth in Ecommerce and $8 million from the launch of a marketing mail pilot program
in Presort 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 segment and the additional costs of Newgistics.
Selling, general and administrative (SG&A)
SG&A expense decreased 4%, or $48 million, in 2018 compared to 2017, despite $51 million of incremental expenses from the acquisition
of Newgistics. The underlying decrease in SG&A was primarily due to lower employee related expenses of $38 million, lower marketing
and advertising spend of $34 million, and other operating expense cost reductions as a result of our cost savings initiatives.
SG&A expense increased 3%, or $31 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
19
2017. Additionally, expenses in Global Ecommerce were $21 million higher as we continue to invest in the 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 acquisition transaction costs, primarily related to 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, 2017 included loan forgiveness income of $10 million and a favorable state sales tax adjustment of $5 million.
Restructuring charges and asset impairments, net
In 2018, restructuring charges and asset impairments of $27 million consisted of $25 million of restructuring related charges and $2
million of asset impairment charges. In 2017, restructuring charges and asset impairments of $56 million consisted of $52 million of
restructuring related charges and $4 million of asset impairment charges. In 2016, restructuring charges and asset impairments of $60
million consisted of $45 million of restructuring related charges and $15 million of asset impairment charges, primarily from 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 goodwill impairment charge of $148 million associated with our Software Solutions reporting unit.
Other components of net pension and postretirement cost
In connection with the disposition of the Production Mail Business and certain other actions, we incurred a pre-tax, non-cash pension
settlement charge of $45 million in the fourth quarter of 2018. We recognized $32 million of this charge in other components of net
pension and postretirement cost and the remaining $13 million in income from discontinued operations, net of tax.
Other expense
Other expense for 2018 and 2017 represents a loss on the early extinguishment of debt.
Income taxes
The effective tax rate was 5.8% and 0.2% for the year ended December 31, 2018 and 2017, respectively. On December 22, 2017, the Tax
Cuts and Jobs Act of 2017 (the Act) was signed into law making significant changes to the Internal Revenue Code. Changes included,
but were not limited to, a federal corporate income tax rate decrease from 35% to 21% effective January 1, 2018, the transition of U.S.
international taxation from a worldwide tax system to a territorial system by creating a minimum tax on earnings of foreign subsidiaries
and a one-time transition tax on the mandatory deemed repatriation of post-1986 cumulative foreign earnings.
In accordance with the Act, the tax provision at December 31, 2017 included a net provisional one-time non-cash benefit of $39 million,
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 post-1986 earnings of our foreign subsidiaries.
The effective tax rate for 2017 also included tax benefits of $30 million from the resolution of certain tax examinations.
Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does
not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the
accounting for certain income tax effects of the Act. SAB 118 provided registrants up to one year to complete the analysis, computations
and accounting for the impact of the Act on their consolidated financial statements.
We completed our analysis and measurement of the impact of the Act. Our tax provision for the year ended December 31, 2018 includes
an adjustment to the provisional tax recorded of $37 million, comprised of a $13 million benefit related to the remeasurement of certain
deferred tax assets and liabilities and a $24 million decrease in the U.S. tax on unremitted post-1986 earnings of our foreign subsidiaries.
The effective tax rate for 2018 also includes a benefit of $17 million from the resolution of certain tax examinations.
See Note 15 to the Consolidated Financial Statements for further information.
Income from discontinued operations
Income from discontinued operations includes net income and a gain on sale of our Production Mail Business. See Note 4 to the
Consolidated Financial Statements for further information.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
We redeemed all of the PBIH Preferred Stock in November 2016.
20
Business Segments
In January 2018, we revised our business reporting groups to reflect how we manage these groups and clients served in each market. We
formed the Commerce Services group to include our Global Ecommerce and Presort Services segments. Additionally, we classified the
operating results of the Production Mail Business to discontinued operations and have recast segment operating results for prior years to
conform to the current year presentation. The principal products and services of each of our reportable segments are as follows:
Commerce Services:
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions, domestic retail
and ecommerce shipping solutions and fulfillment, delivery and return services.
Presort Services: Includes revenue and related expenses from sortation services that allow clients to qualify large volumes of First
Class Mail, Marketing Mail and Bound and Packet Mail (Standard Flats and Bound Printed Matter) for postal worksharing discounts.
Small & Medium Business (SMB) Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and shipping solutions, financing, services and
supplies for small and medium businesses to efficiently create 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 shipping solutions, financing, services and
supplies for small and medium businesses to efficiently create 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.
Software Solutions:
Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, location
intelligence software, data solutions and related support services.
Management uses segment earnings before interest and taxes (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. 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 not allocated to a particular business segment. Segment EBIT may not
be indicative of our overall consolidated performance and should be read in conjunction with our consolidated results of operations. Due
to acquisition activity in Commerce Services, we are also providing segment earnings before interest, taxes, depreciation and amortization
(EBITDA) as a supplemental non-GAAP measure of profit and operational performance for each segment. See Note 3 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.
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total Revenue
Revenue
% change
Years Ended December 31,
Actual
Constant Currency
2018
$ 1,023
516
1,539
1,275
368
1,643
341
$ 3,522
2017
2016
2018
2017
2018
2017
$
552
498
1,050
1,357
384
1,742
332
$ 3,123
$
339
476
815
1,429
412
1,841
325
$ 2,981
85 %
4 %
47 %
(6)%
(4)%
(6)%
3 %
13 %
63 %
5 %
29 %
(5)%
(7)%
(5)%
2 %
5 %
85 %
4 %
46 %
(6)%
(7)%
(6)%
3 %
12 %
63 %
5 %
29 %
(5)%
(6)%
(5)%
2 %
5 %
21
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total segment EBIT
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total segment EBITDA
Less: Segment depreciation and amortization
Total segment EBIT
Global Ecommerce
EBIT
Years Ended December 31,
% change
2018
2017
2016
2018
2017
(32)
74
41
470
64
534
47
623
$
$
(18)
98
80
499
49
547
34
661
$
$
3
95
98
595
45
640
22
761
(81)% >(100)%
(24)%
2 %
(48)%
(19)%
(6)%
(16)%
32 %
7 %
(2)%
(15)%
39 %
53 %
(6)%
(13)%
EBITDA
Years Ended December 31,
% change
2018
2017
2016
2018
2017
29
101
129
539
80
618
57
804
182
623
$
$
19
124
143
563
67
630
43
816
156
661
$
$
34
123
157
655
65
720
37
913
153
761
53 %
(19)%
(9)%
(4)%
19 %
(2)%
32 %
(1)%
17 %
(6)%
(44)%
1 %
(9)%
(14)%
3 %
(12)%
16 %
(11)%
2 %
(13)%
$
$
$
$
Global Ecommerce revenue increased 85% in 2018 compared to 2017. Excluding Newgistics, Global Ecommerce revenue increased
13% driven by higher revenue from shipping solutions, partially offset by lower cross-border revenue due to lower volumes.
EBIT in 2018 was a loss of $32 million compared to a loss of $18 million in 2017. The increase in EBIT loss was primarily due to higher
amortization expense of $12 million due to a full year of amortization related to Newgistics, higher transportation and labor costs of $6
million due to increased competition for labor and transportation resources as a result of the rapid growth in Ecommerce, partially offset
by higher revenue.
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.
Presort Services
Presort Services revenue increased 4% in 2018 compared to 2017 primarily due to higher volumes of First Class mail, Standard Class
mail and bound and packet mail processed. Revenue increased 5% in 2017 compared to 2016 primarily due to higher volumes and revenue
per piece of mail processed.
22
EBIT decreased 24% in 2018 compared to 2017 primarily due to higher labor and transportation costs of $34 million due to increased
competition for labor and transportation resources and $8 million from the launch of a marketing mail pilot program. EBIT increased
2% in 2017 compared to 2016 primarily due to higher revenue.
North America Mailing
North America Mailing revenue decreased 6% in 2018 compared to 2017 primarily due to:
•
•
•
3% from lower equipment sales due to a decline in top of the line products;
2% from declines in rentals and support services revenue; and
1% from lower financing revenue.
EBIT decreased 6% primarily due to the decline in revenue and sales of top of the line products partially offset by lower expenses.
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.
International Mailing
International Mailing revenue declined 4% in 2018 compared to 2017. On a constant currency basis, revenue declined 7% primarily due
to:
•
4% from lower stream revenues resulting from a lower installed meter base, declining postage volumes and a declining lease portfolio;
and
3% from lower equipment sales, primarily in the U.K., France and Italy, partly offset by higher sales in Germany.
•
EBIT increased 32% in 2018 compared to 2017 primarily due to lower expenses.
International Mailing revenue declined 7% in 2017 compared to 2016. On a constant currency basis, revenue decreased 6% 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.
Software Solutions
Software revenue increased 3% in 2018 compared to 2017 primarily due to higher data licensing revenue. EBIT increased 39% primarily
due to lower expenses resulting from cost saving initiatives.
Software revenue increased 2% in 2017 compared to 2016 primarily due to higher software licensing, data and SaaS revenue. EBIT
increased 53% primarily due to an increase in high margin licensing revenue.
23
LIQUIDITY AND CAPITAL RESOURCES
We believe that existing cash and investments, cash generated from operations and borrowing capacity through the capital markets will
be sufficient to support our current cash needs, including discretionary uses such as capital investments, strategic acquisitions, dividends
and share repurchases. Cash and cash equivalents and short-term investments were $927 million at December 31, 2018 and $1,058 million
at December 31, 2017. 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 $189 million and $608 million at December 31, 2018 and December 31,
2017, respectively. During 2018, we repatriated over $550 million of cash to the U.S. from our foreign subsidiaries and used a portion
of these proceeds to repay debt. 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 provided by (used in) investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents (1)
(1) Amounts may not foot due to rounding.
Operating activities
Years Ended December 31,
2018
2017
2016
$
$
392
$
260
(766)
(25)
(140) $
496
(663)
368
44
244
$
$
496
(116)
(230)
(27)
124
Cash flows from operations decreased $104 million in 2018 compared to 2017, primarily due to:
• Lower cash from discontinued operations of $58 million; and
• Lower cash of $45 million from changes in working capital.
Cash flows from operations were flat in 2017 compared to 2016 as lower restructuring and pension contribution payments were offset
by changes in working capital.
Investing activities
In 2018, investing activities provided $260 million of cash. Sources of cash include gross proceeds of $340 million from the sale of the
Production Mail Business and $106 million from investment activities as we liquidated a portion of our investment portfolio to raise cash
to support the launch of our enhanced third-party financing offerings. Cash was used to fund capital expenditures of $191 million. The
increase in capital expenditures in 2018 compared to 2017 was primarily due to investments in Commerce Services to build new fulfillment
and returns distribution facilities and increase automation at our Presort facilities.
In 2017, we used $663 million of cash in investing activities primarily for the acquisition of Newgistics for $471 million and capital
expenditures of $168 million.
In 2016, we used $116 million of cash investing activities primarily for capital expenditures of $159 million and acquisitions of $38
million. These uses were offset by a source of $75 million from the timing of investment activities.
Financing activities
In 2018, we used $766 million of cash in financing activities primarily to repay $570 million of debt, pay dividends of $140 million and
the settlement of a $46 million timing difference between our investing excess cash at the subsidiary level and the funding of an
intercompany cash transfer at December 31, 2017. In 2017, cash from financing activities was $368 million primarily from the issuance
of debt of $1,437 million partially offset by debt repayments of $965 million and dividend payments of $139 million. In 2016, cash of
$230 million was used in financing activities primarily to repay debt of $461 million, redeem noncontrolling interests for $300 million,
repurchase stock for $197 million and pay dividends of $141 million. We also received proceeds of $895 million from the issuance of
debt.
24
Debt 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 committed credit facility of $1 billion that expires in January 2021. As of December 31, 2018 we have not drawn upon the credit
facility.
A portion of our debt financing requires compliance with certain financial covenants. The agreements associated with these financial
obligations have been amended on occasion to adjust the terms of those covenants for limited time periods. At December 31, 2018, we
were in compliance with all financial covenants. For more information on our financial covenants refer to our exhibits.
We have term loans of $200 million maturing in 2019 and a total of $2.3 billion of debt maturing within the next five years. We fully
expect to be able to fund these maturities with cash or by refinancing through the U.S. capital markets. However, our ability to access
the U.S. capital markets is dependent upon our credit ratings and is subject to capital market volatility. Given our current credit rating,
we may not have immediate or sufficient access to the U.S. capital markets, and when we do access the U.S. capital markets, we may
experience reduced flexibility and higher costs.
2018 Activity
In the second quarter of 2018, Standard & Poor's lowered our corporate credit rating from BBB- to BB+. As a result, the stated interest
rate on certain of our long term debt issuances increased 0.25% (see Note 13 to the Consolidated Financial Statements).
During 2018, we redeemed the $300 million 6.25% notes due March 2019 and recorded an $8 million loss on the early redemption of
debt. We also repaid the $250 million 5.6% notes that matured in March 2018 and $20 million of principal on our term loans. Finally,
pursuant to an extension option, the maturity of our $150 million term loan was extended to August 2019.
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.
Share Repurchases and Dividends
We did not repurchase shares during 2018 or 2017 and repurchased $197 million of our common shares during 2016. We paid dividends
to our common stockholders of $140 million ($0.75 per share), $139 million ($0.75 per share) and $141 million ($0.75 per share) in
2018, 2017 and 2016, 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.
In February 2019, the Board of Directors approved a first quarter dividend of $0.05 per share and authorized an additional $100 million
share repurchase giving us the ability to repurchase up to $121 million of our shares. Subject to market conditions, we will begin to
opportunistically repurchase shares as soon as practical and intend to utilize approximately half of this authorization within the first half
of 2019.
25
Contractual Obligations
The following table summarizes our known contractual obligations at December 31, 2018 and the effect that such obligations are expected
to have on our liquidity and cash flow in future periods:
Debt maturities
Interest payments on debt (1)
Noncancelable operating lease obligations
Purchase obligations (2)
Pension plan contributions (3)
Retiree medical payments (4)
Total
Payments due in
Total
2019
2020-2021
2022-2023
After 2023
$
$
3,296
1,120
231
168
22
137
4,974
$
$
200
154
48
163
22
17
604
$
1,330
$
251
76
4
—
$
800
139
45
1
—
32
1,693
$
28
1,013
$
$
966
576
62
—
—
60
1,664
The amount and period of future payments related to our income tax uncertainties cannot be reliably estimated and are not included in
the above table. See Note 15 to the Consolidated Financial Statements for further details.
(1) Assumes all debt is held to maturity.
(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 2019. 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, 2018, 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.
26
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
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 arrangements involve a sale or
noncancelable lease of equipment, a meter rental and an equipment maintenance agreement. We are required to determine whether each
product and service within the contract should be treated as separate performance obligation (unit of accounting) for revenue recognition
purposes. We recognize revenue for performance obligations when control of the products or services is transferred to the customer.
Transfer of control may occur at a point in time or over time, depending on the nature of the contract and the performance obligation.
Revenue is allocated among performance obligations based on relative "standalone selling prices" (SSP), which is the price we would
sell the good or service to a customer on a separate basis. SSP are established for each performance obligation at the inception of the
contract and can be observable prices or estimated. Revenue is allocated to the meter rental and equipment maintenance agreement
elements using their respective observable selling prices charged in standalone and renewal transactions. For a sale transaction, the SSP
of the equipment is based on a range of observable 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 accounted for as a sales type lease at inception.
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 recognize revenue on non-lease transactions when control of the
equipment transfers to the customer, which is upon delivery for customer installable models and upon installation or customer acceptance
for other models.
We also have contracts that contain only performance obligations to deliver software licenses and software related products and services,
which may include maintenance and support services, data, training and integration services. As a majority of our software and data
license products are considered “right to use”, we recognize revenue when control is transferred to the customer, which is generally upon
delivery or acceptance for those licenses requiring significant integration or customization. Revenue from license renewals is recognized
at the beginning of the license term. Revenue for software maintenance is recognized on a ratable basis over the contract term. We allocate
the transaction price based on relative standalone selling prices, which are generally based on observable selling prices in standalone
transactions for our data products, maintenance and professional services. We estimate the standalone selling prices for our software
licenses using the residual approach, as the selling prices are highly variable and observable standalone selling prices exist for the other
goods and services in the contract.
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 2018 was 3.69%
for the U.S. Plan and 2.4% for the U.K. Plan. For 2019, the discount rate used in the determination of net periodic pension expense for
the U.S. Plan and the U.K. Plan will be 4.34% and 2.65%, 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 $38 million and $22 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 2018 was 7.0% for the U.S. Plan and 6.25% for the U.K. Plan.
27
For 2019, the expected rate of return on plan assets used in the determination of net periodic pension expense for the U.S. Plan will be
6.75% and the U.K. Plan will be 6.25%. A 0.25% change in the expected rate of return on plan assets would impact annual pension
expense for the U.S. Plan by $3 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 14 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 on historical experience, 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. Increases in estimated 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 $7 million lower.
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.
Total allowance for credit losses as a percentage of finance receivables was 1% at both December 31, 2018 and 2017. Holding all other
assumptions constant, a 0.25% change in the allowance rate at December 31, 2018 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 receivables was 4% at December 31, 2018 and 3% at December 31, 2017. Holding
all other assumptions constant, a 0.25% change in the allowance rate at December 31, 2018 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. We regularly assess the likelihood of tax adjustments
in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. Tax reserves
have been established that we believe to be appropriate given the possibility of tax adjustments. Determining the appropriate level of tax
reserves requires us to exercise judgment regarding the uncertain application of tax laws. The amount of reserves is adjusted when
information becomes available or when an event occurs indicating a change in the reserve is appropriate. Future changes in tax reserve
requirements could have a material impact on our financial condition or results of operations.
Significant judgment is also required in determining the amount of 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.
28
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 including the identification of reporting units, assigning
assets and liabilities, including 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, cash flows and capital spending. The determination of fair value also incorporates a risk-adjusted discount
rate and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect
the determination of fair value and the associated goodwill impairment assessment 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. The fair value of certain stock
awards is determined using a Black-Scholes valuation model or Monte Carlo simulation model. These models require assumptions
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 determining the fair value of stock-based
awards. If factors change causing our assumptions to change, our stock-based compensation expense could be different in the future. In
addition, we estimate an expected forfeiture rate and recognize expense only for those shares expected to vest. If the actual forfeiture rate
is different from our estimate, stock-based compensation expense recorded in the period could be adversely impacted.
Restructuring
We make estimates and assumptions in determining the amount and timing of expenses related to our restructuring actions. 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.
29
Legal and Regulatory Matters
See Legal Proceedings in Item 3 for information regarding our legal proceedings and Other Tax Matters in Note 15 to the Consolidated
Financial Statements for regulatory matters regarding our tax returns.
Foreign Currency Exchange
During 2018, 19% of our consolidated revenue was 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 the U.S. dollar did not
have a material impact on revenues for the years ended December 31, 2018, 2017 and 2016.
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, Canadian Dollar and the Euro.
At December 31, 2018, 81% of our debt was fixed rate obligations with a weighted average interest rate of 4.7%. Variable rate debt had
a weighted average interest rate of 4.0% at December 31, 2018. A one-percentage point change in the effective interest rate of our variable
rate debt would not have had a material impact on our 2018 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 "Monte Carlo" simulation 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 2018 and 2017, our maximum potential one-day loss in fair value of our exposure to foreign exchange rates and interest rates,
using the Monte Carlo simulation approach and the variance/co-variance technique, respectively, was not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Supplemental Data" in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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
30
Act. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective
as of December 31, 2018.
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, 2018. 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, 2018, the internal control over financial reporting was effective based on the criteria issued by COSO in Internal
Control - Integrated Framework (2013).
The effectiveness of our internal control over financial reporting as of December 31, 2018 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, 2018, that have
materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than information regarding our executive officers disclosed in Part I of this Annual Report, the information required by this Item
is incorporated by reference to our Proxy Statement to be filed in connection with the 2019 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 2019 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 2019 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, 2018 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)
13,593,156
—
13,593,156
$15.30
—
$15.30
14,411,742
—
14,411,742
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 2019 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 2019 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 2019 Annual
Meeting of Stockholders.
32
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1) Consolidated Financial Statements and Schedules
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2018, 2017 and 2016
(a)(2) Exhibits
Page
Number in
Form 10-K
39
40
41
42
43
44
90
Reg. S-K
exhibits
3(a)
3(b)
4(a)
4(b)
4(d)
Restated Certificate of Incorporation of Pitney Bowes Inc.
Description
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)
Pitney Bowes Inc. Amended and Restated By-laws (effective May 10, 2013) 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
Form of Indenture between the Company and SunTrust Bank, as Trustee
Supplemental Indenture No. 1 dated April 18, 2003 between the Company
and SunTrust Bank, as Trustee
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)
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)
10(e) *
Pitney Bowes Inc. Key Employees' Incentive Plan (as amended and restated
February 4, 2019)
Exhibit 10(e)
10(f) *
Pitney Bowes Severance Plan (as amended and restated as of January 1,
2008)
Incorporated by reference to Exhibit 10(e) to Form 10-K
filed with the Commission on February 29, 2008
(Commission file number 1-3579)
10(g) *
Pitney Bowes Senior Executive Severance Policy (as amended and restated
as of February 4, 2019)
Exhibit 10(g)
10(h) *
Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board of
Directors, as amended and restated effective January 1, 2009
10(i) *
Pitney Bowes Inc. Deferred Incentive Savings Plan as amended and restated
effective January 1, 2009
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)
33
Reg. S-K
exhibits
10(j) *
Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
Description
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
10(m)*
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
10(q)*
Pitney Bowes Inc. 2018 Stock Plan
Status or incorporation by reference
Incorporated by reference to Annex II to the Definitive
Proxy Statement for the 2006 Annual Meeting of
Stockholders filed with the Commission on March 23,
2006 (Commission file number 1-3579)
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)
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 Annex A to the Definitive
Proxy Statement for the 2018 Annual Meeting of
Stockholders file with the Commission on March 23, 2018
(Commission file number 1-3579)
10(r)
10(s)
10(t)
10(u)
10(v)
10(w)
10(x)
10(y)
10(z)
10(aa)
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”).
Incorporated by reference to Exhibit 10.1 to Form 10-Q
filed with the Commission on November 2, 2017
(Commission file number 1-3579)
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)
Third Amendment to the Revolving Credit Agreement, dated as of
December 14, 2018, by and among the company, JPMorgan Chase Bank,
N.A. as administrative agent, and the lenders party thereto.
Exhibit 10(u)
Credit Agreement $300,000,000, dated as of January 5, 2016, 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)
Second Amendment to the $300M Term Loan, dated as of December 14,
2018, by and among the company, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto.
Exhibit 10(x)
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)
First Amendment to the $200,000,000 Term Loan, dated as of December
14, 2018, by and among the company, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto.
Exhibit 10(z)
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.
("$150M Term Loan")
Incorporated by reference to Exhibit 10.7 to Form 10-Q
filed with the Commission on November 2, 2017
(Commission file number 1-3579)
10(bb)
First Amendment to the $150M Term Loan, dated as of December 14, 2018,
by and between the company and the Bank of Tokyo-Mitsubishi-UFJ, Ltd. Exhibit 10(bb)
10(cc) Asset Purchase Agreement, dated April 27, 2018, between the company and
Stark Acquisition Corporation (the "Asset Purchase Agreement")
Incorporated by reference to Exhibit 2.1 to Form 8-K filed
with the Commission on May 1, 2018 (Commission file
number 1-3579)
10(dd) Amendment and Supplement to Asset Purchase Agreement, dated as of July
1, 2018, between the company and DMT Solutions Global Corporation (f/
k/a Stark Acquisition Corporation)
Incorporated by reference to Exhibit 10a to Form 10-Q
filed with
the Commission on August 2, 2018
(Commission file number 1-3579)
34
Reg. S-K
exhibits
21
Subsidiaries of the registrant
23
Consent of independent registered accounting firm
Exhibit 21
Exhibit 23
Description
Status or incorporation by reference
31.1
31.2
32.1
32.2
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 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
35
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Pitney Bowes Inc.
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2018, 2017 and 2016
Signatures
Page
Number
37
39
40
41
42
43
44
90
91
36
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, 2018 and December 31, 2017, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity
(deficit) and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial
statement schedule listed in the index appearing under Item 15(a)(1) (collectively referred to as the “consolidated financial statements”).
We also have audited the Company's internal control over financial reporting as of December 31, 2018, 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, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2018 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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed the manner in which it accounts for
revenues from contracts with customers in 2018.
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 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.
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.
37
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, CT
February 20, 2019
We have served as the Company’s auditor since 1934.
38
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 components of net pension and postretirement cost
Other expense
Total costs and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
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:
Income from continuing operations
Income from discontinued operations, net of tax
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
2018
Years Ended December 31,
2017
2016
$
$
$
$
$
$
$
$
430,451
218,304
340,855
363,057
314,778
293,413
1,561,522
3,522,380
181,766
60,960
100,681
86,330
48,857
168,271
1,246,084
1,123,116
125,588
27,077
—
110,900
22,425
7,964
3,310,019
212,361
12,383
199,978
23,687
223,665
—
223,665
199,978
23,687
223,665
1.07
0.13
1.19
1.06
0.13
1.19
$
$
$
$
$
$
$
$
476,691
231,412
331,843
384,123
330,985
299,792
1,068,426
3,123,272
201,116
66,302
95,033
82,703
50,665
163,889
773,052
1,170,905
118,703
56,223
—
113,497
5,413
3,856
2,901,357
221,915
553
221,362
39,978
261,340
—
261,340
221,362
39,978
261,340
1.19
0.21
1.40
1.18
0.21
1.39
$
$
$
$
$
$
$
$
480,031
241,950
325,577
410,241
366,424
329,424
827,676
2,981,323
203,220
65,509
96,151
74,457
55,241
166,247
568,509
1,140,100
107,378
60,295
148,181
88,970
5,276
—
2,779,534
201,789
106,975
94,814
17,036
111,850
19,045
92,805
75,769
17,036
92,805
0.40
0.09
0.49
0.40
0.09
0.49
See Notes to Consolidated Financial Statements
39
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translations, net of tax of $(6,289) in 2018
Net unrealized gain on cash flow hedges, net of tax of $232, $678, and $1,513,
respectively
Net unrealized gain (loss) on available for sale securities, net of tax of $(1,545), $944
and $(244), respectively
Adjustments to pension and postretirement plans, net of tax of $(13,058), $3,089 and
$(17,550), respectively
Amortization of pension and postretirement costs, net of tax of $21,675, $13,936, and
$14,430, respectively
Other comprehensive (loss) income
Comprehensive income
Less: Preferred stock dividends attributable to noncontrolling interests
Years Ended December 31,
2018
2017
2016
$
223,665
$
261,340
$
111,850
(54,531)
106,391
684
(5,002)
1,079
1,477
(4,464)
2,427
(416)
(46,170)
12,185
(73,141)
64,999
(40,020)
183,645
—
26,828
147,960
409,300
—
24,096
(51,498)
60,352
19,045
41,307
Comprehensive income - Pitney Bowes Inc.
$
183,645
$
409,300
$
See Notes to Consolidated Financial Statements
40
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 $17,617 and $14,786 respectively)
Short-term finance receivables (net of allowance of $12,454 and $12,187, respectively)
Inventories
Current income taxes
Other current assets and prepayments
Assets of discontinued operations
Total current assets
Property, plant and equipment, net
Rental property and equipment, net
Long-term finance receivables (net of allowance of $7,768 and $6,446, respectively)
Goodwill
Intangible assets, net
Noncurrent income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Current portion of long-term debt
Advance billings
Current income taxes
Liabilities of discontinued operations
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 16)
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible
Cumulative preference stock, no par value, $2.12 convertible
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (135,662,830 and 136,734,174 shares, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements
41
December 31,
2018
December 31,
2017
$
867,262
$
59,391
455,807
789,661
41,964
5,947
99,332
4,854
2,324,218
410,114
178,099
592,165
1,766,511
227,137
61,420
413,239
5,972,903
1,401,635
199,535
237,529
15,165
3,276
1,857,140
295,808
39,548
3,066,073
474,862
5,733,431
1
396
323,338
121,475
5,416,777
(948,426)
(4,674,089)
239,472
5,972,903
$
$
$
$
$
$
1,009,021
48,988
427,022
828,003
40,769
58,439
83,293
334,848
2,830,383
373,503
183,956
652,087
1,774,645
272,186
59,909
540,751
6,687,420
1,458,854
271,057
257,766
8,823
72,808
2,069,308
249,143
102,051
3,559,278
519,079
6,498,859
1
441
323,338
138,367
5,229,584
(792,173)
(4,710,997)
188,561
6,687,420
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2018
Years Ended December 31,
2017
2016
Cash flows from operating activities:
Net income
Income from discontinued operations
Restructuring payments
Adjustments to reconcile net income to net cash provided by operating activities:
$
$
223,665
(23,687)
(52,974)
Restructuring charges and asset impairments, net
Goodwill impairment
Depreciation and amortization
Pension plan settlement
Special pension plan contribution
Loss on sale of businesses
Gain on sale of technology
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
(Increase) decrease in other current assets and prepayments
Decrease in accounts payable and accrued liabilities
Increase (decrease) in current and non-current income taxes
Decrease in advance billings
Other, net
Net cash provided by operating activities: continuing operations
Net cash (used in) provided by operating activities: discontinued operations
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
Acquisitions, net of cash acquired
Other investing activities
Net cash used in investing activities: continuing operations
Net cash provided by (used in) investing activities: discontinued operations
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Principal payments of long-term obligations
Decrease in short-term borrowings
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Common stock repurchases
Redemption of noncontrolling interests
Other financing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Less cash and cash equivalents of discontinued operations
Cash and cash equivalents of continuing operations at end of period
Cash interest paid
Cash income tax payments, net of refunds
27,077
—
203,293
31,329
—
—
—
—
21,042
56,981
(35,565)
79,918
93
(22,609)
(3,180)
(24,807)
(21,506)
(37,705)
421,365
(29,103)
392,262
(81,527)
175,820
11,838
(191,444)
—
21,008
(10,484)
(4,250)
(79,039)
338,783
259,744
—
(570,180)
—
(140,498)
—
—
—
(55,741)
(766,419)
(25,381)
(139,794)
1,009,021
869,227
1,965
867,262
171,120
25,906
$
$
$
$
$
$
261,340
(39,978)
(37,454)
56,223
—
179,650
—
—
—
(6,085)
—
24,389
(25,390)
(15,923)
125,991
7,324
9,118
(13,238)
(14,581)
(21,193)
(23,384)
466,809
29,004
495,813
(125,055)
113,501
(8,285)
(168,097)
5,458
10,954
(482,853)
(5,750)
(660,127)
(2,893)
(663,020)
1,436,660
(964,550)
—
(139,490)
—
—
—
35,127
367,747
43,959
244,499
764,522
1,009,021
—
1,009,021
169,279
53,247
$
$
$
$
111,850
(17,036)
(62,071)
60,295
148,181
174,065
—
(36,731)
5,786
—
(10,000)
14,882
3,467
27,794
119,883
(2,880)
(717)
(97,783)
(1,661)
(48,432)
14,017
402,909
93,213
496,122
(212,810)
211,696
75,654
(159,232)
17,671
(2,183)
(37,842)
(6,908)
(113,954)
(1,599)
(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
—
764,522
150,567
127,299
See Notes to Consolidated Financial Statements
42
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
(deficit)
Balance at December 31, 2015
$
1
$
505
$ 323,338
$
161,280
$ 5,155,537
$
(888,635) $ (4,573,305) $
178,721
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common ($0.75 per share)
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 loss
Cash dividends
Common ($0.75 per share)
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Balance at December 31, 2017
Cumulative effect of accounting
changes
Net income - Pitney Bowes Inc.
Other comprehensive income
Cash dividends
Common ($0.75 per share)
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
(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)
—
441
—
—
—
—
—
—
(45)
—
—
—
—
—
—
—
—
—
—
—
—
(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
323,338
138,367
5,229,584
(792,173)
(4,710,997)
188,561
—
—
—
—
—
—
—
—
—
—
—
—
—
(37,030)
(904)
21,042
104,026
223,665
(116,233)
—
—
(40,020)
(140,466)
(32)
—
—
—
—
—
—
—
—
—
—
—
—
—
35,959
949
—
(12,207)
223,665
(40,020)
(140,466)
(32)
(1,071)
—
21,042
Balance at December 31, 2018
$
1
$
396
$ 323,338
$
121,475
$ 5,416,777
$
(948,426) $ (4,674,089) $
239,472
See Notes to Consolidated Financial Statements
43
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts 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.
We revised our December 31, 2017 balance sheet to correct the classification between tax uncertainties and other income tax liabilities
and deferred taxes on income by $14 million related to withholding taxes on unremitted earnings of our foreign subsidiaries. The impact
of this revision was not material to the prior quarters.
In July 2018, we sold our Document Messaging Technology production mail business and supporting software (the Production Mail
Business) to an affiliate of Platinum Equity, LLC, a leading global private equity firm. The Production Mail Business qualified as a
discontinued operation and accordingly, the assets, liabilities and results of operations of the Production Mail Business are reported as
discontinued operations (see Note 4).
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 assets and liabilities acquired 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 and remaining maturities of 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 probable losses
on finance receivables and provide an allowance for credit losses. We estimate probable losses on finance receivables 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.
44
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
We establish credit approval limits based on the credit quality of the client and the type of equipment financed. We 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 and resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables
deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the
account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry diversification
of our clients and small account balances for most of our clients.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories
and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
Fixed Assets
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over
their estimated useful lives, which are 50 years for buildings, 10 to 20 years for building improvements, 3 to 10 years for internal use
software development costs, 3 to 12 years for machinery and equipment and 4 to 6 years for rental equipment. Major improvements that
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 their 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.
Intangible assets
Finite-lived intangible assets are amortized using either the straight-line method or an accelerated attrition method over their estimated
useful lives of up to 15 years.
Research and Development Costs
Research and development costs include engineering costs related to research and 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 if 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
for 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 primarily issue restricted stock units, non-qualified stock options and performance stock units under our stock award plans.
Compensation expense for stock-based awards is measured based on the estimated fair value of the awards expected to vest and recognized
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 the Black-Scholes valuation model or Monte Carlo simulation
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
model. 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. Forfeitures are estimated
at the time of grant to recognize expense for those awards that are expected to vest and are based on our historical forfeiture rates.
Revenue Recognition
Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606). We adopted this standard on
the modified retrospective basis with a cumulative effect adjustment. Results for reporting periods beginning after January 1, 2018 are
presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous
guidance. We applied the following practical expedients and policy elections when adopting ASC 606:
•
Costs incurred to obtain a contract with a customer are expensed if the amortization period of the asset is one year or less;
• With the exception of certain services contracts, all taxes assessed by government authorities, such as sales and use taxes, value
•
•
added taxes and excise tax, are excluded from the transaction price;
The transaction price is not adjusted for a significant financing component when a performance obligation is satisfied within one
year;
Revenue is recognized based on the amount billable to the customer, when that amount corresponds to the value transferred to the
customer;
Shipping and handling activities are accounted for as a fulfillment activity rather than a separate performance obligation; and
•
• We reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price.
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. We are required to determine whether each
product and service within the contract should be treated as a separate performance obligation (unit of accounting) for revenue recognition
purposes. For contracts that include multiple performance obligations, the transaction price is allocated based on relative standalone
selling prices (SSP) which are a range of selling prices that we would sell a good or service to a customer on a separate basis. SSP is
established for each performance obligation at the inception of the contract and can be based on observable prices or estimated. The
allocation of the transaction price to the various performance obligations impacts the timing of revenue recognition, but does not change
the total revenue recognized. More specifically, revenue related to our offerings is recognized as follows:
Equipment Sales
We sell equipment directly to our customers and to distributors (re-sellers) throughout the world. For a sale transaction, the SSP of the
equipment is 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. 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. We recognize revenue on non-lease transactions when control of the equipment transfers to the customer, which is upon delivery
for customer installable models and upon installation or customer acceptance for other models.
Supplies Revenue
Supplies revenue is generally recognized upon delivery.
Software Revenue
We also have contracts that contain only performance obligations to deliver software licenses and software related products and services
that may include maintenance and support services, data, and training and integration services. A majority of our software and data license
products are considered "right to use" and are generally distinct from other promised goods and services within a contract. Revenue for
right to use software and data licenses is recognized at a point in time when control has transferred to the customer, which is generally
upon delivery or acceptance for those licenses requiring significant integration or customization. Revenue from renewals are recognized
at the beginning of the license term.
We generally invoice customers upon delivery of our software and data licenses. Data contracts that include both data and data updates
are invoiced in one or more equal installments. A contract asset is recognized on data licenses for which consideration will be received
in future periods.
We allocate the transaction price based on relative standalone selling prices, which are generally based on observable selling prices in
standalone transactions for our data products, maintenance and professional services. We estimate the standalone selling prices for our
software licenses using the residual approach, as the selling prices are highly variable and observable standalone selling prices exist for
the other goods and services in the contract.
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
We often bundle software licenses with lease contracts. Revenue is recognized upon delivery of those software licenses considered distinct
and functional in nature.
Rentals Revenue
Rentals revenue includes revenue from the subscription for digital meter services, postage meters and mailing equipment. Revenue is
allocated to the meter rental and equipment maintenance agreement elements using their respective selling prices charged in standalone
and renewal transactions. 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, 2018 and 2017, there were $17 million and $10 million of initial direct costs included in rental property
and equipment, net in the Consolidated Balance Sheets, respectively. Amortization of these costs was $5 million, $5 million and $7
million, for the years ended December 31, 2018, 2017 and 2016, 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 is allocated to the equipment
maintenance agreement using selling prices charged in standalone and renewal transactions. Since we have a stand-ready obligation to
provide service over the entire contract term, revenue related to these equipment maintenance agreements is recognized on a straight-
line basis over the term of the agreement.
Business Services Revenue
Business services revenue includes revenue from mail processing services and ecommerce solutions from our Commerce Services segment.
These services represent a series of distinct services that are similar and revenue is recognized as the services are invoiced to the customer.
We also review certain third party relationships and 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 inventory risk.
Prior to the adoption of ASC 606, for multiple element arrangements, revenue was allocated to each of the elements based on relative
"selling prices" determined based on vendor specific objective evidence (VSOE). We established VSOE of selling prices based on the
prices charged for each element when sold separately in standalone transactions. Revenue was 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 was allocated to the equipment based on a range of selling prices in standalone transactions. For a lease transaction, revenue was
allocated to the equipment based on the present value of the remaining minimum lease payments. The amount allocated to equipment
was compared to the range of selling prices in standalone transactions during the period to ensure the allocated equipment amount
approximated average selling prices.
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 allocated revenue based on VSOE for software related elements and used the residual method to determine the amount
of software licenses revenue. Under the residual method, the fair value of the undelivered elements was deferred and the remaining portion
of the consideration was 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 established VSOE of fair value using a bell-shaped curve analysis for
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
maintenance and support services renewal rates. If VSOE for any undelivered software element could not be determined, revenue was
deferred until all deliverables were delivered or until VSOE could be determined for remaining undelivered software elements.
For software licenses that were included in a lease contract, revenue was recognized upon delivery unless the lease contract specified
that the license expired at the end of the lease or the price of the software was deemed not fixed or determinable based on historical
evidence of similar software leases. In those instances, revenue was recognized on a straight-line basis over the term of the lease contract.
The adoption of ASC 606 did not have a material impact on the amount or timing of recognition for our other revenue streams.
Shipping and Handling
Shipping and handling costs are recognized as incurred and recorded in cost of revenues.
Costs to Obtain a Contract
Upon the adoption of ASC 606, certain incremental costs to obtain a contract are capitalized if we expect the benefit of those costs to be
realized over a period greater than one year. These costs primarily relate to sales commission on multi-year equipment and software
support service contracts. These costs are amortized in a manner consistent with the timing of the related revenue over the contract
performance period or longer, if renewals are expected and the renewal commission is not commensurate with the initial commission.
Amortization expense for the year ended December 31, 2018 was $15 million. Unamortized contract costs at December 31, 2018 were
$29 million and are included in other assets.
Deferred Marketing Costs
Prior to the adoption of ASC 606, we capitalized certain costs associated with the acquisition of new customers and recognized those
costs over the expected revenue stream of eight years. Deferred marketing costs at December 31, 2017 were $36 million and amortization
of these costs for the years ended December 31, 2017 and 2016 were $13 million and $15 million, respectively. Upon the adoption of
ASC 606, marketing costs associated with the acquisition of new customers are expensed as incurred and deferred marketing costs at
January 1, 2018 were written off and included in the cumulative effect of accounting change.
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 derivative instruments at fair value and the accounting for changes in fair value depends on the intended use of the derivative,
the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge. To qualify as a
hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship must be formally
documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness of the hedge
relationship is evaluated on a retrospective and prospective basis.
The use of derivative instruments exposes us to counterparty credit risk. To mitigate such risks, we enter into contracts only with financial
institutions that meet stringent credit requirements. We regularly review our credit exposure balances and the creditworthiness of our
counterparties. We have not seen a material change in the creditworthiness of our 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
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 based 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 common stock
equivalents.
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 2018
Effective January 1, 2018, we adopted ASC 606 using the modified retrospective method with a cumulative effect adjustment at the date
of the initial application. See Revenue Recognition above and Note 2 for more information on the adoption of ASC 606.
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-14, Compensation-
Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements
for Defined Benefit Plans. The ASU impacts disclosure requirements only. The standard is effective beginning January 1, 2021; however,
we elected to adopt this standard as of December 31, 2018.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU impacts only disclosure requirements
of fair value measurements. The standard is effective beginning January 1, 2020; however, we elected to adopt this standard as of December
31, 2018.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(AOCI). The ASU permits a reclassification of the disproportionate income tax effects of the 2017 Tax Cuts and Jobs Act on items within
AOCI to retained earnings and requires certain new disclosures. The standard is effective beginning January 1, 2019, with early adoption
permitted. We elected to adopt this standard as of December 31, 2018 and recognized the reclassification of $116 million from AOCI to
opening retained earnings as a cumulative effect adjustment. There was no impact to total Stockholders' equity.
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 early adopted this standard
on January 1, 2018 and there was no impact on our consolidated financial statements.
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. There was no impact on our
consolidated financial statements from the adoption of this standard.
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
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
footnotes. The standard also limits the amount eligible for capitalization to the service cost component. We adopted this standard and
prior period information has been recast to conform to the current period presentation.
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. We adopted this standard on January 1, 2018 and there was no impact on our consolidated financial statements.
In October 2016, the FASB issued ASU 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 previous guidance, the tax effects of transfers were deferred until the transferred
asset was sold or otherwise recovered through use. We adopted this standard and recognized a cumulative effect adjustment to reduce
opening retained earnings by $3 million.
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. We adopted this standard and there was no impact on
our consolidated financial statements.
New Accounting Pronouncements - Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which was subsequently amended by ASU No. 2018-10, Codification
Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
We will adopt the new lease accounting standard on January 1, 2019, using the modified retrospective transition approach of applying
the standard at the beginning of the earliest comparative period presented in the financial statements. As a result, we will record a
cumulative effect adjustment as of January 1, 2017, recast comparative period financial statements and provide disclosures required by
the standard.
From a lessor perspective, the standard simplifies the accounting for lease modifications and aligns accounting of lease contracts with
revenue recognition guidance. We will continue to classify leases as sales-type or operating, with classification affecting the pattern and
classification of income recognition. We expect changes in the timing and classification of revenue related to contract modifications. We
expect certain income and costs to be accelerated that were previously recognized over the life of the lease due to conclusions on lease
and non-lease components. We do not expect that this standard will have a material impact on our results of operations or liquidity; and
we do not expect the economics and overall profitability of our lease offerings to be materially impacted.
From a lessee perspective, the standard requires us to recognize right-of-use (ROU) assets and lease liabilities for our real estate and
equipment operating leases and to provide new disclosures about our leasing activities. We will elect the short-term lease recognition
exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months. We will also elect the practical
expedient to not separate lease and non-lease components for our lessee portfolio. Upon adoption, we expect to recognize ROU assets
and lease liabilities in the range of $175 million to $225 million. The impact of adopting the standard related to lessee accounting will
not have a material impact on our results of operations or liquidity.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software. The ASU aligns the requirements
for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. The standard is effective beginning January 1, 2020, with early
adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.
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 adopted on January 1, 2019 on a
modified retrospective basis. The implementation 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.
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
2. Revenue from Contracts with Customers
Adoption of ASC 606
We recorded a net decrease to opening retained earnings of $9 million as of January 1, 2018 for the cumulative effect of adopting ASC
606. Significant components of this cumulative effect adjustment include:
•
•
•
•
•
The write-off of previously capitalized deferred marketing costs that did not meet the criteria for capitalization under ASC 606;
The capitalization of certain costs to obtain a contract, primarily sales commissions, that are permitted to be capitalized under ASC
606;
The establishment of deferred revenue related to the early renewal of software and data license contracts with terms beginning in
2018, as ASC 606 requires revenue recognition at the commencement of the license term;
The write-off of deferred revenues and related costs for certain software licenses bundled with a lease that are recognized at time
of delivery under ASC 606; and
The write-off of advance billings related to certain software data products that are recognized upon delivery under ASC 606.
The impact on our consolidated financial statements as if they were presented under the prior guidance is as follows:
Income Statement
Total revenue
Equipment sales
Software
Business services
Total costs and expenses
Cost of equipment sales
Cost of software
Selling, general and administrative
Income from continuing operations before taxes
Year ended December 31, 2018
As reported
Prior guidance
Increase
(decrease)
$
$
$
$
$
$
$
$
$
3,522,380
430,451
340,855
1,561,522
3,310,019
181,766
100,681
1,123,116
212,361
$
$
$
$
$
$
$
$
$
3,483,757
432,911
297,976
1,563,318
3,318,288
181,957
96,332
1,135,543
165,469
$
$
$
$
$
$
$
$
$
38,623
(2,460)
42,879
(1,796)
(8,269)
(191)
4,349
(12,427)
46,892
The most significant impact to the Consolidated Statement of Income for the year December 31, 2018, was higher software revenue of
$43 million primarily due to the acceleration of data subscription revenues which were previously recognized on a ratable basis and the
renewal of software data licenses with a term beginning in 2018. Additionally, selling, general and administrative expenses were lower
due to the deferral of certain sales commissions and lower amortization of deferred marketing costs.
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Balance Sheet
Total assets
Accounts receivable, net
Other current assets and prepayments
Other assets
Total liabilities
Accounts payable and accrued liabilities
Advance billings
Other noncurrent liabilities
Total stockholders' equity
Retained earnings
Accumulated other comprehensive loss
December 31, 2018
As reported
Prior guidance
Increase
(decrease)
$
$
$
$
$
$
$
$
$
$
$
5,972,903
455,807
99,332
413,239
5,733,431
1,401,635
237,529
474,862
239,472
$
$
$
$
$
$
$
$
$
5,951,075
454,414
90,659
400,955
5,737,751
1,396,650
252,472
477,208
213,325
$
$
$
$
$
$
$
$
$
5,416,777
$
(948,426) $
5,389,732
$
(947,528) $
21,828
1,393
8,673
12,284
(4,320)
4,985
(14,943)
(2,346)
26,147
27,045
(898)
The most significant impacts to the Consolidated Balance Sheet at December 31, 2018 were:
•
•
•
•
Higher other current assets and prepayments primarily due to contract assets that are recognized when data licenses are delivered
in advance to the right to invoice. This was offset by lower prepaid costs related to software licenses and software data products,
which are now recognized at time of delivery rather than ratably under previous guidance;
Higher other assets primarily due to contract assets that are recognized when data licenses are delivered in advance to the right to
invoice;
Higher accounts payable and other accrued liabilities due to higher costs directly related to the higher data license revenue that is
recorded at the time of delivery under ASC 606 rather than ratably under the previous guidance; and
Lower advance billings primarily due to our data license products for which revenue is recognized at time of delivery but invoicing
occurs in future periods. Under previous guidance data subscriptions were billed in advance and recognized on a ratable basis over
the contract term.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Disaggregated Revenue
The following tables disaggregate our revenue by major source:
Major products/service lines
Global
Ecommerce
Presort
Services
North America
Mailing
International
Mailing
Software
Solutions
Total Revenue
from sales and
services (ASC
606)
Revenue from
leasing
transactions
and financing
Total
Consolidated
Revenue
Equipment sales
$
— $
— $
59,589 $
52,467 $
— $
112,056 $
318,395 $
430,451
Year ended December 31, 2018
Supplies
Software
Rentals
Financing
Support services
Business services
—
—
—
—
—
—
—
—
—
—
1,022,862
515,795
144,283
74,021
—
—
340,855
—
19,390
64,279
208,855
16,997
8,214
11,508
84,558
5,868
218,304
340,855
27,604
75,787
293,413
—
—
335,453
238,991
—
218,304
340,855
363,057
314,778
293,413
—
—
—
— 1,561,522
— 1,561,522
$ 1,022,862 $
515,795 $
513,393 $ 236,636 $ 340,855 $ 2,629,541 $
892,839 $ 3,522,380
Revenue from sales and services
(ASC 606)
Revenue from leasing
transactions and financing
$ 1,022,862 $
515,795 $
513,393 $ 236,636 $ 340,855 $ 2,629,541 $
— $ 2,629,541
—
—
761,632
131,207
—
—
892,839
892,839
Total revenue
$ 1,022,862 $
515,795 $ 1,275,025 $ 367,843 $ 340,855 $ 2,629,541 $
892,839 $ 3,522,380
Timing of revenue recognition (ASC 606)
Products/services transferred at a
point in time
Products/services transferred over
time
$
— $
— $
203,872 $ 126,488 $ 134,360 $
464,720
1,022,862
515,795
309,521
110,148
206,495
2,164,821
Total revenue
$ 1,022,862 $
515,795 $
513,393 $ 236,636 $ 340,855 $ 2,629,541
Our performance obligations are as follows:
Equipment sales and supplies: Our performance obligations generally include the sale of mailing equipment, excluding sales-type leases,
and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other
equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered
a separate performance obligation.
Software: Our performance obligations include the sale of software licenses, maintenance, data products and professional services.
Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of
the contract.
Rentals: Our performance obligations include the fees associated with postage refills for meters.
Financing: Our performance obligations include services under our equipment replacement program. The fees received for this program
are recognized ratably over the contract term.
Support Services: Our performance obligations include providing maintenance and professional services for our North America and
International mailing equipment. Contract terms range from one year to five years, depending on the term of the lease contract for the
related equipment. Maintenance revenue is recognized ratably over the contract period and revenue for professional services is recognized
when services are provided.
Business Services: Our performance obligations primarily include mail processing services and ecommerce solutions. Revenue is
recognized over time as the services are provided. The contract terms for these services vary, with the initial contracts in the range of one
to five years followed by annual renewal periods.
Revenue from leasing transactions and financing include revenue from sales-type leases, finance income and late fees that are not accounted
for under ASC 606.
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Contract Assets and Advance Billings from Contracts with Customers
Contract assets are recorded in other current assets and prepayments (current portion) and other assets (noncurrent portion) and advance
billings are recorded in advance billings (current portion) and other noncurrent liabilities (noncurrent portion) in the Consolidated Balance
Sheet. The following table summarizes our contract assets and advanced billings balances:
Contracts assets, current portion
Contracts assets, noncurrent portion
Advance billings, current portion
Advance billings, noncurrent portion
Contract Assets
December 31,
2018
January 1,
2018
Total increase
(decrease)
$
$
$
$
16,115
13,092
185,322
12,778
$
$
$
$
5,075
648
209,098
17,765
$
$
$
$
11,040
12,444
(23,776)
(4,987)
We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to consideration
is conditional on the satisfaction of another performance obligation within a contract. The increase in contract assets is primarily due to
an increase in multiple year data contracts where the license was delivered in 2018 but the right to invoice will occur in future periods.
Advance Billings from Contracts with Customers
Advance billings are recorded when cash payments are due in advance of performance. Items in advance billings primarily relate to
support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized
ratably over the contract term. The net decrease in advance billings at December 31, 2018 is primarily driven by revenues recognized
during the period, which includes $190 million of advance billings at the beginning of the period, partially offset by advance billings for
the year.
Future Performance Obligations
The transaction prices allocated to future performance obligations will be recognized as follows:
North America Mailing(1)
International Mailing(1)
Software Solutions(2)
Total
2019
2020
2021-2023
Total
$
$
$
144,989
37,921
66,185
$
110,930
24,552
38,373
$
133,738
38,068
22,170
249,095
$
173,855
$
193,976
$
389,657
100,541
126,728
616,926
(1) Revenue streams bundled with our leasing contracts, primarily maintenance and other services.
(2) Multiple-year software maintenance contracts, certain software and data licenses and data updates.
The table above does not include revenue related to performance obligations for contracts with terms less than 12 months and expected
consideration for those performance obligations where revenue is recognized based on the amount billable to the customer.
54
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
3. Segment Information
In January 2018, we revised our business reporting groups to reflect how we manage these groups and clients served in each market. We
formed the Commerce Services group to include our Global Ecommerce and Presort Services segments. Additionally, we classified the
operating results of the Production Mail Business to discontinued operations and have recast prior year segment operating results to
conform to the current year presentation. The principal products and services of each reportable segment are as follows:
Commerce Services:
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic
retail and ecommerce shipping solutions and fulfillment, delivery and return services.
Presort Services: Includes revenue and related expenses from sortation services that allow clients to qualify large volumes of First
Class Mail, Marketing Mail and Bound and Packet Mail (Standard Flats and Bound Printed Matter) for postal worksharing discounts.
Small & Medium Business (SMB) Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and shipping solutions, financing, services and
supplies for small and medium businesses to efficiently create 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 shipping solutions, financing, services and
supplies for small and medium businesses to efficiently create 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.
Software Solutions:
Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, location
intelligence software, data solutions and related support services.
Management uses segment earnings before interest and taxes (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 business. 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 not allocated to a particular business segment. Segment EBIT may not
be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of
operations. The following tables provide information about our reportable segments and reconciliation of segment EBIT to net income.
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total Revenue
Geographic data:
United States
Outside United States
Total
Revenues
Years Ended December 31,
2018
1,022,862
515,795
1,538,657
1,275,025
367,843
1,642,868
340,855
3,522,380
2,865,228
657,152
3,522,380
$
$
$
$
2017
$
552,242
$
497,901
1,050,143
1,357,405
384,097
1,741,502
331,627
3,123,272
2,466,403
656,869
3,123,272
$
$
$
$
$
$
2016
339,320
475,582
814,902
1,429,027
412,244
1,841,271
325,150
2,981,323
2,299,607
681,716
2,981,323
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total segment EBIT
Reconciling items:
Interest, net
Unallocated corporate expenses
Restructuring charges and asset impairments, net
Goodwill impairment
Pension settlement
Gain on sale of technology
Transaction costs
Other expense
Income from continuing operations before income taxes
Provision for income taxes
Income from discontinued operations, net of tax
$
EBIT
Years Ended December 31,
2018
2017
2016
$
(32,379)
73,768
41,389
470,268
63,820
534,088
47,094
622,571
(159,757)
(180,481)
(27,077)
—
(31,329)
—
(3,602)
(7,964)
212,361
12,383
23,687
$
(17,899)
97,506
79,607
498,571
48,531
547,102
33,818
660,527
(164,162)
(214,072)
(56,223)
—
—
6,085
(6,384)
(3,856)
221,915
553
39,978
3,043
95,258
98,301
594,723
45,408
640,131
22,119
760,551
(144,211)
(199,954)
(60,295)
(148,181)
—
—
(6,121)
—
201,789
106,975
17,036
Net income
$
223,665
$
261,340
$
111,850
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total for reportable segments
Unallocated amounts
Total depreciation and amortization
Depreciation and amortization
Years Ended December 31,
2018
2017
2016
$
$
61,046
26,838
87,884
68,250
16,142
84,392
9,540
181,816
21,477
203,293
$
$
36,662
26,541
63,203
64,803
18,562
83,365
8,978
155,546
24,104
179,650
$
$
30,607
27,929
58,536
60,066
19,431
79,497
14,621
152,654
21,411
174,065
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total for reportable segments
Unallocated amount
Total capital expenditures
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total for reportable segments
Cash and cash equivalents
Short-term investments
Assets of discontinued operations
Other corporate assets
Consolidated assets
Identifiable long-lived assets:
United States
Outside United States
Total
Capital expenditures
Years Ended December 31,
2018
2017
2016
$
$
46,117
42,532
88,649
61,458
10,701
72,159
4,251
165,059
26,385
$
26,810
20,860
47,670
69,131
11,982
81,113
9,181
137,964
30,133
$
191,444
$
168,097
$
15,647
17,537
33,184
83,547
3,163
86,710
4,617
124,511
34,721
159,232
Assets
December 31,
2017
2016
$
1,016,045
$
387,701
1,403,746
1,965,198
550,306
2,515,504
583,549
4,502,799
1,009,021
48,988
334,848
791,764
449,363
373,443
822,806
2,073,344
521,003
2,594,347
569,414
3,986,567
764,522
38,448
317,333
730,263
$
2018
1,023,732
431,512
1,455,244
1,859,355
502,370
2,361,725
593,050
4,410,019
867,262
59,391
4,854
631,377
$
5,972,903
$
6,687,420
$
5,837,133
$
$
543,118
45,095
588,213
$
$
501,251
56,208
557,459
$
$
436,795
58,339
495,134
57
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
4. Discontinued Operations
On July 2, 2018, we completed the sale of the Production Mail Business, other than in certain non-U.S. jurisdictions, to an affiliate of
Platinum Equity, LLC, a leading global private equity firm. Subsequently during the last half of the year, we closed on the sale of most
of the non-U.S. jurisdictions, and expect to close on the remaining non-U.S. jurisdictions in the first quarter of 2019, subject to local
regulatory requirements. Cash proceeds from the sale were $340 million and net proceeds, after the payment of closing costs, transaction
fees and taxes, were approximately $270 million.
In connection with the sale, we entered into Transition Services Agreements (TSAs) with the purchaser whereby we will perform certain
support functions for periods of a year or less. These TSAs will not have a material effect on our financial performance.
Selected financial information of the Production Mail Business included in discontinued operations is as follows:
Revenue
Earnings from discontinued operations
Gain on sale
Income from discontinued operations before taxes
Tax provision
Income from discontinued operations
Years Ended December 31,
$
$
2018
211,542
18,952
60,611
79,563
55,876
$
$
2017
426,676
61,074
—
61,074
21,096
23,687
$
39,978
$
$
$
$
2016
425,252
41,880
—
41,880
24,844
17,036
The gain on sale includes a $13 million non-cash pension settlement charge and $11 million of transaction costs.
The major categories of assets and liabilities of the Production Mail Business included in assets of discontinued operations and liabilities
of discontinued operations are as follows:
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets and prepayments
Property, plant and equipment, net
Rental property and equipment, net
Goodwill
Other assets
Assets of discontinued operations
Accounts payable and accrued liabilities
Advance billings
Other current liabilities
Other noncurrent liabilities
Liabilities of discontinued operations
December 31, 2018
1,965
$
1,057
849
278
526
179
—
—
4,854
662
593
2,021
—
3,276
$
$
$
December 31, 2017
$
$
$
$
—
97,402
48,910
3,365
5,541
1,786
177,799
45
334,848
36,592
30,607
—
5,609
72,808
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
5. Earnings per Share
The calculations of basic and diluted earnings per share for the years ended December 31, 2018, 2017 and 2016 are presented below. The
sum of earnings per share amounts may not equal the totals due to rounding.
Numerator:
Net income from continuing operations
Income from discontinued operations
Net income (numerator for diluted EPS)
Less: Preference stock dividend
Income attributable to common stockholders (numerator for basic EPS)
Denominator:
Weighted-average shares used in basic EPS
Dilutive effect of common stock equivalents
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,
2018
2017
2016
$
199,978
$
221,362
$
23,687
223,665
32
223,633
187,277
1,105
188,382
1.07
0.13
1.19
1.06
0.13
1.19
$
$
$
$
$
39,978
261,340
36
261,304
186,332
1,103
187,435
1.19
0.21
1.40
1.18
0.21
1.39
$
$
$
$
$
$
$
$
$
$
75,769
17,036
92,805
38
92,767
187,945
1,030
188,975
0.40
0.09
0.49
0.40
0.09
0.49
Anti-dilutive options excluded from diluted earnings per share:
12,089
10,267
8,126
6. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S.
inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at December 31, 2018 and 2017 consisted
of the following:
Raw materials
Supplies and service parts
Finished products
Inventory at FIFO cost, net
Excess of FIFO cost over LIFO cost
Total inventory, net
December 31,
2018
2017
$
$
8,231
21,841
14,897
44,969
(3,005)
41,964
$
$
11,767
21,475
13,261
46,503
(5,734)
40,769
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
7. Finance Assets
Finance Receivables
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease
receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan
receivables arise primarily from financing services offered to our clients for postage and supplies. Loan receivables are generally due
each month; however, customers may rollover outstanding balances. Interest 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, 2018 and 2017 consisted of the following:
Sales-type lease receivables
Gross finance receivables
Unguaranteed residual values
Unearned income
Allowance for credit losses
Net investment in sales-type lease receivables
Loan receivables
Loan receivables
Allowance for credit losses
Net investment in loan receivables
December 31, 2018
December 31, 2017
North
America
International
Total
North
America
International
Total
$ 1,004,491
$
268,199
$ 1,272,690
$ 1,023,549
$
292,059
$ 1,315,608
53,793
12,772
66,565
74,093
14,202
88,295
(211,683)
(55,113)
(266,796)
(216,720)
(62,325)
(279,045)
(10,253)
836,348
300,319
(6,777)
293,542
(2,355)
(12,608)
(7,721)
(2,794)
(10,515)
223,503
1,059,851
873,201
241,142
1,114,343
29,270
329,589
339,373
(837)
(7,614)
(7,098)
28,433
321,975
332,275
34,492
(1,020)
33,472
373,865
(8,118)
365,747
Net investment in finance receivables
$ 1,129,890
$
251,936
$ 1,381,826
$ 1,205,476
$
274,614
$ 1,480,090
Loans receivable are due within one year. Maturities of gross sales-type lease finance receivables at December 31, 2018 were as
follows:
2019
2020
2021
2022
2023
Thereafter
Total
Sales-type Lease Receivables
North America
469,288
$
254,781
163,481
87,674
29,086
181
1,004,491
$
International
Total
$
108,481
$
74,469
48,136
26,968
9,143
1,002
268,199
$
$
577,769
329,250
211,617
114,642
38,229
1,183
1,272,690
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Allowance for Credit Losses
Activity in the allowance for credit losses for the years ended December 31, 2018, 2017 and 2016 was as follows:
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
$
$
6,606
5,136
(3,495)
8,247
7,544
(8,070)
7,721
7,928
(5,396)
10,253
$
$
3,542
1,161
(2,056)
2,647
1,280
(1,133)
2,794
1,315
(1,754)
2,355
$
$
10,024
6,238
(7,745)
8,517
6,273
(7,692)
7,098
6,825
(7,146)
6,777
$
$
1,518
836
(1,265)
1,089
510
(579)
1,020
532
(715)
837
$
$
21,690
13,371
(14,561)
20,500
15,607
(17,474)
18,633
16,600
(15,011)
20,222
Balance at December 31, 2015
Amounts charged to expense
Accounts written off
Balance at December 31, 2016
Amounts charged to expense
Accounts written off
Balance at December 31, 2017
Amounts charged to expense
Accounts written off
Balance at December 31, 2018
Aging of Receivables
The aging of finance receivables at December 31, 2018 and 2017 was as follows:
December 31, 2018
1 - 90 days
> 90 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
December 31, 2017
1 - 90 days
> 90 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
Credit Quality
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
$
$
$
$
$
$
$
$
966,868
37,623
1,004,491
7,159
30,464
37,623
$
$
$
$
263,954
4,245
268,199
1,202
3,043
4,245
Sales-type Lease Receivables
North
America
International
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
$
$
$
$
$
$
$
$
294,126
6,193
300,319
1,769
4,424
6,193
$
$
$
$
29,079
191
29,270
72
119
191
$
$
$
$
1,554,027
48,252
1,602,279
10,202
38,050
48,252
Loan Receivables
North
America
International
Total
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
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
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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, 2018 and 2017 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,
2018
2017
$
834,230
$
$
$
118,945
19,981
31,335
1,004,491
238,620
43,952
5,947
11,800
$
$
819,776
148,000
21,728
34,045
1,023,549
262,646
56,744
6,791
13,192
$
300,319
$
339,373
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
8. Fixed Assets
Fixed assets at December 31, 2018 and 2017 consisted of the following:
Land
Buildings and improvements
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,
2018
2017
$
$
$
$
9,333
198,025
283,446
718,557
1,209,361
(799,247)
410,114
371,908
(193,809)
178,099
$
$
$
$
9,333
206,752
224,754
688,725
1,129,564
(756,061)
373,503
386,039
(202,083)
183,956
Depreciation expense was $159 million, $146 million and $134 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
9. Acquisitions, Intangible Assets and Goodwill
Acquisitions
In October 2017, we acquired Newgistics for $471 million, net of cash acquired. The results of Newgistics are included in our consolidated
operating results from the date of acquisition. Our consolidated revenue for the year ended December 31, 2017 includes $140 million
from Newgistics. 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.
Intangible assets
Intangible assets at December 31, 2018 and 2017 consisted of the following:
December 31, 2018
December 31, 2017
Customer relationships
Software & technology
Trademarks & other
Total intangible assets, net
Gross
Carrying
Amount
$
480,837
Accumulated
Amortization
$
165,088
40,170
686,095
$
$
(281,190) $
(143,877)
(33,891)
(458,958) $
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
199,647
$
504,716
$
21,211
6,279
227,137
$
167,122
40,649
712,487
$
(271,066) $
(138,724)
(30,511)
(440,301) $
233,650
28,398
10,138
272,186
Amortization expense was $44 million, $34 million and $40 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The future amortization expense for intangible assets at December 31, 2018 is as follows:
Year ended December 31,
2019
2020
2021
2022
2023
Thereafter
Total
63
$
40,059
35,001
30,479
29,245
26,100
66,253
$
227,137
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange
rates, acquisitions, divestitures and impairment charges.
Goodwill
Changes in the carrying amount of goodwill, by reporting segment, for the years ended December 31, 2018 and 2017 are shown in the
tables below.
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total goodwill
Global Ecommerce
Presort Services
Commerce Services
North America Mailing
International Mailing
SMB Solutions
Software Solutions
Total goodwill
Goodwill
before
accumulated
impairment
Accumulated
impairment
$
$
602,461
204,781
807,242
368,905
158,203
527,108
588,476
$ 1,922,826
$
December 31,
2017
602,461
204,781
— $
—
—
—
—
807,242
368,905
158,203
527,108
—
(148,181)
440,295
(148,181) $ 1,774,645
Acquisitions
7,623
$
2,684
$
10,307
—
—
—
—
$
10,307
$
Other (1)
December 31,
2018
609,431
207,465
(653) $
—
(653)
(657)
(10,996)
(11,653)
(6,135)
434,160
(18,441) $ 1,766,511
816,896
368,248
147,207
515,455
Goodwill
before
accumulated
impairment
Accumulated
impairment
December 31,
2016
Acquisitions
Other (1)
December 31,
2017
$
272,189
$
— $
272,189
$
330,272
$
— $
602,461
—
—
196,890
469,079
7,891
338,163
196,890
469,079
354,000
145,566
499,566
579,462
$ 1,548,107
$
354,000
—
145,566
—
499,566
—
(148,181)
431,281
(148,181) $ 1,399,926
—
—
14,905
12,637
27,542
9,014
204,781
807,242
368,905
158,203
527,108
440,295
—
—
—
—
$
338,163
$
36,556
$ 1,774,645
(1) Primarily represents foreign currency translation adjustments.
10. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from
the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities
measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities
in active markets or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and may be derived from internally developed
methodologies based on management's best estimates.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect
its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and
liabilities that are accounted for at fair value on a recurring basis at December 31, 2018 and 2017.
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Assets:
Investment securities
Money market funds / commercial paper
Equity securities
Commingled fixed income securities
Government and related securities
Corporate debt securities
Mortgage-backed / asset-backed securities
Derivatives
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Assets:
Investment securities
Level 1
Level 2
Level 3
Total
December 31, 2018
220,756
—
1,570
98,790
—
—
$
$
391,891
19,133
20,141
9,787
56,938
98,334
— $
—
—
—
—
—
612,647
19,133
21,711
108,577
56,938
98,334
—
321,116
$
2,031
598,255
$
—
— $
2,031
919,371
— $
— $
(735) $
(735) $
— $
— $
(735)
(735)
Level 1
Level 2
Level 3
Total
December 31, 2017
$
$
$
$
Money market funds / commercial paper
$
143,349
$
542,568
$
— $
685,917
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
—
1,569
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)
$
$
$
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts 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 pricing models based on quoted market prices and trade data for 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 and are classified as Level 2. The spread data used are for the same maturity as the security.
• Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or on external
price/spread data when external index pricing is not observable. These securities are classified as Level 2.
Available-For-Sale Securities
Available-for-sale securities at December 31, 2018 and 2017, 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, 2018
Gross
unrealized
gains
Gross
unrealized
losses
47
4
—
167
218
$
$
(1,336)
(1,780)
(67)
(2,019)
(5,202)
Estimated fair
value
108,487
$
56,938
1,570
98,334
$
265,329
Amortized cost
109,776
$
$
58,714
1,637
100,186
$
270,313
$
December 31, 2017
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Estimated fair
value
$
$
131,872
73,612
1,796
158,496
365,776
$
$
1,984
1,724
—
1,348
5,056
$
$
(1,090)
(227)
(40)
(1,642)
(2,999)
$
$
132,766
75,109
1,756
158,202
367,833
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Investment securities in a loss position at December 31, 2018 and 2017 were as follows:
Greater than 12 continuous months
Less than 12 continuous months
Total
December 31, 2018
December 31, 2017
Fair Value
Gross unrealized
losses
Fair Value
Gross unrealized
losses
$
$
177,331
48,318
225,649
$
$
4,355
847
5,202
$
$
115,815
90,838
206,653
$
$
2,290
709
2,999
We have not recognized an other-than-temporary impairment on any of the investment securities in an unrealized loss position because
we have the ability and intent to hold these securities until recovery of the unrealized losses and expect to receive the stated principal
and interest at maturity.
At December 31, 2018, 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
49,531
$
Estimated fair
value
$
49,286
107,848
35,531
77,403
106,586
34,627
74,830
$
270,313
$
265,329
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
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 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, 2018 and 2017, outstanding contracts associated with these anticipated transactions had a notional
amount of $8 million and $10 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 had an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated with $300 million of
variable-rate term loans. This swap matured in September 2018. While outstanding, the swap was designated as a cash flow hedge and
the effective portion of the gain or loss on the cash flow hedge was included in AOCI in the period that the change in fair value occurred
and reclassified to earnings in the period that the hedged item was recorded in earnings.
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The fair value of our derivative instruments at December 31, 2018 and 2017 was as follows:
Designation of Derivatives
Balance Sheet Location
2018
2017
December 31,
Derivatives designated as hedging instruments
Foreign exchange contracts
Other current assets and prepayments
$
Accounts payable and accrued liabilities
$
61
(104)
57
(144)
Interest rate swap
Other non-current assets
—
1,776
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 asset
1,970
(631)
2,031
(735)
1,296
$
65
(191)
1,898
(335)
1,563
$
The amounts included in AOCI at December 31, 2018 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, 2018 and 2017:
Derivative Instrument
Foreign exchange contracts
Interest rate swap
$
$
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
2018
2017
106
$
(650)
Years Ended December 31,
Location of Gain (Loss)
(Effective Portion)
Revenue
Cost of sales
(1,776) $
1,776
Interest Expense
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
2018
2017
$
$
11
51
—
62
$
$
(179)
(32)
—
(211)
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, 2018 mature over the next
three months.
The following represents the results of our non-designated derivative instruments for the years ended December 31, 2018 and 2017:
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
2018
2017
$
(33,453) $
(2,203)
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, 2018, we were not required to
post any collateral.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts 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. 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, 2018 and 2017 was as follows:
Carrying value
Fair value
11. Supplemental Balance Sheet Information
The following table shows selected balance sheet information at December 31, 2018 and 2017:
Other assets:
Long-term investments
Deferred marketing costs
Contract assets and cost to obtain a contract
Other
Total
Accounts payable and accrued liabilities:
Accounts payable
Customer deposits
Employee related liabilities
Other
Total
December 31,
2018
3,265,608
3,003,678
$
$
2017
$
$
3,830,335
3,718,986
December 31,
2018
2017
$
311,417
$
435,612
$
$
—
42,287
59,535
35,668
—
69,471
413,239
$
540,751
285,592
$
700,397
230,044
185,602
284,857
693,005
251,545
229,447
$
1,401,635
$
1,458,854
12. Restructuring Charges and Asset Impairments
The table below shows the activity in our restructuring reserves for the years ended December 31, 2018 and 2017:
Balance at December 31, 2016
Expenses, net
Cash payments
Balance at December 31, 2017
Expenses, net
Cash payments
Balance at December 31, 2018
Severance and
benefits costs
Other exit
costs
Total
$
$
28,234
50,114
(36,197)
42,151
19,130
(47,640)
13,641
$
$
281
2,545
(1,257)
1,569
6,507
(5,334)
2,742
$
$
28,515
52,659
(37,454)
43,720
25,637
(52,974)
16,383
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.
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Asset impairment
Asset impairment charges were $2 million, $4 million, and $15 million in 2018, 2017, and 2016, respectively.
13. Debt
Notes due March 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
5.60%
$
6.25%
3.875%
3.875%
4.375%
4.95%
4.625%
5.25%
6.70%
Variable
December 31,
2018
— $
—
300,000
600,000
400,000
400,000
500,000
35,841
425,000
630,000
5,297
2017
250,000
300,000
300,000
600,000
400,000
400,000
500,000
35,841
425,000
650,000
5,476
3,296,138
3,866,317
30,530
35,982
3,265,608
3,830,335
199,535
271,057
$ 3,066,073
$ 3,559,278
In 2018, Standard & Poor's lowered our corporate credit rating from BBB- to BB+ and as a result, the interest rate on certain notes and
term loans increased 0.25%.
During 2018, we repaid the $250 million, 5.6% notes that matured in March 2018 and $20 million of principal on our term loans. We
also redeemed the $300 million, 6.25% notes due March 2019 and recorded an $8 million loss on the early redemption. In 2017, we
recorded a loss of $4 million on the early redemption of debt. Pursuant to an extension option, we extended the maturity of a $150 million
term loan to August 2019.
Annual maturities of outstanding debt at December 31, 2018 are as follows:
2019
2020
2021
2022
2023
Thereafter
Total
$
$
200,194
730,103
600,000
400,000
400,000
965,841
3,296,138
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
14. Retirement Plans and Postretirement Medical Benefits
We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S.
under various defined benefit retirement plans. Benefit accruals under most of our 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
2018
1,500,691
$
2017
2018
2017
$
1,726,824
$
659,628
$
737,580
Benefit obligation - beginning of year
$
1,727,737
$
1,678,097
$
751,373
$
688,172
Service cost
Interest cost
Plan participants' contributions
Actuarial (gain) loss
Foreign currency changes
Plan amendments
Settlement / curtailment
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
Amounts recognized in the Consolidated Balance Sheets
Noncurrent asset
Current liability
Noncurrent liability
Funded status
92
61,490
—
(124,298)
—
—
(82,273)
(81,608)
1,501,140
1,557,907
(73,745)
6,753
—
(82,273)
—
(81,608)
1,327,034
277
(10,975)
(163,408)
(174,106)
$
$
$
$
$
132
68,611
—
92,789
—
—
—
(111,892)
1,727,737
1,464,082
199,749
5,968
—
—
—
(111,892)
1,557,907
392
(8,362)
(161,860)
(169,830)
$
$
$
$
$
2,159
18,089
7
(41,995)
(40,559)
9,009
(6,703)
(28,736)
662,644
632,710
(17,043)
10,939
7
—
(35,360)
(28,736)
562,517
14,225
(1,197)
(113,155)
(100,127)
$
$
$
$
$
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
19,139
(1,188)
(136,614)
(118,663)
$
$
$
$
$
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2018 and 2017:
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
2018
1,500,680
1,500,231
1,326,296
2017
1,727,292
1,726,378
1,557,069
$
$
$
United States
2018
809,836
(330)
—
809,506
$
$
2017
835,265
(391)
—
834,874
Foreign
2018
540,798
538,666
426,446
$
$
$
2017
614,371
601,412
476,825
Foreign
2018
318,474
8,496
(17)
326,953
$
$
2017
321,914
(597)
(24)
321,293
$
$
$
$
$
$
$
$
$
$
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/Curtailment
United States
2018
2017
2016
2018
Foreign
2017
2016
$
92
$
132
$
105
$
2,159
$
2,274
$
2,148
61,490
(101,087)
—
(60)
31,298
—
44,665
68,611
(97,656)
—
(60)
28,954
73,699
(101,918)
—
(60)
27,220
18,089
(35,687)
(7)
(71)
7,264
—
—
(19) $
—
2,109
1,155
$
208
(13)
(8,058) $
18,836
(32,242)
(8)
(71)
8,052
—
—
(3,159) $
21,886
(32,615)
(8)
(73)
5,264
52
110
(3,236)
Net periodic benefit cost (income)
$
36,398
$
In connection with the disposition of the Production Mail Business and certain other actions, a pre-tax, non-cash pension settlement
charge of $45 million for the U.S. pension plans was incurred in 2018. We recognized $32 million of this charge in other components of
net pension and postretirement cost and the remaining $13 million in income from discontinued operations, net of tax.
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were
as follows:
Net actuarial loss (gain)
Plan amendment
Amortization of net actuarial loss
Amortization of prior service credit
Net transition asset
Settlement/Curtailment
Total recognized in other comprehensive income
United States
Foreign
2018
2017
2018
2017
50,534
—
(31,298)
60
—
(44,665)
(25,369)
$
$
(9,304)
—
(28,954)
60
—
—
(38,198)
$
3,824
9,009
(7,264)
71
7
13
$
(12,202)
—
(8,052)
71
8
—
$
5,660
$
(20,175)
$
$
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined benefit
pension plans include:
United States
Used to determine benefit obligations
Discount rate
Rate of compensation increase
Used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
Foreign
Used to determine benefit obligations
Discount rate
Rate of compensation increase
Used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
2018
2017
2016
4.34%
N/A
3.69%
7.00%
N/A
3.69%
N/A
4.20%
6.75%
N/A
4.20%
N/A
4.55%
7.00%
N/A
0.75% - 3.55%
1.50% - 2.50%
0.65% - 3.35%
1.50% - 2.50%
0.70% - 3.65%
1.50% - 2.50%
0.65% - 3.35%
3.75% - 6.25%
1.50% - 3.25%
0.70% - 3.65%
3.75% - 6.25%
1.50% - 3.30%
1.15% - 3.95%
3.75% - 6.51%
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 2019, we estimate making contributions of $11 million to our U.S. pension plans and $11 million to our foreign pension plans.
Investment Strategy and Asset Allocation - U.S. Pension Plans
The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and
maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least
6.75%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset
classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options,
forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency
exposure. We do not have any significant concentrations of credit risk within the plan assets. Investment objectives and investment
managers are reviewed periodically.
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Target and actual allocations for 2019, 2018 and 2017 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,
2019
2018
2017
14%
13%
63%
5%
5%
100%
13%
13%
64%
7%
3%
100%
15%
15%
62%
6%
2%
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 76% 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 2019, 2018 and 2017 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,
2019
2018
2017
10%
30%
40%
10%
10%
—%
100%
9%
29%
41%
10%
10%
1%
100%
10%
29%
41%
9%
9%
2%
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 $426 million and $477 million at December 31, 2018 and 2017, respectively, and the expected
long-term weighted average rate of return on these plan assets was 6.25% in both 2018 and 2017.
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts 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, 2018 and 2017:
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
Total plan assets at fair value
Securities lending payable
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
Total plan assets at fair value
Securities lending payable
Cash
Other
Fair value of plan assets
December 31, 2018
Level 1
Level 2
Level 3
Total
$
$
3,498
110,840
—
258,535
—
—
—
—
—
5,759
109,864
281,258
16,144
435,285
23,474
—
—
117,603
$
— $
—
—
—
—
—
32,750
96,877
—
9,257
220,704
281,258
274,679
435,285
23,474
32,750
96,877
117,603
$
372,873
$
989,387
$
129,627
$
1,491,887
(117,603)
11,341
(58,591)
$
1,327,034
December 31, 2017
Level 1
Level 2
Level 3
Total
$
8,810
$
9,350
$
— $
18,160
302,858
377,078
315,877
418,908
19,223
38,362
91,352
152,179
1,733,997
(152,179)
5,186
(29,097)
1,557,907
$
$
152,815
—
295,404
—
—
—
—
150,043
377,078
20,473
418,908
19,223
—
—
—
457,029
152,179
1,147,254
$
$
$
—
—
—
—
—
38,362
91,352
—
129,714
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts 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, 2018
Level 1
Level 2
Level 3
Total
$
$
— $
—
—
—
—
—
—
— $
11,172
194,914
198,902
40,055
29,996
—
—
475,039
$
$
— $
—
—
—
—
42,143
40,766
82,909
$
$
11,172
194,914
198,902
40,055
29,996
42,143
40,766
557,948
3,903
666
562,517
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
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 / Asset-Backed Securities: Mortgage-backed securities (MBS) are comprised of agency-backed MBS,
non-agency MBS, collateralized mortgage obligations, commercial MBS and commingled funds. These securities are valued based
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
on external pricing indices- external price/spread data or broker quotes. Asset-backed securities (ABS) are primarily comprised of
credit card receivables, auto loan receivables, student loan receivables and Small Business Administration loans.
• 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, 2018 and 2017:
United States Pension Plans
Balance at December 31, 2016
Realized gains
Unrealized gains (losses)
Net purchases, sales and settlements
Balance at December 31, 2017
Realized gains
Unrealized (losses) gains
Net purchases, sales and settlements
Balance at December 31, 2018
Foreign Pension Plans
Balance at December 31, 2016
Unrealized gains
Net purchases, sales and settlements
Foreign currency
Balance at December 31, 2017
Unrealized gains (losses)
Net purchases, sales and settlements
Foreign currency
Balance at December 31, 2018
MBS & ABS
Private equity
Real estate
Total
$
1,236
$
49,637
$
87,852
$
138,725
25
49
(1,310)
—
—
—
—
$
— $
9,226
(2,334)
(18,167)
38,362
8,264
(1,409)
(12,467)
32,750
980
2,397
123
91,352
1,001
4,462
62
10,231
112
(19,354)
129,714
9,265
3,053
(12,405)
$
96,877
$
129,627
Real estate
Diversified
growth funds
Total
$
34,483
$
36,779
$ 71,262
2,159
1,481
3,478
41,601
1,317
1,653
(2,428)
42,143
$
3,551
—
3,694
44,024
(4,948)
4,090
(2,400)
40,766
5,710
1,481
7,172
85,625
(3,631)
5,743
(4,828)
$ 82,909
$
77
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts 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 (gain) loss
Foreign currency changes
Curtailment
Benefits paid
Benefit obligation - end of year (1)
Fair value of plan assets
Fair value of plan assets - beginning of year
Company contribution
Plan participants' contributions
Benefits paid
Fair value of plan assets - end of year
Amounts recognized in the Consolidated Balance Sheets
Current liability
Non-current liability
Funded status
2018
2017
$
188,841
$
189,772
1,405
6,640
3,200
(11,304)
(1,178)
(533)
(20,596)
166,475
1,727
7,100
3,820
5,134
1,066
—
(19,778)
188,841
$
— $
17,396
3,200
(20,596)
— $
—
15,958
3,820
(19,778)
—
(17,013)
(149,463)
(166,476)
$
$
(17,712)
(171,129)
(188,841)
$
$
$
$
$
(1) The benefit obligation for U.S. nonpension postretirement plans was $154 million and $172 million at December 31, 2018 and 2017, respectively.
The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service cost
Total
Service cost
Interest cost
Amortization of prior service cost
Amortization of net actuarial loss
Curtailment
Net periodic benefit cost
2018
2017
$
$
28,368
823
29,191
$
$
$
43,160
1,466
44,626
2016
2,046
7,969
297
3,615
—
$
2018
2017
$
1,405
6,640
304
3,048
246
1,727
7,100
297
3,600
—
$
11,643
$
12,724
$
13,927
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income
were as follows:
Net actuarial (gain) loss
Curtailment
Amortization of net actuarial loss
Amortization of prior service cost
Total recognized in other comprehensive income
2018
2017
$
$
(11,837)
(246)
(3,048)
(304)
(15,435)
$
$
5,134
—
(3,600)
(297)
1,237
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
2018
2017
2016
4.20%
3.60%
3.55%
3.35%
3.55%
3.35%
3.90%
3.65%
3.90%
3.65%
4.20%
3.95%
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 7.0%
for 2018 and 7.0% for 2017. The assumed health care trend rate is 6.5% for 2019 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.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, are expected to be paid.
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Savings Plans
Pension Benefits
Nonpension
Benefits
$
137,312
$
131,672
129,641
128,972
128,774
627,369
1,283,740
$
$
17,040
16,376
15,783
14,737
13,706
59,518
137,160
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 both 2018 and
2017.
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
15. Income Taxes
Income from continuing operations before taxes consisted of the following:
U.S.
International
Total
Years Ended December 31,
2018
114,982
97,379
212,361
$
$
2017
2016
$
$
140,574
81,341
221,915
$
$
126,856
74,933
201,789
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,
2018
2017
2016
$
(50,333)
56,715
6,382
(10,489)
(911)
(11,400)
16,224
1,177
17,401
$
$
31,691
(49,812)
(18,121)
76,117
(1,979)
74,138
(2,330)
15,316
12,986
(3,418)
9,106
5,688
6,377
4,682
11,059
21,014
764
21,778
(44,598)
56,981
12,383
$
25,943
(25,390)
553
103,508
3,467
$
106,975
$
Effective tax rate
5.8%
0.2%
53.0%
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Act) was signed into law making significant changes to the Internal
Revenue Code. Changes included, but were not limited to, a federal corporate income tax rate decrease from 35% to 21% effective January
1, 2018, the transition of U.S. international taxation from a worldwide tax system to a territorial system by creating a minimum tax on
earnings of foreign subsidiaries, and a one-time transition tax on the mandatory deemed repatriation of post-1986 cumulative foreign
earnings. As of December 31, 2017, in accordance with the Act, we recorded a net provisional one-time non-cash benefit of $39 million,
which was 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 post-1986 earnings of our
foreign subsidiaries. Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when
a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to
complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for
purposes of SAB 118. As such, we have completed the analysis based on legislative updates relating to the Act currently available which
resulted in an adjustment to the provisional tax recorded of $37 million for the year ended December 31, 2018, which is comprised of a
$13 million benefit related to the remeasurement of certain deferred tax assets and liabilities and a $24 million decrease in the U.S. tax
on unremitted post-1986 earnings of our foreign subsidiaries.
In addition to the adjustment to the provisional tax benefits, the effective tax rate for 2018 includes a benefit of $17 million from the
resolution of certain tax examinations. 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 charge and a $6 million
charge for a valuation allowance on tax attribute carryovers.
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 (1)
Impact of foreign operations taxed at rates other than the U.S. statutory rate
Accrual/release of uncertain tax amounts related to foreign operations
$
U.S. tax impacts of foreign income in the U.S.
Tax exempt income/reimbursement
Tax incentives/credits/exempt income
Goodwill impairments
Remeasurement of U.S. deferred taxes
U.S. tax on unremitted earnings
Other, net
Provision for income taxes
Years Ended December 31,
2018
2017
2016
$
44,596
1,251
(1,988)
(4,595)
7,683
—
2,026
—
(13,121)
(23,711)
242
$
77,671
5,418
(15,859)
(17,919)
2,778
—
(14,329)
—
(129,960)
90,916
1,837
70,627
7,188
(9,236)
(7,482)
2,929
(935)
(9,020)
50,003
—
—
2,901
$
12,383
$
553
$
106,975
(1) Includes release of tax uncertainties of $(9) million, $(3) million and $(3) million for the years ended December 31, 2018, 2017 and
2016, respectively.
Deferred tax liabilities and assets at December 31, 2018 and 2017 consisted of the following:
Deferred tax liabilities:
Depreciation
Deferred profit (for tax purposes) on sale to finance subsidiary
Lease revenue and related depreciation
Intangible assets
Other
Gross deferred tax liabilities
Deferred tax assets:
Nonpension postretirement benefits
Pension
Inventory and equipment capitalization
Restructuring charges
Long-term incentives
Net operating loss
Tax credit carry forwards
Tax uncertainties gross-up
Other
Gross deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Total deferred taxes, net
81
December 31,
2018
2017
(102,726)
(41,951)
(166,544)
(98,707)
(33,353)
(443,281)
42,422
60,063
7,216
5,064
11,517
106,029
64,148
6,692
46,885
350,036
(142,496)
207,540
(235,741)
$
(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
36,936
387,204
(178,156)
209,048
$
(191,571)
$
$
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
A valuation allowance is recognized to reduce the total deferred tax assets to an amount that will more-likely-than-not be realized. The
valuation allowance relates primarily to certain foreign, state and local net operating loss and tax credit carryforwards that are more-
likely-than-not to expire unutilized.
We have net operating loss carryforwards of $258 million as of December 31, 2018, of which $211 million can be carried forward
indefinitely and the remainder expire over the next 15 years. In addition, we have tax credit carryforwards of $64 million, of which $50
million can be carried forward indefinitely and the remainder expire over the next 5 to 15 years.
As of December 31, 2018, we assert that we are no longer permanently reinvested in $724 million of post-1986 earnings generated from
non-U.S. subsidiaries, which were subject to the deemed repatriation toll charge under the Act. We continue to be permanently reinvested
in our remaining undistributed earnings of $301 million as well as other outside basis differences. While a determination of the full
liability that would be incurred if these earnings were repatriated is not practical, we have estimated the withholding taxes would be
approximately $13 million.
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
2018
2017
2016
$
89,767
$
124,728
$
139,249
88
(15,145)
6,001
(4,844)
(4,409)
71,458
$
528
(31,470)
5,951
(6,953)
(3,017)
89,767
—
(21,207)
10,867
(1,791)
(2,390)
$
124,728
$
The amount of the unrecognized tax benefits at December 31, 2018, 2017 and 2016 that would affect the effective tax rate if recognized
was $65 million, $74 million and $104 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 30% of our unrecognized tax benefits. We recognize
interest and penalties related to uncertain tax positions in our provision for income taxes. We recognized interest and penalties of less
than $(1) million, $(4) million and less than $1 million related to uncertain tax positions in our provision for income taxes for the years
ended December 31, 2018, 2017 and 2016 respectively. We had $4 million accrued for the payment of interest and penalties at December 31,
2018 and 2017.
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 2015
are closed to audit; however, various post-2011 U.S. state and local tax returns are still subject to examination. In Canada, the examination
of our tax filings prior to 2014 are closed to audit. Other significant jurisdictions include France, (closed through 2014), Germany, (closed
through 2012) and the U.K. (except for an item under appeal, closed through 2016). We also have other less significant tax filings currently
subject to examination.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. We believe we have established tax reserves that are appropriate given the possibility of tax
adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax law
and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative, on
our results of operations, financial position and cash flows.
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
16. 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.
In August 2018, the Company, certain of its directors, officers and several banks who served as underwriters, were named as defendants
in City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al., a putative class action lawsuit filed in Connecticut
state court. The complaint asserts claims under the Securities Act of 1933, as amended, on behalf of those who purchased notes issued
by the Company in connection with a September 13, 2017 offering, alleging, among other things, that the Company failed to make certain
disclosures relating to components of its third quarter 2017 performance at the time of the notes offering. The complaint seeks compensatory
damages and other relief. In addition, in December 2018 and then in February 2018, certain of the Company’s officers and directors were
named as defendants in two virtually identical derivative actions purportedly brought on behalf of the Company, Clem v. Lautenbach et
al. and Devolin v. Lautenbach et al. These two actions, both filed by the same counsel in Connecticut state court allege, among other
things, breaches of fiduciary duty relating to these same disclosures, and seek compensatory damages and other relief derivatively for
the benefit of the Company. Although litigation outcomes are inherently unpredictable, we believe these matters are without merit and
intend to defend them vigorously. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time.
17. 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 $53 million, $46 million
and $45 million in 2018, 2017 and 2016, respectively. Future minimum lease payments under non-cancelable operating leases at
December 31, 2018 were as follows:
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
$
48,182
41,366
34,665
26,616
17,988
62,668
$
231,485
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
18. Stockholders' Equity
Preferred and Preference Stock
We have two classes of preferred stock issued and outstanding, the 4% Preferred Stock (the Preferred Stock) and the $2.12 Preference
Stock (the Preference Stock). The Preferred Stock is entitled to cumulative dividends of $2 per year and can be converted into 24.24
shares of common stock, subject to adjustment, in certain events. The Preferred Stock is redeemable at our option at a price of $50 per
share, plus dividends accrued through the redemption date. We are authorized to issue 600,000 shares of Preferred Stock. There were 12
shares of Preferred Stock outstanding at both December 31, 2018 and 2017. 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, 2018 and 2017, there were 14,635 shares and 16,301 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, 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
Issuance of common stock
Conversions to common stock
Balance at December 31, 2018
Common Stock
Outstanding
195,521,208
(10,633,235)
767,060
13,685
Treasury Stock
127,816,704
10,633,235
(767,060)
(13,685)
185,668,718
137,669,194
881,480
53,540
(881,480)
(53,540)
186,603,738
1,043,809
136,734,174
(1,043,809)
27,535
(27,535)
187,675,082
135,662,830
At December 31, 2018, 33,572,744 shares were reserved for issuance under our stock plans, dividend reinvestment program and the
conversion of Preferred Stock and Preference Stock.
84
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
19. Accumulated Other Comprehensive Income (Loss)
Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016 were
as follows:
Gain (loss) on cash flow hedges
Revenue
Cost of sales
Interest expense
Loss on extinguishment of debt
Total before tax
Tax benefit
Net of tax
Gain (loss) 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
Settlement
Total before tax
Tax benefit
Net of tax
Amounts Reclassified from AOCI (a)
Years Ended December 31,
2018
2017
2016
$
$
$
$
$
$
11
$
51
(1,183)
(1,267)
(2,388)
(941)
(1,447)
3,244
821
2,423
7
(173)
(41,610)
(44,898)
(86,674)
(21,675)
(64,999)
$
$
$
$
$
(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)
(a) Amounts in parentheses indicate reductions to income and increases to other comprehensive income.
(b) Reclassified from accumulated other comprehensive loss to other components of net pension and postretirement cost. These amounts are included in net periodic
costs for defined benefit pension plans and nonpension postretirement benefit plans (see Note 14 for additional details).
85
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016 were as follows:
Balance January 1, 2016
$
(3,912) $
536
$
(738,768) $
(146,491) $
Cash flow
hedges
Available-for-
sale securities
Pension and
postretirement
benefit plans
Foreign
currency
adjustments
Total
(888,635)
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, 2016
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, 2017
Cumulative effect of accounting change
Restated balance at December 31, 2017
Other comprehensive income (loss) before
reclassifications (a)
Amounts reclassified from accumulated other
comprehensive income (loss) (a), (b)
Net other comprehensive income (loss)
1,095
(1,109)
(73,141)
(4,464)
(77,619)
1,332
2,427
(1,485)
(288)
1,367
1,079
(406)
(87)
(493)
(763)
1,447
684
693
(416)
120
1,158
319
1,477
1,597
344
1,941
24,096
(49,045)
(787,813)
—
(4,464)
(150,955)
26,121
(51,498)
(940,133)
12,185
106,391
119,446
26,828
39,013
(748,800)
(116,490)
(865,290)
—
106,391
(44,564)
—
(44,564)
28,514
147,960
(792,173)
(116,233)
(908,406)
(2,579)
(46,170)
(54,531)
(104,043)
(2,423)
(5,002)
(3,061) $
64,999
18,829
(846,461) $
—
(54,531)
(99,095) $
64,023
(40,020)
(948,426)
Balance at December 31, 2018
$
191
$
(a) Amounts are net of tax. Amounts in parentheses indicate debits to AOCI.
(b) See table above for additional details of these reclassifications.
20. 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, 2018, there were 14,411,742 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 2018 and 2017:
Outstanding - beginning of the year
Granted
Vested
Forfeited
Outstanding - end of the year
2018
2017
Shares
2,651,053
1,754,098
(963,010)
(213,802)
3,228,339
Weighted
average grant
date fair value
14.16
$
12.36
11.41
13.26
13.33
$
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
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,
2018, there was $15 million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-
average period of 1.7 years. The intrinsic value of RSUs outstanding at December 31, 2018 was $18 million. The intrinsic value of RSUs
86
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
vested during 2018, 2017 and 2016 was $17 million, $26 million and $14 million, respectively. The fair value of RSUs vested during
2018, 2017 and 2016 was $18 million, $14 million and $21 million, respectively. During 2016, we granted 826,546 RSUs at a weighted
average fair value of $17.20.
Non-employee directors receive restricted stock units which are convertible into shares of common stock one year from date of grant. In
2018 and 2017, we granted 131,420 and 63,090 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 2018:
2018
2017
Outstanding - beginning of the year
Granted
Vested
Forfeited
Outstanding - end of the year
Shares
1,145,025
733,148
(91,493)
(133,676)
1,653,004
$
Weighted
average grant
date fair value
13.43
$
12.64
12.21
14.26
13.08
Shares
Weighted
average grant
date fair value
379,898
$
1,073,934
(258,688)
(50,119)
1,145,025
$
25.01
10.51
13.17
26.10
13.43
Share-based compensation expense for PSUs is recognized ratably over the service period based on the number shares expected to be
awarded and the fair value of an award. The fair value of PSUs is determined using a Monte Carlo simulation model. Due to the variability
of these awards, significant fluctuations in share-based compensation expense for PSUs 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 grant date. At December 31, 2018, 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, 2018 was not significant. There were no stock option exercises in
2018, 2017 or 2016.
The following table summarizes information about stock option activity during 2018 and 2017:
Options outstanding - beginning of the year
Granted
Canceled
Expired
Options outstanding - end of the year
Options exercisable - end of the year
2018
2017
Per share
weighted
average
exercise prices
21.67
$
8.47
13.09
36.86
15.30
20.23
$
$
Shares
10,495,039
4,932,467
(258,509)
(1,575,841)
13,593,156
6,824,433
Per share
weighted
average exercise
prices
$
$
$
27.13
13.16
20.34
46.88
21.67
25.57
Shares
9,122,762
2,553,510
(63,517)
(1,117,716)
10,495,039
6,690,250
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following table provides additional information about stock options outstanding and exercisable at December 31, 2018:
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
$5.99 - $13.11
$13.16 - $17.71
$19.45 - $26.07
4,537,267
4,903,330
4,152,559
13,593,156
$
$
8.02
14.72
23.94
15.30
9.7 years
7.3 years
2.0 years
6.5 years
— $
2,879,149
3,945,284
6,824,433
$
—
15.21
23.90
20.23
— years
6.8 years
1.7 years
3.9 years
The fair value of stock options is determined using a Black-Scholes valuation 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 the award. The expected life of the award and expected dividend yield are based on historical experience.
The follow table lists the weighted average of assumptions used to calculate the fair value of stock options granted during 2018 and 2017:
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,
2018
2017
2016
9.9%
37.8%
2.8%
7 years
$1.26
$6,229
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 218,424 shares and
150,629 shares in 2018 and 2017, respectively. We have reserved 2,552,004 common shares for future purchase under the ESPP.
21. Subsequent Event
In January 2019, we sold the direct operations and moved to a dealer model in six smaller markets within International Mailing. Proceeds
from the sale were not material.
88
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
22. Quarterly Financial Data (unaudited)
2018
Revenue
Cost of revenues
Operating expenses
Income from continuing operations before income taxes
Provision (benefit) for income taxes
Income from continuing operations
Income (loss) from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings (loss) per share (1)
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings (loss) per share (1)
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
2017
Revenue
Cost of revenues
Operating expenses
Income from continuing operations before income taxes
Provision (benefit) for income taxes
Income from continuing operations
Income from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings per share (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 880,948
463,861
$ 861,436
455,816
$ 832,856
446,753
$ 947,140
526,519
$3,522,380
1,892,949
355,798
61,289
16,263
45,026
8,487
53,513
0.24
0.05
0.29
0.24
0.05
0.28
$
$
$
$
$
352,156
53,464
6,458
47,006
1,208
48,214
0.25
0.01
0.26
0.25
0.01
0.26
$
$
$
$
$
$
$
$
$
$
340,974
45,129
(1,976)
47,105
29,848
76,953
0.25
0.16
0.41
0.25
0.16
0.41
$
$
$
$
$
368,142
52,479
(8,362)
60,841
(15,856)
44,985
1,417,070
212,361
12,383
199,978
23,687
$ 223,665
0.32
(0.08)
0.24
0.32
(0.08)
0.24
$
$
$
$
1.07
0.13
1.19
1.06
0.13
1.19
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
743,180
$
730,413
$
733,273
$
916,406
$ 3,123,272
310,367
348,307
84,506
27,082
57,424
7,709
319,904
368,258
42,251
790
41,461
7,440
328,172
348,836
56,265
10,828
45,437
11,921
474,317
403,196
38,893
(38,147)
77,040
12,908
1,432,760
1,468,597
221,915
553
221,362
39,978
$
65,133
$
48,901
$
57,358
$
89,948
$
261,340
$
$
$
$
0.31
0.04
0.35
0.31
0.04
0.35
$
$
$
$
0.22
0.04
0.26
0.22
0.04
0.26
$
$
$
$
0.24
0.06
0.31
0.24
0.06
0.31
$
$
$
$
0.41
0.07
0.48
0.41
0.07
0.48
$
$
$
$
1.19
0.21
1.40
1.18
0.21
1.39
(1) The sum of earnings per share amounts may not equal the totals due to rounding.
89
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
2018
2017
2016
Valuation allowance for deferred tax asset
2018
2017
2016
$
$
$
$
$
$
14,786
13,999
11,541
178,156
127,095
132,624
$
$
$
$
$
$
9,720
8,081
7,179
3,682
53,782
6,523
$
$
$
$
$
$
(6,889)
(7,294)
(4,721)
(39,342)
(2,721)
(12,052)
$
$
$
$
$
$
17,617
14,786
13,999
142,496
178,156
127,095
90
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 20, 2019
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 20, 2019
/s/ Stanley J. Sutula III
Stanley J. Sutula III
Executive Vice President, Chief Financial Officer (Principal
Financial Officer)
February 20, 2019
/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/ Robert M. Dutkowsky
Robert M. Dutkowsky
/s/ Roger Fradin
Roger Fradin
/s/ Anne Sutherland Fuchs
Anne Sutherland Fuchs
/s/ Mary J. Steele Guilfoile
Mary J. Steele Guilfoile
/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 20, 2019
Non-Executive Chairman - Director
February 20, 2019
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
91
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
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, 2018)
Exhibit 21
Subsidiary Name
AtLast Holdings Inc.
B. Williams Funding Corp.
Borderfree Limited
Borderfree Research and Development Ltd.
Borderfree Trading (Shanghai) Co., Ltd.
Borderfree UK Limited
Borderfree, Inc.
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
Colorado
Delaware
Ireland
Israel
China
United Kingdom
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.
OldEurope Limited
OldMS 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 Wilmington USlux, LLC
PB Worldwide Inc,
Pitney Bowes (Asia Pacific) Pte. Ltd
Pitney Bowes (Switzerland) AG
Pitney Bowes Australia FAS Pty Limited
Pitney Bowes Australia Pty Limited
New York
Vermont
Delaware
Delaware
Delaware
United Kingdom
United Kingdom
United Kingdom
Canada
Delaware
Delaware
Delaware
Delaware
Canada
Canada
Canada
Canada
Delaware
Delaware
Delaware
Delaware
Singapore
Switzerland
Australia
Australia
Pitney Bowes Brasil Equipamentos e Servicos Ltda
Pitney Bowes Canada II LP
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.
Pitney Bowes Properties Inc.
Pitney Bowes Puerto Rico, Inc.
Pitney Bowes SAS
Pitney Bowes Shelton Realty LLC
Pitney Bowes Software (Beijing) Ltd
Brazil
Canada
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
Connecticut
Puerto Rico
France
Connecticut
China
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 Funding Limited
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
Real Time Content Limited
Tacit Knowledge Latin America, S. de R.L de C.V.
Tacit Knowledge Ltd.
Tacit Knowledge, Inc.
The Pitney Bowes Bank, Inc.
Wheeler Financial from Pitney Bowes Inc.
Wheeler Insurance, Ltd.
Canada
United Kingdom
United Kingdom
Delaware
India
Singapore
Australia
France
Sweden
United Kingdom
United Kingdom
Delaware
Delaware
Ohio
Norway
United Kingdom
United Kingdom
United Kingdom
Mexico
United Kingdom
California
Utah
Delaware
Vermont
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-224833, 333-190308,
333-145527, 333-132592, 333-132591, 333-132590, 333-132589, 333-66735, and 333-05731) and on Form S-3 (Nos. 333-216744,
333-198756) of Pitney Bowes Inc. of our report dated February 20, 2019 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 20, 2019
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 20, 2019
/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 20, 2019
/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,
2018 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 20, 2019
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,
2018 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 20, 2019
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
Pitney Bowes is transformed and continues to transform. The capabilities we set out to build six years ago are starting to generate significant results. And as our recent moves show, we are not done working on increasing our ability to deliver long-term value.32$150Mof total revenues in 2018 came from shipping, up from 2% in 2012.2nd consecutive year of revenue growth.Nearly300,000Commerce Services revenue approaching half of PBI total revenue.Software achieved 2nd consecutive year of revenue growth.IoT devices now in the marketplace.%In 2018, while moving the company to growth, we reduced structural spend by more thanDrucker Institute’s Management Top 250Stockholder InformationDesign: Sequel, New York ©2018–2019 Pitney Bowes Inc. All rights reserved.World HeadquartersPitney Bowes Inc. 3001 Summer Street, Stamford, CT 06926 203.356.5000 www.pitneybowes.comAnnual MeetingStockholders are cordially invited to attend the Annual Meeting at 9:00 a.m., Monday, May 6, 2019, 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 8, 2019. Please refer to the Proxy Statement for information concerning admission to the meeting.10-K ReportIncluded in this Annual Report to Stockholders is a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (SEC). This Annual Report contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in the Forward-Looking Statements section of the Form 10-K. The CEO/CFO certifications required to be filed with the SEC under Section 302 of the Sarbanes-Oxley Act of 2002 were filed as exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The CEO certification required to be submitted to the NYSE pursuant to Section 303A.12(a) of the NYSE Listed Company Manual was submitted on May 30, 2018.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 06926Stock ExchangePitney Bowes common stock is traded under the symbol “PBI.” The principal market on which it is listed is the New York Stock Exchange.Investor InquiriesAll investor inquiries about Pitney Bowes should be addressed to: Investor Relations Pitney Bowes Inc. 3001 Summer Street, Stamford, CT 06926Comments concerning the Annual Report should be sent to:Corporate Communications Pitney Bowes Inc. 3001 Summer Street, Stamford, CT 06926Transfer Agent and RegistrarRegular Mail: Broadridge Corporate Issuer Solutions PO Box 1342 Brentwood, NY 11717Overnight Mail: Broadridge Corporate Issuer Solutions ATTN: IWS 1155 Long Island Avenue Edgewood, NY 11717Email: shareholder@broadridge.com Website: https://shareholder.broadridge.com/PBI Stockholders may call Broadridge at (800) 648-8170. Stockholder InquiriesTo provide or obtain information concerning transfer requirements, lost certificates, dividends, changes of address and other matters, please call: (800) 648-8170, TDD phone service for the hearing impaired (855) 627-5080, for foreign holders (720) 414-6868; or write to an address above.Dividend Reinvestment PlanOwners 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 DividendsFor 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 MailingsIf 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.The materials used in this publication are recyclable. The paper is certified 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.16250_PIB026_AR2018_COVER_030519_3b.indd 2-43/5/19 10:32 PM Comments concerning the Annual Report
should be sent to:
Corporate Communications
Pitney Bowes Inc.
3001 Summer Street, Stamford, CT 06926
Transfer Agent and Registrar
Regular Mail: Broadridge Corporate Issuer Solutions
PO Box 1342
Brentwood, NY 11717
Overnight Mail: Broadridge Corporate Issuer Solutions
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Email: shareholder@broadridge.com
Website: https://shareholder.broadridge.com/PBI
Stockholders may call Broadridge at (800) 648-8170.
Stockholder Inquiries
To provide or obtain information concerning transfer
requirements, lost certificates, dividends, changes of address
and other matters, please call: (800) 648-8170, TDD phone
service for the hearing impaired (855) 627-5080, for foreign
holders (720) 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.
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 6, 2019, 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 8, 2019. Please refer to the Proxy Statement
for information concerning admission to the meeting.
10-K Report
Included in this Annual Report to Stockholders is a copy of our
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, as filed with the Securities and Exchange Commission (SEC).
This Annual Report contains statements that are forward-looking.
These statements are based on current expectations and
assumptions that are subject to risks and uncertainties. Actual
results could differ materially because of factors discussed in the
Forward-Looking Statements section of the Form 10-K. The CEO/
CFO certifications required to be filed with the SEC under Section
302 of the Sarbanes-Oxley Act of 2002 were filed as exhibits
to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2018. The CEO certification required to be
submitted to the NYSE pursuant to Section 303A.12(a) of the
NYSE Listed Company Manual was submitted on May 30, 2018.
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
The materials used in this publication are recyclable.
The paper is certified 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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