PITNEY BOWES INC / DE /: Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)
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
Summary of Financial Results – Three and Nine Months Ended
Revenue
Three Months Ended September 30 , Nine
Ended months
Constant Constant
Actual % Currency % Actual % Currency %
2021 2020 change Change 2021 2020 change change
Business services $ 551,384 $ 550,954 - % (1) % $ 1,688,860 $ 1,524,323 11 % 10 %
Support services 113,413 117,519 (3) % (4) % 347,266 353,320 (2) % (3) %
Financing 71,936 86,218 (17) % (17) % 223,201 260,758 (14) % (16) %
Equipment sales 83,234 79,572 5 % 4 % 256,304 213,682 20 % 18 %
Supplies 38,211 39,635 (4) % (4) % 119,090 118,117 1 % (1) %
Rentals 17,271 18,000 (4) % (5) % 55,128 55,458 (1) % (2) %
Total revenue $ 875,449 $ 891,898 (2) % (2) % $ 2,689,849 $ 2,525,658 7 % 5 %
Revenue
Three Months Ended September 30, Nine
Ended months
Constant Constant
Actual % currency % Actual % currency %
2021 2020 change change 2021 2020 change change
Global Ecommerce $ 398,011 $ 409,981 (3) % (4) % $ 1,229,526 $ 1,100,757 12 % 11 %
Presort Services 139,296 127,705 9 % 9 % 417,041 386,552 8 % 8 %
SendTech Solutions 338,142 354,212 (5) % (5) % 1,043,282 1,038,349 - % (1) %
Total $ 875,449 $ 891,898 (2) % (2) % $ 2,689,849 $ 2,525,658 7 % 5 %
EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % change 2021 2020 % change
Global Ecommerce $ (20,950) $ (19,757) (6) % $ (58,157) $ (68,126) 15 %
Presort Services 21,062 14,481 45 % 56,247 42,758 32 %
SendTech Solutions 98,950 112,599 (12) % 320,541 323,429 (1) %
Total Segment EBIT $ 99,062 $ 107,323 (8) % $ 318,631 $ 298,061 7 %
Revenue decreased 2% in the third quarter of 2021 compared to the prior year.
Business services revenue, which includes revenue from Presort Services and
Global Ecommerce, was flat as reported and declined 1% at constant currency
compared to the prior year. Presort Services revenue increased 9% primarily due
to higher mail volumes, a shift in the mix of mail volumes and investments made
in the network and technology to enable a higher level of five-digit sortation
services. Presort Services revenue also benefited in part, from the impacts of
COVID-19 that adversely affected mail volumes in the prior year quarter. This
increase was offset by a 3% decrease as reported (4% at constant currency) in
Global Ecommerce revenue, primarily due to lower domestic parcel delivery
volumes. The decline in Global Ecommerce revenue was also driven in part, by the
impacts of COVID-19 that favorably affected parcel volumes in the prior year
quarter. SendTech Solutions revenue declined 5% primarily due to lower financing
income and support services revenue, partially offset by higher equipment sales.
Financing revenue declined 17% primarily due to a prior year gain from the sale
of investment securities, lower lease extensions and lower fee income. Support
services revenue declined 3% (4% at constant currency) driven by a declining
meter population and a shift to cloud-enabled products. Equipment sales
increased 5% (4% at constant currency) due in part to the adverse impact on
demand and our inability to perform on-site service and installations in the
prior year quarter due to COVID-19.
Segment EBIT in the quarter decreased 8% over the prior year. Global Ecommerce
EBIT declined 6% primarily due to an $8 million charge reflecting the estimated
cost of a price assessment and SendTech Solutions EBIT decreased 12% primarily
driven by the decline in revenue. Partially offsetting these declines, Presort
Services EBIT increased 45% over the prior year quarter primarily due to higher
revenue and improved productivity from investments made in the network and
technology. Refer to Results of Operations section for further information.
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Outlook
The impacts of COVID-19 on our business, operations and financial performance
remain uncertain. Supply chain issues continue to pose challenges and could
impact us for the remainder of the year and into 2022. Additionally, supply
chain issues could also impact our clients' ability to meet their customers'
demand, especially as we enter the peak holiday season, and could impact our
shipping and delivery volumes. The duration and severity of these supply chain
issues is unknown and unpredictable. 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; however, there are some
unique factors not within our control that could affect our business.
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 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 revenue growth for 2021 and margin and profit improvements as
productivity initiatives, increased automation and facilities consolidation and
optimization will more than offset expected higher labor and transportation
costs. Within SendTech Solutions, we expect overall revenue to decline, but
growth in our cloud-enabled shipping solutions from new clients and existing
clients migrating to these solutions. Margins are expected to remain relatively
consistent. 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) which 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 Segment
EBIT 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 September
Three Months Ended September 30, Three Months Ended September 30, 30,
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 398,011 $ 409,981 (3) % (4) % $ 364,375 $ 379,409 8.5 % 7.5 %
Segment EBIT
Three Months Ended September 30,
Actual %
2021 2020 change
Segment EBIT $ (20,950) $ (19,757) (6) %
Global Ecommerce revenue decreased 3% as reported and 4% at constant currency in
the third quarter of 2021 compared to the prior year period due to lower revenue
contribution of domestic parcel delivery volumes of 9%, partially offset by
higher volumes in cross-border contributing revenue growth of 5%.
Total gross margin increased $3 million and gross margin percentage increased to
8.5% from 7.5% compared to the prior year primarily due to margin improvements
in domestic parcel delivery, cross-border and fulfillment services, partially
offset by an $8 million charge reflecting the estimated cost of a price
assessment.
Segment EBIT for the third quarter of 2021 was a loss of $21 million compared to
a loss of $20 million in the prior year period. The slight increase in EBIT loss
was primarily driven by insurance proceeds received in the prior year of $3
million , offset by the increase in gross margin of $3 million .
Revenue Cost of Revenue Gross Margin
Nine Months Ended September
Nine Months Ended September 30, Nine Months Ended September 30, 30,
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 1,229,526 $ 1,100,757 12 % 11 % $ 1,122,031 $ 1,000,490 8.7 % 9.1 %
Segment EBIT
Nine Months Ended September 30,
Actual %
2021 2020 change
Segment EBIT $ (58,157) $ (68,126) 15 %
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-------------------------------------------------------------------------------- Global Ecommerce revenue increased 12% as reported and 11% at constant currency in the first nine months of 2021 compared to the prior year period due to revenue growth from cross-border volumes and domestic parcel delivery volumes. Total gross margin increased$7 million due to higher revenue, but the gross margin percentage declined to 8.7% from 9.1% primarily due to higher transportation, postal and labor costs as well as an$8 million charge reflecting the estimated cost of a price assessment recorded in the third quarter. Segment EBIT for the first nine months of 2021 was a loss of$58 million compared to a loss of$68 million in the prior year period. The EBIT improvement was driven by the increase in gross margin and$3 million in lower operating expenses. 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 September Three Months Ended September 30, 30,
Three months ended
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 139,296 $ 127,705 9 % 9 % $ 103,194 $ 97,810 25.9 % 23.4 %
Segment EBIT
Three Months Ended September 30,
Actual %
2021 2020 change
Segment EBIT $ 21,062 $ 14,481 45 %
Presort Services revenue increased 9% in the third quarter of 2021 compared to
the prior year period. Marketing Mail volumes and First Class Mail volumes
contributed revenue growth of 5% and 4%, respectively, primarily due to a shift
in the mix of mail volumes, the impact of pricing actions, improvements in
five-digit sortation and the effects of COVID-19 on the prior year period.
Gross margin increased to 25.9% from 23.4% primarily due to the increase in
revenue. We continue to experience significantly higher transportation and labor
costs due to increased competition and demand for these resources. However,
investments we have made to increase productivity and optimize our network have
helped offset the impact of these increased costs.
Segment EBIT increased $7 million or 45% in the third quarter of 2021, due to a
$6 million increase in gross margin and $1 million decrease in operating
expenses.
Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30,
Nine months ended
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 417,041 $ 386,552 8 % 8 % $ 315,368 $ 296,591 24.4 % 23.3 %
Segment EBIT
Nine Months Ended September 30,
Actual %
2021 2020 change
Segment EBIT $ 56,247 $ 42,758 32 %
Presort Services revenue increased 8% in the first nine months of 2021 compared
to the prior year period. Marketing Mail volumes and First Class Mail volumes
each contributed revenue growth of 4% primarily due to a shift in the mix of
mail volumes, the impact of pricing actions, improvements in five-digit
sortation and the effects of COVID-19 on the prior year period.
Gross margin increased $12 million and gross margin percentage increased to
24.4% from 23.3% primarily due to the increase in revenue.
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Segment EBIT increase
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 September 30, Three Months Ended September 30,
Three months ended
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 14,077 $ 13,268 6 % 6 % $ 4,610 $ 5,666 67.3 % 57.3 %
Support services 113,413 117,519 (3) % (4) % 37,849 36,832 66.6 % 68.7 %
Financing 71,936 86,218 (17) % (17) % 11,710 11,626 83.7 % 86.5 %
Equipment sales 83,234 79,572 5 % 4 % 62,182 59,685 25.3 % 25.0 %
Supplies 38,211 39,635 (4) % (4) % 10,704 10,132 72.0 % 74.4 %
Rentals 17,271 18,000 (4) % (5) % 6,480 6,055 62.5 % 66.4 %
Total revenue $ 338,142 $ 354,212 (5) % (5) % $ 133,535 $ 129,996 60.5 % 63.3 %
Segment EBIT
Three Months Ended September 30,
Actual %
2021 2020 change
Segment EBIT $ 98,950 $ 112,599 (12) %
SendTech Solutions revenue decreased 5% in the third quarter of 2021 compared to
the prior year. Financing revenue declined 17% primarily due to a prior year
gain of $6 million from the sale of investment securities, lower lease
extensions of $5 million driven by new product offerings and lower fee income of
$3 million . Supplies revenue declined 4%, or $1 million , primarily due to
decreased usage. Support services revenue declined 3% as reported and 4% at
constant currency primarily due to the declining meter population and shift to
cloud-enabled products. Partially offsetting these decreases, equipment sales
increased 5% as reported (4% 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. Business services revenue increased
6%, or $1 million , primarily due to an increased use of our shipping products.
Gross margin for the third quarter of 2021 decreased to 60.5% from 63.3% in the
prior year period. Financing gross margin decreased to 83.7% from 86.5% due to
rising interest rates and the prior year gain from the sale of investment
securities. Support services gross margin decreased to 66.6% from 68.7% and
supplies gross margin decreased to 72.0% from 74.4% primarily due to the decline
in revenue. Rentals gross margin decreased to 62.5% from 66.4% primarily driven
by higher meter scrap costs.
Segment EBIT decreased $14 million , or 12% in the third quarter of 2021 compared
to the prior year, primarily driven by the decline in gross margin of $20
million , partially offset by lower credit loss provision of $6 million .
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Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30,
Nine months ended
Constant
Actual % Currency %
2021 2020 change change 2021 2020 2021 2020
Business services $ 42,293 $ 37,014 14 % 14 % $ 16,925 $ 14,708 60.0 % 60.3 %
Support services 347,266 353,320 (2) % (3) % 111,172 112,656 68.0 % 68.1 %
Financing 223,201 260,758 (14) % (16) % 35,369 36,054 84.2 % 86.2 %
Equipment sales 256,304 213,682 20 % 18 % 185,474 164,899 27.6 % 22.8 %
Supplies 119,090 118,117 1 % (1) % 32,383 30,751 72.8 % 74.0 %
Rentals 55,128 55,458 (1) % (2) % 18,940 18,455 65.6 % 66.7 %
Total revenue $ 1,043,282 $ 1,038,349 - % (1) % $ 400,263 $ 377,523 61.6 % 63.6 %
Segment EBIT
Nine Months Ended September 30,
Actual %
2021 2020 change
Segment EBIT $ 320,541 $ 323,429 (1) %
SendTech Solutions revenue was flat as reported and declined 1% at constant
currency in the first nine months of 2021 compared to the prior year. Equipment
sales increased 20% as reported and 18% 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. Business services revenue
increased 14% primarily due to an increased use of our shipping products. These
increases were partially offset by declines in financing income and support
services revenues. Financing revenue decreased 14% as reported and 16% at
constant currency primarily driven by a prior year gain of $10 million from the
sale of investment securities, lower lease extensions of $13 million driven by
new product offerings and lower fee income of $8 million . Support services
revenue decreased 2% as reported and 3% at constant currency primarily due to
the declining meter population and shift to cloud-enabled products.
Gross margin for the first nine months of 2021 decreased to 61.6% from 63.6%
compared to the prior year period. Financing gross margin decreased to 84.2%
from 86.2% due to rising interest rates and the prior year gain from the sale of
investment securities. Equipment sales gross margin increased to 27.6% from
22.8% primarily due the increase in revenue and lower engineering costs.
Segment EBIT decreased $3 million or 1% in the first nine months of 2021
compared to the prior year, primarily driven by a decline in gross margin of $18
million and higher operating expenses of $3 million , partially offset by lower
credit loss provision of $18 million driven in part by a $10 million 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 September 30, Nine Months Ended September 30,
Actual % Actual %
2021 2020 change 2021 2020 change
Unallocated corporate expenses $ 49,176 $ 53,429 (8) % $ 162,957 $ 146,640 11 %
The decrease in unallocated corporate expenses in the quarter compared to the
prior year period was driven primarily by lower variable-compensation expense of
$3 million . The increase in unallocated corporate expenses for the first nine
months of 2021 compared to the prior year was primarily due to higher
employee-related expenses of $14 million .
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CONSOLIDATED EXPENSES
Selling, general and administrative (SG&A) SG&A expense of$225 million in the quarter decreased$14 million , or 6% compared to the prior period, primarily due to lower credit loss provision of$6 million and lower professional fees of$3 million . SG&A expense of$699 million for the first nine months of 2021 decreased$22 million , or 3% compared to the prior year period, primarily due to lower credit loss provision of$29 million and professional fees of$18 million , partially offset by higher employee-related expenses of$28 million . Research and development (R&D) R&D expense increased 15%, or$1 million in the third quarter of 2021 and increased 14%, or$4 million in the first nine months of 2021 compared to the prior year period. 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 expense (income) Other expense of$3 million in the third quarter of 2021 represents a loss on the refinancing of debt. Other expense for the first nine months of 2021 includes a$56 million loss on the refinancing of debt,$10 million gain from the sale of Tacit,$3 million of insurance proceeds and a$1 million gain from an asset sale. 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 nine months endedSeptember 30, 2021 was (21.9)% and 119.3%, respectively. See Note 13 to the Condensed Consolidated Financial Statements for further information. Discontinued Operations Discontinued operations for the three and nine months endedSeptember 30, 2021 includes adjustments related to the sale of our Software Solutions business in 2019 and Production Mail business in 2018. See Note 4 to the Condensed Consolidated Financial Statements for further information. 38 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES AtSeptember 30, 2021 , we had cash, cash equivalents and short-term investments of$743 million . This includes$230 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$500 million revolving credit facility will be sufficient to fund our cash needs for the next 12 months. Cash Flow Summary Changes in cash and cash equivalents were as follows: 2021 2020 Change Net cash provided by operating activities$ 216,174 $ 191,166 $ 25,008 Net cash used in investing activities (111,686) (115,741) 4,055 Net cash used in financing activities (291,849) (197,908) (93,941) Effect of exchange rate changes on cash and cash equivalents (4,940) (2,782) (2,158) Change in cash and cash equivalents$ (192,301)
Operating Activities Cash provided by operating activities was$216 million for the nine months endedSeptember 30, 2021 compared to$191 million in the prior year period. The increase of$25 million is primarily due to higher income and higher collections of receivables. Investing Activities Cash used in investing activities for the nine months endedSeptember 30, 2021 improved$4 million compared to the prior year period. Net cash from investing activities benefited$95 million from the timing of purchases and maturities of investment securities but was partially offset by higher capital expenditures of$60 million and lower proceeds from the sale of assets and businesses of$29 million . Capital expenditures were higher in 2021 compared to 2020 as we prioritized and limited our capital expenditures in 2020 in connection with COVID-19 and are investing in Global Ecommerce and Presort Services. Proceeds from the sale of assets and businesses in 2021 includes$28 million from the sale of Tacit and$2 million for the sale of other assets, while proceeds in 2020 included$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 nine months endedSeptember 30, 2021 increased$94 million to$292 million compared to$198 million in the prior year period primarily due to higher net repayments of debt of$78 million and higher premiums and fees to extinguish debt of$17 million . Financings and Capitalization In 2021, we issued a$400 million 6.875% unsecured note dueMarch 2027 , a$350 million 7.25% unsecured note dueMarch 2029 and entered into a new seven-year$450 million secured term loan maturingMarch 2028 . We redeemed all the outstandingOctober 2021 notes and an aggregate$363 million of theMay 2022 notes,April 2023 notes andMarch 2024 notes under a tender offer, the remaining balance of theMay 2022 notes and repaid the remaining balance of ourJanuary 2025 term loan. A$56 million pre-tax loss was incurred on the refinancing of debt. 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. AtSeptember 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 As ofSeptember 30, 2021 , we have entered into leases that have not commenced. These leases have terms ranging from seven to ten years and aggregate payments of$20 million . AtSeptember 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 ofSeptember 30, 2021 . 40
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