PBI 2014.03.31 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, 2014
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.)
 
 
 
1 Elmcroft Road, Stamford, Connecticut
 
06926-0700
(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 23, 2014, 202,640,173 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, 2014 and 2013
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014 and 2013
 
 
 
 
Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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,
 
2014
 
2013
Revenue:
 

 
 

Equipment sales
$
189,056

 
$
196,767

Supplies
79,517

 
73,218

Software
91,555

 
87,012

Rentals
123,579

 
129,114

Financing
110,050

 
113,887

Support services
158,252

 
162,589

Business services
185,488

 
146,776

Total revenue
937,497

 
909,363

Costs and expenses:
 

 
 

Cost of equipment sales
82,534

 
94,543

Cost of supplies
24,154

 
22,846

Cost of software
30,164

 
24,791

Cost of rentals
25,444

 
26,398

Financing interest expense
19,653

 
19,019

Cost of support services
98,981

 
102,529

Cost of business services
128,936

 
102,355

Selling, general and administrative
351,375

 
351,654

Research and development
26,192

 
29,251

Restructuring charges
9,841

 
—

Interest expense, net
24,064

 
28,991

Other expense
61,657

 
25,121

Total costs and expenses
882,995

 
827,498

Income from continuing operations before income taxes
54,502

 
81,865

Provision for income taxes
8,036

 
17,795

Income from continuing operations
46,466

 
64,070

Income from discontinued operations, net of tax
2,801

 
8,030

Net income
49,267

 
72,100

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

 
4,594

Net income attributable to Pitney Bowes Inc.
$
44,673

 
$
67,506

Amounts attributable to common stockholders:
 

 
 

Net income from continuing operations
$
41,872

 
$
59,476

Income from discontinued operations, net of tax
2,801

 
8,030

Net income attributable to Pitney Bowes Inc.
$
44,673

 
$
67,506

Basic earnings per share attributable to common stockholders:
 

 
 

Continuing operations
$
0.21

 
$
0.30

Discontinued operations
0.01

 
0.04

Net income attributable to Pitney Bowes Inc.
$
0.22

 
$
0.34

Diluted earnings per share attributable to common stockholders:
 

 
 

Continuing operations
$
0.21

 
$
0.29

Discontinued operations
0.01

 
0.04

Net income attributable to Pitney Bowes Inc.
$
0.22

 
$
0.33

See Notes to Condensed Consolidated Financial Statements

3

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



 
Three Months Ended
 
Three Months Ended March 31,
 
2014
 
2013
Net income
$
49,267

 
$
72,100

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

 
4,594

Net income attributable to Pitney Bowes Inc.
44,673

 
67,506

Other comprehensive income (loss), net of tax:
 
 
 
Net unrealized gain on cash flow hedges, net of tax of $238 and $344, respectively
373

 
538

Net unrealized gain on investment securities, net of tax of $1,204 and $175, respectively
2,059

 
274

Amortization of pension and postretirement costs, net of tax of $3,641 and $6,139, respectively
6,142

 
10,631

Foreign currency translations
(7,351
)
 
(42,204
)
Other comprehensive income (loss)
1,223

 
(30,761
)
Comprehensive income attributable to Pitney Bowes Inc.
$
45,896

 
$
36,745








































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, 2014
 
December 31, 2013
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
903,342

 
$
907,806

Short-term investments
27,060

 
31,128

Accounts receivable (net of allowance of $13,900 and $13,419, respectively)
430,249

 
469,800

Finance receivables (net of allowance of $23,607 and $24,340, respectively)
1,071,576

 
1,102,921

Inventories
100,956

 
103,580

Current income taxes
30,006

 
28,934

Other current assets and prepayments
125,065

 
147,067

Assets held for sale
127,038

 
46,976

Total current assets
2,815,292

 
2,838,212

Property, plant and equipment, net
237,901

 
245,171

Rental property and equipment, net
219,512

 
226,146

Finance receivables (net of allowance of $12,014 and $12,609, respectively)
874,839

 
962,363

Investment in leveraged leases
33,690

 
34,410

Goodwill
1,726,596

 
1,734,871

Intangible assets, net
110,878

 
120,387

Non-current income taxes
69,008

 
73,751

Other assets
543,620

 
537,397

Total assets
$
6,631,336

 
$
6,772,708

LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
1,484,250

 
$
1,644,582

Current income taxes
163,080

 
157,340

Current portion of long-term debt
274,879

 
—

Advance billings
466,410

 
425,833

Liabilities related to assets held for sale
1,116

 
—

Total current liabilities
2,389,735

 
2,227,755

Deferred taxes on income
58,975

 
60,667

Tax uncertainties and other income tax liabilities
187,423

 
186,452

Long-term debt
3,066,690

 
3,346,295

Other non-current liabilities
442,365

 
466,766

Total liabilities
6,145,188

 
6,287,935

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

 
4

Cumulative preference stock, no par value, $2.12 convertible
563

 
591

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

 
323,338

Additional paid-in capital
170,038

 
196,977

Retained earnings
4,705,475

 
4,698,791

Accumulated other comprehensive loss
(573,333
)
 
(574,556
)
Treasury stock, at cost (120,699,367 and 121,255,390 shares, respectively)
(4,436,304
)
 
(4,456,742
)
Total stockholders’ equity
189,778

 
188,403

Total liabilities, noncontrolling interests and stockholders’ equity
$
6,631,336

 
$
6,772,708




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,
 
2014
 
2013
Cash flows from operating activities:
 

 
 

Net income before attribution of noncontrolling interests
$
49,267

 
$
72,100

Restructuring payments
(18,937
)
 
(16,275
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Loss on disposal of businesses
539

 
—

Proceeds from settlement of derivative instruments
—

 
4,838

Depreciation and amortization
44,595

 
57,227

Stock-based compensation
3,886

 
3,704

Restructuring charges and asset impairments
9,841

 
—

Changes in operating assets and liabilities:
 

 
 

Decrease in accounts receivable
40,135

 
71,401

Decrease in finance receivables
52,857

 
76,628

(Increase) decrease in inventories
(447
)
 
8,807

Increase in other current assets and prepayments
(4,020
)
 
(4,396
)
Decrease in accounts payable and accrued liabilities
(114,327
)
 
(169,292
)
Increase (decrease) in current and non-current income taxes
5,494

 
(11,472
)
Increase in advance billings
36,523

 
23,101

Increase in other operating capital, net
210

 
15,789

Net cash provided by operating activities
105,616

 
132,160

Cash flows from investing activities:
 

 
 

Short-term and other investments
(12,650
)
 
2,143

Capital expenditures
(30,143
)
 
(38,839
)
Net investment in external financing
(597
)
 
(506
)
Net payments related to sale of businesses
(539
)
 
—

Reserve account deposits
(15,159
)
 
(27,327
)
Net cash used in investing activities
(59,088
)
 
(64,529
)
Cash flows from financing activities:
 

 
 

Proceeds from the issuance of debt, net of fees and discounts of $7,475 and $13,387, respectively
492,525

 
411,613

Principal payments of long-term debt
(499,850
)
 
(404,637
)
Proceeds from the issuance of common stock under employee stock-based compensation plans
3,099

 
1,876

Purchase of subsidiary shares from noncontrolling interest
(7,718
)
 
—

Dividends paid to stockholders
(37,975
)
 
(75,347
)
Net cash used in financing activities
(49,919
)
 
(66,495
)
Effect of exchange rate changes on cash and cash equivalents
(1,073
)
 
(4,748
)
Decrease in cash and cash equivalents
(4,464
)
 
(3,612
)
Cash and cash equivalents at beginning of period
907,806

 
913,276

Cash and cash equivalents at end of period
$
903,342

 
$
909,664

 
 
 
 
Cash interest paid
$
74,374

 
$
72,650

Cash income tax payments, net of refunds
$
5,649

 
$
36,871





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 provider of technology solutions helping small, mid-sized and large firms connect to customers to facilitate and simplify commerce, build loyalty and grow revenue. We deliver our solutions on open platforms to best organize, analyze and apply public and proprietary data to two-way customer communications. We offer solutions for direct mail, transactional mail, customer engagement management and analytics and ecommerce parcel management, along with digital channel messaging for the Web, email and mobile applications. We conduct our business activities in five reporting segments. See Note 2 for information regarding our reportable segments.
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, 2013 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, 2014.
As of March 31, 2014, we were actively pursuing the sale of our Canadian Document Imaging Solutions (DIS) business, which consists of hardware (copiers and printers), document management software solutions and the related lease portfolio. The revenues and expenses directly related to the DIS business were classified as discontinued operations in the unaudited Condensed Consolidated Statements of Income for all periods presented. The cash flows from discontinued operations are not separately stated or classified in the accompanying unaudited Condensed Consolidated Statements of Cash Flows. See Note 4 and Note 17 for additional information.
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, 2013 (the 2013 Annual Report).

Changes in Segment Presentation
As a result of certain organizational changes designed to realign our business units to reflect the clients served and how we review, analyze, measure and manage our operations, we have revised our business segment reporting. We have recast historical segment results to conform to our current segment presentation and to exclude discontinued operations. See Note 2 for additional information.
  
Revision of Prior Period Amounts
During the third quarter of 2013, we determined that certain revenue previously reported as rentals revenue included a service component and should have been classified as support services revenue. Accordingly, the unaudited Condensed Consolidated Statement of Income for the three months ended March 31, 2013 has been revised to reflect the correct classification, resulting in a decrease in rentals revenue and corresponding increase in support services revenue of $5 million. Also during the third quarter of 2013, we determined that certain research and development costs should have been classified as cost of software. Accordingly, the unaudited Condensed Consolidated Statement of Income for the three months ended March 31, 2013 has been revised to reflect the correct classification, resulting in a decrease in research and development expenses and a corresponding increase in cost of software of $4 million.
These revisions did not impact previously reported total revenue, total costs and expenses, net income or earnings per share amounts and the effect of these revisions was not material to any of our previously issued financial statements. Previously issued financial statements will be revised to reflect these reclassification adjustments in future filings.

New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements.  These changes, when adopted, will impact the disposals that will qualify for discontinued operations treatment in the future. We intend to adopt the new standard when it becomes effective on January 1, 2015.

7

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

2. Segment Information
During 2013, we sold certain businesses and realigned our segment reporting to reflect the clients served, the solutions we offer, and how we manage, review, analyze and measure our operations. During the first quarter of 2014, we reclassified our shipping solutions operations from the Small & Medium Business Solutions segment group to the Digital Commerce Solutions segment. Additionally, the DIS business, originally included in the North America Mailing segment was classified as a discontinued operation. Historical segment results have been recast to conform to our current segment presentation and to exclude discontinued operations. The principal products and services of each of our reporting segments are as follows:

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

Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale of high-speed, high-volume inserting and sortation equipment and production printer systems and supplies to large enterprise clients to process inbound and outbound mail and related support and other professional services.
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 and support services of non-equipment-based mailing, customer engagement, geocoding and location intelligence software; (ii) our shipping and cross-border ecommerce solutions; (iii) direct marketing services for targeted clients; and (iv) our digital mail delivery service offering.
We determine segment earnings before interest and taxes (EBIT) by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and 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 an analysis 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.
 
Revenues
 
Three Months Ended March 31,
 
2014
 
2013
North America Mailing
$
381,027

 
$
388,836

International Mailing
153,268

 
152,976

Small & Medium Business Solutions
534,295

 
541,812

 
 
 
 
Production Mail
105,216

 
109,453

Presort Services
116,491

 
110,900

Enterprise Business Solutions
221,707

 
220,353

 
 
 
 
Digital Commerce Solutions
181,495

 
147,198

 
 
 
 
Total revenue
$
937,497

 
$
909,363


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,
 
2014
 
2013
North America Mailing
$
160,338

 
$
148,458

International Mailing
24,819

 
17,390

Small & Medium Business Solutions
185,157

 
165,848

 
 
 
 
Production Mail
7,737

 
7,832

Presort Services
23,896

 
23,488

Enterprise Business Solutions
31,633

 
31,320

 
 
 
 
Digital Commerce Solutions
9,531

 
(279
)
 
 
 
 
Total EBIT
226,321

 
196,889

Reconciling items:
 

 
 

Interest, net (1)
(43,717
)
 
(48,010
)
Unallocated corporate expenses
(56,604
)
 
(41,893
)
Restructuring charges
(9,841
)
 
—

Other expense
(61,657
)
 
(25,121
)
Income from continuing operations before income taxes
$
54,502

 
$
81,865

(1) Includes financing interest expense and other interest expense, net.
 
 
 
 

9

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

3. 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 related supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances.
Finance receivables at March 31, 2014 and December 31, 2013 consisted of the following:
 
March 31, 2014
 
North America
 
International
 
Total
Sales-type lease receivables
 

 
 

 
 

Gross finance receivables
$
1,340,592

 
$
450,071

 
$
1,790,663

Unguaranteed residual values
113,423

 
21,584

 
135,007

Unearned income
(280,590
)
 
(101,170
)
 
(381,760
)
Allowance for credit losses
(12,907
)
 
(9,779
)
 
(22,686
)
Net investment in sales-type lease receivables
1,160,518

 
360,706

 
1,521,224

Loan receivables
 

 
 

 
 

Loan receivables
387,394

 
50,732

 
438,126

Allowance for credit losses
(10,994
)
 
(1,941
)
 
(12,935
)
Net investment in loan receivables
376,400

 
48,791

 
425,191

Net investment in finance receivables
$
1,536,918

 
$
409,497

 
$
1,946,415

 
 
 
 
 
 
 
December 31, 2013
 
North America
 
International
 
Total
Sales-type lease receivables
 

 
 

 
 

Gross finance receivables
$
1,456,420

 
$
456,759

 
$
1,913,179

Unguaranteed residual values
121,339

 
21,553

 
142,892

Unearned income
(299,396
)
 
(101,311
)
 
(400,707
)
Allowance for credit losses
(14,165
)
 
(9,703
)
 
(23,868
)
Net investment in sales-type lease receivables
1,264,198

 
367,298

 
1,631,496

Loan receivables
 

 
 

 
 

Loan receivables
397,815

 
49,054

 
446,869

Allowance for credit losses
(11,165
)
 
(1,916
)
 
(13,081
)
Net investment in loan receivables
386,650

 
47,138

 
433,788

Net investment in finance receivables
$
1,650,848

 
$
414,436

 
$
2,065,284

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.

10

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, 2014 and 2013 was as follows:
 
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

Accounts written off
(2,310
)
 
(93
)
 
(2,663
)
 
(336
)
 
(5,402
)
Balance at March 31, 2014
$
12,907

 
$
9,779

 
$
10,994

 
$
1,941

 
$
35,621

 
 
 
 
 
 
 
 
 
 
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
Balance at January 1, 2013
$
16,979

 
$
8,662

 
$
12,322

 
$
2,131

 
$
40,094

Amounts charged to expense
1,067

 
360

 
2,462

 
70

 
3,959

Accounts written off
(2,474
)
 
(1,255
)
 
(2,955
)
 
(389
)
 
(7,073
)
Balance at March 31, 2013
$
15,572

 
$
7,767

 
$
11,829

 
$
1,812

 
$
36,980


Aging of Receivables
The aging of gross finance receivables at March 31, 2014 and December 31, 2013 was as follows:
 
March 31, 2014
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
< 31 days
$
1,272,429

 
$
413,892

 
$
369,365

 
$
48,540

 
$
2,104,226

> 30 days and < 61 days
26,751

 
11,198

 
9,836

 
1,177

 
48,962

> 60 days and < 91 days
20,887

 
11,440

 
3,500

 
536

 
36,363

> 90 days and < 121 days
6,642

 
4,089

 
2,040

 
183

 
12,954

> 120 days
13,883

 
9,452

 
2,653

 
296

 
26,284

Total
$
1,340,592

 
$
450,071

 
$
387,394

 
$
50,732

 
$
2,228,789

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
6,642

 
$
4,089

 
$
—

 
$
—

 
$
10,731

Not accruing interest
13,883

 
9,452

 
4,693

 
479

 
28,507

Total
$
20,525

 
$
13,541

 
$
4,693

 
$
479

 
$
39,238



11

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

 
December 31, 2013
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
< 31 days
$
1,383,253

 
$
425,923

 
$
379,502

 
$
42,573

 
$
2,231,251

> 30 days and < 61 days
32,102

 
11,760

 
10,464

 
4,391

 
58,717

> 60 days and < 91 days
20,830

 
5,724

 
3,330

 
1,363

 
31,247

> 90 days and < 121 days
6,413

 
3,979

 
1,809

 
311

 
12,512

> 120 days
13,822

 
9,373

 
2,710

 
416

 
26,321

Total
$
1,456,420

 
$
456,759

 
$
397,815

 
$
49,054

 
$
2,360,048

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
6,413

 
$
3,979

 
$
—

 
$
—

 
$
10,392

Not accruing interest
13,822

 
9,373

 
4,519

 
727

 
28,441

Total
$
20,235

 
$
13,352

 
$
4,519

 
$
727

 
$
38,833

Credit Quality
In extending and managing credit lines to new and existing clients, we use 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 portfolios because the cost to do so is prohibitive, 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, 2014 and December 31, 2013 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.

12

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

 
March 31,
2014
 
December 31,
2013
Sales-type lease receivables
 

 
 

Low
$
1,024,369

 
$
1,081,853

Medium
205,935

 
244,379

High
46,768

 
51,851

Not Scored
63,520

 
78,337

Total
$
1,340,592

 
$
1,456,420

Loan receivables
 

 
 

Low
$
272,234

 
$
279,607

Medium
89,219

 
95,524

High
10,663

 
11,511

Not Scored
15,278

 
11,173

Total
$
387,394

 
$
397,815

Troubled Debt
We maintain a program for U.S. clients in our North America loan portfolio who are experiencing financial difficulties, but are able to make reduced payments over an extended period of time. Upon acceptance into the program, the client’s credit line is closed and interest accrual is suspended. There is generally no forgiveness of debt or reduction of balances owed. The balance of loans in this program, related loan loss allowance and write-offs are insignificant to the overall portfolio.
Leveraged Leases
Our investment in leveraged lease assets at March 31, 2014 and December 31, 2013 consisted of the following:
 
March 31,
2014
 
December 31,
2013
Rental receivables
$
56,317

 
$
61,721

Unguaranteed residual values
12,729

 
13,235

Principal and interest on non-recourse loans
(31,061
)
 
(35,449
)
Unearned income
(4,295
)
 
(5,097
)
Investment in leveraged leases
33,690

 
34,410

Less: deferred taxes related to leveraged leases
(13,769
)
 
(15,078
)
Net investment in leveraged leases
$
19,921

 
$
19,332


13

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

4. Discontinued Operations and Assets Held For Sale
Discontinued operations includes the worldwide Management Services business (PBMS), International Mailing Services business (IMS) and Nordic furniture business, which were sold during 2013 and DIS, which was classified as discontinued operations at March 31, 2014 and subsequently sold in April 2014 (see Notes 1 and 17). The following tables show selected financial information included in discontinued operations:
 
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

 
Three Months Ended March 31, 2013
 
PBMS
 
IMS
 
Nordic furniture business
 
DIS
 
Total
Revenue
$
225,256

 
$
20,068

 
$
12,689

 
$
19,650

 
$
277,663

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations before taxes
$
16,054

 
$
(1,600
)
 
$
119

 
$
3,671

 
$
18,244

Loss on sale
—

 
(1,650
)
 
—

 
—

 
(1,650
)
Income (loss) before taxes
16,054

 
(3,250
)
 
119

 
3,671

 
16,594

Tax provision (benefit)
8,746

 
(1,189
)
 
33

 
974

 
8,564

Income (loss) from discontinued operations
$
7,308

 
$
(2,061
)
 
$
86

 
$
2,697

 
$
8,030

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets and related liabilities held for sale at March 31, 2014 are shown in the table below.
 
March 31, 2014

 
December 31, 2013
Finance receivables, current
$
12,241

 
$
—

Inventories and other assets
3,334

 
—

Total current assets
15,575

 
—

Property, plant and equipment, net
48,341

 
46,976

Rental property and equipment, net
3,537

 
—

Finance receivables, noncurrent
49,458

 
—

Goodwill
9,353

 
—

Intangible assets, net
774

 
—

Assets held for sale
$
127,038

 
$
46,976

 
 
 
 
Advance billings
$
1,116

 
$
—

Liabilities related to assets held for sale
$
1,116

 
$
—



14

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

5. 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, 2014 and December 31, 2013. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy.
 
March 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
344,007

 
$
192,136

 
$
—

 
$
536,143

Equity securities
—

 
26,685

 
—

 
26,685

Commingled fixed income securities
—

 
24,903

 
—

 
24,903

Debt securities - U.S. and foreign governments, agencies and municipalities
132,246

 
18,250

 
—

 
150,496

Debt securities - corporate
—

 
46,293

 
—

 
46,293

Mortgage-backed / asset-backed securities
—

 
141,267

 
—

 
141,267

Derivatives
 
 
 
 
 

 


Foreign exchange contracts
—

 
921

 
—

 
921

Total assets
$
476,253

 
$
450,455

 
$
—

 
$
926,708

Liabilities:
 

 
 

 
 

 
 

Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
$
—

 
$
(1,940
)
 
$
—

 
$
(1,940
)
Total liabilities
$
—

 
$
(1,940
)
 
$
—

 
$
(1,940
)


15

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

 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
403,706

 
$
224,440

 
$
—

 
$
628,146

Equity securities
—

 
26,536

 
—

 
26,536

Commingled fixed income securities
—

 
24,695

 
—

 
24,695

Debt securities - U.S. and foreign governments, agencies and municipalities
122,783

 
17,653

 
—

 
140,436

Debt securities - corporate
—

 
38,264

 
—

 
38,264

Mortgage-backed / asset-backed securities
—

 
164,598

 
—

 
164,598

Derivatives
 

 
 

 
 

 


Foreign exchange contracts
—

 
1,358

 
—

 
1,358

Total assets
$
526,489

 
$
497,544

 
$
—

 
$
1,024,033

Liabilities:
 

 
 

 
 

 
 

Investment securities
 
 
 
 
 
 
 
Mortgage-backed securities
$
—

 
$
(4,445
)
 
$
—

 
$
(4,445
)
Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
—

 
(3,009
)
 
—

 
(3,009
)
Total liabilities
$
—

 
$
(7,454
)
 
$
—

 
$
(7,454
)
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 highly liquid and low-risk securities, including government securities, certificates of deposit and commercial paper. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2.
•
Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds are classified as Level 2 as they are not separately listed on an exchange.
•
Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. The value of the funds is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These commingled funds are not listed on an exchange in an active market and are classified as Level 2.
•
Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities valued using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities are classified as Level 2.
•
Debt Securities – Corporate: Corporate debt securities are valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
•
Mortgage-Backed Securities (MBS) / Asset-Backed Securities (ABS): These securities are valued based on external pricing indices. When external index pricing is not observable, MBS and ABS 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)

Investment securities include investments held by The Pitney Bowes Bank (the Bank), an indirect wholly owned subsidiary whose primary business is to provide financing solutions to clients that rent or lease postage meters. The Bank's assets and liabilities consist primarily of cash, finance receivables, short and long-term investments and deposit accounts.
The Bank's investment securities are classified as available-for-sale and recorded at fair value in the 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, 2014 and December 31, 2013 consisted of the following:
 
March 31, 2014
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
Debt securities - U.S. and foreign governments, agencies and municipalities
$
129,856

 
$
1,422

 
$
(1,797
)
 
$
129,481

Debt securities - corporate
45,410

 
1,198

 
(314
)
 
46,294

Mortgage-backed / asset-backed securities
141,482

 
1,754

 
(1,969
)
 
141,267

Total
$
316,748

 
$
4,374

 
$
(4,080
)
 
$
317,042

 
December 31, 2013
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
Debt securities - U.S. and foreign governments, agencies and municipalities
$
121,803

 
$
999

 
$
(3,372
)
 
$
119,430

Debt securities - corporate
37,901

 
935

 
(572
)
 
38,264

Mortgage-backed / asset-backed securities
165,664

 
1,570

 
(2,636
)
 
164,598

Total
$
325,368

 
$
3,504

 
$
(6,580
)
 
$
322,292


Scheduled maturities of investment securities at March 31, 2014 were as follows:
 
Amortized cost
 
Estimated fair value
Within 1 year
$
26,473

 
$
26,539

After 1 year through 5 years
58,545

 
59,152

After 5 years through 10 years
87,268

 
87,343

After 10 years
144,462

 
144,008

Total
$
316,748

 
$
317,042

We have not experienced any significant write-offs in our investment portfolio. The majority of our MBS 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.
Derivative Instruments
In the normal course of business, we are exposed to the impact of interest rate changes and foreign currency fluctuations. We limit these risks by following established risk management policies and procedures, including the use of derivatives. We use derivatives to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results. 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 of the derivatives 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.
As required by the fair value measurements guidance, we have incorporated 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 related to credit default swaps. 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, 2014 and December 31, 2013 was as follows:
Designation of Derivatives
 
Balance Sheet Location
 
March 31,
2014
 
December 31,
2013
Derivatives designated as
hedging instruments
 
Other current assets and prepayments:
 
 

 
 

 
 
Foreign exchange contracts
 
$
408

 
$
546

 
 
Accounts payable and accrued liabilities:
 
 

 
 

 
 
Foreign exchange contracts
 
(284
)
 
(526
)
Derivatives not designated as
hedging instruments
 
Other current assets and prepayments:
 
 

 
 

 
 
Foreign exchange contracts
 
513

 
812

 
 
Accounts payable and accrued liabilities:
 
 

 
 

 
 
Foreign exchange contracts
 
(1,656
)
 
(2,483
)
 
 
 
 
 
 
 
 
 
Total derivative assets
 
$
921

 
$
1,358

 
 
Total derivative liabilities
 
(1,940
)
 
(3,009
)
 
 
Total net derivative liabilities
 
$
(1,019
)
 
$
(1,651
)
The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as forward rates.

Interest Rate Swaps
Derivatives designated as fair value hedges include interest rate swaps related to fixed rate debt. Changes in the fair value of both the derivative and item being hedged are recognized in earnings. There were no interest rate swaps in effect during the first quarter of 2014. During the first quarter of 2013, we had outstanding interest rate swaps with an aggregate notional value of $450 million. The following represents the results of fair value hedging relationships for the three months ended March 31, 2014 and 2013:
 
 
 
 
Three Months Ended March 31,
 
 
 
 
Derivative Gain
Recognized in Earnings
 
Hedged Item Expense
Recognized in Earnings
Derivative Instrument
 
Location of Gain (Loss)
 
2014
 
2013
 
2014
 
2013
Interest rate swaps
 
Interest expense
 
$
—

 
$
1,993

 
$
—

 
$
(5,484
)

Foreign Exchange Contracts
We enter into foreign currency 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, 2014 and December 31, 2013, we had outstanding contracts associated with these anticipated transactions with a notional amount of $28 million and $26 million, respectively. All outstanding contracts at March 31, 2014 mature by the end of the year.
The amounts included in AOCI at March 31, 2014 will be recognized in earnings within the next 12 months. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.

17

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

The following represents the results of cash flow hedging relationships for the three months ended March 31, 2014 and 2013:
 
 
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
 
2014
 
2013
 
 
2014
 
2013
Foreign exchange contracts
 
$
(69
)
 
$
630

 
Revenue
 
$
(234
)
 
$
(382
)
 
 
 

 
 

 
Cost of sales
 
199

 
126

 
 
 

 
 

 
 
 
$
(35
)
 
$
(256
)
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, 2014 mature by the end of the year.
The following represents the results of our non-designated derivative instruments for the three months ended March 31, 2014 and 2013:
 
 
 
 
Three Months Ended March 31,
 
 
 
 
Derivative Gain (Loss)
Recognized in Earnings
Derivatives Instrument
 
Location of Derivative Gain (Loss)
 
2014
 
2013
Foreign exchange contracts
 
Selling, general and administrative expense
 
$
(682
)
 
$
(4,351
)

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, 2014, we were not required to post any collateral. The maximum amount of collateral that we would have been required to post at March 31, 2014, had the credit-risk-related contingent features been triggered, was $1 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 are classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt at March 31, 2014 and December 31, 2013 was as follows:
 
March 31, 2014
 
December 31, 2013
Carrying value
$
3,341,569

 
$
3,346,295

Fair value
$
3,537,878

 
$
3,539,022



18

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

6. Restructuring Charges
Activity in our restructuring reserves for the three months ended March 31, 2014 was as follows:
 
Severance and benefits costs
 
Pension and
Retiree
Medical
 
Other exit
costs
 
Total
Balance at January 1, 2014
$
58,558

 
$
—

 
$
8,014

 
$
66,572

Expenses, net
6,188

 
2,550

 
1,103

 
9,841

Cash payments
(16,600
)
 
—

 
(2,337
)
 
(18,937
)
Non-cash charges
—

 
(2,550
)
 
—

 
(2,550
)
Balance at March 31, 2014
$
48,146

 
$
—

 
$
6,780

 
$
54,926



7. Inventories
Inventories consisted of the following:
 
March 31,
2014
 
December 31,
2013
Raw materials and work in process
$
34,084

 
$
33,920

Supplies and service parts
44,284

 
48,165

Finished products
38,652

 
38,515

Inventory at FIFO cost
117,020

 
120,600

Excess of FIFO cost over LIFO cost
(16,064
)
 
(17,020
)
Total inventory, net
$
100,956

 
$
103,580


8. Intangible Assets and Goodwill
Intangible assets
Intangible assets consisted of the following:
 
March 31, 2014
 
December 31, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
350,929

 
$
(254,937
)
 
$
95,992

 
$
354,373

 
$
(251,388
)
 
$
102,985

Supplier relationships
29,000

 
(25,738
)
 
3,262

 
29,000

 
(25,013
)
 
3,987

Software & technology
167,276

 
(156,796
)
 
10,480

 
167,009

 
(155,009
)
 
12,000

Trademarks & trade names
34,378

 
(33,264
)
 
1,114

 
35,366

 
(33,985
)
 
1,381

Non-compete agreements
7,448

 
(7,418
)
 
30

 
7,407

 
(7,373
)
 
34

Total intangible assets
$
589,031

 
$
(478,153
)
 
$
110,878

 
$
593,155

 
$
(472,768
)
 
$
120,387


Amortization expense for intangible assets was $6 million and $9 million for the three months ended March 31, 2014 and 2013, respectively.





19

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

The future amortization expense for intangible assets as of March 31, 2014 was as follows:
Remaining for year ended December 31, 2014
$
25,170

Year ending December 31, 2015
30,124

Year ending December 31, 2016
22,870

Year ending December 31, 2017
11,392

Year ending December 31, 2018
8,610

Thereafter
12,712

Total
$
110,878

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
As a result of the reclassification of our shipping solutions operations from the Small & Medium Business Solutions segment group to the Digital Commerce Solutions segment, we reallocated goodwill on a relative fair value basis and performed the required goodwill impairment test. Based on the results of the impairment tests, we determined that the estimated fair values of the affected reporting units exceeded the carrying values. The changes in the carrying value of goodwill for the three months ended March 31, 2014 were as follows:
 
Gross value before accumulated impairment (1)
 
Accumulated impairment
 
December 31, 2013
 
Other (2)
 
March 31,
2014
North America Mailing
$
326,665

 
$
—

 
$
326,665

 
$
(627
)
 
$
326,038

International Mailing
182,261

 
—

 
182,261

 
864

 
183,125

Small & Medium Business Solutions
508,926

 
—

 
508,926

 
237

 
509,163

 
 
 
 
 
 
 
 
 
 
Production Mail
118,060

 
—

 
118,060

 
143

 
118,203

Presort Services
195,140

 


 
195,140

 
—

 
195,140

Enterprise Business Solutions
313,200

 
—

 
313,200

 
143

 
313,343

 
 
 
 
 
 
 
 
 
 
Digital Commerce Solutions
903,392

 
—

 
903,392

 
698

 
904,090

 
 
 
 
 
 
 
 
 
 
Discontinued operations
9,353

 
—

 
9,353

 
—

 
9,353

 
 
 
 
 
 
 
 
 
 
Total
$
1,734,871

 
$
—

 
$
1,734,871

 
$
1,078

 
1,735,949

Reclassified to Assets held for sale
 
 
 
 
 
 
 
 
(9,353
)
Balance at March 31, 2014
 
 
 
 
 
 
 
 
$
1,726,596

(1)
Includes the reallocation of certain goodwill from the Small & Medium Business Solutions segment group to the Digital Commerce Solutions segment and discontinued operations.
(2)
Primarily represents the impact of foreign currency translation.




20

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

9. Debt
Debt consisted of the following:
 
 
March 31,
2014
 
December 31, 2013
Term loans
$
230,000

 
$
230,000

5.0%
notes due 2015
274,879

 
274,879

4.75%
notes due 2016
370,914

 
370,914

5.75%
notes due 2017
385,109

 
500,000

5.60%
notes due 2018
250,000

 
250,000

4.75%
notes due 2018
350,000

 
350,000

6.25%
notes due 2019
300,000

 
300,000

5.25%
notes due 2022
110,000

 
110,000

4.625%
notes due 2024
500,000

 
—

5.25%
notes due 2037
115,041

 
500,000

6.70%
notes due 2043
425,000

 
425,000

Other
30,626

 
35,502

Total long-term debt
3,341,569

 
3,346,295

Current portion
274,879

 
—

Long-term debt
$
3,066,690