Access to additional liquidity and current
market volatility
We provide
financing services to our customers for equipment, postage, and supplies. Our
ability to provide these services is largely dependent upon our continued
access to the U.S. capital markets. An additional source of liquidity for the
company consists of deposits held in our wholly-owned industrial loan
corporation, Pitney Bowes Bank (Bank). A significant credit ratings
downgrade, material capital market disruptions, significant withdrawals by
depositors at the Bank, or adverse changes to our industrial loan charter could
impact our ability to maintain adequate liquidity, and impact our ability to
provide competitive offerings to our customers.
The capital
and credit markets have been experiencing extreme volatility and disruption for
more than 12 months. In recent months, the volatility and disruption have
reached unprecedented levels. In some cases, the markets have exerted downward
pressure on stock prices and credit capacity for certain issuers. A sizeable
portion of Pitney Bowes total borrowings has been issued in the commercial
paper markets and, although Pitney Bowes has continued to have unencumbered
access to the commercial paper markets, there can be no assurance that such
markets will continue to be a reliable source of short-term financing for us.
Under further deteriorating market conditions, there may be no assurance that
other funding sources would be available or sufficient.
Privacy laws and other related regulations
Several of our
services and financing businesses use, process and store customer information
that could include confidential, personal or financial information. We also
provide third party benefits administrators with access to our employees
personal information. Privacy laws and similar regulations in many
jurisdictions where we do business, as well as contractual provisions, require
that we and our benefits administrators take significant steps to safeguard
this information. Failure to comply with any of these laws, regulations or
contract provisions could adversely affect our reputation and business and
subject us to significant liability.
Dependence on information systems
Our portfolio
of product, service and financing solutions increases our dependence on
information technologies. We maintain a secure system to collect revenue for
certain postal services, which is critical to enable both our systems and the
postal systems to run reliably. The continuous and uninterrupted performance of
our systems is critical to our ability to support and service our customers and
to support postal services. Although we maintain back-up systems, these systems
could be damaged by acts of nature, power loss, telecommunications failures,
computer viruses, vandalism and other unexpected events. If our systems were
disrupted, we could be prevented from fulfilling orders and servicing customers
and postal services, which could have an adverse effect on our reputation and
business.
Intellectual property infringement
We rely on
copyright, trade secret, patent and other intellectual property laws in the
United States and similar laws in other countries to establish and protect
proprietary rights that are important to our business. If we fail to enforce
our intellectual property rights, our business may suffer. We, or our
suppliers, may be subject to third-party claims of infringement on intellectual
property rights. These claims, if successful, may require us to redesign
affected products, enter into costly settlement or license agreements, pay
damage awards, or face a temporary or permanent injunction prohibiting us from
marketing or selling certain of our products
.
Litigation and regulation
Our results
may be affected by the outcome of legal proceedings and other contingencies
that cannot be predicted with certainty. As a large multi-national corporation
that does business globally, subsequent developments in legal proceedings,
including private civil litigations or proceedings brought by governmental
entities, or changes in laws or regulations or their interpretation or
administration, including developments in antitrust law or regulation,
employment law or regulation, tax law and regulation, class actions, or
intellectual property litigations, could result in an adverse effect on our
results of operations. For a description of current legal proceedings and
regulatory matters, see Legal Proceedings in Item 3 and Legal and Regulatory
Matters in Managements Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 of this Form 10-K.
Government contracts
Many of our
contracts are with governmental entities. Government contracts are subject to
extensive and complex government procurement laws and regulations, along with
regular audits of contract pricing and our business practices by government
agencies. If we are found to have violated some provisions of the government
contracts, we could be required to provide a refund, pay significant damages,
or be subject to contract cancellation, civil or criminal penalties, fines, or
debarment from doing business with the government. Any of these events could
not only affect us financially but also adversely affect our brand and
reputation.
6
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our world
headquarters and certain other facilities are located in Stamford, Connecticut.
We have over 500 facilities that are either leased or owned throughout the U.S.
and other countries. Our Mailstream Solutions and Mailstream Services
businesses utilize these facilities jointly and separately. We continue to have
limited manufacturing and assembly of products in our Danbury, Connecticut and
Harlow, United Kingdom locations. We also have two principal research and
development facilities in our Shelton, Connecticut and Noida, India locations.
We believe that our manufacturing, administrative and sales office properties
are adequate for the needs of all of our operations.
ITEM 3. LEGAL PROCEEDINGS
In the
ordinary course of business, we are routinely defendants in or party to a
number of pending and threatened legal actions. These may involve litigation by
or against us relating to, among other things:
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contractual rights under vendor, insurance
or other contracts
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intellectual
property or patent rights
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equipment, service, payment, contractual or other disputes with
customers
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disputes with employees
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These
litigations are on occasion brought on behalf of purported classes of
customers, employees or others.
Our
wholly-owned subsidiary, Imagitas, Inc., is a defendant in ten purported class
actions filed in six different states. These lawsuits have been coordinated in
the United States District Court for the Middle District of Florida,
In re:
Imagitas, Drivers Privacy Protection Act Litigation
(Coordinated, May 28,
2007). Each of these lawsuits alleges that the Imagitas DriverSource program
violates the federal Drivers Privacy Protection Act (DPPA). Under the
DriverSource program, Imagitas enters into contracts with state governments to
mail out automobile registration renewal materials along with third party
advertisements, without revealing the personal information of any state
resident to any advertiser. The DriverSource program assists the state in
performing its governmental function of delivering these mailings and funding
the costs of them. The plaintiffs in these actions are seeking both statutory
damages under the DPPA and an injunction against the continuation of the
program. On April 9, 2008, the District Court granted Imagitas motion for
summary judgment in one of the coordinated cases,
Rine, et al. v. Imagitas,
Inc
. (United States District Court, Middle District of Florida, filed
August 1, 2006). On July 30, 2008, the District Court issued a final judgment
in the
Rine
lawsuit and stayed all of the other cases filed against
Imagitas pending an appellate decision in
Rine
. On August 27, 2008, the
Rine
plaintiffs filed an appeal of the District Courts decision in the United
States Court of Appeals, Eleventh Judicial Circuit. The appellate process in
this case is proceeding.
We expect to
prevail in the lawsuits against Imagitas; however, as litigation is inherently
unpredictable, there can be no assurance in this regard. If the plaintiffs do
prevail, the results may have a material effect on our financial position,
future results of operations or cash flows, including, for example, our ability
to offer certain types of goods or services in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
We did not
submit any matters to a vote of our stockholders during the three months ended
December 31, 2008.
PART II
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I
TEM 5.
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MARKET FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
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Pitney Bowes
common stock is traded under the symbol PBI. The principal market is the New
York Stock Exchange (NYSE). Our stock is also traded on the Boston, Chicago, Philadelphia,
Pacific and Cincinnati stock exchanges. At January 31, 2009, we had 23,337
common stockholders of record.
7
On February 3,
2009, our Board of Directors authorized a one-cent increase of our quarterly
common stock dividend to $0.36 per share, marking the 27
th
consecutive year that we have increased the dividend on our common stock. This
represents a 3 percent increase and applies to the dividend with a record date
of February 20, 2009.
See Equity
Compensation Plan Information Table in Item 12 of this Form 10-K for
information regarding securities for issuance under our equity compensation
plans.
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Stock Information
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Dividends
per common share:
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Quarter
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2008
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2007
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First
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$
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0.35
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$
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0.33
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Second
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0.35
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0.33
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Third
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0.35
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0.33
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Fourth
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0.35
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0.33
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Total
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$
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1.40
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$
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1.32
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Quarterly
price ranges of common stock as reported on the NYSE:
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2008
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2007
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Quarter
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High
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Low
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High
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Low
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First
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$
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38.35
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$
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32.64
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$
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48.95
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$
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44.61
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Second
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$
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39.39
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$
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33.56
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$
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49.70
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$
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45.22
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Third
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$
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39.98
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$
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31.20
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$
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48.91
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$
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43.04
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Fourth
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$
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33.44
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$
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20.83
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$
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47.07
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$
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36.40
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Share Repurchases
We repurchase
shares of our common stock under a systematic program to manage the dilution
created by shares issued under employee stock plans and for other purposes.
This program authorizes repurchases in the open market. We have not repurchased
or acquired any other shares of our common stock during 2008 in any other
manner.
In March 2006, our Board of Directors authorized $300 million for
repurchases of outstanding shares of our common stock in the open market of
which $141.2 million remained for future purchases at December 31, 2006. We
repurchased 3.0 million shares during the first five months of 2007 under this
program for a total price of $141.2 million. There are no further funds
available under this authorization for the repurchase of outstanding shares.
In March 2007,
our Board of Directors authorized $300 million for repurchases of outstanding
shares of our common stock in the open market. In November 2007, our Board of
Directors increased this share repurchase authorization by $365.4 million. We
repurchased 6.1 million shares at a total price of $258.8 million during 2007
under this program. During the first nine months of 2008, we repurchased 9.2
million shares at a total price of $333.2 million. No shares were purchased
during the fourth quarter of 2008, leaving $73.4 million available for future
repurchases under this program at December 31, 2008.
For the
combined 2006 and 2007 programs, we repurchased a total of 9.1 million shares
for a total price of $400.0 million during 2007.
8
Stock Performance
Graph
The
accompanying graph compares the most recent five-year performance of Pitney
Bowes common stock with the Standard and Poors (S&P) 500 Composite
Index, and Peer Group Index.
The Peer Group
Index is comprised of the following companies: Automatic Data Processing, Inc.
(ADP), Diebold, Inc., R.R. Donnelley & Sons Co., DST Systems, Inc., Fedex
Corporation, Hewlett-Packard Company, Ikon Office Solutions, Inc. (acquired by
Ricoh Company, Ltd. on November 3, 2008), Lexmark International, Inc., Pitney
Bowes Inc., United Parcel Service, Inc., and Xerox Corporation.
Total return
for the Peer Group and the S&P 500 Composite Index is based on market
capitalization, weighted for each year.
All
information is based upon data independently provided to the Company by the
Standard & Poors Corporation and is derived from their official total
return calculation.
The graph
shows that on a total return basis, assuming reinvestment of all dividends,
$100 invested in the companys common stock on December 31, 2003 would have
been worth $74 on December 31, 2008. By comparison, $100 invested in the
S&P 500 Composite Index on December 31, 2003 would have been worth $90 on
December 31, 2008. An investment of $100 in the Peer Group on December 31, 2003
would have been worth $106 on December 31, 2008.
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Indexed
Returns
December 31,
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Company Name / Index
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2003
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2004
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2005
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2006
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2007
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2008
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Pitney Bowes
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100
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117
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110
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124
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105
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74
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S&P 500
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100
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111
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116
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135
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142
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90
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Peer Group
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100
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112
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115
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137
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143
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106
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9
ITEM 6. SELECTED FINANCIAL DATA
The following
tables summarize selected financial data for the Company, and should be read in
conjunction with the more detailed consolidated financial statements and
related notes thereto included under Item 8 of this Form 10-K.
Summary of Selected Financial Data
(Dollars in thousands, except per share amounts)
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Years ended December 31,
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2008
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2007
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2006
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2005
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2004
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Total revenue
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$
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6,262,305
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$
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6,129,795
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$
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5,730,018
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$
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5,366,936
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$
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4,832,304
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Total costs and expenses
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5,549,128
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5,469,084
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4,815,528
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4,555,268
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4,223,914
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Income from continuing
operations before income taxes and minority interest
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713,177
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660,711
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914,490
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811,668
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608,390
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Provision for income taxes
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244,929
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280,222
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335,004
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328,597
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197,317
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Minority interest (preferred
stock dividends of subsidiaries)
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20,755
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19,242
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13,827
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9,828
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5,634
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Income from continuing
operations
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447,493
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361,247
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565,659
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473,243
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405,439
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(Loss) income from discontinued
operations, net income tax
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(27,700
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)
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5,534
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(460,312
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)
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35,368
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56,557
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Net income
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$
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419,793
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$
|
366,781
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$
|
105,347
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$
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508,611
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$
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461,996
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Basic earnings per share of
common stock: (1)
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Continuing operations
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$
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2.15
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$
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1.65
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$
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2.54
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$
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2.07
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$
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1.76
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Discontinued operations
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(0.13
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0.03
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(2.07
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0.15
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0.24
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Net income
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$
|
2.01
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$
|
1.68
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$
|
0.47
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$
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2.22
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$
|
2.00
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Diluted earnings per share of
common stock:
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Continuing operations
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$
|
2.13
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$
|
1.63
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$
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2.51
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$
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2.04
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$
|
1.73
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Discontinued operations
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(0.13
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)
|
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0.03
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(2.04
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|
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0.15
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0.24
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Net income
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$
|
2.00
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$
|
1.66
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$
|
0.47
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$
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2.19
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$
|
1.97
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Total cash dividends on common,
preference and preferred stock
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$
|
291,611
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$
|
288,790
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$
|
285,051
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$
|
284,348
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|
$
|
282,265
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Cash dividends per share of
common stock
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|
$
|
1.40
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$
|
1.32
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$
|
1.28
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$
|
1.24
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$
|
1.22
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Average common and potential
common shares outstanding
|
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209,699,471
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221,219,746
|
|
|
225,443,060
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|
|
232,089,178
|
|
|
234,229,987
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Depreciation and amortization
|
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$
|
379,117
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|
$
|
383,141
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$
|
363,258
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$
|
331,963
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$
|
306,750
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Capital expenditures
|
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$
|
237,308
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$
|
264,656
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$
|
327,877
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|
$
|
291,550
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|
$
|
316,982
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|
|
|
|
|
|
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|
|
|
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Balance sheet
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Total assets
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$
|
8,736,431
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$
|
9,465,731
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$
|
8,527,331
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$
|
10,553,957
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$
|
10,161,682
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Long-term debt
|
|
$
|
3,934,865
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$
|
3,802,075
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$
|
3,847,617
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$
|
3,849,623
|
|
$
|
3,164,688
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Total debt
|
|
$
|
4,705,366
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|
$
|
4,755,842
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$
|
4,338,157
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$
|
4,707,365
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$
|
4,375,163
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Preferred stockholders equity
in subsidiary companies
|
|
$
|
374,165
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$
|
384,165
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|
$
|
384,165
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|
$
|
310,000
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|
$
|
310,000
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Stockholders (deficit) equity
(see Note 9)
|
|
$
|
(187,879
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)
|
$
|
660,169
|
|
$
|
716,055
|
|
$
|
1,381,115
|
|
$
|
1,366,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders of record
|
|
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21,914
|
|
|
21,574
|
|
|
22,923
|
|
|
23,639
|
|
|
26,129
|
|
Total employees
|
|
|
35,140
|
|
|
36,165
|
|
|
34,454
|
|
|
34,165
|
|
|
35,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The sum of the earnings per
share amounts may not equal the totals above due to rounding.
|
10
Managements
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) contains statements that are forward-looking. These statements are
based on current expectations and assumptions that are subject to risks and
uncertainties. Actual results could differ materially because of factors
discussed in Forward-Looking Statements and elsewhere in this report.
Overview
Revenue grew 2% in 2008 to
$6.3 billion, of which acquisitions contributed 3%.
Income from continuing
operations was $447.5 million in 2008 compared with $361.2 million in 2007 and
diluted earnings per share from continuing operations was $2.13 compared with
$1.63 in 2007. Diluted earnings per share from continuing operations was
reduced by restructuring charges and asset impairment charges of 69 cents and
87 cents, in 2008 and 2007, respectively. In 2008, diluted earnings per share
from continuing operations also included positive tax adjustments of 4 cents
related primarily to deferred tax assets associated with certain U.S. leasing
transactions. In 2007, diluted earnings per share from continuing operations
was also reduced by 5 cents for the purchase accounting alignment of MapInfo,
and 16 cents for tax adjustments related principally to a valuation allowance
for net operating losses outside the U.S.
Despite volatile economic
conditions, particularly in the second half of 2008, certain of our business
segments produced solid results, including both revenue and EBIT growth at
International Mailing, Mail Services and Marketing Services. In addition,
International Mailing, worldwide Production Mail, and Marketing Services
improved their EBIT margins as well. These strong performances were offset by
revenue declines at U.S. Mailing due to lower equipment sales due in part from
the prior year stimulus from sales of shape-based kits, lower financing and
rental revenues. Also, declines in worldwide Production Mail were due to the effects
of a slowdown in U.S. sales as large enterprises curtailed large-ticket capital
expenditures due to ongoing credit constraints and global economic uncertainty.
In late 2007, we announced a
plan to lower our cost structure, accelerate efforts to improve operational
efficiencies, enhance our customer experience, and to transition our product
line. On completion of this program, which continued throughout 2008, we
reduced our global workforce by roughly eight percent and improved margins in
many of our business segments.
In addition, we generated
$990 million in cash from operations during 2008.
See Results of Operations
for 2008, 2007 and 2006 for a more detailed discussion of our results of
operations.
Outlook
Our business
model and the actions we have taken to significantly reduce costs and
streamline our operations, will help mitigate, but do not eliminate the effects
of prolonged global economic weakness and unanticipated currency fluctuations.
Two external factors in particular, the strengthening of the U.S. dollar and
the Japanese yen last year and the significant increase in pension costs
related to recent changes in capital markets and other assumptions, will
negatively impact 2009 reported results.
We expect our
mix of revenue to continue to change, with a greater percentage of revenue
coming from diversified revenue streams associated with fully featured smaller
systems and a smaller percentage from larger system sales. In addition, we
expect to derive further synergies from our recent acquisitions. We will
continue to remain focused on enhancing our productivity and to allocate
capital in order to optimize our returns.
11
Results of Operations 2008 Compared to 2007
Business
segment revenue
The following
table shows revenue in 2008 and 2007 by business segment.
Prior year
results have been reclassified to conform to the current year presentation.
Refer to Note 18 to the Consolidated Financial Statements for further detail on
these changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
% contribution
from acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,207
|
|
$
|
2,364
|
|
|
(7
|
)%
|
|
0
|
%
|
International Mailing
|
|
|
1,133
|
|
|
1,070
|
|
|
6
|
%
|
|
1
|
%
|
Production Mail
|
|
|
616
|
|
|
623
|
|
|
(1
|
)%
|
|
0
|
%
|
Software
|
|
|
400
|
|
|
326
|
|
|
23
|
%
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
4,356
|
|
|
4,383
|
|
|
(1
|
)%
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
1,172
|
|
|
1,135
|
|
|
3
|
%
|
|
6
|
%
|
Mail Services
|
|
|
542
|
|
|
441
|
|
|
23
|
%
|
|
10
|
%
|
Marketing Services
|
|
|
192
|
|
|
171
|
|
|
12
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,906
|
|
|
1,747
|
|
|
9
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
6,262
|
|
$
|
6,130
|
|
|
2
|
%
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions revenue
decreased 1% to $4.4 billion. Within Mailstream Solutions:
U.S. Mailings revenue
decreased 7% due to lower equipment placements, rental revenue, and lower
financing revenue. The lower equipment revenues were driven in part by the
prior year benefits from the sale of mailing equipment shape-based upgrade kits
and by customer buying decisions influenced by uncertainty created by weak
economic conditions. International Mailings revenue grew by 6% and benefited
2% from favorable foreign currency translation and 1% from acquisitions.
Revenue growth benefited from strong growth in France, Germany, Norway
and other parts of Europe as well as in Latin America; and continued growth in
supplies. Worldwide revenue for Production Mail decreased 1% due to lower
equipment sales in the U.S., parts of Europe and Latin America as economic uncertainty
slowed large-ticket capital expenditures by many large enterprises worldwide.
This decrease was partly offset by continued strong demand in the U.K. and
France for high-speed, intelligent inserting systems. Software revenue
increased 23% from prior year, driven by the positive impact of acquisitions of
20%. Software sales increased outside of the U.S., but declined within the U.S.
driven by the economic uncertainty, which has resulted in fewer large-ticket
licensing deals than in the prior year as customers assess the overall business
environment.
Mailstream Services revenue
grew 9% to $1.9 billion. Within Mailstream Services:
Management Services revenue
grew 3% driven by acquisitions, which contributed 6% to segment revenue growth.
The segments revenue growth was partially offset by lower print and
transaction volumes for some customers, especially in the U.S. financial
services sector. Mail Services revenue grew 23% due to continued growth in
presort and international mail services of 14% and acquisitions, which
contributed 10% to segment revenue growth. Marketing Services revenue grew 12%
driven primarily by higher volumes in our mover-source program, partially
offset by the companys planned phased exit from the motor vehicle registration
services program.
Business
segment earnings before interest and taxes (EBIT)
We use EBIT as
a measure of our segment profitability.
Refer to the
reconciliation of segment amounts to income from continuing operations before
income taxes and minority interest in Note 18 to the Consolidated Financial
Statements.
The following
table shows EBIT in 2008 and 2007 by business segment.
Prior year
results have been reclassified to conform to the current year presentation.
Refer to Note 18 to the Consolidated Financial Statements for further detail on
these changes.
12
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
896
|
|
$
|
965
|
|
|
(7
|
)%
|
International Mailing
|
|
|
185
|
|
|
162
|
|
|
14
|
%
|
Production Mail
|
|
|
81
|
|
|
74
|
|
|
10
|
%
|
Software
|
|
|
28
|
|
|
37
|
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
1,190
|
|
|
1,238
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
70
|
|
|
76
|
|
|
(8
|
)%
|
Mail Services
|
|
|
69
|
|
|
57
|
|
|
22
|
%
|
Marketing Services
|
|
|
16
|
|
|
9
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
155
|
|
|
142
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total EBIT
|
|
$
|
1,345
|
|
$
|
1,380
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions EBIT decreased 4% to $1.2 billion. Within Mailstream Solutions:
U.S. Mailings
EBIT decreased 7% principally due to the lower revenue growth, but was partly
offset by positive impacts of our ongoing actions to reduce costs and
streamline operations. International Mailings EBIT grew 14% as improved
EBIT margins resulted from the Companys actions over the last two years to
reduce costs through the outsourcing of manufacturing and the consolidation of
back office operations. Production Mails EBIT increased 10% due to ongoing
actions to reduce administrative costs and improve gross margins in
anticipation of a slowing capital investment environment. Softwares EBIT
decreased 23% primarily due to the lower revenues in the U.S., product mix and
the planned investments in the expansion of the Companys distribution channel
and globalization of its research and development infrastructure.
Mailstream Services
EBIT increased 9% to $155 million. Within Mailstream Services:
Management
Services EBIT decreased 8% due to weakness in the Companys management services
businesses outside the U.S., particularly in the U.K. and Germany. These
decreases were partially offset by actions taken to reduce the fixed cost
structure of its U.S. operations. Mail Services EBIT increased 22% as a result
of operating leverage from an increase in mail volume and increased operating
efficiency, partly offset by the integration costs associated with acquisitions
in the U.S. and U.K. Marketing Services EBIT increased by 76% driven by higher
volumes in the Companys mover-source program and its phased exit from the
motor vehicle registration services program.
Revenue
by source
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
1,252
|
|
$
|
1,336
|
|
|
(6
|
)%
|
Supplies
|
|
|
392
|
|
|
393
|
|
|
0
|
%
|
Software
|
|
|
424
|
|
|
346
|
|
|
23
|
%
|
Rentals
|
|
|
728
|
|
|
739
|
|
|
(1
|
)%
|
Financing
|
|
|
773
|
|
|
790
|
|
|
(2
|
)%
|
Support services
|
|
|
769
|
|
|
761
|
|
|
1
|
%
|
Business services
|
|
|
1,924
|
|
|
1,765
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
6,262
|
|
$
|
6,130
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
sales revenue decreased 6% compared to the prior year. Lower sales of equipment
in U.S. Mailing were primarily due to the postal rate case in 2007, which
resulted in incremental sales of mailing equipment shape-based upgrade
kits during that period and pulled sales forward from 2008, weakening
global economic conditions, and product shift toward smaller, fully featured
postage machines. International sales revenue, excluding the positive impact
from foreign currency of 2% and acquisitions of 2%, increased 2% principally
due to a postal rate change in the first quarter of 2008 in France, combined
with higher equipment placements throughout Europe. Foreign currency
translation contributed an overall favorable impact of 1% to equipment sales
revenue.
Supplies
revenue in 2008 was flat compared to the prior year. The decline of supplies
revenue in the U.S was due to lower volumes, offset by an increase in supplies
revenue in Europe as our customers continue to migrate to digital technology.
Foreign currency translation contributed 1% to supplies revenue.
13
Software
revenue increased by 23% from the prior year primarily driven by acquisitions
which contributed 19% to revenue growth and strong international demand for our
location intelligence and customer communication software solutions. Foreign
currency translation had a negative impact of 2%.
Rentals
revenue decreased 1% compared to the prior year. Favorable foreign currency
translation of 1% and higher demand in France were offset by lower revenue in
the U.S., as our customers continue to downsize to smaller, fully featured
machines.
Financing
revenue decreased 2% compared to the prior year. Lower equipment sales have
resulted in a corresponding decline in the U.S. lease portfolio.
Support
services revenue increased 1% from the prior year primarily due to the
favorable impact of foreign currency translation of 1%. Renewals and pricing
increases offset the impact of customers down-sizing their equipment.
Business
services revenue increased 9% from the prior year, of which acquisitions
contributed 7%. The additional growth was driven by higher revenues in Mail
Services and Marketing Services, partly offset by lower transaction volumes in
Management Services.
Costs
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
663
|
|
$
|
697
|
|
|
53.0
|
%
|
|
52.2
|
%
|
Cost of supplies
|
|
$
|
104
|
|
$
|
107
|
|
|
26.5
|
%
|
|
27.1
|
%
|
Cost of software
|
|
$
|
101
|
|
$
|
82
|
|
|
23.9
|
%
|
|
23.7
|
%
|
Cost of rentals
|
|
$
|
154
|
|
$
|
171
|
|
|
21.1
|
%
|
|
23.2
|
%
|
Cost of support services
|
|
$
|
448
|
|
$
|
433
|
|
|
58.3
|
%
|
|
56.9
|
%
|
Cost of business services
|
|
$
|
1,508
|
|
$
|
1,381
|
|
|
78.4
|
%
|
|
78.2
|
%
|
Cost of
equipment sales as a percentage of revenue increased to 53.0% in 2008 compared
with 52.2% in the prior year, primarily due to the increase in mix of lower
margin equipment sales outside the U.S. and the prior year sales of high margin
upgrade kits.
Cost of
supplies as a percentage of revenue decreased to 26.5% in 2008 compared with
27.1% in the prior year. This variance is driven by a change in the mix of
business.
Cost of
software as a percentage of revenue increased to 23.9% in 2008 compared with
23.7% in the prior year primarily due to a change in the mix of business.
Cost of
rentals as a percentage of revenue decreased to 21.1% in 2008 compared with
23.2% in the prior year primarily due to lower depreciation costs related to
the transition of our product line.
Cost of
support services as a percentage of revenue increased to 58.3% in 2008 compared
with 56.9% in the prior year. Improvements in our Production Mail segment due
to the impact of our transition initiatives were more than offset by higher
service costs in our U.S. and International Mailing businesses.
Cost of
business services as a percentage of revenue was 78.4% in 2008 compared
with 78.2% in the prior year. For Mail Services, continued integration costs
associated with the current year acquisitions of a multi-site presort operation
in the U.S. and U.K. were more than offset by the successful integration
of other recently acquired sites and productivity improvements.
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,948
|
|
$
|
1,907
|
|
|
31.1
|
%
|
|
31.1
|
%
|
Selling, general and
administrative expenses, as a percentage of total revenue, remained flat at 31.1%.
The benefits gained from our transition initiatives were offset by lower
revenue growth and a shift in the mix of our business as well as higher credit
loss expenses in the U.S. Software, which is continuing to become a larger
portion of our overall business, has a relatively higher selling, general and
administrative expense ratio.
14
Research and
development expenses
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206
|
|
$
|
186
|
|
|
11
|
%
|
Research and
development expenses increased $20 million, or 11%, as we continue to invest in
developing new technologies, enhancing our products, and expanding our offshore
development capabilities. R&D expenses as a percentage of total revenue
increased to 3.3% in 2008 from 3.0% in 2007.
Net interest expense
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
216
|
|
$
|
242
|
|
|
(11
|
)%
|
Net interest
expense decreased $25 million or 11%, from prior year due to lower average
interest rates during the year. Our variable and fixed rate debt mix, after
adjusting for the effect of interest rate swaps, was 22% and 78%, respectively,
at December 31, 2008.
We do not
allocate interest costs to our business segments.
Income taxes /
effective tax rate
The effective
tax rate declined 8.1% in 2008 primarily as a result of a $54 million tax
charge in 2007 related principally to a valuation allowance for certain
deferred tax assets and tax rate changes outside the U.S.
Minority interest
(preferred stock dividends of subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21
|
|
$
|
19
|
|
|
8
|
%
|
Minority
interest includes dividends paid to preferred stockholders in subsidiary
companies. In August 2008, we redeemed 100% of the outstanding Cumulative
Preferred Stock issued previously by a subsidiary company for $10 million. This
redemption resulted in a net loss of $1.8 million accounting for the year over
year increase.
Discontinued
operations
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
Pretax income
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(28
|
)
|
$
|
6
|
|
|
|
|
|
|
|
|
|
Total discontinued operations, net of tax
|
|
$
|
(28
|
)
|
$
|
6
|
|
|
|
|
|
|
|
|
|
Net loss in
2008 includes accruals of tax and interest on uncertain tax positions. 2007
includes a gain of $11.3 million from uncertain tax positions, net of an
interest accrual for uncertain tax positions of $5.8 million. See Note 2 to the
Consolidated Financial Statements for further discussion and details of
discontinued operations.
15
Results of Operations 2007 Compared to 2006
Business segment revenue
The following
table shows revenue in 2007 and 2006 by business segment.
Results have
been reclassified to conform to the current year presentation. Refer to Note 18
to the Consolidated Financial Statements for further detail on these changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2007
|
|
2006
|
|
% change
|
|
% contribution
from acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,364
|
|
$
|
2,362
|
|
|
0
|
%
|
|
1
|
%
|
International Mailing
|
|
|
1,070
|
|
|
1,013
|
|
|
6
|
%
|
|
0
|
%
|
Production Mail
|
|
|
623
|
|
|
596
|
|
|
5
|
%
|
|
2
|
%
|
Software
|
|
|
326
|
|
|
182
|
|
|
79
|
%
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
4,383
|
|
|
4,153
|
|
|
6
|
%
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
1,135
|
|
|
1,074
|
|
|
6
|
%
|
|
3
|
%
|
Mail Services
|
|
|
441
|
|
|
358
|
|
|
23
|
%
|
|
4
|
%
|
Marketing Services
|
|
|
171
|
|
|
145
|
|
|
18
|
%
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,747
|
|
|
1,577
|
|
|
11
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
6,130
|
|
$
|
5,730
|
|
|
7
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions revenue increased 6% to $4.4 billion. Within Mailstream Solutions:
U.S. Mailings
revenue remained flat. Revenue benefited from growth in supplies, payment
solutions, and the sale of equipment related to shape-based rating. However,
results were unfavorably impacted by lower equipment sales due to the wind-down
of meter migration and weak economic conditions. International Mailings
revenue grew by 6%, including favorable foreign currency translation of 8%. The
segments results were negatively impacted by lower sales and rentals in Europe
as delays in postal liberalization across Europe affected customer purchases.
Worldwide revenue for Production Mail grew by 5%, primarily driven by favorable
foreign currency of 3% and acquisitions as higher equipment placements in the
U.S. were offset by lower sales in Europe. Softwares revenue grew by 79%
driven by continued strong worldwide demand for our software solutions, the
acquisition of MapInfo, and favorable foreign currency translation of 4%.
Mailstream
Services revenue increased 11% to $1.7 billion. Within Mailstream Services:
Management
Services revenue increased by 6% due to the acquisition of Asterion SAS and
favorable foreign currency translation of 2%. The segments revenue growth was
negatively impacted by weakness in our legal solutions vertical as well as
print contracts in 2006 that did not repeat in 2007. Mail Services revenue
increased by 23% due to continued growth in presort and cross-border mail
services. Marketing Services revenue increased by 18% driven primarily by
acquisitions. Revenue growth for this segment was negatively affected by lower
revenue from our motor vehicle registration services program.
Business segment
earnings before interest and taxes (EBIT)
We use EBIT as
a measure of our segment profitability.
Refer to the
reconciliation of segment amounts to income from continuing operations before
income taxes and minority interest in Note 18 to the Consolidated Financial
Statements.
16
The following
table shows EBIT in 2007 and 2006 by business segment.
Results have
been reclassified to conform to the current year presentation. Refer to Note 18
to the Consolidated Financial Statements for further detail on these changes.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2007
|
|
2006
|
|
% change
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
965
|
|
$
|
950
|
|
|
2
|
%
|
International Mailing
|
|
|
162
|
|
|
179
|
|
|
(10
|
)%
|
Production Mail
|
|
|
74
|
|
|
69
|
|
|
9
|
%
|
Software
|
|
|
37
|
|
|
30
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
1,238
|
|
|
1,228
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
76
|
|
|
83
|
|
|
(9
|
)%
|
Mail Services
|
|
|
57
|
|
|
37
|
|
|
53
|
%
|
Marketing Services
|
|
|
9
|
|
|
20
|
|
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
142
|
|
|
140
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total EBIT
|
|
$
|
1,380
|
|
$
|
1,368
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions EBIT increased 1% to $1.2 billion. Within Mailstream Solutions:
U.S. Mailings
EBIT grew 2% due to the increase in mix of higher margin revenue from payment
solutions and supplies as well as our continued focus on controlling operating
expenses. International Mailing EBIT decreased 10%. The segments profitability
was adversely impacted by lower equipment sales and rentals in Europe, and
incremental costs in 2007 related to back office operations, including the
outsourcing of our European order and financial processing. Production Mail
EBIT increased 9% driven primarily by revenue growth and net legal recoveries
of approximately $4 million in Europe. Software EBIT increased 22%, driven by
revenue growth partially offset by integration costs for the MapInfo
acquisition.
Mailstream
Services EBIT increased 1% to $142 million. Within Mailstream Services:
Management
Services EBIT decreased 9% due to continued weakness in our legal solutions
vertical. Mail Services EBIT grew by 53% driven by revenue growth, successful
integration of acquired sites, and increased operating efficiencies. Marketing
Services EBIT decreased 55%, principally due to lower revenue in our motor
vehicle registration services program.
Revenue by source
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2007
|
|
2006
|
|
% change
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
1,336
|
|
$
|
1,373
|
|
|
(3
|
)%
|
Supplies
|
|
|
393
|
|
|
340
|
|
|
16
|
%
|
Software
|
|
|
346
|
|
|
202
|
|
|
71
|
%
|
Rentals
|
|
|
739
|
|
|
785
|
|
|
(6
|
)%
|
Financing
|
|
|
790
|
|
|
725
|
|
|
9
|
%
|
Support services
|
|
|
761
|
|
|
717
|
|
|
6
|
%
|
Business services
|
|
|
1,765
|
|
|
1,588
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
6,130
|
|
$
|
5,730
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
sales revenue decreased 3% from the prior year, primarily due to lower sales of
mailing equipment in the U.S. and Europe, partially offset by favorable foreign
currency translation of 3%.
Supplies
revenue increased 16% from the prior year due to the continued transition of
our meter base to digital technology. Acquisitions and foreign currency
translation contributed 4% and 3% to this growth, respectively.
Software
revenue increased 71% from the prior year primarily driven by strong worldwide
demand for our software solutions, acquisitions which contributed 50%, and
currency translation which contributed 4%.
Rentals
revenue decreased 6% from the prior year due to the continued downsizing by
customers to smaller machines.
17
Financing
revenue increased 9% from the prior year primarily due to higher revenue from
payment solutions and equipment leases. Foreign currency translation accounted
for 2% of this growth.
Support
services revenue increased 6% from the prior year due primarily to
acquisitions, which contributed 2%, and foreign currency translation, which
contributed 3% to this growth.
Business
services revenue increased 11% over the prior year. This increase was driven by
strong growth in our presort and cross-border mail services. Acquisitions
contributed 5% and foreign currency translation contributed 1% to this growth.
Costs of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
697
|
|
$
|
694
|
|
|
52.2
|
%
|
|
50.5
|
%
|
Cost of supplies
|
|
$
|
107
|
|
$
|
90
|
|
|
27.1
|
%
|
|
26.5
|
%
|
Cost of software
|
|
$
|
82
|
|
$
|
43
|
|
|
23.7
|
%
|
|
21.3
|
%
|
Cost of rentals
|
|
$
|
171
|
|
$
|
171
|
|
|
23.2
|
%
|
|
21.8
|
%
|
Cost of support services
|
|
$
|
433
|
|
$
|
400
|
|
|
56.9
|
%
|
|
55.8
|
%
|
Cost of business services
|
|
$
|
1,381
|
|
$
|
1,242
|
|
|
78.2
|
%
|
|
78.2
|
%
|
Cost of
equipment sales as a percentage of revenue increased to 52.2% in 2007 compared
with 50.5% in the prior year, primarily due to the decrease in mix of higher
margin equipment sales in the U.S.
Cost of supplies
as a percentage of revenue increased to 27.1% in 2007 compared with 26.5% in
the prior year, primarily due to increased sales of private label toner, ink
and other supplies which have lower margins than our meter-related supplies.
Cost of
software as a percentage of revenue increased to 23.7% in 2007 compared with
21.3% in the prior year, primarily due to the acquisition of MapInfo.
Cost of
rentals as a percentage of revenue increased to 23.2% in 2007 compared with
21.8% in the prior year, primarily due to higher depreciation costs from
placements of new digital meters.
Cost of
support services as a percentage of revenue increased to 56.9% in 2007 compared
with 55.8% in the prior year, primarily due to an increase in mix of production
mail and international mailing revenue.
Cost of
business services as a percentage of revenue remained flat at 78.2%. Improving
margins in our presort and cross-border services were offset by lower margins
in our legal solutions business.
Selling, general and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,907
|
|
$
|
1,764
|
|
|
31.1
|
%
|
|
30.8
|
%
|
Selling,
general and administrative expenses, as a percentage of total revenue,
increased to 31.1% compared with 30.8% in the prior year. This increase was due
to the impact of acquisitions which offset the benefits from productivity
initiatives.
Research and
development expenses
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2007
|
|
2006
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
186
|
|
$
|
165
|
|
|
12
|
%
|
Research and
development expenses increased 12% over the prior year, primarily due to the
acquisition of MapInfo. Our investment in research and development reflects
higher expenses for software development and our continued focus on developing
new technologies and enhancing features for all of our different products.
18
Net interest expense
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2007
|
|
2006
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
242
|
|
$
|
213
|
|
|
14
|
%
|
Net interest
expense increased 14% in 2007 due to higher average interest rates and higher
average borrowings during the year. Also, in 2006 we had interest income on the
cash balance that resulted from the Capital Services divestiture. Our variable
and fixed rate debt mix, after adjusting for the effect of interest rate swaps,
was 19% and 81%, respectively, at December 31, 2007.
We do not
allocate interest costs to our business segments.
Income taxes /
effective tax rate
The effective
tax rate for continuing operations for 2007 included $54 million of tax charges
related principally to a valuation allowance for certain deferred tax assets
and tax rate changes outside the U.S. The effective tax rate for 2006 included
a $20 million charge related to the IRS settlement discussed in Note 9 to the
Consolidated Financial Statements.
Minority interest
(preferred stock dividends of subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2007
|
|
2006
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19
|
|
$
|
14
|
|
|
39
|
%
|
Minority
interest includes dividends paid to preferred stockholders in subsidiary
companies. Minority interest increased by $5 million compared with the prior
year, primarily due to an increase in the average outstanding preferred shares
and a higher weighted average dividend rate.
Discontinued
operations
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
81
|
|
Pretax income
|
|
$
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6
|
|
$
|
31
|
|
Gain on sale of Imagistics, net of $7 tax
expense
|
|
|
|
|
|
11
|
|
FSC tax law change
|
|
|
|
|
|
(16
|
)
|
Additional tax on IRS settlement
|
|
|
|
|
|
(41
|
)
|
Loss on sale of Capital Services, net of
$285 tax benefit
|
|
|
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
Total discontinued operations, net of tax
|
|
$
|
6
|
|
$
|
(460
|
)
|
|
|
|
|
|
|
|
|
Net income in
2007 includes a gain of $11.3 million from the conclusion of certain tax issues
net of an interest accrual for uncertain tax positions of $5.8 million. In
2006, we completed the sale of our Capital Services external financing business
and our Imagistics lease portfolio. See Note 2 to the Consolidated Financial
Statements for further discussion and details of discontinued operations.
Other (Income) Expense
In 2007 and
2006, we recorded pre-tax gains of approximately $3 million and $5 million,
respectively, related to a revised liability estimate associated with the
settlement of a previous lawsuit and net pre-tax charges of approximately $3
million in 2007 and $2 million in 2006 for other legal matters. These amounts
are included in other (income) expense in the Consolidated Statements of
Income.
19
Restructuring Charges and Asset Impairments
We recorded
pre-tax restructuring charges and asset impairments of $200.3 million and
$264.0 million for the years ended December 31, 2008 and 2007, respectively.
These charges primarily relate to a program we announced in November 2007 to
lower our cost structure, accelerate efforts to improve operational
efficiencies, and transition our product line. For the year ended December 31,
2008, the asset impairment charges included in restructuring activities relate
to older technology equipment of $28.5 million and other assets of $2.2
million. For the year ended December 31, 2007, the asset impairment charges
included in restructuring activities related to the write-off of inventory of
$48.1 million, rental assets of $61.5 million, lease residual values of $46.1
million and other assets of $8.8 million.
Additional
asset impairments, unrelated to restructuring, were also recorded in 2008 and
2007. For 2008, these other impairment charges are related to intangible assets
of $16.0 million principally due to a loss of a customer in our Marketing
Services business and the ongoing shift in market conditions for the litigation
support vertical in our Management Services business. For 2007, additional
asset impairment charges included the write-down of certain intangible assets
for $8.5 million.
Other exit
costs of $35.3 million and $5.8 million in 2008 and 2007, respectively, relate
primarily to lease termination fees, facility closing costs, contract
cancellation costs and outplacement costs.
As of December
31, 2008, 1,926 terminations have occurred under the restructuring program and
approximately 300 additional unfilled positions have been eliminated. The
majority of the liability at December 31, 2008 is expected to be paid by the
end of 2009 from cash generated from operations.
The pre-tax
restructuring charges and asset impairments are composed of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
Balance at
December 31, 2007
|
|
2008 Expense
|
|
Cash payments
|
|
Non-cash
Charges
|
|
Balance at
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefit costs
|
|
$
|
81
|
|
$
|
118
|
|
$
|
(91
|
)
|
$
|
|
|
$
|
108
|
|
Asset impairments
|
|
|
|
|
|
47
|
|
|
|
|
|
(47
|
)
|
|
|
|
Other exit costs
|
|
|
6
|
|
|
35
|
|
|
(8
|
)
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87
|
|
$
|
200
|
|
$
|
(99
|
)
|
$
|
(47
|
)
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
Balance at
December 31, 2006
|
|
2007 Expense
|
|
Cash payments
|
|
Non-cash
Charges
|
|
Balance at
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefit costs
|
|
$
|
|
|
$
|
85
|
|
$
|
(4
|
)
|
$
|
|
|
$
|
81
|
|
Asset
impairments
|
|
|
|
|
|
173
|
|
|
|
|
|
(173
|
)
|
|
|
|
Other exit
costs
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
264
|
|
$
|
(4
|
)
|
$
|
(173
|
)
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January
2003, we undertook restructuring initiatives related to realigned
infrastructure requirements and reduced manufacturing needs for digital
equipment. In connection with this plan, we recorded pre-tax restructuring
charges of $36 million for the year ended December 31, 2006. The program was
completed during 2006 and, therefore, there were no additional restructuring
charges related to this plan after December 31, 2006. We made restructuring
payments of $3 million, $29 million and $51 million during 2008, 2007 and 2006,
respectively. See Note 1 to the Consolidated Financial Statements for our
accounting policy related to restructuring charges and asset impairments.
Acquisitions
On April 21,
2008, we acquired Zipsort, Inc. for $39 million in cash, net of cash acquired.
Zipsort, Inc. acts as an intermediary between customers and the U.S. Postal
Service. Zipsort, Inc. offers mailing services that include presorting of first
class, standard class, flats, permit and international mail as well as metering
services. We assigned the goodwill to the Mail Services segment.
On September
12, 2007, we acquired Asterion SAS for $29 million in cash, net of cash
acquired. Asterion is a leading provider of outsourced transactional print and
document process services in France. We assigned the goodwill to the Management
Services segment.
On May 31,
2007, we acquired the remaining shares of Digital Cement, Inc. for a total
purchase price of $52 million in cash, net of cash acquired. Digital Cement,
Inc. provides marketing management strategy and services to help companies
acquire, retain, manage,
20
and grow their customer relationships. We assigned the
goodwill to the Marketing Services segment.
On April 19,
2007, we acquired MapInfo Corporation for $436 million in cash, net of cash
acquired. Included in the assets and liabilities acquired were short-term
investments of $46 million and debt assumed of $14 million. MapInfo is a global
company and a leading provider of location intelligence software and solutions.
We assigned the goodwill to the Software segment. As part of the purchase
accounting for MapInfo, we aligned MapInfos accounting policies for software
revenue recognition with ours. Accordingly, certain software revenue that was
previously recognized by MapInfo on a periodic basis has now been recognized
over the life of the contract.
We accounted
for these acquisitions using the purchase method of accounting and accordingly,
the operating results of these acquisitions have been included in our
consolidated financial statements since the date of acquisition. Acquisitions
made in 2008 did not materially impact our diluted earnings per share for the
year. As a result of the purchase accounting alignment, the acquisition of
MapInfo reduced our diluted earnings per share by 5 cents in 2007.
During 2008
and 2007, we also completed several smaller acquisitions, the costs of which
were $29.7 million and $86.6 million, respectively. These acquisitions did not
have a material impact on our financial results. See Note 3 to the Consolidated
Financial Statements for further details.
Liquidity and Capital Resources
We believe
that cash flow from operations, existing cash and liquid investments, as well
as borrowing capacity under our commercial paper program, the existing credit
facility and debt capital markets should be sufficient to finance our capital
requirements and to cover our customer deposits. Our potential uses of cash
include but are not limited to the following: growth and expansion
opportunities; internal investments; customer financing; tax payments; interest
and dividend payments; share repurchase program; pension and other benefit plan
funding; and acquisitions.
In light of
recent market events, we have conducted an extensive review of our liquidity
provisions. We have carefully monitored for material changes in the
creditworthiness of those banks acting as derivative counterparties, depository
banks or credit providers to us through credit ratings and the credit default
swap market. We have determined that there has not been a material variation in
the underlying sources of cash flows currently used to finance the operations
of the company. To date, we have had consistent access to the commercial paper
market.
Cash Flow Summary
The change in
cash and cash equivalents is as follows:
(Dollars in
millions)
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
990
|
|
$
|
1,060
|
|
Cash used in investing activities
|
|
|
(234
|
)
|
|
(726
|
)
|
Cash used in financing activities
|
|
|
(742
|
)
|
|
(204
|
)
|
Effect of exchange rate changes on cash
|
|
|
(15
|
)
|
|
8
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash
equivalents
|
|
$
|
(1
|
)
|
$
|
138
|
|
|
|
|
|
|
|
|
|
2008 Cash Flows
Net cash
provided by operations consisted primarily of net income adjusted for non-cash
items and changes in operating assets and liabilities. The strong cash flow
provided by operations for 2008 is
primarily due to the timing of tax payments, which favorably contributed $122
million, and the receipt of $44 million related to the unwind of an interest
rate swap, which is described in further detail in Note 8 to the Consolidated
Financial Statements. Partially offsetting these positive impacts was a
reduction in accounts payable and accrued liabilities of $77 million, primarily
due to timing of these payments.
Net cash used
in investing activities consisted of capital expenditures of $237 million
primarily for rental assets and acquisitions of $68 million partially offset by
proceeds from short-term and other investments of $36 million, and increased
reserve account balances for customer deposits of $33 million.
Net cash used
in financing activities was $742 million and consisted primarily of stock
repurchases of $333 million, dividends paid of $292 million, and a net payment
of debt of $125 million, which was partly offset by proceeds of $20 million
from the issuance of
21
common stock associated with employee stock plans. We also
paid $12 million associated with the redemption of 100% of the outstanding
Cumulative Preferred Stock issued previously by a subsidiary company.
2007 Cash Flows
Net cash
provided by operations consisted primarily of net income adjusted for non-cash
items and changes in operating assets and liabilities. The strong cash flow
provided by operations for 2007 is primarily driven by tax refunds and lower
tax payments, lower investment in finance receivables, and increased management
attention on working capital which resulted in lower accounts receivable,
inventory and accounts payable balances.
Net cash used
in investing activities consisted of acquisitions of $594 million and capital
expenditures of $265 million partially offset by proceeds from the sale of a
training facility for $30 million, proceeds from short-term investments of $42
million, and increased reserve account balances for customer deposits of $63
million.
Net cash used
in financing activities was $204 million and consisted primarily of stock
repurchases of $400 million and dividends paid of $289 million, primarily
offset by a net borrowing of debt of $377 million and proceeds from stock
issuance of $108 million.
Capital Expenditures
During 2008,
capital expenditures included net additions of $122.0 million to property,
plant and equipment and $115.3 million in net additions to rental equipment and
related inventories compared with $142.1 million and $122.6 million,
respectively, in 2007. The decrease in property, plant and equipment is due
mostly to the continuing shift toward leased equipment in our Management
Services segment.
Financings and
Capitalization
We have a
commercial paper program that is a significant source of liquidity for the
Company. During 2008, we have continued to have consistent access to the
commercial paper market. As of December 31, 2008, we had $610 million of
outstanding commercial paper issuances. We also have a committed line of credit
of $1.5 billion which supports commercial papers issuance and is provided by a
syndicate of 14 banks until 2011. As of December 31, 2008, this line of credit
had not been drawn down. In addition, we filed a Well-known Seasoned Issuer
registration statement with the SEC in June 2008 which permits the issuance of
debt securities, preferred stock, preference stock, common stock, purchase
contracts, depositary shares, warrants and units.
On March 4,
2008, we issued $250 million of 10 year fixed rate notes with a coupon rate of
5.60%. The interest is paid semi-annually beginning September 2008. The notes
mature on March 15, 2018. We simultaneously entered into two interest rate
swaps for a total notional amount of $250 million to convert the fixed rate debt
to a floating rate obligation bearing interest at 6 month LIBOR plus 111.5
basis points. The proceeds from these notes were used for general corporate
purposes, including the repayment of commercial paper and repurchase of our
stock.
In December
2007, we entered into a $150 million syndicated bank transaction priced at 3
month LIBOR plus 35 basis points. The proceeds from this credit facility, due
2012, were used to pay off the $150 million variable rate debt that was due in
2010.
In September
2007, we issued $500 million of unsecured fixed rate notes maturing in
September 2017. These notes bear interest at an annual rate of 5.75% and pay
interest semi-annually beginning in March 2008. The proceeds from these notes
were used for general corporate purposes, including the repayment of commercial
paper, the financing of acquisitions and repurchase of our stock.
We believe our
financing needs in the short and long-term can be met from cash generated
internally, borrowing capacity from existing credit agreements, available debt
issuances under existing shelf registration statements and our existing
commercial paper program. Information on debt maturities is presented in Note 8
to the Consolidated Financial Statements.
22
The following
summarizes our known contractual obligations at December 31, 2008 and
the effect that such obligations are expected to have on our liquidity and cash
flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Payments
due by period
|
|
|
|
|
|
(Dollars in millions)
|
|
Total
|
|
Less than
1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper borrowings
|
|
$
|
610
|
|
$
|
610
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term debt and current portion of
long-term debt
|
|
|
4,025
|
|
|
150
|
|
|
|
|
|
925
|
|
|
2,950
|
|
Non-cancelable operating lease obligations
|
|
|
267
|
|
|
81
|
|
|
107
|
|
|
54
|
|
|
25
|
|
Capital lease obligations
|
|
|
19
|
|
|
6
|
|
|
10
|
|
|
2
|
|
|
1
|
|
Purchase obligations (1)
|
|
|
367
|
|
|
283
|
|
|
60
|
|
|
20
|
|
|
4
|
|
Other non-current liabilities (2)
|
|
|
809
|
|
|
|
|
|
172
|
|
|
46
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,097
|
|
$
|
1,130
|
|
$
|
349
|
|
$
|
1,047
|
|
$
|
3,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchase
obligations include unrecorded agreements to purchase goods or services that
are enforceable and legally binding upon us and that specify all significant
terms, including: fixed or minimum quantities to be purchased; fixed, minimum
or variable price provisions; and the approximate timing of the transaction.
Purchase obligations exclude agreements that are cancelable without penalty.
|
|
|
(2)
|
Other
non-current liabilities relate primarily to our postretirement benefits. See
Note 13 to the Consolidated Financial Statements.
|
The amount and period of future payments related to our FIN 48 income
tax uncertainties cannot be reliably estimated and, therefore, is not included
in the above table. See Note 9 to the Consolidated Financial Statements for
further details.
Critical Accounting Estimates
We have
identified the policies below as critical to our business operations and to the
understanding of our results of operations. We have discussed the impact and
any associated risks on our results of operations related to these policies
throughout the MD&A. For a detailed discussion on the application of these
and other accounting policies, see Note 1 to the Consolidated Financial
Statements.
The
preparation of our financial statements in conformity with GAAP requires our
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenue
and expenses during the reporting period. These estimates include, but are not
limited to, customer cancellations, bad debts, inventory obsolescence, residual
values of leased assets, useful lives of long-lived assets and intangible
assets, warranty obligations, restructuring, pensions and other postretirement
benefits, contingencies and litigation, and allocation of purchase price to
tangible and intangible assets acquired in business combinations. Our actual
results could differ from those estimates and assumptions. We believe the
assumptions and estimates used are reasonable and appropriate in accordance
with GAAP.
Revenue recognition
Multiple element and internal financing
arrangements
We derive our
revenue from multiple sources including sales, rentals, financing and services.
Certain of our transactions are consummated at the same time and can therefore
generate revenue from multiple sources. The most common form of these
transactions involves a non-cancelable equipment lease, a meter rental and an
equipment maintenance agreement. As a result, we are required to determine
whether the deliverables in a multiple element arrangement should be treated as
separate units of accounting for revenue recognition purposes, and if so, how
the price should be allocated among the delivered elements and when to
recognize revenue for each element.
In multiple
element arrangements, we recognize revenue for each of the elements based on
their respective fair values in accordance with Emerging Issues Task Force
(EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables
.
We recognize revenue for delivered elements only when the fair values of
undelivered elements are known and uncertainties regarding customer acceptance
are resolved. Our allocation of the fair values to the various elements does
not change the total revenue recognized from a transaction, but impacts the
timing of revenue recognition. Revenue is allocated to the meter rental and
equipment maintenance agreement elements first using their respective fair
values, which are determined based on prices charged in standalone and renewal
transactions. Revenue is then allocated to the equipment based on the present
value of the remaining minimum lease payments. We then compare
23
the allocated
equipment fair value to the range of cash selling prices in standalone
transactions during the period to ensure the allocated equipment fair value
approximates average cash selling prices.
We provide
lease financing for our products primarily through sales-type leases. We
classify our leases in accordance with SFAS No. 13,
Accounting for Leases.
The
vast majority of our leases qualify as sales-type leases using the present
value of minimum lease payments classification criteria outlined in SFAS No.
13. We believe that our sales-type lease portfolio contains only normal
collection risk with no important uncertainties with respect to future costs.
Accordingly, we record the fair value of equipment as sales revenue, the cost
of equipment as cost of sales and the minimum lease payments plus the estimated
residual value as gross finance receivables. The difference between the gross
finance receivable and the equipment fair value is recorded as unearned income
and is amortized as income over the lease term using the interest rate implicit
in the lease.
Equipment
residual values are determined at inception of the lease using estimates of
equipment fair value at the end of the lease term. Estimates of future
equipment fair value are based primarily on our historical experience. We also
consider forecasted supply and demand for our various products, product
retirement and future product launch plans, end of lease customer behavior, regulatory
changes, remanufacturing strategies, used equipment markets, if any,
competition and technological changes. We evaluate residual values on an annual
basis or as changes to the above considerations occur. In 2007, we recorded an
impairment charge of $46 million related to the transition of our product line.
See Note 14 to the Consolidated Financial Statements for further details.
See Note 1 to
the Consolidated Financial Statements for our accounting policies on revenue
recognition.
Allowances for doubtful
accounts and credit losses
Allowance for doubtful accounts
We estimate
our accounts receivable risks and provide allowances for doubtful accounts
accordingly. We evaluate the adequacy of the allowance for doubtful accounts on
a periodic basis. Our evaluation includes historical loss experience, length of
time receivables are past due, adverse situations that may affect a customers
ability to repay and prevailing economic conditions. We make adjustments to our
allowance if our evaluation of allowance requirements differs from our actual
aggregate reserve. This evaluation is inherently subjective because our
estimates may be revised as more information becomes available. Based on
historical experience, we have not had any material revisions to our recorded
allowance for doubtful accounts.
Allowance for credit losses
We estimate
our finance receivables risks and provide allowances for credit losses
accordingly. We establish credit approval limits based on the credit quality of
our customers and the type of equipment financed. We charge finance receivables
to the allowance for credit losses after collection efforts are exhausted and
we deem the account uncollectible. We base credit decisions primarily on a
customers financial strength. We believe that our concentration of credit risk
for finance receivables in our internal financing division is limited because
of our large number of customers, small account balances and customer
geographic and industry diversification. Our general policy for finance receivables
contractually past due for over 120 days is to discontinue revenue recognition.
We resume revenue recognition when payments reduce the account to 60 days or
less past due.
We evaluate
the adequacy of allowance for credit losses on a periodic basis. Our evaluation
includes historical loss experience, the nature and volume of our portfolios,
adverse situations that may affect a customers ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. We make
adjustments to our allowance for credit losses if the evaluation of reserve
requirements differs from the actual aggregate reserve. This evaluation is
inherently subjective because our estimates may be revised as more information
becomes available.
Accounting
for income taxes
We are subject
to income taxes in the U.S. and numerous foreign jurisdictions. When we prepare
our consolidated financial statements, we are required to estimate our income
taxes in each of the jurisdictions in which we operate. We record this amount
as a provision for our taxes in accordance with SFAS No. 109,
Accounting
for Income Taxes
.
In June 2006,
the Financial Accounting Standards Board issued FASB Interpretation (FIN) No.
48,
Accounting
for Uncertainty in Income Taxes
(FIN 48), which supplements
Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes,
by
defining the confidence level that a tax position must meet in order to be
recognized in the financial statements. FIN 48 requires a two-step approach
under which the tax effect of a position is recognized only if it is
more-likely-than-not to be sustained and the amount of the tax benefit
recognized is equal to the largest tax benefit that is greater than 50 percent
likely of being realized upon ultimate settlement of the tax position. This is
a different standard for recognition than the approach previously required.
Both approaches require us to exercise considerable judgment and estimates are
inherent in both processes.
24
We regularly
assess the likelihood of tax adjustments in each of the tax jurisdictions in
which we operate and account for the related financial statement implications.
We have established tax reserves which we believe to be appropriate given the
possibility of tax adjustments. Determining the appropriate level of tax
reserves requires us to exercise judgment regarding the uncertain application
of tax law. We adjust the amount of reserves when information becomes available
or when an event occurs indicating a change in the reserve is appropriate.
Future changes in tax reserve requirements could have a material impact on our
results of operations.
Based on our
2008 income
from continuing operations before income taxes and minority interest, a 1%
change in our effective tax rate would impact income from continuing operations
by approximately $7 million.
Long-lived assets
Useful lives of long-lived assets
We depreciate
property, plant and equipment and rental property and equipment principally
using the straight-line method over estimated useful lives: machinery and
equipment principally 3 to 15 years and buildings up to 50 years. We depreciate
other depreciable assets using either the straight-line method or accelerated
methods. We amortize properties leased under capital leases on a straight-line
basis over the primary lease terms. We amortize capitalized costs related to
internally developed software using the straight-line method over the estimated
useful life, which is principally 3 to 10 years. Intangible assets with finite
lives are amortized over their estimated useful lives, which are principally 4
to 15 years. Our estimates of useful lives could be affected by changes in
regulatory provisions, technology or business plans.
Impairment review
We evaluate
the recoverability of our long-lived assets, including goodwill and intangible
assets, on an annual basis or as circumstances warrant. Our goodwill impairment
review requires judgment, including the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to
reporting units and determining the fair value of each reporting unit.
Significant judgments required to estimate the fair value of reporting units
include estimating future cash flows, determining appropriate discount rates
and other assumptions. We use internal discounted cash flow estimates, quoted
market prices when available and appraisals as appropriate to determine fair
value. We derive the cash flow estimates from our historical experience and our
future long-term business plans and apply an appropriate discount rate. When
available and as appropriate, we use comparative market multiples to
corroborate discounted cash flow results. Changes in these estimates and
assumptions could materially affect the determination of fair value and/or
goodwill impairment for each reporting unit.
See Note 14 to
the Consolidated Financial Statements for further details on our transition
initiatives and asset impairments recorded in 2008. We believe that we have no
unrecorded asset impairments at December 31, 2008. However, future events and
circumstances, some of which are described below, may result in an impairment
charge:
|
|
|
|
|
Changes in
postal regulations governing the types of meters allowable for use.
|
|
|
|
|
|
New
technological developments that provide significantly enhanced benefits over
current technology.
|
|
|
|
|
|
Significant
ongoing negative economic or industry trends.
|
|
|
|
|
|
Changes in
our business strategy that alters the expected usage of the related assets.
|
|
|
|
|
|
Future
economic results that are below our expectations used in the current
assessments.
|
Pension benefits
Assumptions and estimates
The valuation
and calculation of our net pension expense, assets and obligations are
dependent on various assumptions and estimates. We make assumptions relating to
discount rate, rate of compensation increase, expected return on plan assets
and other factors. These assumptions are evaluated and updated annually and are
described in further detail in Note 13 to the Consolidated Financial Statements.
The following assumptions relate to our U.S. qualified pension plan, which is
our largest plan. We determine our discount rate for the U.S. retirement
benefit plan by using a model that discounts each years estimated benefit
payments by an applicable spot rate. These spot rates are derived from a yield
curve created from a large number of high quality corporate bonds. Accordingly,
our discount rate assumption was 6.05% at December 31, 2008 and 6.15% at
December 31, 2007. The rate of compensation increase assumption reflects our
actual experience and best estimate of future increases. Our estimate of the
rate of compensation increase was 4.25% at December 31, 2008 and
4.5% at December 31, 2007. Our expected return on plan assets is determined
based on historical portfolio results, the plans asset mix and future
expectations of market rates of return on the types of assets in the plan. Our
expected return on plan assets assumption was 8.0% in 2008 and 8.5% at December
31, 2007.
25
Sensitivity to
changes in assumptions:
U.S. Pension Plan
|
|
|
|
|
Discount
rate a 0.25% increase in the discount rate would decrease annual pension
expense by approximately $2.8 million and would lower the projected benefit
obligation by $39.8 million.
|
|
|
|
|
|
Rate of
compensation increase a 0.25% increase in the rate of compensation increase
would increase annual pension expense by approximately $2.5 million.
|
|
|
|
|
|
Expected
return on plan assets a 0.25% increase in the expected return on assets of
our principal plans would decrease annual pension expense by approximately
$3.8 million.
|
The following
assumptions relate to our U.K. qualified pension plan, which is our largest
foreign plan. We determine our discount rate for the U.K. retirement benefit
plan by using a model that discounts each years estimated benefit payments by
an applicable spot rate. These spot rates are derived from a yield curve
created from a large number of high quality corporate bonds. Accordingly, our
discount rate assumption was 6.3% at December 31, 2008 and 5.8% at December 31,
2007. The rate of compensation increase assumption reflects our actual
experience and best estimate of future increases. Our estimate of the rate of
compensation increase was 4.3% at December 31, 2008 and 4.7% at December 31,
2007. Our expected return on plan assets is determined based on historical
portfolio results, the plans asset mix and future expectations of market rates
of return on the types of assets in the plan. Our expected return on plan
assets assumption was 7.25% in 2008 and 7.75% at December 31, 2007.
U.K. Pension Plan
|
|
|
|
|
Discount
rate a 0.25% increase in the discount rate would decrease annual pension
expense by approximately $2.0 million and would lower the projected benefit
obligation by $12.3 million.
|
|
|
|
|
|
Rate of
compensation increase a 0.25% increase in the rate of compensation increase
would increase annual pension expense by approximately $0.7 million.
|
|
|
|
|
|
Expected
return on plan assets a 0.25% increase in the expected return on assets of
our principal plans would decrease annual pension expense by approximately
$0.9 million.
|
Delayed
recognition principles
In accordance
with SFAS No. 87,
Employers Accounting for Pensions
, actual pension plan
results that differ from our assumptions and estimates are accumulated and
amortized over the estimated future working life of the plan participants and
will therefore affect pension expense recognized and obligations recorded in
future periods. We also base our net pension expense primarily on a market
related valuation of plan assets. In accordance with this approach, we
recognize differences between the actual and expected return on plan assets
primarily over a five-year period and as a result future pension expense will
be impacted when these previously deferred gains or losses are recorded. See
the new accounting pronouncements below for the effect of SFAS No. 158,
Employers
Accounting for Defined Pension and Other Post Retirement Plans an amendment of
FASB Statements No. 87, 88, 106 and 132(R)
.
Investment related risks and uncertainties
We invest our
pension plan assets in a variety of investment securities in accordance with
our strategic asset allocation policy. The composition of our U.S. pension plan
assets at December 31, 2008 was approximately 50% equity securities, 39% fixed
income securities, 7% real estate investments and 4% private equity
investments. The composition of our U.K. pension plan assets at December 31,
2008 was approximately 63% equity securities, 33% fixed income securities and
4% cash. Investment securities are exposed to various risks such as interest
rate, market and credit risks. In particular, due to the level of risk
associated with equity securities, it is reasonably possible that changes in
the values of such investment securities will occur and that such changes could
materially affect our future results.
New
Accounting Pronouncements
In June 2006,
the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which
supplements
Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes
, by defining the confidence
level that a tax position must meet in order to be recognized in the financial
statements. FIN 48 requires the tax effect of a position to be recognized only
if it is more-likely-than-not to be sustained based solely on its technical
merits as of the reporting date. If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical merits, no
benefits of the position are recognized. This is a different standard for
recognition than was previously required. The more-likely-than-not threshold
must continue to be met in each reporting period to support continued
recognition of a benefit. At adoption, companies adjusted their financial
statements to reflect only those tax positions that were more-likely-than-not
to be sustained as of the adoption date. Any necessary adjustment was recorded
directly to opening retained earnings in the period of adoption and reported as
a change in accounting principle. We adopted the provisions of FIN 48 on
January 1, 2007 which resulted in a decrease to opening retained earnings
of $84.4 million, with a corresponding increase in our tax liabilities.
26
In September
2006, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements
(SFAS
157), to define how the fair value of assets and liabilities should
be measured in accounting standards where it is allowed or required. In
addition to defining fair value, the Statement established a framework within
GAAP for measuring fair value and expanded required disclosures surrounding
fair value measurements. In February 2008, the FASB issued FASB Staff Position
(FSP). FAS 157-2,
Effective Date of FASB Statement No. 157,
which delayed the
effective date by one year for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. In October 2008, the FASB issued FSP
FAS 157-3
,
Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active.
This FSP is effective immediately and includes those
periods for which financial statements have not been issued. We adopted this
Statement for financial assets and financial liabilities on January 1, 2008,
and the adoption did not have a material impact on our financial position,
results of operations, or cash flows. We do not expect the adoption of this
Statement for nonfinancial items effective January 1, 2009 to have a material
impact on our financial position, results of operations, or cash flows. We
currently do not have any financial assets that are valued using inactive
markets, and as such are not impacted by the issuance of FSP 157-3. See Note 19
to the Consolidated Financial Statements for additional discussion on fair
value measurements.
In September
2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and
132(R)
(SFAS 158), which required recognition of the overfunded or
underfunded status of pension and other postretirement benefit plans on the
balance sheet. Under SFAS 158, gains and losses, prior service costs and
credits, and any remaining transition amounts under SFAS No. 87 and SFAS No.
106 that have not yet been recognized through net periodic benefit cost were
recognized in accumulated other comprehensive income, net of tax effects, until
they are amortized as a component of net periodic cost. Our adoption of the
provisions of SFAS 158 reduced stockholders equity by $297 million at December
31, 2006. SFAS 158 did not affect our results of operations or cash flows.
In December
2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R))
.
SFAS 141(R) establishes principles and requirements for how a company (a)
recognizes and measures in their financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest (previously
referred to as minority interest); (b) recognizes and measures the goodwill
acquired in a business combination or a gain from a bargain purchase; and (c)
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of a business
combination. SFAS 141(R) requires fair value measurements at the date of
acquisition, with limited exceptions specified in the Statement. Some of the major
impacts of this new standard include expense recognition for transaction costs
and restructuring costs. SFAS 141(R) is effective for fiscal years beginning on
or after December 15, 2008 and will be applied prospectively. We do not expect
the adoption of this Statement to have a material impact on our financial
position, results of operations, or cash flows.
In December
2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160
addresses the accounting and reporting for the outstanding noncontrolling
interest (previously referred to as minority interest) in a subsidiary and for
the deconsolidation of a subsidiary. It also establishes additional disclosures
in the consolidated financial statements that identify and distinguish between
the interests of the parents owners and of the noncontrolling owners of a
subsidiary. SFAS 160 requires changes in ownership interest that do not result
in deconsolidation to be accounted for as equity transactions. This Statement
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. This gain or loss is measured using the fair value of the
noncontrolling equity investment. This Statement is effective for fiscal years
beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption
of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS 160 are applied prospectively. We do
not expect the adoption of this Statement to have a material impact on our
financial position, results of operations, or cash flows.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities
(SFAS 161). SFAS 161 requires enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities,
and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
This Statement is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. This Statement
encourages, but does not require, comparative disclosures for earlier periods
at initial adoption. The adoption of this Statement will require us to present
currently disclosed information in a tabular format and will also expand our
disclosures concerning where derivatives are reported on the balance sheet and
where gains/losses are recognized in the results of operations. The Company
will comply with the disclosure requirements of this Statement beginning in the
first quarter of 2009.
In April 2008,
the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(
FSP FAS 142-3
).
FSP FAS 142-3 removed the requirement
of SFAS No. 142
, Goodwill and Other Intangible Assets
(SFAS 142)
,
for an entity to consider, when determining the useful life of an acquired
intangible asset, whether the intangible asset can be renewed without
substantial cost or material modification to the existing terms and conditions
associated with the intangible asset. FSP FAS 142-3 replaces the previous
useful life assessment criteria with a requirement that an entity considers its
own experience in renewing similar
27
arrangements.
If the entity has no relevant experience, it would consider market participant
assumptions regarding renewal. This should lead to greater consistency between
the useful life of recognized intangibles under SFAS 142 and the period of
expected cash flows used to measure fair value of such assets under SFAS No.
141(R),
Business
Combinations
. FSP FAS 142-3 will be applied prospectively beginning
January 1, 2009. We do not expect the adoption of this Statement to have a
material impact on our financial position, results of operations, or cash
flows.
In May 2008,
the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
(SFAS 162)
.
SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. SFAS 162 is effective for fiscal years
beginning after November 15, 2008. The adoption of this Statement did not
result in a change in current practice.
In September
2008, the FASB issued FSP FAS 133-1 and FASB Interpretation (FIN) No. 45-4,
Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161
. The FSP amends SFAS No. 133 to require a
seller of credit derivatives, including credit derivatives embedded in a hybrid
instrument, to provide certain disclosures for each statement of financial
position presented. These disclosures are required even if the likelihood of
having to make payments is remote. To make the disclosures consistent with the
disclosures that will now be required for credit derivatives, FIN No. 45-4 was
issued to require guarantors to disclose the current status of the
payment/performance risk of the guarantee. This FSP also clarifies that SFAS
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The FSP is effective for reporting
periods ending after November 15, 2008. The Company does not sell credit
derivatives. The Company has complied with the additional disclosure
requirement for guarantees in the fourth quarter of 2008.
In December
2008, the FASB issued FSP FAS 132(R)-1,
Employers Disclosures
about Postretirement Benefit Plan Assets
, which amends Statement No. 132(R) to require more detailed
disclosures about employers plan assets, including investment strategies,
major categories of assets, concentrations of risk within plan assets and
valuation techniques used to measure the fair value of assets. The FSP is
effective for fiscal years ending after December 15, 2009. The Company will
comply with the additional disclosure requirements.
Legal and Regulatory Matters
Legal
See Legal Proceedings in Item 3 of this Form 10-K for information
regarding our legal proceedings.
Income taxes
We regularly
assess the likelihood of tax adjustments in each of the tax jurisdictions in
which we have operations and account for the related financial statement
implications. Tax reserves have been established which we believe to be
appropriate given the possibility of tax adjustments. Determining the
appropriate level of tax reserves requires us to exercise judgment regarding
the uncertain application of tax law. The amount of reserves is adjusted when
information becomes available or when an event occurs indicating a change in
the reserves is appropriate. Future changes in tax reserve requirements could
have a material impact on our results of operations.
We are
continually under examination by tax authorities in the United States, other
countries and local jurisdictions in which we have operations. The years under
examination vary by jurisdiction. The current IRS exam of tax years 2001-2004
is estimated to be completed within the next two years. In connection with this
exam, we have recently received notices of proposed adjustments to our filed
returns. We have accrued our best estimate of the tax, interest and penalties
that may result from these proposed adjustments in accordance with FIN 48. We
are disputing a formal request from the IRS in the form of a civil summons to
provide certain company workpapers. We believe that certain documents being
sought should not be produced because they are privileged. In a similar case,
the U.S. Court of Appeals for the First Circuit ruled that certain company
workpapers were privileged, however, the case was remanded to the lower court
to consider other related issues. Also in connection with the 2001-2004 audits,
we have entered into a settlement with the IRS regarding the tax treatment of
certain lease transactions related to the Capital Services business that we
sold in 2006. Prior to 2007, we accrued and paid the IRS the additional tax and
interest associated with this settlement. A variety of post-1999 tax years
remain subject to examination by other tax authorities, including the U.K.,
Canada, France, Germany and various U.S. states. We have accrued our best
estimate of the tax, interest and penalties that may result from these tax
uncertainties in these and other jurisdictions in accordance with FIN 48.
However, the resolution of such matters could have a material impact on our
results of operations, financial position and cash flows.
In August
2006, we reached a settlement with the IRS governing all outstanding tax audit
issues in dispute for the tax years through 2000. Accordingly, in 2006 we
recorded $61 million of additional tax expense. Of the $61 million, $41 million
related to the Capital
28
Services
business and was included in discontinued operations and $20 million was
included in continuing operations. The federal statute of limitations for these
years has now expired. In 2006, we accrued in discontinued operations an
additional tax expense of $16.2 million to record the impact of the Tax
Increase Prevention and Reconciliation Act (TIPRA). The TIPRA legislation
repealed the exclusion from federal income taxation of a portion of the income
generated from certain leveraged leases of aircraft by foreign sales
corporations. See Note 2 to the Consolidated Financial Statements for further
discussion of the discontinued operations.
During 2009,
we expect to reverse tax benefits of approximately $11 to $13 million associated with
the expiration of vested stock options and the vesting of restricted stock
units previously granted to our employees. This write-off of deferred tax
assets will not increase the amount of tax to be paid.
Effects of Inflation and Foreign Exchange
Inflation,
although moderate in recent years, continues to affect worldwide economies and
the way companies operate. It increases labor costs and operating expenses, and
raises costs associated with replacement of fixed assets such as rental
equipment. Despite these growing costs and the USPS meter migration
initiatives, we have generally been able to maintain profit margins through
productivity and efficiency improvements, continual review of both
manufacturing capacity and operating expense levels, and, where applicable,
price increases.
Currency
translation increased our 2008 revenue by approximately 0.5%. Also, currency
translation gains increased our income before taxes by $2 million. Based on the
current contribution from our international operations, a 1% increase in the
value of the U.S. dollar would result in a decline in revenue of approximately
$19 million and a decline in income from continuing operations before income
taxes and minority interest of approximately $2 million.
Although not
affecting income, balance sheet related deferred translation losses of $305
million were recorded in 2008 resulting primarily from the strengthening U.S.
dollar as compared to the British pound, Euro and Canadian dollar. During 2007,
we recorded deferred translation gains of $165 million resulting primarily from
the stronger British pound, Euro and Canadian dollar, as compared to the U.S.
dollar. During 2006, we recorded deferred translation gains of $83 million
resulting primarily from the stronger British pound, Euro and Canadian dollar,
as compared to the U.S. dollar.
The results of
our international operations are subject to currency fluctuations. We enter
into foreign exchange contracts primarily to reduce our risk of loss from such
fluctuations. Exchange rates can also impact settlement of our intercompany
receivables and payables that result from transfers of finished goods
inventories between our affiliates in different countries, and intercompany
loans. See Note 19 to the Consolidated Financial Statements for further
details.
At December
31, 2008, we had $250 million of foreign exchange contracts outstanding, all
maturing in 2009, to buy or sell various currencies. As a result of the use of
derivative instruments, we are exposed to counterparty risk. To mitigate such
risks, we enter into contracts with only those financial institutions that meet
stringent credit requirements as set forth in our derivative policy. We
regularly review our credit exposure balances as well as the creditworthiness
of our counterparties. Maximum risk of loss on these contracts is limited to
the amount of the difference between the spot rate at the date of the contract
delivery and the contracted rate.
Dividends
It is a
general practice of our Board of Directors to pay a cash dividend on common
stock each quarter. In setting dividend payments, our board considers the
dividend rate in relation to our recent and projected earnings and our capital
investment opportunities and requirements. We have paid a dividend each year
since 1934.
29
Forward-Looking Statements
We want to
caution readers that any forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 in this Form 10-K, other reports or press releases or made
by our management involve risks and uncertainties which may change based on
various important factors. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. These forward-looking statements are those which
talk about our current expectations as to the future and include, but are not
limited to, statements about the amounts, timing and results of possible
restructuring charges and future earnings. Words such as estimate, project,
plan, believe, expect, anticipate, intend, and similar expressions
may identify such forward-looking statements. Some of the factors which could
cause future financial performance to differ materially from the expectations
as expressed in any forward-looking statement made by or on our behalf include:
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changes in
international or national political conditions, including any terrorist
attacks
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negative developments in economic conditions, including adverse
impacts on customer demand
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changes in
postal regulations
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timely
development and acceptance of new products
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success in
gaining product approval in new markets where regulatory approval is required
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successful
entry into new markets
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mailers
utilization of alternative means of communication or competitors products
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our success
at managing customer credit risk
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our success at managing costs associated with our
strategy of outsourcing functions and operations not central to our business
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changes in
interest rates
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foreign
currency fluctuations
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cost, timing
and execution of our transition plans including any potential asset
impairments
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regulatory
approvals and satisfaction of other conditions to consummation of any
acquisitions and integration of recent acquisitions
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interrupted
use of key information systems
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changes in
privacy laws
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intellectual
property infringement claims
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impact on
mail volume resulting from current concerns over the use of the mail for
transmitting harmful biological agents
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third-party
suppliers ability to provide product components, assemblies or inventories
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negative
income tax adjustments for prior audit years and changes in tax laws or
regulations
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changes in pension and retiree medical costs
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acts of nature
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I
TEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed
to the impact of interest rate changes and foreign currency fluctuations due to
our investing and funding activities and our operations denominated in
different foreign currencies.
We manage our
exposure to changes in interest rates by limiting its impact on earnings and
cash flows and lowering our overall borrowing costs. We use a balanced mix of
debt maturities and variable and fixed rate debt together with interest rate
swaps to execute our strategy.
Our objective
in managing our exposure to foreign currency fluctuations is to reduce the
volatility in earnings and cash flows associated with the effect of foreign
exchange rate changes on transactions that are denominated in foreign
currencies. Accordingly, we enter into various contracts, which change in value
as foreign exchange rates change, to protect the value of external and
intercompany transactions. The principal currencies actively hedged are the
British pound, Canadian dollar and Euro.
We employ
established policies and procedures governing the use of financial instruments
to manage our exposure to such risks. We do not enter into foreign currency or
interest rate transactions for speculative purposes. The gains and losses on
these contracts offset changes in the value of the related exposures.
We utilize a
Value-at-Risk (VaR) model to determine the maximum potential loss in fair
value from changes in market conditions. The VaR model utilizes a
variance/co-variance approach and assumes normal market conditions, a 95%
confidence level and a one-day holding period. The model includes all of our
debt and all interest rate and foreign exchange derivative contracts. The model
30
excludes
anticipated transactions, firm commitments, and receivables and accounts
payable denominated in foreign currencies, which certain of these instruments
are intended to hedge.
The VaR model
is a risk analysis tool and does not purport to represent actual losses in fair
value that will be incurred by us, nor does it consider the potential effect of
favorable changes in market factors.
During 2008
and 2007, our maximum potential one-day loss in fair value of our exposure to
foreign exchange rates and interest rates, using the variance/co-variance
technique described above, was not material.
I
TEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
See Index to
Consolidated Financial Statements and Supplemental Data on Page 38 of this Form 10-K.
I
TEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
I
TEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the
direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e)
or Rule 15a-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) and internal control over financial reporting. The CEO and CFO
concluded that such disclosure controls and procedures were effective as of
December 31, 2008, based on the evaluation of these controls and procedures
required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act.
In addition, no change in internal control over financial reporting occurred
during the year ended December 31, 2008, that has materially affected, or is
reasonably likely to materially affect, such internal control over financial
reporting. 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 of December 31, 2008.
Managements Report on Internal Control Over Financial Reporting
Management of
the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. The Companys internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with
internal control policies or procedures may deteriorate.
Management
assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in
Internal Control -
Integrated Framework
. Managements assessment included evaluating
the design of the Companys internal control over financial reporting and
testing of the operational effectiveness of the Companys internal control over
financial reporting. Based on our assessment, we concluded that, as of December
31, 2008, the Companys internal control over financial reporting was effective
based on the criteria issued by COSO in
Internal
Control Integrated Framework
.
PricewaterhouseCoopers
LLP, the independent accountants that audited the Companys financial
statements included in this Form 10-K, has issued an attestation report on the
Companys internal control over financial reporting, which report is included
on page 39 of this Form 10-K.
I
TEM 9B. OTHER INFORMATION
None.
31
P
ART III
I
TEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information pertaining to Directors of the Company and the Audit Committee of
the Board of Directors is incorporated herein by reference to the sections
entitled Compensation Committee Interlocks and Insider Participation,
Election of Directors, Security Ownership of Directors and Executive
Officers, Beneficial Ownership, Report of the Audit Committee and Corporate
Governance of the Definitive Proxy Statement to be filed with the Commission
pursuant to Regulation 14A in connection with the Companys 2009 Annual Meeting
of Stockholders, which is scheduled to be held on May 11, 2009. Such Definitive
Proxy Statement will be filed with the Commission not later than 120 days after
the conclusion of the Companys fiscal year ended December 31, 2008 and is
incorporated herein by reference. Executive officers of the Company are as
follows:
Executive Officers of the Registrant as of
February 26, 2009
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Name
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Age
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Title
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Executive
Officer Since
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Murray D. Martin
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61
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Chairman,
President and Chief Executive Officer
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1998
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Leslie Abi-Karam
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50
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Executive
Vice President and President, Mailing Solutions Management
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2005
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Gregory E. Buoncontri
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61
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Executive
Vice President and Chief Information Officer
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2000
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Elise R. DeBois
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53
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Executive
Vice President and President, Global Financial Services
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2005
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Vincent R.
De Palma
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51
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Executive
Vice President and President, Pitney Bowes Management Services
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2005
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David C.
Dobson
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46
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Executive
Vice President and Chief Strategy and Innovation Officer
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2008
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Patrick J.
Keddy
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54
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Executive Vice
President and President, Mailstream International
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2005
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Michael
Monahan
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48
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Executive
Vice President and Chief Financial Officer
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2005
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Vicki A.
OMeara
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51
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Executive
Vice President and Chief Legal and Compliance Officer
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2008
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Johnna G.
Torsone
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58
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Executive
Vice President and Chief Human Resources Officer
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1993
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There is no
family relationship among the above officers, all of whom have served in
various corporate, division or subsidiary positions with the Company for at
least the past five years except as described below:
Mr. De Palma
joined the Company in June 2005 as President, Pitney Bowes Management Services.
Prior to joining the Company, Mr. De Palma was with Automatic Data Processing
(ADP) where he was a Corporate Officer and served as President of ADP Benefit
Services. Mr. De Palma has also held senior management positions at Petroleum
Heat & Power Company and McKinsey & Company.
Mr. Dobson joined the Company in July 2008 as Executive Vice President
and Chief Strategy and Innovation Officer. Mr. Dobson previously
served as the Chief Executive Officer of Corel Corporation, a leading global
packaged software company, since June 2005. From February 2004 to June 2005,
Mr. Dobson served as Corporate Vice President, Strategy at IBM Corporation, a
leading developer and manufacturer of information technologies.
Ms. OMeara joined the Company in June 2008 as Executive Vice President
and Chief Legal and Compliance Officer. Prior to joining the Company, she was
President - U.S. Supply Chain Solutions for Ryder System, Inc., a leading
transportation and supply chain solutions company. Ms. OMeara joined Ryder
System, Inc. as Executive Vice President and General Counsel in June 1997.
I
TEM 11. EXECUTIVE
COMPENSATION
The sections
entitled Directors Compensation, Compensation Discussion and Analysis, and
Executive Compensation Tables and Related Narrative of the Pitney Bowes Inc.
Definitive Proxy Statement to be filed with the Commission on or before March
31, 2009 in connection with the Companys 2009 Annual Meeting of Stockholders
are incorporated herein by reference.
32
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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EQUITY COMPENSATION PLAN INFORMATION TABLE
The following
table provides information as of December 31, 2008 regarding the number of
shares of the Companys common stock that may be issued under the Companys
equity compensation plans.
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Plan
Category
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(a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
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(b)
Weighted-average
exercise
price of
outstanding
options,
warrants and
rights
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(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
excluding securities
reflected in column (a)
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Equity compensation plans approved by security
holders
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19,599,351
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$
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42.42
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14,677,468
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Equity compensation plans not approved by
security holders
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Total
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19,599,351
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$
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42.42
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14,677,468
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The sections
entitled How much stock is owned by directors and executive officers? and
Security Ownership of the Pitney Bowes Inc. Definitive Proxy Statement to be
filed with the Commission on or before March 31, 2009 in connection with the
Companys 2009 Annual Meeting of Stockholders are incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE
The sections entitled Corporate Governance and Certain Relationships
and Related-Person Transactions of the Pitney Bowes Inc. Definitive
Proxy Statement to be filed with the Commission on or before March 31, 2009 in
connection with the Companys 2009 Annual Meeting of Stockholders are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The section
entitled Principal Accountant Fees and Services of the Pitney Bowes Inc.
Definitive Proxy Statement to be filed with the Commission on or before March
31, 2009 in connection with the Companys 2009 Annual Meeting of Stockholders
is incorporated herein by reference.
33
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
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(a)
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1.
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Financial statements - see Item 8 on page 31 and Index
to Consolidated Financial Statements and Supplemental Data on page 38 of this Form 10-K.
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2.
|
Financial statement schedules - see Index to
Consolidated Financial Statements and Supplemental Data on page 38 of this Form 10-K.
|
|
|
|
|
3.
|
Exhibits (numbered in accordance with Item 601 of Regulation S-K).
|
|
|
|
|
|
Reg. S-K
exhibits
|
|
Description
|
|
Status or incorporation by
reference
|
|
(3)(a)
|
|
Restated
Certificate of Incorporation, as amended
|
|
Incorporated
by reference to Exhibit (3) to Form 10-Q as filed with the Commission on
August 14, 1996. (Commission file number 1-3579)
|
|
|
|
|
|
(a.1)
|
|
Certificate
of Amendment to the Restated Certificate of Incorporation (as amended May 29,
1996)
|
|
Incorporated
by reference to Exhibit (a.1) to Form 10-K as filed with the Commission on
March 27, 1998. (Commission file number 1-3579)
|
|
|
|
|
|
(b)
|
|
Pitney
Bowes Inc. Amended and Restated By-laws
|
|
Incorporated
by reference to Exhibit (3)(ii) to Form 10-Q as filed with the Commission on
August 6, 2007. (Commission file number 1-3579)
|
|
|
|
|
|
(4)(a)
|
|
Preference
Share Purchase Rights Agreement dated December 11, 1995 between the Company
and Chemical Mellon Shareholder Services, LLC, as Rights Agent, as amended
|
|
Incorporated
by reference to Exhibit (4) to Form 8-K as filed with the Commission on March
13, 1996. (Commission file number 1-3579)
|
|
|
|
|
|
(a.1)
|
|
Certificate
of amendment to the Preference Share Purchase Rights Agreement dated December
11, 1995 between the Company and Chemical Mellon Shareholder Services, LLC,
as Rights Agent, as amended December 8, 1998
|
|
Incorporated
by reference to Exhibit (4.4) to Form 8-A/A as filed with the Commission on
December 19, 2003. (Commission file number 1-3579)
|
|
|
|
|
|
(b)
|
|
Form
of Indenture between the Company and SunTrust Bank, as Trustee
|
|
Incorporated
by reference to Exhibit 4.4 to Registration Statement on Form S-3 (No.
333-72304) as filed with the Commission on October 26, 2001.
|
|
|
|
|
|
(c)
|
|
Supplemental
Indenture No. 1 dated April 18, 2003 between the Company and SunTrust Bank,
as Trustee
|
|
Incorporated
by reference to Exhibit 4.1 to Form 8-K as filed with the Commission on
August 18, 2004.
|
|
|
|
|
|
(d)
|
|
Form
of Indenture between the Company and Citibank, N.A., as Trustee, dated as of
February 14, 2005
|
|
Incorporated
by reference to Exhibit 4(a) to Registration Statement on Form S-3ASR (No.
333-151753) as filed with the Commission on June 18, 2008.
|
|
|
|
|
|
(e)
|
|
First
Supplemental Indenture, by and among Pitney Bowes Inc., The Bank of New York,
and Citibank, N.A., to the Indenture, dated as of February 14, 2005, by and
between the Company and Citibank
|
|
Incorporated
by reference to Exhibit 4.1 to Form 8-K as filed with the Commission on
October 24, 2007. (Commission file number 1-3579)
|
|
|
|
|
|
(f)
|
|
Pitney
Bowes Inc. Global Medium-Term Note (Fixed Rate), issue date March 7, 2008
|
|
Incorporated
by reference to Exhibit 4(d)(1) to Form 8-K as filed with the Commission on
March 7, 2008. (Commission file number 1-3579)
|
The Company has outstanding certain other long-term indebtedness. Such
long-term indebtedness does not exceed 10% of the total assets of the Company;
therefore, copies of instruments defining the rights of holders of such
indebtedness are not included as exhibits. The Company agrees to furnish copies
of such instruments to the SEC upon request.
|
|
|
|
|
Executive Compensation Plans
:
|
|
(10)(a)
|
|
Retirement
Plan for Directors of Pitney Bowes Inc.
|
|
Incorporated
by reference to Exhibit (10a) to Form 10-K as filed with the Commission on
March 30, 1993. (Commission
|
34
|
|
|
|
|
|
|
|
|
file number 1-3579)
|
|
|
|
|
|
(b)
|
|
Pitney
Bowes Inc. Directors Stock Plan (as amended and restated 1999)
|
|
Incorporated
by reference to Exhibit (i) to Form 10-K as filed with the Commission on
March 30, 2000. (Commission file number 1-3579)
|
|
|
|
|
|
(b.1)
|
|
Pitney
Bowes Inc. Directors Stock Plan (Amendment No. 1, effective as of May 12,
2003)
|
|
Incorporated
by reference to Exhibit (10) to Form 10-Q as filed with the Commission on
August 11, 2003. (Commission file number 1-3579)
|
|
|
|
|
|
(b.2)
|
|
Pitney
Bowes Inc. Directors Stock Plan (Amendment No. 2 effective as of May 1,
2007)
|
|
Incorporated
by reference to Exhibit (10.(b.2)) to Form 10-K as filed with the Commission
on March 1, 2007 (Commission file number 1-3579)
|
|
|
|
|
|
(c)
|
|
Pitney
Bowes 1991 Stock Plan (as amended and restated)
|
|
Incorporated
by reference to Exhibit (10) to Form 10-Q as filed with the Commission on May
14, 1998. (Commission file number 1-3579)
|
|
|
|
|
|
(c.1)
|
|
Pitney
Bowes 1998 Stock Plan (as amended and restated)
|
|
Incorporated
by reference to Exhibit (ii) to Form 10-K as filed with the Commission on
March 30, 2000. (Commission file number 1-3579)
|
|
|
|
|
|
(c.2)
|
|
Pitney
Bowes Stock Plan (as amended and restated as of January 1, 2002)
|
|
Incorporated
by reference to Annex 1 to the Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders filed with the Commission on March 26, 2002.
(Commission file number 1-3579)
|
|
|
|
|
|
(c.3)
|
|
Pitney
Bowes Inc. 2007 Stock Plan
|
|
Incorporated
by reference to Exhibit 10.1 to Form 10-Q as filed with the Commission on
August 6, 2007 (Commission file number 1-3579)
|
|
|
|
|
|
(d)
|
|
Pitney
Bowes Inc. Key Employees Incentive Plan (as amended and restated October 1,
2007)
|
|
Exhibit
(i)
|
|
|
|
|
|
(e)
|
|
Pitney
Bowes Severance Plan (as amended, and restated effective January 1, 2008)
|
|
Incorporated
by reference to Exhibit (10)(e) to Form 10-K as filed with the Commission on
February 29, 2008. (Commission file number 1-3579)
|
|
|
|
|
|
(f)
|
|
Pitney
Bowes Senior Executive Severance Policy (amended and restated as of January
1, 2008)
|
|
Incorporated
by reference to Exhibit (10)(f) to Form 10-K as filed with the Commission on
February 29, 2008. (Commission file number 1-3579)
|
|
|
|
|
|
(g)
|
|
Pitney
Bowes Inc. Deferred Incentive Savings Plan for the Board of Directors, as
amended and restated effective January 1, 2009
|
|
Exhibit
(ii)
|
|
|
|
|
|
(g.1)
|
|
Pitney
Bowes Inc. Deferred Incentive Savings Plan for the Board of Directors (as
amended and restated 1999)
|
|
Incorporated
by reference to Exhibit (iii) to Form 10-K as filed with the Commission on
March 30, 2000. (Commission file number 1-3579)
|
|
|
|
|
|
(h)
|
|
Pitney
Bowes Inc. Deferred Incentive Savings Plan as amended and restated effective
January 1, 2009
|
|
Exhibit
(iii)
|
|
|
|
|
|
(i)
|
|
Pitney
Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
|
|
Incorporated
by reference to Annex II to the Definitive Proxy Statement for the 2006
Annual Meeting of Stockholders filed with the Commission on March 23, 2006.
(Commission file number 1-3579)
|
|
|
|
|
|
(j)
|
|
Form
of Equity Compensation Grant Letter
|
|
Incorporated
by reference to Exhibit (10)(n) to Form 10-Q as filed with the Commission on
May 4, 2006. (Commission file number 1-3579)
|
|
|
|
|
|
(k)
|
|
Service
Agreement between Pitney Bowes Limited and Patrick S. Keddy dated January 29,
2003
|
|
Incorporated
by reference to Exhibit 10.2 to Form 8-K as filed with the Commission on
February 17, 2006. (Commission file number 1-3579)
|
|
|
|
|
|
(l)
|
|
Separation
Agreement and General Release dated April 14, 2008 by and between Pitney
Bowes Inc. and Bruce P. Nolop
|
|
Incorporated
by reference to Exhibit 10.1 to Form 8-K as filed with the Commission on
April 15, 2008. (Commission file number 1-3579)
|
35
|
|
|
|
|
Other
:
|
|
|
|
|
|
(m)
|
|
Amended
and Restated Credit Agreement dated May 19, 2006 between the Company and
JPMorgan Chase Bank, N.A., as Administrative Agent
|
|
Incorporated
by reference to Exhibit 10.1 to Form 8-K as filed with the Commission on May
24, 2006. (Commission file number 1-3579)
|
|
|
|
|
|
(12)
|
|
Computation
of ratio of earnings to fixed charges
|
|
Exhibit
(iv)
|
|
|
|
|
|
(21)
|
|
Subsidiaries
of the registrant
|
|
Exhibit
(v)
|
|
|
|
|
|
(23)
|
|
Consent
of experts and counsel
|
|
Exhibit
(vi)
|
|
|
|
|
|
(31.1)
|
|
Certification
of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as amended.
|
|
See
page 143
|
|
|
|
|
|
(31.2)
|
|
Certification
of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as amended.
|
|
See
page 144
|
|
|
|
|
|
(32.1)
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
See
page 145
|
|
|
|
|
|
(32.2)
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
See
page 146
|
36
SIGNATURES
Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
Date: February 26, 2009
|
|
PITNEY BOWES INC.
|
|
|
|
|
|
Registrant
|
|
|
|
|
|
By:
|
/s/ Murray D. Martin
|
|
|
|
|
|
|
|
Murray D. Martin
|
|
Chairman, President and Chief
Executive Officer
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/ Murray D. Martin
|
|
Chairman, President and Chief Executive Officer Director
|
|
February 26, 2009
|
|
|
|
|
|
Murray D. Martin
|
|
|
|
|
|
|
|
|
|
/s/ Michael Monahan
|
|
Executive Vice President and Chief Financial Officer
|
|
February 26, 2009
|
|
|
(Principal
Financial Officer)
|
|
|
Michael Monahan
|
|
|
|
|
|
|
|
|
|
/s/ Steven J. Green
|
|
Vice PresidentFinance and Chief Accounting Officer
|
|
February 26, 2009
|
|
|
(Principal
Accounting Officer)
|
|
|
Steven J. Green
|
|
|
|
|
|
|
|
|
|
/s/ Rodney C. Adkins
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Rodney C. Adkins
|
|
|
|
|
|
|
|
|
|
/s/ Linda G. Alvarado
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Linda G. Alvarado
|
|
|
|
|
|
|
|
|
|
/s/ Anne M. Busquet
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Anne M. Busquet
|
|
|
|
|
|
|
|
|
|
/s/ Anne Sutherland Fuchs
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Anne Sutherland Fuchs
|
|
|
|
|
|
|
|
|
|
/s/ Ernie Green
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Ernie Green
|
|
|
|
|
|
|
|
|
|
/s/ James H. Keyes
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
James H. Keyes
|
|
|
|
|
|
|
|
|
|
/s/ John S. McFarlane
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
John S. McFarlane
|
|
|
|
|
|
|
|
|
|
/s/ Eduardo R. Menascé
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Eduardo R. Menascé
|
|
|
|
|
|
|
|
|
|
/s/ Michael I. Roth
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Michael I. Roth
|
|
|
|
|
|
|
|
|
|
/s/ David L. Shedlarz
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
David L. Shedlarz
|
|
|
|
|
|
|
|
|
|
/s/ David B. Snow, Jr.
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
David B. Snow, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Robert E. Weissman
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
Robert E.
Weissman
|
|
|
|
|
37
PITNEY BOWES
INC.
I
NDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
38
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Stockholders and Board of Directors of Pitney Bowes Inc.
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Pitney
Bowes Inc. and its subsidiaries at December 31, 2008 and 2007, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys management is responsible for these financial statements and
financial statement schedule, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements
Report on Internal Control over Financial Reporting. Our responsibility is to
express opinions on these financial statements, on the financial statement
schedule, and on the Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
As discussed
in Note 1 to the consolidated financial statements, the Company changed the
manner in which it accounts for defined benefit pension and other
postretirement plans effective December 31, 2006 and the manner in which it
accounts for uncertainty in income taxes in 2007.
A companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Stamford, Connecticut
February 26, 2009
39
|
PITNEY BOWES INC.
|
CONSOLIDATED STAT
EMENTS OF
INCOME
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
1,252,058
|
|
$
|
1,335,538
|
|
$
|
1,372,566
|
|
Supplies
|
|
|
392,414
|
|
|
393,478
|
|
|
339,594
|
|
Software
|
|
|
424,296
|
|
|
346,020
|
|
|
202,415
|
|
Rentals
|
|
|
728,160
|
|
|
739,130
|
|
|
785,068
|
|
Financing
|
|
|
772,711
|
|
|
790,121
|
|
|
725,131
|
|
Support services
|
|
|
768,424
|
|
|
760,915
|
|
|
716,556
|
|
Business services
|
|
|
1,924,242
|
|
|
1,764,593
|
|
|
1,588,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
6,262,305
|
|
|
6,129,795
|
|
|
5,730,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
|
663,430
|
|
|
696,900
|
|
|
693,535
|
|
Cost of supplies
|
|
|
103,870
|
|
|
106,702
|
|
|
90,035
|
|
Cost of software
|
|
|
101,357
|
|
|
82,097
|
|
|
42,951
|
|
Cost of rentals
|
|
|
153,831
|
|
|
171,191
|
|
|
171,491
|
|
Cost of support services
|
|
|
447,745
|
|
|
433,324
|
|
|
400,089
|
|
Cost of business services
|
|
|
1,508,098
|
|
|
1,380,541
|
|
|
1,242,226
|
|
Selling, general and administrative
|
|
|
1,948,473
|
|
|
1,907,160
|
|
|
1,764,260
|
|
Research and development
|
|
|
205,620
|
|
|
185,665
|
|
|
165,368
|
|
Restructuring charges and asset impairments
|
|
|
200,254
|
|
|
264,013
|
|
|
35,999
|
|
Interest expense
|
|
|
229,343
|
|
|
250,540
|
|
|
228,418
|
|
Interest income
|
|
|
(12,893
|
)
|
|
(8,669
|
)
|
|
(15,822
|
)
|
Other income
|
|
|
|
|
|
(380
|
)
|
|
(3,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
5,549,128
|
|
|
5,469,084
|
|
|
4,815,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes and minority interest
|
|
|
713,177
|
|
|
660,711
|
|
|
914,490
|
|
Provision for income taxes
|
|
|
244,929
|
|
|
280,222
|
|
|
335,004
|
|
Minority interest (preferred stock
dividends of subsidiaries)
|
|
|
20,755
|
|
|
19,242
|
|
|
13,827
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
447,493
|
|
|
361,247
|
|
|
565,659
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations,
net of income tax
|
|
|
(27,700
|
)
|
|
5,534
|
|
|
(460,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
419,793
|
|
$
|
366,781
|
|
$
|
105,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock:
(1)
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.15
|
|
$
|
1.65
|
|
$
|
2.54
|
|
Discontinued operations
|
|
|
(0.13
|
)
|
|
0.03
|
|
|
(2.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.01
|
|
$
|
1.68
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.13
|
|
$
|
1.63
|
|
$
|
2.51
|
|
Discontinued operations
|
|
|
(0.13
|
)
|
|
0.03
|
|
|
(2.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.00
|
|
$
|
1.66
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The sum of earnings per
share amounts may not equal the totals above due to rounding.
See Notes to
Consolidated Financial Statements
40
|
PITNEY BOWES INC.
|
CONSOLIDATED BALANCE SHEETS
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
376,671
|
|
$
|
377,176
|
|
Short-term
investments
|
|
|
21,551
|
|
|
63,279
|
|
|
Accounts
receivables, gross
|
|
|
864,931
|
|
|
890,396
|
|
Allowance
for doubtful accounts receivables
|
|
|
(45,264
|
)
|
|
(49,324
|
)
|
|
|
|
|
|
|
|
|
Accounts
receivables, net
|
|
|
819,667
|
|
|
841,072
|
|
|
Finance
receivables
|
|
|
1,501,678
|
|
|
1,544,345
|
|
Allowance
for credit losses
|
|
|
(45,932
|
)
|
|
(45,859
|
)
|
|
|
|
|
|
|
|
|
Finance
receivables, net
|
|
|
1,455,746
|
|
|
1,498,486
|
|
|
Inventories
|
|
|
161,321
|
|
|
197,962
|
|
Current
income taxes
|
|
|
59,594
|
|
|
83,227
|
|
Other
current assets and prepayments
|
|
|
138,063
|
|
|
174,199
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,032,613
|
|
|
3,235,401
|
|
Property,
plant and equipment, net
|
|
|
574,260
|
|
|
627,918
|
|
Rental
property and equipment, net
|
|
|
397,949
|
|
|
435,927
|
|
|
|
|
|
|
|
|
|
Finance
receivables
|
|
|
1,445,822
|
|
|
1,566,285
|
|
Allowance
for credit losses
|
|
|
(25,858
|
)
|
|
(32,512
|
)
|
|
|
|
|
|
|
|
|
Finance
receivables, net
|
|
|
1,419,964
|
|
|
1,533,773
|
|
|
Investment
in leveraged leases
|
|
|
201,921
|
|
|
249,191
|
|
Goodwill
|
|
|
2,251,830
|
|
|
2,299,858
|
|
Intangible
assets, net
|
|
|
375,822
|
|
|
457,188
|
|
Non-current
income taxes
|
|
|
64,387
|
|
|
28,098
|
|
Other
assets
|
|
|
417,685
|
|
|
598,377
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,736,431
|
|
$
|
9,465,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,922,399
|
|
$
|
1,965,567
|
|
Current
income taxes
|
|
|
108,662
|
|
|
96,851
|
|
Notes
payable and current portion of long-term obligations
|
|
|
770,501
|
|
|
953,767
|
|
Advance
billings
|
|
|
441,556
|
|
|
456,042
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,243,118
|
|
|
3,472,227
|
|
|
|
|
|
|
|
|
|
Deferred
taxes on income
|
|
|
254,353
|
|
|
455,374
|
|
FIN
48 uncertainties and other income tax liabilities
|
|
|
294,487
|
|
|
285,505
|
|
Long-term
debt
|
|
|
3,934,865
|
|
|
3,802,075
|
|
Other
non-current liabilities
|
|
|
823,322
|
|
|
406,216
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
8,550,145
|
|
|
8,421,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stockholders equity in subsidiaries
|
|
|
374,165
|
|
|
384,165
|
|
Commitments and contingencies (see Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit)
equity:
|
|
|
|
|
|
|
|
Cumulative
preferred stock, $50 par value, 4% convertible
|
|
|
7
|
|
|
7
|
|
Cumulative
preference stock, no par value, $2.12 convertible
|
|
|
976
|
|
|
1,003
|
|
Common
stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares
issued)
|
|
|
323,338
|
|
|
323,338
|
|
Additional
paid-in capital
|
|
|
259,306
|
|
|
252,185
|
|
Retained
earnings
|
|
|
4,278,804
|
|
|
4,150,622
|
|
Accumulated
other comprehensive (loss) income
|
|
|
(596,341
|
)
|
|
88,656
|
|
Treasury
stock, at cost (117,156,719 and 108,822,953 shares, respectively)
|
|
|
(4,453,969
|
)
|
|
(4,155,642
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders (deficit) equity
|
|
|
(187,879
|
)
|
|
660,169
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders
(deficit) equity
|
|
$
|
8,736,431
|
|
$
|
9,465,731
|
|
|
|
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements
41
|
PITNEY BOWES INC.
|
CONSOLIDATED STA
TEMENTS OF
CASH FLOWS
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
419,793
|
|
$
|
366,781
|
|
$
|
105,347
|
|
Gain on sale of a facility, net of tax
|
|
|
|
|
|
(1,623
|
)
|
|
|
|
Net gain on sale of businesses, net of tax
|
|
|
|
|
|
|
|
|
434,085
|
|
Non-cash expense from FSC tax law change
|
|
|
|
|
|
|
|
|
16,209
|
|
Non-cash expense related to IRS settlement
and sale of a business
|
|
|
|
|
|
|
|
|
61,000
|
|
Tax and bond payments related to IRS
settlement and Capital Services sale
|
|
|
|
|
|
|
|
|
(1,040,700
|
)
|
Restructuring charges, net of tax
|
|
|
144,211
|
|
|
223,486
|
|
|
23,040
|
|
Restructuring payments
|
|
|
(102,680
|
)
|
|
(31,568
|
)
|
|
(51,566
|
)
|
Gain on interest rate swap
|
|
|
43,991
|
|
|
|
|
|
|
|
Loss on redemption of preferred stock
issued by a subsidiary
|
|
|
1,777
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
379,117
|
|
|
383,141
|
|
|
363,258
|
|
Stock-based compensation
|
|
|
26,402
|
|
|
24,131
|
|
|
27,375
|
|
Changes in operating assets and
liabilities, excluding effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivables
|
|
|
(20,366
|
)
|
|
35,853
|
|
|
(46,623
|
)
|
(Increase) decrease in finance receivables
|
|
|
24,387
|
|
|
(86,238
|
)
|
|
(236,872
|
)
|
(Increase) decrease in inventories
|
|
|
2,018
|
|
|
7,710
|
|
|
(142
|
)
|
(Increase) decrease in prepaid, deferred
expense and other assets
|
|
|
2,677
|
|
|
(7,793
|
)
|
|
170
|
|
Increase (decrease) in accounts payable and
accrued liabilities
|
|
|
(76,880
|
)
|
|
32,789
|
|
|
42,231
|
|
Increase (decrease) in current and
non-current income taxes
|
|
|
122,480
|
|
|
123,636
|
|
|
52,784
|
|
Increase (decrease) in advance billings
|
|
|
2,051
|
|
|
10,444
|
|
|
(17,559
|
)
|
Increase (decrease) in other operating
capital, net
|
|
|
21,459
|
|
|
(20,284
|
)
|
|
(18,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities
|
|
|
990,437
|
|
|
1,060,465
|
|
|
(286,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Short-term and other investments
|
|
|
35,652
|
|
|
42,367
|
|
|
(1,295
|
)
|
Proceeds from the sale of facilities
|
|
|
|
|
|
29,608
|
|
|
|
|
Capital expenditures
|
|
|
(237,308
|
)
|
|
(264,656
|
)
|
|
(327,877
|
)
|
Net investment in external financing
|
|
|
1,868
|
|
|
(2,214
|
)
|
|
109,050
|
|
Proceeds from divestiture of businesses
|
|
|
|
|
|
|
|
|
1,003,062
|
|
Advance against COLI cash surrender value
|
|
|
|
|
|
|
|
|
138,381
|
|
Acquisitions, net of cash acquired
|
|
|
(67,689
|
)
|
|
(594,110
|
)
|
|
(230,628
|
)
|
Reserve account deposits
|
|
|
33,359
|
|
|
62,666
|
|
|
28,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities
|
|
|
(234,118
|
)
|
|
(726,339
|
)
|
|
719,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in notes payable, net
|
|
|
205,590
|
|
|
(89,673
|
)
|
|
(26,790
|
)
|
Proceeds from long-term obligations
|
|
|
245,582
|
|
|
640,765
|
|
|
493,285
|
|
Principal payments on long-term obligations
|
|
|
(576,565
|
)
|
|
(174,191
|
)
|
|
(396,755
|
)
|
Proceeds from issuance of common stock
|
|
|
20,154
|
|
|
107,517
|
|
|
101,449
|
|
Proceeds from issuance of preferred stock
in a subsidiary
|
|
|
|
|
|
|
|
|
74,165
|
|
Payments to redeem preferred stock issued
by a subsidiary
|
|
|
(11,777
|
)
|
|
|
|
|
|
|
Stock repurchases
|
|
|
(333,231
|
)
|
|
(399,996
|
)
|
|
(400,000
|
)
|
Dividends paid
|
|
|
(291,611
|
)
|
|
(288,790
|
)
|
|
(285,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(741,858
|
)
|
|
(204,368
|
)
|
|
(439,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents
|
|
|
(14,966
|
)
|
|
8,316
|
|
|
2,391
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash
equivalents
|
|
|
(505
|
)
|
|
138,074
|
|
|
(4,407
|
)
|
Cash and cash equivalents at beginning of
year
|
|
|
377,176
|
|
|
239,102
|
|
|
243,509
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
376,671
|
|
$
|
377,176
|
|
$
|
239,102
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$
|
235,816
|
|
$
|
236,697
|
|
$
|
225,837
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash income taxes paid, net
|
|
$
|
164,354
|
|
$
|
178,469
|
|
$
|
1,315,437
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements
42
|
PITNEY BOWES INC.
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
(DEFICIT) EQUITY
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
Preference
stock
|
|
Common
stock
|
|
Additional paid-in capital
|
|
Comprehensive
(loss) income
|
|
Retained
earnings
|
|
Accumulated other comprehensive (loss) income
|
|
Treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$
|
17
|
|
$
|
1,158
|
|
$
|
323,338
|
|
$
|
222,908
|
|
|
|
|
$
|
4,324,451
|
|
$
|
76,917
|
|
$
|
(3,584,540
|
)
|
Deferred tax adjustment (see Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,341,317
|
|
|
|
|
|
|
|
Adjustment to initially apply SAB 108, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,618
|
)
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,347
|
|
|
105,347
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,183
|
|
|
|
|
|
83,183
|
|
|
|
|
Net unrealized loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
(20
|
)
|
|
|
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,405
|
|
|
|
|
|
5,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297,229
|
)
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
Preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,965
|
)
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(11,575
|
)
|
|
|
|
|
|
|
|
|
|
|
113,142
|
|
Conversions to common stock
|
|
|
(10
|
)
|
|
(90
|
)
|
|
|
|
|
(2,132
|
)
|
|
|
|
|
|
|
|
|
|
|
2,232
|
|
Pre-tax stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
27,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to additional paid in capital, tax effect from
share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
7
|
|
|
1,068
|
|
|
323,338
|
|
|
235,558
|
|
|
|
|
|
4,156,994
|
|
|
(131,744
|
)
|
|
(3,869,166
|
)
|
Initial adjustment for FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,363
|
)
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
366,781
|
|
|
366,781
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,728
|
|
|
|
|
|
164,728
|
|
|
|
|
Net unrealized gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,801
|
|
|
|
|
|
2,801
|
|
|
|
|
Net unrealized gain on on investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352
|
|
|
|
|
|
352
|
|
|
|
|
Net unamortized gain on pension and postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,347
|
|
|
|
|
|
30,347
|
|
|
|
|
Amortization of pension and postretirement costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,172
|
|
|
|
|
|
22,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
587,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(288,709
|
)
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(7,967
|
)
|
|
|
|
|
|
|
|
|
|
|
111,925
|
|
Conversions to common stock
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
(1,530
|
)
|
|
|
|
|
|
|
|
|
|
|
1,595
|
|
Pre-tax stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to additional paid in capital, tax effect from
share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(399,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
7
|
|
|
1,003
|
|
|
323,338
|
|
|
252,185
|
|
|
|
|
|
4,150,622
|
|
|
88,656
|
|
|
(4,155,642
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
419,793
|
|
|
419,793
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,452
|
)
|
|
|
|
|
(305,452
|
)
|
|
|
|
Net unrealized loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,670
|
)
|
|
|
|
|
(18,670
|
)
|
|
|
|
Net unrealized gain on on investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580
|
|
|
|
|
|
580
|
|
|
|
|
Net unamortized loss on pension and postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(375,544
|
)
|
|
|
|
|
(375,544
|
)
|
|
|
|
Amortization of pension and postretirement costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,089
|
|
|
|
|
|
14,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(265,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(291,534
|
)
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(11,573
|
)
|
|
|
|
|
|
|
|
|
|
|
34,268
|
|
Conversions to common stock
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
(609
|
)
|
|
|
|
|
|
|
|
|
|
|
636
|
|
Pre-tax stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
26,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to additional paid in capital, tax effect from
share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
(7,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
7
|
|
$
|
976
|
|
$
|
323,338
|
|
$
|
259,306
|
|
|
|
|
$
|
4,278,804
|
|
$
|
(596,341
|
)
|
$
|
(4,453,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares of 0.9 million,
3.0 million and 3.0 million were issued under employee plans in 2008, 2007 and
2006, respectively. We repurchased 9.2 million, 9.1 million and 9.2 million
shares in 2008, 2007 and 2006, respectively.
See Notes to Consolidated Financial Statements
43
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
1. Description of Business and Summary of
Significant Accounting Policies
Description of Business
We are a
provider of global, integrated mail and document management solutions for
organizations of all sizes. We operate in two business groups: Mailstream
Solutions and Mailstream Services. We operate both inside and outside the
United States. See Note 18 to the Consolidated Financial Statements for
financial information concerning revenue, earnings before interest and taxes
(EBIT) and identifiable assets, by reportable segment and geographic area.
Basis of Presentation and Consolidation
We have
prepared the Consolidated Financial Statements of the Company in conformity
with accounting principles generally accepted in the United States of America
(GAAP). Operating results of acquired companies are included in the
Consolidated Financial Statements from the date of acquisition. Intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates
The
preparation of the Consolidated Financial Statements in conformity with GAAP
requires us to make estimates and assumptions that affect the amounts of
assets, liabilities, revenues and expenses that are reported in the
Consolidated Financial Statements and accompanying disclosures, including the
disclosure of contingent assets and liabilities. These estimates are based on
our best knowledge of current events, historical experience, actions that we
may undertake in the future, and on various other assumptions that are believed
to be reasonable under the circumstances. As a result, actual results could
differ from those estimates and assumptions.
Reclassification
Certain prior
year amounts in the Consolidated Financial Statements have been reclassified to
conform to the current year presentation.
Cash Equivalents and Short-Term Investments
Cash
equivalents include short-term, highly liquid investments with maturities of
three months or less at the date of acquisition. We place our temporary cash
and highly liquid short-term investments with a maturity of greater than three
months but less than one year from the reporting date with financial
institutions or investment managers and/or invest in highly rated short-term
obligations.
Accounts Receivable and Allowance for
Doubtful Accounts
We estimate
our accounts receivable risks and provide allowances for doubtful accounts
accordingly. We believe that our credit risk for accounts receivable is limited
because of our large number of customers and the relatively small account
balances for most of our customers. Also, our customers are dispersed across
different business and geographic areas. We evaluate the adequacy of the allowance
for doubtful accounts on a periodic basis. The evaluation includes historical
loss experience, length of time receivables are past due, adverse situations
that may affect a customers ability to repay and prevailing economic
conditions. We make adjustments to our allowance if the evaluation of allowance
requirements differs from the actual aggregate reserve. This evaluation is
inherently subjective and estimates may be revised as more information becomes
available.
Finance Receivables and Allowance for Credit
Losses
We estimate
our finance receivables risks and provide allowances for credit losses
accordingly. Our financial services businesses establish credit approval limits
based on the credit quality of the customer and the type of equipment financed.
We charge finance receivables through the allowance for credit losses after
collection efforts are exhausted and we deem the account uncollectible. Our
financial services businesses base credit decisions primarily on a customers
financial strength and we may also consider collateral values. We believe that
our concentration of credit risk for finance receivables in our internal
financing division is limited because of our large number of customers, small
account balances and customer geographic and industry diversification.
Our general
policy for finance receivables contractually past due for over 120 days is to
discontinue revenue recognition. We resume revenue recognition when payments
reduce the account to 60 days or less past due.
We evaluate
the adequacy of allowance for credit losses on a periodic basis. Our evaluation
includes historical loss experience, the nature and volume of its portfolios,
adverse situations that may affect a customers ability to repay, and
prevailing economic conditions. We make adjustments to our allowance for credit
losses if the evaluation of reserve requirements differs from the actual
aggregate reserve. This evaluation is inherently subjective and estimates may
be revised as more information becomes available.
44
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined on the last-in,
first-out (LIFO) basis for most U.S. inventories, and on the first-in,
first-out (FIFO) basis for most non-U.S. inventories.
Other Current Assets and Prepayments
Other current
assets and prepayments include postage meter receivables billed in
advance of $60.0 million and $57.0 million, respectively, at December 31, 2008
and 2007.
Fixed Assets and Depreciation
Property,
plant and equipment and rental equipment are stated at cost and depreciated
principally using the straight-line method over their estimated useful lives.
The estimated useful lives of depreciable fixed assets are as follows:
buildings, up to 50 years; plant and equipment, 3 to 15 years; and computer
equipment, 3 to 5 years. Major improvements which add to productive capacity or
extend the life of an asset are capitalized while repairs and maintenance are
charged to expense as incurred. Leasehold improvements are amortized over the
shorter of the estimated useful life or their related lease term.
Fully
depreciated assets are retained in fixed assets and accumulated depreciation
until they are removed from service. In the case of disposals, assets and
related accumulated depreciation are removed from the accounts, and the net
amounts, less proceeds from disposal, are included in income.
Capitalized Software Development Costs
We capitalize
certain costs of software developed for internal use in accordance with
Statement of Position No. 98-1,
Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use
.
Capitalized costs include purchased materials and services, payroll and
payroll-related costs and interest costs. The cost of internally developed
software is amortized on a straight-line basis over its estimated useful life,
principally 3 to 10 years.
We capitalize
software development costs related to software to be sold, leased, or otherwise
marketed in accordance with Statement of Financial Accounting Standards (SFAS)
No. 86,
Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed.
Software
development costs are expensed as incurred until technological feasibility has
been established, at which time such costs are capitalized until the product is
available for general release to the public. Capitalized software development
costs include purchased materials and services, payroll and payroll-related
costs attributable to programmers, software engineers, quality control and
field certifiers, and interest costs. Capitalized software development costs
are amortized over the estimated product useful life, principally 3 to 5 years,
using the greater of the straight-line method or the ratio of current product
revenues to total projected future revenues. Other assets on our Consolidated
Balance Sheets include $19.6 million and $21.6 million of capitalized software
development costs at December 31, 2008 and 2007, respectively. The Consolidated
Statements of Income include the related amortization expense of $6.1 million,
$3.9 million, and $1.6 million for the years ended December 31, 2008, 2007, and
2006, respectively. Total software development costs capitalized in 2008 and
2007 were $7.1 million and $10.1 million, respectively.
Research and Development Costs
Research and
product development costs not subject to SFAS No. 86 are expensed as incurred.
These costs primarily include personnel related costs.
Business Combinations
We account for
business combinations using the purchase method of accounting which requires
that the assets acquired and liabilities assumed be recorded at the date of
acquisition at their respective fair values. Goodwill represents the excess of
the purchase price over the estimated fair values of net tangible and
intangible assets acquired in business combinations. Goodwill is tested for
impairment on an annual basis or as circumstances warrant. We estimate the fair
value of intangible assets primarily using a cost, market and income approach.
Intangible assets with finite lives acquired under business combinations are
amortized over their estimated useful lives, principally 3 to 15 years.
Customer relationship intangibles are generally amortized using an accelerated
attrition method. All other intangibles are amortized on a straight-line
method. See Note 6 to the Consolidated Financial Statements.
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
Impairment Review for Long-Lived Assets
Long-lived
assets are reviewed for impairment on an annual basis or whenever events or
changes in circumstances indicate that the carrying amount may not be fully
recoverable. If such a change in circumstances occurs, the related estimated
future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition are compared to the carrying amount. If the sum of the
expected cash flows is less than the carrying amount, we record an impairment
charge. The impairment charge is measured as the amount by which the carrying
amount exceeds the fair value of the asset. The fair values of impaired
long-lived assets are determined using probability weighted expected cash flow
estimates, quoted market prices when available and appraisals as appropriate in
accordance with SFAS No. 144,
Accounting for
the Impairment or Disposal of Long-Lived Assets
. See Note 14 to the
Consolidated Financial Statements for further details.
Retirement Plans
In accordance
with SFAS No. 87,
Employers Accounting for
Pensions,
and SFAS No. 106,
Employers
Accounting for Postretirement Benefits Other Than Pensions
, actual
results that differ from our assumptions and estimates are accumulated and
amortized over the estimated future working life of the plan participants and
will therefore affect pension expense recognized in future periods. Net pension
expense is based primarily on current service costs, interest costs and the
returns on plan assets. In accordance with this approach, differences between
the actual and expected return on plan assets are recognized over a five-year
period. In accordance with SFAS No. 158,
Employers
Accounting for Defined Pension and Other Post Retirement Plans an amendment to
FASB Statements No. 87, 88, 106 and 132(R)
, we recognize the
overfunded or underfunded status of pension and other postretirement benefit
plans on the balance sheet. Under SFAS No. 158, gains and losses, prior service
costs and credits, and any remaining transition amounts under SFAS No. 87 and
SFAS No. 106 that have not yet been recognized in net periodic benefit costs
are recognized in accumulated other comprehensive income, net of tax, until
they are amortized as a component of net periodic benefit cost. We use a measurement date of December 31
for all of our retirement plans. See Note 13 to the Consolidated Financial
Statements for further details.
Stock-based Compensation
Effective
January 1, 2006, we adopted the provisions of SFAS No. 123(R),
Share-Based Payment
(SFAS
123(R)) which
established accounting for stock-based awards exchanged for employee service.
We measure stock-based compensation cost at grant date, based on the estimated
fair value of the award, and recognize the cost as expense on a straight-line
basis (net of estimated forfeitures) over the employee requisite service
period. We estimate the fair value of stock options using a Black-Scholes
valuation model. The expense is recorded in costs; selling, general and
administrative expense; and research and development expense in the
Consolidated Statements of Income based on the employees respective functions.
We record
deferred tax assets for awards that will result in deductions on our income tax
returns, based on the amount of compensation cost recognized and our statutory
tax rate in the jurisdiction in which we will receive a deduction. Differences
between the deferred tax assets recognized for financial reporting purposes and
the actual tax deduction reported in our income tax return are recorded in
expense or in capital in excess of par value (if the tax deduction exceeds the
deferred tax asset or to the extent that previously recognized credits to
paid-in-capital are still available if the tax deduction is less than the
deferred tax asset).
Revenue Recognition
We derive our
revenue from the following sources:
|
|
|
equipment
sales;
|
|
|
|
supplies;
|
|
|
|
software;
|
|
|
|
rentals;
|
|
|
|
financing;
|
|
|
|
support services; and
|
|
|
|
business services.
|
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
In accordance
with GAAP, the Company recognizes revenue from these sources as follows:
Sales Revenue
Sales of Equipment
We sell
equipment to our customers, as well as to distributors and dealers (re-sellers)
throughout the world. We recognize revenue from these sales upon the transfer
of title, which is generally at the point of shipment. We do not offer any
rights of return or stock balancing rights.
Our sales
revenue from customized equipment, mail creation equipment and shipping
products is generally recognized when installed.
Embedded Software Sales
We sell
equipment with embedded software to our customers. The embedded software is not
sold separately, it is not a significant focus of the marketing effort and we
do not provide post-contract customer support specific to the software or incur
significant costs that are within the scope of SFAS No. 86. Additionally, the
functionality that the software provides is marketed as part of the overall
product. The software embedded in the equipment is incidental to the equipment
as a whole such that SOP No. 97-2,
Software
Revenue Recognition
, is not applicable. Sales of these products are
recognized in accordance with either SEC Staff Accounting Bulletin (SAB) No.
104,
Revenue Recognition,
or SFAS
No. 13,
Accounting for Leases
,
for sales-type leases.
Sales of Supplies
Revenue
related to supplies is recognized at the point of title transfer, which is upon
shipment.
Standalone Software Sales and Integration
Services
In accordance
with SOP No. 97-2, we recognize revenue from standalone software licenses upon
delivery of the product when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed and determinable and collectibility is
probable. For software licenses that are included in a lease contract, we
recognize revenue upon shipment of the software unless the lease contract specifies
that the license expires at the end of the lease or the price of the software
is deemed not fixed or determinable based on historical evidence of similar
software leases. In these instances, revenue is recognized on a straight-line
basis over the term of the lease contract. We recognize revenue from software
requiring integration services at the point of customer acceptance. We
recognize revenue related to off-the-shelf perpetual software licenses upon
transfer of title, which is upon shipment.
Rentals Revenue
We rent
equipment to our customers, primarily postage meters and mailing equipment,
under short-term rental agreements, generally for periods of 3 months to 5
years. Rental revenue includes revenue from the subscription for digital meter
services. We invoice in advance for postage meter rentals. We defer the billed
revenue and include it initially in advance billings. Rental revenue is
recognized on a straight-line basis over the term of the rental agreement. We
defer certain initial direct costs incurred in consummating a transaction and
amortize these costs over the term of the agreement. The initial direct costs
are primarily personnel related costs. Other assets on our Consolidated Balance
Sheets include $47.2 million and $57.1 million of these deferred costs at
December 31, 2008 and 2007, respectively. The Consolidated Statements of Income
include the related amortization expense of $24.9 million, $23.7 million and
$22.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.
Financing Revenue
We provide
lease financing of our products primarily through sales-type leases. When a
sales-type lease is consummated, we record the gross finance receivable,
unearned income and the estimated residual value of the leased equipment. Residual
values are estimated based upon the average expected proceeds to be received at
the end of the lease term. We evaluate recorded residual values at least on an
annual basis or as circumstances warrant. A reduction in estimated residual
values could require an impairment charge as well as a reduction in future
financing income.
Unearned
income represents the excess of the gross finance receivable plus the estimated
residual value over the sales price of the equipment. We recognize the
equipment sale at the inception of the lease. We recognize unearned income as
financing revenue using the interest method over the lease term.
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
We provide
financing to our customers for the purchase of postage and related supplies.
Financing revenue includes interest which is earned over the term of the loan
and related fees which are recognized as services are provided.
Support Services Revenue
We provide
support services for our equipment primarily through maintenance contracts.
Revenue related to these agreements is recognized on a straight-line basis over
the term of the agreement, which typically is 1 to 5 years in length.
Business Services Revenue
Business
services revenue includes revenue from management services, mail services, and
marketing services. Management services, which includes outsourcing of
mailrooms, copy centers, or other document management functions, are typically
1 to 5 year contracts that contain a monthly service fee and in many cases a
click charge based on the number of copies made, machines in use, etc.
Revenue is recognized over the term of the agreement, based on monthly service
charges, with the exception of the click charges, which are recognized as
earned. Mail services include the preparation, sortation and aggregation of
mail to earn postal discounts and expedite delivery and revenue is recognized as the services are provided. Marketing services include
direct mail marketing services, and revenue is recognized over the term of the
agreement as the services are provided.
Multiple Element Arrangements
Certain of our
transactions are consummated at the same time. The most common form of these
transactions involves the sale or lease of equipment, a meter rental and/or an
equipment maintenance agreement. In these cases, revenue is recognized for each
of the elements based on their relative fair values in accordance with SFAS No.
13, Emerging Issues Task Force (EITF) No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables,
and
SAB No. 104. Fair values of any meter rental or equipment maintenance agreement
are determined by reference to the prices charged in standalone and renewal
transactions. Fair value of equipment is determined based upon the present value
of the minimum lease payments.
Deferred Marketing Costs
We capitalize
certain direct mail, telemarketing, Internet, and retail marketing costs,
associated with the acquisition of new customers in accordance with SOP No.
93-7,
Reporting on Advertising Costs
.
These costs are amortized over the expected revenue stream ranging from 5 to 9
years. We review individual marketing programs for impairment on a periodic
basis or as circumstances warrant.
Other assets
on our Consolidated Balance Sheets at December 31, 2008 and 2007 include $130.8
million and $135.7 million, respectively, of deferred marketing costs. The
Consolidated Statements of Income include the related amortization expense of
$43.1 million, $43.7 million and $49.6 million for the years ended December 31,
2008, 2007 and 2006, respectively.
Restructuring Charges
We apply the
provisions of SFAS No. 146,
Accounting for
Costs Associated with Exit or Disposal Activities
, to account for
one-time benefit arrangements and exit or disposal activities. SFAS No. 146
requires that a liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. We account for ongoing
benefit arrangements under SFAS No. 112,
Employers
Accounting for Postemployment Benefits
, which requires that a
liability be recognized when the costs are probable and reasonably estimable.
See Note 14 to the Consolidated Financial Statements.
Income Taxes
We recognize
deferred tax assets and liabilities for the future tax consequences attributable
to differences between the financial statements carrying amounts of existing
assets and liabilities and their respective tax bases. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred
tax asset will not be realized. The ultimate realization of deferred tax assets
depends on the generation of future taxable income during the period in which
related temporary differences become deductible. We consider the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in this assessment. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date of
such change.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
Earnings per Share
Basic earnings
per share is based on the weighted average number of common shares outstanding
during the year, whereas diluted earnings per share also gives effect to all
dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares include preference stock, preferred stock,
stock option and purchase plan shares.
Translation of Non-U.S. Currency Amounts
Assets and
liabilities of subsidiaries operating outside the U.S. are translated at rates
in effect at the end of the period and revenue and expenses are translated at
average monthly rates during the period. Net deferred translation gains and
losses are included in accumulated other comprehensive income in stockholders
(deficit) equity in the Consolidated Balance Sheets.
Derivative Instruments
In the normal
course of business, the company is exposed to the impact of interest rate
changes and foreign currency fluctuations. The company limits these risks by
following established risk management policies and procedures, including the
use of derivatives. The derivatives are used to manage the related cost of debt
and to limit the effects of foreign exchange rate fluctuations on financial
results.
In our hedging
program, we normally use forward contracts, interest-rate swaps, and currency
swaps depending upon the underlying exposure. We do not use derivatives for
trading or speculative purposes. Changes in the fair value of the derivatives
are reflected as gains or losses. The accounting for the gains or losses
depends on the intended use of the derivative, the resulting designation, and
the effectiveness of the instrument in offsetting the risk exposure it is
designed to hedge.
To qualify as
a hedge, a derivative must be highly effective in offsetting the risk
designated for hedging purposes. The hedge relationship must be formally
documented at inception, detailing the particular risk management objective and
strategy for the hedge. The effectiveness of the hedge relationship is
evaluated on a retrospective and prospective basis.
As a result of
the use of derivative instruments, we are exposed to counterparty risk. To
mitigate such risks, we enter into contracts with only those financial
institutions that meet stringent credit requirements as set forth in our
derivative policy. We regularly review our credit exposure balances as well as
the creditworthiness of our counterparties. See Note 19 to the Consolidated
Financial Statements for additional disclosures on derivative instruments.
New Accounting Pronouncements
In June 2006,
the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) No. 48,
Accounting for Uncertainty in Income Taxes
(FIN
48), which
supplements Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes
, by defining
the confidence level that a tax position must meet in order to be recognized in
the financial statements. FIN 48 requires the tax effect of a position to be
recognized only if it is more-likely-than-not to be sustained based solely on
its technical merits as of the reporting date. If a tax position is not
considered more-likely-than-not to be sustained based solely on its technical
merits, no benefits of the position are recognized. This is a different
standard for recognition than was previously required. The more-likely-than-not
threshold must continue to be met in each reporting period to support continued
recognition of a benefit. At adoption, companies adjusted their financial
statements to reflect only those tax positions that were more-likely-than-not
to be sustained as of the adoption date. Any necessary adjustment was recorded
directly to opening retained earnings in the period of adoption and reported as
a change in accounting principle. We adopted the provisions of FIN 48 on
January 1, 2007 which resulted in
a decrease to opening retained earnings of $84.4 million, with a corresponding
increase in our tax liabilities.
In September
2006, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements
(SFAS
157)
,
to define how the fair value of assets
and liabilities should be measured in accounting standards where it is allowed
or required. In addition to defining fair value, the Statement established a
framework within GAAP for measuring fair value and expanded required
disclosures surrounding fair value measurements. In February 2008, the FASB
issued FASB Staff Position (FSP) FAS 157-2,
Effective
Date of FASB Statement No. 157,
which delayed the effective date by
one year for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on
a recurring basis. In October 2008, the FASB issued FSP FAS 157-3
, Determining
the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active.
This FSP is effective
immediately and includes those periods for which financial statements have not
been issued. We adopted this Statement for financial assets and financial
liabilities on January 1, 2008, and the adoption did not have a material impact
on our financial position, results of operations, or cash flows. We do not
expect the adoption of this Statement for nonfinancial items effective January
1, 2009 to have a material impact on our financial position, results of
operations, or cash flows. We currently do not have any financial assets that
are valued using inactive markets, and as such are not
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
impacted by
the issuance of FSP 157-3. See Note 19 to the Consolidated Financial Statements
for additional discussion on fair value measurements.
In September
2006, the FASB issued SFAS No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans an
amendment of FASB Statements No. 87, 88, 106 and 132(R)
(SFAS
158), which required recognition of the overfunded or underfunded status of
pension and other postretirement benefit plans on the balance sheet. Under SFAS
158, gains and losses, prior service costs and credits, and any remaining
transition amounts under SFAS No. 87 and SFAS No. 106 that have not yet been
recognized through net periodic benefit cost were recognized in accumulated
other comprehensive income, net of tax effects, until they are amortized as a
component of net periodic cost. Our adoption of the provisions of SFAS 158
reduced stockholders equity by $297 million at December 31, 2006. SFAS 158 did
not affect our results of operations or cash flows.
In December
2007, the FASB issued SFAS No. 141(R),
Business
Combinations
(SFAS 141(R))
.
SFAS 141(R) establishes principles and requirements for how a company (a)
recognizes and measures in their financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest (previously
referred to as minority interest); (b) recognizes and measures the goodwill
acquired in a business combination or a gain from a bargain purchase; and (c)
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of a business
combination. SFAS 141(R) requires fair value measurements at the date of acquisition,
with limited exceptions specified in the Statement. Some of the major impacts
of this new standard include expense recognition for transaction costs and
restructuring costs. SFAS 141(R) is effective for fiscal years beginning on or
after December 15, 2008 and will be applied prospectively. We do not expect the
adoption of this Statement to have a material impact on our financial position,
results of operations, or cash flows.
In December
2007, the FASB issued SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 addresses the accounting and reporting for the
outstanding noncontrolling interest (previously referred to as minority
interest) in a subsidiary and for the deconsolidation of a subsidiary. It also
establishes additional disclosures in the consolidated financial statements
that identify and distinguish between the interests of the parents owners and
of the noncontrolling owners of a subsidiary. SFAS 160 requires changes in
ownership interest that do not result in deconsolidation to be accounted for as
equity transactions. This Statement requires that a parent recognize a gain or
loss in net income when a subsidiary is deconsolidated. This gain or loss is
measured using the fair value of the noncontrolling equity investment. This
Statement is effective for fiscal years beginning on or after December 15,
2008. SFAS 160 requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other requirements of SFAS
160 are applied prospectively. We do not expect the adoption of this Statement
to have a material impact on our financial position, results of operations, or
cash flows.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures
about Derivative Instruments and Hedging Activities
(SFAS 161).
SFAS 161 requires enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities,
and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
This Statement is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. This Statement
encourages, but does not require, comparative disclosures for earlier periods
at initial adoption. The adoption of this Statement will require us to present
currently disclosed information in a tabular format and will also expand our
disclosures concerning where derivatives are reported on the balance sheet and
where gains/losses are recognized in the results of operations. The Company
will comply with the disclosure requirements of this Statement beginning in the
first quarter of 2009.
In April 2008,
the FASB issued FASB FSP No. 142-3,
Determination
of the Useful Life of Intangible Assets (
FSP FAS 142-3
).
FSP FAS 142-3 removed the
requirement
of SFAS No. 142
, Goodwill and Other
Intangible Assets
(SFAS 142)
,
for an entity to consider, when determining the useful life of an acquired
intangible asset, whether the intangible asset can be renewed without
substantial cost or material modification to the existing terms and conditions
associated with the intangible asset. FSP FAS 142-3 replaces the previous
useful life assessment criteria with a requirement that an entity considers its
own experience in renewing similar arrangements. If the entity has no relevant
experience, it would consider market participant assumptions regarding renewal.
This should lead to greater consistency between the useful life of recognized
intangibles under SFAS 142 and the period of expected cash flows used to
measure fair value of such assets under SFAS No. 141(R),
Business Combinations
. FSP FAS 142-3 will
be applied prospectively beginning January 1, 2009. We do not expect the
adoption of this Statement to have a material impact on our financial position,
results of operations, or cash flows.
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
In May 2008,
the FASB issued SFAS No. 162,
The Hierarchy
of Generally Accepted Accounting Principles
(SFAS 162)
.
SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. SFAS 162 is effective for fiscal years
beginning after November 15, 2008. The adoption of this Statement did not
result in a change in current practice.
In September
2008, the FASB issued FSP FAS 133-1 and FASB Interpretation (FIN) No. 45-4,
Disclosures about Credit
Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.
45; and Clarification of the Effective Date of FASB Statement No. 161
.
The FSP amends SFAS No. 133 to require a seller of credit derivatives,
including credit derivatives embedded in a hybrid instrument, to provide
certain disclosures for each statement of financial position presented. These
disclosures are required even if the likelihood of having to make payments is
remote. To make the disclosures consistent with the disclosures that will now
be required for credit derivatives, FIN No. 45-4 was issued to require
guarantors to disclose the current status of the payment/performance risk of
the guarantee. This FSP also clarifies that SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The FSP is effective for reporting periods ending after November 15,
2008. The Company does not sell credit derivatives. The Company has complied
with the additional disclosure requirement for guarantees in the fourth quarter
of 2008.
In December
2008, the FASB issued FSP FAS 132(R)-1,
Employers
Disclosures about Postretirement Benefit Plan Assets
, which amends
Statement No. 132(R) to require more detailed disclosures about employers plan
assets, including investment strategies, major categories of assets,
concentrations of risk within plan assets and valuation techniques used to
measure the fair value of assets. The FSP is effective for fiscal years ending
after December 15, 2009. The Company will comply with the additional disclosure
requirements.
2. Discontinued
Operations
On May 1,
2006, we completed the sale of our Imagistics lease portfolio to De Lage Landen
Operational Services, LLC, a subsidiary of Rabobank Group, for approximately
$288 million. Net proceeds on the sale were approximately $282 million after
transaction expenses. We reported the results of the Imagistics lease portfolio
in discontinued operations including an after-tax gain of approximately $11
million from the sale of this portfolio.
On July 14,
2006, we completed the sale of our Capital Services external financing business
to Cerberus Capital Management, L.P. (Cerberus) for approximately $747 million
and the assumption of approximately $470 million of non-recourse debt and other
liabilities. This sale resulted in the disposition of most of the external
financing activity in the Capital Services segment. The proceeds received at
closing were used to pay our tax obligations. We reported the results of the
Capital Services business in discontinued operations, including an after-tax
loss of $445 million from the sale of this business. We retained certain
leveraged leases in Canada which are included in our International Mailing
segment.
In August
2006, we reached a settlement with the Internal Revenue Service (IRS) on all
outstanding tax audit issues in dispute for tax years through 2000. Years after
2000 are still under review by the IRS. In connection with the settlement, we
recorded $61 million of additional tax expense of which $41 million was
included in discontinued operations. See Note 9 for further discussion of the
IRS settlement.
In 2006, we
accrued in discontinued operations an additional tax expense of $16 million to
record the impact of the Tax Increase Prevention and Reconciliation Act
(TIPRA). The TIPRA legislation repealed the exclusion from federal income
taxation of a portion of the income generated from certain leveraged leases of
aircraft by foreign sales corporations (FSC).
In December
2006, we sold our bankruptcy claim related to certain aircraft leases with
Delta Airlines. We received proceeds of $14.5 million, which represent a
contingent gain pending the bankruptcy court decision. Given the continued
uncertainty and inability to anticipate the outcome of the bankruptcy court
decision, we have not recognized any portion of this contingent gain in our
consolidated income statement.
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share
data)
The following
table shows selected financial information included in discontinued operations
for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
81,199
|
|
Pretax income
|
|
$
|
|
|
$
|
|
|
$
|
29,465
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income
|
|
$
|
(27,700
|
)
|
$
|
5,534
|
|
$
|
30,982
|
|
Gain on sale of Imagistics, net
of $7,075
tax expense
|
|
|
|
|
|
|
|
|
11,065
|
|
FSC tax law change
|
|
|
|
|
|
|
|
|
(16,209
|
)
|
Additional tax on IRS
settlement
|
|
|
|
|
|
|
|
|
(41,000
|
)
|
Loss on sale of Capital
Services, net of
$284,605 tax benefit
|
|
|
|
|
|
|
|
|
(445,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations,
net of tax
|
|
$
|
(27,700
|
)
|
$
|
5,534
|
|
$
|
(460,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The $27.7
million loss from discontinued operations in 2008 includes an accrual of tax
and interest on uncertain tax positions. The income in 2007 includes a gain of
$11.3 million from uncertain tax positions, net of the accrual of interest
expense of $5.8 million on uncertain tax positions.
Interest
expense included in discontinued operations was $19.2 million for the year
ended December 31, 2006. Interest expense recorded in discontinued operations
consisted of interest on third-party debt that was assumed by Cerberus. We have
not allocated other consolidated interest expense to discontinued operations.
3. Acquisitions
On April 21,
2008, we acquired Zipsort, Inc. for $39 million in cash, net of cash acquired.
Zipsort, Inc. acts as an intermediary between customers and the U.S. Postal
Service. Zipsort, Inc. offers mailing services that include presorting of first
class, standard class, flats, permit and international mail as well as metering
services. We assigned the goodwill to the Mail Services segment.
On September
12, 2007, we acquired Asterion SAS for $29 million in cash, net of cash
acquired. Asterion is a leading provider of outsourced transactional print and
document process services in France. We assigned the goodwill to the Management
Services segment.
On May 31,
2007, we acquired the remaining shares of Digital Cement, Inc. for a total
purchase price of $52 million in cash, net of cash acquired. Digital Cement,
Inc. provides marketing management strategy and services to help companies
acquire, retain, manage, and grow their customer relationships. We assigned the
goodwill to the Marketing Services segment.
On April 19,
2007, we acquired MapInfo Corporation for $436 million in cash, net of cash
acquired. Included in the assets and liabilities acquired were short-term investments
of $46 million and debt assumed of $14 million. MapInfo is a global company and
a leading provider of location intelligence software and solutions. We assigned
the goodwill to the Software segment. As part of the purchase accounting for
MapInfo, we aligned MapInfos accounting policies for software revenue
recognition with ours. Accordingly, certain software revenue that was
previously recognized by MapInfo on a periodic basis has now been recognized
over the life of the contract.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following
table summarizes selected financial data for the opening balance sheet
allocations of the acquisitions in 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Zipsort, Inc.
|
|
Asterion SAS
|
|
Digital Cement, Inc.
|
|
MapInfo
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
46,308
|
|
Current assets
|
|
|
42
|
|
|
52,309
|
|
|
2,146
|
|
|
40,121
|
|
Other non-current assets
|
|
|
12,617
|
|
|
31,303
|
|
|
932
|
|
|
35,826
|
|
Intangible assets
|
|
|
7,942
|
|
|
8,285
|
|
|
6,600
|
|
|
113,000
|
|
Goodwill
|
|
|
24,962
|
|
|
25,555
|
|
|
42,583
|
|
|
327,219
|
|
Current liabilities
|
|
|
(4,063
|
)
|
|
(58,286
|
)
|
|
(213
|
)
|
|
(63,012
|
)
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
(13,866
|
)
|
Non-current liabilities
|
|
|
(2,994
|
)
|
|
(30,345
|
)
|
|
|
|
|
(50,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price, net of cash acquired
|
|
$
|
38,506
|
|
$
|
28,821
|
|
$
|
52,048
|
|
$
|
435,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
7,658
|
|
$
|
6,766
|
|
$
|
6,100
|
|
$
|
75,900
|
|
Mailing software and technology
|
|
|
|
|
|
|
|
|
|
|
|
29,500
|
|
Trademarks and trade names
|
|
|
|
|
|
1,519
|
|
|
500
|
|
|
7,600
|
|
Non-compete agreements
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,942
|
|
$
|
8,285
|
|
$
|
6,600
|
|
$
|
113,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets amortization period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
15 years
|
|
|
7 years
|
|
|
7 years
|
|
|
10 years
|
|
Mailing software and technology
|
|
|
|
|
|
|
|
|
|
|
|
5 years
|
|
Trademarks and trade names
|
|
|
|
|
|
2 years
|
|
|
2 years
|
|
|
5 years
|
|
Non-compete agreements
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average
|
|
|
15 years
|
|
|
6 years
|
|
|
7 years
|
|
|
8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of
the purchase price to the assets acquired and liabilities assumed has not been
finalized for Zipsort, Inc. The purchase price allocation for this acquisition
will be finalized upon the completion of working capital closing adjustments
and fair value analysis. Final determination of the purchase price and fair
values to be assigned may result in adjustments to the preliminary estimated
values assigned at the date of acquisition. The amount of tax deductible
goodwill added from acquisitions in 2008 and 2007 was $27.4 million and $27.5
million, respectively.
During 2008
and 2007, we also completed several smaller acquisitions, the cost of which was
$29.7 million and $86.6 million, respectively. These acquisitions did not have
a material impact on our financial results.
Consolidated impact of acquisitions
The
Consolidated Financial Statements include the results of operations of the
acquired businesses from their respective dates of acquisition.
The following
table provides unaudited pro forma consolidated revenue for the years ended
December 31, 2008 and 2007 as if our acquisitions had been acquired on January
1 of each year presented:
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
6,288,242
|
|
$
|
6,351,981
|
|
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The pro forma
earnings of these acquisitions for 2008 did not have a material impact on our
financial results. The pro forma earnings for acquisitions in 2007 reduced our
diluted earnings per share by approximately 6 cents, primarily due to the
purchase accounting alignment for MapInfo. The pro forma consolidated results
do not purport to be indicative of the actual results if the acquisitions had
occurred on the dates indicated or that may result in the future.
4.
Inventories
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and work in process
|
|
$
|
41,171
|
|
$
|
56,228
|
|
Supplies and
service parts
|
|
|
78,018
|
|
|
83,720
|
|
Finished
products
|
|
|
42,132
|
|
|
58,014
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,321
|
|
$
|
197,962
|
|
|
|
|
|
|
|
|
|
If all
inventories valued at LIFO had been stated at current costs, inventories would
have been $24.4 million and $23.7 million higher than reported at December 31,
2008 and 2007, respectively. In 2008 and 2007, we recorded impairment charges to
inventories for $13.6 million and $48.1 million, respectively, associated with
our transition initiatives in the restructuring charges and asset impairments
line of the Consolidated Statements of Income. See Note 14 to the Consolidated
Financial Statements for further details.
5.
Fixed Assets
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
30,531
|
|
$
|
33,961
|
|
Buildings
|
|
|
351,195
|
|
|
400,548
|
|
Machinery
and equipment
|
|
|
1,498,696
|
|
|
1,443,384
|
|
|
|
|
|
|
|
|
|
|
|
|
1,880,422
|
|
|
1,877,893
|
|
Accumulated
depreciation
|
|
|
(1,306,162
|
)
|
|
(1,249,975
|
)
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$
|
574,260
|
|
$
|
627,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
equipment
|
|
$
|
932,389
|
|
$
|
1,189,675
|
|
Accumulated
depreciation
|
|
|
(534,440
|
)
|
|
(753,748
|
)
|
|
|
|
|
|
|
|
|
Rental
property and equipment, net
|
|
$
|
397,949
|
|
$
|
435,927
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $306.8 million, $318.1 million and $311.2 million for the years
ended December 31, 2008, 2007, and 2006, respectively. Rental equipment is
primarily comprised of postage meters. A pre-tax non-cash impairment charge of
$61.5 million for net rental property and equipment was recorded in 2007
associated with our transition initiative in the restructuring charges and
asset impairments line of the Consolidated Statements of Income. See Note 14 to
the Consolidated Financial Statements for further details.
54
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
6.
Intangible Assets and Goodwill
The components
of our purchased intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
423,169
|
|
$
|
(154,619
|
)
|
$
|
268,550
|
|
$
|
427,487
|
|
$
|
(119,652
|
)
|
$
|
307,835
|
|
Supplier
relationships
|
|
|
29,000
|
|
|
(10,392
|
)
|
|
18,608
|
|
|
29,000
|
|
|
(7,492
|
)
|
|
21,508
|
|
Mailing
software & technology
|
|
|
155,035
|
|
|
(78,982
|
)
|
|
76,053
|
|
|
176,558
|
|
|
(65,032
|
)
|
|
111,526
|
|
Trademarks
and trade names
|
|
|
25,071
|
|
|
(13,310
|
)
|
|
11,761
|
|
|
32,661
|
|
|
(17,202
|
)
|
|
15,459
|
|
Non-compete
agreements
|
|
|
2,652
|
|
|
(1,802
|
)
|
|
850
|
|
|
5,491
|
|
|
(4,631
|
)
|
|
860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
634,927
|
|
$
|
(259,105
|
)
|
$
|
375,822
|
|
$
|
671,197
|
|
$
|
(214,009
|
)
|
$
|
457,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for intangible assets was $72.3 million, $65.0 million and $53.9
million for the years ended December 31, 2008, 2007 and 2006, respectively. In
2008 and 2007, we recorded impairment charges of $28.5 million and $8.5
million, respectively, and included these charges in the restructuring charges
and asset impairments line of the Consolidated Statements of Income. See Note
14 to the Consolidated Financial Statements for further details.
The estimated
future amortization expense related to intangible assets as of December 31,
2008 is as follows:
|
|
|
|
|
Year ended
December 31,
|
|
Amount
|
|
|
|
|
|
2009
|
|
$
|
65,000
|
|
2010
|
|
|
58,000
|
|
2011
|
|
|
52,000
|
|
2012
|
|
|
46,000
|
|
2013
|
|
|
43,000
|
|
Thereafter
|
|
|
111,822
|
|
|
|
|
|
|
|
|
$
|
375,822
|
|
|
|
|
|
|
During 2008
and 2007, we recorded additions to intangible assets of $18.6 million and
$156.4 million, respectively. The components of these purchased intangible
assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Weighted
Average Life
|
|
Amount
|
|
Weighted
Average Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
18,274
|
|
|
12 years
|
|
$
|
107,097
|
|
|
10 years
|
|
Mailing
software and technology
|
|
|
|
|
|
|
|
|
38,961
|
|
|
7 years
|
|
Trademarks
and trade names
|
|
|
|
|
|
|
|
|
10,126
|
|
|
2 years
|
|
Non-compete
agreements
|
|
|
284
|
|
|
3 years
|
|
|
261
|
|
|
4 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,558
|
|
|
11 years
|
|
$
|
156,445
|
|
|
7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The changes in
the carrying amount of goodwill, by reporting segment, for the years ended
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2007 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
131,807
|
|
$
|
4,034
|
|
$
|
6,524
|
|
$
|
142,365
|
|
International Mailing
|
|
|
346,328
|
|
|
7,553
|
|
|
(31,651
|
)
|
|
322,230
|
|
Production Mail
|
|
|
137,855
|
|
|
|
|
|
(788
|
)
|
|
137,067
|
|
Software
|
|
|
669,436
|
|
|
|
|
|
(45,441
|
)
|
|
623,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions
|
|
|
1,285,426
|
|
|
11,587
|
|
|
(71,356
|
)
|
|
1,225,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
519,089
|
|
|
|
|
|
(27,456
|
)
|
|
491,633
|
|
Mail Services
|
|
|
227,163
|
|
|
33,103
|
|
|
527
|
|
|
260,793
|
|
Marketing Services
|
|
|
268,180
|
|
|
|
|
|
5,567
|
|
|
273,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Services
|
|
|
1,014,432
|
|
|
33,103
|
|
|
(21,362
|
)
|
|
1,026,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,299,858
|
|
$
|
44,690
|
|
$
|
(92,718
|
)
|
$
|
2,251,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2006 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
December 31,
2007 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
87,004
|
|
$
|
13,703
|
|
$
|
31,100
|
|
$
|
131,807
|
|
International Mailing
|
|
|
334,934
|
|
|
2,486
|
|
|
8,908
|
|
|
346,328
|
|
Production Mail
|
|
|
130,103
|
|
|
4,165
|
|
|
3,587
|
|
|
137,855
|
|
Software
|
|
|
312,807
|
|
|
355,189
|
|
|
1,440
|
|
|
669,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions
|
|
|
864,848
|
|
|
375,543
|
|
|
45,035
|
|
|
1,285,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
487,490
|
|
|
28,668
|
|
|
2,931
|
|
|
519,089
|
|
Mail Services
|
|
|
214,085
|
|
|
8,524
|
|
|
4,554
|
|
|
227,163
|
|
Marketing Services
|
|
|
224,734
|
|
|
41,831
|
|
|
1,615
|
|
|
268,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Services
|
|
|
926,309
|
|
|
79,023
|
|
|
9,100
|
|
|
1,014,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,791,157
|
|
$
|
454,566
|
|
$
|
54,135
|
|
$
|
2,299,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We have
reclassified prior year amounts to conform to the current year presentation.
|
|
|
(2)
|
Other
includes post closing acquisition and foreign currency translation
adjustments.
|
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
7. Current
Liabilities
Accounts payable, accrued
liabilities, notes payable and current portion of long-term obligations are
composed of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$
|
323,959
|
|
$
|
348,293
|
|
Reserve account deposits
|
|
|
555,557
|
|
|
522,198
|
|
Accrued salaries, wages and commissions
|
|
|
271,940
|
|
|
312,330
|
|
Accrued restructuring charges
|
|
|
142,592
|
|
|
91,713
|
|
Miscellaneous accounts payable and accrued
liabilities
|
|
|
628,351
|
|
|
691,033
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,922,399
|
|
$
|
1,965,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
610,460
|
|
$
|
405,213
|
|
Current portion of long-term debt and
capital leases
|
|
|
160,041
|
|
|
548,554
|
|
|
|
|
|
|
|
|
|
Notes payable and current portion of
long-term obligations
|
|
$
|
770,501
|
|
$
|
953,767
|
|
|
|
|
|
|
|
|
|
In countries
outside the U.S., banks generally lend to our non-finance subsidiaries on an
overdraft or term-loan basis. These overdraft arrangements and term-loans, for
the most part, are extended on an uncommitted basis by banks and do not require
compensating balances or commitment fees.
Reserve
account deposits represent customers prepayment of postage. Deposits are held
by our subsidiary, Pitney Bowes Bank. See Note 17 to the Consolidated Financial
Statements for further details.
Notes payable
are issued as commercial paper, loans against bank lines of credit, or to trust
departments of banks and others at below prevailing prime rates. The weighted
average interest rates were 1.3% and 4.3% on notes payable and overdrafts
outstanding at December 31, 2008 and 2007, respectively.
We had unused credit facilities
of $1.5 billion at December 31, 2008, primarily to support commercial paper
issuances. Fees paid to maintain lines of credit were $0.8 million, $0.8
million and $0.9 million in 2008, 2007 and 2006, respectively.
57
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
8. Long-term Debt
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Recourse debt
|
|
|
|
|
|
|
|
8.55% notes
due 2009 (1)
|
|
$
|
|
|
$
|
150,000
|
|
5.32% credit
facility due 2012
|
|
|
150,000
|
|
|
150,000
|
|
4.63% notes
due 2012
|
|
|
400,000
|
|
|
400,000
|
|
3.88% notes
due 2013
|
|
|
375,000
|
|
|
375,000
|
|
4.88% notes
due 2014
|
|
|
450,000
|
|
|
450,000
|
|
5.00% notes
due 2015
|
|
|
400,000
|
|
|
400,000
|
|
4.75% notes
due 2016
|
|
|
500,000
|
|
|
500,000
|
|
5.75% notes
due 2017
|
|
|
500,000
|
|
|
500,000
|
|
2.37% to
5.13% notes due 2018 (2)
|
|
|
350,000
|
|
|
350,000
|
|
2.24% to
4.98% notes due 2018
|
|
|
250,000
|
|
|
|
|
5.25% notes
due 2037
|
|
|
500,000
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Fair value hedges basis adjustment
|
|
|
76,043
|
|
|
25,753
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
13,186
|
|
|
|
|
|
|
|
|
|
Other (3)
|
|
|
(16,178
|
)
|
|
(11,864
|
)
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
3,934,865
|
|
$
|
3,802,075
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2002, we
terminated an interest rate swap associated with these notes, resulting in an
effective interest rate of 5.05%. These notes are reported in current portion
of long-term debt at December 31, 2008.
|
|
|
(2)
|
In April
2003, we entered into an interest rate swap for an aggregate notional amount
of $350 million. The interest rate swap effectively converted the fixed rate
of 4.75% on $350 million of our notes, due 2018, into variable interest
rates. The variable rates payable by us in connection with the swap agreement
were based on six month LIBOR less a spread of 22.8 basis points and the
fixed rate received by us matched the fixed interest payment due on the
notes. On November 21, 2008, we unwound this interest rate swap. This
transaction was not undertaken for liquidity purposes but rather to fix our
effective interest rate to 3.2% for the remaining term of these notes. We
received $44 million, excluding accrued interest, associated with the unwind
of this interest rate swap. This amount will be reflected as a reduction of
interest expense over the remaining term of these notes.
|
|
|
(3)
|
Other
consists primarily of debt discounts and premiums.
|
On March 4,
2008, we issued $250 million of 10 year fixed rate notes with a coupon rate of
5.60%. The interest is paid semi-annually beginning September 2008. The notes
mature on March 15, 2018. We simultaneously entered into two interest rate
swaps for a total notional amount of $250 million to convert the fixed rate
debt to a floating rate obligation bearing interest at 6 month LIBOR plus 111.5
basis points. The proceeds from these notes were used for general corporate
purposes, including the repayment of commercial paper and repurchase of our
stock.
In December 2007, we entered into a $150 million
syndicated bank transaction priced at 3 month LIBOR plus 35 basis points. The
proceeds from this credit facility, due 2012, were used to pay off the $150
million variable rate debt that was due in 2010.
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In September
2007, we issued $500 million of unsecured fixed rate notes maturing in
September 2017. These notes bear interest at an annual rate of 5.75% and pay
interest semi-annually beginning in March 2008. The proceeds from these notes
were used for general corporate purposes, including the repayment of commercial
paper, the financing of acquisitions, and repurchase of our stock.
In June 2008,
we filed a Well-known Seasoned Issuer registration statement with the SEC
which permits the issuance of debt securities, preferred stock, preference
stock, common stock, purchase contracts, depositary shares, warrants and units.
The annual
maturities of the outstanding long-term debt during each of the next five years
are as follows: 2010 no maturities; 2011 no maturities; 2012 $550
million; 2013 $375 million; and $2,950 million thereafter. The remaining
outstanding notes with a $150 million face value are reported in current
portion of long-term debt at December 31, 2008.
The fair value hedges basis
adjustment represents the revaluation of fixed rate debt that has been hedged
in accordance with SFAS No. 133. See Note 19 to the Consolidated Financial
Statements.
9.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
Total
current
|
|
$
|
142,263
|
|
$
|
160,839
|
|
$
|
298,364
|
|
Total
deferred
|
|
|
102,666
|
|
|
119,383
|
|
|
36,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
244,929
|
|
$
|
280,222
|
|
$
|
335,004
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and international
components of income from operations before income taxes and minority interest
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
573,066
|
|
$
|
624,030
|
|
$
|
719,931
|
|
International
|
|
|
140,111
|
|
|
36,681
|
|
|
194,559
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations
|
|
|
713,177
|
|
|
660,711
|
|
|
914,490
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
(682,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
713,177
|
|
$
|
660,711
|
|
$
|
232,341
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective
tax rates for continuing operations for 2008, 2007 and 2006 were 34.3%, 42.4%
and 36.6%, respectively. The effective tax rate for 2007 included $54 million
of tax charges related principally to a valuation allowance for certain
deferred tax assets and tax rate changes outside of the U.S. The effective tax
rate for 2006 included a $20 million charge related to the IRS settlement
discussed below.
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The items accounting for the
difference between income taxes computed at the federal statutory rate and our
provision for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
Federal statutory provision
|
|
$
|
249,612
|
|
$
|
231,249
|
|
$
|
320,072
|
|
Life insurance tax reserve, federal and
state
|
|
|
|
|
|
|
|
|
20,000
|
|
State and local income taxes
|
|
|
19,820
|
|
|
12,281
|
|
|
22,194
|
|
Foreign tax differential
|
|
|
(2,605
|
)
|
|
2,379
|
|
|
(12,713
|
)
|
Foreign valuation allowance
|
|
|
4,560
|
|
|
51,724
|
|
|
|
|
Rate change
|
|
|
|
|
|
2,485
|
|
|
|
|
Tax exempt income/reimbursement
|
|
|
(5,404
|
)
|
|
(6,743
|
)
|
|
(15,110
|
)
|
Federal income tax credits/incentives
|
|
|
(15,118
|
)
|
|
(12,732
|
)
|
|
(2,508
|
)
|
Certain leasing transactions
|
|
|
(9,550
|
)
|
|
|
|
|
|
|
Other, net
|
|
|
3,614
|
|
|
(421
|
)
|
|
3,069
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
244,929
|
|
|
280,222
|
|
|
335,004
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
Federal statutory provision
|
|
|
|
|
|
|
|
|
(238,753
|
)
|
State and local income taxes
|
|
|
|
|
|
|
|
|
(29,225
|
)
|
External financing transactions (see Note
2)
|
|
|
27,700
|
|
|
(5,534
|
)
|
|
46,140
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
272,629
|
|
$
|
274,688
|
|
$
|
113,166
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of our total
provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
U.S. Federal:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
112,931
|
|
$
|
136,528
|
|
$
|
1,090,252
|
|
Deferred
|
|
|
81,936
|
|
|
53,235
|
|
|
(1,021,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,867
|
|
|
189,763
|
|
|
68,583
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and Local:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
17,058
|
|
|
12,813
|
|
|
179,602
|
|
Deferred
|
|
|
13,434
|
|
|
6,083
|
|
|
(190,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,492
|
|
|
18,896
|
|
|
(10,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
39,974
|
|
|
5,964
|
|
|
7,567
|
|
Deferred
|
|
|
7,296
|
|
|
60,065
|
|
|
47,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,270
|
|
|
66,029
|
|
|
55,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
169,963
|
|
|
155,305
|
|
|
1,277,421
|
|
Total Deferred
|
|
|
102,666
|
|
|
119,383
|
|
|
(1,164,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
272,629
|
|
$
|
274,688
|
|
$
|
113,166
|
|
|
|
|
|
|
|
|
|
|
|
|
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The components of our deferred tax liabilities and assets are as
follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
67,835
|
|
$
|
44,125
|
|
Deferred profit (for tax purposes) on sales
to finance subsidiaries
|
|
|
393,603
|
|
|
486,107
|
|
Lease revenue and related depreciation
|
|
|
342,604
|
|
|
296,527
|
|
Pension
|
|
|
|
|
|
76,830
|
|
Amortizable intangibles
|
|
|
61,866
|
|
|
45,311
|
|
Other
|
|
|
81,717
|
|
|
77,239
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
947,625
|
|
|
1,026,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (assets):
|
|
|
|
|
|
|
|
Nonpension postretirement benefits
|
|
|
(133,484
|
)
|
|
(141,205
|
)
|
Pension
|
|
|
(136,673
|
)
|
|
|
|
Inventory and equipment capitalization
|
|
|
(21,778
|
)
|
|
(22,651
|
)
|
Restructuring charges
|
|
|
(42,938
|
)
|
|
(93,113
|
)
|
Long-term incentives
|
|
|
(59,447
|
)
|
|
(60,571
|
)
|
Net operating loss and tax credit carry
forwards
|
|
|
(103,753
|
)
|
|
(91,513
|
)
|
Other
|
|
|
(204,426
|
)
|
|
(168,785
|
)
|
Valuation allowance
|
|
|
69,047
|
|
|
69,792
|
|
|
|
|
|
|
|
|
|
Deferred tax (assets)
|
|
|
(633,452
|
)
|
|
(508,046
|
)
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
|
314,173
|
|
|
518,093
|
|
Less amounts included in current and
non-current income taxes
|
|
|
59,820
|
|
|
62,719
|
|
|
|
|
|
|
|
|
|
Deferred taxes on income
|
|
$
|
254,353
|
|
$
|
455,374
|
|
|
|
|
|
|
|
|
|
As of December
31, 2008 and 2007, approximately $246.7 million and $243.7 million,
respectively, of net operating loss carry forwards were available to us. Most
of these losses can be carried forward indefinitely.
It has not been necessary to provide for income taxes on $710 million
of cumulative undistributed earnings of subsidiaries outside the U.S. These
earnings will be either indefinitely reinvested or remitted substantially free
of additional tax. Determination of the liability that would result in the
event all of these earnings were remitted to the U.S. is not practicable. It is
estimated, however, that withholding taxes on such remittances would
approximate $15 million.
In June 2006,
the FASB issued FIN No. 48,
Accounting for
Uncertainty in Income Taxes
, which supplements SFAS No. 109,
Accounting for Income Taxes
, by defining
the confidence level that a tax position must meet in order to be recognized in
the financial statements. FIN No. 48 requires a two-step approach under which
the tax effect of a position is recognized only if it is more-likely-than-not
to be sustained and the amount of tax benefit recognized is equal to the
largest tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement of the tax position. This is a different standard for
recognition than the approach previously required. Both approaches require us
to exercise considerable judgment and estimates are inherent in both processes.
We adopted the provisions of FIN No. 48 on
January 1, 2007. As a result, on initial adoption we recognized an $84.4
million increase in our liability for uncertain tax positions and a
corresponding reduction to our opening retained earnings. The total amount of
unrecognized tax benefits at December 31, 2008 and 2007 were $434.2 million and
$398.9 million, respectively, of which $370.9 million and $335.7 million,
respectively, would affect the effective tax rate if recognized. A
reconciliation of the amount of unrecognized tax benefits at the beginning and
end of 2008 and 2007 is as follows:
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance at
beginning of year
|
|
$
|
398,878
|
|
$
|
356,063
|
|
Increases
from prior period positions
|
|
|
21,623
|
|
|
28,762
|
|
Decreases
from prior period positions
|
|
|
(8,899
|
)
|
|
(20,063
|
)
|
Increases
from current period positions
|
|
|
33,028
|
|
|
61,778
|
|
Decreases
from current period positions
|
|
|
|
|
|
|
|
Decreases
relating to settlements with tax authorities
|
|
|
(7,426
|
)
|
|
(2,165
|
)
|
Reductions
as a result of a lapse of the applicable statute of limitations
|
|
|
(3,040
|
)
|
|
(25,497
|
)
|
|
|
|
|
|
|
|
|
Balance at
end of year
|
|
$
|
434,164
|
|
$
|
398,878
|
|
|
|
|
|
|
|
|
|
Tax authorities
continually examine our tax filings. On a regular basis, we conclude tax return
examinations, statutes of limitations expire, and court decisions interpret tax
law. We regularly assess tax uncertainties in light of these developments. As a
result, it is reasonably possible that the amount of our unrecognized tax
benefits will increase or decrease in the next 12 months, but we expect this
change to be less than 10% of our unrecognized tax benefits. We recognize
interest and penalties related to uncertain tax positions in our provision for
income taxes or discontinued operations as appropriate. During the years ended
December 31, 2008 and 2007 we recorded $25.6 million and $9.5 million,
respectively, in interest and penalties and this amount was included in
discontinued operations. We had $139.2 million and $113.6 million accrued for
the payment of interest and penalties at December 31, 2008 and December 31,
2007, respectively.
Other Tax Matters
We regularly
assess the likelihood of tax adjustments in each of the tax jurisdictions in
which we have operations and account for the related financial statement
implications. Tax reserves have been established which we believe to be
appropriate given the possibility of tax adjustments. Determining the appropriate
level of tax reserves requires us to exercise judgment regarding the uncertain
application of tax law. The amount of reserves is adjusted when information
becomes available or when an event occurs indicating a change in the reserve is
appropriate. Future changes in tax reserve requirements could have a material
impact on our results of operations.
We are
continually under examination by tax authorities in the United States, other
countries and local jurisdictions in which we have operations. The years under
examination vary by jurisdiction. The current IRS exam of tax years 2001-2004
is estimated to be completed within the next two years. In connection with this
exam, we have recently received notices of proposed adjustments to our filed
returns. We have accrued our best estimate of the tax, interest and penalties
that may result from these proposed adjustments in accordance with FIN 48. We
are disputing a formal request from the IRS in the form of a civil summons to
provide certain company workpapers. We believe that certain documents being
sought should not be produced because they are privileged. In a similar case,
the U.S. Court of Appeals for the First Circuit ruled that certain company
workpapers were privileged, however, the case was remanded to the lower court
to consider other related issues. Also in connection with the 2001-2004 audits,
we have entered into a settlement with the IRS regarding the tax treatment of
certain lease transactions related to the Capital Services business that we
sold in 2006. Prior to 2007, we accrued and paid the IRS the additional tax and
interest associated with this settlement. A variety of post-1999 tax years
remain subject to examination by other tax authorities, including the U.K.,
Canada, France, Germany and various U.S. states. We have accrued our best
estimate of the tax, interest and penalties that may result from these tax
uncertainties in these and other jurisdictions in accordance with FIN 48.
However, the resolution of such matters could have a material impact on our
results of operations, financial position and cash flows.
In August 2006, we reached a
settlement with the IRS governing all outstanding tax audit issues in dispute
for the tax years through 2000. Accordingly, in 2006 we recorded $61 million of
additional tax expense. Of the $61 million, $41 million related to the Capital
Services business and was included in discontinued operations and $20 million
was included in continuing operations. The federal statute of
limitations for these years has now expired. In 2006, we accrued in
discontinued operations an additional tax expense of $16.2 million to record
the impact of the Tax Increase Prevention and Reconciliation Act (TIPRA). The
TIPRA legislation repealed the exclusion from federal income taxation of a
portion of the income generated from certain leveraged leases of aircraft by
foreign sales corporations. See Note 2 to the Consolidated Financial Statements
for further discussion of the discontinued operations.
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In 2008, an
analysis of the book and tax bases of leasing assets indicated that an
adjustment to the deferred tax accounts was required. A deferred tax asset
related to the acceleration of rental income for tax purposes was not properly
captured in prior years. A benefit of $9.5 million related to years presented
was recorded in the 2008 tax provision and an adjustment of
$16.9 million was made to opening retained earnings related to earlier years to
establish the related deferred tax assets. The impact of the adjustments was
not material to any individual year.
During 2009,
we expect to reverse tax benefits of approximately $11 to $13 million associated with
the expiration of vested stock options and the vesting of restricted stock
units previously granted to our employees. This write-off of deferred tax
assets will not increase the amount of tax to be paid.
10. Preferred
Stockholders Equity in Subsidiary Companies
Pitney Bowes
International Holdings, Inc., a subsidiary of the Company, has 3,750,000 shares
outstanding or $375 million of variable term voting preferred stock owned by
certain outside institutional investors. These preferred shares are entitled to
25% of the combined voting power of all classes of capital stock. All
outstanding common stock of Pitney Bowes International Holdings, Inc.,
representing the remaining 75% of the combined voting power of all classes of
capital stock, is owned directly or indirectly by Pitney Bowes Inc. The
preferred stock, $.01 par value, is entitled to cumulative dividends at rates
set at auction. The weighted average dividend rate in 2008 and 2007 was 4.9%.
Preferred dividends are included in minority interest (preferred stock dividends
of subsidiaries) in the Consolidated Statements of Income. The preferred stock
is subject to mandatory redemption based on certain events, at a redemption
price not less than $100 per share, plus the amount of any dividends accrued or
in arrears. No dividends were in arrears at December 31, 2008 or 2007.
At December
31, 2007, a subsidiary of the Company had 100 shares or $10 million of 9.11%
Cumulative Preferred Stock, mandatorily redeemable in 20 years, owned by an
institutional investor. In August 2008, we redeemed 100% of this Preferred
Stock resulting in a net loss of $1.8 million.
11. Stockholders
(Deficit) Equity
At December
31, 2008, 480,000,000 shares of common stock, 600,000 shares of cumulative
preferred stock, and 5,000,000 shares of preference stock were authorized. At
December 31, 2008, 206,181,193 shares of common stock (net of 117,156,719
shares of treasury stock), 135 shares of 4% convertible cumulative preferred
stock (4% preferred stock) and 36,056 shares of $2.12 convertible preference
stock ($2.12 preference stock) were issued and outstanding. In the future, the
Board of Directors can issue the balance of unreserved and unissued preferred
stock (599,865 shares) and preference stock (4,963,944 shares). The Board will
determine the dividend rate, terms of redemption, terms of conversion (if any)
and other pertinent features. At December 31, 2008, unreserved and unissued
common stock (exclusive of treasury stock) amounted to 115,142,879 shares.
The 4%
preferred stock outstanding, entitled to cumulative dividends at the rate of $2
per year, can be redeemed at the Companys option, in whole or in part at any
time, at the price of $50 per share, plus dividends accrued to the redemption
date. Each share of the 4% preferred stock can be converted into 24.24 shares
of common stock, subject to adjustment in certain events.
The $2.12
preference stock is entitled to cumulative dividends at the rate of $2.12 per
year and can be redeemed at the Companys option at the rate of $28 per share.
Each share of the $2.12 preference stock can be converted into 16.53 shares of
common stock, subject to adjustment in certain events.
Cash dividends
paid on common stock were $1.40 per share, $1.32 per share and $1.28 per share
for 2008, 2007, and 2006 respectively.
At December
31, 2008, a total of 599,278 shares of common stock were reserved for issuance
upon conversion of the 4% preferred stock (3,272 shares) and $2.12 preference
stock (596,006 shares). In addition, 21,320,579 shares of common stock were
reserved for issuance under our dividend reinvestment and other corporate
plans.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following
table summarizes the preferred, preference and common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
Preferred
Stock
|
|
Preference
Stock
|
|
|
|
|
|
|
|
Issued
|
|
Treasury
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
335
|
|
|
42,946
|
|
|
323,337,912
|
|
|
(96,630,706
|
)
|
|
226,707,206
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(9,180,216
|
)
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
3,026,290
|
|
|
|
|
Conversions of common stock
|
|
|
(200
|
)
|
|
(3,339
|
)
|
|
|
|
|
60,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
135
|
|
|
39,607
|
|
|
323,337,912
|
|
|
(102,724,590
|
)
|
|
220,613,322
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(9,075,104
|
)
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
2,934,801
|
|
|
|
|
Conversions of common stock
|
|
|
|
|
|
(2,538
|
)
|
|
|
|
|
41,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
135
|
|
|
37,069
|
|
|
323,337,912
|
|
|
(108,822,953
|
)
|
|
214,514,959
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(9,246,535
|
)
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
896,030
|
|
|
|
|
Conversions of common stock
|
|
|
|
|
|
(1,013
|
)
|
|
|
|
|
16,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
135
|
|
|
36,056
|
|
|
323,337,912
|
|
|
(117,156,719
|
)
|
|
206,181,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
Comprehensive (Loss) Income
The components
of accumulated other comprehensive (loss) income are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments (1)
|
|
$
|
35,800
|
|
$
|
341,252
|
|
$
|
176,524
|
|
Net
unrealized loss on derivatives
|
|
|
(18,952
|
)
|
|
(282
|
)
|
|
(3,083
|
)
|
Net
unrealized gain on investment securities
|
|
|
932
|
|
|
352
|
|
|
|
|
Amortization
of pension and postretirement costs
|
|
|
36,261
|
|
|
22,172
|
|
|
|
|
Net
unamortized loss on pension and postretirement plans (2)
|
|
|
(650,382
|
)
|
|
(274,838
|
)
|
|
(305,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive (loss) income
|
|
$
|
(596,341
|
)
|
$
|
88,656
|
|
$
|
(131,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes net deferred
translation gains of $41.7 million and $47.6 million for the years ended
December 31, 2008 and 2007, respectively. These amounts are associated with
inter-company loans denominated in a foreign currency that have been designated
as a hedge of net investment.
(2) Includes a charge of $297.2
million for the initial adoption of FAS 158 in 2006.
12. Stock Plans
Effective
January 1, 2006, we adopted the provisions of SFAS No. 123(R). SFAS No. 123(R)
established accounting for stock-based awards exchanged for employee services.
Accordingly, stock-based compensation cost is measured at the grant date, based
on the fair value of the award, and is recognized as expense over the employee
requisite service period.
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following table shows total
stock-based compensation expense for stock options, restricted stock units, and
employee stock purchase plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
$
|
11,851
|
|
$
|
14,001
|
|
$
|
20,412
|
|
Restricted
stock units
|
|
|
11,168
|
|
|
7,115
|
|
|
3,363
|
|
Employee
stock purchase plans
|
|
|
3,383
|
|
|
3,015
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
stock-based compensation
|
|
$
|
26,402
|
|
$
|
24,131
|
|
$
|
27,375
|
|
|
|
|
|
|
|
|
|
|
|
|
The following
table shows stock-based compensation expense as included in the Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
1,802
|
|
$
|
1,649
|
|
$
|
1,869
|
|
Cost of support services
|
|
|
777
|
|
|
710
|
|
|
806
|
|
Cost of business services
|
|
|
1,073
|
|
|
980
|
|
|
1,112
|
|
Selling, general and administrative
|
|
|
21,862
|
|
|
19,984
|
|
|
22,669
|
|
Research and development
|
|
|
888
|
|
|
808
|
|
|
919
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation
|
|
|
26,402
|
|
|
24,131
|
|
|
27,375
|
|
Income tax
|
|
|
(9,109
|
)
|
|
(8,277
|
)
|
|
(9,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net
|
|
$
|
17,293
|
|
$
|
15,854
|
|
$
|
18,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share impact
|
|
$
|
0.08
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share impact
|
|
$
|
0.08
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
stock-based compensation costs at December 31, 2008 and 2007 were not material.
At December
31, 2008, $6.1 million of unrecognized compensation cost related to non-vested
stock options is expected to be recognized over a weighted average period of
1.6 years. At December 31, 2008, $24.5 million of unrecognized compensation
cost related to non-vested restricted stock units is expected to be recognized
over a weighted average period of 1.8 years.
The total
intrinsic value of options exercised during the years ended December 31, 2008,
2007 and 2006, was $1.1 million, $28.1 million and $23.2 million, respectively.
The total intrinsic value of restricted stock units converted during 2008 was
$4.2 million. Proceeds from issuance of stock in our Consolidated Statements of
Cash Flows for 2007 and 2006 include $5.0 million and $3.4 million,
respectively, of windfall tax benefits from stock options exercised and
restricted stock units converted.
We settle
employee stock compensation awards with treasury shares.
Our
stock-based compensation awards require a minimum requisite service period of
one year for retirement eligible employees.
At December
31, 2008, there were 14,677,468 shares available for future grants of stock
options and restricted stock units under our stock plans.
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Incentive Awards
Long-term
incentive awards are provided to employees under the terms of our plans. The
Executive Compensation Committee of the Board of Directors administers these
plans. Awards granted under these plans may include stock options, restricted
stock units, other stock based awards, cash or any combination thereof.
Effective in
2006, we changed the components of our long-term incentive compensation
structure. This change increased the amount of restricted stock units and cash
incentive awards issued to employees and reduced the number of stock options
granted.
We have the following stock plans that are described below: the U.S.
and U.K. Stock Option Plans (ESP), the U.S. and U.K. Employee Stock Purchase
Plans (ESPP), and the Directors Stock Plan.
Stock Options
Under our
stock plan, certain officers and employees are granted options at prices equal
to the market value of our common shares at the date of grant. Options granted
in 2004 and prior thereto generally became exercisable in three equal
installments during the first three years following their grant and expire
after ten years. Options granted in 2005 and thereafter generally become
exercisable in four equal installments during the first four years following
their grant and expire ten years from the date of grant.
The following
tables summarize information about stock option transactions during 2008:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2007
|
|
|
18,742,518
|
|
$
|
43.23
|
|
|
Granted
|
|
|
2,126,310
|
|
$
|
36.74
|
|
|
Exercised
|
|
|
(216,318
|
)
|
$
|
30.24
|
|
|
Canceled
|
|
|
(1,667,342
|
)
|
$
|
45.07
|
|
|
Forfeited
|
|
|
(177,098
|
)
|
$
|
42.06
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
|
18,808,070
|
|
$
|
42.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2008
|
|
|
14,551,367
|
|
$
|
42.87
|
|
|
We granted 1,488,387 and 1,967,993 options in 2007 and 2006,
respectively. The weighted average exercise price of the options granted was
$47.17 and $42.00, respectively.
The weighted-average remaining contractual life of the total options
outstanding and options exercisable at December 31, 2008 was 4.3 years and 3.2
years, respectively. The total options outstanding and exercisable at December
31, 2008 have no intrinsic value.
The weighted average remaining contractual life of the options
outstanding and options exercisable at December 31, 2007 was 4.3 years and 3.3
years, respectively. The intrinsic value of the total options outstanding and
options exercisable at December 31, 2007 was $97.4 million and $67.6 million,
respectively.
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following
table summarizes information about stock options outstanding and exercisable at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
Range of per share
exercise prices
|
|
Number
|
|
Weighted average
remaining contractual life
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
|
|
$26.99 - $35.99
|
|
|
4,078,647
|
|
|
2.6 years
|
|
$
|
30.22
|
|
$36.00 - $45.99
|
|
|
7,399,219
|
|
|
6.2 years
|
|
$
|
40.33
|
|
$46.00 - $56.99
|
|
|
5,353,067
|
|
|
4.5 years
|
|
$
|
46.91
|
|
$57.00 - $65.72
|
|
|
1,977,137
|
|
|
0.1 years
|
|
$
|
64.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,808,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable
|
|
|
|
Range of per share
exercise prices
|
|
Number
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
$26.99 - $35.99
|
|
|
3,928,647
|
|
$
|
30.08
|
|
$36.00 - $45.99
|
|
|
4,382,106
|
|
$
|
40.99
|
|
$46.00 - $56.99
|
|
|
4,263,477
|
|
$
|
46.77
|
|
$57.00 - $65.72
|
|
|
1,977,137
|
|
$
|
64.00
|
|
|
|
|
|
|
|
|
|
|
|
|
14,551,367
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain
employees eligible for performance-based compensation may defer up to 100% of their
annual awards, subject to the terms and conditions of the Pitney Bowes Deferred
Incentive Savings Plan. Participants may allocate deferred compensation among
specified investment choices. Previously, the investment choices offered
included stock options under the U.S. stock option plan. Stock options acquired
under this plan were generally exercisable three years following their grant
and expired after a period not to exceed ten years from the date of grant.
There were 131,214, 163,480 and 236,101 options outstanding under this plan at
December 31, 2008, 2007 and 2006, respectively, which are included in
outstanding options under our U.S. stock option plan. Beginning with the 2004
plan year, options were no longer offered as an investment choice.
We estimate
the fair value of stock options using a Black-Scholes valuation model. Key
input assumptions used to estimate the fair value of stock options include the
volatility of our stock, the risk-free interest rate and our dividend yield. We
believe that the valuation technique and the approach utilized to develop the
underlying assumptions are appropriate in estimating the fair value of our
stock option grants. Estimates of fair value are not intended to predict actual
future events or the value ultimately realized by employees who receive equity
awards, and subsequent events are not indicative of the reasonableness of the
original estimates of fair value we made under SFAS No. 123(R).
The fair value
of stock options granted and related assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Expected
dividend yield
|
|
|
3.0
|
%
|
|
2.9
|
%
|
|
2.9
|
%
|
Expected
stock price volatility (1)
|
|
|
12.3
|
%
|
|
13.7
|
%
|
|
17.6
|
%
|
Risk-free
interest rate (2)
|
|
|
2.7
|
%
|
|
4.7
|
%
|
|
4.6
|
%
|
Expected life
years (3)
|
|
|
5
|
|
|
5
|
|
|
5
|
|
Weighted-average
fair value per option granted
|
|
$
|
3.22
|
|
$
|
6.69
|
|
$
|
7.13
|
|
|
|
(1)
|
Our
estimates of expected stock price volatility are based on historical price
changes of our stock.
|
|
|
(2)
|
The
risk-free interest rate is based on U.S. Treasuries with a term equal to the
expected option term.
|
|
|
(3)
|
The expected
life is based on historical experience.
|
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Restricted Stock and Restricted Stock Units
Our stock plan
permits the issuance of restricted stock and restricted stock units. Restricted
stock units are stock awards that are granted to employees and entitle the
holder to shares of common stock as the award vests, typically over a four year
service period. The fair value of the awards is determined on the grant date
based on our stock price at that date.
Restricted
stock awards are subject to one or more restrictions, which may include
continued employment over a specified period or the attainment of specified
financial performance goals. Where a restricted stock award is subject to both
tenure and attainment of financial performance goals, the restrictions would be
released, in total or in part, only if the executive is still employed by us at
the end of the performance period and if the performance objectives are
achieved. Where the sole restriction of a restricted stock award is continued
employment over a specified period, such period may not be less than three
years. The compensation expense for each award is recognized over the
performance period. We issued 10,000 shares of restricted stock in August 2008.
We did not issue any shares of restricted stock during 2007 and 2006. During
2008, compensation expense was offset by forfeiture reversals. We recorded
compensation expenses of $0.7 million and $1.3 million in 2007 and 2006,
respectively.
The following
table summarizes information about restricted stock unit transactions during
2008:
|
|
|
|
|
|
|
|
|
|
|
Units / Shares
|
|
Weighted average grant
date fair value
|
|
|
|
|
|
|
|
Restricted
stock units outstanding at December 31, 2007
|
|
|
460,479
|
|
$
|
46.09
|
|
|
Granted
|
|
|
512,415
|
|
$
|
36.91
|
|
|
Vested
|
|
|
(130,500
|
)
|
$
|
45.62
|
|
|
Forfeited
|
|
|
(51,113
|
)
|
$
|
41.78
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock units outstanding at December 31, 2008
|
|
|
791,281
|
|
$
|
40.50
|
|
|
|
|
|
|
|
|
|
|
|
We issued
334,442 shares and 256,519 shares of restricted stock units in 2007 and 2006,
respectively. The weighted average grant price was $47.91 and $42.63 for 2007
and 2006, respectively. The intrinsic value of the outstanding restricted stock
units at December 31, 2008 was $20.2 million, with a weighted average remaining
term of 2.6 years.
Employee Stock Purchase Plans
The U.S.
Employee Stock Purchase Plan enables substantially all U.S. and Canadian
employees to purchase shares of our common stock at a discounted offering price
and is considered a compensatory plan in accordance with SFAS No. 123(R). In
2008, the offering price was 85% of the average price of our common stock on
the New York Stock Exchange on the offering date. At no time will the exercise
price be less than the lowest price permitted under Section 423 of the Internal
Revenue Code. The U.K. S.A.Y.E. Plan also enables eligible employees of our
participating U.K. subsidiaries to purchase shares of our stock at a discounted
offering price which, in 2008, was 90% of the average closing price of our
common stock on the New York Stock Exchange for the three business days
preceding the offering date. We may grant rights to purchase up to 6,226,677
common shares to our regular employees under the U.S. and U.K. Plans.
Compensation expense relating to the U.S. Plan is recognized over a twelve
month participation period. Compensation expense for the U.K. Plan is
recognized over participation periods of 3 or 5 years.
We granted
rights to purchase 437,350 shares in 2008, 446,755 shares in 2007 and 435,592 shares
in 2006. The per share fair value of rights granted was $5 in 2008, $8 in 2007
and $7 in 2006 for the U.S. ESPP and $4 in 2008, $7 in 2007 and $8 in 2006 for
the U.K. ESPP.
Directors Stock Plan
Under this
plan, each non-employee director is granted 2,200 shares of restricted common
stock annually. Shares granted at no cost to the directors were 26,400 in 2008
and 24,665 in 2007. Compensation expense, net of taxes, was $0.6 million for
2008, $0.8 million for 2007 and $0.4 for 2006. The shares carry full voting and
dividend rights but, except as provided herein, may not be transferred or
alienated until the later of (1) termination of service as a director, or, if
earlier, the date of a change of control, or (2) the expiration of the
six-month period following the grant of such shares. If a director terminates
service as a director prior to the expiration of the six-month period following
a grant of restricted stock, that award will be forfeited. The Directors Stock
Plan permits certain limited dispositions of restricted common stock to family
members, family trusts or partnerships, as well as donations to charity after
the expiration of the six-month holding period, provided the director retains a
minimum of 7,500 shares of restricted common stock.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Non-employee
directors may defer up to 100% of their eligible compensation, subject to the
terms and conditions of the Pitney Bowes Deferred Incentive Savings Plan for
directors. Participants may allocate deferred compensation among specified
investment choices. Previously, the investment choices offered included stock
options under the Directors Stock Plan. Stock options acquired under this plan
were generally exercisable three years following their grant and expired after
a period not to exceed ten years. There were 15,269, 22,091 and 41,716 options
outstanding under this plan at December 31, 2008, 2007 and 2006, respectively.
Beginning with the 2004 plan year, options were no longer offered as an
investment choice.
13.
Retirement Plans and Postretirement Medical Benefits
We have
several defined benefit and defined contribution retirement plans covering
substantially all employees worldwide. Benefits are primarily based on
employees compensation and years of service. Our contributions are determined
based on the funding requirements of U.S. federal and other governmental laws
and regulations. We use a measurement date of December 31 for all of our
retirement plans.
U.S. employees
hired after January 1, 2005, Canadian employees hired after April 1, 2005, and
U.K. employees hired after July 1, 2005, are not eligible for our defined
benefit retirement plans.
We contributed
$32.1 million, $30.5 million and $28.1 million to our U.S. defined contribution
plans in 2008, 2007 and 2006, respectively.
Defined Benefit Pension Plans
The change in
benefit obligations, plan assets and the funded status for defined benefit
pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
1,596,486
|
|
$
|
1,624,743
|
|
$
|
557,185
|
|
$
|
523,958
|
|
Service cost
|
|
|
29,699
|
|
|
28,500
|
|
|
10,562
|
|
|
13,427
|
|
Interest
cost
|
|
|
96,205
|
|
|
94,173
|
|
|
29,140
|
|
|
27,720
|
|
Plan
participants contributions
|
|
|
|
|
|
|
|
|
2,978
|
|
|
3,004
|
|
Actuarial
loss (gain)
|
|
|
528
|
|
|
(41,049
|
)
|
|
(75,728
|
)
|
|
(25,744
|
)
|
Foreign
currency changes
|
|
|
|
|
|
|
|
|
(117,234
|
)
|
|
32,399
|
|
Curtailment
|
|
|
|
|
|
|
|
|
|
|
|
906
|
|
Special
termination benefits
|
|
|
2,105
|
|
|
1,187
|
|
|
632
|
|
|
|
|
Benefits
paid
|
|
|
(119,643
|
)
|
|
(111,068
|
)
|
|
(23,028
|
)
|
|
(18,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at end of year
|
|
$
|
1,605,380
|
|
$
|
1,596,486
|
|
$
|
384,507
|
|
$
|
557,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at beginning of year
|
|
$
|
1,675,002
|
|
$
|
1,655,283
|
|
$
|
532,627
|
|
$
|
478,375
|
|
Actual return
on plan assets
|
|
|
(390,374
|
)
|
|
121,973
|
|
|
(101,822
|
)
|
|
31,554
|
|
Company
contributions
|
|
|
10,286
|
|
|
8,814
|
|
|
7,868
|
|
|
9,615
|
|
Plan
participants contributions
|
|
|
|
|
|
|
|
|
2,978
|
|
|
3,004
|
|
Foreign
currency changes
|
|
|
|
|
|
|
|
|
(106,417
|
)
|
|
28,564
|
|
Benefits
paid
|
|
|
(119,643
|
)
|
|
(111,068
|
)
|
|
(23,028
|
)
|
|
(18,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at end of year
|
|
$
|
1,175,271
|
|
$
|
1,675,002
|
|
$
|
312,206
|
|
$
|
532,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at end of year
|
|
$
|
1,175,271
|
|
$
|
1,675,002
|
|
$
|
312,206
|
|
$
|
532,627
|
|
Benefit
obligations at end of year
|
|
|
1,605,380
|
|
|
1,596,486
|
|
|
384,507
|
|
|
557,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$
|
(430,109
|
)
|
$
|
78,516
|
|
$
|
(72,301
|
)
|
$
|
(24,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Information
provided in the table below is only for pension plans with an accumulated
benefit obligation in excess of plan assets at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$
|
1,605,380
|
|
$
|
101,428
|
|
$
|
37,094
|
|
$
|
36,086
|
|
Accumulated
benefit obligation
|
|
$
|
1,501,848
|
|
$
|
80,497
|
|
$
|
34,747
|
|
$
|
34,428
|
|
Fair value
of plan assets
|
|
$
|
1,175,271
|
|
$
|
1,656
|
|
$
|
9,120
|
|
$
|
10,885
|
|
The
accumulated benefit obligation for all U.S. defined benefit plans at December
31, 2008 and 2007 was $1.5 billion for both years. The accumulated benefit
obligation for all foreign defined benefit plans at December 31, 2008 and 2007
was $337 million and $484 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset
|
|
$
|
|
|
$
|
178,288
|
|
$
|
184
|
|
$
|
6,921
|
|
Current liability
|
|
|
(6,513
|
)
|
|
(5,387
|
)
|
|
(875
|
)
|
|
(884
|
)
|
Non-current liability
|
|
|
(423,596
|
)
|
|
(94,385
|
)
|
|
(71,610
|
)
|
|
(30,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(430,109
|
)
|
$
|
78,516
|
|
$
|
(72,301
|
)
|
$
|
(24,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts recognized in accumulated
other comprehensive income (AOCI) consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
833,674
|
|
$
|
328,968
|
|
$
|
119,733
|
|
$
|
93,186
|
|
Prior service cost/(credit)
|
|
|
(113
|
)
|
|
(2,673
|
)
|
|
1,211
|
|
|
2,266
|
|
Transition obligation (asset)
|
|
|
|
|
|
|
|
|
(97
|
)
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
833,561
|
|
$
|
326,295
|
|
$
|
120,847
|
|
$
|
95,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized
from AOCI into net periodic benefits cost in 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
27,309
|
|
|
|
|
$
|
2,645
|
|
|
|
|
Prior service cost/(credit)
|
|
|
(2,645
|
)
|
|
|
|
|
471
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,664
|
|
|
|
|
$
|
3,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to
determine end of year benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.05
|
%
|
|
6.15
|
%
|
|
2.25% - 6.60
|
%
|
|
2.25% - 5.80
|
%
|
Rate of compensation increase
|
|
|
4.25
|
%
|
|
4.50
|
%
|
|
2.50% - 5.10
|
%
|
|
2.50% - 5.50
|
%
|
At December
31, 2008 there are 8,800 shares of our common stock included in the plan assets
of our pension plans.
We anticipate
making contributions of up to $10 million to both our U.S. and foreign pension
plans during 2009. We will reassess our funding alternatives as the year
progresses.
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The components
of the net periodic benefit cost for defined pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
29,699
|
|
$
|
28,500
|
|
$
|
26,771
|
|
$
|
10,562
|
|
$
|
13,427
|
|
$
|
11,207
|
|
Interest
cost
|
|
|
96,205
|
|
|
94,173
|
|
|
91,823
|
|
|
29,140
|
|
|
27,720
|
|
|
22,666
|
|
Expected
return on plan assets
|
|
|
(132,748
|
)
|
|
(127,070
|
)
|
|
(125,204
|
)
|
|
(36,713
|
)
|
|
(37,079
|
)
|
|
(31,338
|
)
|
Amortization
of transition cost
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
(706
|
)
|
|
(654
|
)
|
Amortization
of prior service cost
|
|
|
(2,560
|
)
|
|
(2,116
|
)
|
|
(2,090
|
)
|
|
628
|
|
|
663
|
|
|
618
|
|
Recognized
net actuarial loss
|
|
|
18,944
|
|
|
29,860
|
|
|
34,881
|
|
|
3,981
|
|
|
7,347
|
|
|
9,516
|
|
Curtailment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
906
|
|
|
883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit cost
|
|
$
|
9,540
|
|
$
|
23,347
|
|
$
|
26,181
|
|
$
|
7,740
|
|
$
|
12,278
|
|
$
|
12,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized
in other comprehensive income was a net loss of $361.5 million (net of $207.6
million of tax) in 2008 and a net gain of $52.5 million (net of $29.2 million
of tax) in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to
determine net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.15
|
%
|
5.85
|
%
|
5.60
|
%
|
2.25% - 5.80
|
%
|
2.25% - 5.30
|
%
|
2.25% - 5.00
|
%
|
Expected return on plan assets
|
|
8.50
|
%
|
8.50
|
%
|
8.50
|
%
|
3.50% - 7.75
|
%
|
3.50% - 7.75
|
%
|
3.50% - 8.00
|
%
|
Rate of compensation increase
|
|
4.50
|
%
|
4.50
|
%
|
4.50
|
%
|
2.50% - 5.50
|
%
|
2.50% - 5.30
|
%
|
1.75% - 4.10
|
%
|
U.S. Pension Plans Investment Strategy and
Asset Allocation
Our U.S.
pension plans investment strategy supports the objectives of the fund, which
are to maximize returns within reasonable and prudent levels of risk, to
achieve and maintain full funding of the accumulated benefit obligations and
the actuarial liabilities, and to earn a nominal rate of return of at least
8.0%. The fund has established a strategic asset allocation policy to achieve
these objectives. Investments are diversified across asset classes and within
each class to reduce the risk of large losses and are periodically rebalanced.
Derivatives, such as swaps, options, forwards and futures contracts may be used
for market exposure, to alter risk/return characteristics and to manage foreign
currency exposure. The pension plans liabilities, investment objectives and
investment managers are reviewed periodically.
The expected
long-term rate of return on plan assets is based on historical and projected
rates of return for current and planned asset classes in the plans investment
portfolio after analyzing historical experience and future expectations of the
returns and volatility of the various asset classes. The overall expected rate
of return for the portfolio was determined based on the target asset
allocations for each asset class, adjusted for historical and expected
experience of active portfolio management results, when compared to the
benchmark returns.
The target
allocation for 2009 and the asset allocation for the U.S. pension plan at
December 31, 2008 and 2007, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
Percentage of Plan Assets at December 31,
|
|
|
|
|
|
|
|
Asset category
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
U.S.
equities
|
|
37
|
%
|
33
|
%
|
42
|
%
|
Non-U.S.
equities
|
|
19
|
%
|
17
|
%
|
23
|
%
|
Fixed income
|
|
32
|
%
|
39
|
%
|
28
|
%
|
Real estate
|
|
5
|
%
|
7
|
%
|
6
|
%
|
Private
equity
|
|
7
|
%
|
4
|
%
|
1
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The fair value
of plan assets was $1.2 billion and $1.7 billion at December 31, 2008 and 2007,
respectively, and the expected long-term rate of return on these plan assets
was 8.50% in 2008 and 2007.
Foreign Pension Plans Investment Strategy
Our foreign
pension plan assets are managed by outside investment managers and monitored
regularly by local trustees, in conjunction with our corporate personnel. The
investment strategies adopted by our foreign plans vary by country and plan,
with each strategy tailored to achieve the expected rate of return within an
acceptable or appropriate level of risk, depending upon the liability profile
of plan participants, local funding requirements, investment markets and
restrictions. Our largest foreign pension plan is the U.K. plan, which
represents 75% of the non-U.S. pension assets. The U.K. pension plans
investment strategy supports the objectives of the fund, which are to maximize
returns within reasonable and prudent levels of risk, to achieve and maintain
full funding of the accumulated benefit obligations and the actuarial
liabilities, and to earn a nominal rate of return of at least 7.25%. The fund
has established a strategic asset allocation policy to achieve these
objectives. Investments are diversified across asset classes and within each
class to minimize the risk of large losses and are periodically rebalanced.
Derivatives, such as swaps, options, forwards and futures contracts may be used
for market exposure, to alter risk/return characteristics and to manage foreign
currency exposure. The pension plans liabilities, investment objectives and
investment managers are reviewed periodically.
The expected
long-term rate of return on plan assets is based on historical and projected
rates of return for current and planned asset classes in the plans investment
portfolio after analyzing historical experience and future expectations of the
returns and volatility of the various asset classes. The overall expected rate
of return for the portfolio was determined based on the target asset
allocations for each asset class, adjusted for historical and expected
experience of active portfolio management results, when compared to the
benchmark returns.
The target
allocation for 2009 and the asset allocation for the U.K. pension plan at
December 31, 2008 and 2007, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
Percentage of Plan Assets at December 31,
|
|
|
|
|
|
|
|
Asset category
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
U.K.
equities
|
|
30
|
%
|
34
|
%
|
29
|
%
|
Non-U.K.
equities
|
|
35
|
%
|
29
|
%
|
43
|
%
|
Fixed income
|
|
35
|
%
|
33
|
%
|
25
|
%
|
Cash
|
|
|
%
|
4
|
%
|
3
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
The fair value
of plan assets was $234 million and $403 million at December 31, 2008 and 2007,
respectively, and the expected long-term rate of return on these plan assets was
7.25% and 7.75% in 2008 and 2007, respectively.
Nonpension Postretirement Benefits
We provide
certain health care and life insurance benefits to eligible retirees and their
dependents. The cost of these benefits is recognized over the period the employee
provides credited services to the Company. Substantially all of our U.S. and
Canadian employees become eligible for retiree health care benefits after
reaching age 55 and with the completion of the required service period. U.S.
employees hired after January 1, 2005, and Canadian employees hired after April
1, 2005, are not eligible for retiree health care benefits.
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The change in
benefit obligations, plan assets and the funded status for nonpension
postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit
obligations at beginning of year
|
|
$
|
246,572
|
|
$
|
261,720
|
|
Service cost
|
|
|
3,613
|
|
|
3,529
|
|
Interest
cost
|
|
|
14,410
|
|
|
13,904
|
|
Plan
participants contributions
|
|
|
8,627
|
|
|
7,951
|
|
Plan
amendments
|
|
|
|
|
|
(4,839
|
)
|
Actuarial
loss (gain)
|
|
|
14,662
|
|
|
(95
|
)
|
Foreign
currency changes
|
|
|
(3,653
|
)
|
|
2,522
|
|
Gross benefits
paid
|
|
|
(42,259
|
)
|
|
(41,415
|
)
|
Less federal subsidy on benefits paid
|
|
|
2,572
|
|
|
3,281
|
|
Special
termination benefits
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Benefit
obligations at end of year
|
|
$
|
244,544
|
|
$
|
246,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value
of plan assets at beginning of year
|
|
$
|
|
|
$
|
|
|
Company
contribution
|
|
|
31,060
|
|
|
30,183
|
|
Plan
participants contributions
|
|
|
8,627
|
|
|
7,951
|
|
Gross
benefits paid
|
|
|
(42,259
|
)
|
|
(41,415
|
)
|
Less federal subsidy on benefits paid
|
|
|
2,572
|
|
|
3,281
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at end of year
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year:
|
|
|
|
|
|
|
|
Fair value
of plan assets at end of year
|
|
$
|
|
|
$
|
|
|
Benefit
obligations at end of year
|
|
|
244,544
|
|
|
246,572
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$
|
(244,544
|
)
|
$
|
(246,572
|
)
|
|
|
|
|
|
|
|
|
The discount
rates used in determining the accumulated postretirement benefit obligations
for the U.S. plan were 5.95% in 2008 and 5.90% in 2007. The discount rates used
in determining the accumulated postretirement benefit obligations for the
Canadian plan were 6.60% in 2008 and 5.25% in 2007.
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheets consist of:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Current
liability
|
|
$
|
(26,920
|
)
|
$
|
(27,728
|
)
|
Non-current
liability
|
|
|
(217,624
|
)
|
|
(218,844
|
)
|
|
|
|
|
|
|
|
|
Net amount
recognized
|
|
$
|
(244,544
|
)
|
$
|
(246,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts recognized in AOCI consist of:
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
55,764
|
|
|
|
|
Prior
service credit
|
|
|
(10,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,892
|
|
|
|
|
|
|
|
|
|
|
|
|
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The components
of the net periodic benefit cost for nonpension postretirement benefit plans
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,613
|
|
$
|
3,529
|
|
$
|
3,347
|
|
Interest
cost
|
|
|
14,410
|
|
|
13,904
|
|
|
13,352
|
|
Amortization
of prior service benefit
|
|
|
(2,471
|
)
|
|
(2,472
|
)
|
|
(1,856
|
)
|
Recognized
net actuarial loss
|
|
|
3,386
|
|
|
2,214
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit cost
|
|
$
|
18,938
|
|
$
|
17,175
|
|
$
|
16,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine net
periodic costs during the years:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Discount
rate U.S.
|
|
|
5.90
|
%
|
|
5.85
|
%
|
|
5.60
|
%
|
Discount
rate Canada
|
|
|
5.25
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from AOCI
into net periodic benefit cost in 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
2,892
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
(2,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumed
health care cost trend rate used in measuring the accumulated postretirement
benefit obligations for the U.S. plan was 8.00% for 2008 and 7.00% for 2007.
The assumed health care trend rate is 8.00% for 2009 and we assume it will
gradually decline to 5.00% by the year 2015 and remain at that level
thereafter.
Assumed health
care cost trend rates have a significant effect on the amounts reported for the
health care plans. A 1% change in the assumed health care cost trend rates
would have the following effects:
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
|
|
|
|
|
|
Effect on
total of service and interest cost components
|
|
$
|
682
|
|
$
|
(587
|
)
|
Effect on
postretirement benefit obligations
|
|
$
|
8,537
|
|
$
|
(7,525
|
)
|
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Estimated Future Benefit Payments
The following
benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Nonpension
Postretirement
Benefits
|
|
|
|
|
|
|
|
|
For the year
ending 12/31/09
|
|
$
|
124,606
|
|
$
|
27,029
|
|
For the year
ending 12/31/10
|
|
|
132,096
|
|
|
26,574
|
|
For the year
ending 12/31/11
|
|
|
135,077
|
|
|
25,403
|
|
For the year
ending 12/31/12
|
|
|
143,143
|
|
|
23,983
|
|
For the year
ending 12/31/13
|
|
|
146,973
|
|
|
22,431
|
|
For the
years ending 12/31/14-12/31/18
|
|
|
788,815
|
|
|
96,456
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,470,710
|
|
$
|
221,876
|
|
|
|
|
|
|
|
|
|
Postretirement
benefit payments represent expected contributions, net of the annual Medicare
Part D subsidy of approximately $2.8 million in 2009. Subsidy payments for 2010
2018 range from $3.0 million to $4.2 million for each year.
14. Restructuring
Charges and Asset Impairments
We recorded
pre-tax restructuring charges and asset impairments of $200.3 million and
$264.0 million for the years ended December 31, 2008 and 2007, respectively.
These charges primarily relate to a program we announced in November 2007 to
lower our cost structure, accelerate efforts to improve operational
efficiencies, and transition our product line. For the year ended December 31,
2008, the asset impairment charges included in restructuring activities relate
to older technology equipment of $28.5 million and other assets of $2.2
million. For the year ended December 31, 2007, the asset impairment charges
included in restructuring activities related to the write-off of inventory of
$48.1 million, rental assets of $61.5 million, lease residual values of $46.1
million and other assets of $8.8 million.
Additional
asset impairments, unrelated to restructuring, were also recorded in 2008 and
2007. For 2008, these other impairment charges are related to intangible assets
of $16.0 million principally due to a loss of a customer in our Marketing
Services business and the ongoing shift in market conditions for the litigation
support vertical in our Management Services business. For 2007, additional
asset impairment charges included the write-down of certain intangible assets
for $8.5 million.
Other exit
costs of $35.3 million and $5.8 million in 2008 and 2007, respectively, relate
primarily to lease termination fees, facility closing costs, contract
cancellation costs and outplacement costs.
As of December
31, 2008, 1,926 terminations have occurred under the restructuring program and
approximately 300 additional unfilled positions have been eliminated. The
majority of the liability at December 31, 2008 is expected to be paid by the
end of 2009 from cash generated from operations.
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The pre-tax
restructuring charges and asset impairments are composed of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2007
|
|
2008 Expense
|
|
Cash payments
|
|
Non-cash
charges
|
|
Balance at
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefit costs
|
|
$
|
81,251
|
|
$
|
118,239
|
|
$
|
(91,059
|
)
|
$
|
|
|
$
|
108,431
|
|
Asset
impairments
|
|
|
|
|
|
46,695
|
|
|
|
|
|
(46,695
|
)
|
|
|
|
Other exit
costs
|
|
|
5,795
|
|
|
35,320
|
|
|
(8,437
|
)
|
|
|
|
|
32,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,046
|
|
$
|
200,254
|
|
$
|
(99,496
|
)
|
$
|
(46,695
|
)
|
$
|
141,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2006
|
|
2007 Expense
|
|
Cash payments
|
|
Non-cash
charges
|
|
Balance at
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefit costs
|
|
$
|
|
|
$
|
85,137
|
|
$
|
(3,886
|
)
|
$
|
|
|
$
|
81,251
|
|
Asset
impairments
|
|
|
|
|
|
173,081
|
|
|
|
|
|
(173,081
|
)
|
|
|
|
Other exit
costs
|
|
|
|
|
|
5,795
|
|
|
|
|
|
|
|
|
5,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
264,013
|
|
$
|
(3,886
|
)
|
$
|
(173,081
|
)
|
$
|
87,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January
2003, we undertook restructuring initiatives related to realigned
infrastructure requirements and reduced manufacturing needs for digital
equipment. In connection with this plan, we recorded pre-tax restructuring
charges of $36 million for the year ended December 31, 2006. The program was
completed during 2006 and, therefore, there were no additional restructuring
charges after December 31, 2006. We made restructuring payments of $3 million,
$29 million and $51 million during 2008, 2007 and 2006, respectively. See Note
1 to the Consolidated Financial Statements for our accounting policy related to
restructuring charges and asset impairments.
15. Commitments,
Contingencies and Regulatory Matters
Legal Proceedings
In the
ordinary course of business, we are routinely defendants in or party to a
number of pending and threatened legal actions. These may involve litigation by
or against us relating to, among other things, contractual rights under vendor,
insurance or other contracts; intellectual property or patent rights;
equipment, service, payment or other disputes with customers; or disputes with
employees. Some of these actions may be brought as a purported class action on behalf
of a purported class of employees, customers or others.
Our
wholly-owned subsidiary, Imagitas, Inc., is a defendant in ten purported class
actions filed in six different states. These lawsuits have been coordinated in
the United States District Court for the Middle District of Florida,
In re:
Imagitas, Drivers Privacy Protection Act Litigation
(Coordinated, May 28,
2007). Each of these lawsuits alleges that the Imagitas DriverSource program
violates the federal Drivers Privacy Protection Act (DPPA). Under the
DriverSource program, Imagitas enters into contracts with state governments to
mail out automobile registration renewal materials along with third party
advertisements, without revealing the personal information of any state
resident to any advertiser. The DriverSource program assists the state in
performing its governmental function of delivering these mailings and funding
the costs of them. The plaintiffs in these actions are seeking both statutory
damages under the DPPA and an injunction against the continuation of the
program. On April 9, 2008, the District Court granted Imagitas motion for
summary judgment in one of the coordinated cases,
Rine, et al. v. Imagitas,
Inc.
(United States District Court, Middle District of Florida, filed August 1,
2006). On July 30, 2008, the District Court issued a final judgment in the
Rine
lawsuit and stayed all of the other cases filed against Imagitas pending an
appellate decision in
Rine
. On August 27, 2008, the
Rine
plaintiffs filed an
appeal of the District Courts decision in the United States Court of Appeals,
Eleventh Judicial Circuit. The appellate process in this case is proceeding.
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
We expect to
prevail in the lawsuits against Imagitas; however, as litigation is inherently
unpredictable, there can be no assurance in this regard. If the plaintiffs do
prevail, the results may have a material effect on our financial position,
future results of operations or cash flows, including, for example, our ability
to offer certain types of goods or services in the future.
Product Warranty
We provide
product warranties in conjunction with certain product sales, generally for a
period of 90 days from the date of installation. Our product warranty liability
reflects our best estimate of probable liability or product warranties based on
historical claims experience, which has not been significant, and other
currently available evidence. Accordingly, our product warranty liability at
December 31, 2008 and 2007, respectively, was not material.
In addition to
factory and office facilities owned, we lease similar properties, as well as
sales and service offices, equipment and other properties, generally under
long-term operating lease agreements extending from 3 to 25 years.
Future minimum
lease payments under non-cancelable operating leases at December 31, 2008 are
as follows:
|
|
|
|
|
Years
ending December 31,
|
|
Operating leases
|
|
|
|
|
|
2009
|
|
$
|
80,622
|
|
2010
|
|
|
61,696
|
|
2011
|
|
|
45,468
|
|
2012
|
|
|
32,956
|
|
2013
|
|
|
21,163
|
|
Thereafter
|
|
|
25,338
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
267,243
|
|
|
|
|
|
|
Rental expense
was $129.1 million, $146.9 million and $138.8 million in 2008, 2007 and 2006,
respectively.
Finance Receivables
Finance
receivables are generally due in monthly, quarterly or semi-annual installments
over periods ranging from 3 to 5 years and are comprised of sales-type leases
and customer loan receivables.
The components
of finance receivables were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Gross
finance receivables
|
|
$
|
3,338,799
|
|
$
|
3,587,947
|
|
Unguaranteed
residual values
|
|
|
273,529
|
|
|
260,815
|
|
Unearned
income
|
|
|
(666,742
|
)
|
|
(740,046
|
)
|
Initial
direct cost deferred
|
|
|
1,914
|
|
|
1,914
|
|
Allowance
for credit losses
|
|
|
(71,790
|
)
|
|
(78,371
|
)
|
|
|
|
|
|
|
|
|
Net
investment in finance receivables
|
|
$
|
2,875,710
|
|
$
|
3,032,259
|
|
|
|
|
|
|
|
|
|
Net investment
in finance receivables include net customer loan receivables at December 31,
2008 and 2007 of $528.8 million and $552.9 million, respectively. Customer loan
receivables arise primarily from financing services offered to our customers
for postage, supplies, and shipping payments. Customer loan receivables are
generally due each month, however, customers may rollover
77
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
outstanding
balances. See discussion on Pitney Bowes Bank below. As part of our transition
initiatives, we recorded a charge of $46.1 million in 2007 for the impairment
of unguaranteed residual values which was included in the restructuring charges
and asset impairments line of the Consolidated Statement of Income. Also see
Note 14 to the Consolidated Financial Statements for further details.
Maturities of
gross finance receivables are as follows:
|
|
|
|
|
Years
ending December 31,
|
|
|
|
|
2009
|
|
$
|
1,677,044
|
|
2010
|
|
|
731,128
|
|
2011
|
|
|
499,862
|
|
2012
|
|
|
290,014
|
|
2013
|
|
|
122,074
|
|
Thereafter
|
|
|
18,677
|
|
|
|
|
|
|
Total
|
|
$
|
3,338,799
|
|
|
|
|
|
|
Pitney Bowes Bank
The Pitney Bowes Bank (PBB), our wholly owned subsidiary, is a
Utah-chartered Industrial Loan Company (ILC). At December 31, 2008, PBB had
assets of $690 million and liabilities of $630 million. The banks assets
consist of finance receivables, short and long-term investments and cash. PBBs
key product offering, Purchase Power, is a revolving credit solution, which
enables customers to defer payment for postage when they refill their meter.
PBB earns revenue through transaction fees, finance charges on outstanding
balances, and other fees for services. The banks liabilities consist primarily
of PBBs deposit solution, Reserve Account, which provides value to
large-volume mailers who prefer to prepay postage and earn interest on their
deposits. The FDIC and the Utah Department of Financial Institutions provide
oversight of PBB.
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Leveraged Leases
Our investment
in leveraged lease assets consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental receivables
|
|
$
|
1,523,617
|
|
$
|
1,889,083
|
|
Unguaranteed residual values
|
|
|
11,522
|
|
|
32,487
|
|
Principal and interest on non-recourse loans
|
|
|
(1,173,789
|
)
|
|
(1,478,555
|
)
|
Unearned income
|
|
|
(159,429
|
)
|
|
(193,824
|
)
|
|
|
|
|
|
|
|
|
Investment in leveraged leases
|
|
|
201,921
|
|
|
249,191
|
|
Less: Deferred taxes related to leveraged leases
|
|
|
(97,980
|
)
|
|
(117,500
|
)
|
|
|
|
|
|
|
|
|
Net investment in leveraged leases
|
|
$
|
103,941
|
|
$
|
131,691
|
|
|
|
|
|
|
|
|
|
The following is a summary of the components of income from leveraged
leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Pre-tax leveraged lease income
|
|
$
|
316
|
|
$
|
4,270
|
|
$
|
8,019
|
|
Income tax effect
|
|
|
7,063
|
|
|
1,186
|
|
|
(923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income from leveraged leases
|
|
$
|
7,379
|
|
$
|
5,456
|
|
$
|
7,096
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from leveraged
leases was positively impacted by $2.6 million and negatively impacted by $0.2
million in 2008 and 2007, respectively, due to changes in statutory tax rates.
|
|
18. Business Segment
Information
|
We conduct our
business activities in seven business segments within the Mailstream Solutions
and Mailstream Services business groups. For a description of our reportable
segments and the types of products and services from which each reportable
segment derives its revenue, see Item 1 Business on page 3 of this Form
10-K. That information is incorporated herein by reference. The information set
forth below should be read in conjunction with such information. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies, with the exception of the items outlined
below.
EBIT is
determined by deducting from revenue the related costs and expenses
attributable to the segment. Segment EBIT excludes general corporate expenses,
restructuring charges, interest expense, other income (expense) and income
taxes. Identifiable assets are those used in our operations and exclude cash
and cash equivalents, short-term investments and general corporate assets.
Long-lived assets exclude finance receivables and investment in leveraged
leases.
As a result of
certain organizational changes made during 2008, we have reclassified certain
prior year amounts to conform to the current year presentation. The amounts
reclassified did not have a material impact to our segment disclosures.
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Revenue and
earnings before interest and taxes (EBIT) by business segment and geographic
area follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.Mailing
|
|
$
|
2,206,856
|
|
$
|
2,364,061
|
|
$
|
2,361,811
|
|
International Mailing
|
|
|
1,133,652
|
|
|
1,069,713
|
|
|
1,013,278
|
|
Production Mail
|
|
|
616,255
|
|
|
622,699
|
|
|
595,701
|
|
Software
|
|
|
399,814
|
|
|
326,359
|
|
|
182,067
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
4,356,577
|
|
|
4,382,832
|
|
|
4,152,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
1,172,170
|
|
|
1,134,767
|
|
|
1,073,911
|
|
Mail Services
|
|
|
541,776
|
|
|
441,353
|
|
|
358,238
|
|
Marketing Services
|
|
|
191,782
|
|
|
170,843
|
|
|
145,012
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,905,728
|
|
|
1,746,963
|
|
|
1,577,161
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,262,305
|
|
$
|
6,129,795
|
|
$
|
5,730,018
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
4,335,650
|
|
|
4,394,156
|
|
|
4,213,247
|
|
Outside the United States
|
|
|
1,926,655
|
|
|
1,735,639
|
|
|
1,516,771
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,262,305
|
|
$
|
6,129,795
|
|
$
|
5,730,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.Mailing
|
|
$
|
895,957
|
|
$
|
964,666
|
|
$
|
949,700
|
|
International Mailing
|
|
|
184,667
|
|
|
162,257
|
|
|
179,377
|
|
Production Mail
|
|
|
81,514
|
|
|
74,364
|
|
|
68,475
|
|
Software
|
|
|
28,335
|
|
|
37,031
|
|
|
30,442
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
1,190,473
|
|
|
1,238,318
|
|
|
1,227,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
70,173
|
|
|
76,051
|
|
|
83,169
|
|
Mail Services
|
|
|
68,800
|
|
|
56,416
|
|
|
36,943
|
|
Marketing Services
|
|
|
15,690
|
|
|
8,930
|
|
|
20,056
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
154,663
|
|
|
141,397
|
|
|
140,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,345,136
|
|
$
|
1,379,715
|
|
$
|
1,368,162
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,100,900
|
|
|
1,177,920
|
|
|
1,160,382
|
|
Outside the United States
|
|
|
244,236
|
|
|
201,795
|
|
|
207,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,345,136
|
|
$
|
1,379,715
|
|
$
|
1,368,162
|
|
|
|
|
|
|
|
|
|
|
|
|
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Additional
segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
143,300
|
|
$
|
158,568
|
|
|
$
|
150,784
|
|
International Mailing
|
|
|
63,389
|
|
|
67,192
|
|
|
|
60,125
|
|
Production Mail
|
|
|
7,358
|
|
|
10,092
|
|
|
|
10,456
|
|
Software
|
|
|
37,317
|
|
|
26,864
|
|
|
|
10,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
251,364
|
|
|
262,716
|
|
|
|
231,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
65,320
|
|
|
65,480
|
|
|
|
64,507
|
|
Mail Services
|
|
|
32,045
|
|
|
27,573
|
|
|
|
29,620
|
|
Marketing Services
|
|
|
11,502
|
|
|
12,662
|
|
|
|
10,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
108,867
|
|
|
105,715
|
|
|
|
104,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
360,231
|
|
$
|
368,431
|
|
|
$
|
336,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
99,941
|
|
$
|
92,112
|
|
|
$
|
142,538
|
|
International Mailing
|
|
|
45,473
|
|
|
64,241
|
|
|
|
87,192
|
|
Production Mail
|
|
|
3,613
|
|
|
3,435
|
|
|
|
9,510
|
|
Software
|
|
|
12,519
|
|
|
7,755
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
161,546
|
|
|
167,543
|
|
|
|
239,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
28,152
|
|
|
52,540
|
|
|
|
54,417
|
|
Mail Services
|
|
|
30,344
|
|
|
21,431
|
|
|
|
12,332
|
|
Marketing Services
|
|
|
2,572
|
|
|
619
|
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
61,068
|
|
|
74,590
|
|
|
|
67,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
222,614
|
|
$
|
242,133
|
|
|
$
|
306,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
3,012,769
|
|
$
|
3,370,420
|
|
|
|
|
|
International Mailing
|
|
|
1,644,667
|
|
|
1,909,768
|
|
|
|
|
|
Production Mail
|
|
|
594,646
|
|
|
645,188
|
|
|
|
|
|
Software
|
|
|
994,491
|
|
|
1,046,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
6,246,573
|
|
|
6,972,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
905,410
|
|
|
962,997
|
|
|
|
|
|
Mail Services
|
|
|
508,308
|
|
|
432,856
|
|
|
|
|
|
Marketing Services
|
|
|
293,322
|
|
|
326,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,707,040
|
|
|
1,722,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,953,613
|
|
$
|
8,694,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable long-lived assets by geographic areas:
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,971,267
|
|
$
|
2,862,738
|
|
|
|
|
|
Outside the United States
|
|
|
1,026,264
|
|
|
1,472,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,997,531
|
|
$
|
4,335,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Reconciliation of
Segment Amounts to Consolidated Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
|
|
|
Total EBIT for reportable segments
|
|
$
|
1,345,136
|
|
$
|
1,379,715
|
|
|
$
|
1,368,162
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(216,450
|
)
|
|
(241,871
|
)
|
|
|
(212,596
|
)
|
Corporate expense
|
|
|
(209,543
|
)
|
|
(210,544
|
)
|
|
|
(208,099
|
)
|
Restructuring charges and asset impairments
|
|
|
(200,254
|
)
|
|
(264,013
|
)
|
|
|
(35,999
|
)
|
Other items
|
|
|
(5,712
|
)
|
|
(2,576
|
)
|
|
|
3,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes and minority interest
|
|
$
|
713,177
|
|
$
|
660,711
|
|
|
$
|
914,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization for
reportable segments
|
|
$
|
360,231
|
|
$
|
368,431
|
|
|
$
|
336,064
|
|
Corporate depreciation
|
|
|
18,886
|
|
|
14,710
|
|
|
|
15,216
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
11,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization
|
|
$
|
379,117
|
|
$
|
383,141
|
|
|
$
|
363,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
Total additions for reportable segments
|
|
$
|
222,614
|
|
$
|
242,133
|
|
|
$
|
306,832
|
|
Unallocated amounts
|
|
|
14,694
|
|
|
22,523
|
|
|
|
21,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$
|
237,308
|
|
$
|
264,656
|
|
|
$
|
327,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets by reportable
segments
|
|
$
|
7,953,613
|
|
$
|
8,694,262
|
|
|
|
|
|
Cash and cash equivalents and short-term
investments
|
|
|
398,222
|
|
|
440,455
|
|
|
|
|
|
General corporate assets
|
|
|
384,596
|
|
|
331,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
8,736,431
|
|
$
|
9,465,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
Fair Value of Financial Instruments
Effective
January 1, 2008, we adopted SFAS 157 for financial assets and liabilities. Fair
value is a market-based measure considered from the perspective of a market
participant rather than an entity-specific measure. SFAS 157 emphasizes that an
entitys valuation technique for measuring fair value should maximize
observable inputs and minimize unobservable inputs.
Non-recurring
nonfinancial assets and nonfinancial liabilities for which we have not applied
the provisions of SFAS 157 include those measured at fair value in goodwill
impairment testing, indefinite-lived intangible assets measured at fair value
for impairment testing, and those non-recurring nonfinancial assets and
nonfinancial liabilities initially measured at fair value in a business
combination. The new fair value definition and disclosure requirements for
these specific nonfinancial assets and nonfinancial liabilities will be
effective January 1, 2009.
SFAS 157
established a fair value hierarchy that prioritizes the inputs used to measure
fair value. The three levels of the fair value hierarchy as defined by SFAS 157
are as follows:
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Level
1 Unadjusted quoted prices in active markets for identical assets and
liabilities. Examples of Level 1 assets include money market securities and
U.S. Treasury securities.
Level
2 Observable inputs other than Level 1 inputs such as quoted prices for
similar assets or liabilities; quoted prices in markets that trade
infrequently; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities. Examples of Level 2 assets and liabilities include derivative contracts
whose values are determined using a model with inputs that are observable in
the market or can be derived from or corroborated by observable market data,
mortgage-backed securities, asset backed securities, U.S. agency securities,
and corporate notes and bonds.
Level
3 Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the asset or liability. These inputs
may be derived with internally developed methodologies that result in
managements best estimate of fair value. During the twelve months ended
December 31, 2008 we had no Level 3 recurring measurements.
The following
table shows, by level within the fair value hierarchy, our financial assets and
liabilities that are accounted for at fair value on a recurring basis at
December 31, 2008. As required by SFAS 157, financial assets and liabilities
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance
of a particular input to the fair value measurement requires judgment and may
affect their placement within the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
Fair Value Measurements at December 31, 2008 by Level
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
181,664
|
|
$
|
|
|
$
|
|
|
$
|
181,664
|
|
U.S. Government and agency issued debt
|
|
|
30,583
|
|
|
11,433
|
|
|
|
|
|
42,016
|
|
Corporate notes and bonds
|
|
|
|
|
|
4,725
|
|
|
|
|
|
4,725
|
|
Asset backed securities
|
|
|
|
|
|
2,658
|
|
|
|
|
|
2,658
|
|
Mortgage-backed securities
|
|
|
|
|
|
21,713
|
|
|
|
|
|
21,713
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
32,486
|
|
|
|
|
|
32,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
212,247
|
|
$
|
73,015
|
|
$
|
|
|
$
|
285,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
$
|
(286
|
)
|
$
|
|
|
$
|
(286
|
)
|
Treasury lock and forward starting swaps
|
|
|
|
|
|
(31,326
|
)
|
|
|
|
|
(31,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
$
|
(31,612
|
)
|
$
|
|
|
$
|
(31,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities
For our
investments, we use the market approach for recurring fair value measurements
and the valuation techniques use 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:
Money market funds typically invest in government
securities, certificates of deposit, commercial paper of companies and other
highly liquid and low-risk securities. Money market funds are principally used
for overnight deposits and are classified in Level 1 of the fair value
hierarchy.
U.S.
Government Issued Debts
: U.S. Governmental securities are valued
using active, high volume trades for identical securities. Valuation
adjustments are not applied so these securities are classified in Level 1 of
the fair value hierarchy.
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
U.S.
Agency Issued Debt:
U.S. Agency issued debt is based on active, high
volume trades for identical or comparable securities. Non-callable agency
issued debt securities are generally valued using quoted market prices. To the
extent that the securities are actively traded, they are categorized in Level 1
of the fair value hierarchy. Callable agency issued debt securities are valued
through benchmarking model derived prices to quoted market prices and trade
data for identical or comparable securities. Callable agency issued debt
securities are categorized in Level 2 of the fair value hierarchy.
Corporate
Notes and Bonds
: The fair value of corporate securities is estimated
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 in Level 2 of the fair value
hierarchy.
Asset
Backed Securities (ABS) and Mortgage-Backed Securities (MBS):
These
securities are generally valued based on external pricing indices. When
external index pricing is not observable, ABS and MBS are valued based on
external price/spread data. If neither pricing method is available, we then
utilize broker quotes. At December 31, 2008, we had $6.4 million investments
valued using non-binding broker quotes. We verify that the unadjusted indices
or broker quotes are reasonable by comparing prices across multiple (three or
more) dealers and we verify that current trades have occurred at these prices.
When inputs are observable and supported by an active market, asset backed securities
and mortgage-backed securities are classified as Level 2 of the fair value
hierarchy.
Investment
securities are primarily composed of investments by PBB. Our investments are
all classified as available-for-sale securities. PBBs investments at
December 31, 2008 were $196.9 million. We reported these investments in the
Consolidated Balance Sheet as cash and cash equivalents of $125.8 million,
short-term investments of $18.3 million and long-term investments of $52.8
million.
The fair value
measurements of PBBs investments are determined by third party service
providers (Zions - Liquid Asset Management and Utendahl Capital Management). To
validate the accuracy of the portfolio valuation, we utilize independent third
parties to monthly price a minimum of 20% of the portfolio balance, ensuring
our sample includes all types of securities held in the portfolio. We review
the results of the pricing sample to ensure that the initial fair value
valuations are accurate. If the pricing can not be validated reasonably (plus
or minus 3% for each security and plus or minus 1% for the entire sample), we
take action to investigate the differences. We have not adjusted the initial
values as variances have been within these tolerance limits. Additionally, we
ensure that the fair value measurements are in accordance with SFAS 157 and
that we have properly classified our assets in the fair value hierarchy.
We have no
investments either directly or indirectly in the sub-prime mortgage market. We
have not experienced any write-offs in our investment portfolio. The majority
of our mortgage-backed securities are either guaranteed or supported by the
U.S. government. The recent market events have not caused our money market
funds to experience declines in their net asset value below $1.00 dollar per
share or to incur imposed limits on redemptions.
We have no
investments in inactive markets which would warrant a possible change in our
pricing methods or classification within the fair value hierarchy. Further, we
have no investments in auction rate securities.
Derivatives
In the normal
course of business, we are exposed to the impact of interest rate changes and
foreign currency fluctuations. The company limits these risks by following
established risk management policies and procedures, including the use of
derivatives. We use derivatives to manage the related cost of debt and to limit
the effects of foreign exchange rate fluctuations on financial results. We do
not use derivatives for trading or speculative purposes.
As required by
SFAS 157, we have incorporated counterparty risk into the fair value of our
derivative assets and our credit risk into the value of our derivative
liabilities. We derive credit risk from observable data related to credit
default swaps. In light of the current market events, we have not seen a
material change in the creditworthiness of those banks acting as derivative
counterparties.
84
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The valuation
of our interest rate swaps is based on the income approach using a model with
inputs that are observable or that can be derived from or corroborated by
observable market data. Our foreign exchange derivatives are measured at fair
value using observable market inputs, such as forward rates.
Interest Rate Swaps
Derivatives
designated as fair value hedges include interest rate swaps related to fixed
rate debt. Changes in the fair value of both the derivative and item being
hedged are recognized in income.
In April 2003,
we entered into an interest rate swap for an aggregate notional amount of $350
million. The interest rate swap effectively converted the fixed rate of 4.75%
on $350 million of our notes, due 2018, into variable interest rates. The
variable rates payable by us were based on six month LIBOR less a spread of
22.8 basis points. At December 31, 2007, the fair value of the derivative was
an asset of $6.8 million and long-term debt was increased by the same amount.
In November 2008, we unwound this interest rate swap. As a result of this
transaction, we received a total payment of $44.2 million, including accrued
interest. After adjusting for interest, we recorded $44.0 million as an
increase in long-term debt to reflect the fair value hedge basis adjustment.
The $44.0 million will be recognized as a reduction in interest expense over
the remaining term of the notes and results in an effective interest rate of
3.2%.
In March 2008,
we entered into two interest rate swaps for an aggregate notional amount of
$250 million to effectively convert the fixed rate of 5.60% on $250 million of
our notes, due 2018, into variable interest rates. The variable rates payable
by us are based on six month LIBOR plus 111.5 basis points. At December 31,
2008, the fair value of the derivatives was an asset of $32.5 million.
Long-term debt was increased by $32.5 million as of December 31, 2008.
Foreign Exchange Contracts
We enter into
foreign exchange contracts to minimize the impact of exchange rate fluctuations
on inter-company loans and related interest that are denominated in a foreign
currency. The revaluation of the short-term inter-company loans and interest
and the mark-to-market on the derivatives are both recorded to income. At
December 31, 2008, we had 24 outstanding foreign exchange contracts to buy or
sell various currencies with a net liability value of $0.1 million. The
contracts will expire by April 29, 2009. At December 31, 2007, the asset value
of these derivatives was $1.9 million.
We also enter
into foreign currency exchange contracts arising from the anticipated purchase
of inventory between affiliates. These contracts are designated as cash flow
hedges. The effective portion of the gain or loss on the cash flow hedges is
included in other comprehensive income in the period that the change in fair
value occurs and is reclassified to income in the same period that the hedged
item is recorded in income. We had no outstanding contracts at December 31,
2008 and 2007.
Certain
foreign currency derivatives have been entered into to manage foreign currency
transactional exposures associated with the transactions between affiliates.
These derivatives have no specific hedging designation so gains or losses are
recorded in income in the period that changes in fair value occur together with
the offsetting foreign exchange gains or losses on the underlying assets and
liabilities. The fair value of these derivatives was a liability of $0.2
million and $1.9 million at December 31, 2008 and 2007, respectively.
Treasury Lock & Forward Starting Swap
Agreements
We utilize
forward starting swap agreements (forward swaps) in order to hedge the interest
rate risk on the forecasted issuance of fixed-rate debt. These derivatives are
treated as cash flow hedges, protecting against the risk of changes in future
interest payments resulting from changes in LIBOR rates between the date of
hedge inception and the date of the debt issuance. We consider counterparty
credit risk in the hedge assessments and continue to expect the
forward-starting swaps to be effective in protecting against the risk of
changes in future interest payments.
Net Investment Hedges
A portion of
our intercompany loans denominated in a foreign currency is designated as a
hedge of net investment. The revaluation of these loans is reflected as a
deferred translation gain or loss and thereby offsets a portion of the
translation adjustment of the applicable foreign subsidiaries net assets. At
December 31, 2008, we had one intercompany loan with an outstanding value of
$119.2
85
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
million
designated as a net investment hedge. At December 31, 2007, we had two
intercompany loans with an outstanding value of $126.4 million associated with
net investment hedges. Net deferred translation gains of $41.7 million and
$37.4 million for 2008 and 2007, respectively, were included in accumulated
other comprehensive (loss) income in stockholders (deficit) equity on the
Consolidated Balance Sheets.
The estimated
fair value of our financial instruments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Carrying
value (1)
|
|
Fair value
|
|
Carrying
value (1)
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
251,298
|
|
$
|
252,776
|
|
$
|
200,006
|
|
$
|
200,005
|
|
Loans receivable
|
|
$
|
528,800
|
|
$
|
528,800
|
|
$
|
554,370
|
|
$
|
554,370
|
|
Long-term debt
|
|
$
|
(3,990,134
|
)
|
$
|
(3,880,418
|
)
|
$
|
(3,848,359
|
)
|
$
|
(3,722,209
|
)
|
Derivatives, net
|
|
$
|
874
|
|
$
|
874
|
|
$
|
7,623
|
|
$
|
7,623
|
|
(1) Carrying
value includes accrued interest and deferred fee income, where applicable.
The fair value
of long-term debt is estimated based on quoted dealer prices for the same or
similar issues. The carrying value for cash, cash equivalents, accounts
receivable, loans receivable, accounts payable and notes payable approximate
fair value because of the short maturity of these instruments.
20. Earnings per
Share
A
reconciliation of the basic and diluted earnings per share computations for
income from continuing operations for the years ended December 31, 2008, 2007
and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
447,493
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
Preference stock dividends
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
447,416
|
|
|
208,425,191
|
|
$
|
2.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
447,416
|
|
|
208,425,191
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
3,272
|
|
|
|
|
Preference stock
|
|
|
77
|
|
|
600,733
|
|
|
|
|
Stock options
|
|
|
|
|
|
567,305
|
|
|
|
|
Other
|
|
|
|
|
|
102,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
447,493
|
|
|
209,699,471
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
2.15
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
2.13
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
86
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
361,247
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
Preference stock dividends
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
361,166
|
|
|
218,444,268
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
361,166
|
|
|
218,444,268
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
3,272
|
|
|
|
|
Preference stock
|
|
|
81
|
|
|
637,877
|
|
|
|
|
Stock options
|
|
|
|
|
|
1,971,010
|
|
|
|
|
Other
|
|
|
|
|
|
163,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
361,247
|
|
|
221,219,746
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
1.65
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
1.63
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
565,659
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(1
|
)
|
|
|
|
|
|
|
Preference stock dividends
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
565,572
|
|
|
222,473,514
|
|
$
|
2.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
565,572
|
|
|
222,473,514
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1
|
|
|
6,815
|
|
|
|
|
Preference stock
|
|
|
86
|
|
|
682,934
|
|
|
|
|
Stock options
|
|
|
|
|
|
2,093,517
|
|
|
|
|
Other
|
|
|
|
|
|
186,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
565,659
|
|
|
225,443,060
|
|
$
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
2.54
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
(2.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
2.51
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
(2.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: The sum of the earnings
per share amounts may not equal the totals above due to rounding.
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In accordance
with SFAS No. 128,
Earnings per Share
, 3.3 million, 0.5
million and 0.8 million common stock equivalent shares in 2008, 2007 and 2006,
respectively, issuable upon the exercise of stock options were excluded from
the above computations because the exercise prices of such options were greater
than the average market price of the common stock, and therefore the impact of
these shares was anti-dilutive.
21. Quarterly
Financial Data (unaudited)
Summarized
quarterly financial data for 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,573,957
|
|
$
|
1,588,086
|
|
$
|
1,547,673
|
|
$
|
1,552,589
|
|
$
|
6,262,305
|
|
Gross profit (1)
|
|
|
825,645
|
|
|
830,321
|
|
|
811,999
|
|
|
816,009
|
|
|
3,283,974
|
|
Restructuring charges and asset impairments
|
|
|
17,093
|
|
|
18,815
|
|
|
49,229
|
|
|
115,117
|
|
|
200,254
|
|
Income from continuing operations
|
|
|
122,935
|
|
|
131,340
|
|
|
100,292
|
|
|
92,926
|
|
|
447,493
|
|
Loss from discontinued operations
|
|
|
(3,832
|
)
|
|
(2,831
|
)
|
|
(2,063
|
)
|
|
(18,974
|
)
|
|
(27,700
|
)
|
Net income
|
|
|
119,103
|
|
|
128,509
|
|
|
98,229
|
|
|
73,952
|
|
|
419,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.58
|
|
$
|
0.63
|
|
$
|
0.48
|
|
$
|
0.45
|
|
$
|
2.15
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.09
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
0.56
|
|
$
|
0.62
|
|
$
|
0.47
|
|
$
|
0.36
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.58
|
|
$
|
0.63
|
|
$
|
0.48
|
|
$
|
0.45
|
|
$
|
2.13
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.09
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
0.56
|
|
$
|
0.61
|
|
$
|
0.47
|
|
$
|
0.36
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,414,237
|
|
$
|
1,543,034
|
|
$
|
1,508,277
|
|
$
|
1,664,247
|
|
$
|
6,129,795
|
|
Gross profit (1)
|
|
|
756,734
|
|
|
837,725
|
|
|
799,143
|
|
|
865,438
|
|
|
3,259,040
|
|
Restructuring charges and asset impairments
|
|
|
|
|
|
|
|
|
4,300
|
|
|
259,713
|
|
|
264,013
|
|
Income (loss) from continuing operations
|
|
|
146,584
|
|
|
153,581
|
|
|
129,240
|
|
|
(68,158
|
)
|
|
361,247
|
|
(Loss) income from discontinued operations
|
|
|
(1,788
|
)
|
|
(1,342
|
)
|
|
(1,565
|
)
|
|
10,229
|
|
|
5,534
|
|
Net income (loss)
|
|
|
144,796
|
|
|
152,239
|
|
|
127,675
|
|
|
(57,929
|
)
|
|
366,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.67
|
|
$
|
0.70
|
|
$
|
0.59
|
|
$
|
(0.32
|
)
|
$
|
1.65
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
0.05
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.66
|
|
$
|
0.69
|
|
$
|
0.58
|
|
$
|
(0.27
|
)
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.66
|
|
$
|
0.69
|
|
$
|
0.58
|
|
$
|
(0.31
|
)
|
$
|
1.63
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
0.05
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.65
|
|
$
|
0.68
|
|
$
|
0.58
|
|
$
|
(0.26
|
)
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Gross
profit is defined as total revenue less cost of equipment sales, cost of
supplies, cost of software, cost of rentals, cost of support services and
cost of business services.
|
|
(2) The sum
of the quarters and earnings per share amounts may not equal the annual and
total amounts due to rounding.
|
88
PITNEY BOWES INC.
S
CHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2006 TO 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
beginning of year
|
|
Additions
|
|
Deductions
|
|
Balance at
end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
49,324
|
|
$
|
17,134
|
(1)
|
$
|
(21,194
|
)
(2)
|
$
|
45,264
|
|
2007
|
|
$
|
50,052
|
|
$
|
19,880
|
(1)
|
$
|
(20,608
|
) (2)
|
$
|
49,324
|
|
2006
|
|
$
|
46,261
|
|
$
|
27,718
|
(1)
|
$
|
(23,927
|
) (2)
|
$
|
50,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses on finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
78,371
|
|
$
|
51,736
|
|
$
|
(58,317
|
)
(2)
|
$
|
71,790
|
|
2007
|
|
$
|
82,499
|
|
$
|
44,440
|
|
$
|
(48,568
|
) (2)
|
$
|
78,371
|
|
2006
|
|
$
|
128,862
|
|
$
|
39,432
|
|
$
|
(85,795
|
) (2)
|
$
|
82,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for deferred tax asset (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
69,792
|
|
$
|
15,584
|
|
$
|
(16,329
|
)
|
$
|
69,047
|
|
2007
|
|
$
|
33,563
|
|
$
|
64,487
|
|
$
|
(28,258
|
)
|
$
|
69,792
|
|
2006
|
|
$
|
21,777
|
|
$
|
13,583
|
|
$
|
(1,797
|
)
|
$
|
33,563
|
|
|
|
(1)
|
Includes
additions charged to expenses, additions from acquisitions and impact of
foreign exchange translation.
|
|
|
(2)
|
Includes
uncollectible accounts written off and amounts included in divestitures.
|
|
|
(3)
|
Included in
Consolidated Balance Sheet as a liability.
|
89
Exhibit
Index
|
|
|
|
|
|
|
Reference
Number per
Item 601 of
Regulation SK
|
|
Exhibit
Number in
this Form
10-K
|
|
Document
Name
|
|
Page
Number
|
|
|
|
|
|
|
|
(10)
|
|
Exhibit
(i)
|
|
Pitney Bowes Inc. Key
Employees Incentive Plan, as amended and restated October 1, 2007
|
|
Page
91
|
|
|
|
|
|
|
|
|
|
Exhibit
(ii)
|
|
Pitney Bowes Inc. Deferred
Incentive Savings Plan for the Board of Directors, as amended and restated
effective January 1, 2009
|
|
Page
96
|
|
|
|
|
|
|
|
|
|
Exhibit
(iii)
|
|
Pitney Bowes Inc. Deferred
Incentive Savings Plan, as amended and restated effective January 1, 2009
|
|
Page
108
|
|
|
|
|
|
|
|
(12)
|
|
Exhibit
(iv)
|
|
Computation of ratio of
earnings to fixed charges
|
|
Page
139
|
|
|
|
|
|
|
|
(21)
|
|
Exhibit
(v)
|
|
Subsidiaries of the
registrant
|
|
Page
140
|
|
|
|
|
|
|
|
(23)
|
|
Exhibit
(vi)
|
|
Consent of experts and
counsel
|
|
Page
142
|
|
|
|
|
|
|
|
(31.1)
|
|
|
|
Certification of Chief
Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended.
|
|
Page
143
|
|
|
|
|
|
|
|
(31.2)
|
|
|
|
Certification of Chief
Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
|
|
Page
144
|
|
|
|
|
|
|
|
(32.1)
|
|
|
|
Certification of Chief
Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
Page
145
|
|
|
|
|
|
|
|
(32.2)
|
|
|
|
Certification of Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
Page
146
|
90
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