PBI 2015.03.31 10Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 1-3579
PITNEY BOWES INC.
(Exact name of registrant as specified in its charter)

Delaware
 
06-0495050
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3001 Summer Street, Stamford, Connecticut
 
06926
(Address of principal executive offices)
 
(Zip Code)
(203) 356-5000
(Registrant’s telephone number, including area code)
 
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 þ No o
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
 
As of April 29, 2015, 201,683,304 shares of common stock, par value $1 per share, of the registrant were outstanding.
 
 
 




PITNEY BOWES INC.
INDEX

 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands, except per share data)
 
Three Months Ended March 31,
 
2015
 
2014
Revenue:
 

 
 

Equipment sales
$
165,964

 
$
189,056

Supplies
73,368

 
79,517

Software
86,357

 
91,555

Rentals
113,997

 
123,579

Financing
105,630

 
110,050

Support services
139,558

 
158,252

Business services
205,807

 
185,488

Total revenue
890,681

 
937,497

Costs and expenses:
 

 
 

Cost of equipment sales
75,013

 
82,534

Cost of supplies
22,659

 
24,154

Cost of software
29,864

 
30,164

Cost of rentals
20,701

 
25,444

Financing interest expense
18,770

 
19,653

Cost of support services
83,599

 
98,981

Cost of business services
139,919

 
128,936

Selling, general and administrative
314,529

 
351,375

Research and development
26,048

 
26,192

Restructuring charges, net
(81
)
 
9,841

Interest expense, net
24,064

 
24,064

Other expense
—

 
61,657

Total costs and expenses
755,085

 
882,995

Income from continuing operations before income taxes
135,596

 
54,502

Provision for income taxes
50,547

 
8,036

Income from continuing operations
85,049

 
46,466

Income from discontinued operations, net of tax
157

 
2,801

Net income
85,206

 
49,267

Less: Preferred stock dividends attributable to noncontrolling interests
4,594

 
4,594

Net income attributable to Pitney Bowes Inc.
$
80,612

 
$
44,673

Amounts attributable to common stockholders:
 

 
 

Net income from continuing operations
$
80,455

 
$
41,872

Income from discontinued operations, net of tax
157

 
2,801

Net income attributable to Pitney Bowes Inc.
$
80,612

 
$
44,673

Basic earnings per share attributable to common stockholders:
 

 
 

Continuing operations
$
0.40

 
$
0.21

Discontinued operations
—

 
0.01

Net income attributable to Pitney Bowes Inc.
$
0.40

 
$
0.22

Diluted earnings per share attributable to common stockholders:
 

 
 

Continuing operations
$
0.40

 
$
0.21

Discontinued operations
—

 
0.01

Net income attributable to Pitney Bowes Inc.
$
0.40

 
$
0.22

 
 
 
 
Dividends declared per share of common stock
$
0.1875

 
$
0.1875


See Notes to Condensed Consolidated Financial Statements

3

PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)



 
Three Months Ended March 31,
 
2015
 
2014
Net income
$
85,206

 
$
49,267

Less: Preferred stock dividends attributable to noncontrolling interests
4,594

 
4,594

Net income attributable to Pitney Bowes Inc.
80,612

 
44,673

Other comprehensive (loss) income, net of tax:
 
 
 
Foreign currency translations
(72,179
)
 
(7,351
)
Net unrealized gain on cash flow hedges, net of tax of $341 and $238, respectively
549

 
373

Net unrealized gain on investment securities, net of tax of $1,012 and $1,204, respectively
1,730

 
2,059

Amortization of pension and postretirement costs, net of tax of $4,167 and $3,641, respectively
7,409

 
6,142

Other comprehensive (loss) income
(62,491
)
 
1,223

Comprehensive income attributable to Pitney Bowes Inc.
$
18,121

 
$
45,896





































See Notes to Condensed Consolidated Financial Statements

4

PITNEY BOWES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share and per share data)


 
March 31, 2015
 
December 31, 2014
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
871,687

 
$
1,079,145

Short-term investments
41,741

 
32,121

Accounts receivable (net of allowance of $10,166 and $10,742, respectively)
379,578

 
413,737

Short-term finance receivables (net of allowance of $17,422 and $19,108, respectively)
962,073

 
1,000,304

Inventories
95,029

 
84,827

Current income taxes
36,743

 
40,542

Other current assets and prepayments
67,881

 
57,173

Assets held for sale
43,750

 
52,271

Total current assets
2,498,482

 
2,760,120

Property, plant and equipment, net
288,680

 
285,091

Rental property and equipment, net
193,369

 
200,380

Long-term finance receivables (net of allowance of $7,479 and $9,002, respectively)
775,223

 
819,721

Goodwill
1,635,171

 
1,672,721

Intangible assets, net
72,172

 
82,173

Non-current income taxes
85,259

 
96,377

Other assets
561,087

 
569,110

Total assets
$
6,109,443

 
$
6,485,693

 
 
 
 
LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
1,354,876

 
$
1,558,731

Current income taxes
102,347

 
90,167

Current portion of long-term debt and notes payable
520,914

 
324,879

Advance billings
409,381

 
386,846

Total current liabilities
2,387,518

 
2,360,623

Deferred taxes on income
66,775

 
64,839

Tax uncertainties and other income tax liabilities
88,381

 
86,127

Long-term debt
2,554,317

 
2,927,127

Other non-current liabilities
661,147

 
673,348

Total liabilities
5,758,138

 
6,112,064

 
 
 
 
Noncontrolling interests (Preferred stockholders’ equity in subsidiaries)
296,370

 
296,370

Commitments and contingencies (See Note 14)


 


 
 
 
 
Stockholders’ equity:
 
 
 
Cumulative preferred stock, $50 par value, 4% convertible
1

 
1

Cumulative preference stock, no par value, $2.12 convertible
543

 
548

Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
323,338

 
323,338

Additional paid-in capital
152,869

 
178,852

Retained earnings
4,940,505

 
4,897,708

Accumulated other comprehensive loss
(908,647
)
 
(846,156
)
Treasury stock, at cost (121,671,755 and 122,309,948 shares, respectively)
(4,453,674
)
 
(4,477,032
)
Total stockholders’ equity
54,935

 
77,259

Total liabilities, noncontrolling interests and stockholders’ equity
$
6,109,443

 
$
6,485,693



See Notes to Condensed Consolidated Financial Statements

5

PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)


 
Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 

 
 

Net income
$
85,206

 
$
49,267

Restructuring payments
(21,874
)
 
(18,937
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Loss on disposal of businesses
821

 
539

Depreciation and amortization
42,496

 
44,595

Stock-based compensation
5,036

 
3,886

Restructuring charges, net
(81
)
 
9,841

Changes in operating assets and liabilities:
 

 
 

Decrease in accounts receivable
25,406

 
40,135

Decrease in finance receivables
64,590

 
52,857

Increase in inventories
(12,029
)
 
(447
)
Increase in other current assets and prepayments
(13,392
)
 
(4,020
)
Decrease in accounts payable and accrued liabilities
(142,957
)
 
(114,327
)
Increase in current and non-current income taxes
30,269

 
5,494

Increase in advance billings
30,971

 
36,523

Other, net
9,425

 
210

Net cash provided by operating activities
103,887

 
105,616

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale securities
(65,297
)
 
(401,205
)
Proceeds from sales/maturities of available-for-sale securities
65,411

 
381,268

Capital expenditures
(43,908
)
 
(30,143
)
Net payments for divested businesses
(2,522
)
 
(539
)
Change in reserve account deposits
(20,077
)
 
(15,159
)
Other investing activities
1,953

 
6,690

Net cash used in investing activities
(64,440
)
 
(59,088
)
Cash flows from financing activities:
 

 
 

Proceeds from the issuance of debt, net of fees and discounts of $7,475 in 2014
—

 
492,525

Principal payments of long-term debt
(274,879
)
 
(499,850
)
Increase in notes payable, net
100,000

 
—

Dividends paid to stockholders
(37,804
)
 
(37,975
)
Proceeds from the issuance of common stock under employee stock-based compensation plans
713

 
3,099

Purchase of subsidiary shares from noncontrolling interest
—

 
(7,718
)
Net cash used in financing activities
(211,970
)
 
(49,919
)
Effect of exchange rate changes on cash and cash equivalents
(34,935
)
 
(1,073
)
Decrease in cash and cash equivalents
(207,458
)
 
(4,464
)
Cash and cash equivalents at beginning of period
1,079,145

 
907,806

Cash and cash equivalents at end of period
$
871,687

 
$
903,342

 
 
 
 
Cash interest paid
$
68,187

 
$
74,374

Cash income tax payments, net of refunds
$
21,197

 
$
5,649





See Notes to Condensed Consolidated Financial Statements

6

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)


1. Description of Business and Basis of Presentation
Pitney Bowes Inc. and its subsidiaries (we, us, our or the Company) is a global technology company offering innovative products and solutions that enable commerce in the areas of customer information management, location intelligence, customer engagement, shipping and mailing, and global ecommerce. 
We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2014 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2015.
These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2014 (2014 Annual Report).
New Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. This standard is effective for fiscal periods beginning after December 15, 2015. Early adoption is permitted. We do not believe this standard will have a significant impact on our consolidated financial statements or disclosures.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items, which removes the concept of extraordinary items, thereby eliminating the need for companies to assess transactions for extraordinary treatment. The standard retained the presentation and disclosure requirements for items that are unusual in nature and/or infrequent in occurrence. The standard is effective for fiscal periods beginning after December 15, 2015. Early adoption is permitted. We do not believe this standard will have a significant impact on our consolidated financial statements or disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard requires companies to recognize revenue for the transfer of goods and services to customers in amounts that reflect the consideration the company expects to receive in exchange for those goods and services. The standard will also result in enhanced disclosures about revenue. This standard is currently effective for fiscal periods beginning after December 15, 2016; however, in April 2015, the FASB proposed a one-year deferral of the effective date. The standard can be adopted either retrospectively or as a cumulative-effect adjustment and early adoption is prohibited. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.



7

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

2. Segment Information
Our business is organized around three distinct sets of solutions -- Small and Medium Business (SMB) Solutions, Enterprise Business Solutions and Digital Commerce Solutions (DCS). The principal products and services of each of our reportable segments are as follows:

Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from the sale, rental, financing and servicing of mailing equipment and supplies for small and medium businesses to efficiently create mail and evidence postage in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from the sale, rental, financing and servicing of mailing equipment and supplies for small and medium businesses to efficiently create mail and evidence postage in areas outside the U.S. and Canada.

Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound and outbound mail.
Presort Services: Includes revenue and related expenses from presort mail services for our large enterprise clients to qualify large mail volumes for postal worksharing discounts.

Digital Commerce Solutions:
Digital Commerce Solutions: Includes the worldwide revenue and related expenses from (i) the sale of non-equipment-based mailing, customer information engagement, location intelligence and customer engagement solutions and related support services; (ii) shipping and global ecommerce solutions; and (iii) direct marketing services for targeted clients.
We determine segment earnings before interest and taxes (EBIT) by deducting the related costs and expenses attributable to the segment from segment revenue. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items, which are not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance at the segment level. Management believes segment EBIT provides a useful measure of our operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.
Revenue and EBIT by business segment is presented below:
 
Revenue
 
Three Months Ended March 31,
 
2015
 
2014
North America Mailing
$
361,874

 
$
381,027

International Mailing
116,173

 
153,268

Small & Medium Business Solutions
478,047

 
534,295

Production Mail
99,503

 
105,216

Presort Services
121,531

 
116,491

Enterprise Business Solutions
221,034

 
221,707

Digital Commerce Solutions
191,600

 
181,495

Total revenue
$
890,681

 
$
937,497


8

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

 
EBIT
 
Three Months Ended March 31,
 
2015
 
2014
North America Mailing
$
163,665

 
$
160,338

International Mailing
11,724

 
24,819

Small & Medium Business Solutions
175,389

 
185,157

Production Mail
9,032

 
7,737

Presort Services
27,494

 
23,896

Enterprise Business Solutions
36,526

 
31,633

Digital Commerce Solutions
15,895

 
9,531

Total EBIT
227,810

 
226,321

Reconciling items:
 

 
 

Interest, net
(42,834
)
 
(43,717
)
Unallocated corporate expenses
(49,461
)
 
(56,604
)
Restructuring charges, net
81

 
(9,841
)
Other expense
—

 
(61,657
)
Income from continuing operations before income taxes
$
135,596

 
$
54,502

 
 
 
 
3. Discontinued Operations and Assets Held For Sale
 
 
 
 
 
 
 
 
 
 
Discontinued Operations
Income from discontinued operations for the three months ended March 31, 2015 consisted of post-closing and purchase price adjustments in connection with the sale of our Management Services business in 2014.
The table below shows selected financial information for discontinued operations for three months ended March 31, 2014:
 
Three Months Ended March 31, 2014
 
PBMS
 
IMS
 
Nordic furniture business
 
DIS
 
Total
Revenue
$
—

 
$
—

 
$
—

 
$
16,291

 
$
16,291

 
 
 
 
 
 
 
 
 
 
(Loss) income from operations before taxes
$
(246
)
 
$
308

 
$
345

 
$
2,411

 
$
2,818

Gain on sale
130

 
1,163

 
—

 
—

 
1,293

(Loss) income before taxes
(116
)
 
1,471

 
345

 
2,411

 
4,111

Tax (benefit) provision
(21
)
 
529

 
97

 
705

 
1,310

(Loss) income from discontinued operations
$
(95
)
 
$
942

 
$
248

 
$
1,706

 
$
2,801

 

 

Assets Held for Sale
Assets held for sale at March 31, 2015 and December 31, 2014 includes the fair value of our former corporate headquarters building. The fair value of the building was determined as the estimated selling price less the costs to sell. Assets held for sale at December 31, 2014 also included the value of a lease portfolio, which was sold in January 2015.
 
 


9

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

4. Earnings per Share
The calculations of basic and diluted earnings per share are presented below:
 
Three Months Ended March 31,
 
2015
 
2014
Numerator:
 

 
 

Net income from continuing operations
$
80,455

 
$
41,872

Income from discontinued operations
157

 
2,801

Net income - Pitney Bowes Inc. (numerator for diluted EPS)
80,612

 
44,673

Less: Preference stock dividend
11

 
14

Income attributable to common stockholders (numerator for basic EPS)
$
80,601

 
$
44,659

Denominator (in thousands):
 

 
 

Weighted-average shares used in basic EPS
201,337

 
202,339

Effect of dilutive shares:
 

 
 

Conversion of Preferred stock and Preference stock
334

 
352

Employee stock plans
1,008

 
1,194

Weighted-average shares used in diluted EPS
202,679

 
203,885

Basic earnings per share:
 

 
 

Continuing operations
$
0.40

 
$
0.21

Discontinued operations
—

 
0.01

Net income
$
0.40

 
$
0.22

Diluted earnings per share:
 

 
 

Continuing operations
$
0.40

 
$
0.21

Discontinued operations
—

 
0.01

Net income
$
0.40

 
$
0.22

 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares (in thousands):
7,779

 
9,411


5. 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. Inventories at March 31, 2015 and December 31, 2014 consisted of the following:
 
March 31,
2015
 
December 31,
2014
Raw materials and work in process
$
36,982

 
$
37,175

Supplies and service parts
42,818

 
33,760

Finished products
28,692

 
26,992

Inventory at FIFO cost
108,492

 
97,927

Excess of FIFO cost over LIFO cost
(13,463
)
 
(13,100
)
Total inventory, net
$
95,029

 
$
84,827



10

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

6. Finance Assets
Finance Receivables
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our customers for postage and supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Customer acquisition costs are expensed as incurred.
Finance receivables at March 31, 2015 and December 31, 2014 consisted of the following:
 
March 31, 2015
 
December 31, 2014
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Sales-type lease receivables
 

 
 

 
 

 
 

 
 

 
 

Gross finance receivables
$
1,254,166

 
$
323,490

 
$
1,577,656

 
$
1,286,624

 
$
366,669

 
$
1,653,293

Unguaranteed residual values
102,322

 
16,289

 
118,611

 
105,205

 
18,291

 
123,496

Unearned income
(266,176
)
 
(73,869
)
 
(340,045
)
 
(270,196
)
 
(83,110
)
 
(353,306
)
Allowance for credit losses
(8,465
)
 
(4,066
)
 
(12,531
)
 
(10,281
)
 
(5,129
)
 
(15,410
)
Net investment in sales-type lease receivables
1,081,847

 
261,844

 
1,343,691

 
1,111,352

 
296,721

 
1,408,073

Loan receivables
 

 
 

 
 

 
 

 
 

 
 

Loan receivables
359,174

 
46,801

 
405,975

 
376,987

 
47,665

 
424,652

Allowance for credit losses
(10,732
)
 
(1,638
)
 
(12,370
)
 
(10,912
)
 
(1,788
)
 
(12,700
)
Net investment in loan receivables
348,442

 
45,163

 
393,605

 
366,075

 
45,877

 
411,952

Net investment in finance receivables
$
1,430,289

 
$
307,007

 
$
1,737,296

 
$
1,477,427

 
$
342,598

 
$
1,820,025


Allowance for Credit Losses and Aging of Receivables
We estimate our finance receivable risks and provide an allowance for credit losses accordingly. We evaluate the adequacy of the allowance for credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual results may differ significantly from estimated reserves.

We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90 days past due. We resume revenue recognition when payments reduce the account balance aging to 60 days or less past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is limited because of our large number of clients, small account balances for most of our clients, and geographic and industry diversification.


11

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

Activity in the allowance for credit losses for the three months ended March 31, 2015 and 2014 was as follows:
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
Balance at January 1, 2015
$
10,281

 
$
5,129

 
$
10,912

 
$
1,788

 
$
28,110

Amounts charged to expense
16

 
(270
)
 
2,431

 
214

 
2,391

Write-offs and other
(1,832
)
 
(793
)
 
(2,611
)
 
(364
)
 
(5,600
)
Balance at March 31, 2015
$
8,465

 
$
4,066

 
$
10,732

 
$
1,638

 
$
24,901

 
 
 
 
 
 
 
 
 
 
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
Balance at January 1, 2014
$
14,165

 
$
9,703

 
$
11,165

 
$
1,916

 
$
36,949

Amounts charged to expense
1,052

 
169

 
2,492

 
361

 
4,074

Write-offs and other
(2,310
)
 
(93
)
 
(2,663
)
 
(336
)
 
(5,402
)
Balance at March 31, 2014
$
12,907

 
$
9,779

 
$
10,994

 
$
1,941

 
$
35,621


Aging of Receivables
The aging of gross finance receivables at March 31, 2015 and December 31, 2014 was as follows:
 
March 31, 2015
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
1 - 30 days
$
1,174,381

 
$
301,905

 
$
344,225

 
$
44,992

 
$
1,865,503

31 - 60 days
29,268

 
7,993

 
7,769

 
1,117

 
46,147

61 - 90 days
20,723

 
6,699

 
3,312

 
306

 
31,040

> 90 days
29,794

 
6,893

 
3,868

 
386

 
40,941

Total
$
1,254,166

 
$
323,490

 
$
359,174

 
$
46,801

 
$
1,983,631

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
9,818

 
$
2,608

 
$
—

 
$
—

 
$
12,426

Not accruing interest
19,976

 
4,285

 
3,868

 
386

 
28,515

Total
$
29,794

 
$
6,893

 
$
3,868

 
$
386

 
$
40,941


 
December 31, 2014
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
1 - 30 days
$
1,217,623

 
$
347,236

 
$
359,672

 
$
45,678

 
$
1,970,209

31 - 60 days
23,242

 
6,207

 
9,245

 
1,201

 
39,895

61 - 90 days
24,198

 
4,494

 
3,498

 
413

 
32,603

> 90 days
21,561

 
8,732

 
4,572

 
373

 
35,238

Total
$
1,286,624

 
$
366,669

 
$
376,987

 
$
47,665

 
$
2,077,945

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
5,931

 
$
2,517

 
$
—

 
$
—

 
$
8,448

Not accruing interest
15,630

 
6,215

 
4,572

 
373

 
26,790

Total
$
21,561

 
$
8,732

 
$
4,572

 
$
373

 
$
35,238


12

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client’s financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our international portfolio because the cost to do so is prohibitive, given that it is a localized process and there is no single credit score model that covers all countries.
The table below shows the North America portfolio at March 31, 2015 and December 31, 2014 by relative risk class (low, medium, high) based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party, refers to the relative risk that an account in the next 12 month period may become delinquent.
•
Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.
•
Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.
•
High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.
 
March 31,
2015
 
December 31,
2014
Sales-type lease receivables
 

 
 

Low
$
934,494

 
$
936,979

Medium
220,809

 
230,799

High
44,232

 
45,202

Not Scored
54,631

 
73,644

Total
$
1,254,166

 
$
1,286,624

Loan receivables
 

 
 

Low
$
246,071

 
$
259,436

Medium
91,725

 
96,243

High
10,730

 
10,913

Not Scored
10,648

 
10,395

Total
$
359,174

 
$
376,987



13

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

7. Intangible Assets and Goodwill
Intangible Assets
Intangible assets consisted of the following:
 
March 31, 2015
 
December 31, 2014
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
329,064

 
$
(262,406
)
 
$
66,658

 
$
337,438

 
$
(263,121
)
 
$
74,317

Supplier relationships
29,000

 
(28,638
)
 
362

 
29,000

 
(27,913
)
 
1,087

Software & technology
157,430

 
(152,701
)
 
4,729

 
160,825

 
(154,610
)
 
6,215

Trademarks & other
31,045

 
(30,622
)
 
423

 
33,079

 
(32,525
)
 
554

Total intangible assets
$
546,539

 
$
(474,367
)
 
$
72,172

 
$
560,342

 
$
(478,169
)
 
$
82,173


Amortization expense for intangible assets was $8 million and $6 million for the three months ended March 31, 2015 and 2014, respectively.

Future amortization expense for intangible assets as of March 31, 2015 was as follows:
Remaining for year ending December 31, 2015
$
20,228

Year ending December 31, 2016
21,512

Year ending December 31, 2017
10,720

Year ending December 31, 2018
8,124

Year ending December 31, 2019
5,066

Thereafter
6,522

Total
$
72,172

Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.
Goodwill
The changes in the carrying value of goodwill for the three months ended March 31, 2015 were as follows:
 
Gross value before accumulated impairment
 
Accumulated impairment
 
December 31, 2014
 
Foreign currency translation
 
March 31,
2015
North America Mailing
$
309,448

 
$
—

 
$
309,448

 
$
(13,871
)
 
$
295,577

International Mailing
162,146

 
—

 
162,146

 
(12,110
)
 
150,036

Small & Medium Business Solutions
471,594

 
—

 
471,594

 
(25,981
)
 
445,613

Production Mail
110,837

 
—

 
110,837

 
(5,337
)
 
105,500

Presort Services
195,140

 
—

 
195,140

 
—

 
195,140

Enterprise Business Solutions
305,977

 
—

 
305,977

 
(5,337
)
 
300,640

Digital Commerce Solutions
895,150

 
—

 
895,150

 
(6,232
)
 
888,918

Total goodwill
$
1,672,721

 
$
—

 
$
1,672,721

 
$
(37,550
)
 
$
1,635,171





14

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

8. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1 –
Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 –
Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 –
Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability.
The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at March 31, 2015 and December 31, 2014. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy.
 
March 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
305,145

 
$
222,614

 
$
—

 
$
527,759

Equity securities
—

 
27,625

 
—

 
27,625

Commingled fixed income securities
—

 
23,868

 
—

 
23,868

U.S. Government, federal agencies and municipalities
114,396

 
22,399

 
—

 
136,795

Corporate notes and bonds
—

 
66,308

 
—

 
66,308

Mortgage-backed / asset-backed securities
—

 
165,243

 
—

 
165,243

Derivatives
 
 
 
 
 

 


Foreign exchange contracts
—

 
2,834

 
—

 
2,834

Total assets
$
419,541

 
$
530,891

 
$
—

 
$
950,432

Liabilities:
 

 
 

 
 

 
 

Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
$
—

 
$
(4,705
)
 
$
—

 
$
(4,705
)
Total liabilities
$
—

 
$
(4,705
)
 
$
—

 
$
(4,705
)


15

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
505,643

 
$
193,986

 
$
—

 
$
699,629

Equity securities
—

 
27,409

 
—

 
27,409

Commingled fixed income securities
—

 
24,077

 
—

 
24,077

U.S. Government, federal agencies and municipalities
113,974

 
24,006

 
—

 
137,980

Corporate notes and bonds
—

 
67,448

 
—

 
67,448

Mortgage-backed / asset-backed securities
—

 
156,614

 
—

 
156,614

Derivatives
 

 
 

 
 

 


Foreign exchange contracts
—

 
1,386

 
—

 
1,386

Total assets
$
619,617

 
$
494,926

 
$
—

 
$
1,114,543

Liabilities:
 

 
 

 
 

 
 

Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
$
—

 
$
(2,988
)
 
$
—

 
$
(2,988
)
Total liabilities
$
—

 
$
(2,988
)
 
$
—

 
$
(2,988
)
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: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds are classified as Level 2 as they are not separately listed on an exchange.
•
Commingled fixed income securities: Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. The value of the funds is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These commingled funds are not listed on an exchange in an active market and are classified as Level 2.
•
U.S. Government, federal agencies and municipalities: Securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Securities valued using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities are classified as Level 2.
•
Corporate notes and bonds: Corporate notes and bonds are valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
•
Mortgage-backed / asset-backed securities: These securities are valued based on external pricing indices. When external index pricing is not observable, these securities are valued based on external price/spread data. These securities are classified as Level 2.

16

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

Available-For-Sale Securities
Certain investment securities are classified as available-for-sale and recorded at fair value in the unaudited Condensed Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the type of investment and maturity. Unrealized holding gains and losses are recorded, net of tax, in accumulated other comprehensive income (AOCI).
Available-for-sale securities at March 31, 2015 and December 31, 2014 consisted of the following:
 
March 31, 2015
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
U.S. Government, federal agencies and municipalities
$
133,904

 
$
3,342

 
$
(452
)
 
$
136,794

Corporate notes and bonds
64,169

 
2,224

 
(85
)
 
66,308

Mortgage-backed / asset-backed securities
162,841

 
3,147

 
(745
)
 
165,243

Total
$
360,914

 
$
8,713

 
$
(1,282
)
 
$
368,345

 
December 31, 2014
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
U.S. Government, federal agencies and municipalities
$
135,839

 
$
2,905

 
$
(764
)
 
$
137,980

Corporate notes and bonds
66,170

 
1,569

 
(291
)
 
67,448

Mortgage-backed / asset-backed securities
155,330

 
2,362

 
(1,078
)
 
156,614

Total
$
357,339

 
$
6,836

 
$
(2,133
)
 
$
362,042


Investment securities that were in a loss position for 12 or more continuous months at March 31, 2015 had aggregate unrealized holding losses of $1 million and an estimated fair value of $35 million. Investment securities that were in a loss position for less than 12 continuous months at March 31, 2015 had aggregate unrealized holding losses of less than $1 million and an estimated fair value of $76 million.

Investment securities that were in a loss position for 12 or more continuous months at December 31, 2014 had aggregate unrealized holding losses of $1 million and an estimated fair value of $42 million. Investment securities that were in a loss position for less than 12 continuous months at December 31, 2014 had aggregate unrealized holding losses of $1 million and an estimated fair value of $88 million.

We have not recognized an other-than-temporary impairment on any of the investment securities in an unrealized loss position because we do not intend to sell these securities, it is more likely than not that we will not be required to sell these securities before recovery of the unrealized losses and we expect to receive the contractual principal and interest on these investment securities.

Scheduled maturities of available-for-sale securities at March 31, 2015 were as follows:
 
Amortized cost
 
Estimated fair value
Within 1 year
$
62,578

 
$
62,641

After 1 year through 5 years
61,094

 
62,380

After 5 years through 10 years
63,198

 
65,364

After 10 years
174,044

 
177,960

Total
$
360,914

 
$
368,345

The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities as borrowers have the right to prepay obligations with or without prepayment penalties.
We have not experienced any significant write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed or supported by the U.S. Government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification within the fair value hierarchy. Further, we have no investments in auction rate securities.

17

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We limit these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of exchange rate fluctuations on financial results and manage the related cost of debt. We do not use derivatives for trading or speculative purposes. We record our derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. As required by the fair value measurements guidance, we also incorporate counterparty credit risk and our credit risk into the fair value measurement of our derivative assets and liabilities, respectively. We derive credit risk from observable data in the credit default swap market. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties.
The fair value of derivative instruments at March 31, 2015 and December 31, 2014 was as follows:
Designation of Derivatives
 
Balance Sheet Location
 
March 31,
2015
 
December 31,
2014
Derivatives designated as
hedging instruments
 
 
 
 

 
 

Foreign exchange contracts
 
Other current assets and prepayments
 
$
1,144

 
$
762

 
 
 
 
 
 
 
Derivatives not designated as
hedging instruments
 
 
 
 

 
 

Foreign exchange contracts
 
Other current assets and prepayments
 
1,690

 
624

 
 
Accounts payable and accrued liabilities:
 
(4,705
)
 
(2,988
)
 
 
 
 
 
 
 
 
 
Total derivative assets
 
$
2,834

 
$
1,386

 
 
Total derivative liabilities
 
(4,705
)
 
(2,988
)
 
 
Total net derivative liabilities
 
$
(1,871
)
 
$
(1,602
)

Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is included in AOCI in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged item is recorded in earnings. At March 31, 2015 and December 31, 2014, we had outstanding contracts associated with these anticipated transactions with notional amounts of $17 million and $18 million, respectively.

The amounts included in AOCI at March 31, 2015 will be recognized in earnings within the next 12 months. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.
The following represents the results of cash flow hedging relationships for the three months ended March 31, 2015 and 2014:
 
 
Three Months Ended March 31,
 
 
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
 
Location of Gain (Loss)
(Effective Portion)
 
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
Derivative Instrument
 
2015
 
2014
 
 
2015
 
2014
Foreign exchange contracts
 
$
(409
)
 
$
(69
)
 
Revenue
 
$
(396
)
 
$
(234
)
 
 
 

 
 

 
Cost of sales
 
(395
)
 
199

 
 
 

 
 

 
 
 
$
(791
)
 
$
(35
)

18

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

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 March 31, 2015 mature within 12 months.
The following represents the results of our non-designated derivative instruments for the three months ended March 31, 2015 and 2014:
 
 
 
 
Three Months Ended March 31,
 
 
 
 
Derivative Gain (Loss)
Recognized in Earnings
Derivatives Instrument
 
Location of Derivative Gain (Loss)
 
2015
 
2014
Foreign exchange contracts
 
Selling, general and administrative expense
 
$
(208
)
 
$
(682
)

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 March 31, 2015, the maximum amount of collateral that we would have been required to post had the credit-risk-related contingent features been triggered was $3 million.

Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and accounts payable approximate fair value because of the short maturity of these instruments.
The fair value of our debt is estimated based on recently executed transactions and market price quotations. These 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 March 31, 2015 and December 31, 2014 were as follows:
 
March 31, 2015
 
December 31, 2014
Carrying value
$
3,075,231

 
$
3,252,006

Fair value
$
3,294,522

 
$
3,440,383



19

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

9. Restructuring Charges
The tables below show the activity in our restructuring reserves for our Operational Excellence plan, implemented in 2014, and our other plans for the three months ended March 31, 2015 and 2014 and includes amounts for both continuing operations and discontinued operations.

Operational Excellence
 
Severance and benefits costs
 
Other exit
costs
 
Total
Balance at January 1, 2015
$
78,105

 
$
8,154

 
$
86,259

Expenses, net
20

 
(30
)
 
(10
)
Cash payments
(18,383
)
 
(1,912
)
 
(20,295
)
Balance at March 31, 2015
$
59,742

 
$
6,212

 
$
65,954

 
 
 
 
 
 
Balance at January 1, 2014
$
42,427

 
$
7,622

 
$
50,049

Expenses, net (1)
7,272

 
1,103

 
8,375

Cash payments
(15,216
)
 
(2,671
)
 
(17,887
)
Balance at March 31, 2014
$
34,483

 
$
6,054

 
$
40,537


Other Plans
 
Severance and benefits costs
 
Other exit
costs
 
Total
Balance at January 1, 2015
$
3,731

 
$
189

 
$
3,920

Expenses, net
(71
)
 
—

 
(71
)
Cash payments
(1,501
)
 
(78
)
 
(1,579
)
Balance at March 31, 2015
$
2,159

 
$
111

 
$
2,270

 
 
 
 
 
 
Balance at January 1, 2014
$
16,131

 
$
392

 
$
16,523

Expenses, net
(1,084
)
 
—

 
(1,084
)
Cash payments
(1,023
)
 
(27
)
 
(1,050
)
Balance at March 31, 2014
$
14,024

 
$
365

 
$
14,389


The majority of the remaining restructuring reserves are expected to be paid over the next 12 to 24 months; however, 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.

(1) See Note 11 for additional restructuring charge.

20

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

10. Debt
Commercial Paper
At March 31, 2015, we had $100 million of commercial paper outstanding at an effective interest rate of 0.54%. This amount is included in current portion of long-term debt and notes payable in the Condensed Consolidated Balance Sheets.

Long-term Debt
 
Interest rate
 
March 31, 2015
 
December 31, 2014
Notes due March 2015
5.0%
 
$
—

 
$
274,879

Notes due January 2016
4.75%
 
370,914

 
370,914

Notes due September 2017
5.75%
 
385,109

 
385,109

Notes due March 2018
5.6%
 
250,000

 
250,000

Notes due May 2018
4.75%
 
350,000

 
350,000

Notes due March 2019
6.25%
 
300,000

 
300,000

Notes due November 2022
5.25%
 
110,000

 
110,000

Notes due March 2024
4.625%
 
500,000

 
500,000

State of CT DECD loan due November 2024
2.0%
 
16,000

 
16,000

Notes due January 2037
5.25%
 
115,041

 
115,041

Notes due March 2043
6.7%
 
425,000

 
425,000

Term loans
Variable
 
130,000

 
130,000

Principal amount
 
 
2,952,064

 
3,226,943

Less: unamortized discount
 
 
6,269

 
6,653

Plus: unamortized interest rate swap proceeds
 
 
29,436

 
31,716

Total debt
 
 
2,975,231

 
3,252,006

Less: current portion long-term debt
 
 
420,914

 
324,879

Long-term debt
 
 
$
2,554,317

 
$
2,927,127

During the quarter, we repaid the $275 million, 5% notes that matured in March.


21

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)

11. Pensions and Other Benefit Programs
The components of net periodic benefit cost (income) were as follows:
 
Defined Benefit Pension Plans
 
Nonpension Postretirement Benefit Plans
 
United States
 
Foreign
 
 
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
38

 
$
2,415

 
$
565

 
$
908

 
$
679

 
$
728

Interest cost
18,859

 
19,416

 
6,063

 
7,169

 
2,375

 
2,462

Expected return on plan assets
(26,044
)
 
(25,956
)
 
(8,839
)
 
(9,825
)
 
—

 
—

Amortization of transition credit
—

 
—

 
(2
)
 
(2
)
 
—

 
—

Amortization of prior service cost (credit)
2

 
2

 
(17
)
 
(15
)
 
74

 
40

Amortization of net actuarial loss
7,648

 
6,160

 
1,480

 
2,076

 
2,391

 
1,522

Settlement / curtailment (1)
—

 
2,550

 
—

 
—

 
—

 
—

Net periodic benefit cost (income)
$
503

 
$
4,587

 
$
(750
)
 
$
311

 
$
5,519