PBI 2014.06.30 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 June 30, 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 August 4, 2014, 202,811,576 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 (Loss) for the Three and Six Months Ended June 30, 2014 and 2013
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013
 
 
 
 
Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2





PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited; in thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 

 
 

 
 

 
 

Equipment sales
$
191,518

 
$
225,224

 
$
380,574

 
$
421,991

Supplies
76,284

 
71,275

 
155,801

 
144,493

Software
109,065

 
100,482

 
200,620

 
187,494

Rentals
122,443

 
129,404

 
246,022

 
258,518

Financing
107,644

 
112,820

 
217,694

 
226,707

Support services
158,190

 
160,303

 
316,442

 
322,892

Business services
193,306

 
151,154

 
378,794

 
297,930

Total revenue
958,450

 
950,662

 
1,895,947

 
1,860,025

Costs and expenses:
 

 
 

 
 

 
 

Cost of equipment sales
88,818

 
112,079

 
171,352

 
206,622

Cost of supplies
23,505

 
22,246

 
47,659

 
45,092

Cost of software
33,484

 
25,604

 
63,648

 
50,395

Cost of rentals
25,193

 
25,114

 
50,637

 
51,512

Financing interest expense
20,413

 
18,951

 
40,066

 
37,970

Cost of support services
96,722

 
99,337

 
195,703

 
201,866

Cost of business services
135,024

 
108,168

 
263,960

 
210,523

Selling, general and administrative
338,384

 
353,923

 
689,759

 
705,577

Research and development
28,649

 
27,331

 
54,841

 
56,582

Restructuring charges
8,299

 
19,031

 
18,140

 
19,031

Interest expense, net
21,482

 
30,045

 
45,546

 
59,036

Other expense

 

 
61,657

 
25,121

Total costs and expenses
819,973

 
841,829

 
1,702,968

 
1,669,327

Income from continuing operations before income taxes
138,477

 
108,833

 
192,979

 
190,698

Provision for income taxes
46,335

 
24,218

 
54,371

 
42,013

Income from continuing operations
92,142

 
84,615

 
138,608

 
148,685

Income (loss) from discontinued operations, net of tax
6,717

 
(89,254
)
 
9,518

 
(81,224
)
Net income (loss)
98,859

 
(4,639
)
 
148,126

 
67,461

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

 
4,594

 
9,188

 
9,188

Net income (loss) attributable to Pitney Bowes Inc.
$
94,265

 
$
(9,233
)
 
$
138,938

 
$
58,273

Amounts attributable to common stockholders:
 

 
 

 
 

 
 

Net income from continuing operations
$
87,548

 
$
80,021

 
$
129,420

 
$
139,497

Income (loss) from discontinued operations, net of tax
6,717

 
(89,254
)
 
9,518

 
(81,224
)
Net income (loss) attributable to Pitney Bowes Inc.
$
94,265

 
$
(9,233
)
 
$
138,938

 
$
58,273

Basic earnings per share attributable to common stockholders:
 

 
 

 
 

 
 

Continuing operations
$
0.43

 
$
0.40

 
$
0.64

 
$
0.69

Discontinued operations
0.03

 
(0.44
)
 
0.05

 
(0.40
)
Net income (loss) attributable to Pitney Bowes Inc.
$
0.47

 
$
(0.05
)
 
$
0.69

 
$
0.29

Diluted earnings per share attributable to common stockholders:
 

 
 

 
 

 
 

Continuing operations
$
0.43

 
$
0.39

 
$
0.63

 
$
0.69

Discontinued operations
0.03

 
(0.44
)
 
0.05

 
(0.40
)
Net income (loss) attributable to Pitney Bowes Inc.
$
0.46

 
$
(0.05
)
 
$
0.68

 
$
0.29

Dividends declared per share of common stock
$
0.1875

 
$
0.1875

 
$
0.375

 
$
0.5625


See Notes to Condensed Consolidated Financial Statements

3


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



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
98,859

 
$
(4,639
)
 
$
148,126

 
$
67,461

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

 
4,594

 
9,188

 
9,188

Net income (loss) attributable to Pitney Bowes Inc.
94,265

 
(9,233
)
 
138,938

 
58,273

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net unrealized gain on cash flow hedges, net of tax of $267, $230, $505 and $574, respectively
417

 
362

 
790

 
900

Net unrealized gain (loss) on investment securities, net of tax of $1,249, $(3,017), $2,453 and $(2,842), respectively
2,136

 
(4,719
)
 
4,195

 
(4,445
)
Amortization of pension and postretirement costs, net of tax of $3,613, $4,926, $7,254 and $11,266, respectively
6,280

 
9,391

 
12,422

 
20,993

Foreign currency translations
5,149

 
(17,554
)
 
(2,202
)
 
(59,758
)
Other comprehensive income (loss)
13,982

 
(12,520
)
 
15,205

 
(42,310
)
Comprehensive income (loss) attributable to Pitney Bowes Inc.
$
108,247

 
$
(21,753
)
 
$
154,143

 
$
15,963





































See Notes to Condensed Consolidated Financial Statements

4


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


 
June 30, 2014
 
December 31, 2013
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
1,005,901

 
$
907,806

Short-term investments
23,976

 
31,128

Accounts receivable (net of allowance of $13,589 and $13,419, respectively)
409,514

 
469,800

Finance receivables (net of allowance of $22,852 and $24,340, respectively)
1,048,563

 
1,102,921

Inventories
101,252

 
103,580

Current income taxes
31,580

 
28,934

Other current assets and prepayments
125,540

 
147,067

Assets held for sale
46,976

 
46,976

Total current assets
2,793,302

 
2,838,212

Property, plant and equipment, net
242,742

 
245,171

Rental property and equipment, net
215,793

 
226,146

Finance receivables (net of allowance of $10,819 and $12,609, respectively)
874,999

 
962,363

Investment in leveraged leases
33,431

 
34,410

Goodwill
1,728,385

 
1,734,871

Intangible assets, net
102,760

 
120,387

Non-current income taxes
66,598

 
73,751

Other assets
538,073

 
537,397

Total assets
$
6,596,083

 
$
6,772,708

LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
1,504,887

 
$
1,644,582

Current income taxes
191,687

 
157,340

Current portion of long-term debt
274,879

 

Advance billings
439,038

 
425,833

Total current liabilities
2,410,491

 
2,227,755

Deferred taxes on income
39,509

 
39,701

Tax uncertainties and other income tax liabilities
166,920

 
190,645

Long-term debt
2,964,843

 
3,346,295

Other non-current liabilities
436,194

 
466,766

Total liabilities
6,017,957

 
6,271,162

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

 
296,370

Commitments and contingencies (See Note 10)


 


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
172,565

 
196,977

Retained earnings
4,778,506

 
4,715,564

Accumulated other comprehensive loss
(559,351
)
 
(574,556
)
Treasury stock, at cost (120,633,020 and 121,255,390 shares, respectively)
(4,433,866
)
 
(4,456,742
)
Total stockholders’ equity
281,756

 
205,176

Total liabilities, noncontrolling interests and stockholders’ equity
$
6,596,083

 
$
6,772,708




See Notes to Condensed Consolidated Financial Statements

5


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


 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 

 
 

Net income before attribution of noncontrolling interests
$
148,126

 
$
67,461

Restructuring payments
(33,530
)
 
(27,255
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

(Gain) loss on disposal of businesses
(26,152
)
 
31,751

Proceeds from settlement of derivative instruments

 
4,838

Depreciation and amortization
93,717

 
113,702

Stock-based compensation
7,976

 
7,241

Restructuring charges and asset impairments
18,140

 
19,955

Goodwill impairment

 
97,787

Changes in operating assets and liabilities:
 

 
 

Decrease in accounts receivable
66,778

 
67,420

Decrease in finance receivables
82,597

 
96,928

(Increase) decrease in inventories
(1,852
)
 
29,863

Increase in other current assets and prepayments
(8,369
)
 
(4,810
)
Decrease in accounts payable and accrued liabilities
(88,567
)
 
(173,479
)
Increase (decrease) in current and non-current income taxes
7,657

 
(89,478
)
Increase in advance billings
11,201

 
6,051

Other, net
2,725

 
31,060

Net cash provided by operating activities
280,447

 
279,035

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale securities
(191,882
)
 
(198,337
)
Proceeds from sales/maturities of available-for-sale securities
171,252

 
202,042

Short-term and other investments
6,051

 
10,928

Capital expenditures
(72,350
)
 
(73,441
)
Net investment in external financing
838

 
(1,021
)
Net proceeds from the sale of businesses
101,454

 

Reserve account deposits
(3,356
)
 
(26,189
)
Net cash provided by (used in) investing activities
12,007

 
(86,018
)
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
(599,850
)
 
(779,637
)
Proceeds from the issuance of common stock under employee stock-based compensation plans
4,027

 
3,621

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

Dividends paid to stockholders
(76,000
)
 
(113,106
)
Dividends paid to noncontrolling interests
(9,188
)
 
(9,188
)
Net cash used in financing activities
(196,204
)
 
(486,697
)
Effect of exchange rate changes on cash and cash equivalents
1,845

 
(11,028
)
Increase (decrease) in cash and cash equivalents
98,095

 
(304,708
)
Cash and cash equivalents at beginning of period
907,806

 
913,276

Cash and cash equivalents at end of period
$
1,005,901

 
$
608,568

 
 
 
 
Cash interest paid
$
93,617

 
$
95,791

Cash income tax payments, net of refunds
$
71,741

 
$
111,318


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 reportable 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.
On April 15, 2014, Pitney Bowes of Canada Ltd. (PB Canada), a wholly owned subsidiary, completed the sale of its Document Imaging Solutions (DIS) business, which consisted of hardware (copiers and printers), document management software solutions and the related lease portfolio to Konica Minolta Business Solutions (Canada) Ltd. (Konica Minolta) and a business equipment leasing services provider in two separate transactions. The operating results for DIS, originally included as part of the North America Mailing segment, have been classified as discontinued operations for all periods presented. In addition, PB Canada and Konica Minolta also entered into a strategic alliance whereby Konica Minolta will represent PB Canada’s mailing business in certain territories in Canada.
During 2013, we sold certain businesses and realigned our segment reporting to reflect the clients we serve, the solutions we offer, and how we manage, review, analyze and measure our operations. Further, in 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. Prior year financial results have been recast to reflect those businesses sold as discontinued operations and our segment reporting has been recast to conform to our current segment presentation. The cash flows from discontinued operations are not separately stated or reclassified in the accompanying unaudited Condensed Consolidated Statements of Cash Flows.
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).
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 Statements of Income (Loss) for the three and six months ended June 30, 2013 have been revised to reflect the correct classification, resulting in a decrease in rentals revenue and corresponding increase in support services revenue of $5 million and $10 million, respectively. 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 Statements of Income (Loss) for the three and six months ended June 30, 2013 have 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 and $8 million, respectively. 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.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The new 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 new standard will also result in enhanced disclosures about revenue. This standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and can be adopted either retrospectively or as a cumulative-effect adjustment. Early adoption is prohibited. We are assessing the impact the adoption of this standard will have on our consolidated financial statements and disclosures.
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 the related disclosure requirements. The standard is effective on January 1, 2015, but

7


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

early adoption is permitted for disposals or classifications of assets held for sale that have not been reported in financial statements previously issued or available for issuance. We elected to adopt this standard effective April 1, 2014. The adoption of this standard did not have a significant impact on our unaudited Condensed Consolidated Financial Statements.
2. Segment Information
In 2013, as a result of the sale of certain businesses, we realigned our segment reporting to reflect the clients we serve, the solutions we offer, and how we manage, review, analyze and measure our operations. Further, in 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. Prior year segment reporting has been recast to conform to our current segment presentation. 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 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) shipping and cross-border ecommerce solutions; (iii) direct marketing services for targeted clients; and (iv) 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.

8


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

Revenue and EBIT by business segment is presented below.
 
Revenues
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
North America Mailing
$
371,194

 
$
392,197

 
$
752,221

 
$
781,033

International Mailing
153,260

 
150,357

 
306,528

 
303,333

Small & Medium Business Solutions
524,454

 
542,554

 
1,058,749

 
1,084,366

Production Mail
111,756

 
134,422

 
216,972

 
243,875

Presort Services
111,281

 
106,961

 
227,772

 
217,861

Enterprise Business Solutions
223,037

 
241,383

 
444,744

 
461,736

Digital Commerce Solutions
210,959

 
166,725

 
392,454

 
313,923

Total revenue
$
958,450

 
$
950,662

 
$
1,895,947

 
$
1,860,025

 
EBIT
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
North America Mailing
$
156,781

 
$
157,518

 
$
317,119

 
$
305,976

International Mailing
26,449

 
20,075

 
51,268

 
37,465

Small & Medium Business Solutions
183,230

 
177,593

 
368,387

 
343,441

Production Mail
10,558

 
15,787

 
18,295

 
23,619

Presort Services
22,412

 
21,246

 
46,308

 
44,734

Enterprise Business Solutions
32,970

 
37,033

 
64,603

 
68,353

Digital Commerce Solutions
17,929

 
15,363

 
27,460

 
15,084

Total EBIT
234,129

 
229,989

 
460,450

 
426,878

Reconciling items:
 

 
 

 
 

 
 

Interest, net (1)
(41,895
)
 
(48,996
)
 
(85,612
)
 
(97,006
)
Unallocated corporate expenses
(45,458
)
 
(53,129
)
 
(102,062
)
 
(95,022
)
Restructuring charges
(8,299
)
 
(19,031
)
 
(18,140
)
 
(19,031
)
Other expense

 

 
(61,657
)
 
(25,121
)
Income from continuing operations before income taxes
$
138,477

 
$
108,833

 
$
192,979

 
$
190,698

(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. 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 June 30, 2014 and December 31, 2013 consisted of the following:
 
June 30, 2014
 
North America
 
International
 
Total
Sales-type lease receivables
 

 
 

 
 

Gross finance receivables
$
1,320,426

 
$
444,861

 
$
1,765,287

Unguaranteed residual values
110,195

 
21,512

 
131,707

Unearned income
(278,782
)
 
(100,561
)
 
(379,343
)
Allowance for credit losses
(13,143
)
 
(7,604
)
 
(20,747
)
Net investment in sales-type lease receivables
1,138,696

 
358,208

 
1,496,904

Loan receivables
 

 
 

 
 

Loan receivables
383,532

 
56,050

 
439,582

Allowance for credit losses
(10,775
)
 
(2,149
)
 
(12,924
)
Net investment in loan receivables
372,757

 
53,901

 
426,658

Net investment in finance receivables
$
1,511,453

 
$
412,109

 
$
1,923,562

 
 
 
 
 
 
 
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

Finance receivables with a net investment value of $62 million were included in the sale of DIS.
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

10


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

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.

Activity in the allowance for credit losses for the six months ended June 30, 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
2,360

 
(350
)
 
4,742

 
1,034

 
7,786

Accounts written off
(3,382
)
 
(1,749
)
 
(5,132
)
 
(801
)
 
(11,064
)
Balance at June 30, 2014
$
13,143

 
$
7,604

 
$
10,775

 
$
2,149

 
$
33,671

 
 
 
 
 
 
 
 
 
 
 
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
3,022

 
784

 
4,625

 
524

 
8,955

Accounts written off
(4,397
)
 
(2,268
)
 
(5,388
)
 
(895
)
 
(12,948
)
Balance at June 30, 2013
$
15,604

 
$
7,178

 
$
11,559

 
$
1,760

 
$
36,101


Aging of Receivables
The aging of gross finance receivables at June 30, 2014 and December 31, 2013 was as follows:
 
June 30, 2014
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
< 31 days
$
1,248,259

 
$
412,514

 
$
365,972

 
$
53,933

 
$
2,080,678

> 30 days and < 61 days
29,229

 
9,627

 
10,132

 
1,176

 
50,164

> 60 days and < 91 days
20,140

 
6,542

 
2,919

 
485

 
30,086

> 90 days and < 121 days
6,540

 
4,578

 
1,887

 
224

 
13,229

> 120 days
16,258

 
11,600

 
2,622

 
232

 
30,712

Total
$
1,320,426

 
$
444,861

 
$
383,532

 
$
56,050

 
$
2,204,869

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
6,540

 
$
4,578

 
$

 
$

 
$
11,118

Not accruing interest
16,258

 
11,600

 
4,509

 
456

 
32,823

Total
$
22,798

 
$
16,178

 
$
4,509

 
$
456

 
$
43,941



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 June 30, 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)

 
June 30,
2014
 
December 31,
2013
Sales-type lease receivables
 

 
 

Low
$
988,555

 
$
1,081,853

Medium
225,106

 
244,379

High
47,293

 
51,851

Not Scored
59,472

 
78,337

Total
$
1,320,426

 
$
1,456,420

Loan receivables
 

 
 

Low
$
263,924

 
$
279,607

Medium
93,594

 
95,524

High
10,968

 
11,511

Not Scored
15,046

 
11,173

Total
$
383,532

 
$
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 June 30, 2014 and December 31, 2013 consisted of the following:
 
June 30,
2014
 
December 31,
2013
Rental receivables
$
53,051

 
$
61,721

Unguaranteed residual values
13,181

 
13,235

Principal and interest on non-recourse loans
(29,023
)
 
(35,449
)
Unearned income
(3,778
)
 
(5,097
)
Investment in leveraged leases
33,431

 
34,410

Less: deferred taxes related to leveraged leases
(13,245
)
 
(15,078
)
Net investment in leveraged leases
$
20,186

 
$
19,332

4. Inventories
Inventories consisted of the following:
 
June 30,
2014
 
December 31,
2013
Raw materials and work in process
$
35,723

 
$
33,920

Supplies and service parts
45,045

 
48,165

Finished products
35,218

 
38,515

Inventory at FIFO cost
115,986

 
120,600

Excess of FIFO cost over LIFO cost
(14,734
)
 
(17,020
)
Total inventory, net
$
101,252

 
$
103,580



13


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

5. Discontinued Operations and Assets Held For Sale
Discontinued Operations
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 sold in April 2014. The following tables show selected financial information included in discontinued operations:
 
Three Months Ended June 30, 2014
 
PBMS
 
IMS
 
Nordic furniture business
 
DIS
 
Total
Revenue
$

 
$

 
$

 
$
3,567

 
$
3,567

 
 
 
 
 
 
 
 
 
 
Income from operations before taxes
$
580

 
$

 
$

 
$
1,018

 
$
1,598

Gain on sale

 
831

 

 
25,198

 
26,029

Income before taxes
580

 
831

 

 
26,216

 
27,627

Tax provision
217

 
321

 

 
20,372

 
20,910

Income from discontinued operations
$
363

 
$
510

 
$

 
$
5,844

 
$
6,717

 
Three Months Ended June 30, 2013
 
PBMS
 
IMS
 
Nordic furniture business
 
DIS
 
Total
Revenue
$
219,471

 
$
2,964

 
$
13,082

 
$
19,755

 
$
255,272

 
 
 
 
 
 
 
 
 
 
(Loss) income from operations before taxes
$
(117,636
)
 
$
(378
)
 
$
(597
)
 
$
4,418

 
$
(114,193
)
Loss on sale

 
(2,263
)
 

 

 
(2,263
)
(Loss) income before taxes
(117,636
)
 
(2,641
)
 
(597
)
 
4,418

 
(116,456
)
Tax (benefit) provision
(28,153
)
 
(55
)
 
(167
)
 
1,173

 
(27,202
)
(Loss) income from discontinued operations
$
(89,483
)
 
$
(2,586
)
 
$
(430
)
 
$
3,245

 
$
(89,254
)
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
 
PBMS
 
IMS
 
Nordic furniture business
 
DIS
 
Total
Revenue
$

 
$

 
$

 
$
19,858

 
$
19,858

 
 
 
 
 
 
 
 
 
 
Income from operations before taxes
$
334

 
$
308

 
$
345

 
$
3,429

 
$
4,416

Gain on sale
130

 
1,994

 

 
25,198

 
27,322

Income before taxes
464

 
2,302

 
345

 
28,627

 
31,738

Tax provision
196

 
850

 
97

 
21,077

 
22,220

Income from discontinued operations
$
268

 
$
1,452

 
$
248

 
$
7,550

 
$
9,518


14


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

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013
 
PBMS
 
IMS
 
Nordic furniture business
 
DIS
 
Total
Revenue
$
444,727

 
$
23,032

 
$
25,771

 
$
39,405

 
$
532,935

 
 
 
 
 
 
 
 
 
 
(Loss) income before taxes
$
(101,582
)
 
$
(1,978
)
 
$
(478
)
 
$
8,089

 
$
(95,949
)
Loss on sale

 
(3,913
)
 

 

 
(3,913
)
(Loss) income before taxes
(101,582
)
 
(5,891
)
 
(478
)
 
8,089

 
(99,862
)
Tax (benefit) provision
(19,407
)
 
(1,244
)
 
(134
)
 
2,147

 
(18,638
)
(Loss) income from discontinued operations
$
(82,175
)
 
$
(4,647
)
 
$
(344
)
 
$
5,942

 
$
(81,224
)

The loss before income taxes for the three and six months ended June 30, 2013 for PBMS include goodwill impairment charges of $100 million and asset impairment charges of $15 million. The inputs used to determine the fair value of the long-lived assets and goodwill were classified as Level 3 in the fair value hierarchy.
Assets Held for Sale
Assets held for sale at June 30, 2014 and December 31, 2013 primarily represents the carrying value of our corporate headquarters building and surrounding land, which we expect to sell by the end of the year.
 
 

6. Intangible Assets and Goodwill
Intangible Assets
Intangible assets consisted of the following:
 
June 30, 2014
 
December 31, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
351,291

 
$
(261,254
)
 
$
90,037

 
$
354,373

 
$
(251,388
)
 
$
102,985

Supplier relationships
29,000

 
(26,463
)
 
2,537

 
29,000

 
(25,013
)
 
3,987

Software & technology
167,691

 
(158,411
)
 
9,280

 
167,009

 
(155,009
)
 
12,000

Trademarks & trade names
34,447

 
(33,566
)
 
881

 
35,366

 
(33,985
)
 
1,381

Non-compete agreements
7,483

 
(7,458
)
 
25

 
7,407

 
(7,373
)
 
34

Total intangible assets
$
589,912

 
$
(487,152
)
 
$
102,760

 
$
593,155

 
$
(472,768
)
 
$
120,387


Amortization expense for intangible assets was $6 million and $9 million for the three months ended June 30, 2014 and 2013, respectively and $12 million and $18 million for the six months ended June 30, 2014 and 2013, respectively.

The future amortization expense for intangible assets as of June 30, 2014 was as follows:
Remaining for year ending December 31, 2014
$
16,961

Year ending December 31, 2015
30,237

Year ending December 31, 2016
22,941

Year ending December 31, 2017
11,450

Year ending December 31, 2018
8,555

Thereafter
12,616

Total
$
102,760


15


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

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 during the first quarter of 2014. 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 six months ended June 30, 2014 were as follows:
 
Gross value before accumulated impairment (1)
 
Accumulated impairment
 
December 31, 2013
 
Other (2)
 
June 30,
2014
North America Mailing
$
326,665

 
$

 
$
326,665

 
$
(966
)
 
$
325,699

International Mailing
182,261

 

 
182,261

 
(301
)
 
181,960

Small & Medium Business Solutions
508,926

 

 
508,926

 
(1,267
)
 
507,659

Production Mail
118,060

 

 
118,060

 
382

 
118,442

Presort Services
195,140

 

 
195,140

 

 
195,140

Enterprise Business Solutions
313,200

 

 
313,200

 
382

 
313,582

Digital Commerce Solutions
903,392

 

 
903,392

 
3,752

 
907,144

Discontinued operations
9,353

 

 
9,353

 
(9,353
)
 

Balance at June 30, 2014
$
1,734,871

 
$

 
$
1,734,871

 
$
(6,486
)
 
$
1,728,385

(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 and the sale of DIS.

7. 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.

16


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

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 June 30, 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 its placement within the fair value hierarchy.
 
June 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
299,474

 
$
201,606

 
$

 
$
501,080

Equity securities

 
27,587

 

 
27,587

Commingled fixed income securities

 
25,268

 

 
25,268

Debt securities - U.S. and foreign governments, agencies and municipalities
109,850

 
19,141

 

 
128,991

Debt securities - corporate

 
60,555

 

 
60,555

Mortgage-backed / asset-backed securities

 
148,339

 

 
148,339

Derivatives
 
 
 
 
 

 


Foreign exchange contracts

 
932

 

 
932

Total assets
$
409,324

 
$
483,428

 
$

 
$
892,752

Liabilities:
 

 
 

 
 

 
 

Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
$

 
$
(3,509
)
 
$

 
$
(3,509
)
Total liabilities
$

 
$
(3,509
)
 
$

 
$
(3,509
)

 
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
)



17


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

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.
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 June 30, 2014 and December 31, 2013 consisted of the following:
 
June 30, 2014
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
Debt securities - U.S. and foreign governments, agencies and municipalities
$
102,854

 
$
1,986

 
$
(878
)
 
$
103,962

Debt securities - corporate
58,914

 
1,771

 
(130
)
 
60,555

Mortgage-backed / asset-backed securities
147,290

 
2,363

 
(1,314
)
 
148,339

Total
$
309,058

 
$
6,120

 
$
(2,322
)
 
$
312,856


18


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

 
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
)
<