Dependence on third-party suppliers
We depend on third-party
suppliers for a variety of services, components, supplies and a portion of our
product manufacturing. In certain instances, we rely on single sourced or
limited sourced suppliers around the world because the relationship is
advantageous due to quality or price or there are no alternative sources. If
production or service was interrupted and we were not able to find alternate
suppliers, we could experience disruptions in manufacturing and operations
including product shortages, an increase in freight costs, and re-engineering
costs. This could result in our inability to meet customer demand, damage our
reputation and customer relationships and adversely affect our business.
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 experienced continued volatility and disruption. In some cases,
the markets have exerted downward pressure on stock prices and credit capacity
for certain issuers. A portion of Pitney Bowes total borrowings has been
issued in the commercial paper markets. While 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. If market conditions deteriorate, 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, financial 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 of this Form 10-K.
6
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.
I
TEM 1B. UNRESOLVED STAFF COMMENTS
None.
I
TEM 2. PROPERTIES
Our world headquarters
and certain other facilities are located in Stamford, Connecticut. We have
approximately 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.
I
TEM 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, 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 entered 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 assisted the state in
performing its governmental function of delivering these mailings and funding
the costs of them. The plaintiffs in these actions are seeking statutory
damages under the DPPA. 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
Circuit Court). On December 21, 2009, the Circuit Court affirmed the District
Court decision. On January 8, 2010, the Rine plaintiffs filed a petition for
rehearing en banc with the Circuit Court.
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.
On October 28, 2009, the
Company and certain of our current and former officers, were named as defendants
in
NECA-IBEW Health & Welfare Fund v. Pitney Bowes Inc. et al.
,
a class action lawsuit filed in the U.S.
District Court for the District of Connecticut. The complaint asserts claims
under the Securities Exchange Act of 1934 on behalf of those who purchased the
common stock of the Company during the period between July 30, 2007 and October
29, 2007 alleging that the company, in essence, missed two financial
projections. We believe this case is without merit and intend to defend it
vigorously.
I
TEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
7
P
ART II
|
|
I
TEM 5.
|
MARKET
FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
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, 2010, we had 22,505
common stockholders of record.
On February 3, 2010, our
Board of Directors authorized a half-cent increase in our quarterly common
stock dividend to $0.365 per share, marking the 28
th
consecutive
year that we have increased the dividend on our common stock. This represents a
one percent increase and applies to the common stock dividend with a record
date of February 19, 2010.
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.
Stock
Information
Dividends per common share:
|
|
|
|
|
|
|
|
Quarter
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
First
|
|
$
|
0.36
|
|
$
|
0.35
|
|
Second
|
|
|
0.36
|
|
|
0.35
|
|
Third
|
|
|
0.36
|
|
|
0.35
|
|
Fourth
|
|
|
0.36
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.44
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
Quarterly price ranges of common stock as reported on the NYSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
27.46
|
|
$
|
17.62
|
|
$
|
38.35
|
|
$
|
32.64
|
|
Second
|
|
$
|
26.25
|
|
$
|
20.71
|
|
$
|
39.39
|
|
$
|
33.56
|
|
Third
|
|
$
|
25.57
|
|
$
|
20.38
|
|
$
|
39.98
|
|
$
|
31.20
|
|
Fourth
|
|
$
|
26.41
|
|
$
|
22.44
|
|
$
|
33.44
|
|
$
|
20.83
|
|
Share
Repurchases
We periodically
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 did not
repurchase or acquire any shares of our common stock during 2009 in any other
manner.
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 and 9.2
million shares at a total price of $333.2 million during 2008 under this
program. No shares were purchased during 2009, leaving $73.4 million available
for future repurchases under this program at December 31, 2009.
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, Lexmark International, Inc., Pitney Bowes
Inc., United Parcel Service, Inc., and Xerox Corporation. Ikon Office
Solutions, Inc., which was previously included in the Peer
8
Group Index,
was eliminated from the index for all periods shown since it was acquired by
Ricoh Company, Ltd. on November 3, 2008.
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, 2004 would have
been worth $60 on December 31, 2009. By comparison, $100 invested in the
S&P 500 Composite Index on December 31, 2004 would have been worth $102 on
December 31, 2009. An investment of $100 in the Peer Group on December 31, 2004
would have been worth $120 on December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Returns
December 31,
|
|
|
|
|
|
Company
Name / Index
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes
|
|
|
100
|
|
|
94
|
|
|
106
|
|
|
90
|
|
|
63
|
|
|
60
|
|
S&P 500
|
|
|
100
|
|
|
105
|
|
|
121
|
|
|
128
|
|
|
81
|
|
|
102
|
|
Peer Group
|
|
|
100
|
|
|
103
|
|
|
123
|
|
|
128
|
|
|
95
|
|
|
120
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
5,569,171
|
|
$
|
6,262,305
|
|
$
|
6,129,795
|
|
$
|
5,730,018
|
|
$
|
5,366,936
|
|
Total costs and expenses
|
|
|
4,875,995
|
|
|
5,549,128
|
|
|
5,469,084
|
|
|
4,815,528
|
|
|
4,555,268
|
|
Income from continuing operations before income taxes
|
|
|
693,176
|
|
|
713,177
|
|
|
660,711
|
|
|
914,490
|
|
|
811,668
|
|
Provision for income taxes
|
|
|
240,154
|
|
|
244,929
|
|
|
280,222
|
|
|
335,004
|
|
|
328,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
453,022
|
|
|
468,248
|
|
|
380,489
|
|
|
579,486
|
|
|
483,071
|
|
(Loss) gain from discontinued operations, net of income tax
|
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
5,534
|
|
|
(460,312
|
)
|
|
35,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of noncontrolling interests
|
|
|
444,913
|
|
|
440,548
|
|
|
386,023
|
|
|
119,174
|
|
|
518,439
|
|
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
|
|
|
21,468
|
|
|
20,755
|
|
|
19,242
|
|
|
13,827
|
|
|
9,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
423,445
|
|
$
|
419,793
|
|
$
|
366,781
|
|
$
|
105,347
|
|
$
|
508,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of
common stock attributable to Pitney Bowes Inc. common stockholders (1):
|
|
|
|
|
Continuing operations
|
|
$
|
2.09
|
|
$
|
2.15
|
|
$
|
1.65
|
|
$
|
2.54
|
|
$
|
2.07
|
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
0.03
|
|
|
(2.07
|
)
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.05
|
|
$
|
2.01
|
|
$
|
1.68
|
|
$
|
0.47
|
|
$
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
of common stock attributable to Pitney Bowes Inc. common stockholders:
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.08
|
|
$
|
2.13
|
|
$
|
1.63
|
|
$
|
2.51
|
|
$
|
2.04
|
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
0.03
|
|
|
(2.04
|
)
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.04
|
|
$
|
2.00
|
|
$
|
1.66
|
|
$
|
0.47
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash dividends on common, preference and preferred stock
|
|
$
|
297,555
|
|
$
|
291,611
|
|
$
|
288,790
|
|
$
|
285,051
|
|
$
|
284,348
|
|
Cash dividends per share of common stock
|
|
$
|
1.44
|
|
$
|
1.40
|
|
$
|
1.32
|
|
$
|
1.28
|
|
$
|
1.24
|
|
Average common and potential common shares outstanding
|
|
|
207,322,440
|
|
|
209,699,471
|
|
|
221,219,746
|
|
|
225,443,060
|
|
|
232,089,178
|
|
Depreciation and amortization
|
|
$
|
338,895
|
|
$
|
379,117
|
|
$
|
383,141
|
|
$
|
363,258
|
|
$
|
331,963
|
|
Capital expenditures
|
|
$
|
166,728
|
|
$
|
237,308
|
|
$
|
264,656
|
|
$
|
327,887
|
|
$
|
291,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,533,911
|
|
$
|
8,810,236
|
|
$
|
9,465,731
|
|
$
|
8,527,331
|
|
$
|
10,553,957
|
|
Long-term debt
|
|
$
|
4,213,640
|
|
$
|
3,934,865
|
|
$
|
3,802,075
|
|
$
|
3,847,617
|
|
$
|
3,849,623
|
|
Total debt
|
|
$
|
4,439,662
|
|
|
4,705,366
|
|
$
|
4,755,842
|
|
$
|
4,338,157
|
|
$
|
4,707,365
|
|
Noncontrolling interests (Preferred stockholders equity in subsidiaries)
|
|
$
|
296,370
|
|
$
|
374,165
|
|
$
|
384,165
|
|
$
|
384,165
|
|
$
|
310,000
|
|
Stockholders equity (deficit) (2)
|
|
$
|
13,663
|
|
$
|
(286,779
|
)
|
$
|
561,269
|
|
$
|
617,155
|
|
$
|
1,282,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders of record
|
|
|
22,911
|
|
|
21,914
|
|
|
21,574
|
|
|
22,923
|
|
|
23,639
|
|
Total employees
|
|
|
33,004
|
|
|
35,140
|
|
|
36,165
|
|
|
34,454
|
|
|
34,165
|
|
(1) The sum of
the earnings per share amounts may not equal the totals above due to rounding.
(2)
Stockholders equity (deficit) has been reduced in all periods presented for
the impact of an opening retained earnings adjustment of $98.9 million
pertaining to prior periods. See Note 9 to the Consolidated Financial
Statements for further details.
10
|
|
I
TEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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 some of the
factors discussed below and elsewhere in this report.
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 may change based on various factors. The
future is difficult to predict. 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 transformation initiatives, and
amounts, timing and results of possible restructuring charges and future
earnings or risks. Words such as estimate, target, 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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negative
developments in economic conditions, including adverse impacts on customer
demand
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changes in
postal or banking 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 transformation 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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changes in
international or national political conditions, including any terrorist
attacks
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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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11
Overview
In 2009,
revenue decreased 11% to $5.6 billion due largely to continuing challenging
global economic conditions and the negative impact of foreign currency
translation which adversely impacted revenue by 2%.
Pitney Bowes
Inc. net income was $423 million in 2009 compared with $420 million in 2008 and
diluted earnings per share of common stock attributable to Pitney Bowes Inc.
common stockholders was $2.04 compared with $2.00 in 2008. Diluted earnings per
share was reduced by restructuring charges of 15 cents and 69 cents in 2009 and
2008, respectively. In 2009, diluted earnings per share also included a loss of
6 cents for tax adjustments related to a non-cash charge associated with
out-of-the-money stock options that expired during the year, a net loss of 4
cents comprised primarily of accruals for interest and taxes associated with
discontinued operations partly offset by the positive impacts of a bankruptcy
settlement and expiration of an indemnity agreement, and a 1 cent positive tax
adjustment associated with the repricing of leveraged lease transactions. In
2008, diluted earnings per share also included positive tax adjustments of 4
cents related primarily to deferred tax assets associated with certain U.S.
leasing transactions and a loss of 13 cents for the accrual of interest and
taxes associated with discontinued operations.
A continued
global economic downturn resulted in a decline in revenue for the year in six
of our seven business segments. Historically, mail volumes have tracked
economic conditions and the unprecedented volume decreases in 2009 were
indicative of the extent of the economic slowdown. Although there is not a
direct correlation between mail volumes and a majority of our revenues, the
decline in mail volumes was one of a number of factors that affected our 2009
revenues.
EBIT margins,
however, were up in four of our segments from 2008 reflecting our continued
cost management actions. We reduced our selling, general and administrative
expense by over $170 million during 2009, despite increased pension costs of
$14 million when compared to the prior year. In addition, we generated $824
million in cash from operations during 2009. We also reduced our debt by $242
million during 2009.
See Results
of Operations for 2009, 2008 and 2007 for a more detailed discussion of our
results of operations.
Outlook
Economic and
business conditions in mail-intensive industries have been weak during the
entire year. Sales cycles for most capital purchase decisions by customers
remain long. These factors have impacted our financial results, as the
sustained economic downturn has had a negative effect on equipment sales and
the related high-margin financing, rental, and supplies revenue streams. While
the company has been successful in reducing its cost structure across its
entire business and is shifting to a more variable cost structure, these
actions have not been enough to offset the impact of lower revenue.
We continue to
expect our mix of revenue 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. We expect that our
future results will continue to be impacted by changes in global economic
conditions and their impact on mail intensive industries. It is not expected
that total mail volumes will rebound to prior peak levels in an economic recovery,
and future volume trends will continue to be a factor for our businesses.
We are
undertaking a series of initiatives that are designed to transform and enhance
the way we operate as a global company. In order to enhance our responsiveness
to changing market conditions, we are executing a strategic transformation
program designed to create improved processes and systems to further enable us
to invest in future growth in areas such as our global customer interactions
and product development processes. This program is expected to continue into
2012 and will result in the reduction of up to 10 percent of the positions in
the company. We expect the total pre-tax cost of this program will be in the
range of $250 million to $350 million primarily related to severance and
benefit costs incurred in connection with such workforce reductions. Most of
the total pre-tax costs will be cash-related charges. Currently, we are
targeting annualized benefits, net of system and related investments, in the
range of at least $150 million to $200 million on a pre-tax basis. These costs
and the related benefits will be recognized as different actions are approved
and implemented, with the goal of reaching the full benefit run rate in 2012.
12
Results of Operations 2009 Compared to 2008
Business segment
results
The following table shows revenue and earnings
before interest and taxes (EBIT) in 2009 and 2008 by business segment. We use
EBIT, a non-GAAP measure, to determine our segment profitability. Refer to the
reconciliation of segment amounts to income from continuing operations before
income taxes in Note 18 to the Consolidated Financial Statements.
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.
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
EBIT
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
% change
|
|
2009
|
|
2008
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,016
|
|
$
|
2,250
|
|
|
(10
|
)%
|
$
|
743
|
|
$
|
890
|
|
|
(17
|
)%
|
International
Mailing
|
|
|
920
|
|
|
1,134
|
|
|
(19
|
)%
|
|
128
|
|
|
185
|
|
|
(31
|
)%
|
Production
Mail
|
|
|
526
|
|
|
616
|
|
|
(15
|
)%
|
|
51
|
|
|
82
|
|
|
(37
|
)%
|
Software
|
|
|
346
|
|
|
400
|
|
|
(14
|
)%
|
|
38
|
|
|
28
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
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|
|
3,808
|
|
|
4,400
|
|
|
(13
|
)%
|
|
960
|
|
|
1,185
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Services
|
|
|
1,061
|
|
|
1,172
|
|
|
(9
|
)%
|
|
72
|
|
|
70
|
|
|
3
|
%
|
Mail
Services
|
|
|
559
|
|
|
542
|
|
|
3
|
%
|
|
83
|
|
|
69
|
|
|
20
|
%
|
Marketing
Services
|
|
|
141
|
|
|
148
|
|
|
(5
|
)%
|
|
23
|
|
|
21
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,761
|
|
|
1,862
|
|
|
(5
|
)%
|
|
178
|
|
|
160
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,569
|
|
$
|
6,262
|
|
|
(11
|
)%
|
$
|
1,138
|
|
$
|
1,345
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions revenue decreased 13% to $3.8 billion and EBIT decreased 19% to $960
million, compared to the prior year. Within Mailstream Solutions:
U.S. Mailings
revenue decreased 10% primarily due to fewer placements of mailing equipment
and related financing and rental revenues as customers continued to delay
purchases of new equipment and extend leases on existing equipment due to the
economic conditions. Revenue was adversely affected by lower business activity
levels and the ongoing changing mix to more fully featured smaller systems.
Lease extensions have a positive impact on profit margins longer-term but
negatively impact revenue in the current year. As a result of lower business
activity levels over the prior year, U.S. Mailings EBIT decreased 17%
principally due to lower equipment sales, financing revenue, meter rentals, and
supplies sales.
International
Mailing revenue decreased 19%, with 8% of this decline driven by the
unfavorable impact of foreign currency translation. The international economic
environment continued to create weaker demand for our products and services. As
a result, many customers delayed making purchase decisions for new mailing
systems and lower mail volume reduced supplies revenue. International Mailings
EBIT declined 31%, primarily driven by lower levels of equipment and supplies
sales, and lower financing revenues.
Revenue for
Production Mail decreased 15% primarily as a result of lower equipment sales in
the U.S., France, and Asia Pacific as economic uncertainty continues to delay
large-ticket capital expenditures for many large enterprises worldwide. Foreign
currency translation had an unfavorable impact of 2%. Production Mails EBIT
decreased 37% driven by lower revenues and a shift in product mix to lower
margin products.
Softwares revenue
decreased 14%, with 4% of this decline driven by the unfavorable impact of
foreign currency translation. Worldwide consolidation in the financial services
industry and slowness in the retail sector continued to adversely impact the
sales and renewal of software licenses. Uncertainty surrounding the economy has
resulted in many large multi-national organizations changing their approval
policies for capital expenditures, which has lengthened the sales cycle.
Softwares EBIT increased to $38 million compared to $28 million in the prior
year due to business integration and productivity initiatives which resulted in
substantial EBIT margin improvements. This helped offset the pressure on margin
due to lower revenue and a higher mix of some lower margin software sales.
13
Mailstream Services
revenue decreased 5% to $1.8 billion. However, EBIT increased 11% to $178
million, compared to the prior year. Within Mailstream Services:
Management Services
revenue decreased 9%, of which 2% was driven by the unfavorable impact of foreign
currency translation. The segments revenue was adversely affected by lower
business activity and decreased print and transaction volumes throughout the
U.S. and Europe. Management Services EBIT, however, increased by 3% primarily
due to productivity enhancements that have improved the profitability of the
operations globally.
Mail Services revenue
increased 3% mostly due to the impact of 2008 acquisitions which contributed 4%
but was partly offset by the unfavorable impact of foreign currency translation
of 1%. Expansion of the customer base and continued growth in mail processed
drove a slight increase in revenue for the year. Mail Services EBIT increased
by 20% driven by the integration of Mail Services sites acquired last year and
ongoing automation and productivity initiatives implemented by the business.
Marketing Services
revenue decreased 5%, mostly due to the impact of fewer household moves during
the year and the resulting decline in the volume of change of address kits
mailed. Marketing Services EBIT increased 8% due to an improving cost structure
and the exit from the motor vehicle registration services program.
Revenue by source
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2009
|
|
2008
|
|
% change
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
1,007
|
|
$
|
1,252
|
|
|
(20
|
)%
|
Supplies
|
|
|
336
|
|
|
392
|
|
|
(14
|
)%
|
Software
|
|
|
365
|
|
|
424
|
|
|
(14
|
)%
|
Rentals
|
|
|
647
|
|
|
728
|
|
|
(11
|
)%
|
Financing
|
|
|
695
|
|
|
773
|
|
|
(10
|
)%
|
Support services
|
|
|
714
|
|
|
769
|
|
|
(7
|
)%
|
Business services
|
|
|
1,805
|
|
|
1,924
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
5,569
|
|
$
|
6,262
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales revenue
decreased 20% compared to the prior year due to lower placements of mailing
equipment as more customers have delayed purchases of new equipment and
extended their leases on existing equipment due to the global economic
conditions. Revenue also continues to be adversely affected by the ongoing
changing mix in equipment placements to smaller, fully featured systems.
Foreign currency translation had an unfavorable impact of 3%.
Supplies revenue
decreased 14% compared to the prior year due to lower supplies usage resulting
from lower mail volumes and fewer installed meters due to customer
consolidations in the U.S. and internationally. Foreign currency translation
had an unfavorable impact of 3%.
Software revenue
decreased 14% compared to the prior year primarily due to the impact of the
global economic slowdown which has caused many businesses to delay their
capital spending worldwide. Worldwide consolidation in the financial services
industry and slowness in the retail sector have also adversely impacted sales
and renewals of software licenses. Foreign currency translation had an
unfavorable impact of 4%.
Rentals revenue decreased
11% compared to the prior year as customers in the U.S. continue to downsize to
smaller, fully featured machines. The weak economic conditions have also
impacted our international rental markets, specifically in Canada and France.
Foreign currency translation had an unfavorable impact of 1%.
Financing revenue
decreased 10% compared to the prior year. Lower equipment sales over prior
periods have resulted in a decline in both our U.S. and international lease
portfolios. Foreign currency translation had an unfavorable impact of 2%.
Support services revenue
decreased 7% compared to the prior year, principally due to lower revenues in
Canada, the U.S. and the U.K. due to lower new equipment placements and the
unfavorable impact of foreign currency translation of 3%.
Business services revenue
decreased 6% compared to the prior year. Lower volumes at Management Services
and Marketing Services offset the impact of an increase in mail processed at
Mail Services. The unfavorable impact of foreign currency translation of 2% was
partly offset by the positive impact of acquisitions which contributed 1%.
14
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
530
|
|
$
|
663
|
|
|
52.7
|
%
|
|
53.0
|
%
|
Cost of supplies
|
|
$
|
94
|
|
$
|
104
|
|
|
27.9
|
%
|
|
26.5
|
%
|
Cost of software
|
|
$
|
82
|
|
$
|
101
|
|
|
22.5
|
%
|
|
23.9
|
%
|
Cost of rentals
|
|
$
|
159
|
|
$
|
154
|
|
|
24.5
|
%
|
|
21.1
|
%
|
Financing interest expense
|
|
$
|
98
|
|
$
|
110
|
|
|
14.1
|
%
|
|
14.3
|
%
|
Cost of support services
|
|
$
|
393
|
|
$
|
448
|
|
|
55.0
|
%
|
|
58.3
|
%
|
Cost of business services
|
|
$
|
1,382
|
|
$
|
1,486
|
|
|
76.6
|
%
|
|
77.2
|
%
|
Selling, general and administrative
|
|
$
|
1,801
|
|
$
|
1,971
|
|
|
32.3
|
%
|
|
31.5
|
%
|
Research and development
|
|
$
|
182
|
|
$
|
206
|
|
|
3.3
|
%
|
|
3.3
|
%
|
Cost of equipment sales
as a percentage of revenue was 52.7% in 2009 compared with 53.0% in the prior
year, primarily due to the positive impacts of ongoing productivity
improvements, partly offset by a higher mix of lower margin sales.
Cost of supplies as a
percentage of revenue was 27.9% in 2009 compared with 26.5% in the prior year
due to a greater mix of non-ink supplies in U.S Mailing.
Cost of software as a
percentage of revenue was 22.5% in 2009 compared with 23.9% in the prior year
due to business integration initiatives and productivity investments, which
more than offset the impact of lower revenue levels.
Cost of rentals as a
percentage of revenue was 24.5% in 2009 compared with 21.1% in the prior year
primarily due to the fixed costs of meter depreciation on lower revenues.
Financing interest
expense as a percentage of revenue was 14.1% in 2009 compared with 14.3% in the
prior year due to lower interest rates and lower average borrowings. In
computing our financing interest expense, which represents our cost of
borrowing associated with the generation of financing revenues, we assumed a
10:1 leveraging ratio of debt to equity and applied our overall effective
interest rate to the average outstanding finance receivables.
Cost of support services
as a percentage of revenue was 55.0% in 2009 compared with 58.3% in the prior
year. Margin improvements in our International Mailing, U.S. Mailing and
Production Mail segments were driven by the positive impacts of ongoing
productivity investments and price increases on service contracts in Production
Mail.
Cost of business services
as a percentage of revenue was 76.6% in 2009 compared with 77.2% in the prior
year. This improvement is due to the positive impacts of cost reduction
programs at our Management Services and Mail Services businesses, partly offset
by lower transaction volumes in our Management Services business.
Selling, general and
administrative (SG&A) expenses as a percentage of revenue was 32.3% in
2009 compared with 31.5% in the prior year. SG&A expense declined $170
million or 9%, primarily as a result of our cost reduction initiatives and the
positive impact of foreign currency translation of 3%. However, the impact of
lower revenue, increased pension costs of $14 million and higher credit loss
expenses of $9 million more than offset these benefits on a percentage of
revenue basis.
Research and development
expenses decreased $23 million or 11%, in 2009 from the prior year due to the
transition and related benefits from our move to offshore development
activities. Foreign currency translation also had a positive impact of 3%. As a
percentage of revenue, research and development expenses were 3.3% for 2009 and
2008 as we continue to invest in developing new technologies and enhancing our
products.
Other interest expense
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2009
|
|
2008
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111
|
|
$
|
119
|
|
|
(7
|
)%
|
Other interest expense
decreased $8 million or 7% in 2009 compared to the prior year due to lower
interest rates and lower average borrowings.
15
We do not allocate other
interest expense to our business segments.
Income taxes / effective tax rate
The effective tax rate
for 2009 included $13 million of tax charges related to the write-off of
deferred tax assets associated with the expiration of out-of-the-money vested
stock options and the vesting of restricted stock, offset by $13 million of tax
benefits from retirement of inter-company obligations and the repricing of
leveraged lease transactions. The write-off of deferred tax assets will not
require the payment of any taxes. The effective tax rate for 2008 included $12
million of tax increases related to the low tax benefit associated with
restructuring expenses recorded during 2008, offset by adjustments of $10
million related to deferred tax assets associated with certain U.S. leasing
transactions. See Note 9 to the Consolidated Financial Statements for further
discussion.
Discontinued operations
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Pre-tax income
|
|
$
|
21
|
|
$
|
|
|
Tax provision
|
|
|
(29
|
)
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(8
|
)
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
The 2009 net loss
includes $10 million of pre-tax income ($6 million net of tax) for a bankruptcy
settlement received during 2009 and $11 million of pre-tax income ($7 million
net of tax) related to the expiration of an indemnity agreement associated with
the sale of a former subsidiary. This income was more than offset by the
accrual of interest on uncertain tax positions. The 2008 net loss of $28
million includes an accrual of tax and interest on uncertain tax positions. See
Note 2 to the Consolidated Financial Statements for further discussion.
Noncontrolling interests (Preferred stock dividends of
subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
|
2009
|
|
2008
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21
|
|
$
|
21
|
|
|
3
|
%
|
Noncontrolling interests
includes dividends paid to preferred stockholders in subsidiary companies. 2009
included an expense of $3 million associated with the redemption of $375
million of variable term voting preferred stock during the year. 2008 included
a net expense of $2 million associated with the redemption of $10 million of
9.11% Cumulative Preferred Stock. See Note 10 to the Consolidated Financial
Statements for further discussion.
Results
of Operations 2008 Compared to 2007
Business segment results
The following table shows revenue and earnings
before interest and taxes (EBIT) in 2008 and 2007 by business segment. We use
EBIT, a non-GAAP measure, to determine our segment profitability. Refer to the
reconciliation of segment amounts to income from continuing operations before
income taxes in Note 18 to the Consolidated Financial Statements.
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.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
EBIT
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,250
|
|
$
|
2,409
|
|
(7
|
)%
|
$
|
890
|
|
$
|
967
|
|
(8
|
)%
|
International Mailing
|
|
|
1,134
|
|
|
1,070
|
|
6
|
%
|
|
185
|
|
|
162
|
|
14
|
%
|
Production Mail
|
|
|
616
|
|
|
623
|
|
(1
|
)%
|
|
82
|
|
|
74
|
|
10
|
%
|
Software
|
|
|
400
|
|
|
326
|
|
23
|
%
|
|
28
|
|
|
37
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
4,400
|
|
|
4,428
|
|
(1
|
)%
|
|
1,185
|
|
|
1,240
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
1,172
|
|
|
1,135
|
|
3
|
%
|
|
70
|
|
|
76
|
|
(8
|
)%
|
Mail Services
|
|
|
542
|
|
|
441
|
|
23
|
%
|
|
69
|
|
|
57
|
|
22
|
%
|
Marketing Services
|
|
|
148
|
|
|
126
|
|
18
|
%
|
|
21
|
|
|
7
|
|
205
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,862
|
|
|
1,702
|
|
9
|
%
|
|
160
|
|
|
140
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,262
|
|
$
|
6,130
|
|
2
|
%
|
$
|
1,345
|
|
$
|
1,380
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions revenue decreased 1% to $4.4 billion and EBIT decreased 4% to $1.2
billion, compared to the prior year. 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. U.S. Mailings EBIT decreased 8% 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 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. 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.
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. 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.
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. 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 revenue increased 9% to $1.9 billion and EBIT increased 15% to $160
million, compared to the prior year. 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. Management
Services EBIT decreased 8% due to weakness in our 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 revenue grew 23% due to continued growth in presort and international
mail services of 14% and acquisitions, which contributed 10% to segment revenue
growth. 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 revenue grew 18% 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. Marketing Services EBIT increased to $21
17
million in 2008 from $7 million in 2007 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
|
|
|
%
|
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.
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 and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
Financing
interest expense
|
|
$
|
110
|
|
$
|
127
|
|
14.3
|
%
|
16.0
|
%
|
Cost of
support services
|
|
$
|
448
|
|
$
|
433
|
|
58.3
|
%
|
56.9
|
%
|
Cost of
business services
|
|
$
|
1,486
|
|
$
|
1,357
|
|
77.2
|
%
|
76.9
|
%
|
Selling,
general and administrative
|
|
$
|
1,971
|
|
$
|
1,930
|
|
31.5
|
%
|
31.5
|
%
|
Research and
development
|
|
$
|
206
|
|
$
|
186
|
|
3.3
|
%
|
3.0
|
%
|
18
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.
Financing interest expense as a percentage of revenue was 14.3% in 2008
compared with 16.0% in the prior year due to lower interest rates. In computing
our financing interest expense, which represents our cost of borrowing
associated with the generation of financing revenues, we assumed a 10:1
leveraging ratio of debt to equity and applied our overall effective interest
rate to the average outstanding finance receivables.
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 77.2% in 2008 compared
with 76.9% 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, as a percentage of total revenue, remained
flat at 31.5%. 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.
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.
Other interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119
|
|
$
|
124
|
|
(4
|
)%
|
Other interest
expense decreased $5 million or 4%, from prior year due to lower average
interest rates during the year.
We do not
allocate other interest expenses 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.
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
|
$
|
|
|
$
|
|
|
|
|
Tax
provision
|
|
|
(28
|
)
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain
from discontinued operations, net of tax
|
|
$
|
(28
|
)
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The net loss
in 2008 includes accruals of tax and interest on uncertain tax
positions. The 2007 net gain includes a benefit of $11 million and the
accrual of $6 million of interest expense, both related to uncertain tax
positions.
Noncontrolling
interests (Preferred stock dividends of subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21
|
|
$
|
19
|
|
8
|
%
|
Noncontrolling
interests 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 $2 million accounting for the year over
year increase.
Restructuring
Charges and Asset Impairments
We recorded
pre-tax restructuring charges and asset impairments of $49 million and $200
million for the years ended December 31, 2009 and 2008, respectively.
2009 Program
In 2009, we
announced that we are undertaking a series of initiatives that are designed to
transform and enhance the way we operate as a global company. In order to
enhance our responsiveness to changing market conditions, we are executing a
strategic transformation program designed to create improved processes and
systems to further enable us to invest in future growth in areas such as our
global customer interactions and product development processes. This program is
expected to continue into 2012 and will result in the reduction of up to 10
percent of the positions in the company. We expect the total pre-tax cost of
this program will be in the range of $250 million to $350 million primarily
related to severance and benefit costs incurred in connection with such
workforce reductions. Most of the total pre-tax costs will be cash-related
charges. Currently, we are targeting annualized benefits, net of system and
related investments, in the range of at least $150 million to $200 million on a
pre-tax basis. These costs and the related benefits will be recognized as
different actions are approved and implemented.
During 2009, we recorded pre-tax
restructuring charges of $68 million, of which $56 million related to severance
and benefit costs and $12 million related to other exit costs associated with
this new transformation project. As of December 31, 2009, 548 employee
terminations have occurred. The majority of the liability at December 31, 2009
is expected to be paid during the next twelve months from cash generated from
operations.
Pre-tax restructuring
reserves at December 31, 2009 for the restructuring actions taken in connection
with the 2009 program are composed of the following:
2009 Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008
|
|
Expenses
|
|
Cash
payments
|
|
Non-cash
charges
|
|
Balance at
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefit
costs
|
|
$
|
|
|
$
|
56
|
|
$
|
(10
|
)
|
$
|
|
|
$
|
46
|
|
Other exit costs
|
|
|
|
|
|
12
|
|
|
(5
|
)
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
68
|
|
$
|
(15
|
)
|
$
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Program
We announced a program in November 2007 to
lower our cost structure, accelerate efforts to improve operational
efficiencies, and transition our product line. The program included charges
primarily associated with older equipment that we had stopped selling upon
transition to the new generation of fully digital, networked, and remotely-downloadable
equipment.
In 2009, we recorded a pre-tax adjustment to
restructuring charges and asset impairments for $19 million due to lower than
anticipated charges associated with the program announced in November 2007.
In 2008, we recorded pre-tax
restructuring charges and asset impairments of $200 million, the majority of
which related to the program announced in November 2007. These charges included
severance and benefit costs of $118 million, asset impairment charges related
to older technology equipment of $29 million and other assets of $2 million.
Other exit costs of $35 million related primarily to lease termination fees,
facility closing costs, contract cancellation costs and outplacement costs.
20
Additional
asset impairments, unrelated to restructuring, were also recorded in 2008 and
related to intangible assets of $16 million principally due to a loss of a
customer in one of our marketing consulting businesses and the ongoing shift
in market conditions for the litigation support vertical in our Management
Services business.
As of December
31, 2009, 2,999 terminations have occurred under this program. The majority of
the liability at December 31, 2009 is expected to be paid during the next
twelve months from cash generated from operations.
Pre-tax
restructuring reserves at December 31, 2009 for the restructuring program
announced in November 2007 are composed of the following:
2007 Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008
|
|
Expenses
|
|
Cash
payments
|
|
Non-cash
charges
|
|
Balance at
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefit costs
|
|
$
|
108
|
|
$
|
(15
|
)
|
$
|
(78
|
)
|
$
|
|
|
$
|
15
|
|
Asset
impairments
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
4
|
|
|
|
|
Other exit
costs
|
|
|
33
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141
|
|
$
|
(19
|
)
|
$
|
(90
|
)
|
$
|
4
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2007
|
|
Expenses
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
There were no
acquisitions during 2009.
On April 21,
2008, we acquired Zipsort, Inc. for $40 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.
During 2008,
we also completed several smaller acquisitions, the costs of which were $30
million. These acquisitions did not have a material impact on our financial
results. See Note 3 to the Consolidated Financial Statements for further
details.
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. See Note 3 to the Consolidated Financial Statements for further
discussion on acquisitions.
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; restructuring
payments; tax payments; interest and dividend payments; pension and other
benefit plan funding; acquisitions; and share repurchase program.
We continue to
review our liquidity profile. 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.
21
Cash
Flow Summary
The change in cash and cash
equivalents is as follows:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$
|
824
|
|
$
|
1,009
|
|
|
Cash used in
investing activities
|
|
|
(172
|
)
|
|
(234
|
)
|
|
Cash used in
financing activities
|
|
|
(626
|
)
|
|
(761
|
)
|
|
Effect of
exchange rate changes on cash
|
|
|
10
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
$
|
36
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
2009 Cash Flows
Net cash
provided by operating activities 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 2009 is primarily due to the decrease in
finance receivables and accounts receivable of $207 million and $84 million,
respectively, primarily due to lower sales volumes as well as an increase in
current and non-current income taxes of $86 million due to the timing of tax
payments. Partially offsetting these positive impacts was a reduction in
accounts payable and accrued liabilities of $127 million, primarily due to
timing of payments, $125 million for voluntary pension plan contributions and
$105 million for restructuring payments associated with the programs initiated
in 2007 and 2009.
Net cash used
in investing activities consisted primarily of capital expenditures of $167
million for rental and other assets utilized in our operations.
Net cash used
in financing activities was $626 million and consisted primarily of dividends
paid to common stockholders of $298 million, a net reduction of debt of $242
million, and a net cash outflow associated with the issuance and redemption of
preferred stock issued by a subsidiary of $79 million.
2008 Cash Flows
Net cash
provided by operating activities 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 were restructuring payments of $103 million
associated with the program initiated in 2007 and 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 $761 million and consisted primarily of stock
repurchases of $333 million, dividends paid to common stockholders 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 common stock associated with
employee stock plans. We also paid $10 million associated with the redemption
of 100% of the outstanding Cumulative Preferred Stock issued previously by a
subsidiary company.
Capital Expenditures
During 2009,
capital expenditures included net additions of $85 million to property, plant
and equipment and $82 million in net additions to rental equipment and related
inventories compared with $122 million and $115 million, respectively, in 2008.
The decrease in spend on property, plant and equipment and net additions to
rental equipment and related inventories is due to lower new meter placements
in 2009 and tighter control over capital spending.
Financings and
Capitalization
We have a
commercial paper program that is a significant source of liquidity for the
Company. During 2009, we continued to have consistent access to the commercial
paper market. As of December 31, 2009, we had $221 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 16 banks until 2011. As of December 31, 2009, this line of credit
had not been drawn down. We are a Well-Known
22
Seasoned
Issuer with the SEC which allows us to issue debt securities, preferred stock,
preference stock, common stock, purchase contracts, depositary shares, warrants
and units.
On September
15, 2009, we repaid the 8.55% notes with a $150 million face value at their
maturity. The repayment of these notes was funded through cash generated from
operations and issuance of commercial paper. No additional long-term notes will
mature until 2012.
On June 29,
2009, we entered into an interest rate swap for an aggregate notional amount of
$100 million to effectively convert our interest payments on a portion of the
$400 million, 4.625% fixed rate notes due in 2012, into variable interest
rates. The variable rates payable are based on one month LIBOR plus 249 basis
points. In July 2009, we entered into three additional interest rate swaps for
an aggregate notional amount of $300 million to effectively convert our
interest payments on the remainder of the $400 million, 4.625% fixed rate notes
due in 2012, into variable interest rates. The variable rates payable are based
on one month LIBOR plus 248 basis points for $100 million notional amount and
one month LIBOR plus 250 basis points for $200 million notional amount.
On March 2,
2009, we issued $300 million of 10-year fixed-rate notes with a coupon rate of
6.25%. The interest is paid semi-annually beginning September 15, 2009. The
notes mature on March 15, 2019. We simultaneously unwound four forward starting
swap agreements (forward swaps) used to hedge the interest rate risk associated
with the forecasted issuance of the fixed-rate debt. The unwind of the
derivatives resulted in a loss (and cash payment) of $20.3 million which was
recorded to other comprehensive income, net of tax, and will be amortized to
net interest expense over the 10-year term of the notes. The proceeds from
these notes were used for general corporate purposes, including the repayment
of commercial paper.
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 15, 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.
During 2009,
we voluntarily contributed a total of $125 million in cash to our global
defined benefit pension plans in excess of legally required minimum
contributions to increase the funding levels of the plans. Specifically, $100
million was contributed to the U.S. qualified plan and $25 million to certain
foreign qualified plans. The voluntary contributions were funded by cash flows
from operations and the issuance of commercial paper.
During 2009,
the Board of Directors approved and adopted a resolution amending both U.S.
pension plans, the Pitney Bowes Pension Plan and the Pitney Bowes Pension
Restoration Plan, to provide that benefit accruals as of December 31, 2014,
will be determined and frozen and no future benefit accruals under the plans
will occur after that date.
In October
2009, Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary of the
Company, issued $300 million of perpetual voting preferred stock to certain
outside institutional investors. These preferred shares are entitled to 25% of
the combined voting power of all classes of capital stock of PBIH. All
outstanding common stock of PBIH, 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 is entitled to cumulative
dividends at a rate of 6.125% for a period of 7 years after which they become
callable and, if remain outstanding, will yield a dividend that increases by
150% every six months thereafter.
In October
2009, PBIH redeemed $344 million of its existing variable term voting preferred
stock. The redemption was funded by a combination of the issuance of the $300
million perpetual voting preferred stock and commercial paper.
In December
2009, PBIH redeemed the remaining $31 million of its existing variable term
voting preferred stock. The redemption was funded by cash flows from operations
and the issuance of commercial paper.
We believe our
financing needs in the short and long-term can be met from cash generated
internally, the issuance of commercial paper, debt issuance under our effective
shelf registration statement and borrowing capacity under our existing credit
agreements. Information on debt maturities is presented in Note 8 to the
Consolidated Financial Statements.
23
Contractual
Obligations and Off-Balance Sheet Arrangements
The following
summarizes our known contractual obligations at December 31, 2009and
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
|
|
$
|
221
|
|
$
|
221
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term debt and current portion of
long-term debt
|
|
|
4,175
|
|
|
|
|
|
550
|
|
|
825
|
|
|
2,800
|
|
Non-cancelable operating lease obligations
|
|
|
322
|
|
|
110
|
|
|
136
|
|
|
53
|
|
|
23
|
|
Interest payments on debt
|
|
|
1,762
|
|
|
185
|
|
|
371
|
|
|
327
|
|
|
879
|
|
Capital lease obligations
|
|
|
14
|
|
|
6
|
|
|
6
|
|
|
2
|
|
|
|
|
Purchase obligations (1)
|
|
|
325
|
|
|
244
|
|
|
68
|
|
|
13
|
|
|
|
|
Other non-current liabilities (2)
|
|
|
616
|
|
|
|
|
|
114
|
|
|
43
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,435
|
|
$
|
766
|
|
$
|
1,245
|
|
$
|
1,263
|
|
$
|
4,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 19 to the Consolidated Financial Statements.
|
The amount and
period of future payments related to our 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,
impairment of goodwill, 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 the accounting guidance for
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
24
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 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 the lease accounting guidance. The vast
majority of our leases qualify as sales-type leases using the present value of
minimum lease payments classification criteria. We believe that our sales-type
lease portfolio contains only normal collection risk. 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.
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
based on our historical loss experience, length of time receivables are past
due, adverse situations that may affect a customers ability to pay 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.
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 based on our historical loss
experience, the nature and volume of our portfolios, adverse situations that
may affect a customers ability to pay, 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 the accounting for income taxes
guidance.
In 2007, we
adopted guidance addressing accounting for uncertainty in income taxes. The
guidance defines the confidence level that a tax position must meet in order to
be recognized in the financial statements. The guidance 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.
25
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
2009 income from continuing
operations before income taxes, a 1% change in our effective tax rate would
impact income from continuing operations by approximately $7 million.
Goodwill and
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 the estimated useful lives: machinery and
equipment principally 3 to 15 years and buildings up to 50 years. 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,
using the straight-line method or an accelerated attrition method. Our
estimates of useful lives could be affected by changes in regulatory
provisions, technology or business plans.
Impairment review
We evaluate
the recoverability and, if necessary, the fair value of our long-lived assets,
including intangible assets, on an annual basis or as circumstances warrant. We
derive the cash flow estimates that are incorporated into the analysis from our
historical experience and our future long-term business plans and, if
necessary, apply an appropriate discount rate to assist in the determination of
its fair value. In addition, we used quoted market prices when available and
appraisals as appropriate to assist in the determination of fair value.
Goodwill is
tested annually for impairment, or sooner when circumstances indicate an
impairment may exist at the reporting unit level. 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 a combination of various techniques, including
the present value of future cash flows, earnings multiples of competitors and
multiples from sales of like businesses, to determine the fair value of our
reporting units. We derive the cash flow estimates from our historical
experience and our future long-term business plans and apply an appropriate
discount rate.
Changes in the
estimates and assumptions incorporated into the long-lived asset and goodwill
assessments could materially affect the determination of fair value and/or
goodwill impairment for each reporting unit. For 2009, based upon our
impairment reviews for goodwill and long-lived assets, where appropriate, no
impairments were identified.
During the review of our 2009 annual goodwill impairment test,
the calculated fair values for all of our reporting units were considered
substantially in excess of the respective reporting units carrying
value, with the exception of one reporting unit. This reporting unit, which
represents the international operations of our Management Services segment,
had a calculated fair value 14% in excess of its carrying value. At December
31, 2009, the carrying value of this reporting unit included an allocation
of goodwill of $136 million. The calculated fair value of each of our reporting
units was based on a combination of inputs and assumptions. These inputs
and assumptions include projections of future cash flows, discount rates,
growth rates and applicable earnings multiples of competitors.
See Note 14 to
the Consolidated Financial Statements for further details on our restructuring
charges and asset impairments recorded in 2009 and 2008. We believe that we
have no unrecorded asset impairments at December 31, 2009. 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.
|
26
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 19 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 5.75% at December 31, 2009 and
6.05% at December 31, 2008. 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 3.50% at December 31, 2009 and 4.25% at December 31, 2008. Our
expected 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 is 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. When
assessing the expected future returns for the portfolio, we place more emphasis
on the expected future returns than historical returns. Our expected return on
plan assets assumption was 8.0% at December 31, 2009 and 2008.
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 $2.4 million and would lower the projected benefit
obligation by $39.2 million.
|
|
|
|
|
|
Rate of
compensation increase a 0.25% increase in the rate of compensation increase
would increase annual pension expense by approximately $0.6 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
$3.9 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 5.70% at December 31, 2009 and 6.3% at December
31, 2008. 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 3.50% at December 31, 2009 and 4.3% at December 31, 2008. 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 7.50% and 7.25% at
December 31, 2009 and 2008, respectively.
U.K. Pension Plan
|
|
|
|
|
Discount
rate a 0.25% increase in the discount rate would decrease annual pension
expense by approximately $1.4 million and would lower the projected benefit
obligation by $15.4 million.
|
|
|
|
|
|
Rate of
compensation increase a 0.25% increase in the rate of compensation increase
would increase annual pension expense by approximately $0.4 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
$0.7 million.
|
Delayed
recognition principles
In accordance
with the retirement benefits accounting guidance, 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.
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, 2009 was approximately 54% equity securities, 38% fixed
income
27
securities, 4%
real estate investments and 4% private equity investments. The composition of
our U.K. pension plan assets at December 31, 2009 was approximately 67% equity
securities, 32% fixed income securities and 1% 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
Revenue Recognition
In September
2009, new guidance was introduced addressing the accounting for revenue
arrangements with multiple elements and certain revenue arrangements that
include software. The new literature will allow companies to allocate
consideration in a multiple element arrangement in a way that better reflects
the economics of the transaction. This will result in the elimination of the
residual method. In addition, tangible products that have software components
that are essential to the functionality of the tangible product will
be scoped out of the software revenue guidance. The new guidance will also result
in more expansive disclosures. The new guidance will be effective on January
1, 2011, with early adoption permitted. We are currently evaluating the impact
of adopting the new guidance.
Pension Disclosures
On December
31, 2009, we adopted new accounting guidance requiring more detailed
disclosures about employers postretirement benefit 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 Company has complied with the additional disclosure requirements.
See Note 19 to the Consolidated Financial Statements for our postretirement
benefit plan disclosures.
Noncontrolling Interests
On January
1, 2009, we adopted new accounting guidance on noncontrolling interests.
The new guidance 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. The guidance requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests while all other requirements of the guidance are applied
prospectively.
Business Combinations
On January 1,
2009, we adopted new accounting guidance on business combinations. The new
guidance revises 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. Some of
the major impacts of this new guidance include expense recognition for
transaction costs and restructuring costs. The adoption of this guidance has
not had a material impact on our financial position, results of operations, or
cash flows.
Disclosures about Derivative Instruments and
Hedging Activities
On January 1,
2009, we adopted new accounting guidance on disclosures about derivative
instruments and hedging activities. The new guidance impacts disclosures only
and requires additional qualitative and quantitative information on the use of
derivatives and their impact on an entitys financial position, results
of operations and cash flows. See Note 13 to the Consolidated Financial Statements
for additional information regarding our derivative instruments and hedging
activities.
Fair Value Measurements
On January 1,
2008, we adopted new accounting guidance on fair value measurements. The new
guidance defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. It was effective for
certain financial assets and liabilities on January 1, 2008 and for all
nonfinancial assets and liabilities recognized or disclosed at fair value on a
nonrecurring basis on January 1, 2009. The adoption of this guidance has not
had a material impact on our financial position, results of operations, or cash
flows. See Note 13 to the Consolidated Financial Statements for additional
discussion on fair value measurements.
Legal and Regulatory Matters
Legal
See Legal
Proceedings in Item 3 of this Form 10-K for information regarding our legal
proceedings.
28
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 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 and the examination of
years 2005-2008 has commenced. In connection with the 2001-2004 exam, we have
received notices of proposed adjustments to our filed returns. Tax reserves
have been established which we believe to be appropriate given the possibility
of tax adjustments. We are also 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. A decision by the Rhode Island U.S. District Court in a similar
case that supported our position was overturned on appeal by the First Circuit
Court of Appeals and the federal judicial circuits are now divided on this
issue. The taxpayer in the First Circuit decision has filed a petition for a
writ of certiorari with the U.S. Supreme Court requesting review of the First
Circuit decision. 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 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. Tax reserves have been established which we believe to be
appropriate given the possibility of tax adjustments. However, the resolution
of such matters could have a material impact on our results of operations,
financial position and cash flows.
During 2010,
we expect to reverse tax benefits of approximately $15 million associated with
the expiration of out-of-the-money vested stock options and the vesting of
restricted stock units previously granted to our employees. These write-offs of
deferred tax assets will not require the payment of any taxes.
Effects of Inflation and Foreign Exchange
Inflation,
although minimal 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, 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 decreased our 2009 revenue by approximately 2%. Also, currency
translation losses decreased our income before taxes by $13 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 $16 million and a decline in income from continuing operations
before income taxes of approximately $2 million.
Although not
affecting income, balance sheet related deferred translation losses of $119
million were recorded in 2009 resulting primarily from the strengthening U.S.
dollar as compared to the British pound, Euro and Canadian dollar. During 2008,
we recorded deferred translation losses of $305 million 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.
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 13 to the Consolidated Financial Statements for further
details.
At December
31, 2009, we had $924 million, $2 million and $1 million of foreign exchange
contracts outstanding maturing in 2010, 2011, and 2012, respectively, 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.
29
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.
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 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 derivative contracts as well as our foreign exchange derivative contracts
associated with forecasted transactions. The model 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 2009
and 2008, 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, 2009, 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.
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, 2009.
30
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, 2009. 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, 2009, 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.
Changes in Internal Control over Financial
Reporting
There have
been no changes in our internal control over financial reporting during the
three months ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, such internal control over financial
reporting.
During 2009,
we implemented new software to support the Companys accounting for income
taxes. This change in our process resulted in changes in our internal controls
over financial reporting. We have reviewed the system and the controls affected
and made appropriate changes as necessary.
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 2010 Annual Meeting of Stockholders, which is
scheduled to be held on May 10, 2010. 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, 2009 and is incorporated herein by
reference. Executive officers of the Company are as follows:
Executive Officers of the Registrant as of February 26, 2010
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
|
Executive
Officer Since
|
|
|
|
|
|
|
|
Murray D. Martin
|
|
62
|
|
Chairman, President and
Chief Executive Officer
|
|
1998
|
|
|
|
|
|
|
|
Leslie Abi-Karam
|
|
51
|
|
Executive Vice President
and President, Mailing Solutions Management
|
|
2005
|
|
|
|
|
|
|
|
Gregory E. Buoncontri
|
|
62
|
|
Executive Vice President
and Chief Information Officer
|
|
2000
|
|
|
|
|
|
|
|
Elise R. DeBois
|
|
54
|
|
Executive
Vice President and President, Global Financial Services
|
|
2005
|
|
|
|
|
|
|
|
David C. Dobson
|
|
47
|
|
Executive
Vice President and President, Pitney Bowes Management Services and Enterprise
Sales and Solutions
|
|
2008
|
|
|
|
|
|
|
|
Patrick J. Keddy
|
|
55
|
|
Executive
Vice President and President, Mailstream International
|
|
2005
|
|
|
|
|
|
|
|
Michael Monahan
|
|
49
|
|
Executive
Vice President and Chief Financial Officer
|
|
2005
|
|
|
|
|
|
|
|
Vicki A. OMeara
|
|
52
|
|
Executive
Vice President and Chief Legal and Compliance Officer
|
|
2008
|
|
|
|
|
|
|
|
Joseph H. Timko
|
|
49
|
|
Executive
Vice President and Chief Strategy and Innovation Officer
|
|
2010
|
|
|
|
|
|
|
|
Johnna G. Torsone
|
|
59
|
|
Executive
Vice President and Chief Human Resources Officer
|
|
1993
|
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. Timko joined the Company
in February 2010 as Executive Vice President and Chief Strategy and Innovation
Officer. Prior to joining the Company, Mr. Timko was a partner in the
technology / telecom and industrial sector practice at McKinsey & Company.
Mr. Dobson joined the
Company in July 2008 as Executive Vice President and Chief Strategy and
Innovation Officer. In 2009, he was appointed Executive Vice President and
President, Pitney Bowes Management Services and Enterprise Sales and Solutions.
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, 2010 in connection with the Companys 2010 Annual Meeting of Stockholders
are incorporated herein by reference.
32
|
|
I
TEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
EQUITY COMPENSATION PLAN INFORMATION TABLE
The following
table provides information as of December 31, 2009 regarding the number of
shares of the Companys common stock that may be issued under the Companys
equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
Plan
Category
|
|
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans excluding
securities reflected in
column (a)
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
18,921,808
|
|
$
|
38.02
|
|
|
15,102,457
|
|
Equity
compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,921,808
|
|
$
|
38.02
|
|
|
15,102,457
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010 in connection with the Companys
2010 Annual Meeting of Stockholders are incorporated herein by reference.
I
TEM 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, 2010 in connection with the
Companys 2010 Annual Meeting of Stockholders are incorporated herein by
reference.
I
TEM 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, 2010 in connection with the Companys 2010 Annual Meeting of Stockholders
is incorporated herein by reference.
33
P
ART IV
I
TEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
1.
|
Financial statements - see Item 8 on page 30 and Index
to Consolidated Financial Statements and Supplemental Data on page 38 of this Form 10-K.
|
|
|
|
|
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 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)
|
34
|
|
|
|
|
(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 (as amended November 7, 2009)
|
|
Exhibit
(v)
|
|
|
|
|
|
(d)
|
|
Pitney
Bowes Inc. Key Employees Incentive Plan (as amended and restated October 1,
2007)(as amended November 7, 2009)
|
|
Exhibit
(iv)
|
|
|
|
|
|
(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
|
|
Incorporated by reference
to Exhibit 10(g) to Form 10-K as filed with the Commission on February 26,
2009. (Commission file number 1-3579
|
|
|
|
|
|
(h)
|
|
Pitney
Bowes Inc. Deferred Incentive Savings Plan as amended and restated effective
January 1, 2009
|
|
Incorporated by reference
to Exhibit 10(h) to Form 10-k as filed with the Commission on February 26,
2009. (Commission file number 1-3579)
|
|
|
|
|
|
(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)
|
|
Form of Performance Award
|
|
Incorporated by reference
to Exhibit (10) to Form 10-Q as filed with the Commission on August 5, 2009.
(Commission file number 1-3579)
|
|
|
|
|
|
(l)
|
|
Form of Long Term Incentive
Award Agreement
|
|
Incorporated by reference
to Exhibit (10) to Form 10-Q as filed with the Commission on November 6,
2009. (Commission file number 1-3579)
|
|
|
|
|
|
(m)
|
|
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)
|
|
|
|
|
|
(n)
|
|
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
:
|
|
|
|
|
(o)
|
|
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
(i)
|
|
|
|
|
|
(21)
|
|
Subsidiaries
of the registrant
|
|
Exhibit
(ii)
|
|
|
|
|
|
(23)
|
|
Consent
of experts and counsel
|
|
Exhibit
(iii)
|
|
|
|
|
|
(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 119
|
|
|
|
|
|
(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 120
|
|
|
|
|
|
(32.1)
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
See
page 121
|
|
|
|
|
|
(32.2)
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
See
page 122
|
36
S
IGNATURES
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, 2010
|
|
|
|
|
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, 2010
|
|
|
|
|
|
Murray D. Martin
|
|
|
|
|
|
|
|
|
|
/s/ Michael Monahan
|
|
Executive Vice President and Chief Financial Officer
|
|
February 26, 2010
|
|
|
(Principal Financial Officer)
|
|
|
Michael Monahan
|
|
|
|
|
|
|
|
|
|
/s/ Steven J. Green
|
|
Vice PresidentFinance and Chief Accounting
|
|
February 26, 2010
|
|
|
Officer (Principal Accounting Officer)
|
|
|
Steven J. Green
|
|
|
|
|
|
|
|
|
|
/s/ Rodney C. Adkins
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Rodney C. Adkins
|
|
|
|
|
|
|
|
|
|
/s/ Linda G. Alvarado
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Linda G. Alvarado
|
|
|
|
|
|
|
|
|
|
/s/ Anne M. Busquet
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Anne M. Busquet
|
|
|
|
|
|
|
|
|
|
/s/ Anne Sutherland Fuchs
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Anne Sutherland Fuchs
|
|
|
|
|
|
|
|
|
|
/s/ Ernie Green
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Ernie Green
|
|
|
|
|
|
|
|
|
|
/s/ James H. Keyes
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
James H. Keyes
|
|
|
|
|
|
|
|
|
|
/s/ John S. McFarlane
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
John S. McFarlane
|
|
|
|
|
|
|
|
|
|
/s/ Eduardo R. Menascé
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Eduardo R. Menascé
|
|
|
|
|
|
|
|
|
|
/s/ Michael I. Roth
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Michael I. Roth
|
|
|
|
|
|
|
|
|
|
/s/ David L. Shedlarz
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
David L. Shedlarz
|
|
|
|
|
|
|
|
|
|
/s/ David B. Snow, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
David B. Snow, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Robert E. Weissman
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Robert E. Weissman
|
|
|
|
|
37
PITNEY
BOWES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
38
R
EPORT 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, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009 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, 2009, 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 Managements Report on Internal Control over Financial Reporting
appearing under Item 9A. 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 9 to
the consolidated financial statements, the Company changed the manner in which
it accounts for uncertainty in income taxes effective January 1, 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, 2010
39
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
1,006,542
|
|
$
|
1,252,058
|
|
$
|
1,335,538
|
|
Supplies
|
|
|
336,239
|
|
|
392,414
|
|
|
393,478
|
|
Software
|
|
|
365,185
|
|
|
424,296
|
|
|
346,020
|
|
Rentals
|
|
|
647,432
|
|
|
728,160
|
|
|
739,130
|
|
Financing
|
|
|
694,444
|
|
|
772,711
|
|
|
790,121
|
|
Support services
|
|
|
714,429
|
|
|
768,424
|
|
|
760,915
|
|
Business services
|
|
|
1,804,900
|
|
|
1,924,242
|
|
|
1,764,593
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
5,569,171
|
|
|
6,262,305
|
|
|
6,129,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
|
530,004
|
|
|
663,430
|
|
|
696,900
|
|
Cost of supplies
|
|
|
93,660
|
|
|
103,870
|
|
|
106,702
|
|
Cost of software
|
|
|
82,241
|
|
|
101,357
|
|
|
82,097
|
|
Cost of rentals
|
|
|
158,881
|
|
|
153,831
|
|
|
171,191
|
|
Financing interest expense
|
|
|
97,586
|
|
|
110,136
|
|
|
126,648
|
|
Cost of support services
|
|
|
393,251
|
|
|
447,745
|
|
|
433,324
|
|
Cost of business services
|
|
|
1,382,401
|
|
|
1,485,703
|
|
|
1,357,377
|
|
Selling, general and administrative
|
|
|
1,800,714
|
|
|
1,970,868
|
|
|
1,930,324
|
|
Research and development
|
|
|
182,191
|
|
|
205,620
|
|
|
185,665
|
|
Restructuring charges and asset impairments
|
|
|
48,746
|
|
|
200,254
|
|
|
264,013
|
|
Other interest expense
|
|
|
111,269
|
|
|
119,207
|
|
|
123,892
|
|
Interest income
|
|
|
(4,949
|
)
|
|
(12,893
|
)
|
|
(8,669
|
)
|
Other income
|
|
|
|
|
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,875,995
|
|
|
5,549,128
|
|
|
5,469,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes
|
|
|
693,176
|
|
|
713,177
|
|
|
660,711
|
|
Provision for income taxes
|
|
|
240,154
|
|
|
244,929
|
|
|
280,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
453,022
|
|
|
468,248
|
|
|
380,489
|
|
(Loss) gain from
discontinued operations, net of income tax
|
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
attribution of noncontrolling interests
|
|
|
444,913
|
|
|
440,548
|
|
|
386,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
|
|
|
21,468
|
|
|
20,755
|
|
|
19,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net
income
|
|
$
|
423,445
|
|
$
|
419,793
|
|
$
|
366,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Pitney Bowes Inc. common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
431,554
|
|
$
|
447,493
|
|
$
|
361,247
|
|
(Loss) gain from discontinued operations
|
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net
income
|
|
$
|
423,445
|
|
$
|
419,793
|
|
$
|
366,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock attributable to Pitney Bowes
Inc. common
stockholders (1):
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.09
|
|
$
|
2.15
|
|
$
|
1.65
|
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.05
|
|
$
|
2.01
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock attributable to Pitney
Bowes Inc. common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.08
|
|
$
|
2.13
|
|
$
|
1.63
|
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.04
|
|
$
|
2.00
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The sum of the 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, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
412,737
|
|
$
|
376,671
|
|
Short-term investments
|
|
|
14,682
|
|
|
21,551
|
|
|
|
|
|
|
|
|
|
Accounts receivables, gross
|
|
|
859,633
|
|
|
924,886
|
|
Allowance for doubtful accounts receivables
|
|
|
(42,781
|
)
|
|
(45,264
|
)
|
|
|
|
|
|
|
|
|
Accounts receivables, net
|
|
|
816,852
|
|
|
879,622
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
1,417,708
|
|
|
1,501,678
|
|
Allowance for credit losses
|
|
|
(46,790
|
)
|
|
(45,932
|
)
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
1,370,918
|
|
|
1,455,746
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
156,502
|
|
|
161,321
|
|
Current income taxes
|
|
|
101,248
|
|
|
70,063
|
|
Other current assets and prepayments
|
|
|
98,297
|
|
|
78,108
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,971,236
|
|
|
3,043,082
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
|
|
514,904
|
|
|
574,260
|
|
Rental property and
equipment, net
|
|
|
360,207
|
|
|
397,949
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
1,380,810
|
|
|
1,445,822
|
|
Allowance for credit losses
|
|
|
(25,368
|
)
|
|
(25,858
|
)
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
1,355,442
|
|
|
1,419,964
|
|
|
|
|
|
|
|
|
|
Investment in leveraged
leases
|
|
|
233,359
|
|
|
201,921
|
|
Goodwill
|
|
|
2,286,904
|
|
|
2,251,830
|
|
Intangible assets, net
|
|
|
316,417
|
|
|
375,822
|
|
Non-current income taxes
|
|
|
108,260
|
|
|
127,723
|
|
Other assets
|
|
|
387,182
|
|
|
417,685
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,533,911
|
|
$
|
8,810,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,748,254
|
|
$
|
1,922,399
|
|
Current income taxes
|
|
|
144,385
|
|
|
91,816
|
|
Notes payable and current portion of long-term obligations
|
|
|
226,022
|
|
|
770,501
|
|
Advance billings
|
|
|
447,786
|
|
|
441,556
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,566,447
|
|
|
3,226,272
|
|
|
|
|
|
|
|
|
|
Deferred taxes on income
|
|
|
293,459
|
|
|
307,360
|
|
Tax uncertainties and other
income tax liabilities
|
|
|
525,253
|
|
|
431,031
|
|
Long-term debt
|
|
|
4,213,640
|
|
|
3,934,865
|
|
Other non-current
liabilities
|
|
|
625,079
|
|
|
823,322
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,223,878
|
|
|
8,722,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
(Preferred stockholders equity in subsidiaries)
|
|
|
296,370
|
|
|
374,165
|
|
Commitments and
contingencies (See Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
Cumulative preferred stock, $50 par value, 4% convertible
|
|
|
4
|
|
|
7
|
|
Cumulative preference stock, no par value, $2.12 convertible
|
|
|
868
|
|
|
976
|
|
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912
shares issued)
|
|
|
323,338
|
|
|
323,338
|
|
Additional paid-in capital
|
|
|
256,133
|
|
|
259,306
|
|
Retained earnings
|
|
|
4,305,794
|
|
|
4,179,904
|
|
Accumulated other comprehensive loss
|
|
|
(457,378
|
)
|
|
(596,341
|
)
|
Treasury stock, at cost (116,140,084 and 117,156,719 shares,
respectively)
|
|
|
(4,415,096
|
)
|
|
(4,453,969
|
)
|
|
|
|
|
|
|
|
|
Total Pitney Bowes Inc.
stockholders equity (deficit)
|
|
|
13,663
|
|
|
(286,779
|
)
|
|
|
|
|
|
|
|
|
Total liabilities,
noncontrolling interests and stockholders equity (deficit)
|
|
$
|
8,533,911
|
|
$
|
8,810,236
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
41
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of noncontrolling interests
|
|
$
|
444,913
|
|
$
|
440,548
|
|
$
|
386,023
|
|
Gain on sale of a facility, net of tax
|
|
|
|
|
|
|
|
|
(1,623
|
)
|
Restructuring
charges and asset impairments, net of tax
|
|
|
31,782
|
|
|
144,211
|
|
|
223,486
|
|
Restructuring payments
|
|
|
(105,090
|
)
|
|
(102,680
|
)
|
|
(31,568
|
)
|
(Payments) proceeds for settlement of derivative instruments
|
|
|
(20,281
|
)
|
|
43,991
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
338,895
|
|
|
379,117
|
|
|
383,141
|
|
Stock-based compensation
|
|
|
22,523
|
|
|
26,402
|
|
|
24,131
|
|
Special pension plan contributions
|
|
|
(125,000
|
)
|
|
|
|
|
|
|
Changes in operating assets and liabilities, excluding effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivables
|
|
|
84,182
|
|
|
(23,690
|
)
|
|
35,853
|
|
(Increase) decrease in finance receivables
|
|
|
206,823
|
|
|
24,387
|
|
|
(86,238
|
)
|
(Increase) decrease in inventories
|
|
|
12,187
|
|
|
2,018
|
|
|
7,710
|
|
(Increase) decrease in prepaid, deferred expense and other assets
|
|
|
(15,036
|
)
|
|
6,001
|
|
|
(7,793
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
(127,256
|
)
|
|
(76,880
|
)
|
|
32,789
|
|
Increase (decrease) in current and non-current income taxes
|
|
|
85,632
|
|
|
122,480
|
|
|
123,636
|
|
Increase (decrease) in advance billings
|
|
|
(2,744
|
)
|
|
2,051
|
|
|
10,444
|
|
Increase (decrease) in other operating capital, net
|
|
|
(7,462
|
)
|
|
21,459
|
|
|
(20,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
824,068
|
|
|
1,009,415
|
|
|
1,079,707
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Short-term and other investments
|
|
|
(8,362
|
)
|
|
35,652
|
|
|
42,367
|
|
Proceeds from the sale of facilities
|
|
|
|
|
|
|
|
|
29,608
|
|
Capital expenditures
|
|
|
(166,728
|
)
|
|
(237,308
|
)
|
|
(264,656
|
)
|
Net investment in external financing
|
|
|
1,456
|
|
|
1,868
|
|
|
(2,214
|
)
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
(67,689
|
)
|
|
(594,110
|
)
|
Reserve account deposits
|
|
|
1,664
|
|
|
33,359
|
|
|
62,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(171,970
|
)
|
|
(234,118
|
)
|
|
(726,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in notes payable, net
|
|
|
(389,666
|
)
|
|
205,590
|
|
|
(89,673
|
)
|
Proceeds from long-term obligations
|
|
|
297,513
|
|
|
245,582
|
|
|
640,765
|
|
Principal payments on long-term obligations
|
|
|
(150,000
|
)
|
|
(576,565
|
)
|
|
(174,191
|
)
|
Proceeds from issuance of common stock
|
|
|
11,962
|
|
|
20,154
|
|
|
107,517
|
|
Payments to redeem preferred stock issued by a subsidiary
|
|
|
(375,000
|
)
|
|
(10,000
|
)
|
|
|
|
Proceeds from issuance of preferred stock by a subsidiary
|
|
|
296,370
|
|
|
|
|
|
|
|
Stock repurchases
|
|
|
|
|
|
(333,231
|
)
|
|
(399,996
|
)
|
Dividends paid to common stockholders
|
|
|
(297,555
|
)
|
|
(291,611
|
)
|
|
(288,790
|
)
|
Dividends paid to noncontrolling interests
|
|
|
(19,485
|
)
|
|
(20,755
|
)
|
|
(19,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(625,861
|
)
|
|
(760,836
|
)
|
|
(223,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents
|
|
|
9,829
|
|
|
(14,966
|
)
|
|
8,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
|
|
36,066
|
|
|
(505
|
)
|
|
138,074
|
|
Cash and cash equivalents
at beginning of period
|
|
|
376,671
|
|
|
377,176
|
|
|
239,102
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
at end of period
|
|
$
|
412,737
|
|
$
|
376,671
|
|
$
|
377,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$
|
195,256
|
|
$
|
235,816
|
|
$
|
236,697
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash income taxes paid,
net
|
|
$
|
197,925
|
|
$
|
164,354
|
|
$
|
178,469
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
42
PITNEY BOWES INC.
C
ONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
Preference
stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Comprehensive
income (loss)
|
|
Retained
earnings
|
|
Accumulated
other
comprehensive
(loss) income
|
|
Treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
7
|
|
$
|
1,068
|
|
$
|
323,338
|
|
$
|
235,558
|
|
|
|
|
$
|
4,156,994
|
|
$
|
(131,744
|
)
|
$
|
(3,869,166
|
)
|
Tax adjustment (see note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,058,094
|
|
|
|
|
|
|
|
Adoption of accounting for tax
uncertainties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,363
|
)
|
|
|
|
|
|
|
Pitney Bowes Inc. 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, net of tax of $1.8 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,801
|
|
|
|
|
|
2,801
|
|
|
|
|
Net unrealized gain on investment
securities, net of tax of $0.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352
|
|
|
|
|
|
352
|
|
|
|
|
Net unamortized gain on pension and
postretirement plans, net of tax of $15.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,347
|
|
|
|
|
|
30,347
|
|
|
|
|
Amortization of pension and postretirement
costs, net of tax of $13.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,172
|
|
|
|
|
|
22,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
587,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
4,051,722
|
|
|
88,656
|
|
|
(4,155,642
|
)
|
Pitney Bowes Inc. 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, net of tax of ($12.4) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,670
|
)
|
|
|
|
|
(18,670
|
)
|
|
|
|
Net unrealized gain on investment
securities, net of tax of $0.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580
|
|
|
|
|
|
580
|
|
|
|
|
Net unamortized loss on pension and
postretirement plans, net of tax of ($216.1) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(375,544
|
)
|
|
|
|
|
(375,544
|
)
|
|
|
|
Amortization of pension and postretirement
costs, net of tax of $8.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,089
|
|
|
|
|
|
14,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(265,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
4,179,904
|
|
|
(596,341
|
)
|
|
(4,453,969
|
)
|
Pitney Bowes Inc. net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
423,445
|
|
|
423,445
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,820
|
|
|
|
|
|
119,820
|
|
|
|
|
Net unrealized gain on derivative
instruments, net of tax of $4.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,214
|
|
|
|
|
|
7,214
|
|
|
|
|
Net unrealized loss on investment
securities, net of tax of ($0.1) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
(283
|
)
|
|
|
|
Net unamortized loss on pension and
postretirement plans, net of tax of $8.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,116
|
)
|
|
|
|
|
(5,116
|
)
|
|
|
|
Amortization of pension and postretirement
costs, net of tax of $10.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,328
|
|
|
|
|
|
17,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
562,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297,483
|
)
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(22,017
|
)
|
|
|
|
|
|
|
|
|
|
|
36,419
|
|
Conversions to common stock
|
|
|
(3
|
)
|
|
(108
|
)
|
|
|
|
|
(2,343
|
)
|
|
|
|
|
|
|
|
|
|
|
2,454
|
|
Pre-tax stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
21,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to additional paid in capital,
tax effect from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
(574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
$
|
4
|
|
$
|
868
|
|
$
|
323,338
|
|
$
|
256,133
|
|
|
|
|
$
|
4,305,794
|
|
$
|
(457,378
|
)
|
$
|
(4,415,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
shares of 0.9 million, 0.9 million and 3.0 million were issued under employee
plans in 2009, 2008 and 2007, respectively. We repurchased no shares in 2009.
We repurchased 9.2 million and 9.1 million shares in 2008 and 2007,
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.
Reclassification
Certain prior year amounts in the Consolidated Financial Statements
have been reclassified to conform to the current year presentation. Beginning
in 2009, we have separately presented a financing interest expense line item,
which represents our estimated cost of borrowing associated with the generation
of financing revenues, in the Consolidated Statements of Income. In computing
our financing interest expense, we assumed a 10:1 leveraging ratio of debt to
equity and applied our overall effective interest rate to the average
outstanding finance receivables.
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.
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 purchase. 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 based on our
historical loss experience, length of time receivables are past due, adverse
situations that may affect a customers ability to pay and prevailing economic
conditions. We make adjustments to our allowance if the evaluation of
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.
44
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
We evaluate the adequacy of allowance for credit losses based on our
historical loss experience, the nature and volume of the portfolios, adverse
situations that may affect a customers ability to pay, 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.
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.
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 the internal-use software accounting guidance. 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 the software industry
accounting guidance. 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, and payroll and payroll-related costs attributable to programmers,
software engineers, quality control and field certifiers. Capitalized software
development costs are amortized over the estimated product useful life,
principally 3 to 5 years, generally on a straight-line basis. Other assets on
our Consolidated Balance Sheets include $23.2 million and $19.6 million of
capitalized software development costs at December 31, 2009 and 2008,
respectively. The Consolidated Statements of Income include the related
amortization expense of $10.4 million, $6.1 million, and $3.9 million for the
years ended December 31, 2009, 2008, and 2007, respectively. Total software
development costs capitalized in 2009 and 2008 were $9.2 million and $7.1
million, respectively.
Research and Development Costs
Research and product development costs not subject to capitalization
accounting requirements 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. We
estimate the fair value of intangible assets primarily using a cost, market or
income approach. Goodwill represents the excess of the purchase price over the
estimated fair values of net tangible and intangible assets acquired. The
primary drivers that generate goodwill are the value of synergies between the
acquired entities and the company and the acquired assembled workforce, neither
of which qualifies as an identifiable intangible asset. 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 amortized using either a straight-line method or an accelerated
attrition method. All other intangibles are amortized on a straight-line
method. See Note 6 to the Consolidated Financial Statements.
Impairment Review for Goodwill
Goodwill is tested annually for impairment, or sooner when
circumstances indicate an impairment may exist, at the reporting unit level. A
reporting unit is the operating segment, or a business, which is one level
below that operating segment. Reporting units are aggregated as a single reporting
unit if they have similar economic characteristics. Goodwill is tested for
impairment using a two-step
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
approach. In the first step, the fair value of each reporting unit is
determined. If the fair value of a reporting unit is less than its carrying
value, the second step of the goodwill impairment test is performed to measure
the amount of impairment, if any. In the second step, the fair value of the
reporting unit is allocated to the assets and liabilities of the reporting unit
as if it had just been acquired in a business combination, and as if the
purchase price was equivalent to the fair value of the reporting unit. The excess
of the fair value of the reporting unit over the amounts assigned to its assets
and liabilities is referred to as the implied fair value of goodwill. The
implied fair value of the reporting units goodwill is then compared to the
actual carrying value of goodwill. If the implied fair value is less than the
carrying value, an impairment loss is recognized for that excess. The fair
values of our reporting units are determined based on a combination of various
techniques, including the present value of future cash flows, earnings
multiples of competitors and multiples from sales of like businesses.
Impairment Review for Intangible Assets and
Other Long-Lived Assets
Intangible assets and other 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
is 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 value of impaired asset is determined using
probability weighted expected cash flow estimates, quoted market prices when
available and appraisals as appropriate.
Retirement Plans
In accordance with the retirement benefits accounting guidance, 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. We recognize the overfunded or underfunded status of pension and other
postretirement benefit plans on the balance sheet. Gains and losses, prior
service costs and credits, and any remaining transition amounts 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
19 to the Consolidated Financial Statements for further details.
During 2009, the Board of Directors approved and adopted a resolution
amending both U.S. pension plans, the Pitney Bowes Pension Plan and the Pitney
Bowes Pension Restoration Plan, to provide that benefit accruals as of December
31, 2014, will be determined and frozen and no future benefit accruals under
the plans will occur after that date. See Note 19 to the Consolidated Financial
Statements for further details.
Stock-based Compensation
We account
for stock-based awards exchanged for employee service in accordance with
the share-based payment accounting guidance. 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 sale of equipment, supplies, and
software, rentals, financing, and support and business services. Revenue is
recognized when earned. More specifically, revenue related to our offerings is
recognized as follows:
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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 typically 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. We recognize revenue from the
sale of equipment under sales-type leases as equipment revenue at the inception
of the lease.
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 subject to capitalization.
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 the software revenue recognition accounting
guidance is not applicable.
Sales of Supplies
Revenue related to supplies is recognized at the point of title
transfer, which is typically upon shipment.
Standalone Software Sales and Integration
Services
In accordance with software revenue accounting guidance, 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. Rental property and equipment, net
on our Consolidated Balance Sheets include $45.2 million and $55.3 million of
these deferred costs at December 31, 2009 and 2008, respectively. The
Consolidated Statements of Income include the related amortization expense of
$25.1 million, $27.7 million and $23.7 million for the years ended December 31,
2009, 2008 and 2007, 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 result in 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 unearned income as financing revenue using the interest method over
the lease term.
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.
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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 the revenue recognition accounting guidance. 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.
Shipping and Handling
We include costs related to shipping and handling in cost of revenues
for all periods presented.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, Internet, and retail
marketing costs, associated with the acquisition of new customers in accordance
with the advertising costs accounting guidance. 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, 2009
and 2008 include $119.5 million and $130.8 million, respectively, of deferred
marketing costs. The Consolidated Statements of Income include the related
amortization expense of $43.5 million, $43.1 million and $43.7 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
Restructuring Charges
We apply the provisions of the accounting guidance for costs associated
with exit or disposal activities to account for one-time benefit arrangements
and exit or disposal activities. It 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 in accordance with the
nonretirement postemployment benefits accounting guidance 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.
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.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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 loss in
stockholders equity (deficit) 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 13 to
the Consolidated Financial Statements for additional disclosures on derivative
instruments.
New Accounting Pronouncements
Revenue Recognition
In September 2009,
new guidance was introduced addressing the accounting for revenue arrangements
with multiple elements and certain revenue arrangements that include software.
The new literature will allow companies to allocate consideration in a multiple
element arrangement in a way that better reflects the economics of the transaction.
This will result in the elimination of the residual method. In addition,
tangible products that have software components that are essential to the functionality of
the tangible product will be scoped out of the software revenue guidance.
The new guidance will also result in more expansive disclosures. The new
guidance will be effective on January 1, 2011, with early adoption permitted.
We are currently evaluating the impact of adopting the new guidance.
Pension Disclosures
On December 31,
2009, we adopted new accounting guidance requiring more detailed disclosures
about employers postretirement benefit 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 Company has complied with the additional disclosure
requirements. See Note 19 to the Consolidated Financial Statements for our postretirement
benefit plan disclosures.
Noncontrolling Interests
On January
1, 2009, we adopted new accounting guidance on noncontrolling interests.
The new guidance 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. The guidance requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests while all other requirements of the guidance are applied prospectively.
Business Combinations
On January 1, 2009, we adopted new accounting guidance on business
combinations. The new guidance revises 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
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
enable users of the financial statements to evaluate the nature and
financial effects of a business combination. Some of the major impacts of this
new guidance include expense recognition for transaction costs and
restructuring costs. The adoption of this guidance has not had a material
impact on our financial position, results of operations, or cash flows.
Disclosures about Derivative Instruments and
Hedging Activities
On January 1, 2009, we adopted new
accounting guidance on disclosures about derivative instruments and hedging activities.
The new guidance impacts disclosures only and requires additional qualitative
and quantitative information on the use of derivatives and their impact on an
entitys financial
position, results of operations and cash flows. See Note 13 to the Consolidated
Financial Statements for additional information regarding our derivative
instruments and hedging activities.
Fair Value Measurements
On January 1, 2008, we adopted new accounting guidance on fair value
measurements. The new guidance defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. It
was effective for certain financial assets and liabilities on January 1, 2008
and for all nonfinancial assets and liabilities recognized or disclosed at fair
value on a nonrecurring basis on January 1, 2009. The adoption of this guidance
has not had a material impact on our financial position, results of operations,
or cash flows. See Note 13 to the Consolidated Financial Statements for
additional discussion on fair value measurements.
2. Discontinued Operations
The following table shows selected financial information included in
discontinued operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
|
$
|
20,624
|
|
$
|
|
|
$
|
|
|
Tax
provision
|
|
|
(28,733
|
)
|
|
(27,700
|
)
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain
from discontinued operations, net of tax
|
|
$
|
(8,109
|
)
|
$
|
(27,700
|
)
|
$
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2009 net loss includes $9.8 million of pre-tax income ($6.0 million
net of tax) for a bankruptcy settlement received during 2009 and $10.9 million
of pre-tax income ($6.7 million net of tax) related to the expiration of an
indemnity agreement associated with the sale of a former subsidiary. This
income was more than offset by the accrual of interest on uncertain tax
positions. The 2008 net loss of $27.7 million includes an accrual of tax and
interest on uncertain tax positions. The 2007 net gain includes a benefit of
$11.3 million and the accrual of $5.8 million of interest expense, both related
to uncertain tax positions.
3. Acquisitions
There were no acquisitions during 2009.
On April 21, 2008, we acquired Zipsort, Inc. for $40 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.
50
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 Zipsort, Inc. acquisition in 2008:
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Zipsort, Inc.
|
|
|
|
|
|
Purchase price allocation
|
|
|
|
|
Current
assets
|
|
$
|
708
|
|
Other
non-current assets
|
|
|
11,707
|
|
Intangible
assets
|
|
|
7,942
|
|
Goodwill
|
|
|
25,294
|
|
Current
liabilities
|
|
|
(2,975
|
)
|
Non-current
liabilities
|
|
|
(2,885
|
)
|
|
|
|
|
|
Purchase price, net of cash acquired
|
|
$
|
39,791
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
Customer
relationships
|
|
$
|
7,658
|
|
Non-compete
agreements
|
|
|
284
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,942
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets amortization period
|
|
|
|
|
Customer
relationships
|
|
|
15 years
|
|
Non-compete
agreements
|
|
|
4 years
|
|
|
|
|
|
|
Total weighted average
|
|
|
15 years
|
|
|
|
|
|
|
During 2008, we also completed several smaller acquisitions with an
aggregate cost of $29.7 million. These acquisitions did not have a material
impact on our financial results.
The amount of tax deductible goodwill added from acquisitions in 2008
was $38.5 million.
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, 2009 and 2008 as if our acquisitions had been
acquired on January 1 of each year presented:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
5,569,171
|
|
$
|
6,288,242
|
|
The pro forma
earnings results of these acquisitions were not material to net income or
earnings per share. The pro forma consolidated results do not purport to be
indicative of actual results that would have occurred had the acquisitions been
completed on January 1, 2009 and 2008, nor do they purport to be indicative of
the results that will be obtained in the future.
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
4. Inventories
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Raw
materials and work in process
|
|
$
|
36,331
|
|
$
|
41,171
|
|
Supplies and
service parts
|
|
|
69,506
|
|
|
78,018
|
|
Finished
products
|
|
|
50,665
|
|
|
42,132
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
156,502
|
|
$
|
161,321
|
|
|
|
|
|
|
|
|
|
If all inventories valued at LIFO had been stated at current costs,
inventories would have been $25.8 million and $24.4 million higher than
reported at December 31, 2009 and 2008, respectively. In 2008, we recorded
impairment charges to inventories for $13.6 million 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,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Land
|
|
$
|
32,517
|
|
$
|
32,367
|
|
Buildings
|
|
|
384,257
|
|
|
387,478
|
|
Machinery
and equipment
|
|
|
1,413,630
|
|
|
1,469,717
|
|
|
|
|
|
|
|
|
|
|
|
|
1,830,404
|
|
|
1,889,562
|
|
Accumulated
depreciation
|
|
|
(1,315,500
|
)
|
|
(1,315,302
|
)
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$
|
514,904
|
|
$
|
574,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
equipment
|
|
$
|
813,544
|
|
$
|
932,389
|
|
Accumulated
depreciation
|
|
|
(453,337
|
)
|
|
(534,440
|
)
|
|
|
|
|
|
|
|
|
Rental
property and equipment, net
|
|
$
|
360,207
|
|
$
|
397,949
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $269.8 million, $306.8 million and $318.1
million for the years ended December 31, 2009, 2008, and 2007, respectively.
Rental equipment is primarily comprised of postage meters.
52
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, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
428,888
|
|
$
|
(197,497
|
)
|
$
|
231,391
|
|
$
|
428,946
|
|
$
|
(160,396
|
)
|
$
|
268,550
|
|
Supplier relationships
|
|
|
29,000
|
|
|
(13,292
|
)
|
|
15,708
|
|
|
29,000
|
|
|
(10,392
|
)
|
|
18,608
|
|
Mailing software and
technology
|
|
|
164,211
|
|
|
(103,388
|
)
|
|
60,823
|
|
|
160,069
|
|
|
(84,016
|
)
|
|
76,053
|
|
Trademarks and trade names
|
|
|
35,855
|
|
|
(27,898
|
)
|
|
7,957
|
|
|
34,302
|
|
|
(22,541
|
)
|
|
11,761
|
|
Non-compete agreements
|
|
|
7,753
|
|
|
(7,215
|
)
|
|
538
|
|
|
6,577
|
|
|
(5,727
|
)
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
665,707
|
|
$
|
(349,290
|
)
|
$
|
316,417
|
|
$
|
658,894
|
|
$
|
(283,072
|
)
|
$
|
375,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for intangible assets was $69.1 million, $72.3 million and $65.0
million for the years ended December 31, 2009, 2008 and 2007, respectively. In
2008, we recorded impairment charges of $28.5 million 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,
2009 is as follows:
|
|
|
|
|
Year ended
December 31,
|
|
Amount
|
|
|
|
|
|
2010
|
|
$
|
59,000
|
|
2011
|
|
|
52,000
|
|
2012
|
|
|
45,000
|
|
2013
|
|
|
41,000
|
|
2014
|
|
|
37,000
|
|
Thereafter
|
|
|
82,417
|
|
|
|
|
|
|
|
|
$
|
316,417
|
|
|
|
|
|
|
During 2009,
we recorded no additions to intangible assets. During 2008, we recorded
additions to intangible assets of $18.6 million. The components of these
purchased intangible assets are as follows:
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Amount
|
|
Weighted
Average Life
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
18,274
|
|
12 years
|
|
Non-compete
agreements
|
|
|
284
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
$
|
18,558
|
|
11 years
|
|
|
|
|
|
|
|
|
53
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, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
221,315
|
|
$
|
|
|
$
|
(2,748
|
)
|
$
|
218,567
|
|
International Mailing
|
|
|
322,230
|
|
|
|
|
|
20,319
|
|
|
342,549
|
|
Production Mail
|
|
|
137,067
|
|
|
|
|
|
299
|
|
|
137,366
|
|
Software
|
|
|
623,995
|
|
|
|
|
|
9,943
|
|
|
633,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
1,304,607
|
|
|
|
|
|
27,813
|
|
|
1,332,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
491,633
|
|
|
|
|
|
8,422
|
|
|
500,055
|
|
Mail Services
|
|
|
260,793
|
|
|
|
|
|
(1,161
|
)
|
|
259,632
|
|
Marketing Services
|
|
|
194,797
|
|
|
|
|
|
|
|
|
194,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
947,223
|
|
|
|
|
|
7,261
|
|
|
954,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,251,830
|
|
$
|
|
|
$
|
35,074
|
|
$
|
2,286,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2007 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
December 31,
2008 (1)
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
205,190
|
|
$
|
4,034
|
|
$
|
12,091
|
|
$
|
221,315
|
|
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
|
|
|
1,358,809
|
|
|
11,587
|
|
|
(65,789
|
)
|
|
1,304,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
519,089
|
|
|
|
|
|
(27,456
|
)
|
|
491,633
|
|
Mail Services
|
|
|
227,163
|
|
|
33,103
|
|
|
527
|
|
|
260,793
|
|
Marketing Services
|
|
|
194,797
|
|
|
|
|
|
|
|
|
194,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
941,049
|
|
|
33,103
|
|
|
(26,929
|
)
|
|
947,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,299,858
|
|
$
|
44,690
|
|
$
|
(92,718
|
)
|
$
|
2,251,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
54
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,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
308,505
|
|
$
|
323,959
|
|
Reserve
account deposits
|
|
|
557,221
|
|
|
555,557
|
|
Accrued
salaries, wages and commissions
|
|
|
244,170
|
|
|
271,940
|
|
Accrued
restructuring charges
|
|
|
88,626
|
|
|
142,592
|
|
Miscellaneous
accounts payable and accrued liabilities
|
|
|
549,732
|
|
|
628,351
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,748,254
|
|
$
|
1,922,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
220,794
|
|
$
|
610,460
|
|
Current
portion of long-term debt & capital leases
|
|
|
5,228
|
|
|
160,041
|
|
|
|
|
|
|
|
|
|
Notes
payable & current portion of long-term obligations
|
|
$
|
226,022
|
|
$
|
770,501
|
|
|
|
|
|
|
|
|
|
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 0.09% and 1.36% on notes payable and overdrafts
outstanding at December 31, 2009 and 2008, respectively.
We had unused
credit facilities of $1.5 billion at December 31, 2009, primarily to support
commercial paper issuances. Fees paid to maintain lines of credit were $0.8
million in 2009, 2008 and 2007.
55
PITNEY
BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
8. Long-term Debt
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Recourse debt
|
|
|
|
|
|
|
|
0.64% to 1.88% credit facility due 2012
|
|
$
|
150,000
|
|
$
|
150,000
|
|
2.72% to 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
|
|
4.75% notes due 2018 (1)
|
|
|
350,000
|
|
|
350,000
|
|
1.79% to 3.02% notes due 2018
|
|
|
250,000
|
|
|
250,000
|
|
6.25% notes due 2019
|
|
|
300,000
|
|
|
|
|
5.25% notes due 2037
|
|
|
500,000
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Fair value hedges basis adjustment (2)
|
|
|
52,788
|
|
|
76,043
|
|
|
|
|
|
|
|
|
|
Other (3)
|
|
|
(14,148
|
)
|
|
(16,178
|
)
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
4,213,640
|
|
$
|
3,934,865
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
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.
|
|
|
(2)
|
The fair value hedges basis adjustment represents
the revaluation of fixed rate debt that has been hedged in accordance with
the derivatives and hedging accounting guidance.
|
|
|
(3)
|
Other consists primarily of debt discounts and
premiums.
|
On September 15, 2009, we repaid the 8.55% notes with
a $150 million face value at their maturity. The repayment of these notes was
funded through cash generated from operations and issuance of commercial paper.
The notes were reported in current portion of long-term debt at December 31,
2008.
On June 29, 2009, we entered into an interest rate
swap for an aggregate notional amount of $100 million to effectively convert
our interest payments on a portion of the $400 million, 4.625% fixed rate notes
due in 2012, into variable interest rates. The variable rates payable are based
on one month LIBOR plus 249 basis points. In July 2009, we entered into three
additional interest rate swaps for an aggregate notional amount of $300 million
to effectively convert our interest payments on the remainder of the $400
million, 4.625% fixed rate notes due in 2012, into variable interest rates. The
variable rates payable are based on one month LIBOR plus 248 basis points for
$100 million notional amount and one month LIBOR plus 250 basis points for $200
million notional amount.
On March 2, 2009, we issued $300 million of 10-year
fixed-rate notes with a coupon rate of 6.25%. The interest is paid
semi-annually beginning September 15, 2009. The notes mature on March 15, 2019.
We simultaneously unwound four forward starting swap agreements (forward swaps)
used to hedge the interest rate risk associated with the forecasted issuance of
the fixed-rate debt. The unwind of the derivatives resulted in a loss (and cash
payment) of $20.3 million which was recorded to other comprehensive income, net
of tax, and will be amortized to net interest expense over the 10-year term of
the notes. The proceeds from these notes were used for general corporate
purposes, including the repayment of commercial paper.
56
PITNEY
BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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.
We are a Well-Known Seasoned Issuer with the SEC which
allows us to issue debt securities, preferred stock, preference stock, common
stock, purchase contracts, depositary shares, warrants and units.
The annual maturities of the outstanding long-term
debt are as follows: 2010 no maturities; 2011 no maturities; 2012 $550 million;
2013 $375 million; 2014 $450 million; and $2,800 million thereafter.
9. Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
251,101
|
|
$
|
142,263
|
|
$
|
160,839
|
|
Total deferred
|
|
|
(10,947
|
)
|
|
102,666
|
|
|
119,383
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
$
|
240,154
|
|
$
|
244,929
|
|
$
|
280,222
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and international components of income from operations before
income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
552,636
|
|
$
|
573,066
|
|
$
|
624,030
|
|
International
|
|
|
140,540
|
|
|
140,111
|
|
|
36,681
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing
operations
|
|
|
693,176
|
|
|
713,177
|
|
|
660,711
|
|
Discontinued operations (see Note 2)
|
|
|
20,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
713,800
|
|
$
|
713,177
|
|
$
|
660,711
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rates for continuing operations for
2009, 2008 and 2007 were 34.6%, 34.3% and 42.4%, respectively. The effective
tax rate for 2009 included $12.9 million of tax charges related to the
write-off of deferred tax assets associated with the expiration of
out-of-the-money vested stock options and the vesting of restricted stock,
offset by $13.0 million of tax benefits from retirement of inter-company
obligations and the repricing of leveraged lease transactions. The effective
tax rate for 2008 included $12.0 million of tax increases related to the low
tax benefit associated with restructuring expenses recorded during 2008, offset
by adjustments of $9.5 million related to deferred tax assets associated with
certain U.S. leasing transactions. The effective tax rate for 2007 included
$54.0 million of tax charges related principally to a valuation allowance for
deferred tax assets and tax rate changes outside of the U.S.
57
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Federal
statutory provision
|
|
$
|
242,612
|
|
$
|
249,612
|
|
$
|
231,249
|
|
State and local
income taxes
|
|
|
11,109
|
|
|
19,820
|
|
|
12,281
|
|
Foreign tax
differential
|
|
|
(18,037
|
)
|
|
(2,605
|
)
|
|
2,379
|
|
Foreign
valuation allowance
|
|
|
|
|
|
4,560
|
|
|
51,724
|
|
Rate change
|
|
|
|
|
|
|
|
|
2,485
|
|
Tax exempt
income/reimbursement
|
|
|
(2,748
|
)
|
|
(5,404
|
)
|
|
(6,743
|
)
|
Federal income
tax credits/incentives
|
|
|
(4,792
|
)
|
|
(15,118
|
)
|
|
(12,732
|
)
|
Unrealized stock
compensation benefits
|
|
|
12,852
|
|
|
|
|
|
|
|
Certain leasing
transactions
|
|
|
|
|
|
(9,550
|
)
|
|
|
|
Other, net
|
|
|
(842
|
)
|
|
3,614
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
|
240,154
|
|
|
244,929
|
|
|
280,222
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
External
financing transactions (see Note 2)
|
|
|
28,733
|
|
|
27,700
|
|
|
(5,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
268,887
|
|
$
|
272,629
|
|
$
|
274,688
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of our total provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
U.S. Federal:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
217,005
|
|
$
|
112,931
|
|
$
|
136,528
|
|
Deferred
|
|
|
18,979
|
|
|
81,936
|
|
|
53,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,984
|
|
|
194,867
|
|
|
189,763
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and
Local:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
30,981
|
|
|
17,058
|
|
|
12,813
|
|
Deferred
|
|
|
(13,067
|
)
|
|
13,434
|
|
|
6,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,914
|
|
|
30,492
|
|
|
18,896
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
31,848
|
|
|
39,974
|
|
|
5,964
|
|
Deferred
|
|
|
(16,859
|
)
|
|
7,296
|
|
|
60,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,989
|
|
|
47,270
|
|
|
66,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
279,834
|
|
|
169,963
|
|
|
155,305
|
|
Total Deferred
|
|
|
(10,947
|
)
|
|
102,666
|
|
|
119,383
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
268,887
|
|
$
|
272,629
|
|
$
|
274,688
|
|
|
|
|
|
|
|
|
|
|
|
|
58
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,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
67,639
|
|
$
|
55,960
|
|
Deferred profit (for tax purposes) on sales
to finance subsidiaries
|
|
|
287,928
|
|
|
355,069
|
|
Lease revenue and related depreciation
|
|
|
427,040
|
|
|
385,780
|
|
Amortizable intangibles
|
|
|
115,793
|
|
|
135,846
|
|
Other
|
|
|
46,144
|
|
|
14,701
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
944,544
|
|
|
947,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (assets):
|
|
|
|
|
|
|
|
Nonpension postretirement benefits
|
|
|
(119,420
|
)
|
|
(121,224
|
)
|
Pension
|
|
|
(127,046
|
)
|
|
(167,158
|
)
|
Inventory and equipment capitalization
|
|
|
(29,595
|
)
|
|
(30,839
|
)
|
Restructuring charges
|
|
|
(9,619
|
)
|
|
(49,441
|
)
|
Long-term incentives
|
|
|
(50,666
|
)
|
|
(58,735
|
)
|
Net operating loss and tax credit carry
forwards
|
|
|
(151,094
|
)
|
|
(137,479
|
)
|
Tax uncertainties gross-up
|
|
|
(133,293
|
)
|
|
(86,559
|
)
|
Other
|
|
|
(101,994
|
)
|
|
(103,896
|
)
|
Valuation allowance
|
|
|
95,990
|
|
|
91,405
|
|
|
|
|
|
|
|
|
|
Deferred tax (assets)
|
|
|
(626,737
|
)
|
|
(663,926
|
)
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
|
317,807
|
|
|
283,430
|
|
Amounts included in current and non-current
income taxes
|
|
|
(24,348
|
)
|
|
23,930
|
|
|
|
|
|
|
|
|
|
Deferred taxes on income
|
|
$
|
293,459
|
|
$
|
307,360
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and
2008, approximately $285.4 million and $250.1 million, respectively, of foreign
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 $830 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 $16
million.
In 2006,
guidance was issued addressing accounting for uncertainty in income taxes. The
guidance defines the confidence level that a tax position must meet in order to
be recognized in the financial statements. The guidance 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. We adopted the provisions of accounting for
uncertainty in income taxes 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, 2009, 2008 and 2007 was $515.6
million, $434.2 million and $398.9 million, respectively, of which $410.6
million, $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 2009, 2008 and 2007 is as
follows:
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
434,164
|
|
$
|
398,878
|
|
$
|
356,063
|
|
Increases from prior period positions
|
|
|
65,540
|
|
|
21,623
|
|
|
28,762
|
|
Decreases from prior period positions
|
|
|
(7,741
|
)
|
|
(8,899
|
)
|
|
(20,063
|
)
|
Increases from current period positions
|
|
|
42,696
|
|
|
33,028
|
|
|
61,778
|
|
Decreases from current period positions
|
|
|
|
|
|
|
|
|
|
|
Decreases relating to settlements with tax
authorities
|
|
|
(3,173
|
)
|
|
(7,426
|
)
|
|
(2,165
|
)
|
Reductions as a result of a lapse of the
applicable statute of limitations
|
|
|
(15,921
|
)
|
|
(3,040
|
)
|
|
(25,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
515,565
|
|
$
|
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, 2009, 2008 and 2007 we recorded $23.0 million,
$25.6 million and $9.5 million, respectively, in interest and penalties and
this amount was included in discontinued operations. We had $185.6 million,
$160.3 million and $134.7 million accrued for the payment of interest and
penalties at December 31, 2009, 2008 and 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 and the examination of
years 2005-2008 has commenced. In connection with the 2001-2004 exam, we have
received notices of proposed adjustments to our filed returns. Tax reserves have
been established which we believe to be appropriate given the possibility of
tax adjustments. We are also 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. A decision by the Rhode Island U.S. District Court in a similar
case that supported our position was overturned on appeal by the First Circuit
Court of Appeals and the federal judicial circuits are now divided on this
issue. The taxpayer in the First Circuit decision has filed a petition for a
writ of certiorari with the U.S. Supreme Court requesting review of the First
Circuit decision. 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 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. Tax reserves have been established which we believe to be
appropriate given the possibility of tax adjustments. However, the resolution
of such matters could have a material impact on our results of operations,
financial position and cash flows.
During 2009,
we examined the taxes payable and deferred income tax accounts of the Company
and determined that adjustments needed to be made to correct errors in these
accounts. As a part of that process, we implemented certain changes to our tax
accounting processes and procedures including implementing new tax software.
These adjustments related primarily to our discontinued Capital Services
business sold in 2006 and accumulated over an extended period dating back to
the early 1990s. The impact of these adjustments was not material to any
individual prior period. Accordingly, in the fourth quarter of 2009, the Company
recorded an additional $3.0 million tax provision, related primarily to state
tax adjustments and international tax rate changes, and an additional $4.3
million provision in its loss from discontinued operations representing
interest on Capital Services tax uncertainties; both of these adjustments
relate to fiscal years 2007 and 2008. Other identified tax adjustments,
totaling $98.9 million, relate primarily to
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
state income
tax adjustments associated with the discontinued Capital Services leasing
transactions for years prior to 2007 and are recorded as a reduction of 2007
opening retained earnings in the Consolidated Statements of Stockholders
Equity (Deficit).
During 2009,
we reversed tax benefits of $12.9 million associated with the expiration of
out-of-the-money vested stock options and the vesting of restricted stock units
previously granted to our employees. During 2010, we expect to reverse tax
benefits of approximately $15 million associated with the expiration of
out-of-the-money vested stock options and the vesting of restricted stock units
previously granted to our employees. These write-offs of deferred tax assets
will not require the payment of any taxes.
10. Noncontrolling
Interests (Preferred Stockholders Equity in Subsidiaries)
At December
31, 2008, Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary of
the Company, had 3,750,000 shares outstanding or $375 million of variable term
voting preferred stock owned by certain outside institutional investors. These
preferred shares were entitled as a group to 25% of the combined voting power
of all classes of capital stock of PBIH. All outstanding common stock of PBIH,
representing the remaining 75% of the combined voting power of all classes of
capital stock, was owned directly or indirectly by Pitney Bowes Inc. The
preferred stock, $.01 par value, was entitled to cumulative dividends at rates
set at auction. The weighted average dividend rate was 4.8% for the variable
term voting preferred stock during 2009 and 2008.
In October
2009, PBIH issued 300,000 shares, or $300 million, of perpetual voting
preferred stock to certain outside institutional investors. These preferred
shares are entitled as a group to 25% of the combined voting power of all
classes of capital stock of PBIH. All outstanding common stock of PBIH,
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 is entitled to cumulative dividends at a rate of 6.125% for a
period of 7 years after which it becomes callable and, if it remains
outstanding, will yield a dividend that increases by 150% every six months
thereafter.
In October
2009, PBIH redeemed $344 million of its existing variable term voting preferred
stock. The redemption was funded by a combination of the issuance of the $300
million perpetual voting preferred stock and commercial paper.
In December
2009, PBIH redeemed the remaining $31 million of its existing variable term
voting preferred stock. The redemption was funded by cash flows from operations
and the issuance of commercial paper.
Preferred
dividends are included in Preferred stock dividends of subsidiaries
attributable to noncontrolling interests in the Consolidated Statements of
Income. No dividends were in arrears at December 31, 2009 or December 31, 2008.
A rollforward
of noncontrolling interests is as follows:
|
|
|
|
|
Beginning balance at January 1, 2007 and
2008
|
|
$
|
384,165
|
|
Movements:
|
|
|
|
|
Share redemptions (1)
|
|
|
(10,000
|
)
|
|
|
|
|
|
Ending balance at December 31, 2008
|
|
$
|
374,165
|
|
Movements:
|
|
|
|
|
Share issuances
|
|
|
296,370
|
|
Share redemptions
|
|
|
(374,165
|
)
|
|
|
|
|
|
Ending balance at December 31, 2009
|
|
$
|
296,370
|
|
|
|
|
|
|
|
|
(1)
|
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.
|
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
11. Stockholders
Equity (Deficit)
At December
31, 2009, 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, 2009, 207,197,828 shares of common stock (net of 116,140,084
shares of treasury stock), 85 shares of 4% convertible cumulative preferred
stock (4% preferred stock) and 32,079 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 (599,915 shares) and preference stock (4,967,921 shares). The Board will
determine the dividend rate, terms of redemption, terms of conversion (if any)
and other pertinent features. At December 31, 2009, unreserved and unissued common
stock (exclusive of treasury stock) amounted to 115,390,571 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 $1.44 per share, $1.40 per share and $1.32 per share
for 2009, 2008, and 2007, respectively.
At December
31, 2009, a total of 532,326 shares of common stock were reserved for issuance
upon conversion of the 4% preferred stock (2,060 shares) and $2.12 preference
stock (530,266 shares). In addition, 40,739,191 shares of common stock were
reserved for issuance under our dividend reinvestment and other corporate
plans.
The following
table summarizes the preferred, preference and common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preference
Stock
|
|
Issued
|
|
Treasury
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Repurchase
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
949,689
|
|
|
|
|
Conversions
of common stock
|
|
|
(50
|
)
|
|
(3,977
|
)
|
|
|
|
|
66,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
|
85
|
|
|
32,079
|
|
|
323,337,912
|
|
|
(116,140,084
|
)
|
|
207,197,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Accumulated Other Comprehensive (Loss) Income
The components
of accumulated other comprehensive (loss) income are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
(1)
|
|
$
|
155,620
|
|
$
|
35,800
|
|
$
|
341,252
|
|
Net unrealized loss on derivatives
|
|
|
(11,738
|
)
|
|
(18,952
|
)
|
|
(282
|
)
|
Net unrealized gain on investment
securities
|
|
|
649
|
|
|
932
|
|
|
352
|
|
Amortization of pension and postretirement
costs
|
|
|
53,589
|
|
|
36,261
|
|
|
22,172
|
|
Net unamortized loss on pension and
postretirement plans
|
|
|
(655,498
|
)
|
|
(650,382
|
)
|
|
(274,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss)
income
|
|
$
|
(457,378
|
)
|
$
|
(596,341
|
)
|
$
|
88,656
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
net deferred translation gains of $22.5 million, $41.7 million and $47.6
million for the years ended December 31, 2009, 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.
12. Stock Plans
We account for
stock-based awards exchanged for employee services in accordance with the
share-based payment accounting guidance. 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.
The following
table shows total stock-based compensation expense for stock options, restricted
stock units, and employee stock purchase plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
$
|
6,649
|
|
$
|
11,851
|
|
$
|
14,001
|
|
Restricted
stock units
|
|
|
14,888
|
|
|
11,168
|
|
|
7,115
|
|
Employee
stock purchase plans
|
|
|
224
|
|
|
3,383
|
|
|
3,015
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
stock-based compensation
|
|
$
|
21,761
|
|
$
|
26,402
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
The following
table shows stock-based compensation expense as included in the Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
equipment sales
|
|
$
|
1,486
|
|
$
|
1,802
|
|
$
|
1,649
|
|
Cost of
support services
|
|
|
640
|
|
|
777
|
|
|
710
|
|
Cost of
business services
|
|
|
884
|
|
|
1,073
|
|
|
980
|
|
Selling,
general and administrative
|
|
|
18,020
|
|
|
21,862
|
|
|
19,984
|
|
Research and
development
|
|
|
731
|
|
|
888
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
stock-based compensation
|
|
|
21,761
|
|
|
26,402
|
|
|
24,131
|
|
Income tax
|
|
|
(7,458
|
)
|
|
(9,109
|
)
|
|
(8,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense, net
|
|
$
|
14,303
|
|
$
|
17,293
|
|
$
|
15,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share impact
|
|
$
|
0.07
|
|
$
|
0.08
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share impact
|
|
$
|
0.07
|
|
$
|
0.08
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Capitalized
stock-based compensation costs at December 31, 2009 and 2008 were not material.
At December
31, 2009, $4.2 million of unrecognized compensation cost related to non-vested
stock options is expected to be recognized over a weighted average period of
1.3 years. At December 31, 2009, $23.0 million of unrecognized compensation
cost related to non-vested restricted stock units is expected to be recognized
over a weighted average period of 1.7 years.
No options
were exercised during 2009. The total intrinsic value of options exercised
during the years ended 2008 and 2007, was $1.1 million and $28.1 million,
respectively. The total intrinsic value of restricted stock units converted
during 2009 was $5.2 million. Proceeds from issuance of stock in our
Consolidated Statements of Cash Flows for 2009, 2008 and 2007 include $0.0
million, $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 to vest.
At December
31, 2009, there were 15,102,457 shares available for future grants of stock
options and restricted stock units under our stock plans.
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.
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
from 2005 through 2008 generally become exercisable in four equal installments
during the first four years following their grant and expire ten years from the
date of grant. Options granted on or after 2009 generally become exercisable in
three equal installments during the first three years following their grant and
expire ten years from the date of grant.
The following
tables summarize information about stock option transactions during 2009:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
|
18,808,070
|
|
$
|
42.50
|
|
Granted
|
|
|
1,638,709
|
|
$
|
24.75
|
|
Exercised
|
|
|
|
|
|
|
|
Canceled
|
|
|
(2,663,460
|
)
|
$
|
58.14
|
|
Forfeited
|
|
|
(203,240
|
)
|
$
|
32.71
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2009
|
|
|
17,580,079
|
|
$
|
38.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2009
|
|
|
13,756,746
|
|
$
|
39.93
|
|
We granted
2,126,310 and 1,488,387 options in 2008 and 2007, respectively. The weighted
average exercise price of the options granted was $36.74 and $47.17 in 2008 and
2007, respectively.
The
weighted-average remaining contractual life of the total options outstanding
and options exercisable at December 31, 2009 was 4.3 years and 3.2 years,
respectively. The total options outstanding and exercisable at December 31,
2009 had no intrinsic value.
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The weighted
average remaining contractual life of the 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 had no intrinsic
value.
The following
table summarizes information about stock options outstanding and exercisable at
December 31, 2009:
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
Range of per share
exercise prices
|
|
Number
|
|
Weighted average
remaining contractual life
|
|
Per share
weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
$24.75 - $30.99
|
|
3,315,684
|
|
4.2 years
|
|
$
|
25.97
|
|
$31.00 - $36.99
|
|
4,094,373
|
|
5.09 years
|
|
$
|
34.70
|
|
$37.00 - $42.99
|
|
4,480,366
|
|
4.16 years
|
|
$
|
41.14
|
|
$43.00 - $48.03
|
|
5,689,656
|
|
3.79 years
|
|
$
|
46.73
|
|
|
|
|
|
|
|
|
|
|
|
|
17,580,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
Range of per share
exercise prices
|
|
Number
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
$24.75 - $30.99
|
|
1,768,712
|
|
$
|
27.04
|
|
$31.00 - $36.99
|
|
2,630,074
|
|
$
|
33.57
|
|
$37.00 - $42.99
|
|
4,192,174
|
|
$
|
41.04
|
|
$43.00 - $48.03
|
|
5,165,786
|
|
$
|
46.69
|
|
|
|
|
|
|
|
|
|
|
13,756,746
|
|
|
|
|
|
|
|
|
|
|
|
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 99,993, 131,214 and 163,480 options outstanding
under this plan at December 31, 2009, 2008 and 2007, 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 the share-based payments
accounting guidance.
The fair value
of stock options granted and related assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December
31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
4.5
|
%
|
|
|
3.0
|
%
|
|
|
2.9
|
%
|
|
Expected stock price volatility (1)
|
|
|
21.4
|
%
|
|
|
12.3
|
%
|
|
|
13.7
|
%
|
|
Risk-free interest rate
(2)
|
|
|
2.4
|
%
|
|
|
2.7
|
%
|
|
|
4.7
|
%
|
|
Expected life years (3)
|
|
|
7.5
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
Weighted-average fair
value per option granted
|
|
$
|
3.04
|
|
|
$
|
3.22
|
|
|
$
|
6.69
|
|
|
|
|
(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.
|
65
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
attainment of financial performance goals and subsequent tenure, if the
performance objectives are achieved, the restrictions would be released, in
total or in part, only if the executive is still employed by us at the end of
the service period. 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
service period. We did not issue any shares of restricted stock during 2009 or
2007. We issued 10,000 shares of restricted stock in 2008. We recorded
compensation expense, net of taxes, of $0.1 million, $0.0 million and $0.7
million in 2009, 2008, and 2007, respectively.
The following
table summarizes information about restricted stock unit transactions during
2009:
|
|
|
|
|
|
|
|
|
|
Units / Shares
|
|
Weighted average
grant date fair value
|
|
|
|
|
|
|
|
Restricted
stock units outstanding at December 31, 2008
|
|
|
791,281
|
|
$
|
40.50
|
|
Granted
|
|
|
867,129
|
|
$
|
24.39
|
|
Vested
|
|
|
(231,939
|
)
|
$
|
41.34
|
|
Forfeited
|
|
|
(84,742
|
)
|
$
|
34.28
|
|
|
|
|
|
|
|
|
|
Restricted
stock units outstanding at December 31, 2009
|
|
|
1,341,729
|
|
$
|
30.55
|
|
|
|
|
|
|
|
|
|
We issued
512,415 shares and 334,442 shares of restricted stock units in 2008 and 2007,
respectively. The weighted average grant price was $36.91 and $47.91 for 2008
and 2007, respectively. The intrinsic value of the outstanding restricted stock
units at December 31, 2009 was $30.5 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 the
share-based payments accounting guidance. In 2009, the offering price was
increased to 95% from 85% in 2008 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. No future offerings were made under the U.K. S.A.Y.E. Plan after
2008. Prior to the time the offering ceased, eligible employees of our
participating U.K. subsidiaries were able to purchase shares of our stock at a
discounted offering price which 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 5,686,017
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 540,660 shares in 2009, 437,350 shares in 2008 and 446,755 shares
in 2007. The per share fair value of rights granted was $0 in 2009, $5 in 2008
and $8 in 2007 for the U.S. ESPP and $0 in 2009, $4 in 2008 and $7 in 2007 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 2009, 26,400 in 2008 and 24,665 in 2007.
Compensation expense, net of taxes, was $0.4 million for 2009, $0.6 million for
2008 and $0.8 for 2007. 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
66
PITNEY BOWES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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.
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, 15,269 and 22,091 options
outstanding under this plan at December 31, 2009, 2008 and 2007, respectively.
Beginning with the 2004 plan year, options were no longer offered as an
investment choice.
13. Fair Value
Measurements
Effective
January 1, 2008, we adopted the fair value measurements guidance 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.
The guidance 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 include those measured at fair
value in goodwill and indefinite lived intangible asset 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 were effective January 1, 2009.
The fair value
measurement guidance established a fair value hierarchy that prioritizes the
inputs used to measure fair value. The three levels of the fair value hierarchy
are as follows:
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, such as
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.
The following
tables show, by level within the fair value hierarchy, our financial assets and
liabilities that are accounted for at fair value on a recurring basis at
December 31, 2009 and 2008, respectively. As required by the fair value
measurements guidance, 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.
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measurements at December 31, 2009 by
Level
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
225,581
|
|
$
|
|
|
$
|
|
|
$
|
225,581
|
|
Equity securities
|
|
|
|
|
|
21,027
|
|
|
|
|
|
21,027
|
|
Debt securities - U.S. and foreign governments, agencies, and municipalities
|
|
|
53,173
|
|
|
28,754
|
|
|
|
|
|
81,927
|
|
Corporate notes and bonds
|
|
|
|
|
|
13,305
|
|
|
|
|
|
13,305
|
|
Asset-backed securities
|
|
|
|
|
|
296
|
|
|
|
|
|
296
|
|
Mortgage-backed securities
|
|
|
|
|
|
19,708
|
|
|
|
|
|
19,708
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
13,284
|
|
|
|
|
|
13,284
|
|
Foreign exchange contracts
|
|
|
|
|
|
2,390
|
|
|
|
|
|
2,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
278,754
|
|
$
|
98,764
|
|
$
|
|
|
$
|
377,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
$
|
3,050
|
|
$
|
|
|
$
|
3,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
$
|
3,050
|
|
$
|
|
|
$
|
3,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measurements at December 31, 2008 by
Level
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
192,980
|
|
$
|
|
|
$
|
|
|
$
|
192,980
|
|
Equity securities
|
|
|
|
|
|
19,541
|
|
|
|
|
|
19,541
|
|
Debt securities - U.S. and foreign
governments, agencies, and municipalities
|
|
|
30,583
|
|
|
14,411
|
|
|
|
|
|
44,994
|
|
Corporate notes and bonds
|
|
|
|
|
|
7,703
|
|
|
|
|
|
7,703
|
|
Asset-backed securities
|
|
|
|
|
|
2,658
|
|
|
|
|
|
2,658
|
|
Mortgage-backed securities
|
|
|
|
|
|
31,431
|
|
|
|
|
|
31,431
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
32,486
|
|
|
|
|
|
32,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
223,563
|
|
$
|
108,230
|
|
$
|
|
|
$
|
331,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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 Debt:
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.
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. Callable agency issued debt securities are valued
through benchmarking model derived prices to quoted market prices and trade
data for identical or comparable securities. Our agency issued debt securities
are categorized in Level 2 of the fair value hierarchy.
Corporate Notes and Bonds:
The fair value
of corporate debt 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 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. We verify that the unadjusted indices or broker quotes are
reasonable and that the market is active by comparing prices across multiple (three
or more) dealers. 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 largely composed of investments by The Pitney Bowes Bank (PBB).
PBB, our wholly-owned subsidiary, is a Utah-chartered Industrial Loan Company
(ILC). The banks investments at December 31, 2009 were $222.4 million. We
reported these investments in the Consolidated Balance Sheets as cash and cash
equivalents of $151.3 million, short-term investments of $14.2 million and
long-term investments, which are presented within other assets, of $56.9
million. The banks investments at December 31, 2008 were $196.9 million. We
reported these investments in the Consolidated Balance Sheets as cash and cash
equivalents of $125.8 million, short-term investments of $18.3 million and
long-term investments, which are presented within other assets, 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 price monthly 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 either been within these tolerance limits or confirmed
through additional procedures. Additionally, we ensure that the fair value
measurements are in accordance with the fair value measurements guidance and
that we have properly classified our assets in the fair value hierarchy.
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. 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.
Derivative Instruments
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
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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
the fair value measurements guidance, 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. We have not seen a material change in the
creditworthiness of those banks acting as derivative counterparties.
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.
The following
is a summary of our derivative fair values at December 31, 2009:
|
|
|
|
|
|
Designation of Derivatives
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
456
|
|
|
Other assets:
|
|
|
|
|
|
Interest rate swaps
|
|
|
13,284
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
1,114
|
Derivatives not designated as hedging
|
|
|
|
|
|
instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
1,934
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
1,936
|
|
|
|
|
|
|
|
|
Total Derivative Assets
|
|
$
|
15,674
|
|
|
Total Derivative Liabilities
|
|
$
|
3,050
|
|
|
|
|
|
|
|
|
Total Net Derivative Assets
|
|
$
|
12,624
|
|
|
|
|
|
|
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 June 2009,
we entered into an interest rate swap for an aggregate notional amount of $100
million to effectively convert our interest payments on a portion of the $400
million, 4.625% fixed rate notes due in 2012, into variable interest rates. The
variable rates payable are based on one month LIBOR plus 249 basis points. In
July 2009, we entered into three additional interest rate swaps for an
aggregate notional amount of $300 million to effectively convert our interest
payments on the remainder of the $400 million, 4.625% fixed rate notes due in
2012, into variable interest rates. The variable rates payable are based on one
month LIBOR plus 248 basis points for $100 million notional amount and one
month LIBOR plus 250 basis points for $200 million notional amount. At December
31, 2009, the fair value of the derivatives was an asset of $4.7 million.
Long-term debt was increased by $4.7 million at December 31, 2009.
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,
2009, the fair value of the derivatives was an asset of $8.6 million. Long-term
debt was increased by $8.6 million at December 31, 2009. 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 at December 31, 2008.
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following
represents the results of our derivatives in fair value hedging relationships
for the twelve months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
Derivative
Instrument
|
|
Location of Gain (Loss)
Recognized in Income
|
|
Derivative Gain (Loss)
Recognized in Income
|
|
Hedged Item Income (Expense)
Recognized in Income
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
Interest expense
|
|
$
|
12,180
|
|
$
|
(23,250
|
)
|
Foreign Exchange Contracts
We 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. At December 31, 2009, we had 149 outstanding
contracts with a notional amount of $27.8 million associated with these
anticipated transactions and a derivative net liability position of $0.7
million. We had no outstanding contracts at December 31, 2008.
The following
represents the results of cash flow hedging relationships for the twelve months
ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
Derivative Gain (Loss)
Recognized in OCI
(Effective Portion) (1)
|
|
|
Location of Derivative
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
|
|
Gain (Loss) Reclassified
from AOCI to Income
(Effective Portion)
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
$
|
290
|
|
|
Revenue
|
|
$
|
|
Foreign
exchange contracts
|
|
|
(948
|
)
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(658
|
)
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At December
31, 2008, there were no outstanding cash flow hedges and, therefore, the
opening AOCI balance related to these types of hedges was $0. For the twelve
months ended December 31, 2009, there were 82 derivatives that were entered
into and settled during the year. For the twelve months ended December 31,
2009, these derivatives reduced revenue in the amount of $0.3 million and
increased cost of sales in the amount of $1.7 million.
|
|
|
|
|
|
As of
December 31, 2009, $0.3 million of the $0.7 million derivative loss
recognized in OCI will be recognized in income within the next 12 months.
|
|
|
|
|
|
No amount of
ineffectiveness was recorded in the Consolidated Statements of Income for
these designated cash flow hedges.
|
We also enter
into foreign exchange contracts to minimize the impact of exchange rate
fluctuations on intercompany loans and related interest that are denominated in
a foreign currency. The revaluation of the short-term intercompany loans and
interest and the mark-to-market on the derivatives are both recorded to income.
At December 31, 2009, we had 21 outstanding foreign exchange contracts to buy
or sell various currencies with a net liability value of less than $0.1
million. The contracts will expire by May 10, 2010. At December 31, 2008, the
liability value of these derivatives was $0.3 million.
The following
represents the results of our non-designated derivative instruments for the
twelve months ended December 31, 2009:
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Location of Derivative Gain (Loss)
|
|
Derivative Gain (Loss)
Recognized in Income
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Selling,
general and administrative expense
|
|
$
|
(861
|
)
|
Net Investment
Hedges
One of our
intercompany loans denominated in a foreign currency is designated as a hedge
of a net investment. The revaluation of this loan 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, 2009 and December 31, 2008, we had one intercompany loan with an outstanding
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
value of $61.2
million and $119.2 million, respectively, designated as a net investment hedge.
Deferred translation gains of $22.5 million and $41.7 million at December 31,
2009 and December 31, 2008, respectively, were included in accumulated other
comprehensive loss in stockholders equity (deficit) on the Consolidated
Balance Sheets. The following represents our net investment hedge at December
31, 2009:
|
|
|
|
|
|
|
|
|
Net Investment Hedging
Relationships
|
|
Loan Balance
|
|
Location of Deferred
Translation Gain (Loss)
|
|
Deferred
Translation
Gain (Loss)
|
|
|
|
|
|
|
|
Non-derivative
intercompany loan
|
|
$
|
61,209
|
|
Accumulated
other comprehensive loss
|
|
$
|
22,550
|
Credit-Risk-Related
Contingent Features
At December
31, 2009, Pitney Bowes maintained investment grade ratings of A / A1. Certain
of our derivative instruments contain provisions that would require us to post
collateral upon a significant downgrade in our long-term senior unsecured debt
ratings. Based on derivative values at December 31, 2009, we would have been
required to post $1.3 million in collateral had our long-term senior unsecured
debt ratings fallen below BB- / Ba3.
Fair Value of Financial Instruments
The estimated
fair value of our financial instruments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Carrying
value (1)
|
|
Fair value
|
|
Carrying
value (1)
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
$
|
360,800
|
|
$
|
361,845
|
|
$
|
297,829
|
|
$
|
299,307
|
|
Loans
receivable
|
|
$
|
478,191
|
|
$
|
478,191
|
|
$
|
528,800
|
|
$
|
528,800
|
|
Derivatives,
net
|
|
$
|
12,624
|
|
$
|
12,624
|
|
$
|
874
|
|
$
|
874
|
|
Long-term
debt
|
|
$
|
(4,271,555
|
)
|
$
|
(4,409,961
|
)
|
$
|
(3,990,134
|
)
|
$
|
(3,880,418
|
)
|
(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.
14. Restructuring
Charges and Asset Impairments
We recorded
pre-tax restructuring charges and asset impairments of $48.7 million and $200.3
million for the years ended December 31, 2009 and 2008, respectively.
2009 Program
In 2009, we
announced that we are undertaking a series of initiatives that are designed to
transform and enhance the way we operate as a global company. In order to
enhance our responsiveness to changing market conditions, we are executing a
strategic transformation program designed to create improved processes and
systems to further enable us to invest in future growth in areas such as our
global customer interactions and product development processes. This program is
expected to continue into 2012 and will result in the reduction of up to 10
percent of the positions in the company. We expect the total pre-tax cost of
this program will be in the range of $250 million to $350 million primarily
related to severance and benefit costs incurred in connection with such
workforce reductions. Most of the total pre-tax costs will be cash-related
charges. Currently, we are targeting annualized benefits, net of system and
related investments, in the range of at least $150 million to $200 million on a
pre-tax basis. These costs and the related benefits will be recognized as
different actions are approved and implemented.
During 2009,
we recorded pre-tax restructuring charges of $67.3 million, of which $55.8
million related to severance and benefit costs and $11.5 million related to
other exit costs associated with this new transformation project. As of
December 31, 2009, 548 employee
72
|
PITNEY BOWES INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollars in thousands, except per share data)
|
terminations
have occurred. The majority of the liability at December 31, 2009 is expected
to be paid during the next twelve months from cash generated from operations.
Pre-tax
restructuring reserves at December 31, 2009 for the restructuring actions taken
in connection with the 2009 program are composed of the following:
2009 Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008
|
|
Expenses
|
|
Cash payments
|
|
Non-cash
charges
|
|
Balance at
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefit costs
|
|
$
|
|
|
$
|
55,836
|
|
$
|
(9,941
|
)
|
$
|
|
|
$
|
45,895
|
|
Asset impairments
|
|
|
|
|
|
18
|
|
|
|
|
|
(18
|
)
|
|
|
|
Other exit costs
|
|
|
|
|
|
11,492
|
|
|
(4,685
|
)
|
|
|
|
|
6,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
67,346
|
|
$
|
(14,626
|
)
|
$
|
(18
|
)
|
$
|
52,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Program
We announced a
program in November 2007 to lower our cost structure, accelerate efforts to
improve operational efficiencies, and transition our product line. The program
included charges primarily associated with older equipment that we had stopped
selling upon transition to the new generation of fully digital, networked, and
remotely-downloadable equipment.
In 2009, we
recorded a pre-tax adjustment to restructuring charges and asset impairments
for $18.6 million due to lower than anticipated charges associated with the
program announced in November 2007.
In 2008, we
recorded pre-tax restructuring charges and asset impairments of $200.3 million,
the majority of which related to the program announced in November 2007. These
charges included severance and benefit costs of $118.2 million, asset
impairment charges related to older technology equipment of $28.5 million and
other assets of $2.2 million. Other exit costs of $35.3 million related
primarily to lease termination fees, facility closing costs, contract
cancellation costs and outplacement costs.
Additional
asset impairments, unrelated to restructuring, were also recorded in 2008 and
related to intangible assets of $16.0 million principally due to a loss of a
customer in one of our marketing consulting businesses and the ongoing shift
in market conditions for the litigation support vertical in our Management
Services business.
As of December
31, 2009, 2,999 terminations have occurred under this program. The majority of
the liability at December 31, 2009 is expected to be paid during the next
twelve months from cash generated from operations.
Pre-tax
restructuring reserves at December 31, 2009 for the restructuring program
announced in November 2007 are composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008
|
|
Expenses
|
|
Cash payments
|
|
Non-cash
charges
|
|
Balance at
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefit costs
|
|
$
|
108,431
|
|
$
|
(14,721
|
)
|
$
|
(78,691
|
)
|
$
|
|
|
$
|
15,019
|
|
Asset impairments
|
|
|
|
|
|
(3,879
|
)
|
|
|
|
|
3,879
|
|
|
|
|
Other exit costs
|
|
|
32,678
|
|
|
|
|
|
(11,773
|
)
|
|
|
|
|
20,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,109
|
|
$
|
(18,600
|
)
|
$
|
(90,464
|
)
|
$
|
3,879
|
|
$
|
35,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
PITNEY BOWES INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2007
|
|
Expenses
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
Commitments and Contingencies
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 entered 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 assisted the state in
performing its governmental function of delivering these mailings and funding
the costs of them. The plaintiffs in these actions are seeking statutory
damages under the DPPA. 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
Circuit Court). On December 21, 2009, the Circuit Court affirmed the District
Court decision. On January 8, 2010, the Rine plaintiffs filed a petition for
rehearing en banc with the Circuit Court.
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.
On October 28,
2009, the Company and certain of our current and former officers, were named as
defendants in
NECA-IBEW Health & Welfare Fund v. Pitney Bowes Inc. et
al.
,
a
class action lawsuit filed in the U.S. District Court for the District of
Connecticut. The complaint asserts claims under the Securities Exchange Act of
1934 on behalf of those who purchased the common stock of the Company during
the period between July 30, 2007 and October 29, 2007 alleging that the
company, in essence, missed two financial projections. We believe this case is
without merit and intend to defend it vigorously.
Product Warranties
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 for 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, 2009 and December 31, 2008, respectively, was not material.
74
|
PITNEY BOWES INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollars in thousands, except per share data)
|
16.
Leases
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, 2009 are
as follows:
|
|
|
|
|
|
|
|
Years
ending December 31,
|
|
Operating leases
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
109,603
|
|
|
|
|
2011
|
|
|
79,739
|
|
|
|
|
2012
|
|
|
56,388
|
|
|
|
|
2013
|
|
|
33,118
|
|
|
|
|
2014
|
|
|
19,623
|
|
|
|
|
Thereafter
|
|
|
23,453
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
321,924
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense
was $124.5 million, $129.1 million and $146.9 million in 2009, 2008 and 2007,
respectively.
17.
Finance Assets
Finance Receivables
Finance
receivables are comprised of sales-type leases and customer loan receivables.
Sales-type leases are generally due in monthly, quarterly or semi-annual
installments over periods ranging from 3 to 5 years. Customer loan receivables
arise primarily from financing services offered to our customers for postage,
supplies and shipping payments.
The components
of finance receivables were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Gross
finance receivables
|
|
$
|
3,117,741
|
|
$
|
3,338,799
|
|
Unguaranteed
residual values
|
|
|
282,208
|
|
|
273,529
|
|
Unearned
income
|
|
|
(601,431
|
)
|
|
(664,828
|
)
|
Allowance
for credit losses
|
|
|
(72,158
|
)
|
|
(71,790
|
)
|
|
|
|
|
|
|
|
|
Net
investment in finance receivables
|
|
$
|
2,726,360
|
|
$
|
2,875,710
|
|
|
|
|
|
|
|
|
|
Net investment
in finance receivables include net customer loan receivables at December 31,
2009 and 2008 of $478.2 million and $528.8 million, respectively. Customer loan
receivables are generally due each month, however, customers may rollover
outstanding balances. See discussion on Pitney Bowes Bank below.
Maturities of
gross finance receivables are as follows:
|
|
|
|
|
|
|
|
Years
ending December 31,
|
|
|
|
|
|
|
|
2010
|
|
$
|
1,516,802
|
|
|
|
|
2011
|
|
|
701,201
|
|
|
|
|
2012
|
|
|
478,911
|
|
|
|
|
2013
|
|
|
286,755
|
|
|
|
|
2014
|
|
|
113,598
|
|
|
|
|
Thereafter
|
|
|
20,474
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,117,741
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
PITNEY BOWES INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollars in thousands, except per share data)
|
Pitney Bowes Bank
The Pitney Bowes Bank (PBB), our wholly owned subsidiary, is a
Utah-chartered Industrial Loan Company (ILC). At December 31, 2009, PBB had
assets of $687 million and liabilities of $632 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 finance their postage costs 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. PBB is regulated by the FDIC and the Utah Department of
Financial Institutions.
Leveraged
Leases
Our investment in leveraged lease assets consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Rental receivables
|
|
|
|
|
$
|
1,747,811
|
|
$
|
1,523,617
|
|
Unguaranteed residual values
|
|
|
|
|
|
13,399
|
|
|
11,522
|
|
Principal and interest on non-recourse
loans
|
|
|
|
|
|
(1,341,820
|
)
|
|
(1,173,789
|
)
|
Unearned income
|
|
|
|
|
|
(186,031
|
)
|
|
(159,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investment in leveraged leases
|
|
|
|
|
|
233,359
|
|
|
201,921
|
|
Less: Deferred taxes related to leveraged
leases
|
|
|
|
|
|
(175,329
|
)
|
|
(149,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leveraged leases
|
|
|
|
|
$
|
58,030
|
|
$
|
52,659
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the components of income from leveraged
leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Pre-tax leveraged lease income
|
|
$
|
918
|
|
$
|
316
|
|
$
|
4,270
|
|
Income tax effect
|
|
|
6,676
|
|
|
7,063
|
|
|
1,186
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from leveraged leases
|
|
$
|
7,594
|
|
$
|
7,379
|
|
$
|
5,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
leveraged leases was positively impacted by $2.8 million and $2.6 million in
2009 and 2008, respectively, and negatively impacted by $0.2 million in 2007
due to changes in statutory tax rates.
76
|
PITNEY BOWES INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollars in thousands, except per share data)
|
18.
Business Segment Information
We conduct our
business activities in seven reporting segments within two business groups,
Mailstream Solutions and Mailstream Services. The principal products and
services of each of our reporting segments are as follows:
|
|
Mailstream
Solutions:
|
|
|
|
U.S. Mailing
:
Includes the U.S. revenue and related expenses from the sale, rental and
financing of our mail finishing, mail creation, shipping equipment and
software; supplies; support and other professional services; and payment
solutions.
|
|
|
|
International Mailing
:
Includes the non-U.S. revenue and related expenses from the sale, rental and
financing of our mail finishing, mail creation, shipping equipment and
software; supplies; support and other professional services; and payment
solutions.
|
|
|
|
Production Mail
:
Includes the worldwide revenue and related expenses from the sale, financing,
support and other professional services of our high-speed, production mail
systems and sorting equipment.
|
|
|
|
Software
:
Includes the worldwide revenue and related expenses from the sale and support
services of non-equipment-based mailing, customer communication and location
intelligence software.
|
|
|
Mailstream
Services:
|
|
|
|
Management Services
:
Includes worldwide facilities management services; secure mail services;
reprographic, document management services; and litigation support and
eDiscovery services.
|
|
|
|
Mail Services
:
Includes presort mail services and cross-border mail services.
|
|
|
|
Marketing Services
:
Includes direct marketing services for targeted customers.
|
The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
EBIT, a
non-GAAP measure, is useful to management in demonstrating the operational
profitability of the segments by excluding interest and taxes, which are
generally managed across the entire company on a consolidated basis. EBIT is
determined by deducting from revenue the related costs and expenses
attributable to the segment. Segment EBIT also excludes general corporate
expenses, restructuring charges and asset impairments. 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 2009, 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.
77
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
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,016,259
|
|
$
|
2,250,399
|
|
$
|
2,409,211
|
|
International
Mailing
|
|
|
920,398
|
|
|
1,133,652
|
|
|
1,069,713
|
|
Production Mail
|
|
|
525,745
|
|
|
616,255
|
|
|
622,699
|
|
Software
|
|
|
345,739
|
|
|
399,814
|
|
|
326,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
3,808,141
|
|
|
4,400,120
|
|
|
4,427,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Services
|
|
|
1,060,907
|
|
|
1,172,170
|
|
|
1,134,767
|
|
Mail Services
|
|
|
559,200
|
|
|
541,776
|
|
|
441,353
|
|
Marketing
Services
|
|
|
140,923
|
|
|
148,239
|
|
|
125,693
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Services
|
|
|
1,761,030
|
|
|
1,862,185
|
|
|
1,701,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,569,171
|
|
$
|
6,262,305
|
|
$
|
6,129,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,979,493
|
|
$
|
4,335,650
|
|
$
|
4,394,156
|
|
Outside the
United States
|
|
|
1,589,678
|
|
|
1,926,655
|
|
|
1,735,639
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,569,171
|
|
$
|
6,262,305
|
|
$
|
6,129,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
743,108
|
|
$
|
890,356
|
|
$
|
966,612
|
|
International
Mailing
|
|
|
128,084
|
|
|
184,667
|
|
|
162,257
|
|
Production Mail
|
|
|
51,037
|
|
|
81,514
|
|
|
74,364
|
|
Software
|
|
|
37,335
|
|
|
28,335
|
|
|
37,031
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions
|
|
|
959,564
|
|
|
1,184,872
|
|
|
1,240,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Services
|
|
|
72,307
|
|
|
70,173
|
|
|
76,051
|
|
Mail Services
|
|
|
82,723
|
|
|
68,800
|
|
|
56,416
|
|
Marketing
Services
|
|
|
22,938
|
|
|
21,291
|
|
|
6,984
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Services
|
|
|
177,968
|
|
|
160,264
|
|
|
139,451
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,137,532
|
|
$
|
1,345,136
|
|
$
|
1,379,715
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
971,725
|
|
$
|
1,100,900
|
|
$
|
1,177,920
|
|
Outside the
United States
|
|
|
165,807
|
|
|
244,236
|
|
|
201,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,137,532
|
|
$
|
1,345,136
|
|
$
|
1,379,715
|
|
|
|
|
|
|
|
|
|
|
|
|
78
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,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
139,176
|
|
$
|
146,422
|
|
$
|
160,969
|
|
International
Mailing
|
|
|
53,667
|
|
|
63,389
|
|
|
67,192
|
|
Production Mail
|
|
|
7,079
|
|
|
7,358
|
|
|
10,092
|
|
Software
|
|
|
34,505
|
|
|
37,317
|
|
|
26,864
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions
|
|
|
234,427
|
|
|
254,486
|
|
|
265,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Services
|
|
|
44,809
|
|
|
65,320
|
|
|
65,480
|
|
Mail Services
|
|
|
31,071
|
|
|
32,045
|
|
|
27,573
|
|
Marketing
Services
|
|
|
8,876
|
|
|
8,380
|
|
|
10,261
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Services
|
|
|
84,756
|
|
|
105,745
|
|
|
103,314
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
319,183
|
|
$
|
360,231
|
|
$
|
368,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
78,808
|
|
$
|
100,783
|
|
$
|
92,640
|
|
International
Mailing
|
|
|
25,448
|
|
|
45,473
|
|
|
64,241
|
|
Production Mail
|
|
|
1,292
|
|
|
3,613
|
|
|
3,435
|
|
Software
|
|
|
4,371
|
|
|
12,519
|
|
|
7,755
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Solutions
|
|
|
109,919
|
|
|
162,388
|
|
|
168,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Services
|
|
|
19,766
|
|
|
28,152
|
|
|
52,540
|
|
Mail Services
|
|
|
21,058
|
|
|
30,344
|
|
|
21,431
|
|
Marketing
Services
|
|
|
514
|
|
|
1,730
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream
Services
|
|
|
41,338
|
|
|
60,226
|
|
|
74,062
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
151,257
|
|
$
|
222,614
|
|
$
|
242,133
|
|
|
|
|
|
|
|
|
|
|
|
|
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,948,520
|
|
$
|
3,092,653
|
|
International Mailing
|
|
|
1,677,082
|
|
|
1,688,275
|
|
Production Mail
|
|
|
617,483
|
|
|
594,646
|
|
Software
|
|
|
944,248
|
|
|
994,491
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions
|
|
|
6,187,333
|
|
|
6,370,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
|
879,390
|
|
|
905,410
|
|
Mail Services
|
|
|
516,274
|
|
|
508,308
|
|
Marketing Services
|
|
|
234,216
|
|
|
293,322
|
|
|
|
|
|
|
|
|
|
Mailstream Services
|
|
|
1,629,880
|
|
|
1,707,040
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,817,213
|
|
$
|
8,077,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable long-lived assets by
geographic areas:
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,846,443
|
|
$
|
3,013,369
|
|
Outside the United States
|
|
|
909,099
|
|
|
1,057,967
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,755,542
|
|
$
|
4,071,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment Amounts to Consolidated Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
|
|
Total EBIT for reportable segments
|
|
$
|
1,137,532
|
|
$
|
1,345,136
|
|
$
|
1,379,715
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(203,906
|
)
|
|
(216,450
|
)
|
|
(241,871
|
)
|
Corporate expense
|
|
|
(187,254
|
)
|
|
(209,543
|
)
|
|
(210,544
|
)
|
Restructuring charges and asset impairments
|
|
|
(48,746
|
)
|
|
(200,254
|
)
|
|
(264,013
|
)
|
Other items
|
|
|
(4,450
|
)
|
|
(5,712
|
)
|
|
(2,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
$
|
693,176
|
|
$
|
713,177
|
|
$
|
660,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization for
reportable segments
|
|
$
|
319,183
|
|
$
|
360,231
|
|
$
|
368,431
|
|
Corporate depreciation
|
|
|
19,712
|
|
|
18,886
|
|
|
14,710
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization
|
|
$
|
338,895
|
|
$
|
379,117
|
|
$
|
383,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
Total additions for reportable segments
|
|
$
|
151,257
|
|
$
|
222,614
|
|
$
|
242,133
|
|
Unallocated amounts
|
|
|
15,471
|
|
|
14,694
|
|
|
22,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$
|
166,728
|
|
$
|
237,308
|
|
$
|
264,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
Total identifiable assets by reportable
segments
|
|
$
|
7,817,213
|
|
$
|
8,077,105
|
|
Cash and cash equivalents and short-term
investments
|
|
|
427,419
|
|
|
398,222
|
|
General corporate assets
|
|
|
289,279
|
|
|
334,909
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
8,533,911
|
|
$
|
8,810,236
|
|
|
|
|
|
|
|
|
|
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
19.
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.
During 2009,
the Board of Directors approved and adopted a resolution amending both U.S.
pension plans, the Pitney Bowes Pension Plan and the Pitney Bowes Pension
Restoration Plan, to provide that benefit accruals as of December 31, 2014,
will be determined and frozen and no future benefit accruals under the plans
will occur after that date. Due to the freezes, the assets and liabilities of
the plans were re-measured, resulting in a reduction of pension expense of $2.0
million for 2009. This expense reduction was offset by a one-time curtailment
loss of $2.1 million which represents the unamortized prior service costs as of
December 31, 2014.
During 2009,
we voluntarily contributed a total of $125 million in cash to our global
defined benefit pension plans in excess of legally required minimum
contributions to increase the funding levels of the plans. Specifically, $100
million was contributed to the U.S. qualified plan and $25 million to certain
foreign qualified plans.
For our U.S.
defined contribution plans, we contributed $27.2 million, $32.1 million and
$30.5 million in 2009, 2008 and 2007, 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
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
1,605,380
|
|
$
|
1,596,486
|
|
$
|
384,507
|
|
$
|
557,185
|
|
Service cost
|
|
|
24,274
|
|
|
29,699
|
|
|
6,853
|
|
|
10,562
|
|
Interest
cost
|
|
|
93,997
|
|
|
96,205
|
|
|
25,200
|
|
|
29,140
|
|
Plan
participants contributions
|
|
|
|
|
|
|
|
|
2,231
|
|
|
2,978
|
|
Actuarial
loss (gain)
|
|
|
17,698
|
|
|
528
|
|
|
63,325
|
|
|
(75,728
|
)
|
Foreign
currency changes
|
|
|
|
|
|
|
|
|
45,858
|
|
|
(117,234
|
)
|
Settlement /
curtailment
|
|
|
(24,297
|
)
|
|
|
|
|
(1,579
|
)
|
|
|
|
Special
termination benefits
|
|
|
112
|
|
|
2,105
|
|
|
2,012
|
|
|
632
|
|
Benefits
paid
|
|
|
(117,658
|
)
|
|
(119,643
|
)
|
|
(20,475
|
)
|
|
(23,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at end of year
|
|
$
|
1,599,506
|
|
$
|
1,605,380
|
|
$
|
507,932
|
|
$
|
384,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at beginning of year
|
|
$
|
1,175,271
|
|
$
|
1,675,002
|
|
$
|
312,206
|
|
$
|
532,627
|
|
Actual
return on plan assets
|
|
|
177,119
|
|
|
(390,374
|
)
|
|
48,128
|
|
|
(101,822
|
)
|
Company
contributions
|
|
|
115,313
|
|
|
10,286
|
|
|
32,755
|
|
|
7,868
|
|
Plan
participants contributions
|
|
|
|
|
|
|
|
|
2,231
|
|
|
2,978
|
|
Foreign
currency changes
|
|
|
|
|
|
|
|
|
39,468
|
|
|
(106,417
|
)
|
Benefits
paid
|
|
|
(117,658
|
)
|
|
(119,643
|
)
|
|
(20,475
|
)
|
|
(23,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at end of year
|
|
$
|
1,350,045
|
|
$
|
1,175,271
|
|
$
|
414,313
|
|
$
|
312,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of plan assets at end of year
|
|
$
|
1,350,045
|
|
$
|
1,175,271
|
|
$
|
414,313
|
|
$
|
312,206
|
|
Benefit
obligations at end of year
|
|
|
1,599,506
|
|
|
1,605,380
|
|
|
507,932
|
|
|
384,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$
|
(249,461
|
)
|
$
|
(430,109
|
)
|
$
|
(93,619
|
)
|
$
|
(72,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
provided in the table below is only for pension plans with an accumulated
benefit obligation in excess of plan assets at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$
|
1,599,506
|
|
$
|
1,605,380
|
|
$
|
505,673
|
|
$
|
118,726
|
|
Accumulated
benefit obligation
|
|
$
|
1,568,618
|
|
$
|
1,501,848
|
|
$
|
464,362
|
|
$
|
109,424
|
|
Fair value
of plan assets
|
|
$
|
1,350,045
|
|
$
|
1,175,271
|
|
$
|
411,573
|
|
$
|
78,018
|
|
The accumulated benefit
obligation for all U.S. defined benefit plans at December 31, 2009 and 2008 was
$1.6 billion and $1.5 billion, respectively. The accumulated benefit obligation
for all foreign defined benefit plans at December 31, 2009 and 2008 was $466
million and $337 million, respectively.
82
PITNEY
BOWES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset
|
|
$
|
|
|
$
|
|
|
$
|
484
|
|
$
|
184
|
|
Current liability
|
|
|
(19,424
|
)
|
|
(6,513
|
)
|
|
(957
|
)
|
|
(875
|
)
|
Non-current liability
|
|
|
(230,037
|
)
|
|
(423,596
|
)
|
|
(93,146
|
)
|
|
(71,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(249,461
|
)
|
$
|
(430,109
|
)
|
$
|
(93,619
|
)
|
$
|
(72,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts recognized in accumulated other
comprehensive income (AOCI) consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
742,921
|
|
$
|
833,674
|
|
$
|
161,441
|
|
$
|
119,733
|
|
Prior service
cost/(credit)
|
|
|
(40
|
)
|
|
(113
|
)
|
|
756
|
|
|
1,211
|
|
Transition obligation
(asset)
|
|
|
|
|
|
|
|
|
(196
|
)
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
742,881
|
|
$
|
833,561
|
|
$
|
162,001
|
|
$
|
120,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from AOCI into
net periodic benefits cost in 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
30,936
|
|
|
|
|
$
|
3,858
|
|
|
|
|
Prior service
cost/(credit)
|
|
|
(2,999
|
)
|
|
|
|
|
471
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,937
|
|
|
|
|
$
|
4,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine end of year
benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
6.05
|
%
|
|
2.25% - 6.00
|
%
|
|
2.25%
- 6.60
|
%
|
Rate of compensation
increase
|
|
|
3.50
|
%
|
|
4.25
|
%
|
|
2.50% - 5.60
|
%
|
|
2.50%
- 5.10
|
%
|
At December 31, 2009 there
were no shares of our common stock included in the plan assets of our pension
plans.
We anticipate making
contributions of up to $20 million each to our U.S. and foreign pension plans
during 2010. We will reassess our funding alternatives as the year progresses.
The components of the net
periodic benefit cost for defined pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
24,274
|
|
$
|
29,699
|
|
$
|
28,500
|
|
$
|
6,853
|
|
$
|
10,562
|
|
$
|
13,427
|
|
Interest cost
|
|
|
93,997
|
|
|
96,205
|
|
|
94,173
|
|
|
25,200
|
|
|
29,140
|
|
|
27,720
|
|
Expected return on plan
assets
|
|
|
(120,662
|
)
|
|
(132,748
|
)
|
|
(127,070
|
)
|
|
(27,193
|
)
|
|
(36,713
|
)
|
|
(37,079
|
)
|
Amortization of transition
cost
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
142
|
|
|
(706
|
)
|
Amortization of prior
service cost
|
|
|
(2,547
|
)
|
|
(2,560
|
)
|
|
(2,116
|
)
|
|
446
|
|
|
628
|
|
|
663
|
|
Recognized net actuarial
loss
|
|
|
26,063
|
|
|
18,944
|
|
|
29,860
|
|
|
2,486
|
|
|
3,981
|
|
|
7,347
|
|
Special termination
|
|
|
112
|
|
|
2,105
|
|
|
1,187
|
|
|
2,385
|
|
|
632
|
|
|
906
|
|
Settlement / curtailment
|
|
|
4,107
|
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
25,344
|
|
$
|
11,645
|
|
$
|
24,534
|
|
$
|
10,318
|
|
$
|
8,372
|
|
$
|
12,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
PITNEY
BOWES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Other changes in plan assets
and benefit obligations for defined benefit pension plans recognized in other
comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments effects and
settlements
|
|
$
|
(28,404
|
)
|
$
|
|
|
$
|
|
|
$
|
|
|
Net actuarial loss (gain)
|
|
|
(38,407
|
)
|
|
523,650
|
|
|
44,124
|
|
|
49,007
|
|
Prior service cost
(credit)
|
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
Amortization of net
actuarial (loss) gain
|
|
|
(26,063
|
)
|
|
(18,944
|
)
|
|
(2,059
|
)
|
|
(2,823
|
)
|
Amortization of prior
service (cost) credit
|
|
|
2,547
|
|
|
2,560
|
|
|
(512
|
)
|
|
(448
|
)
|
Net transitional
obligation (asset)
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other
comprehensive income
|
|
$
|
(90,680
|
)
|
$
|
507,266
|
|
$
|
41,454
|
|
$
|
45,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used
to
determine net periodic benefit costs:
|
Discount rate
|
|
6.05
|
%
|
6.15
|
%
|
5.85
|
%
|
2.25% - 6.60
|
%
|
2.25%
- 5.80
|
%
|
2.25%
- 5.30
|
%
|
Expected return on plan
assets
|
|
8.00
|
%
|
8.50
|
%
|
8.50
|
%
|
4.49% - 7.75
|
%
|
3.50%
- 7.75
|
%
|
3.50%
- 7.75
|
%
|
Rate of compensation
increase
|
|
4.25
|
%
|
4.50
|
%
|
4.50
|
%
|
2.50% - 5.10
|
%
|
2.50%
- 5.50
|
%
|
2.50%
- 5.30
|
%
|
The expected
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. When
assessing the expected future returns for the portfolio, management placed more
emphasis on the expected future returns than historical returns.
U.S. Pension Plans Investment Strategy and
Asset Allocation
Our U.S.
pension plans investment strategy supports the objectives of the plans, 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. Investments within the private equity and real estate
portfolios are comprised of limited partnership units in primary and secondary
fund of funds and units in open-ended commingled real estate funds, respectively.
These types of investment vehicles are used in an effort to gain greater asset
diversification. We have no hedge fund investments. We do not have any significant concentrations of credit risk
within the plan assets. The pension plans liabilities, investment
objectives and investment managers are reviewed periodically.
84
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The target allocation for 2010 and the asset allocation for the U.S. pension plan at
December 31, 2009 and 2008, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
Percentage
of Plan Assets at
December 31,
|
|
|
|
|
|
|
|
Asset category
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
U.S.
equities
|
|
|
37
|
%
|
|
35
|
%
|
|
33
|
%
|
Non-U.S.
equities
|
|
|
19
|
%
|
|
19
|
%
|
|
17
|
%
|
Fixed income
|
|
|
32
|
%
|
|
38
|
%
|
|
39
|
%
|
Real estate
|
|
|
5
|
%
|
|
4
|
%
|
|
7
|
%
|
Private
equity
|
|
|
7
|
%
|
|
4
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The long-term
asset allocation targets we use to manage the investment portfolio are based on
the broad asset categories shown above. The plan asset categories presented in
the fair value hierarchy are subsets of the broad asset categories.
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. We
do not have any significant
concentrations of credit risk within the plan assets. The pension plans
liabilities, investment objectives and investment managers are reviewed
periodically.
The target
allocation for 2010 and the asset allocation for the U.K. pension plan at
December 31, 2009 and 2008, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
Percentage
of Plan Assets at
December 31,
|
|
|
|
|
|
|
|
Asset category
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
U.K.
equities
|
|
|
32
|
%
|
|
35
|
%
|
|
34
|
%
|
Non-U.K.
equities
|
|
|
33
|
%
|
|
32
|
%
|
|
29
|
%
|
Fixed income
|
|
|
35
|
%
|
|
32
|
%
|
|
33
|
%
|
Cash
|
|
|
|
%
|
|
1
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The long-term
asset allocation targets we use to manage the investment portfolio are based on
the broad asset categories shown above. The plan asset categories presented in
the fair value hierarchy are subsets of the broad asset categories.
The fair value
of the U.K. plan assets was $312 million and $234 million at December 31, 2009
and 2008, respectively, and the expected long-term rate of return on these plan
assets was 7.50% and 7.25% in 2009 and 2008, respectively.
85
PITNEY
BOWES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Fair Value Measurements of Plan Assets
The following
tables show, by level within the fair value hierarchy, the financial assets and
liabilities that are accounted for at fair value on a recurring basis at
December 31, 2009 and 2008, respectively, for the U.S. and foreign pension
plans. As required by the fair value measurements guidance, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Pension Plans - Fair Value Measurements at December 31, 2009 by Level
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
|
|
$
|
95,534
|
|
$
|
|
|
$
|
95,534
|
|
Equity securities
|
|
|
403,536
|
|
|
316,754
|
|
|
|
|
|
720,290
|
|
Debt securities - U.S. and foreign
governments, agencies, and municipalities
|
|
|
50,934
|
|
|
29,628
|
|
|
|
|
|
80,562
|
|
Corporate debt securities
|
|
|
|
|
|
156,811
|
|
|
|
|
|
156,811
|
|
Mortgage-backed securities
|
|
|
|
|
|
132,509
|
|
|
761
|
|
|
133,270
|
|
Asset-backed securities
|
|
|
|
|
|
17,347
|
|
|
|
|
|
17,347
|
|
Private equity
|
|
|
|
|
|
|
|
|
49,231
|
|
|
49,231
|
|
Real estate
|
|
|
|
|
|
|
|
|
50,331
|
|
|
50,331
|
|
Derivatives
|
|
|
135
|
|
|
|
|
|
|
|
|
135
|
|
Securities lending fund *
|
|
|
|
|
|
139,416
|
|
|
|
|
|
139,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
454,605
|
|
$
|
887,999
|
|
$
|
100,323
|
|
$
|
1,442,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
2,064
|
|
$
|
1
|
|
$
|
|
|
$
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,064
|
|
$
|
1
|
|
$
|
|
|
$
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Securities
lending fund at December 31, 2009 is offset by a liability of $139,416
recorded in the Pitney Bowes Pension Plan net assets available for benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Pension Plans - Fair Value Measurements at December 31, 2009 by Level
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Equity securities
|
|
|
118,302
|
|
|
133,513
|
|
|
|
|
|
251,815
|
|
Debt securities - U.S. and foreign
governments, agencies, and municipalities
|
|
|
8,817
|
|
|
42,665
|
|
|
|
|
|
51,482
|
|
Corporate debt securities
|
|
|
|
|
|
83,251
|
|
|
|
|
|
83,251
|
|
Mortgage-backed securities
|
|
|
|
|
|
28
|
|
|
|
|
|
28
|
|
Asset-backed securities
|
|
|
|
|
|
1,488
|
|
|
|
|
|
1,488
|
|
Private equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
127,119
|
|
$
|
260,945
|
|
$
|
|
|
$
|
388,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following information relates to our classification of investments 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. The money market funds are classified in Level 2 of the
fair value hierarchy since they are not actively traded on an exchange.
Equity
Securities:
Equity securities include U.S. and foreign common stock,
American Depository Receipts, preferred stock and commingled funds. Equity
securities classified in Level 1 of the fair value hierarchy are valued using
active, high volume trades for identical securities. Equity securities
classified in Level 2 of the fair value hierarchy represent those not listed on
an exchange in an active market.
Debt
Securities - U.S. and Foreign Governments and its Agencies and Municipalities:
Government securities include treasury notes and bonds, foreign government
issues, U.S. government sponsored agency debt and commingled funds. Municipal
debt securities include general obligation securities and revenue-backed
securities. Debt securities classified in Level 1 of the fair value hierarchy
are valued using active, high volume trades for identical securities. Debt
securities classified in Level 2 of the fair value hierarchy are valued through
benchmarking model derived prices to quoted market prices and trade data for
identical or comparable securities.
Corporate
Debt Securities
: Investments are comprised of both investment grade
debt (≥BBB-) and high-yield debt (≤BBB-). The fair value of
corporate debt 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.
Mortgage-Backed
Securities (MBS)
: Investments are comprised of agency-backed MBS,
non-agency MBS, collateralized mortgage obligations, commercial MBS, and commingled
funds. These securities are valued based on external pricing indices. When
external index pricing is not observable, mortgage-backed securities are valued
based on external price/spread data. If neither pricing method is available, we
then utilize broker quotes. When inputs are observable and supported by an
active market, mortgage-backed securities are classified as Level 2 in the fair
value hierarchy. When inputs are unobservable, mortgage-backed securities are
classified as Level 3 in the fair value hierarchy.
Asset-Backed
Securities (ABS)
: Investments are comprised of credit card
receivables, auto loan receivables, student loan receivables, and Small
Business Administration loans. These securities are valued based on external
pricing indices or external price/spread data. Asset-backed securities are
classified as Level 2 in the fair value hierarchy.
Private
Equity
: Investments are comprised of units in fund of fund
investment vehicles. The fund of fund vehicles consist of various private
equity investments and are used in an effort to gain greater diversification.
The investments are valued in accordance with the most appropriate valuation
techniques. These investments are classified in Level 3 in the fair value
hierarchy due to the unobservable inputs used to determine a fair value.
Real
Estate:
Investments include units in open-ended commingled real
estate funds. The properties that comprise these funds are valued externally by
an independent appraiser using the most appropriate valuation techniques. These
investments are classified in Level 3 in the fair value hierarchy due to the
unobservable inputs used to determine a fair value.
Derivatives:
Instruments are comprised of futures, forwards, options and warrants
and are used to gain exposure to a desired investment as well as for defensive
hedging purposes against currency and interest rate fluctuations. Derivative
instruments classified in Level 1 of the fair value hierarchy are valued
through a readily available exchange listed price. Derivative instruments
classified in Level 2 of the fair value hierarchy are valued using observable
inputs but are not listed or traded on an exchange. Derivative instruments
classified in Level 3 of the fair value hierarchy are valued using unobservable
inputs.
Securities
Lending Fund:
Investment represents a commingled fund through our
custodians securities lending program. The U.S. pension plan lends securities
that are held within the plan to other banks and/or brokers, for which we
receive collateral. This collateral is invested in the commingled fund, which invests in short-term fixed
income securities such as commercial paper, short-term ABS and other short-term
issues. Since the commingled fund is not listed or traded on an exchange, the
investment is classified as Level 2 in the fair value hierarchy. The investment
presented in the fair value hierarchy is offset by a liability of an equal
amount representing assets that participate in securities lending program,
which is reflected in the Pitney Bowes Pension Plans net assets available for
benefits.
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Level 3 Gains and Losses
The following
table shows a summary of the changes in the fair value of the U.S. pension
plans level 3 assets for the year ended December 31, 2009:
|
U.S. Pension Plans - Level 3 Fair Value
Measurements - Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-
backed
securities
|
|
Private
equity
|
|
Real estate
|
|
Derivatives
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
863
|
|
$
|
41,541
|
|
$
|
85,500
|
|
$
|
589
|
|
$
|
128,493
|
|
Realized gains / (losses)
|
|
|
(3
|
)
|
|
|
|
|
416
|
|
|
(553
|
)
|
|
(140
|
)
|
Unrealized gains / (losses)
|
|
|
(3
|
)
|
|
(6,038
|
)
|
|
(35,007
|
)
|
|
692
|
|
|
(40,356
|
)
|
Purchases, sales, issuances and settlements
(net)
|
|
|
(96
|
)
|
|
13,728
|
|
|
(578
|
)
|
|
(728
|
)
|
|
12,326
|
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
761
|
|
$
|
49,231
|
|
$
|
50,331
|
|
$
|
|
|
$
|
100,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Plan Assets to Fair Value Measurements Hierarchy
The following
tables show a reconciliation of the total fair value of pension plan assets to
the fair value of financial instruments presented in the fair value
measurements hierarchy for the U.S. and foreign pension plans at December 31,
2009:
|
Reconciliation of Plan Assets to Fair Value Measurements Hierarchy at
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
Total Plan
Assets
|
|
$
|
1,350,045
|
|
$
|
414,313
|
|
Cash
|
|
|
(848
|
)
|
|
(24,843
|
)
|
Securities lending fund liability
|
|
|
139,416
|
|
|
|
|
Receivables / Prepaid benefits
|
|
|
(79,936
|
)
|
|
|
|
Payables / Accrued expenses
|
|
|
33,589
|
|
|
|
|
Other
|
|
|
(1,404
|
)
|
|
(1,406
|
)
|
|
|
|
|
|
|
|
|
Total Per
Fair Value Measurements Hierarchy
|
|
$
|
1,440,862
|
|
$
|
388,064
|
|
|
|
|
|
|
|
|
|
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 or in the case of employees of Pitney Bowes Management
Services after reaching age 60 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.
88
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,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit
obligations at beginning of year
|
|
$
|
244,544
|
|
$
|
246,572
|
|
Service cost
|
|
|
3,424
|
|
|
3,613
|
|
Interest
cost
|
|
|
14,437
|
|
|
14,410
|
|
Plan
participants contributions
|
|
|
8,778
|
|
|
8,627
|
|
Actuarial
loss (gain)
|
|
|
21,489
|
|
|
14,662
|
|
Foreign
currency changes
|
|
|
2,509
|
|
|
(3,653
|
)
|
Gross
benefits paid
|
|
|
(43,494
|
)
|
|
(42,259
|
)
|
Less federal subsidy on benefits paid
|
|
|
2,718
|
|
|
2,572
|
|
|
|
|
|
|
|
|
|
Benefit
obligations at end of year
|
|
$
|
254,405
|
|
$
|
244,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value
of plan assets at beginning of year
|
|
$
|
|
|
$
|
|
|
Company
contribution
|
|
|
31,998
|
|
|
31,060
|
|
Plan
participants contributions
|
|
|
8,778
|
|
|
8,627
|
|
Gross
benefits paid
|
|
|
(43,494
|
)
|
|
(42,259
|
)
|
Less federal subsidy on benefits paid
|
|
|
2,718
|
|
|
2,572
|
|
|
|
|
|
|
|
|
|
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
|
|
|
254,405
|
|
|
244,544
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$
|
(254,405
|
)
|
$
|
(244,544
|
)
|
|
|
|
|
|
|
|
|
The discount
rates used in determining the accumulated postretirement benefit obligations
for the U.S. plan were 5.35% in 2009 and 5.95% in 2008. The discount rates used
in determining the accumulated postretirement benefit obligations for the
Canadian plan were 5.85% in 2009 and 6.60% in 2008.
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheets consist of:
|
|
|
|
|
|
|
|
Current
liability
|
|
$
|
(26,293
|
)
|
$
|
(26,920
|
)
|
Non-current
liability
|
|
|
(228,112
|
)
|
|
(217,624
|
)
|
|
|
|
|
|
|
|
|
Net amount
recognized
|
|
$
|
(254,405
|
)
|
$
|
(244,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts recognized in AOCI consist of:
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
74,044
|
|
$
|
55,764
|
|
Prior
service credit
|
|
|
(8,397
|
)
|
|
(10,872
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65,647
|
|
$
|
44,892
|
|
|
|
|
|
|
|
|
|
The components
of the net periodic benefit cost for nonpension postretirement benefit plans
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,424
|
|
$
|
3,613
|
|
$
|
3,529
|
|
Interest
cost
|
|
|
14,437
|
|
|
14,410
|
|
|
13,904
|
|
Amortization
of prior service benefit
|
|
|
(2,475
|
)
|
|
(2,471
|
)
|
|
(2,472
|
)
|
Recognized
net actuarial loss
|
|
|
4,092
|
|
|
3,386
|
|
|
2,214
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit cost
|
|
$
|
19,478
|
|
$
|
18,938
|
|
$
|
17,175
|
|
|
|
|
|
|
|
|
|
|
|
|
89
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Other changes
in plan assets and benefit obligations for nonpension postretirement benefit
plans recognized in other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Net actuarial
loss (gain)
|
|
$
|
21,367
|
|
$
|
15,067
|
|
Prior
service cost (credit)
|
|
|
|
|
|
|
|
Amortization
of net actuarial (loss) gain
|
|
|
(4,092
|
)
|
|
(3,257
|
)
|
Amortization
of prior service (cost) credit
|
|
|
2,475
|
|
|
2,478
|
|
Adjustment
for actual Medicare Part D Premium
|
|
|
1,005
|
|
|
1,191
|
|
|
|
|
|
|
|
|
|
Total
recognized in other comprehensive income
|
|
$
|
20,755
|
|
$
|
15,479
|
|
|
|
|
|
|
|
|
|
Weighted
average assumptions used to determine net periodic costs during the years:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Discount
rate U.S.
|
|
|
5.95
|
%
|
|
5.90
|
%
|
|
5.85
|
%
|
Discount
rate Canada
|
|
|
6.60
|
%
|
|
5.25
|
%
|
|
5.00
|
%
|
The
estimated amounts that will be amortized from AOCI into net periodic benefit
cost in 2010 are as follows:
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
5,894
|
|
Prior service
credit
|
|
|
(2,513
|
)
|
|
|
|
|
|
Total
|
|
$
|
3,381
|
|
|
|
|
|
|
The assumed
health care cost trend rate used in measuring the accumulated postretirement
benefit obligations for the U.S. plan was 7.50% for 2009 and 8.00% for 2008.
The assumed health care trend rate is 7.50% for 2010 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
|
|
$
|
590
|
|
$
|
(507
|
)
|
Effect on
postretirement benefit obligations
|
|
$
|
8,693
|
|
$
|
(7,584
|
)
|
Estimated Future Benefit Payments
The following
benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
|
|
|
For the year
ending 12/31/10
|
|
$
|
133,052
|
|
For the year
ending 12/31/11
|
|
|
123,634
|
|
For the year
ending 12/31/12
|
|
|
131,716
|
|
For the year
ending 12/31/13
|
|
|
134,787
|
|
For the year
ending 12/31/14
|
|
|
139,896
|
|
For the
years ending 12/31/15-12/31/19
|
|
|
723,097
|
|
|
|
|
|
|
|
|
$
|
1,386,182
|
|
|
|
|
|
|
90
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonpension
|
|
|
|
|
|
|
|
Gross
|
|
Medicare Part
D Subsidy
|
|
Net
|
|
|
|
|
|
|
|
|
|
For the year
ending 12/31/10
|
|
$
|
29,182
|
|
$
|
(2,954
|
)
|
$
|
26,228
|
|
For the year
ending 12/31/11
|
|
|
28,189
|
|
|
(3,188
|
)
|
|
25,001
|
|
For the year
ending 12/31/12
|
|
|
27,009
|
|
|
(3,439
|
)
|
|
23,570
|
|
For the year
ending 12/31/13
|
|
|
25,792
|
|
|
(3,696
|
)
|
|
22,096
|
|
For the year
ending 12/31/14
|
|
|
24,831
|
|
|
(3,903
|
)
|
|
20,928
|
|
For the
years ending 12/31/15-12/31/19
|
|
|
112,379
|
|
|
(17,215
|
)
|
|
95,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
247,382
|
|
$
|
(34,395
|
)
|
$
|
212,987
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009, 2008
and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
(Weighted
average shares in thousands)
|
|
Income
|
|
Weighted
Average
Shares
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
Pitney Bowes
Inc. net income
|
|
$
|
423,445
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
Preference stock dividends
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
423,373
|
|
|
206,734
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
423,373
|
|
|
206,734
|
|
|
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
3
|
|
|
|
|
Preference stock
|
|
|
72
|
|
|
568
|
|
|
|
|
Stock options and stock purchase plans
|
|
|
|
|
|
7
|
|
|
|
|
Other stock plans
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
423,445
|
|
|
207,322
|
|
$
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of
common stock attributable to Pitney Bowes Inc. common stockholders:
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.09
|
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
|
|
|
|
Net income
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of
common stock attributable to Pitney Bowes Inc. common stockholders:
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.08
|
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
|
|
|
|
Net income
|
|
$
|
2.04
|
|
|
|
|
|
|
Note: The sum
of the earnings per share amounts may not equal the totals above due to
rounding.
91
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
(Weighted average shares in thousands)
|
|
Income
|
|
Weighted
Average
Shares
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
419,793
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
Preference stock dividends
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
419,716
|
|
|
208,425
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
419,716
|
|
|
208,425
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
3
|
|
|
|
|
Preference stock
|
|
|
77
|
|
|
601
|
|
|
|
|
Stock options and stock purchase plans
|
|
|
|
|
|
603
|
|
|
|
|
Other stock plans
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
419,793
|
|
|
209,699
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders:
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
2.15
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders:
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
2.13
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: The sum
of the earnings per share amounts may not equal the totals above due to
rounding.
92
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
(Weighted average shares in thousands)
|
|
Income
|
|
Weighted
Average
Shares
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
366,781
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
Preference stock dividends
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
366,700
|
|
|
218,444
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
366,700
|
|
|
218,444
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
3
|
|
|
|
|
Preference stock
|
|
|
81
|
|
|
638
|
|
|
|
|
Stock options and stock purchase plans
|
|
|
|
|
|
2,028
|
|
|
|
|
Other stock plans
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
366,781
|
|
|
221,220
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders:
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
1.65
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders:
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
$
|
1.63
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: The sum
of the earnings per share amounts may not equal the totals above due to rounding.
In accordance
with the earnings per share accounting guidance, 6.0 million, 3.3 million and
0.5 million common stock equivalent shares in 2009, 2008 and 2007,
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.
93
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
21. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 2009 and 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,379,584
|
|
$
|
1,378,462
|
|
$
|
1,356,820
|
|
$
|
1,454,305
|
|
$
|
5,569,171
|
|
Gross profit (1)
|
|
|
701,988
|
|
|
685,596
|
|
|
688,373
|
|
|
755,190
|
|
|
2,831,147
|
|
Restructuring charges and asset impairments
|
|
|
|
|
|
|
|
|
12,845
|
|
|
35,901
|
|
|
48,746
|
|
Income from continuing operations
|
|
|
106,300
|
|
|
116,731
|
|
|
110,278
|
|
|
119,713
|
|
|
453,022
|
|
Gain (loss) from discontinued operations,
net of income tax
|
|
|
2,623
|
|
|
5,102
|
|
|
(2,429
|
)
|
|
(13,405
|
)
|
|
(8,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of noncontrolling
interests
|
|
|
108,923
|
|
|
121,833
|
|
|
107,849
|
|
|
106,308
|
|
|
444,913
|
|
Less: Preferred stock dividends of
subsidiaries attributable to noncontrolling interests
|
|
|
4,521
|
|
|
4,571
|
|
|
4,622
|
|
|
7,754
|
|
|
21,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
104,402
|
|
$
|
117,262
|
|
$
|
103,227
|
|
$
|
98,554
|
|
$
|
423,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Pitney Bowes Inc. common stockholders:
|
|
|
|
|
Income
from continuing operations
|
|
$
|
101,779
|
|
$
|
112,160
|
|
$
|
105,656
|
|
$
|
111,959
|
|
$
|
431,554
|
|
Gain
(loss) from discontinued operations
|
|
|
2,623
|
|
|
5,102
|
|
|
(2,429
|
)
|
|
(13,405
|
)
|
|
(8,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
104,402
|
|
$
|
117,262
|
|
$
|
103,227
|
|
$
|
98,554
|
|
$
|
423,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders (2):
|
|
|
|
|
Continuing operations
|
|
$
|
0.49
|
|
$
|
0.54
|
|
$
|
0.51
|
|
$
|
0.54
|
|
$
|
2.09
|
|
Discontinued operations
|
|
|
0.01
|
|
|
0.02
|
|
|
(0.01
|
)
|
|
(0.06
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
0.51
|
|
$
|
0.57
|
|
$
|
0.50
|
|
$
|
0.48
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders (2):
|
|
|
|
|
Continuing operations
|
|
$
|
0.49
|
|
$
|
0.54
|
|
$
|
0.51
|
|
$
|
0.54
|
|
$
|
2.08
|
|
Discontinued operations
|
|
|
0.01
|
|
|
0.02
|
|
|
(0.01
|
)
|
|
(0.06
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
0.50
|
|
$
|
0.57
|
|
$
|
0.50
|
|
$
|
0.47
|
|
$
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Gross profit
is defined as total revenue less cost of equipment sales, cost of supplies,
cost of software, cost of rentals, financing interest expense, 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.
|
94
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
801,503
|
|
|
808,856
|
|
|
790,033
|
|
|
795,841
|
|
|
3,196,233
|
|
Restructuring charges and asset impairments
|
|
|
17,093
|
|
|
18,815
|
|
|
49,229
|
|
|
115,117
|
|
|
200,254
|
|
Income from continuing operations
|
|
|
127,733
|
|
|
136,136
|
|
|
106,832
|
|
|
97,547
|
|
|
468,248
|
|
Loss from
discontinued operations, net of income tax
|
|
|
(3,832
|
)
|
|
(2,831
|
)
|
|
(2,063
|
)
|
|
(18,974
|
)
|
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of
noncontrolling interests
|
|
|
123,901
|
|
|
133,305
|
|
|
104,769
|
|
|
78,573
|
|
|
440,548
|
|
Less: Preferred stock dividends of
subsidiaries attributable to noncontrolling interests
|
|
|
4,798
|
|
|
4,796
|
|
|
6,540
|
|
|
4,621
|
|
|
20,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
119,103
|
|
$
|
128,509
|
|
$
|
98,229
|
|
$
|
73,952
|
|
$
|
419,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Pitney Bowes Inc. common stockholders:
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Inc. net income
|
|
$
|
119,103
|
|
$
|
128,509
|
|
$
|
98,229
|
|
$
|
73,952
|
|
$
|
419,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share of common stock attributable to Pitney Bowes Inc. common
stockholders (2):
|
|
|
|
|
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
|
|
$
|
0.56
|
|
$
|
0.62
|
|
$
|
0.47
|
|
$
|
0.36
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share of common stock attributable to Pitney Bowes Inc. common
stockholders (2):
|
|
|
|
|
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
|
|
$
|
0.56
|
|
$
|
0.61
|
|
$
|
0.47
|
|
$
|
0.36
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Gross profit
is defined as total revenue less cost of equipment sales, cost of supplies,
cost of software, cost of rentals, financing interest expense, 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.
|
95
P
ITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2007 TO 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
Balance at
beginning of year
|
|
Additions
|
|
Deductions
|
|
Balance at
end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
45,264
|
|
$
|
10,516
|
(1)
|
$
|
(12,999
|
)
(2)
|
$
|
42,781
|
|
2008
|
|
$
|
49,324
|
|
$
|
17,134
|
(1)
|
$
|
(21,194
|
) (2)
|
$
|
45,264
|
|
2007
|
|
$
|
50,052
|
|
$
|
19,880
|
(1)
|
$
|
(20,608
|
) (2)
|
$
|
49,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses on finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
71,790
|
|
$
|
61,755
|
|
$
|
(61,387
|
)
(2)
|
$
|
72,158
|
|
2008
|
|
$
|
78,371
|
|
$
|
51,736
|
|
$
|
(58,317
|
) (2)
|
$
|
71,790
|
|
2007
|
|
$
|
82,499
|
|
$
|
44,440
|
|
$
|
(48,568
|
) (2)
|
$
|
78,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for deferred tax asset (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
91,405
|
|
$
|
5,628
|
|
$
|
(1,043
|
)
|
$
|
95,990
|
|
2008
|
|
$
|
69,792
|
|
$
|
37,942
|
|
$
|
(16,329
|
)
|
$
|
91,405
|
|
2007
|
|
$
|
33,563
|
|
$
|
64,487
|
|
$
|
(28,258
|
)
|
$
|
69,792
|
|
|
|
(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.
|
96
Exhibit Index
|
|
|
|
|
|
|
|
|
Reference
Number per
Item 601 of
Regulation SK
|
|
Exhibit
Number in
this
Form 10-K
|
|
Document Name
|
|
Page
Number
|
|
|
|
|
|
|
|
|
|
(12)
|
|
Exhibit
|
(i)
|
|
Computation of ratio of
earnings to fixed charges
|
|
98
|
|
|
|
|
|
|
|
|
|
|
(21)
|
|
Exhibit
|
(ii)
|
|
Subsidiaries of the
registrant
|
|
99
|
|
|
|
|
|
|
|
|
|
|
(23)
|
|
Exhibit
|
(iii)
|
|
Consent of experts and
counsel
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
(iv)
|
|
Key Employees Incentive
Plan
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
(v)
|
|
2007 Stock Plan
|
|
107
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
119
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
120
|
|
|
|
|
|
|
|
|
|
|
(32.1)
|
|
|
|
|
Certification of Chief
Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
121
|
|
|
|
|
|
|
|
|
|
|
(32.2)
|
|
|
|
|
Certification of Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
122
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
|
|
|
XBRL Report Instance Document
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
|
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
|
|
|
XBRL Taxonomy Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
|
|
|
XBRL Taxonomy Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
|
|
|
XBRL Taxonomy Label Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
|
|
|
XBRL Taxonomy Presentation Linkbase Document
|
|
|
|
97
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