PITNEY BOWES INC. Forward-Looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. Forward-looking statements are based on current expectations and assumptions, which we believe are reasonable; however, such statements are subject to risks and uncertainties, and actual results could differ materially from those projected or assumed in any of our forward-looking statements. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference speak only as of the date of those documents. Our results of operations, financial condition and forward-looking statements are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with theSecurities and Exchange Commission . In particular, we continue to navigate the impacts of the COVID-19 pandemic (COVID-19), including its effects on the cost and availability of labor and transportation and global supply chains. Other factors which could cause future financial performance to differ materially from the expectations, and which may also be exacerbated by COVID-19 or a negative change in the economy, include, without limitation: •declining physical mail volumes •changes in postal regulations or the operations and financial health of posts in theU.S. or other major markets, or changes to the broader postal or shipping markets •the loss of, or significant changes to, our contractual relationships with theUnited States Postal Service (USPS) orUSPS' performance under those contracts •our ability to continue to grow and manage volumes, gain additional economies of scale and improve profitability within our Global Ecommerce and Presort Services segments •changes in labor and transportation availability and costs •third-party suppliers' ability to provide products and services required by us and our clients •competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors •the loss of some of our larger clients in our Global Ecommerce and Presort Services segments •expenses and potential impacts resulting from a breach of security, including cyber-attacks or other comparable events •our success at managing customer credit risk •capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs •our success in developing and marketing new products and services and obtaining regulatory approvals, if required •the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws •changes in international trade policies, including the imposition or expansion of trade tariffs •changes in tax laws, rulings or regulations, including the impact of potentialU.S. tax reform •our success at managing relationships and costs with outsource providers of certain functions and operations •changes in banking regulations or the loss of ourIndustrial Bank charter •changes in foreign currency exchange rates and interest rates •increased environmental and climate change requirements or other developments in these areas •theUnited Kingdom's exit from theEuropean Union •intellectual property infringement claims •the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks •impact of acts of nature on the services and solutions we offer Further information about factors that could materially affect us, including our results of operations and financial condition, is contained in Item 1A. "Risk Factors" in our 2020 Annual Report, as supplemented by Part II, Item 1A in this Quarterly Report on Form 10-Q. 31 --------------------------------------------------------------------------------
Overview
Financial Results Summary - Three and Six Months Ended
Revenue
Three Months Ended June 30, Six Months Ended June 30,
Constant Constant
Actual % Currency % Actual % Currency %
2021 2020 change Change 2021 2020 change change
Business services $ 567,022 $ 528,990 7 % 6 % $ 1,137,476 $ 973,369 17 % 16 %
Support services 115,156 113,786 1 % (1) % 233,853 235,801 (1) % (2) %
Financing 73,453 85,462 (14) % (16) % 151,265 174,540 (13) % (15) %
Equipment sales 86,267 57,837 49 % 46 % 173,070 134,110 29 % 27 %
Supplies 38,655 32,773 18 % 14 % 80,879 78,482 3 % - %
Rentals 18,650 18,644 - % (2) % 37,857 37,458 1 % (1) %
Total revenue $ 899,203 $ 837,492 7 % 6 % $ 1,814,400 $ 1,633,760 11 % 10 %
Revenue
Three Months Ended June 30, Six Months Ended June 30,
Constant Constant
Actual % currency % Actual % currency %
2021 2020 change change 2021 2020 change change
Global Ecommerce $ 418,429 $ 398,453 5 % 3 % $ 831,515 $ 690,776 20 % 19 %
Presort Services 134,619 118,127 14 % 14 % 277,745 258,847 7 % 7 %
SendTech Solutions 346,155 320,912 8 % 6 % 705,140 684,137 3 % 1 %
Total $ 899,203 $ 837,492 7 % 6 % $ 1,814,400 $ 1,633,760 11 % 10 %
EBIT
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 % change 2021 2020 % change
Global Ecommerce $ (10,831) $ (18,894) 43 % $ (37,207) $ (48,369) 23 %
Presort Services 16,134 12,582 28 % 35,185 28,277 24 %
SendTech Solutions 107,121 104,268 3 % 221,591 210,830 5 %
Total Segment EBIT $ 112,424 $ 97,956 15 % $ 219,569 $ 190,738 15 %
Beginning primarily in the second quarter of 2020, COVID-19 impacted our
financial results in different ways in each of our businesses. Global Ecommerce
experienced a significant increase in volumes and revenue due to the demand for
ecommerce solutions; however, the increase in volumes resulted in higher postal
costs driven by capacity constraints and higher labor and transportation costs
due to increased demand and competition for these resources. Presort Services
experienced a decline in both First Class and Marketing Mail and higher labor
costs. Global Ecommerce and Presort Services also incurred additional costs and
experienced lower productivity as a result of the health and safety measures
implemented in their facilities. In SendTech Solutions, the increase in the
number of clients working remotely adversely impacted demand for and usage of
our mailing equipment and supplies, and our ability to perform on-site service
and installations.
Revenue increased 7% as reported and 6% at constant currency in the second
quarter of 2021 compared to the prior year, primarily driven by higher business
services revenue, equipment sales and supplies revenue, partially offset by
lower financing income. Business services revenue increased 7% as reported and
6% at constant currency driven by a 14% increase in Presort Services revenue due
to higher Marketing Mail and First Class mail volumes, and a 5% increase (3% at
constant currency) in Global Ecommerce due to higher cross-border volumes.
Equipment sales increased 49% (46% at constant currency) and supplies increased
18% (14% at constant currency) primarily due to the impacts of COVID-19 on the
prior year quarter. The decline in financing income is primarily due to a
declining financing portfolio.
Segment EBIT in the quarter increased 15% as all segments reported improvements
over the prior year. Global Ecommerce EBIT improved 43% primarily due to higher
revenue and lower operating expense, primarily due to higher credit loss
provision and costs in
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the prior year due to COVID-19. Presort Services EBIT increased 28% and SendTech
Solutions EBIT improved 3% over the prior year quarter primarily due to higher
revenue. Refer to Results of Operations section for further information.
During the quarter, we also received proceeds of $28 million and recognized a
pre-tax gain of $10 million recognized in other (income) expense from the sale
of a U.K. based software consultancy business ("Tacit") acquired as part of our
2017 acquisition of Newgistics .
Outlook
The impacts of COVID-19 on our business, operations and financial performance
remain uncertain, especially in light of new variants of COVID-19 and increased
cases in certain parts of the country and world. Supply chain issues continue to
pose challenges. Specifically, the global semiconductor chip shortage may
adversely affect our needed supply for SendTech equipment for the remainder of
2021. The extent of that impact will depend upon the duration and severity of
the shortage, as well as our success in mitigating against its impact.
Accordingly, there are some unique factors not within our control that could
affect our business and current outlook for 2021. However, we believe we are
well positioned to navigate the current conditions and will continue to take
proactive steps to manage our operations and related financial impacts.
Despite some of these ongoing uncertainties, we do not expect the global economy
or our individual businesses to be affected to the same extent in 2021 as in
2020. Within Global Ecommerce, we anticipate revenue growth in 2021, although
not at the growth rates experienced in 2020. We expect margin and profit
improvements in 2021 from pricing initiatives and operational improvements
within our facilities and network designed to drive efficiencies and increase
productivity; however, we also expect continued growth of the market's need for
transportation services and labor to generate increased costs. Within Presort
Services, we expect continued growth throughout 2021 and margin improvements
from productivity initiatives, increased automation and facilities consolidation
and optimization. Within SendTech Solutions, we expect revenue to decline, but
growth in our cloud-enabled shipping solutions and sales of our multi-purpose
devices to partially offset these declines. On a consolidated basis, we expect
revenue growth in the low to mid-single digit range in 2021 compared to 2020.
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RESULTS OF OPERATIONS
In our revenue discussion, we may refer to revenue growth on a constant currency
basis. Constant currency measures exclude the impact of changes in currency
exchange rates since the prior period under comparison. We believe that
excluding the impacts of currency exchange rates provides investors with a
better understanding of the underlying revenue performance. Constant currency
change is calculated by converting the current period non-U.S. dollar
denominated revenue using the prior year's exchange rate. Where constant
currency measures are not provided, the actual change and constant currency
change are the same.
Management measures segment profitability and performance using segment earnings
before interest and taxes (EBIT). Segment EBIT is calculated by deducting from
segment revenue the related costs and expenses attributable to the segment.
Segment EBIT excludes interest, taxes, general corporate expenses, restructuring
charges, asset impairment charges, goodwill impairment charges and other items
not allocated to a particular business segment. Management believes that it
provides investors a useful measure of operating performance and underlying
trends of the business. 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 SEGMENT EBIT
Global Ecommerce
Global Ecommerce includes the revenue and related expenses from domestic parcel
services, cross-border solutions and digital delivery services.
Revenue Cost of Revenue Gross Margin
Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30,
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 418,429 $ 398,453 5 % 3 % $ 373,347 $ 355,861 10.8 % 10.7 %
Segment EBIT
Three Months Ended June 30,
Actual %
2021 2020 change
Segment EBIT $ (10,831) $ (18,894) 43 %
Global Ecommerce revenue increased 5% as reported and 3% at constant currency in
the second quarter of 2021 compared to the prior year period due to volume
growth in cross-border contributing revenue of 12%, partially offset by lower
revenue contribution of domestic parcel delivery volumes and digital delivery
volumes of 6% and 3%, respectively.
Total gross margin increased $2 million and gross margin percentage remained
flat compared to the prior year primarily due to the increase in revenue
partially offset by higher transportation and postal costs.
Segment EBIT for the second quarter of 2021 was a loss of $11 million compared
to a loss of $19 million in the prior year period. The reduction in loss was
primarily driven by the increase in gross margin of $2 million and a $6 million
credit loss charge in the prior year associated with COVID-19.
Revenue Cost of Revenue Gross Margin
Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30,
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 831,515 $ 690,776 20 % 19 % $ 757,655 $ 621,082 8.9 % 10.1 %
Segment EBIT
Six Months Ended June 30,
Actual %
2021 2020 change
Segment EBIT $ (37,207) $ (48,369) 23 %
34-------------------------------------------------------------------------------- Global Ecommerce revenue increased 20% as reported and 19% at constant currency in the first six months of 2021 compared to the prior year period due to an increase in cross-border volumes and domestic parcel delivery volumes each contributing to revenue growth of 13% and 6%, respectively. Total gross margin increased$4 million due to higher revenue, but the gross margin percentage declined to 8.9% from 10.1% primarily due to higher transportation, postal and labor costs. Segment EBIT for the first six months of 2021 was a loss of$37 million compared to a loss of$48 million in the prior year period. The reduction in loss was driven by the increase in gross margin and$7 million in lower operating expenses, including lower credit loss provision. Presort Services Presort Services includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail, Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts. Revenue Cost of Revenue Gross Margin Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30, Constant Actual % Currency % 2021 2020 change change 2021 2020 2021 2020 Business services$ 134,619 $ 118,127 14 % 14 %$ 103,175 $ 93,542 23.4 % 20.8 % Segment EBIT Three Months Ended June 30, Actual % 2021 2020 change Segment EBIT$ 16,134 $ 12,582 28 % Presort Services revenue increased 14% in the second quarter of 2021 compared to the prior year period. Marketing Mail volumes and First Class Mail volumes each contributed revenue growth of 7% primarily due to the impact of COVID-19 on the prior year period. Gross margin increased to 23.4% from 20.8% primarily due to the increase in revenue, partially offset by higher labor costs driven by wage increases to address the increase in competition for labor resources. Segment EBIT increased$4 million or 28% in the second quarter of 2021, due to a$7 million increase in gross margin partially offset by$3 million of insurance proceeds related to a malware attack received in the prior year. Revenue Cost of Revenue Gross Margin Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30, Constant Actual % Currency % 2021 2020 change change 2021 2020 2021 2020 Business services$ 277,745 $ 258,847 7 % 7 %$ 212,174 $ 198,781 23.6 % 23.2 % Segment EBIT Six Months Ended June 30, Actual % 2021 2020 change Segment EBIT$ 35,185 $ 28,277 24 % Presort Services revenue increased 7% in the first six months of 2021 compared to the prior year period primarily due higher volumes of Marketing Mail and First Class Mail, which contributed revenue growth of 4% and 3%, respectively primarily due to the impact of COVID-19 on the prior year period. Gross margin increased$6 million and gross margin percentage increased slightly to 23.6% from 23.2% primarily due to the increase in revenue. 35 --------------------------------------------------------------------------------
Segment EBIT increased
SendTech Solutions
SendTech Solutions includes the revenue and related expenses from physical and
digital mailing and shipping technology solutions, financing, services, supplies
and other applications to help simplify and save on the sending, tracking and
receiving of letters, parcels and flats.
Revenue Cost of Revenue Gross Margin
Three Months Ended June 30, Three Months Ended June 30,
Three Months Ended
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 13,974 $ 12,410 13 % 12 % $ 6,247 $ 4,856 55.3 % 60.9 %
Support services 115,156 113,786 1 % (1) % 37,095 36,196 67.8 % 68.2 %
Financing 73,453 85,462 (14) % (16) % 11,773 11,939 84.0 % 86.0 %
Equipment sales 86,267 57,837 49% 46 % 61,503 47,866 28.7 % 17.2 % Supplies 38,655 32,773 18 % 14 % 10,467 8,377 72.9 % 74.4 % Rentals 18,650 18,644 - % (2) % 6,013 6,021 67.8 % 67.7 % Total revenue$ 346,155 $ 320,912 8 % 6 %$ 133,098 $ 115,255 61.5 % 64.1 % Segment EBIT Three Months Ended June 30, Actual % 2021 2020 change Segment EBIT$ 107,121 $ 104,268 3 % SendTech Solutions revenue increased 8% as reported and 6% at constant currency in the second quarter of 2021 compared to the prior year. Equipment sales increased 49% as reported and 46% at constant currency and supplies revenue increased 18% as reported and 14% at constant currency primarily due to the effect on the prior year from COVID-19 that impacted our ability to contact and service clients and perform on-site installations and reduced usage and demand for supplies. Business services revenue increased 13% as reported and 12% at constant currency primarily due to an increased use of our shipping products. These increases were partially offset by a decline in financing income of 14% as reported and 16% at constant currency primarily driven by a declining financing portfolio. Gross margin for the second quarter of 2021 decreased to 61.5% from 64.1% in the prior year period. Equipment sales gross margin increased to 28.7% from 17.2% primarily due to the increase in revenue. Supplies gross margin decreased to 72.9% from 74.4% primarily due to product mix. Segment EBIT increased$3 million or 3% in the second quarter of 2021 compared to the prior year, primarily driven by the increase in gross margin of$7 million , partially offset by higher operating expenses of$4 million . 36 --------------------------------------------------------------------------------
Revenue Cost of Revenue Gross Margin
Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30,
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 28,216 $ 23,746 19 % 19 % $ 12,315 $ 9,042 56.4 % 61.9 %
Support services 233,853 235,801 (1) % (2) % 73,323 75,823 68.6 % 67.8 %
Financing 151,265 174,540 (13) % (15) % 23,659 24,428 84.4 % 86.0 %
Equipment sales 173,070 134,110 29 % 27 % 123,293 105,214 28.8 % 21.5 %
Supplies 80,879 78,482 3 % - % 21,678 20,619 73.2 % 73.7 %
Rentals 37,857 37,458 1 % (1) % 12,460 12,400 67.1 % 66.9 %
Total revenue $ 705,140 $ 684,137 3 % 1 % $ 266,728 $ 247,526 62.2 % 63.8 %
Segment EBIT
Six Months Ended June 30,
Actual %
2021 2020 change
Segment EBIT $ 221,591 $ 210,830 5 %
SendTech Solutions revenue increased 3% as reported and 1% at constant currency
in the first six months of 2021 compared to the prior year. Equipment sales
increased 29% as reported and 27% at constant currency and supplies revenue
increased 3% as reported and was flat at constant currency primarily due to the
effect on the prior year from COVID-19 that impacted our ability to contact and
service clients and perform on-site installations and reduced usage and demand
for supplies. Business services revenue increased 19% primarily due to an
increased use of our shipping products. These increases were partially offset by
declines in financing income and support services revenue. Financing income
decreased 13% as reported and 15% at constant currency primarily driven by a
declining financing portfolio and support services revenue decreased 1% as
reported and 2% at constant currency primarily due to the declining meter
population.
Gross margin for the first six months of 2021 decreased to 62.2% from 63.8%
compared to the prior year period. Business services gross margin decreased to
56.4% from 61.9% primarily driven by a shift to lower margin products and
financing income margin decreased to 84.4% from 86% due to rising interest
rates. Equipment sales gross margin increased to 28.8% from 21.5% primarily due
the increase in revenue.
Segment EBIT increased $11 million or 5% in the first six months of 2021
compared to the prior year, primarily driven by a $10 million credit loss charge
in the prior year associated with COVID-19.
UNALLOCATED CORPORATE EXPENSES
The majority of our SG&A expense is recorded directly or allocated to our
reportable segments. Those expenses not recorded directly or allocated to our
reportable segments are reported as unallocated corporate expenses. Unallocated
corporate expenses primarily represents corporate administrative functions such
as finance, marketing, human resources, legal, information technology and
innovation.
Three Months Ended June 30, Six Months Ended June 30,
Actual % Actual %
2021 2020 change 2021 2020 change
Unallocated corporate expenses $ 56,316 $ 49,489 14 % $ 113,781 $ 93,211 22 %
The increase in unallocated corporate expenses in the quarter compared to the
prior year period was driven primarily by higher employee-related expenses of
$10 million partially offset by lower professional fees of $5 million . The
increase in unallocated corporate expenses for the first six months of 2021
compared to the prior year was primarily due to higher employee-related expenses
of $18 million , insurance costs of $2 million and marketing expenses of $1
million .
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CONSOLIDATED EXPENSES
Selling, general and administrative (SG&A)
SG&A expense of $236 million in the quarter increased 1% compared to the prior
period, primarily due higher employee-related expenses of $18 million and higher
insurance costs of $3 million , partially offset by lower professional fees of
$10 million and lower provision for credit losses of $11 million . SG&A expense
of $474 million for the first six months of 2021 decreased 2% compared to the
prior year period, primarily due to lower credit loss provision of $23 million
and professional fees of $15 million , partially offset by higher
employee-related expenses of $29 million .
Research and development (R&D)
R&D expense increased 48%, or $4 million in the second quarter of 2021 and
increased 14%, or $3 million in the first six months of 2021 compared to the
prior year period, primarily due to a shift in the mix of projects as well as
the timing of project spending.
Restructuring charges
Restructuring charges primarily includes costs for employee severance and
facility closures. See Note 10 to the Condensed Consolidated Financial
Statements for further information.
Other (income) expense
Other income of $14 million in the second quarter of 2021 includes a $10 million
gain from the sale of Tacit, $3 million of insurance proceeds, a $1 million gain
from an asset sale and a $1 million loss on the early repayment of debt. Other
expense of $38 million for the first six months of 2021 also includes a $51
million loss on debt refinancing recognized in the first quarter. See Note 17 to
the Condensed Consolidated Financial Statements for further information.
INCOME TAXES AND DISCONTINUED OPERATIONS
Income taxes
The effective tax rate for the three and six months ended June 30, 2021 was
19.1% and 57.2%, respectively, and includes a tax benefit of $5 million due to
tax legislation in the U.K. and a tax charge of $6 million on the pre-tax gain
of $10 million from the sale of Tacit. See Note 13 to the Condensed Consolidated
Financial Statements for further information.
Discontinued Operations
Discontinued operations for the quarter ended June 30, 2021 includes a working
capital adjustment payment related to the sale of our Software Solutions
business. Discontinued operations for the six months ended June 30, 2021 also
includes a tax charge related to the sale of our Production Mail business.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2021 , we had cash, cash equivalents and short-term investments of
$814 million . This includes $211 million held at our foreign subsidiaries used
to support the liquidity needs of those subsidiaries. Our ability to maintain
adequate liquidity for our operations is dependent upon a number of factors,
including our revenue and earnings, our clients ability to pay their balances on
a timely basis, the length and severity of COVID-19 and its impact on
macroeconomic conditions and our ability to take further cost savings and cash
conservation measures if necessary. At this time, we believe that existing cash
and investments, cash generated from operations and borrowing capacity under our
$500 million revolving credit facility will be sufficient to fund our cash needs
for the next 12 months.
Cash Flow Summary
Changes in cash and cash equivalents were as follows:
2021 2020 Change
Net cash provided by operating activities $ 144,729 $ 86,422 $ 58,307
Net cash used in investing activities (68,034) (76,489) 8,455
Net cash used in financing activities (199,024) (62,267) (136,757)
Effect of exchange rate changes on cash and cash
equivalents 349 (9,211) 9,560
Change in cash and cash equivalents $ (121,980) Operating Activities Cash provided by operating activities was$145 million for the six months endedJune 30, 2021 compared to$86 million in the prior year period. The increase of$58 million is primarily due to higher collections of receivables. Investing Activities Cash used in investing activities for the six months endedJune 30, 2021 improved$8 million compared to the prior year period. Net cash from investing activities benefited$58 million from investment activities due to the timing of purchases and maturities, but was partially offset by higher capital expenditures of$24 million as we prioritized and limited our capital expenditures in 2020 in connection with COVID-19. Cash flows from investing activities in 2021 were also negatively impacted by lower proceeds from asset, business and other invest sales of$29 million . Cash flows from investing activities in 2021 include net proceeds of$28 million from the sale of Tacit and$2 million for other asset sales, whereas cash flows from investing activities in 2020 included proceeds of$46 million from the surrender of company-owned life insurance policies and$12 million from the sale of an equity investment. Financing Activities Cash used in financing activities for the six months endedJune 30, 2021 was$199 million compared to$62 million in the prior year period. The increase of$137 million is primarily due to higher net repayments of debt of$112 million , higher premiums and fees to extinguish debt of$14 million and lower cash from customer deposits atPB Bank of$7 million . Financings and Capitalization During 2021, we issued a$400 million 6.875% unsecured note dueMarch 2027 and a$350 million 7.25% unsecured note dueMarch 2029 . We also entered into a new seven-year$450 million secured term loan maturingMarch 2028 . We redeemed the remaining$153 million balance of theOctober 2021 notes and, under a tender offer, redeemed an aggregate$363 million of theMay 2022 notes,April 2023 notes andMarch 2024 notes. We also repaid the remaining$818 million balance of our term loan that was scheduled to mature inJanuary 2025 . We also amended our$500 million secured revolving credit facility and our$380 million secured term loan to extend their maturities fromNovember 2024 toMarch 2026 . The credit agreement that governs the revolving credit facility and term loans contains financial and non-financial covenants. AtJune 30, 2021 , we were in compliance with all covenants and there were no outstanding borrowings under the revolving credit facility. InMay 2021 , we terminated our existing$500 million interest rate swap agreements and entered into new interest rate swap agreements with an aggregate notional amount of$200 million . Under the terms of the swap agreements, we pay fixed-rate interest of 39 -------------------------------------------------------------------------------- 0.56% and receive variable-rate interest based on one-month LIBOR. The variable interest rate under the term loans and the swaps reset monthly. Each quarter, our Board of Directors considers whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends. We expect to continue to pay a quarterly dividend; however, no assurances can be given. Contractual Obligations and Off-Balance Sheet Arrangements AtJune 30, 2021 , we have entered into leases with aggregate lease payments of approximately$38 million and terms ranging from seven to ten years, that have not commenced. AtJune 30, 2021 , there are no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity. Regulatory Matters There have been no significant changes to the regulatory matters disclosed in our 2020 Annual Report. Item 3: Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the disclosures made in our 2020 Annual Report. Item 4: Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to reasonably ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding disclosures. With the participation of our CEO and CFO, management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal controls over financial reporting as of the end of the period covered by this report. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. In addition, no changes in internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. Further, we have not experienced any material impact to our internal controls over financial reporting given that most of our employees are working remotely due to COVID-19. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness. It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as ofJune 30, 2021 . 40
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