Market
deteriorations and credit downgrades could adversely affect our cost of funds
and related margins, liquidity, competitive position and access to capital
markets.
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 (the 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.
A portion of our total borrowings has been issued in the commercial
paper markets. Although we continue 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.
We may not realize anticipated benefits from
our Strategic Transformation.
In
2009, we announced that we were embarking on an initiative called Strategic
Transformation, a program focusing on how we improve the way we go to market
and how we interact with our customers while also reducing the companys cost
structure to make it more flexible. The initiatives are aimed at optimizing our
cost structure and efficiency through new system implementation, outsourcing
programs, and headcount reduction. If our new system implementation or
outsourcing programs are not successful, the savings from Strategic
Transformation may not be sustainable.
Failure to comply with privacy laws and other related regulations
could subject us to significant liability.
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.
The failure of our information technology systems could adversely
impact our operating results.
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.
Our inability to obtain and protect our intellectual
property and defend against claims of infringement by others may negatively
impact our operating results.
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
.
If we fail to comply with government contracting regulations, our
operating results, brand name and reputation could suffer.
Many of our contracts are with governmental entities. Government
contracts are subject to extensive and complex government procurement laws and
regulations, along with regular audits of contract pricing and our business
practices by government agencies. If we are found to have violated some
provisions of the government contracts, we could be required to provide a
refund, pay significant damages, or be subject to contract cancellation, civil
or criminal penalties, fines, or debarment from doing business with the government.
Any of these events could not only affect us financially but also adversely
affect our brand and reputation.
6
I
TEM 1B.
UNRESOLVED STAFF COMMENTS
None.
I
TEM 2.
PROPERTIES
Our world headquarters is located in Stamford, Connecticut. We have
facilities worldwide that are either leased or owned. We have limited
manufacturing and assembly operations in our Danbury, Connecticut and Harlow,
United Kingdom locations. Our principal research and development facilities are
located in Shelton, Connecticut and Noida, India. 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
several purported class actions initially filed in five 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
were seeking statutory damages under the DPPA. On December 21, 2009, the
Eleventh Circuit Court affirmed the District Courts summary judgment
decision in
Rine,
et al. v. Imagitas, Inc
. (United States District Court, Middle District of
Florida, filed August 1, 2006), which ruled in Imagitas favor and dismissed
that litigation. That decision is now final, with no further appeals
available. With respect to the remaining state cases, Imagitas filed its motion
to dismiss these cases on October 8, 2010. Plaintiffs opposition brief
was filed on December 6, 2010, and Imagitas filed its reply brief on December
22, 2010. Although the plaintiffs are still contending that the cases filed in
Ohio and Missouri can proceed, they have admitted in their response that the
reasoning in the Rine decision does require that actions based on Minnesota and
New York laws be dismissed. We are awaiting a decision by the District Court
on the motion to dismiss.
On
October 28, 2009, the Company and certain of its 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. Plaintiffs filed an
amended complaint on September 20, 2010. On December 3, 2010, defendants moved
to dismiss the complaint. Oral argument on that motion is scheduled for April
15, 2011.
We expect to prevail in the legal actions above; 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.
I
TEM 4. (REMOVED AND RESERVED)
7
P
ART II
|
|
ITEM 5.
|
M
ARKET 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, 2011, we had 21,844 common
stockholders of record.
The following table sets forth, for the periods
indicated, the high and low sales prices, as reported on the NYSE, and the cash
dividends paid per share of common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
Dividend
Per Share
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.76
|
|
$
|
20.80
|
|
$
|
0.365
|
|
Second Quarter
|
|
$
|
26.00
|
|
$
|
21.28
|
|
|
0.365
|
|
Third Quarter
|
|
$
|
25.00
|
|
$
|
19.06
|
|
|
0.365
|
|
Fourth Quarter
|
|
$
|
24.79
|
|
$
|
21.19
|
|
|
0.365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
27.46
|
|
$
|
17.62
|
|
$
|
0.36
|
|
Second Quarter
|
|
$
|
26.25
|
|
$
|
20.71
|
|
|
0.36
|
|
Third Quarter
|
|
$
|
25.57
|
|
$
|
20.38
|
|
|
0.36
|
|
Fourth Quarter
|
|
$
|
26.41
|
|
$
|
22.44
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2011, our Board of Directors authorized
a half-cent increase in our quarterly common stock dividend to $0.37 per share,
marking the 29
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 18, 2011.
We expect to continue to pay quarterly cash dividends. There are no material
restrictions on our ability to declare dividends.
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.
Share Repurchases
We periodically repurchase shares of our common stock to manage the
dilution created by shares issued under employee stock plans and for other
purposes in the open market. In May 2010, the Board of Directors approved an
expansion of our share repurchase authorization to $150 million. During 2010,
we repurchased 4.7 million shares at a total cost of $100 million and at
December 31, 2010, had $50 million of authorization remaining under this
program. The following table
summarizes our share repurchase activity under active programs during 2010.
There were no share repurchases during the fourth quarter of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
number of
shares
purchased
|
|
Average
price
paid per share
|
|
Total
number of
shares purchased as
part of a publicly
announced plan
|
|
Approximate
dollar
value of shares that may
yet be purchased under
the plan (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
July 2010
|
|
|
1,248,943
|
|
$
|
23.39
|
|
|
1,248,943
|
|
$
|
120,786
|
|
August 2010
|
|
|
1,770,826
|
|
$
|
20.21
|
|
|
1,770,826
|
|
$
|
85,000
|
|
September 2010
|
|
|
1,667,535
|
|
$
|
20.99
|
|
|
1,667,535
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,687,304
|
|
$
|
21.33
|
|
|
4,687,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2011, our Board of Directors approved an increase of $100
million in our share repurchase authorization to $150 million.
8
Stock Performance Graph
The
accompanying graph compares the most recent five-year performance of Pitney
Bowes common stock with the Standard and Poors (S&P) 500 Composite
Index, and Peer Group Index.
The
Peer Group Index is comprised of the following companies: Automatic Data
Processing, Inc., 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.
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 us by 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, 2005
would have been worth $72 on December 31, 2010. By comparison, $100 invested in
the S&P 500 Composite Index on December 31, 2005 would have been worth $112
on December 31, 2010. An investment of $100 in the Peer Group on December 31,
2005 would have been worth $118 on December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Returns
December 31,
|
|
|
|
|
|
Company
Name / Index
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes
|
|
$
|
100
|
|
$
|
113
|
|
$
|
96
|
|
$
|
67
|
|
$
|
64
|
|
$
|
72
|
|
S&P 500
|
|
$
|
100
|
|
$
|
116
|
|
$
|
122
|
|
$
|
77
|
|
$
|
97
|
|
$
|
112
|
|
Peer Group
|
|
$
|
100
|
|
$
|
119
|
|
$
|
124
|
|
$
|
92
|
|
$
|
116
|
|
$
|
118
|
|
9
|
|
ITEM 6.
|
S
ELECTED 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,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
5,425,254
|
|
$
|
5,569,171
|
|
$
|
6,262,305
|
|
$
|
6,129,795
|
|
$
|
5,730,018
|
|
Total costs and expenses
|
|
|
4,890,677
|
|
|
4,875,995
|
|
|
5,549,128
|
|
|
5,469,084
|
|
|
4,815,528
|
|
Income from continuing operations before
income taxes
|
|
|
534,577
|
|
|
693,176
|
|
|
713,177
|
|
|
660,711
|
|
|
914,490
|
|
Provision for income taxes
|
|
|
205,770
|
|
|
240,154
|
|
|
244,929
|
|
|
280,222
|
|
|
335,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
328,807
|
|
|
453,022
|
|
|
468,248
|
|
|
380,489
|
|
|
579,486
|
|
(Loss) gain from discontinued operations,
net of income tax
|
|
|
(18,104
|
)
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
5,534
|
|
|
(460,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of
noncontrolling interests
|
|
|
310,703
|
|
|
444,913
|
|
|
440,548
|
|
|
386,023
|
|
|
119,174
|
|
Less: Preferred stock dividends of
subsidiaries attributable to noncontrolling interests
|
|
|
18,324
|
|
|
21,468
|
|
|
20,755
|
|
|
19,242
|
|
|
13,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
292,379
|
|
$
|
423,445
|
|
$
|
419,793
|
|
$
|
366,781
|
|
$
|
105,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock attributable to common stockholders (1):
|
Continuing operations
|
|
$
|
1.51
|
|
$
|
2.09
|
|
$
|
2.15
|
|
$
|
1.65
|
|
$
|
2.54
|
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
0.03
|
|
|
(2.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.42
|
|
$
|
2.05
|
|
$
|
2.01
|
|
$
|
1.68
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock attributable to common stockholders (1):
|
Continuing operations
|
|
$
|
1.50
|
|
$
|
2.08
|
|
$
|
2.13
|
|
$
|
1.63
|
|
$
|
2.51
|
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
0.03
|
|
|
(2.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.41
|
|
$
|
2.04
|
|
$
|
2.00
|
|
$
|
1.66
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid to stockholders
|
|
$
|
301,456
|
|
$
|
297,555
|
|
$
|
291,611
|
|
$
|
288,790
|
|
$
|
285,051
|
|
Cash dividends per share of common stock
|
|
$
|
1.46
|
|
$
|
1.44
|
|
$
|
1.40
|
|
$
|
1.32
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
303,653
|
|
$
|
338,895
|
|
$
|
379,117
|
|
$
|
383,141
|
|
$
|
363,258
|
|
Capital expenditures
|
|
$
|
119,768
|
|
$
|
166,728
|
|
$
|
237,308
|
|
$
|
264,656
|
|
$
|
327,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,444,023
|
|
$
|
8,571,039
|
|
$
|
8,810,236
|
|
$
|
9,465,731
|
|
$
|
8,527,331
|
|
Long-term debt
|
|
$
|
4,239,248
|
|
$
|
4,213,640
|
|
$
|
3,934,865
|
|
$
|
3,802,075
|
|
$
|
3,847,617
|
|
Total debt
|
|
$
|
4,292,742
|
|
$
|
4,439,662
|
|
$
|
4,705,366
|
|
$
|
4,755,842
|
|
$
|
4,338,157
|
|
Noncontrolling interests (Preferred
stockholders equity in subsidiaries)
|
|
$
|
296,370
|
|
$
|
296,370
|
|
$
|
374,165
|
|
$
|
384,165
|
|
$
|
384,165
|
|
Stockholders (deficit) equity (2)
|
|
$
|
(96,581
|
)
|
$
|
(3,152
|
)
|
$
|
(303,594
|
)
|
$
|
544,454
|
|
$
|
600,340
|
|
(1) The sum of the earnings per share amounts may not equal the totals
above due to rounding.
(2) Stockholders (deficit) equity has been reduced for all periods
presented for the impact of an opening retained earnings adjustment of $16,815
pertaining to prior periods. See Note 9 to the Consolidated Financial
Statements for further details.
10
|
|
ITEM 7.
|
M
ANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our Consolidated
Financial Statements contained in this report. All table amounts are presented
in millions of dollars, unless otherwise stated.
Forward-Looking Statements
This Managements Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) contains statements that are forward-looking.
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. These forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties and actual results
could differ materially. Words such as estimate, target, project, plan,
believe, expect, anticipate, intend, and similar expressions may identify
such forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. 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, without
limitation:
|
|
|
|
|
negative developments in
economic conditions, including adverse impacts on customer demand
|
|
|
|
|
|
changes in postal or banking regulations
|
|
|
|
|
|
timely development and acceptance of new products
|
|
|
|
|
|
declining physical mail volumes
|
|
|
|
|
|
success in gaining product approval in new markets where regulatory
approval is required
|
|
|
|
|
|
successful entry into new markets
|
|
|
|
|
|
mailers utilization of alternative means of communication or
competitors products
|
|
|
|
|
|
our success at managing customer credit risk
|
|
|
|
|
|
our success at managing costs
associated with our strategy of outsourcing functions and operations not
central to our business
|
|
|
|
|
|
changes in interest rates
|
|
|
|
|
|
foreign currency fluctuations
|
|
|
|
|
|
cost, timing and execution of our transformation plans including any
potential asset impairments
|
|
|
|
|
|
regulatory approvals and satisfaction of other conditions to
consummate and integrate any acquisitions
|
|
|
|
|
|
interrupted use of key information systems
|
|
|
|
|
|
changes in international or national political conditions, including
any terrorist attacks
|
|
|
|
|
|
intellectual property infringement claims
|
|
|
|
|
|
impact on mail volume resulting from current concerns over the use of
the mail for transmitting harmful biological agents
|
|
|
|
|
|
third-party suppliers ability to provide product components,
assemblies or inventories
|
|
|
|
|
|
negative income tax adjustments or other regulatory levies for prior
audit years and changes in tax laws or regulations
|
|
|
|
|
|
changes in pension, health care and retiree medical costs
|
|
|
|
|
|
changes in privacy laws
|
|
|
|
|
|
acts of nature
|
11
Overview
In 2010, revenue decreased 3% to $5.4 billion
compared to the prior year. Equipment sales and software revenues increased 2%
and 5%, respectively, compared to the prior year; however, these improvements
were offset by a decline of 7% in rental revenue, 8% in financing revenue, 5%
in supplies revenue and 3% in business services revenue compared to the prior
year. Foreign currency translation and acquisitions had less than a 1%
favorable impact on revenue.
Earnings before interest and taxes (EBIT) increased in five of our
segments when compared to the prior year primarily due to our ongoing
productivity and cost reduction initiatives.
Net income from continuing operations in 2010 was
$310 million, or $1.50 per diluted share compared with $432 million, or $2.08
per diluted share in 2009. Diluted earnings per share for 2010 was reduced by
$0.59 for restructuring charges and asset impairments, $0.07 for non-cash tax
charges associated with out-of-the-money stock options that expired during the
year, $0.05 for a one-time charge to correct rates used to estimate unbilled
International Mail Services revenue in prior periods and $0.04 for recently
enacted heath care legislation. Diluted earnings per share for 2009 was reduced
by $0.15 for restructuring charges, $0.06 for non-cash tax charges associated
with out-of-the-money stock options that expired during the year partially
offset by a $0.01 positive tax adjustment associated with the repricing of
leveraged lease transactions.
We generated $952 million in cash from operations, which was used to
reduce debt by $171 million, repurchase $100 million of our common stock and
pay $301 million of dividends to our common stockholders.
For a more detailed discussion of our results of
operations, see Results of Operations 2010 compared to 2009 and Results of
Operations 2009 compared to 2008.
Outlook
During
the second half or 2010, we began to see some positive signs in our business.
However, the worldwide economy and business environment continues to be
uncertain, especially among small businesses. This uncertain economic
environment has impacted our financial results and in particular our recurring
revenue streams, including our high-margin financing, rental and supplies
revenue streams. Recovery of these recurring revenue streams will lag a
recovery in equipment sales. While we have been successful in reducing our cost
structure across the entire business and shifting to a more variable cost
structure, these actions have not been sufficient to offset the impact of lower
revenues. We remain focused on streamlining our business operations and
creating more flexibility in our cost structure.
We continue to expect our mix of revenue to change, with a greater
percentage of revenue coming from enterprise related products and solutions. 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 mail volume trends will continue to be a factor
for our businesses.
In 2009, we announced we were undertaking a series of initiatives
designed to transform and enhance the way we operate as a global company. In
order to enhance our responsiveness to changing market conditions, we have been
executing on 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. We
expect the total pre-tax cost of this program will be in the range of $300
million to $350 million primarily related to severance and benefit costs
incurred in connection with workforce reductions. Currently, we are
targeting annualized benefits, net of system and related investments, in the
range of $250 million to $300 million on a pre-tax basis, with a full benefit
run rate by 2012.
12
RESULTS OF OPERATIONS - 2010 Compared to 2009
Business
segment results
We conduct our business activities in seven reporting segments within
two business groups, Small & Medium Business Solutions (SMB Solutions) and
Enterprise Business Solutions (EB Solutions). The following table shows revenue and EBIT in 2010 and 2009 by business segment. EBIT, a non-GAAP measure, is
determined by deducting from segment revenue the related costs and expenses
attributable to the segment. EBIT 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,
and general corporate expenses, restructuring charges and asset impairments.
EBIT is also used for purposes of measuring the performance of our management
team. Refer to Note 18 to the
Consolidated Financial Statements for a reconciliation of segment amounts to
income from continuing operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
% change
|
|
2010
|
|
2009
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
1,879
|
|
$
|
2,016
|
|
|
(7
|
)%
|
$
|
689
|
|
$
|
743
|
|
|
(7
|
)%
|
International
Mailing
|
|
|
923
|
|
|
920
|
|
|
|
%
|
|
143
|
|
|
128
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMB Solutions
|
|
|
2,802
|
|
|
2,936
|
|
|
(5
|
)%
|
|
832
|
|
|
871
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
Mail
|
|
|
557
|
|
|
526
|
|
|
6
|
%
|
|
61
|
|
|
51
|
|
|
18
|
%
|
Software
|
|
|
363
|
|
|
346
|
|
|
5
|
%
|
|
42
|
|
|
38
|
|
|
13
|
%
|
Management
Services
|
|
|
999
|
|
|
1,061
|
|
|
(6
|
)%
|
|
93
|
|
|
72
|
|
|
28
|
%
|
Mail
Services
|
|
|
562
|
|
|
559
|
|
|
1
|
%
|
|
63
|
|
|
83
|
|
|
(23
|
)%
|
Marketing
Services
|
|
|
142
|
|
|
141
|
|
|
|
%
|
|
26
|
|
|
23
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EB Solutions
|
|
|
2,623
|
|
|
2,633
|
|
|
|
%
|
|
285
|
|
|
267
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,425
|
|
$
|
5,569
|
|
|
(3
|
)%
|
$
|
1,117
|
|
$
|
1,138
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
Small & Medium Business Solutions revenue decreased 5% to
$2,802 million and EBIT decreased 4% to $832 million, compared to the prior year. Within Small &
Medium Business Solutions:
U.S. Mailing revenue decreased 7% to $1,879 million and EBIT
decreased 7% to $689 million, compared to the prior year. The revenue decrease
was driven primarily by lower financing, rental, service and supplies revenues.
The decrease in financing revenue is due to a decline in our leasing portfolio
from reduced equipment sales in recent years. Rental, supplies and service
revenues were lower than prior year due to fewer placements of new meters.
Lease extensions have a positive impact on profit margins longer-term but
negatively impact equipment sales revenue in the current year. Equipment
sales and supplies revenue were lower than prior year due to business consolidations,
lease extensions and reduced volumes of mail processed. Revenue was also
adversely affected by the ongoing changing mix to more fully featured smaller
systems. The lower EBIT was due to the decline in higher margin financing,
rental and supplies revenues.
International Mailing revenue was flat at $923 million compared to the
prior year, including a favorable impact from foreign currency translation of
2%. While equipment sales were up slightly in certain parts of Europe and
Canada, this increase was offset by continued declines in financing and rental
revenues due to reduced equipment sales in recent years. EBIT increased 12% to
$143 million compared to prior year, and was favorably impacted by an
adjustment related to certain leveraged lease transactions in Canada (6%), our
initiatives to improve productivity and consolidate functions globally and by
4% from foreign currency translation.
Enterprise Business Solutions
Enterprise Business Solutions revenue was flat at $2,623 million and
EBIT increased 7% to $285 million, compared to the prior year. Within
Enterprise Business Solutions:
Production Mail revenue increased 6% over the prior year to $557
million due to increased demand in the U.S. for inserting equipment and our
first installations of production print equipment. Demand for inserting equipment
continued to experience a delayed recovery in certain countries outside of
North America as many large enterprises in these regions continue to delay
capital expenditures due to
13
economic uncertainty. EBIT increased 18% to $61 million compared
to last year due to the higher revenue and our initiatives to improve productivity
and consolidate administrative functions. Foreign currency translation had
a 1% favorable impact on EBIT.
Software revenue increased 5% over last year to $363 million, driven by
the acquisition of Portrait Software (4%) and the favorable impact of foreign
currency translation (1%). We continue to build more recurring revenue streams
through multi-year licensing agreements, which have the effect of deferring
some revenue to future periods. EBIT increased 13% over last year to $42
million due to business integration and productivity initiatives. EBIT was
negatively impacted by transaction-related fees of approximately $2 million
associated with the Portrait acquisition. Foreign currency translation had a
less than 1% favorable impact on EBIT.
Management Services revenue decreased 6% compared to last year to $999
million due to the loss of several large postal contracts and decreased print
volumes. Despite the lower revenues, EBIT increased 28% over the prior year to
$93 million primarily due to our actions to align costs with changing volumes
through a more variable cost infrastructure, ongoing productivity initiatives
and a focus on more profitable contracts. Foreign currency translation had a
less than 1% impact on both revenue and EBIT.
Mail Services revenue increased 1% compared to last year to $562
million, while EBIT decreased 23% to $63 million. Mail Services revenue and
EBIT were adversely impacted by $21 million and $16 million, respectively, due
to a one-time out of period adjustment in the International Mail Services
portion of the business primarily related to the correction to the rates used
to estimate earned but unbilled revenue for the periods 2007 through the first
quarter of 2010. The impact of this adjustment was not material on any
individual quarter or year during these periods. Excluding the impact of this
adjustment, revenue increased 4% over the prior year, but EBIT decreased 5%.
The revenue increase was driven partially by increased volumes of presort mail
and Standard Class mail processed and acquisitions (2%). The decrease in EBIT
was driven by higher shipping rates charged by international carriers for our
International Mail Services business, which more than offset the favorable
margin impacts in our Presort business.
Marketing Services revenue of $142 million was flat compared to the
prior year. Revenue was impacted by increased vendor advertising for Movers
Source kits offset by a decline in household moves compared to prior year. EBIT
increased 14% over last year due to more profitable vendor revenue per
transaction.
Revenues
and Cost of revenues by source
The following tables show revenues and costs of revenues by source for
the years ended December 31, 2010 and 2009:
Revenues by source
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
% change
|
|
|
|
|
|
|
|
|
|
Equipment
sales
|
|
$
|
1,030
|
|
$
|
1,007
|
|
|
2
|
%
|
Supplies
|
|
|
318
|
|
|
336
|
|
|
(5
|
)%
|
Software
|
|
|
382
|
|
|
365
|
|
|
5
|
%
|
Rentals
|
|
|
601
|
|
|
647
|
|
|
(7
|
)%
|
Financing
|
|
|
638
|
|
|
695
|
|
|
(8
|
)%
|
Support
services
|
|
|
712
|
|
|
714
|
|
|
|
%
|
Business
services
|
|
|
1,744
|
|
|
1,805
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
5,425
|
|
$
|
5,569
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues by source
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
476
|
|
$
|
456
|
|
|
46.2
|
%
|
|
45.3
|
%
|
Cost of supplies
|
|
|
97
|
|
|
94
|
|
|
30.5
|
%
|
|
27.9
|
%
|
Cost of software
|
|
|
86
|
|
|
82
|
|
|
22.5
|
%
|
|
22.5
|
%
|
Cost of rentals
|
|
|
142
|
|
|
159
|
|
|
23.6
|
%
|
|
24.5
|
%
|
Financing interest expense
|
|
|
88
|
|
|
98
|
|
|
13.8
|
%
|
|
14.1
|
%
|
Cost of support services
|
|
|
452
|
|
|
467
|
|
|
63.5
|
%
|
|
65.4
|
%
|
Cost of business services
|
|
|
1,337
|
|
|
1,382
|
|
|
76.7
|
%
|
|
76.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
$
|
2,678
|
|
$
|
2,738
|
|
|
49.4
|
%
|
|
49.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Equipment sales
Equipment sales revenue increased 2% to $1,030 million compared to the
prior year. Foreign currency translation had a positive impact of 1%. The
growth was primarily driven by higher sales of production mail equipment in the
U.S. and higher equipment sales in Canada and parts of Europe. Period revenue
was adversely affected by lease extensions.
Cost of equipment sales as a percentage of
revenue was 46.2% compared with 45.3% in the prior year, primarily due to the
higher mix of lower margin production mail equipment sales, which more than
offset the positive impacts of higher levels of lease extensions and ongoing
productivity improvements.
Supplies
Supplies revenue decreased 5% to $318 million compared to the prior
year due to lower supplies usage resulting from lower mail volumes and fewer
installed meters due to customer consolidations worldwide. Foreign currency
translation had less than a 1% favorable impact.
Cost of supplies as a percentage of revenue was 30.5%
compared with 27.9% in the prior year primarily due to the increasing mix of
lower margin non-compatible supplies sales worldwide.
Software
Software revenue increased 5% to $382 million compared to the prior
year. The acquisition of Portrait accounted for 4% of the increase and foreign
currency translation accounted for 1% of the increase. Period revenue growth
was also negatively impacted by the shift to recurring revenue streams through
multi-year licensing agreements.
Cost of software as a percentage of revenue
was 22.5%, unchanged from the prior year.
Rentals
Rentals revenue decreased 7% to $601 million 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 France. Foreign currency translation had less
than a 1% positive impact.
Cost of rentals as a percentage of revenue
was 23.6% compared with 24.5% in the prior year. Rental margins have been
positively impacted by lower depreciation associated with higher levels of
lease extensions.
Financing
Financing revenue decreased 8% to $638 million compared to the prior
year as lower equipment sales in previous years have resulted in a net decline
in both our U.S. and international lease portfolios. Foreign currency translation
had a 1% positive impact.
Financing interest expense as a percentage of
revenue was 13.8% compared with 14.1% in the prior year due to lower interest
rates and lower average borrowings. In computing financing interest expense,
which represents the cost of borrowing associated with the generation of
financing revenues, we assume a 10:1 leveraging ratio of debt to equity and
apply our overall effective interest rate to the average outstanding finance
receivables.
Support Services
Support
services revenue of $712 million was flat compared to the prior year. Growth has been negatively
impacted by lower placements of mailing equipment, primarily in the U.S., U.K.
and France. Foreign currency translation had a positive impact of 1%.
Cost of support services as a percentage of
revenue improved to 63.5% compared with 65.4% in the prior year due to margin
improvements from our ongoing productivity investments in the U.S. and
International Mailing and Production Mail businesses.
Business Services
Business services revenue decreased 3% to $1,744 million compared to
the prior year primarily due to the loss of several large postal contracts and
print volumes at Management Services. Foreign currency translation had less
than a 1% negative impact.
Cost of business services as a percentage of
revenue was 76.7% compared with 76.6% in the prior year. Positive impacts of
cost reduction programs at our Management Services and Presort businesses were
offset by higher shipping costs in International Mail Services.
15
Selling,
general and administrative (SG&A)
SG&A expenses decreased $40 million, or 2% primarily as a result of
our cost reduction initiatives. Businesses acquired in 2010 increased SG&A
by $15 million and foreign currency translation had a less than 1% unfavorable
impact. As a percentage of revenue, SG&A expenses were 32.5% compared to
32.3% in the prior year.
Research and
development
Research
and development expenses decreased $26 million, or 14%from the prior year due to the wind-down of redundant costs
related to our transition to offshore development activities and the launch of
the new Connect+
TM
mailing system. Foreign currency translation had
an unfavorable impact of 1%. As a percentage of revenue, research and
development expenses were 2.9% compared to 3.3% in the prior year.
Other
interest expense
Other interest expense increased $4 million, or 4% in 2010 compared to the prior year.
Included in other interest expense is credit facility fees which were higher
compared to the prior year. We do not allocate other interest expense to our
business segments.
Income
taxes / effective tax rate
The effective tax rates for 2010
and 2009 were 38.5% and 34.6%, respectively. The effective tax rate for
2010 includes $16 million of tax benefits associated with previously
unrecognized deferred taxes on outside basis differences, a $15 million charge
for 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 units
previously granted to our employees and a $9 million charge for the write-off
of deferred tax assets related to the U.S. health care reform legislation that
eliminated the tax deduction for retiree health care costs to the extent of
federal subsidies received by companies that provide retiree prescription drug
benefits equivalent to Medicare Part D coverage.
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.
Discontinued
operations
The loss from discontinued operations in 2010 primarily relates to the
accrual of interest on uncertain tax positions and additional tax associated
with the disposed operations. The 2009 net loss from discontinued operations
includes $10 million of pre-tax income ($6 million net of tax) for a bankruptcy
settlement received 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. See Note 2 to the Consolidated Financial
Statements.
Preferred stock
dividends of subsidiaries attributable to noncontrolling interests
Preferred stock dividends to stockholders of
subsidiary companies were $18 million and $21 million in 2010 and 2009,
respectively. The 2009 amount included an expense of $3 million associated with
the redemption of $375 million of variable term voting preferred stock. See
Note 10 to the Consolidated Financial Statements for further discussion.
16
RESULTS OF OPERATIONS - 2009 Compared to 2008
Business
segment results
The following table
shows revenue and EBIT in 2009 and 2008 by business segment. Results have been
reclassified to conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
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
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMB Solutions
|
|
|
2,936
|
|
|
3,384
|
|
|
(13
|
)%
|
|
871
|
|
|
1,075
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
526
|
|
|
616
|
|
|
(15
|
)%
|
|
51
|
|
|
82
|
|
|
(37
|
)%
|
Software
|
|
|
346
|
|
|
400
|
|
|
(14
|
)%
|
|
38
|
|
|
28
|
|
|
32
|
%
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EB Solutions
|
|
|
2,633
|
|
|
2,878
|
|
|
(9
|
)%
|
|
267
|
|
|
270
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,569
|
|
$
|
6,262
|
|
|
(11
|
)%
|
$
|
1,138
|
|
$
|
1,345
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
Small & Medium Business Solutions revenue decreased 13% to $2,936
million and EBIT decreased 19% to $871 million, compared to the prior year.
Within Small & Medium Business Solutions:
U.S. Mailing 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, 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. EBIT declined 31%, primarily driven by lower levels of equipment and
supplies sales, and lower financing revenue.
Enterprise Business Solutions:
Enterprise Business Solutions revenue
decreased 9% to $2,633 million; however EBIT decreased only 1% to $267 million,
compared to the prior year. Within Enterprise Business Solutions:
Production Mail revenue decreased 15% primarily as a result of lower
equipment sales in the U.S., France, and Asia Pacific as economic uncertainty
continued to delay large-ticket capital expenditures for many large enterprises
worldwide. Foreign currency translation had an unfavorable impact of 2%. EBIT
decreased 37% driven by lower revenues and a shift in product mix to lower
margin products.
Software 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 adversely
impacted the sales and renewal of software licenses. Uncertainty surrounding
the economy resulted in many large multi-national organizations changing their
approval policies for capital expenditures, which lengthened the sales cycle.
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 margins from lower
revenue and a higher mix of lower margin software sales.
Management Services revenue decreased 9%, of which 2% was driven by the
unfavorable impact of foreign currency translation. Revenue was adversely
affected by lower business activity and decreased print and transaction volumes
throughout the U.S. and
17
Europe. EBIT however, increased 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 (4%) partly offset by the
unfavorable impact of foreign currency translation (1%). Customer base
expansion and continued growth in the volume of mail processed drove a slight
increase in revenue for the year. EBIT increased 20% due to 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. EBIT increased 8% however, due to an improving cost structure and the
exit from the motor vehicle registration services program.
Revenues and cost of revenues by source
The following tables show revenues and costs of revenues by source for
the years ended December 31, 2009 and 2008:
Revenue by source
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues by source
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
456
|
|
$
|
574
|
|
|
45.3
|
%
|
|
45.9
|
%
|
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
|
|
|
467
|
|
|
537
|
|
|
65.4
|
%
|
|
69.9
|
%
|
Cost of business services
|
|
|
1,382
|
|
|
1,486
|
|
|
76.6
|
%
|
|
77.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
$
|
2,738
|
|
$
|
3,066
|
|
|
49.2
|
%
|
|
49.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
Equipment sales revenue decreased 20% compared to the prior year due to
lower placements of mailing equipment as more customers delayed purchases of
new equipment and extended their leases on existing equipment due to the global
economic conditions. Revenue also continued 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%.
Cost of equipment sales as a percentage of
revenue was 45.3% compared with 45.9% in the prior year, primarily due to the
positive impacts of ongoing productivity improvements, partly offset by a
higher mix of lower margin sales.
Supplies
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%.
Cost of supplies as a percentage of revenue
was 27.9% compared with 26.5% in the prior year due to a greater mix of non-ink
supplies in U.S Mailing.
18
Software
Software revenue decreased 14% compared to the prior year primarily due
to the impact of the global economic slowdown which caused many businesses to
delay their capital spending worldwide. Worldwide consolidation in the
financial services industry and slowness in the retail sector also adversely
impacted sales and renewals of software licenses. Foreign currency translation
had an unfavorable impact of 4%.
Cost of software as a percentage of revenue
was 22.5% 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.
Rentals
Rentals revenue decreased 11% compared to the prior year as customers
in the U.S. continued to downsize to smaller, fully featured machines. The weak
economic conditions also impacted our international rental markets,
specifically in Canada and France. Foreign currency translation had an
unfavorable impact of 1%.
Cost of rentals as a percentage of revenue
was 24.5% compared with 21.1% in the prior year primarily due to the fixed
costs of meter depreciation on lower revenues.
Financing
Financing revenue decreased 10% compared to the prior year. Lower
equipment sales over prior periods resulted in a decline in both our U.S. and
international lease portfolios. Foreign currency translation had an unfavorable
impact of 2%.
Financing interest expense as a percentage of
revenue was 14.1% compared with 14.3% in the prior year due to lower interest
rates and lower average borrowings.
Support services
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%.
Cost of support services as a percentage of
revenue was 65.4% compared with 69.9% 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.
Business services
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%.
Cost of business services as a percentage of
revenue was 76.6% compared with 77.2% in the prior year. This improvement was
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 expense decreased $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. As a percentage of
revenue, SG&A expenses were 32.3% compared to 31.5% in the prior year.
Research and development
Research
and development expenses decreased $23 million or 11%, 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
Other interest expense decreased $8 million or 7%, from prior year due
to lower interest rates and lower average borrowings during the year.
19
Income taxes / effective tax rate
The effective tax rate for 2009 and 2008 was 34.6% and 34.3%,
respectively. The effective tax rate for 2009 included $13 million of 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 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.
Discontinued operations
The net loss from discontinued operations was $8 million and $28
million for 2009 and 2008, respectively. The 2009 net loss from discontinued
operations included $6 million, net of tax, for a bankruptcy settlement
received and $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 from discontinued operations is comprised of an accrual of tax and
interest on uncertain tax positions.
Preferred stock
dividends of subsidiaries attributable to noncontrolling interests
Preferred stock dividends to stockholders of
subsidiary companies were $21 million in 2009 and 2008. The 2009 amount also
included $3 million associated with the redemption of $375 million of variable
term voting preferred stock during the year. The 2008 amount
included $2 million associated with the redemption of $10 million of 9.11%
Cumulative Preferred Stock.
Restructuring Charges and Asset Impairments
In 2009, we announced that we were undertaking a series of initiatives
designed to transform and enhance the way we operate as a global company (the
2009 Program). In order to enhance our responsiveness to changing market
conditions, we executed 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.
During 2010, we accelerated several of our initiatives to streamline
processes and make our cost structure more variable to better leverage changing
business conditions. Due to the acceleration of these initiatives and pension
and retiree medical related non-cash charges of $24 million, pre-tax restructuring
charges and asset impairments for the 2009 Program were $183 million in 2010.
Accordingly, we expect our cost range to be $300 million to $350 million.
Additionally, we expect that total net annualized run rate benefits from the
2009 Program to be in the range of $250 million to $300 million by 2012. This
represents a $100 million increase in our projected benefits resulting from
process automation, channel alignment, reduced infrastructure costs and
streamlined product development. See Note 14 to the Consolidated Financial
Statements for further discussion.
Acquisitions
On July 5, 2010, we acquired Portrait Software plc (Portrait) for $65
million in cash, net of cash acquired. Portrait provides software to enhance existing
customer relationship management systems, enabling clients to achieve improved
customer retention and profitability. The acquired goodwill was assigned
to the Software segment. We also completed smaller acquisitions during 2010 for
an aggregate cost of $12 million.
There were no acquisitions during 2009.
In 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. We also completed several smaller
acquisitions for an aggregate cost of $30 million.
The
operating results of these acquisitions have been included in our consolidated
financial statements since the date of acquisition. See Note 1 to the
Consolidated Financial Statements for our business combination accounting
policy and Note 3 for further information regarding these acquisitions.
20
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,
growth and expansion opportunities; internal investments; customer financing;
severance and benefits payments under our restructuring programs; income tax,
interest and dividend payments; pension and other benefit plan funding;
acquisitions; and share repurchases.
We continuously review our liquidity profile. We monitor for material
changes in the creditworthiness of those banks acting as derivative
counterparties, depository banks or credit providers to us through credit
ratings and the credit default swap market. We have determined that there has
not been a material variation in the underlying sources of cash flows currently
used to finance the operations of the company. To date, we have had consistent
access to the commercial paper market.
Cash Flow Summary
|
|
|
|
|
|
|
|
The change
in cash and cash equivalents is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
$
|
952
|
|
$
|
824
|
|
Net cash
used in investing activities
|
|
|
(301
|
)
|
|
(172
|
)
|
Net cash
used in financing activities
|
|
|
(580
|
)
|
|
(626
|
)
|
Effect of
exchange rate changes on cash
|
|
|
1
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Increase in
cash and cash equivalents
|
|
$
|
72
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
2010 Cash Flows
Net
cash provided by operating activities consists primarily of net income adjusted
for non-cash items and changes in operating assets and liabilities. Cash
provided by operating activities included decreases in finance receivables and
accounts receivables of $180 million and $43 million, respectively. Due to
declining equipment sales, finance receivables have declined as strong cash
collections exceed the financing of new business. Similarly, accounts
receivables have declined primarily due to strong cash collections in excess
of new billings. Cash flow also benefited from the proceeds of $32 million
from the unwinding of interest rate swaps and by $59 million due to the timing
of payments of accounts payable, accrued liabilities and income taxes. Partially
offsetting these benefits were restructuring payments of $120 million and an
increase in inventory of $12 million.
Net
cash used in investing activities consisted primarily of the net purchase of
investment securities of $122 million, capital expenditures of $120 million and
acquisitions of $78 million.
Net
cash used in financing activities primarily included net payments on commercial
paper borrowings of $171 million, stock repurchases of $100 million and
dividends paid to common stockholders and noncontrolling interests of $321
million.
2009 Cash Flows
Cash
flow provided by operations for 2009 is primarily due to the decrease in finance receivables and accounts
receivables of $207 million and $84 million, respectively, primarily due to
lower sales volumes, and an increase in current and non-current income taxes of
$86 million due to the timing of tax payments. These cash inflows were
partially offset by a reduction in accounts payable and accrued liabilities of
$127 million, primarily due to timing of payments, voluntary pension plan
contributions of $125 million and restructuring payments of $105 million.
Net cash used in investing activities consisted primarily of capital
expenditures of $167 million.
Net
cash used in financing activities consisted primarily of dividends paid to
common stockholders and noncontrolling interests of $317 million, a net
reduction in 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.
Capital Expenditures
Capital expenditures in 2010 and 2009 included additions to property,
plant and equipment of $61 million and $85 million; respectively, and additions
to rental equipment and related inventories of $59 million and $82 million,
respectively. The decrease in capital expenditures is due to lower new meter
investments and control over capital spending.
21
Financings and
Capitalization
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 in an expedited fashion. We
have a commercial paper program that is a significant source of liquidity for
us and a committed line of credit of $1.25 billion which supports our
commercial paper issuance. The line of credit expires in 2013. We have not
experienced any problems to date in accessing the commercial paper market. As
of December 31, 2010, the line of credit had not been drawn upon.
At
December 31, 2010, we had $50 million of outstanding commercial paper with a
weighted average interest rate of 0.32%. During 2010, borrowings under our
commercial paper program averaged $347 million at a weighted average interest
rate of 0.23%. The maximum amount of commercial paper issued at any point in
time during 2010 was $552 million.
At
December 31, 2009, we had $221 million of outstanding commercial paper with a
weighted average interest rate of 0.09%. During 2009, borrowings under our
commercial paper program averaged $430 million at a weighted average interest
rate of 0.18%. The maximum amount of commercial paper issued at any point in
time during 2009 was $848 million.
In
August 2010, we unwound two interest rate swaps with an aggregate notional
amount of $250 million. These interest rate swaps effectively converted the
fixed rate of 5.6% on $250 million of notes, due 2018, into variable interest
rates. In connection with unwinding these interest rate swaps, we received $32
million, excluding accrued interest. The transaction was not undertaken for
liquidity purposes, but rather to fix our effective interest rate at 3.7% for
the remaining term of the notes as the amount received will be recognized as a
reduction in interest expense over the remaining term of the notes.
There
were no other significant changes to long-term debt during 2010. No long-term
notes will mature in 2011.
We
anticipate making contributions of approximately $130 million and $15 million
to our U.S. and foreign pension plans, respectively during 2011. We will
reassess our funding alternatives as the year progresses.
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.
Contractual Obligations and
Off-Balance Sheet Arrangements
The
following summarizes our known contractual obligations and off-balance sheet
arrangements at December 31, 2010 and
the effect that such obligations are expected to have on our liquidity and cash
flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
50
|
|
$
|
50
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term debt and current portion of long-term debt
|
|
|
4,175
|
|
|
|
|
|
925
|
|
|
850
|
|
|
2,400
|
|
Non-cancelable operating lease obligations
|
|
|
289
|
|
|
99
|
|
|
119
|
|
|
45
|
|
|
26
|
|
Interest payments on debt
|
|
|
1,681
|
|
|
197
|
|
|
374
|
|
|
308
|
|
|
802
|
|
Capital lease obligations
|
|
|
10
|
|
|
4
|
|
|
5
|
|
|
1
|
|
|
|
|
Purchase obligations (1)
|
|
|
276
|
|
|
205
|
|
|
56
|
|
|
15
|
|
|
|
|
Other non-current liabilities (2)
|
|
|
649
|
|
|
|
|
|
121
|
|
|
48
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,130
|
|
$
|
555
|
|
$
|
1,600
|
|
$
|
1,267
|
|
$
|
3,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
22
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
management 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 managements
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. These estimates include, but are not
limited to, allowance for doubtful accounts and credit losses, inventory
obsolescence, residual values of leased assets, useful lives of long-lived
assets and intangible assets, impairment of goodwill, allocation of purchase
price to tangible and intangible assets acquired in business combinations,
warranty obligations, restructuring costs, pensions and other postretirement
benefits and loss contingencies. We believe our assumptions and estimates are
reasonable and appropriate in accordance with GAAP; however, actual results
could differ from those estimates and assumptions.
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. We recognize revenue for delivered
elements only when the fair values of undelivered elements are known and
uncertainties regarding customer acceptance are resolved. Our allocation of the
fair values to the various elements does not change the total revenue
recognized from a transaction, but impacts the timing of revenue recognition.
Revenue is allocated to the meter rental and equipment maintenance agreement
elements first using their respective fair values, which are determined based
on prices charged in standalone and renewal transactions. Revenue is then
allocated to the equipment based on the present value of the remaining minimum
lease payments. We then compare 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.
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 finance receivables. The difference between the finance receivable and
the equipment fair value is recorded as unearned income and is amortized as
income over the lease term using the interest method.
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 believe that our credit risk for accounts receivable is limited
because of our large number of customers, small account balances for most of
our customers and customer geographic and industry diversification. 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
23
prevailing
economic conditions, and make adjustments to our actual aggregate reserve as
necessary. This evaluation is inherently subjective and actual results may
differ significantly from estimated reserves.
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
the customer and the type of equipment financed. Finance receivables are
written-off against the allowance for credit losses after collection efforts
are exhausted and we deem the account uncollectible. We believe that our
concentration of credit risk for finance receivables is limited because of our
large number of customers, small account balances and customer geographic and
industry diversification. Our general policy is to discontinue revenue
recognition for lease receivables when they are delinquent more than 120 days,
and to discontinue revenue recognition on unsecured loan receivables that are
delinquent for more than 90 days. 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 and prevailing economic conditions,
and make adjustments to our actual aggregate reserve as necessary. This
evaluation is inherently subjective and actual results may differ significantly
from estimated reserves.
Accounting for income taxes
We
are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our
annual tax rate is based on our income, statutory tax rates and tax planning
opportunities available to us in the various jurisdictions in which we operate.
Significant judgment is required in determining our annual tax rate and in
evaluating our tax positions.
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 establish reserves when, despite our belief that our
tax return positions are fully supportable, we believe that certain positions
are subject to challenge and possible adjustment. We adjust these reserves, as
well as the related interest, in light of changing facts and circumstances,
such as the progress of a tax audit. 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. Future changes in tax reserve
requirements could have a material impact on our results of operations.
Significant
judgment is also required in determining any valuation allowance recorded
against deferred tax assets. In assessing the need for a valuation allowance,
we consider all available evidence for each jurisdiction including past
operating results, estimates of future taxable income and the feasibility of
ongoing tax planning strategies. As new information becomes available that
would alter our determination as to the amount of deferred tax assets that will
ultimately be realized, we adjust the valuation allowance with a corresponding
impact to income tax expense in the period in which such determination is made.
Based
on our 2010 income from
continuing operations before income taxes, a 1% change in our effective tax
rate would impact income from continuing operations by approximately $5
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 of
three to 15 years for machinery and equipment and up to 50 years for buildings.
We amortize properties leased under capital leases on a straight-line basis
over the primary lease term. We amortize capitalized costs related to
internally developed software using the straight-line method over the estimated
useful life, which is principally three to ten years. Intangible assets with
finite lives are amortized over their estimated useful lives, which are
principally four 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. Changes in the estimates and assumptions incorporated in our long-lived
asset impairment assessment could materially affect
24
the
determination of fair value. During 2010, an asset impairment charge of $4.7
million was recorded related to the impairment of certain intangible assets.
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 derive the cash flow estimates from our historical
experience and our future long-term business plans. We use a combination of
techniques to determine the fair value of our reporting units, including the
present value of future cash flows, multiples of competitors and multiples from
sales of like businesses. Changes in the estimates and assumptions incorporated
in our goodwill impairment assessment could materially affect the determination
of fair value and/or goodwill impairment for each reporting unit.
The
calculated fair value of each of our reporting units was based on a combination
of inputs and assumptions, including projections of future cash flows, discount
rates, growth rates and applicable multiples of competitors and multiples from
sales of like businesses. For 2010, the calculated fair values for all of our
reporting units were considered substantially in excess of the respective
reporting units carrying value. Accordingly, no goodwill impairment was
identified or recorded. However, future events and circumstances, some of which
are described below, may result in an impairment charge:
|
|
|
Future economic results
that are below our expectations used in the current assessments;
|
|
|
|
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; or
|
|
|
|
Changes in our business strategy that alters the expected usage
of the related assets.
|
Pension benefits
Assumptions and estimates
The
valuation and calculation of our net pension expense, assets and obligations
are dependent on assumptions and estimates relating to discount rate, rate of
compensation increase and expected return on plan assets. These assumptions are
evaluated and updated annually and are described in further detail in Note 19
to the Consolidated Financial Statements.
The
weighted average assumptions for our largest plan, the U.S. Qualified Pension
Plan, and our largest foreign plan, the U.K. Qualified Pension Plan, for 2010
and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plan
|
|
U.K. Plan
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
5.60
|
%
|
|
|
|
5.75
|
%
|
|
|
|
5.30
|
%
|
|
|
|
5.70
|
%
|
|
Rate of compensation increase
|
|
|
|
3.50
|
%
|
|
|
|
3.50
|
%
|
|
|
|
3.50
|
%
|
|
|
|
3.50
|
%
|
|
Expected return on plan assets
|
|
|
|
8.00
|
%
|
|
|
|
8.00
|
%
|
|
|
|
7.25
|
%
|
|
|
|
7.50
|
%
|
|
U.S. Plan
The
discount rate for our U.S. pension plans is determined by matching the expected
cash flows associated with our benefit obligations to a yield curve based on
long-term, high quality fixed income debt instruments available as of the
measurement date. In 2010, we reduced the population of bonds used to derive
this yield curve with the adoption of a bond matching approach which
incorporates a selection of bonds that align with our projected benefit
obligations. We believe this bond matching approach more closely reflects the
process we would employ to settle our pension obligations. The rate of
compensation increase assumption reflects our actual experience and best
estimate of future increases. 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.
U.K. 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. The rate of compensation increase
assumption reflects our actual experience and best estimate of future
increases.
25
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.
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 $3.0 million and would lower the projected benefit
obligation by $43.5 million.
|
|
|
|
|
|
Rate
of compensation increase a 0.25% increase in the rate of compensation
increase would increase annual pension expense by approximately $0.1 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
$3.7 million.
|
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 $16.0 million.
|
|
|
|
|
|
Rate
of compensation increase a 0.25% increase in the rate of compensation
increase would increase annual pension expense by approximately $0.5 million.
|
|
|
|
|
|
Expected
return on plan assets a 0.25% increase in the expected return on assets of
our principal plans would decrease annual pension expense by approximately
$0.8 million.
|
Delayed recognition principles
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 future pension expense. We also base our
net pension expense primarily on a market related valuation of plan assets.
Under this approach, differences between the actual and expected return on plan
assets are recognized over a five-year period and will also impact future
pension expense.
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, 2010 was approximately 57% equity
securities, 34% fixed income securities and 9% real estate and private equity
investments. The composition of our U.K. pension plan assets at December 31,
2010 was approximately 68% equity securities, 29% fixed income securities and
3% 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 investment securities, it is reasonably possible that change in
the value of such investment securities will occur and that such changes could
materially affect our future results.
New Accounting Pronouncements
In
2010, we adopted guidance that increases disclosures regarding the credit
quality of an entitys financing receivables and its allowance for credit
losses. The guidance also requires an entity to disclose credit quality
indicators, past due information, and modifications of its financing
receivables. The adoption of this guidance resulted in additional disclosures
but did not have an impact on our consolidated financial statements. See Note
17 to the Consolidated Financial Statements.
In
September 2009, new guidance was introduced addressing the accounting for
revenue arrangements with multiple elements and certain revenue arrangements
that include software. The guidance allows companies to allocate consideration
in a multiple element arrangement in a way that better reflects the economics
of the transaction and eliminates 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 became effective on January 1, 2011 and is not
expected to have a material impact on our financial position, results of
operations or cash flows.
Legal and Regulatory Matters
Legal
See
Legal Proceedings in Item 3 of this Form 10-K for information regarding our
legal proceedings.
Other regulatory matters
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
26
completed within the next year and the examination of years 2005-2008
within the next two years. In connection with the 2001-2004 exam, we have
received notices of proposed adjustments to our filed returns and the IRS has
withdrawn a civil summons to provide certain company workpapers. Tax reserves
have been established which we believe to be appropriate given the possibility
of tax adjustments. A variety of post-2000 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. See Note 9 to the Consolidated
Financial Statements.
We are currently undergoing unclaimed property audits, which are being
conducted by several states.
Effects of Inflation and Foreign Exchange
Inflation
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, introduction of new products and expense reductions.
Foreign Exchange
During 2010, approximately 30% of our revenue and 35% of pre-tax income
from continuing operations were derived from operations outside of the U.S.
Currency translation increased our 2010 revenue and pre-tax income from
continuing operations by less than 1%. 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 pre-tax income from continuing operations of approximately $2 million.
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 deficit in the Consolidated Balance Sheets. Changes in
the value of the U.S. dollar relative to the currencies of countries in which
we operate impact our reported assets, liabilities, revenue and expenses.
Exchange rate fluctuations can also impact the settlement of intercompany
receivables and payables from the transfer of finished goods inventories
between our affiliates in different countries, and intercompany loans.
To mitigate the risk of foreign currency exchange rate fluctuations, we
enter into foreign exchange contracts. These derivative contracts expose us to
counterparty credit risk. To mitigate this risk, 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. At
December 31, 2010, the fair value of our outstanding foreign exchange contracts
was a net liability of $4 million.
During 2010, deferred translation losses of $16 million were recorded
primarily resulting from the strengthening of the U.S. dollar as compared to
the British pound and Euro, partially offset by a weakening of the U.S. dollar
as compared to the Canadian dollar. In 2009, deferred translation gains of $120
million were recorded as the U.S. dollar weakened against the British pound,
Euro and Canadian dollar. Deferred translation gains and losses are recorded as
a component of accumulated other comprehensive income and do not affect
earnings.
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.
27
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.
Our objective in managing our exposure to changing interest rates is to
limit the volatility and impact of changing interest rates on earnings and cash
flows. To achieve these objectives, we use a balanced mix of debt maturities and
interest rate swaps that convert the fixed rate interest payments on certain
debt issuances to variable rates.
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 2010 and 2009, 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.
28
I
TEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Supplemental Data
on Page 36 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 (CEO) and Chief
Financial Officer (CFO), we evaluated our disclosure controls and procedures
(as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the Exchange Act)) and internal control over financial
reporting. Our CEO and CFO concluded that such disclosure controls and
procedures were effective as of December 31, 2010, 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, 2010.
Managements Report on Internal Control over
Financial Reporting
Management 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. Our 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 our internal control over
financial reporting as of December 31, 2010. 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 our internal control over
financial reporting and testing of the operational effectiveness of our
internal control over financial reporting. Based on its assessment, management
concluded that, as of December 31, 2010, our 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
our financial statements included in this Form 10-K, has issued an attestation
report on our internal control over financial reporting, which report is
included on page 37 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, 2010, that have materially
affected, or are reasonably likely to materially affect, such internal control
over financial reporting.
I
TEM 9B. OTHER
INFORMATION
None.
29
P
ART III
I
TEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information pertaining
to our Directors and the members of 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 our 2011 Annual Meeting of
Stockholders, which is scheduled to be held on May 9, 2011. Such Definitive
Proxy Statement will be filed with the Commission on or before March 31, 2011 and
is incorporated herein by reference. Our executive officers are as follows:
Executive Officers of the Registrant as of
February 15, 2011
|
|
|
|
|
|
|
|
Name
|
|
|
Age
|
|
Title
|
|
Executive
Officer Since
|
|
|
|
|
|
|
|
|
Murray
D. Martin
|
|
63
|
|
Chairman, President and
Chief Executive Officer
|
|
1998
|
|
|
|
|
|
|
|
Leslie
Abi-Karam
|
|
52
|
|
Executive Vice President
and President, Mailing Solutions Management
|
|
2005
|
|
|
|
|
|
|
|
Gregory
E. Buoncontri
|
|
63
|
|
Executive Vice President
and Chief Information Officer
|
|
2000
|
|
|
|
|
|
|
|
Michael Monahan
|
|
50
|
|
Executive
Vice President and Chief Financial Officer
|
|
2005
|
|
|
|
|
|
|
|
Vicki A. OMeara
|
|
53
|
|
Executive
Vice President and President, Pitney Bowes Management Services &
Government and Postal Affairs
|
|
2008
|
|
|
|
|
|
|
|
Daniel J. Goldstein
|
|
49
|
|
Executive
Vice President and Chief Legal and Compliance Officer
|
|
2010
|
|
|
|
|
|
|
|
Joseph H. Timko
|
|
50
|
|
Executive
Vice President and Chief Strategy and Innovation Officer
|
|
2010
|
|
|
|
|
|
|
|
Johnna G. Torsone
|
|
60
|
|
Executive
Vice President and Chief Human Resources Officer
|
|
1993
|
There is no family
relationship among the above officers. All of the officers have served in
various corporate, division or subsidiary positions with the Company for at
least the past five years except as described below:
Mr. Goldstein re-joined the
Company in October 2010 as Executive Vice President and Chief Legal and
Compliance Officer. From September 2008 until October 2010, Mr. Goldstein
served as the Senior Vice President and General Counsel for GAF Materials
Corporation and International Specialty Products, ISP Materials, a group of
privately held, commonly owned companies in the building materials, chemicals
and mining industries. Mr. Goldstein originally joined Pitney Bowes in 1999 as
Associate General Counsel and was appointed Vice President, Deputy General
Counsel in 2005.
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.
Ms. OMeara joined the
Company in June 2008 as Executive Vice President and Chief Legal and Compliance
Officer. In July 2010, Ms. OMeara became Executive Vice President and
President, Pitney Bowes Management Services & Government and Postal
Affairs, relinquishing her responsibilities as the 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.
30
I
TEM 11.
EXECUTIVE COMPENSATION
The sections
entitled Directors Compensation, Compensation Discussion and Analysis, and
Executive Compensation Tables and Related Narrative of our Definitive Proxy
Statement to be filed with the Commission on or before March 31, 2011 in
connection with our 2011 Annual Meeting of Stockholders are incorporated herein
by reference.
|
|
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, 2010 regarding the number of
shares of common stock that may be issued under our 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
|
|
|
16,143,764
|
|
$
|
36.18
|
|
|
17,458,044
|
|
Equity
compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,143,764
|
|
$
|
36.18
|
|
|
17,458,044
|
|
|
|
|
|
|
|
|
|
|
|
|
The sections
entitled Security Ownership of Directors and Executive Officers and
Beneficial Ownership of our Definitive Proxy Statement to be filed with the
Commission on or before March 31, 2011 in connection with our 2011 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 our Definitive Proxy Statement to be filed with the Commission
on or before March 31, 2011 in connection with our 2011 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 our Definitive Proxy
Statement to be filed with the Commission on or before March 31, 2011 in
connection with our 2011 Annual Meeting of Stockholders is incorporated herein
by reference.
31
P
ART IV
I
TEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
1.
|
Financial statements - see Item 8 on page 29 and Index
to Consolidated Financial Statements and Supplemental Data on page 36 of this
Form 10-K.
|
|
|
2.
|
Financial statement schedules - see Index to
Consolidated Financial Statements and Supplemental Data on page 36 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)
|
|
|
|
|
|
(a.2)
|
|
Certificate
of Amendment to the Restated Certificate of Incorporation (as amended March
27, 1998)
|
|
Incorporated
by reference to Exhibit (3)(a.2) to Form 8-K as filed with the Commission on
May 12, 2010. (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)
|
|
|
|
|
|
(b.1)
|
|
Amendment to the Pitney
Bowes Inc. Amended and Restated By-laws (effective as of May 10, 2010)
|
|
Incorporated
by reference to Exhibit (3)(b.1) to Form 8-K as filed with the Commission on
May 12, 2010. (Commission file number 1-3579)
|
|
|
|
|
|
(4)(a)
|
|
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.
|
|
|
|
|
|
(b)
|
|
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.
|
|
|
|
|
|
(c)
|
|
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.
|
|
|
|
|
|
(d)
|
|
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)
|
|
|
|
|
|
(e)
|
|
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)
|
32
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)
|
|
|
|
|
|
(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)
|
|
Incorporated
by reference to Exhibit (v) to Form 10-K as filed with the Commission on
February 26, 2010. (Commission file number 1-3579)
|
|
|
|
|
|
(d)
|
|
Pitney
Bowes Inc. Key Employees Incentive Plan (as amended and restated October 1,
2007)(as amended November 7, 2009)
|
|
Incorporated
by reference to Exhibit (iv) to Form 10-K as filed with the Commission on
February 26, 2010. (Commission file number 1-3579)
|
|
|
|
|
|
(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)
|
33
|
|
|
|
|
(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)
|
|
|
|
|
|
(o)
|
|
Compensation
arrangement for Vicki OMeara dated June 1, 2010
|
|
Incorporated
by reference to Exhibit 10(a) to Form 10-Q as filed with the Commission on
August 5, 2010. (Commission file number 1-3579)
|
|
|
|
|
|
(p)
|
|
Separation
(Compromise) Agreement dated December 30, 2010, by and between Patrick Keddy
and Pitney Bowes Limited
|
|
Exhibit
(iv)
|
Other
:
|
|
|
|
|
(q)
|
|
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.
|
|
Exhibit
31.1
|
|
|
|
|
|
(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.
|
|
Exhibit
31.2
|
|
|
|
|
|
(32.1)
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
Exhibit
32.1
|
|
|
|
|
|
(32.2)
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
Exhibit
32.2
|
34
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 25, 2011
|
|
|
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 25, 2011
|
|
|
|
|
|
Murray D. Martin
|
|
|
|
|
|
|
|
|
|
/s/ Michael Monahan
|
|
Executive Vice President and Chief Financial Officer
|
|
February 25, 2011
|
|
|
(Principal Financial Officer)
|
|
|
Michael Monahan
|
|
|
|
|
|
|
|
|
|
/s/ Steven J. Green
|
|
Vice PresidentFinance and Chief Accounting
|
|
February 25, 2011
|
|
|
Officer (Principal Accounting Officer)
|
|
|
Steven J. Green
|
|
|
|
|
|
|
|
|
|
/s/ Rodney C. Adkins
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Rodney C. Adkins
|
|
|
|
|
|
|
|
|
|
/s/ Linda G. Alvarado
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Linda G. Alvarado
|
|
|
|
|
|
|
|
|
|
/s/ Anne M. Busquet
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Anne M. Busquet
|
|
|
|
|
|
|
|
|
|
/s/ Anne Sutherland Fuchs
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Anne Sutherland Fuchs
|
|
|
|
|
|
|
|
|
|
/s/ Ernie Green
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Ernie Green
|
|
|
|
|
|
|
|
|
|
/s/ James H. Keyes
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
James H. Keyes
|
|
|
|
|
|
|
|
|
|
/s/ Eduardo R. Menascé
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Eduardo R. Menascé
|
|
|
|
|
|
|
|
|
|
/s/ Michael I. Roth
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Michael I. Roth
|
|
|
|
|
|
|
|
|
|
/s/ David L. Shedlarz
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
David L. Shedlarz
|
|
|
|
|
|
|
|
|
|
/s/ David B. Snow, Jr.
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
David B. Snow, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Robert E. Weissman
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
Robert E.
Weissman
|
|
|
|
|
35
PITNEY BOWES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
36
RE
PORT 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, 2010 and
2009, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2010 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, 2010,
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.
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.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 25, 2011
37
PITNEY BOWES INC.
CONSOLIDATED
STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
1,030,416
|
|
$
|
1,006,542
|
|
$
|
1,252,058
|
|
Supplies
|
|
|
318,430
|
|
|
336,239
|
|
|
392,414
|
|
Software
|
|
|
382,366
|
|
|
365,185
|
|
|
424,296
|
|
Rentals
|
|
|
600,759
|
|
|
647,432
|
|
|
728,160
|
|
Financing
|
|
|
637,948
|
|
|
694,444
|
|
|
772,711
|
|
Support services
|
|
|
711,519
|
|
|
714,429
|
|
|
768,424
|
|
Business services
|
|
|
1,743,816
|
|
|
1,804,900
|
|
|
1,924,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
5,425,254
|
|
|
5,569,171
|
|
|
6,262,305
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
|
476,390
|
|
|
455,976
|
|
|
574,201
|
|
Cost of supplies
|
|
|
97,172
|
|
|
93,660
|
|
|
103,870
|
|
Cost of software
|
|
|
86,159
|
|
|
82,241
|
|
|
101,357
|
|
Cost of rentals
|
|
|
141,465
|
|
|
158,881
|
|
|
153,831
|
|
Financing interest expense
|
|
|
88,292
|
|
|
97,586
|
|
|
110,136
|
|
Cost of support services
|
|
|
451,609
|
|
|
467,279
|
|
|
536,974
|
|
Cost of business services
|
|
|
1,337,236
|
|
|
1,382,401
|
|
|
1,485,703
|
|
Selling, general and administrative
|
|
|
1,760,677
|
|
|
1,800,714
|
|
|
1,970,868
|
|
Research and development
|
|
|
156,371
|
|
|
182,191
|
|
|
205,620
|
|
Restructuring charges and asset impairments
|
|
|
182,274
|
|
|
48,746
|
|
|
200,254
|
|
Other interest expense
|
|
|
115,619
|
|
|
111,269
|
|
|
119,207
|
|
Interest income
|
|
|
(2,587
|
)
|
|
(4,949
|
)
|
|
(12,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,890,677
|
|
|
4,875,995
|
|
|
5,549,128
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
534,577
|
|
|
693,176
|
|
|
713,177
|
|
Provision for income taxes
|
|
|
205,770
|
|
|
240,154
|
|
|
244,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
328,807
|
|
|
453,022
|
|
|
468,248
|
|
Loss from discontinued operations, net of income tax
|
|
|
(18,104
|
)
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of noncontrolling interests
|
|
|
310,703
|
|
|
444,913
|
|
|
440,548
|
|
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
|
|
|
18,324
|
|
|
21,468
|
|
|
20,755
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
292,379
|
|
$
|
423,445
|
|
$
|
419,793
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
310,483
|
|
$
|
431,554
|
|
$
|
447,493
|
|
Loss from discontinued operations
|
|
|
(18,104
|
)
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
292,379
|
|
$
|
423,445
|
|
$
|
419,793
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to common stockholders (1):
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.51
|
|
$
|
2.09
|
|
$
|
2.15
|
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.42
|
|
$
|
2.05
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to common stockholders (1):
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.50
|
|
$
|
2.08
|
|
$
|
2.13
|
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.41
|
|
$
|
2.04
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The sum of the earnings per
share amounts may not equal the totals due to rounding.
|
See Notes to Consolidated Financial Statements
38
PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
484,363
|
|
$
|
412,737
|
|
Short-term investments
|
|
|
30,609
|
|
|
14,682
|
|
|
|
|
|
|
|
|
|
Accounts receivables, gross
|
|
|
824,015
|
|
|
859,633
|
|
Allowance for doubtful accounts receivables
|
|
|
(31,880
|
)
|
|
(42,781
|
)
|
|
|
|
|
|
|
|
|
Accounts receivables, net
|
|
|
792,135
|
|
|
816,852
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
1,370,305
|
|
|
1,417,708
|
|
Allowance for credit losses
|
|
|
(48,709
|
)
|
|
(46,790
|
)
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
1,321,596
|
|
|
1,370,918
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
168,967
|
|
|
156,502
|
|
Current income taxes
|
|
|
103,542
|
|
|
101,248
|
|
Other current assets and prepayments
|
|
|
107,029
|
|
|
98,297
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,008,241
|
|
|
2,971,236
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
426,501
|
|
|
514,904
|
|
Rental property and equipment, net
|
|
|
300,170
|
|
|
360,207
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
1,265,220
|
|
|
1,380,810
|
|
Allowance for credit losses
|
|
|
(20,721
|
)
|
|
(25,368
|
)
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
1,244,499
|
|
|
1,355,442
|
|
|
|
|
|
|
|
|
|
Investment in leveraged leases
|
|
|
251,006
|
|
|
233,359
|
|
Goodwill
|
|
|
2,306,793
|
|
|
2,286,904
|
|
Intangible assets, net
|
|
|
297,443
|
|
|
316,417
|
|
Non-current income taxes
|
|
|
130,601
|
|
|
145,388
|
|
Other assets
|
|
|
478,769
|
|
|
387,182
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,444,023
|
|
$
|
8,571,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, NONCONTROLLING
INTERESTS AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,825,261
|
|
$
|
1,748,254
|
|
Current income taxes
|
|
|
192,924
|
|
|
144,385
|
|
Notes payable and current portion of long-term obligations
|
|
|
53,494
|
|
|
226,022
|
|
Advance billings
|
|
|
481,900
|
|
|
447,786
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,553,579
|
|
|
2,566,447
|
|
|
|
|
|
|
|
|
|
Deferred taxes on income
|
|
|
261,118
|
|
|
347,402
|
|
Tax uncertainties and other income tax liabilities
|
|
|
536,531
|
|
|
525,253
|
|
Long-term debt
|
|
|
4,239,248
|
|
|
4,213,640
|
|
Other non-current liabilities
|
|
|
653,758
|
|
|
625,079
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,244,234
|
|
|
8,277,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests (Preferred stockholders equity in
subsidiaries)
|
|
|
296,370
|
|
|
296,370
|
|
Commitments and contingencies (See Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
Cumulative preferred stock, $50 par value, 4% convertible
|
|
|
4
|
|
|
4
|
|
Cumulative preference stock, no par value, $2.12 convertible
|
|
|
752
|
|
|
868
|
|
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912
shares issued)
|
|
|
323,338
|
|
|
323,338
|
|
Additional paid-in capital
|
|
|
250,928
|
|
|
256,133
|
|
Retained earnings
|
|
|
4,282,316
|
|
|
4,291,393
|
|
Accumulated other comprehensive loss
|
|
|
(473,806
|
)
|
|
(459,792
|
)
|
Treasury stock, at cost (119,906,910 and 116,140,084 shares,
respectively)
|
|
|
(4,480,113
|
)
|
|
(4,415,096
|
)
|
|
|
|
|
|
|
|
|
Total Pitney Bowes Inc. stockholders deficit
|
|
|
(96,581
|
)
|
|
(3,152
|
)
|
|
|
|
|
|
|
|
|
Total liabilities, noncontrolling interests and stockholders deficit
|
|
$
|
8,444,023
|
|
$
|
8,571,039
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
39
PITNEY BOWES INC.
C
ONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Months Ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution
of noncontrolling interests
|
|
$
|
310,703
|
|
$
|
444,913
|
|
$
|
440,548
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges and asset
impairments, net of tax
|
|
|
122,893
|
|
|
31,782
|
|
|
144,211
|
|
Restructuring payments
|
|
|
(119,565
|
)
|
|
(105,090
|
)
|
|
(102,680
|
)
|
Proceeds (payments) for
settlement of derivative instruments
|
|
|
31,774
|
|
|
(20,281
|
)
|
|
43,991
|
|
Depreciation and amortization
|
|
|
303,653
|
|
|
338,895
|
|
|
379,117
|
|
Stock-based compensation
|
|
|
20,111
|
|
|
22,523
|
|
|
26,402
|
|
Special pension plan
contributions
|
|
|
|
|
|
(125,000
|
)
|
|
|
|
Changes in operating assets and
liabilities, excluding effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts
receivables
|
|
|
43,204
|
|
|
84,182
|
|
|
(23,690
|
)
|
(Increase) decrease in finance
receivables
|
|
|
180,352
|
|
|
206,823
|
|
|
24,387
|
|
(Increase) decrease in
inventories
|
|
|
(11,913
|
)
|
|
12,187
|
|
|
2,018
|
|
(Increase) decrease in prepaid,
deferred expense and other assets
|
|
|
(8,658
|
)
|
|
(15,036
|
)
|
|
6,001
|
|
Increase (decrease) in accounts
payable and accrued liabilities
|
|
|
28,766
|
|
|
(127,256
|
)
|
|
(76,880
|
)
|
Increase (decrease) in current
and non-current income taxes
|
|
|
30,211
|
|
|
85,632
|
|
|
122,480
|
|
Increase (decrease) in advance
billings
|
|
|
11,430
|
|
|
(2,744
|
)
|
|
2,051
|
|
Increase (decrease) in other
operating capital, net
|
|
|
9,150
|
|
|
(7,462
|
)
|
|
21,459
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
952,111
|
|
|
824,068
|
|
|
1,009,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Short-term and other
investments
|
|
|
(122,464
|
)
|
|
(8,362
|
)
|
|
35,652
|
|
Proceeds from the sale of a
facility
|
|
|
12,595
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(119,768
|
)
|
|
(166,728
|
)
|
|
(237,308
|
)
|
Net investment in external
financing
|
|
|
(4,718
|
)
|
|
1,456
|
|
|
1,868
|
|
Acquisitions, net of cash
acquired
|
|
|
(77,537
|
)
|
|
|
|
|
(67,689
|
)
|
Reserve account deposits
|
|
|
10,399
|
|
|
1,664
|
|
|
33,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(301,493
|
)
|
|
(171,970
|
)
|
|
(234,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in notes
payable, net
|
|
|
(170,794
|
)
|
|
(389,666
|
)
|
|
205,590
|
|
Proceeds from long-term
obligations
|
|
|
|
|
|
297,513
|
|
|
245,582
|
|
Principal payments on long-term
obligations
|
|
|
|
|
|
(150,000
|
)
|
|
(576,565
|
)
|
Proceeds from issuance of
common stock
|
|
|
11,423
|
|
|
11,962
|
|
|
20,154
|
|
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
|
|
|
(100,000
|
)
|
|
|
|
|
(333,231
|
)
|
Dividends paid to stockholders
|
|
|
(301,456
|
)
|
|
(297,555
|
)
|
|
(291,611
|
)
|
Dividends paid to
noncontrolling interests
|
|
|
(19,141
|
)
|
|
(19,485
|
)
|
|
(20,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(579,968
|
)
|
|
(625,861
|
)
|
|
(760,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
|
976
|
|
|
9,829
|
|
|
(14,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
71,626
|
|
|
36,066
|
|
|
(505
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
412,737
|
|
|
376,671
|
|
|
377,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period
|
|
$
|
484,363
|
|
$
|
412,737
|
|
$
|
376,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$
|
191,880
|
|
$
|
195,256
|
|
$
|
235,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash income taxes paid, net
|
|
$
|
231,550
|
|
$
|
197,925
|
|
$
|
164,354
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes
to Consolidated Financial Statements
40
PITNEY BOWES INC.
C
ONSOLIDATED STATEMENTS OF STOCKHOLDERS 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, 2007
|
|
$
|
7
|
|
$
|
1,003
|
|
$
|
323,338
|
|
$
|
252,185
|
|
|
|
|
$
|
4,051,722
|
|
$
|
88,656
|
|
$
|
(4,155,642
|
)
|
Tax adjustment (see Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,401
|
)
|
|
(2,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,037,321
|
|
|
86,242
|
|
|
|
|
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
|
|
|
|
|
|
4,165,503
|
|
|
(598,755
|
)
|
|
(4,453,969
|
)
|
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
|
|
|
|
|
|
4,291,393
|
|
|
(459,792
|
)
|
|
(4,415,096
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,379
|
|
|
292,379
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,685
|
)
|
|
|
|
|
(15,685
|
)
|
|
|
|
Net unrealized gain on derivative
instruments, net of tax of $0.8 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,293
|
|
|
|
|
|
1,293
|
|
|
|
|
Net unrealized loss on investment
securities, net of tax of $0.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
790
|
|
|
|
|
|
790
|
|
|
|
|
Net unamortized loss on pension and
postretirement plans, net of tax of $(17.2) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,710
|
)
|
|
|
|
|
(28,710
|
)
|
|
|
|
Amortization of pension and postretirement
costs, net of tax of $16.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,298
|
|
|
|
|
|
28,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
278,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(301,391
|
)
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(24,039
|
)
|
|
|
|
|
|
|
|
|
|
|
33,249
|
|
Conversions to common stock
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
(1,618
|
)
|
|
|
|
|
|
|
|
|
|
|
1,734
|
|
Pre-tax stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
20,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to additional paid in capital,
tax effect from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2010
|
|
$
|
4
|
|
$
|
752
|
|
$
|
323,338
|
|
$
|
250,928
|
|
|
|
|
$
|
4,282,316
|
|
$
|
(473,806
|
)
|
$
|
(4,480,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
41
PITNEY
BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEM
ENTS
(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 mail processing equipment and integrated mail solutions to
organizations of all sizes. We offer a full suite of equipment, supplies,
software, services and solutions for managing and integrating physical and
digital communication channels. We conduct our business activities in seven
reporting segments within two business groups: Small & Medium Business
Solutions and Enterprise Business Solutions. See Note 18 for information
regarding our reportable segments.
Basis of
Presentation and Consolidation
The accompanying
financial statements have been prepared 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..
Reclassification
Certain prior
year amounts have been reclassified to conform to the current year
presentation.
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. These estimates include, but are not limited to,
allowance for doubtful accounts and credit losses, inventory obsolescence,
residual values of leased assets, useful lives of long-lived assets and
intangible assets, impairment of goodwill, allocation of purchase price to
tangible and intangible assets acquired in business combinations, warranty
obligations, restructuring costs, pensions and other postretirement benefits
and loss contingencies. As a result, actual results could differ from those
estimates and assumptions.
Cash
Equivalents and Investments
Cash equivalents
include short-term, highly liquid investments with maturities of three months
or less at the date of purchase. Short-term investments include highly liquid
investments with maturities of greater than three months but less than one year
from the reporting date. Investments with maturities greater than one year from the reporting date are recorded as Other assets. Our investments are predominantly classified as available-for-sale.
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, small account balances for most of
our customers and customer geographic and industry diversification. 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,
and make adjustments to our actual aggregate reserve as necessary. This
evaluation is inherently subjective and actual results may differ significantly
from estimated reserves.
Finance
Receivables and Allowance for Credit Losses
Finance
receivables are predominantly from the sales of products and are composed of
sales-type lease receivables and unsecured revolving loan receivables. We
estimate our finance receivables risks and provide allowances for credit losses
accordingly. We establish credit approval limits based on the credit quality of
the customer and the type of equipment financed. Finance receivables are
written-off against the allowance for credit losses after collection efforts
are exhausted and we deem the account uncollectible. We believe that our
concentration of credit risk for finance receivables is limited because of our
large number of customers, small account balances and customer geographic and
industry diversification.
Our general
policy is to discontinue revenue recognition for lease receivables that are
delinquent more than 120 days, and to discontinue revenue recognition on
unsecured loan receivables that are delinquent for more than 90 days. We resume
revenue recognition when customer payments reduce the account balance aging to
60 days or less past due.
We evaluate the
adequacy of the 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, and
make adjustments to
42
PITNEY
BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
our actual
aggregate reserve as necessary. This evaluation is inherently subjective and
actual results may differ significantly from estimated reserves. See Note 17
for further information.
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, three to 15 years; and computer
equipment, three to five 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 earnings.
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 three to 10 years.
Costs incurred
for the development of software to be sold, leased, or otherwise marketed 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
products estimated useful life, principally three to five years, generally on
a straight-line basis. Other assets on our Consolidated Balance Sheets include
$19.9 million and $23.2 million of capitalized software development costs at
December 31, 2010 and 2009, respectively. The Consolidated Statements of Income
include the related amortization expense of $8.0 million, $10.4 million and $6.1
million for the years ended December 31, 2010, 2009, and 2008, respectively.
Total software development costs capitalized in 2010 and 2009 were $6.3 million
and $9.2 million, respectively.
Research and
Development Costs
Research and
product development costs are expensed as incurred. These costs primarily
include personnel-related costs.
Business
Combinations
We account for
business combinations using the acquisition method of accounting, which
requires that the assets acquired and liabilities assumed be recorded at the
date of acquisition at their respective fair values. The fair value of
intangible assets is estimated 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. Finite-lived intangible
assets are amortized over their estimated useful lives, principally three to 15
years, using either the straight-line method or an accelerated attrition
method.
Impairment
Review for Long-lived Assets
Long-lived
assets are reviewed for impairment on an annual basis or whenever events or
changes in circumstances indicate that the carrying amount may not be fully
recoverable. If such a change in circumstances occurs, the related estimated
future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition is compared to the carrying amount. If the sum of the
expected cash flows is less than the carrying amount, an impairment charge is
recorded. The impairment charge is measured as the amount by which the carrying
amount exceeds the fair value of the asset. The fair value of the impaired
asset is determined using probability weighted expected cash flow estimates,
quoted market prices when available and appraisals, as appropriate.
Impairment
Review for Goodwill and Intangible Assets
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
43
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, multiples of competitors and multiples
from sales of like businesses.
Intangible
assets are reviewed for impairment 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, an impairment charge is recorded. 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
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 future pension expense. Net pension expense includes
current service costs, interest costs and returns on plan assets. We also base
net pension expense primarily on a market related valuation of plan assets.
Under 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
Consolidated Balance Sheets. 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 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 measure
compensation cost for stock-based awards exchanged for employee service 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. See Note 12 for further details.
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. 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. More specifically, revenue related to our
offerings is recognized as follows:
44
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 upon shipment. We recognize revenue from the sale
of equipment under sales-type leases as equipment revenue at the inception of
the lease. 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.
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 generally
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 generally 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 three months to
five 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 $36.7 million and $45.2 million of
these deferred costs at December 31, 2010 and 2009, respectively. The
Consolidated Statements of Income include the related amortization expense of
$26.6 million, $25.1 million and $27.7 million for the years ended December 31,
2010, 2009 and 2008, respectively.
Financing
Revenue
We provide
financing to our customers for the purchase of our products. Equipment sales
are financed primarily through sales-type leases. We also provide revolving
lines of credit to our customers for the purchase of postage and related
supplies. Financing revenue includes interest which is earned over the term of
the lease or loan and related fees which are recognized as services are
provided. When a sales-type lease is consummated, we record the finance
receivable, unearned income and 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 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.
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 one to five years in length.
45
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 one to five 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.
Shipping and Handling
We include costs related to shipping and handling in cost of revenues
for all periods presented.
Product Warranties
We provide product warranties in conjunction with the sale of certain
products, generally for a period of 90 days from the date of installation. We
estimate our liability for product warranties based on historical claims
experience and other currently available evidence. Our product warranty
liability at December 31, 2010 and 2009 was not material.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, Internet, and retail
marketing costs, associated with the acquisition of new customers. These costs
are amortized over the expected revenue stream ranging from five to nine years.
We review individual marketing programs for impairment on a periodic basis or
as circumstances warrant. Other assets on the Consolidated Balance Sheets
include deferred marketing costs of $106.3 million and $119.5 million at
December 31, 2010 and 2009, respectively. The Consolidated Statements of Income
include the related amortization expense of $38.5 million, $43.5 million and
$43.1 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
Restructuring Charges
Costs associated with exit or disposal activities and restructurings
are recognized when the liability is incurred. The cost and related liability
for one-time benefit arrangements is 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.
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 deficit in the Consolidated Balance Sheets.
Derivative Instruments
In the normal course of business, we are exposed to the impact of
changes in interest rates and foreign currency exchange rates. We limit these
risks by following established risk management policies and procedures,
including the use of derivatives.
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
We use derivative instruments to manage the related cost of debt and to
limit the effects of foreign exchange rate fluctuations on financial results.
Derivative instruments typically consist of forward contracts, interest-rate
swaps, and currency swaps depending upon the underlying exposure. We do not use
derivatives for trading or speculative purposes. We record our derivative
instruments at fair value, and the accounting for changes in the fair value of
the derivatives 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.
The use of derivative instruments exposes us to counterparty credit
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 for additional
disclosures on derivative instruments.
New Accounting Pronouncements
In 2010, we adopted guidance that increases disclosures regarding the
credit quality of an entitys financing receivables and its allowance for
credit losses. The guidance also requires an entity to disclose credit quality
indicators, past due information, and modifications of its financing
receivables. The adoption of this guidance resulted in additional disclosures
(see Note 17) but did not have an impact on our consolidated financial
statements.
In September 2009, new guidance was introduced addressing the
accounting for revenue arrangements with multiple elements and certain revenue
arrangements that include software. The guidance allows companies to allocate
consideration in a multiple element arrangement in a way that better reflects
the economics of the transaction and eliminates 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 became effective on January 1, 2011 and is not
expected to have a material impact on our financial position, results of
operations or cash flows.
2. Discontinued Operations
The following table shows selected financial information included in
discontinued operations for the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Pre-tax income
|
|
$
|
754
|
|
$
|
20,624
|
|
$
|
|
|
Tax provision
|
|
|
(18,858
|
)
|
|
(28,733
|
)
|
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of
tax
|
|
$
|
(18,104
|
)
|
$
|
(8,109
|
)
|
$
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The net loss in 2010 primarily relates to the accrual of interest on
uncertain tax positions and additional tax associated with the discontinued
operations. The net loss in 2009 includes $9.8 million of pre-tax income ($6.0
million net of tax) for a bankruptcy settlement 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 net loss
in 2008 includes an accrual of tax and interest on uncertain tax positions.
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
3.
Acquisitions
On July 5, 2010, we acquired Portrait Software plc (Portrait) for $65.2
million in cash, net of cash acquired. Portrait provides software to enhance existing
customer relationship management systems, enabling clients to achieve improved
customer retention and profitability. The preliminary allocation of the
purchase price to the fair values of the assets acquired and liabilities
assumed is shown below. The primary items that generated goodwill are the
anticipated synergies from the compatibility of the acquired technology with
our existing product and service offerings, and employees of Portrait, neither
of which qualify as an amortizable intangible asset. None of the goodwill will
be deductible for tax purposes.
|
|
|
|
|
Purchase price allocation:
|
|
|
|
|
Current assets
|
|
$
|
7,919
|
|
Other non-current assets
|
|
|
2,352
|
|
Intangible assets
|
|
|
31,332
|
|
Goodwill
|
|
|
47,354
|
|
Current liabilities
|
|
|
(13,014
|
)
|
Non-current liabilities
|
|
|
(10,793
|
)
|
|
|
|
|
|
Purchase price, net of cash acquired
|
|
$
|
65,150
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
Customer relationships
|
|
$
|
18,744
|
|
Software and technology
|
|
|
11,497
|
|
Trademarks and trade names
|
|
|
1,091
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
31,332
|
|
|
|
|
|
|
Intangible assets amortization period:
|
|
|
|
|
Customer relationships
|
|
|
10 years
|
|
Software and technology
|
|
|
6 years
|
|
Trademarks and trade names
|
|
|
6 years
|
|
|
|
|
|
|
Total weighted average
|
|
|
8 years
|
|
|
|
|
|
|
During 2010, we also completed smaller acquisitions for aggregate cash
payments of $12.3 million. These acquisitions did not have a material impact on
our financial results.
The Consolidated Financial Statements include the results of
operations of the acquired businesses from their respective dates of acquisition.
Assuming these acquisitions occurred on January 1, 2010 and 2009, total pro
forma revenue would have been $5,452 million and $5,620 million for 2010
and 2009, respectively. The pro forma earnings results of these acquisitions
were not material to net income or earnings per share. The pro forma consolidated
amounts do not purport to be indicative of actual results that would have
occurred had the acquisitions been completed on January 1, 2010 and 2009, nor
do they purport to be indicative of the results that will be obtained in the
future.
There were no acquisitions during 2009.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
4.
Inventories
Inventories at December 31, 2010 and 2009 consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Raw materials and work in process
|
|
$
|
46,664
|
|
$
|
36,331
|
|
Supplies and service parts
|
|
|
63,991
|
|
|
69,506
|
|
Finished products
|
|
|
58,312
|
|
|
50,665
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
168,967
|
|
$
|
156,502
|
|
|
|
|
|
|
|
|
|
If all inventories valued at LIFO had been stated at current costs,
inventories would have been $26.3 million and $25.8 million higher than
reported at December 31, 2010 and 2009, respectively.
5. Fixed Assets
Fixed assets at December 31, 2010 and 2009 consist of property, plant
and equipment and rental equipment, primarily postage meters, as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Land
|
|
$
|
26,710
|
|
$
|
32,517
|
|
Buildings
|
|
|
361,463
|
|
|
391,627
|
|
Machinery and equipment
|
|
|
1,352,295
|
|
|
1,404,023
|
|
|
|
|
|
|
|
|
|
|
|
|
1,740,468
|
|
|
1,828,167
|
|
Accumulated depreciation
|
|
|
(1,313,967
|
)
|
|
(1,313,263
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
426,501
|
|
$
|
514,904
|
|
|
|
|
|
|
|
|
|
|
Rental property and equipment
|
|
$
|
618,839
|
|
$
|
728,537
|
|
Accumulated depreciation
|
|
|
(318,669
|
)
|
|
(368,330
|
)
|
|
|
|
|
|
|
|
|
Rental property and equipment, net
|
|
$
|
300,170
|
|
$
|
360,207
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $242.9 million, $269.8 million and $306.8 million for the years
ended December 31, 2010, 2009, and 2008, respectively. Rental equipment is
primarily comprised of postage meters. In 2010, we recorded asset impairment
charges of $9.8 million associated with a restructuring program and included
these charges in restructuring charges and asset impairments in the
Consolidated Statements of Income. See Note 14 for further details.
49
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, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
453,523
|
|
$
|
(229,143
|
)
|
$
|
224,380
|
|
$
|
428,888
|
|
$
|
(197,497
|
)
|
$
|
231,391
|
|
Supplier
relationships
|
|
|
29,000
|
|
|
(16,192
|
)
|
|
12,808
|
|
|
29,000
|
|
|
(13,292
|
)
|
|
15,708
|
|
Mailing
software and technology
|
|
|
172,188
|
|
|
(118,390
|
)
|
|
53,798
|
|
|
164,211
|
|
|
(103,388
|
)
|
|
60,823
|
|
Trademarks
and trade names
|
|
|
36,322
|
|
|
(30,224
|
)
|
|
6,098
|
|
|
35,855
|
|
|
(27,898
|
)
|
|
7,957
|
|
Non-compete
agreements
|
|
|
7,845
|
|
|
(7,486
|
)
|
|
359
|
|
|
7,753
|
|
|
(7,215
|
)
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
698,878
|
|
$
|
(401,435
|
)
|
$
|
297,443
|
|
$
|
665,707
|
|
$
|
(349,290
|
)
|
$
|
316,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for intangible assets was $60.8 million, $69.1 million and $72.3
million for the years ended December 31, 2010, 2009 and 2008, respectively. The
future amortization expense related to intangible assets as of December 31,
2010 is as follows:
|
|
|
|
|
Year ended
December 31,
|
|
Amount
|
|
|
|
|
|
2011
|
|
$
|
58,865
|
|
2012
|
|
|
50,983
|
|
2013
|
|
|
47,343
|
|
2014
|
|
|
42,191
|
|
2015
|
|
|
35,044
|
|
Thereafter
|
|
|
63,017
|
|
|
|
|
|
|
|
|
$
|
297,443
|
|
|
|
|
|
|
Actual
amortization expense may differ from the amounts above due to, among other
things, future acquisitions, impairments of intangible assets, accelerated
amortization and changes in foreign currency exchange rates.
In 2010, we
recorded impairment charges of $4.7 million and included these charges in
restructuring charges and asset impairments in the Consolidated Statements of
Income. See Note 14 for further details.
Intangible
assets acquired during 2010 are shown in the table below. There were no
additions in 2009.
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Amount
|
|
Weighted
Average
Life (in
years)
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
36,763
|
|
|
11
|
|
Mailing
software and technology
|
|
|
13,954
|
|
|
6
|
|
Trademarks
and trade names
|
|
|
1,125
|
|
|
6
|
|
Non-compete
agreements
|
|
|
110
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,952
|
|
|
10
|
|
|
|
|
|
|
|
|
|
50
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, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2009 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
217,459
|
|
$
|
|
|
$
|
(887
|
)
|
$
|
216,572
|
|
International Mailing
|
|
|
342,549
|
|
|
|
|
|
(14,528
|
)
|
|
328,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small &
Medium Business Solutions
|
|
|
560,008
|
|
|
|
|
|
(15,415
|
)
|
|
544,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
138,474
|
|
|
|
|
|
(2,143
|
)
|
|
136,331
|
|
Software
|
|
|
633,938
|
|
|
47,354
|
|
|
(3,191
|
)
|
|
678,101
|
|
Management Services
|
|
|
500,055
|
|
|
|
|
|
(5,622
|
)
|
|
494,433
|
|
Mail Services
|
|
|
259,632
|
|
|
|
|
|
(530
|
)
|
|
259,102
|
|
Marketing Services
|
|
|
194,797
|
|
|
|
|
|
(564
|
)
|
|
194,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Business Solutions
|
|
|
1,726,896
|
|
|
47,354
|
|
|
(12,050
|
)
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,286,904
|
|
$
|
47,354
|
|
$
|
(27,465
|
)
|
$
|
2,306,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
220,207
|
|
$
|
|
|
$
|
(2,748
|
)
|
$
|
217,459
|
|
International Mailing
|
|
|
322,230
|
|
|
|
|
|
20,319
|
|
|
342,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small &
Medium Business Solutions
|
|
|
542,437
|
|
|
|
|
|
17,571
|
|
|
560,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
138,175
|
|
|
|
|
|
299
|
|
|
138,474
|
|
Software
|
|
|
623,995
|
|
|
|
|
|
9,943
|
|
|
633,938
|
|
Management Services
|
|
|
491,633
|
|
|
|
|
|
8,422
|
|
|
500,055
|
|
Mail Services
|
|
|
260,793
|
|
|
|
|
|
(1,161
|
)
|
|
259,632
|
|
Marketing Services
|
|
|
194,797
|
|
|
|
|
|
|
|
|
194,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Business Solutions
|
|
|
1,709,393
|
|
|
|
|
|
17,503
|
|
|
1,726,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,251,830
|
|
$
|
|
|
$
|
35,074
|
|
$
|
2,286,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Prior year
amounts have been reclassified to conform to the current year presentation.
|
|
|
(2)
|
Other
primarily includes foreign currency translation adjustments.
|
51
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,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
333,220
|
|
$
|
308,505
|
|
Reserve
account deposits
|
|
|
567,620
|
|
|
557,221
|
|
Accrued
salaries, wages and commissions
|
|
|
246,237
|
|
|
244,170
|
|
Accrued
restructuring charges
|
|
|
113,200
|
|
|
88,626
|
|
Miscellaneous
accounts payable and accrued liabilities
|
|
|
564,984
|
|
|
549,732
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,825,261
|
|
$
|
1,748,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
50,000
|
|
$
|
220,794
|
|
Current
portion of long-term obligations
|
|
|
3,494
|
|
|
5,228
|
|
|
|
|
|
|
|
|
|
Notes
payable & current portion of long-term obligations
|
|
$
|
53,494
|
|
$
|
226,022
|
|
|
|
|
|
|
|
|
|
Reserve
account deposits represent customers prepayment of postage held by our
subsidiary, Pitney Bowes Bank. See Note 17 for further details.
Notes payable
at December 31, 2010 and 2009 consists of commercial paper issuances. The
weighted average interest rates for notes payable were 0.32% and 0.09% at
December 31, 2010 and 2009, respectively.
We had unused
credit facilities of $1.25 billion at December 31, 2010, primarily to support
commercial paper issuances. Fees paid to maintain lines of credit were $1.6
million, $0.8 million and $0.8 million in 2010, 2009 and 2008, respectively.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
8.
Long-term Debt
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan
due 2012
|
|
$
|
150,000
|
|
$
|
150,000
|
|
4.625% notes
due 2012 (1)
|
|
|
400,000
|
|
|
400,000
|
|
3.875% notes
due 2013
|
|
|
375,000
|
|
|
375,000
|
|
4.875% 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 (2)
|
|
|
350,000
|
|
|
350,000
|
|
5.60%
notes due 2018 (3)
|
|
|
250,000
|
|
|
250,000
|
|
6.25%
notes due 2019 (4)
|
|
|
300,000
|
|
|
300,000
|
|
5.25%
notes due 2037
|
|
|
500,000
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Basis
adjustment - Fair value hedges
|
|
|
76,022
|
|
|
52,788
|
|
Other
|
|
|
(11,774
|
)
|
|
(14,148
|
)
|
|
|
|
|
|
|
|
|
Total long-term
debt
|
|
$
|
4,239,248
|
|
$
|
4,213,640
|
|
|
|
|
|
|
|
|
|
Interest under
the Term Loan is based on three month LIBOR plus 42 basis points. Interest is
payable and the interest rate resets every three months.
|
|
(1)
|
We have
entered into interest rate swap agreements with an aggregate notional value
of $400 million that effectively convert fixed rate interest payments on the
$400 million, 4.625% notes due in 2012, into variable interest rates. We pay
a weighted-average variable rate based on one-month LIBOR plus 249 basis
points and receive a fixed rate of 4.625%. The weighted average rate paid
during 2010 and 2009 was 2.8% and 4.3%, respectively.
|
|
|
(2)
|
In 2008, we
unwound an interest rate swap that effectively converted the fixed rate
interest payments on the $350 million, 4.75% notes due in 2018, into variable
interest rates and received $44 million, excluding accrued interest. This
amount is being amortized as a reduction of interest expense over the
remaining term of the notes, which reduces the effective interest rate on
these notes to 3.2%.
|
|
|
(3)
|
In August
2010, we unwound two interest rate swaps with an aggregate notional amount of
$250 million that were entered into in March 2008. These interest rate swaps
effectively converted the fixed rate interest payments on the $250 million,
5.6% notes due in 2018, into variable interest rates. In connection with
unwinding these interest rate swaps, we received $31.8 million, excluding
accrued interest. The transaction was not undertaken for liquidity purposes, but
rather to fix our effective interest rate at 3.7% for the remaining term of
the notes as the amount received will be recognized as a reduction in
interest expense over the remaining term of the notes.
|
|
|
(4)
|
In 2009, we
issued $300 million, 6.25% 10-year fixed rate notes and simultaneously
unwound four forward starting swap agreements (forward swaps) used to hedge
the interest rate risk associated with the forecasted issuance of this
fixed-rate debt. In connection with the unwind of these swaps, we paid $20.3
million, which was recorded to other comprehensive income. This amount is
being amortized as additional interest expense over the term of the notes,
which increases the effective interest rate on these notes to 6.9%.
|
The basis
adjustment of fair value hedges represents the unamortized net proceeds
received from unwinding of interest rate swaps which is being amortized to
interest expense over the remaining term of the respective notes and the mark
to market adjustment of our interest rate swaps (fair value hedges See Note
13). Other consists primarily of debt discounts and premiums.
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.
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Annual
maturities of outstanding long-term debt at December 31, 2010 are as follows:
2011 $0 million; 2012 $550 million; 2013 $375 million; 2014 $450
million; 2015 $400 million; and $2,400 million thereafter.
9.
Income Taxes
The provision
for income taxes from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
U.S.
Federal:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
170,175
|
|
$
|
188,272
|
|
$
|
85,231
|
|
Deferred
|
|
|
(24,632
|
)
|
|
18,979
|
|
|
81,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,543
|
|
|
207,251
|
|
|
167,167
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State
and Local:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
26,523
|
|
|
30,981
|
|
|
17,058
|
|
Deferred
|
|
|
(17,518
|
)
|
|
(13,067
|
)
|
|
13,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,005
|
|
|
17,914
|
|
|
30,492
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
43,459
|
|
|
31,848
|
|
|
39,974
|
|
Deferred
|
|
|
7,763
|
|
|
(16,859
|
)
|
|
7,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,222
|
|
|
14,989
|
|
|
47,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
240,157
|
|
|
251,101
|
|
|
142,263
|
|
Total Deferred
|
|
|
(34,387
|
)
|
|
(10,947
|
)
|
|
102,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
205,770
|
|
$
|
240,154
|
|
$
|
244,929
|
|
|
|
|
|
|
|
|
|
|
|
|
The components
of income from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
390,911
|
|
$
|
552,636
|
|
$
|
573,066
|
|
International
|
|
|
143,666
|
|
|
140,540
|
|
|
140,111
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
534,577
|
|
$
|
693,176
|
|
$
|
713,177
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective
tax rate for continuing operations for 2010, 2009 and 2008 was 38.5%, 34.6% and
34.3%, respectively. The effective tax rate for 2010 includes $16 million of
tax benefits associated with previously unrecognized deferred taxes on outside
basis differences, a $15 million charge for 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 units previously granted to our employees
and a $9 million charge for the write-off of deferred tax assets related to the
U.S. health care reform legislation that eliminated the tax deduction for
retiree health care costs to the extent of federal subsidies received by
companies that provide retiree prescription drug benefits equivalent to
Medicare Part D coverage.
The effective
rate for 2009 included a charge of $13 million for 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 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.
54
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory provision
|
|
$
|
187,103
|
|
$
|
242,612
|
|
$
|
249,612
|
|
State and local income taxes
|
|
|
5,853
|
|
|
11,109
|
|
|
19,820
|
|
Impact of foreign operations
|
|
|
13,938
|
|
|
(18,037
|
)
|
|
1,955
|
|
Tax exempt income/reimbursement
|
|
|
(2,352
|
)
|
|
(2,748
|
)
|
|
(5,404
|
)
|
Federal income tax credits/incentives
|
|
|
(7,580
|
)
|
|
(4,792
|
)
|
|
(15,118
|
)
|
Unrealized stock compensation benefits
|
|
|
15,149
|
|
|
12,852
|
|
|
|
|
Certain leasing transactions
|
|
|
|
|
|
|
|
|
(9,550
|
)
|
U.S.
health care reform tax change
|
|
|
9,070
|
|
|
|
|
|
|
|
Outside basis differences
|
|
|
(15,798
|
)
|
|
|
|
|
|
|
Other, net
|
|
|
387
|
|
|
(842
|
)
|
|
3,614
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
205,770
|
|
$
|
240,154
|
|
$
|
244,929
|
|
|
|
|
|
|
|
|
|
|
|
|
The components
of our deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
49,351
|
|
$
|
67,639
|
|
Deferred
profit (for tax purposes) on sales to finance subsidiaries
|
|
|
229,364
|
|
|
287,928
|
|
Lease
revenue and related depreciation
|
|
|
480,611
|
|
|
443,855
|
|
Amortizable
intangibles
|
|
|
117,207
|
|
|
115,793
|
|
Other
|
|
|
43,813
|
|
|
46,144
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities
|
|
|
920,346
|
|
|
961,359
|
|
|
|
|
|
|
|
|
|
Deferred tax
(assets):
|
|
|
|
|
|
|
|
Nonpension
postretirement benefits
|
|
|
(104,847
|
)
|
|
(119,420
|
)
|
Pension
|
|
|
(127,042
|
)
|
|
(127,046
|
)
|
Inventory
and equipment capitalization
|
|
|
(28,546
|
)
|
|
(29,595
|
)
|
Restructuring
charges
|
|
|
(22,348
|
)
|
|
(9,619
|
)
|
Long-term
incentives
|
|
|
(39,781
|
)
|
|
(50,666
|
)
|
Net
operating loss and tax credit carry forwards
|
|
|
(153,754
|
)
|
|
(151,094
|
)
|
Tax
uncertainties gross-up
|
|
|
(144,672
|
)
|
|
(133,293
|
)
|
Other
|
|
|
(116,834
|
)
|
|
(101,994
|
)
|
Valuation
allowance
|
|
|
104,441
|
|
|
95,990
|
|
|
|
|
|
|
|
|
|
Deferred tax
(assets)
|
|
|
(633,383
|
)
|
|
(626,737
|
)
|
|
|
|
|
|
|
|
|
Net deferred
taxes
|
|
|
286,963
|
|
|
334,622
|
|
Amounts
included in other balance sheet tax accounts
|
|
|
(25,846
|
)
|
|
12,780
|
|
|
|
|
|
|
|
|
|
Deferred
taxes on income
|
|
$
|
261,117
|
|
$
|
347,402
|
|
|
|
|
|
|
|
|
|
As of December
31, 2010 and 2009, approximately $266 million and $285 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 $850 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
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
liability that
would result in the event all of these earnings were remitted to the U.S. is
not practicable. It is estimated, however, that withholding taxes on such
remittances would approximate $15 million.
Uncertain Tax Positions
A reconciliation
of the amount of unrecognized tax benefits at December 31, 2010, 2009 and 2008
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of year
|
|
$
|
515,565
|
|
$
|
434,164
|
|
$
|
398,878
|
|
Increases
from prior period positions
|
|
|
17,775
|
|
|
65,540
|
|
|
21,623
|
|
Decreases
from prior period positions
|
|
|
(27,669
|
)
|
|
(7,741
|
)
|
|
(8,899
|
)
|
Increases
from current period positions
|
|
|
43,804
|
|
|
42,696
|
|
|
33,028
|
|
Decreases
from current period positions
|
|
|
(8,689
|
)
|
|
|
|
|
|
|
Decreases
relating to settlements with tax authorities
|
|
|
(1,434
|
)
|
|
(3,173
|
)
|
|
(7,426
|
)
|
Reductions
as a result of a lapse of the applicable statute of limitations
|
|
|
(7,562
|
)
|
|
(15,921
|
)
|
|
(3,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
end of year
|
|
$
|
531,790
|
|
$
|
515,565
|
|
$
|
434,164
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of
the unrecognized tax benefits at December 31, 2010, 2009 and 2008 that would
affect the effective tax rate if recognized was $434 million, $411 million and
$371 million, respectively.
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 decrease in the next 12 months, and we
expect this change could be up to one-third of our unrecognized tax benefits.
Any such change will likely be arising from the completion of tax return
examinations, including the resolution of certain issues related to our former
Capital Services third party leasing business. 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,
2010, 2009 and 2008, we recorded $9 million, $23 million and $26 million,
respectively, in interest and penalties primarily in discontinued operations.
We had $202 million and $186 million accrued for the payment of interest and
penalties at December 31, 2010 and 2009, 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 year and the examination of years
2005-2008 within the next two years. In connection with the 2001-2004 exam, we
have received notices of proposed adjustments to our filed returns and the IRS
has withdrawn a civil summons to provide certain Company workpapers. Tax reserves
have been established which we believe to be appropriate given the possibility
of tax adjustments. A variety of post-2000 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,
an analysis of prior year non-U.S. income tax returns indicated that lease
rental income associated with certain leveraged lease transactions was not
properly captured. As a result, the 2010 tax provision includes additional tax
expense of $3.3 million for
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
the periods
2007 through 2009. A $14.4 million adjustment was also made to opening retained
earnings to establish the related tax liabilities for earlier years. The impact
of the adjustments was not material to any previously reported period.
At December
31, 2010, our current tax accounts included a $36 million tax receivable for
uncertain tax positions, which was received in February 2011.
10. Noncontrolling
Interests (Preferred Stockholders Equity in Subsidiaries)
Pitney Bowes
International Holdings, Inc. (PBIH), a subsidiary, 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 the Company. The preferred stock was entitled to
cumulative dividends at rates set at auction. The weighted average dividend
rate was 4.8% during 2009 and 2008. During the fourth quarter, PBIH redeemed
all of the outstanding variable term voting preferred stock, which was funded
by the combined proceeds from the issuance of the Preferred Stock (see below),
cash flows from operations and commercial paper.
In 2009, PBIH
issued 300,000 shares, or $300 million, of perpetual voting preferred stock
(the Preferred Stock) to certain outside institutional investors. The holders
of the Preferred Stock 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 the Company. The
Preferred Stock is entitled to cumulative dividends at a rate of 6.125% for a period
of seven years after which it becomes callable and, if it remains outstanding,
will yield a dividend that increases by 150% every six months thereafter.
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, 2010 or December 31, 2009.
Activity in
the noncontrolling interests account for the years ended December 31, 2009 and
2010 is below.
|
|
|
|
|
Beginning balance January 1, 2009
|
|
$
|
374,165
|
|
Share issuances, net of issuance costs of
$3.6 million
|
|
|
296,370
|
|
Share redemptions
|
|
|
(374,165
|
)
|
|
|
|
|
|
Ending balance at December 31, 2009
|
|
|
296,370
|
|
Share issuances
|
|
|
|
|
Share redemptions
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2010
|
|
$
|
296,370
|
|
|
|
|
|
|
57
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
11. Stockholders
Deficit
At December
31, 2010, 480,000,000 shares of common stock, 600,000 shares of cumulative
preferred stock, and 5,000,000 shares of preference stock were authorized. The
following table summarizes the preferred, preference and common stock, net of
treasury shares, outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preference
Stock
|
|
Issued
|
|
Treasury
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 to 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 to common
stock
|
|
|
(50
|
)
|
|
(3,977
|
)
|
|
|
|
|
66,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
85
|
|
|
32,079
|
|
|
323,337,912
|
|
|
(116,140,084
|
)
|
|
207,197,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(4,687,304
|
)
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
|
876,794
|
|
|
|
|
Conversions to common
stock
|
|
|
|
|
|
(4,296
|
)
|
|
|
|
|
43,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
85
|
|
|
27,783
|
|
|
323,337,912
|
|
|
(119,906,910
|
)
|
|
203,431,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unissued and
unreserved shares at December 31, 2010
|
|
|
599,915
|
|
|
4,972,217
|
|
|
116,473,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December
31, 2010, preferred stock (4% preferred stock) outstanding was entitled to
cumulative dividends at a rate of $2 per year. The preferred stock is
redeemable at our option, in whole or in part at any time, at a 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.
At December
31, 2010, preference stock ($2.12 preference stock) was entitled to cumulative
dividends at a rate of $2.12 per year. The preference stock is redeemable at
our 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.
The Board of
Directors will determine the dividend rate, terms of redemption, terms of
conversion (if any) and other pertinent features of future issuances of
preferred stock or preference stock.
Cash dividends
paid on common stock were $1.46 per share, $1.44 per share and $1.40 per share
for 2010, 2009, and 2008, respectively.
At December
31, 2010, 2,060 shares of common stock were reserved for issuance upon
conversion of the 4% preferred stock and 459,253 shares of common stock were
reserved for issuance upon conversion of the $2.12 preference stock. In
addition, 39,727,141 shares of common stock were reserved for issuance under
our dividend reinvestment and other corporate plans.
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Accumulated Other Comprehensive Loss
The components
of accumulated other comprehensive loss are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
137,521
|
|
$
|
153,206
|
|
$
|
33,386
|
|
Net unrealized loss on derivatives
|
|
|
(10,445
|
)
|
|
(11,738
|
)
|
|
(18,952
|
)
|
Net unrealized gain on investment
securities
|
|
|
1,439
|
|
|
649
|
|
|
932
|
|
Amortization of pension and postretirement
costs
|
|
|
81,887
|
|
|
53,589
|
|
|
36,261
|
|
Net unamortized loss on pension and
postretirement plans
|
|
|
(684,208
|
)
|
|
(655,498
|
)
|
|
(650,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(473,806
|
)
|
$
|
(459,792
|
)
|
$
|
(598,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
12. Stock Plans
Stock-based
compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
5,371
|
|
$
|
6,649
|
|
$
|
11,851
|
|
Restricted stock units
|
|
|
15,081
|
|
|
14,888
|
|
|
11,168
|
|
Employee stock purchase plans
|
|
|
|
|
|
224
|
|
|
3,383
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation
|
|
$
|
20,452
|
|
$
|
21,761
|
|
$
|
26,402
|
|
|
|
|
|
|
|
|
|
|
|
|
The following
table shows stock-based compensation expense as included in the Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales
|
|
$
|
1,397
|
|
$
|
1,486
|
|
$
|
1,802
|
|
Cost of support services
|
|
|
602
|
|
|
640
|
|
|
777
|
|
Cost of business services
|
|
|
831
|
|
|
884
|
|
|
1,073
|
|
Selling, general and administrative
|
|
|
16,936
|
|
|
18,020
|
|
|
21,862
|
|
Research and development
|
|
|
686
|
|
|
731
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation
|
|
|
20,452
|
|
|
21,761
|
|
|
26,402
|
|
Income tax
|
|
|
(7,265
|
)
|
|
(7,458
|
)
|
|
(9,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net
|
|
$
|
13,187
|
|
$
|
14,303
|
|
$
|
17,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share impact
|
|
$
|
0.06
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share impact
|
|
$
|
0.06
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
At December
31, 2010, $3.3 million of unrecognized compensation cost related to non-vested
stock options is expected to be recognized over a weighted average period of
0.4 years and $19.6 million of unrecognized compensation cost related to
non-vested restricted stock units is expected to be recognized over a weighted
average period of 0.7 years.
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Stock Plans
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
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, 2010, there were
17,458,044 shares available for future grants of stock options and restricted
stock units under our stock plans.
Stock Options
Under our stock
option 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 activity during 2010:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Per share weighted
average exercise price
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
17,580,079
|
|
|
$38.59
|
|
Granted
|
|
|
1,714,731
|
|
|
$22.09
|
|
Exercised
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(4,350,018
|
)
|
|
$37.34
|
|
Forfeited
|
|
|
(438,270
|
)
|
|
$26.58
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010
|
|
|
14,506,522
|
|
|
$37.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010
|
|
|
10,986,577
|
|
|
$40.35
|
|
|
|
|
|
|
|
|
|
The
weighted-average remaining contractual life of options outstanding and options
exercisable at December 31, 2010 was 4.9 years and 3.8 years, respectively. The
options exercisable at December 31, 2010 had no intrinsic value. No options
were exercised during 2010 and 2009. The total intrinsic value of options
exercised during 2008 was $1.1 million.
We granted
1,638,709 and 2,126,310 options in 2009 and 2008, respectively. The weighted
average exercise price of the options granted was $24.75 and $36.74 in 2009 and
2008, respectively. The weighted average remaining contractual life of the
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.
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following
table summarizes information about stock options outstanding and exercisable at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Range of per share
exercise prices
|
|
Number
|
|
Per share weighted
average exercise
price
|
|
Weighted
average
remaining
contractual
life
|
|
|
|
|
|
|
|
|
|
$22.09 - $30.99
|
|
|
2,872,713
|
|
$
|
23.33
|
|
|
8.5 years
|
|
$31.00 - $36.99
|
|
|
3,743,413
|
|
$
|
34.64
|
|
|
4.1 years
|
|
$37.00 - $42.99
|
|
|
4,265,081
|
|
$
|
41.13
|
|
|
3.2 years
|
|
$43.00 - $48.03
|
|
|
3,625,315
|
|
$
|
46.92
|
|
|
4.7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,506,522
|
|
$
|
37.38
|
|
|
4.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Range of per share
exercise prices
|
|
Number
|
|
Per share weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
$22.09 -
$30.99
|
|
|
453,899
|
|
$
|
24.76
|
|
|
|
|
$31.00 - $36.99
|
|
|
2,892,499
|
|
$
|
33.99
|
|
|
|
|
$37.00 -
$42.99
|
|
|
4,265,081
|
|
$
|
41.13
|
|
|
|
|
$43.00 - $48.03
|
|
|
3,375,098
|
|
$
|
46.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,986,577
|
|
$
|
40.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Our estimates of stock volatility are based on historical price changes of our
stock. The risk-free interest rate is based on U.S. treasuries with a term
equal to the expected option term. The expected life, or holding period, of the
award is based on historical experience.
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.
The fair value
of stock options granted and related assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Expected
dividend yield
|
|
|
6.1%
|
|
|
4.5%
|
|
|
3.0%
|
|
Expected
stock price volatility
|
|
|
25.6%
|
|
|
21.4%
|
|
|
12.3%
|
|
Risk-free
interest rate
|
|
|
3.2%
|
|
|
2.4%
|
|
|
2.7%
|
|
Expected
life years
|
|
|
7.3
|
|
|
7.5
|
|
|
5.0
|
|
Weighted-average
fair value per option granted
|
|
$
|
2.82
|
|
$
|
3.04
|
|
$
|
3.22
|
|
Restricted Stock Awards and Restricted Stock
Units
Our stock plan
permits the issuance of restricted stock awards and restricted stock units.
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
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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 for restricted stock awards during 2010 and 2009 and issued 10,000
restricted stock awards in 2008.
Restricted stock units are granted to employees and entitle the holder
to shares of common stock as the units vest, typically over a four year service
period. The fair value of the units is determined on the grant date based on
our stock price at that date. The following table summarizes information about
restricted stock units during 2010:
|
|
|
|
|
|
|
|
|
|
Units / Shares
|
|
Weighted average
grant date fair value
|
|
|
|
|
|
|
Restricted
stock units outstanding at December 31, 2009
|
|
|
1,341,729
|
|
$
|
30.55
|
|
Granted
|
|
|
923,676
|
|
$
|
22.09
|
|
Vested
|
|
|
(430,340
|
)
|
$
|
33.17
|
|
Forfeited
|
|
|
(197,823
|
)
|
$
|
26.77
|
|
|
|
|
|
|
|
|
|
Restricted
stock units outstanding at December 31, 2010
|
|
|
1,637,242
|
|
$
|
25.55
|
|
|
|
|
|
|
|
|
|
We granted 867,129 shares and 512,415 shares of restricted stock units
in 2009 and 2008, respectively. The weighted average grant price was $24.39 and
$36.91 for 2009 and 2008, respectively. The intrinsic value of the outstanding
restricted stock units at December 31, 2010 was $39.6 million, with a weighted
average remaining term of 2.5 years. The total intrinsic value of restricted
stock units converted during 2010, 2009 and 2008 was $8.8 million, $5.2 million
and $4.2 million, respectively.
Employee Stock Purchase Plans (ESPP)
Substantially all U.S. and Canadian employees can purchase shares of
our common stock at an offering price of 95% 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. We may grant rights to purchase up to 5,367,461 common
shares under the ESPP. We granted rights to purchase 318,556 shares, 540,660
shares and 437,350 shares in 2010, 2009 and 2008, respectively.
Directors Stock Plan
Under this plan, each non-employee director is granted 2,200
shares of restricted common stock annually. We granted 26,400 shares to non-employee
directors in 2010, 2009 and 2008. Compensation expense, net of taxes, was $0.4
million, $0.4 million and $0.6 million for 2010, 2009 and 2008, respectively.
The shares carry full voting and dividend rights but, except as provided
herein, may not be transferred or alienated until the later of (1) termination
of service as a director, or, if earlier, the date of a change of control, or
(2) the expiration of the six-month period following the grant of such shares.
If a director terminates service as a director prior to the expiration of the
six-month period following a grant of restricted stock, that award will be
forfeited. The Directors Stock Plan permits certain limited dispositions
of restricted common stock to family members, family trusts or partnerships,
as well as donations to charity after the expiration of the six-month holding
period, provided the director retains a minimum of 7,500 shares of restricted
common stock.
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
13. Fair Value
Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a
recurring basis. Fair value is a market-based measure considered from the
perspective of a market participant rather than an entity-specific measure. An
entity is required to classify certain assets and liabilities measured at fair
value based on the following fair value hierarchy that prioritizes the inputs
used to measure fair value:
Level 1
Unadjusted quoted prices in active
markets for identical assets and liabilities.
Level 2
Quoted prices for identical assets
and liabilities in markets that are not active, quoted prices for similar
assets and liabilities in active markets or other inputs that are observable or
can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
Level 3
Unobservable inputs that are
supported by little or no market activity, may be derived from internally developed
methodologies based on managements best estimate of fair value and that are
significant to the fair value of the asset or liability.
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, 2010 and December 31, 2009, respectively.
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.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measurements at December 31, 2010
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds / commercial paper
|
|
$
|
281,865
|
|
$
|
1,531
|
|
$
|
|
|
$
|
283,396
|
|
Equity securities
|
|
|
|
|
|
23,410
|
|
|
|
|
|
23,410
|
|
Debt securities - U.S. and foreign
governments, agencies, and municipalities
|
|
|
74,425
|
|
|
30,725
|
|
|
|
|
|
105,150
|
|
Corporate notes and bonds
|
|
|
|
|
|
22,262
|
|
|
|
|
|
22,262
|
|
Asset-backed securities
|
|
|
|
|
|
1,490
|
|
|
|
|
|
1,490
|
|
Mortgage-backed securities
|
|
|
|
|
|
104,989
|
|
|
|
|
|
104,989
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
10,280
|
|
|
|
|
|
10,280
|
|
Foreign exchange contracts
|
|
|
|
|
|
2,887
|
|
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
356,290
|
|
$
|
197,574
|
|
$
|
|
|
$
|
553,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
$
|
6,907
|
|
$
|
|
|
$
|
6,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
$
|
6,907
|
|
$
|
|
|
$
|
6,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds / commercial paper
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Investment Securities
For our investments, we use the market approach for recurring fair
value measurements and the valuation techniques use inputs that are observable,
or can be corroborated by observable data, in an active marketplace. The
following information relates to our classification into the fair value
hierarchy:
Money Market Funds / Commercial Paper:
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 as Level 1 when unadjusted quoted prices in active markets are
available and as Level 2 when they are not actively traded on an exchange.
Direct investments in commercial paper are not listed on an exchange in an
active market and are classified as Level 2.
Equity Securities:
Equity securities are
comprised of mutual funds investing in U.S. and foreign common stock. These
mutual funds are not separately listed on an exchange and are valued based on
quoted market prices of similar securities. Accordingly, these securities are
classified as Level 2.
Debt Securities U.S. and Foreign Governments,
Agencies and Municipalities:
Debt securities are classified as Level
1 where active, high volume trades for identical securities exist. Valuation
adjustments are not applied to these securities. Debt securities valued using
quoted market prices for similar securities or benchmarking model derived
prices to quoted market prices and trade data for identical or comparable
securities are classified as Level 2.
Debt Securities Corporate:
Corporate
debt securities are valued using recently executed transactions, market price
quotations where observable, or bond spreads. The spread data used are for the
same maturity as the security. These securities are classified as Level 2.
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. These securities are classified as
Level 2.
Investment securities include investments by The Pitney Bowes Bank
(PBB). PBB is a wholly-owned subsidiary and a Utah-chartered Industrial Loan
Company (ILC). The banks investments at December 31, 2010 were $246.4 million
and were reported in the Consolidated Balance Sheets as cash and cash
equivalents of $60.5 million, short-term investments of $27.2 million and
long-term investments, which are presented within other assets, of $158.7 million.
The banks investments at December 31, 2009 were $222.4 million and were
reported 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.
We have not experienced any other than temporary impairments in our
investment portfolio. The majority of our MBS are guaranteed 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 per share or to impose 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
As required by the fair value measurements guidance, we have
incorporated counterparty credit risk and our credit risk into the fair value
measurement of our derivative assets and liabilities, respectively. 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. The valuation of our foreign
exchange derivatives are based on the market approach using observable market
inputs, such as forward rates.
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following is a summary of our derivative fair values at December
31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31,
|
|
|
|
|
|
|
|
Designation of Derivatives
|
|
Balance Sheet Location
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
160
|
|
$
|
456
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
10,280
|
|
|
13,284
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
716
|
|
|
1,114
|
|
Derivatives not designated as hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
2,727
|
|
|
1,934
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
6,191
|
|
|
1,936
|
|
|
|
Total Derivative Assets
|
|
$
|
13,167
|
|
$
|
15,674
|
|
|
|
Total Derivative Liabilities
|
|
|
6,907
|
|
|
3,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Derivative Assets
|
|
$
|
6,260
|
|
$
|
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 earnings.
We have outstanding interest rate swaps with an aggregate notional
value of $400 million that effectively convert fixed rate interest payments on
$400 million, 4.625% notes due in 2012, into variable interest rates. We pay a
weighted-average variable rate based on one month LIBOR plus 249 basis points
and receive a fixed rate of 4.625%. At December 31, 2010 and 2009, the fair
value of the interest rate swaps was an asset of $10.3 million and $4.7
million, respectively.
At December 31, 2009, we had outstanding interest rate swaps with an
aggregate notional value of $250 million that effectively converted fixed rate
interest payments on $250 million, 5.6% notes due in 2018, into variable
interest rates. The fair value of these interest rate swaps at December 31,
2009 was an asset of $8.6 million. In August 2010, we unwound these interest
rate swaps. See Note 8 for further details.
The following represents the results of fair value hedging
relationships for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain Recognized
in Earnings
|
|
Hedged Item Expense
Recognized in Earnings
|
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
Location of Gain (Loss)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
Interest expense
|
|
$
|
13,261
|
|
$
|
12,180
|
|
$
|
(26,667
|
)
|
$
|
(23,250
|
)
|
Foreign Exchange
Contracts
We enter into foreign currency exchange contracts arising from the
anticipated purchase of inventory between affiliates and from third parties.
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 earnings in the period that the hedged item is recorded in earnings. At
December 31, 2010 and 2009, we had outstanding contracts with a notional amount
of $24.5 million and $27.8 million, respectively. The fair value of these
contracts at December 31, 2010 and 2009 was a liability of $0.6 million and
$0.7 million, respectively.
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
As of December 31, 2010, substantially all of the derivative loss
recognized in accumulated other comprehensive income (AOCI) will be recognized
in earnings within the next 12 months. No amount of ineffectiveness was
recorded in earnings for these designated cash flow hedges for the years ended
December 31, 2010 and 2009.
The following represents the results of cash flow hedging relationships
for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain (Loss)
Recognized in OCI
(Effective Portion)
|
|
Location of Gain (Loss)
(Effective Portion)
|
|
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
|
|
|
|
|
|
|
|
|
Derivative
Instrument
|
|
2010
|
|
2009
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
$
|
(470
|
)
|
$
|
(658
|
)
|
Revenue
|
|
$
|
1,024
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
572
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We also enter into foreign exchange contracts to minimize the impact of
exchange rate fluctuations on short-term intercompany loans and related
interest that are denominated in a foreign currency. The revaluation of the
intercompany loans and interest and the mark-to-market on the derivatives are
both recorded to earnings. At December 31, 2010, outstanding foreign exchange
contracts to buy or sell various currencies had a net liability value of $3.5
million. The contracts mature by March 31, 2011. At December 31, 2009, the net
liability value of these derivatives was less than $0.1 million.
The following represents the results of our non-designated derivative
instruments for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain (Loss)
Recognized in Earnings
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
Location of Derivative Gain (Loss)
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Selling,
general and administrative expense
|
|
$
|
(22,158
|
)
|
$
|
(59,244
|
)
|
Credit-Risk-Related
Contingent Features
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. At December 31, 2010, our long-term senior unsecured
debt ratings were BBB+ / A2. Based on derivative values at December 31, 2010,
we would have been required to post $3.0 million in collateral if our long-term
senior unsecured debt ratings had fallen below BB- / Ba3.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, investment
securities, accounts receivable, loans receivable, accounts payable, notes
payable, long-term debt and derivative instruments. The carrying value for
cash, cash equivalents, accounts receivable, accounts payable and notes payable
approximate fair value because of the short maturity of these instruments.
The carrying values and estimated fair value of our remaining financial
instruments at December 31, 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Carrying
value (1)
|
|
Fair value
|
|
Carrying
value (1)
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
$
|
538,562
|
|
$
|
540,697
|
|
$
|
360,800
|
|
$
|
361,845
|
|
Loans
receivable
|
|
$
|
459,499
|
|
$
|
459,499
|
|
$
|
478,191
|
|
$
|
478,191
|
|
Derivatives,
net
|
|
$
|
6,260
|
|
$
|
6,260
|
|
$
|
12,624
|
|
$
|
12,624
|
|
Long-term
debt
|
|
$
|
(4,301,337
|
)
|
$
|
(4,388,923
|
)
|
$
|
(4,271,555
|
)
|
$
|
(4,409,961
|
)
|
(1) Carrying value includes accrued interest and deferred fee income,
where applicable.
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The fair value of long-term debt is estimated based on quoted market
prices for the identical issue when traded in an active market. When a quoted
market price is not available, the fair value is determined using rates
currently available to the company for debt with similar terms and remaining
maturities.
14. Restructuring Charges and Asset
Impairments
2009 Program
In 2009, we announced that we were undertaking a series of initiatives
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 10 percent of the positions in the company. Total pre-tax costs of this
program are expected to be between $300 million to $350 million primarily
related to severance and benefit costs, including pension and retiree medical
charges, incurred in connection with such workforce reductions. Most of the
total pre-tax costs will be cash-related charges. Currently, we are targeting
annualized pre-tax benefits, net of system and related investments, in the
range of $250 million to $300 million by 2012. These costs and the related
benefits will be recognized as different actions are approved and implemented.
During 2010, we recorded pre-tax restructuring and asset impairment
charges of 183.0 million, which included $115.6 million for employee severance
and benefits costs, a $23.6 million pension and retiree medical charge as
workforce reductions caused the elimination of a significant amount of future
service requiring us to recognize a portion of the prior service costs and
actuarial losses and other exit costs of $38.2 million. Asset impairment
charges of $14.5 million include $9.8 million fixed asset write-offs associated
with the restructuring program and $4.7 million impairment of certain
intangible assets unrelated to the restructuring program. The cumulative charges
for this program since inception through December 31, 2010 were $250 million.
As of December 31, 2010, approximately 2,000 employee terminations have
occurred under this program. The majority of the liability at December 31, 2010
is expected to be paid from cash generated from operations.
Activity in the reserves for the restructuring actions taken in
connection with the 2009 Program and asset impairments for the years ended
December 31, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefits
costs
|
|
Pension
and Retiree
Medical
|
|
Asset
impairments,
net
|
|
Other exit
costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1, 2009
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
55,836
|
|
|
|
|
|
18
|
|
|
11,492
|
|
|
67,346
|
|
Cash
payments
|
|
|
(9,941
|
)
|
|
|
|
|
|
|
|
(4,685
|
)
|
|
(14,626
|
)
|
Non-cash
charges
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2009
|
|
|
45,895
|
|
|
|
|
|
|
|
|
6,807
|
|
|
52,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
115,557
|
|
|
23,620
|
|
|
14,515
|
|
|
38,233
|
|
|
191,925
|
|
Gain on sale
of facility
|
|
|
|
|
|
|
|
|
(8,897
|
)
|
|
|
|
|
(8,897
|
)
|
Cash
(payments) receipts
|
|
|
(73,283
|
)
|
|
|
|
|
8,897
|
|
|
(38,253
|
)
|
|
(102,639
|
)
|
Non-cash
charges
|
|
|
|
|
|
(23,620
|
)
|
|
(14,515
|
)
|
|
|
|
|
(38,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2010
|
|
$
|
88,169
|
|
$
|
|
|
$
|
|
|
$
|
6,787
|
|
$
|
94,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Program
In 2007, we announced a program 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.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In 2010, we recorded pre-tax adjustments of $0.8 million due to lower
than anticipated charges associated with this program. Cumulative charges for
this program since inception through December 31, 2010 were $445 million. As of
December 31, 2010, approximately 3,000 terminations have occurred under this
program. The majority of the liability at December 31, 2010 is expected to be
paid from cash generated from operations.
Activity in
the reserves for restructuring actions taken in connection with the 2007
Program for years ended December 31, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefits
costs
|
|
Asset
impairments
|
|
Other exit
costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1, 2009
|
|
|
119,063
|
|
|
|
|
|
22,046
|
|
|
141,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
(14,721
|
)
|
|
(3,879
|
)
|
|
|
|
|
(18,600
|
)
|
Cash
payments
|
|
|
(76,445
|
)
|
|
|
|
|
(14,019
|
)
|
|
(90,464
|
)
|
Non-cash
charges
|
|
|
|
|
|
3,879
|
|
|
|
|
|
3,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2009
|
|
|
27,897
|
|
|
|
|
|
8,027
|
|
|
35,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
(684
|
)
|
|
|
|
|
(70
|
)
|
|
(754
|
)
|
Cash
payments
|
|
|
(13,743
|
)
|
|
|
|
|
(3,183
|
)
|
|
(16,926
|
)
|
Non-cash
charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2010
|
|
$
|
13,470
|
|
$
|
|
|
$
|
4,774
|
|
$
|
18,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 several purported class actions initially filed in five 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
were seeking statutory damages under the DPPA. On December 21, 2009, the
Eleventh Circuit Court affirmed the District Courts summary judgment
decision in
Rine,
et al. v. Imagitas, Inc
. (United States District Court, Middle District of
Florida, filed August 1, 2006), which ruled in Imagitas favor and dismissed
that litigation. That decision is now final, with no further appeals
available. With respect to the remaining state cases, Imagitas filed its motion
to dismiss these cases on October 8, 2010. Plaintiffs opposition brief
was filed on December 6, 2010, and Imagitas filed its reply brief on December
22, 2010. Although the plaintiffs are still contending that the cases filed in
Ohio and Missouri can proceed, they have admitted in their response that the
reasoning in the Rine decision does require that actions based on Minnesota and
New York laws be dismissed. We are awaiting a decision by the District Court
on the motion to dismiss.
On October 28, 2009, the Company and certain of its 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
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
projections. Plaintiffs filed an amended complaint on September 20,
2010. On December 3, 2010, defendants moved to dismiss the complaint. Oral
argument on that motion is scheduled for April 15, 2011.
We expect to prevail in the legal actions above; 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.
16. Leases
We lease office facilities, sales and service offices, equipment and
other properties, generally under operating lease agreements extending from
three to 25 years. Rental expense was $118 million, $125 million and $129
million in 2010, 2009 and 2008, respectively. Future minimum lease payments
under non-cancelable operating leases at December 31, 2010 are as follows:
|
|
|
|
|
Years ending December 31,
|
|
|
|
|
2011
|
|
$
|
99,225
|
|
2012
|
|
|
74,408
|
|
2013
|
|
|
44,440
|
|
2014
|
|
|
27,167
|
|
2015
|
|
|
17,498
|
|
Thereafter
|
|
|
26,632
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
289,370
|
|
|
|
|
|
|
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
17. Finance Assets
Finance Receivables
Finance receivables are comprised of sales-type lease receivables and
unsecured revolving loan receivables. Sales-type leases are generally due in
monthly, quarterly or semi-annual installments over periods ranging from three
to five years. Loan receivables arise primarily from financing services offered
to our customers for postage and related supplies. Loan receivables are
generally due each month; however, customers may rollover outstanding balances.
The components of sales-type lease and loan receivables at December 31, 2010
and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Sales-type
lease receivables
|
|
|
|
|
|
|
|
|
|
|
Gross
finance receivables
|
|
$
|
1,669,963
|
|
$
|
745,765
|
|
$
|
2,415,728
|
|
Unguaranteed
residual values
|
|
|
217,394
|
|
|
38,331
|
|
|
255,725
|
|
Unearned
income
|
|
|
(357,970
|
)
|
|
(165,513
|
)
|
|
(523,483
|
)
|
Allowance
for credit losses
|
|
|
(24,261
|
)
|
|
(16,849
|
)
|
|
(41,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in sales-type lease receivables
|
|
|
1,505,126
|
|
|
601,734
|
|
|
2,106,860
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivables
|
|
|
|
|
|
|
|
|
|
|
Loan
receivables
|
|
|
432,137
|
|
|
55,418
|
|
|
487,555
|
|
Allowance
for credit losses
|
|
|
(25,552
|
)
|
|
(2,768
|
)
|
|
(28,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in loan receivables
|
|
|
406,585
|
|
|
52,650
|
|
|
459,235
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in finance receivables
|
|
$
|
1,911,711
|
|
$
|
654,384
|
|
$
|
2,566,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Sales-type
lease Receivables
|
|
|
|
|
|
|
|
|
|
|
Gross
finance receivables
|
|
$
|
1,836,899
|
|
$
|
774,971
|
|
$
|
2,611,870
|
|
Unguaranteed
residual values
|
|
|
245,086
|
|
|
37,122
|
|
|
282,208
|
|
Unearned
income
|
|
|
(423,290
|
)
|
|
(178,141
|
)
|
|
(601,431
|
)
|
Allowance
for credit losses
|
|
|
(26,629
|
)
|
|
(17,453
|
)
|
|
(44,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in sales-type lease receivables
|
|
|
1,632,066
|
|
|
616,499
|
|
|
2,248,565
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivables
|
|
|
|
|
|
|
|
|
|
|
Loan
receivables
|
|
|
456,308
|
|
|
49,563
|
|
|
505,871
|
|
Allowance
for credit losses
|
|
|
(25,889
|
)
|
|
(2,187
|
)
|
|
(28,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in loan receivables
|
|
|
430,419
|
|
|
47,376
|
|
|
477,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in finance receivables
|
|
$
|
2,062,485
|
|
$
|
663,875
|
|
$
|
2,726,360
|
|
|
|
|
|
|
|
|
|
|
|
|
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in
thousands, except per share data)
Maturities of gross
sales-type lease and loan receivables at December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
723,567
|
|
$
|
233,509
|
|
$
|
957,076
|
|
$
|
432,137
|
|
$
|
55,418
|
|
$
|
487,555
|
|
2012
|
|
|
461,222
|
|
|
191,822
|
|
|
653,044
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
291,280
|
|
|
156,570
|
|
|
447,850
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
147,509
|
|
|
118,566
|
|
|
266,075
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
41,614
|
|
|
40,649
|
|
|
82,263
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
4,771
|
|
|
4,649
|
|
|
9,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,669,963
|
|
$
|
745,765
|
|
$
|
2,415,728
|
|
$
|
432,137
|
|
$
|
55,418
|
|
$
|
487,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity
in the allowance for credit losses for sales-type lease and loan receivables
for each of the three years ended December 31, 2010, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2008
|
|
$
|
31,173
|
|
$
|
21,384
|
|
$
|
23,110
|
|
$
|
2,704
|
|
$
|
78,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts charged to expense
|
|
|
10,015
|
|
|
6,592
|
|
|
32,117
|
|
|
3,012
|
|
|
51,736
|
|
Accounts written off
|
|
|
(14,481
|
)
|
|
(11,269
|
)
|
|
(29,782
|
)
|
|
(2,785
|
)
|
|
(58,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
26,707
|
|
|
16,707
|
|
|
25,445
|
|
|
2,931
|
|
|
71,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts charged to expense
|
|
|
15,304
|
|
|
12,437
|
|
|
31,894
|
|
|
2,120
|
|
|
61,755
|
|
Accounts written off
|
|
|
(15,382
|
)
|
|
(11,691
|
)
|
|
(31,450
|
)
|
|
(2,864
|
)
|
|
(61,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
26,629
|
|
|
17,453
|
|
|
25,889
|
|
|
2,187
|
|
|
72,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts charged to expense
|
|
|
12,076
|
|
|
7,854
|
|
|
19,360
|
|
|
2,710
|
|
|
42,000
|
|
Accounts written off
|
|
|
(14,444
|
)
|
|
(8,458
|
)
|
|
(19,697
|
)
|
|
(2,129
|
)
|
|
(44,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
24,261
|
|
$
|
16,849
|
|
$
|
25,552
|
|
$
|
2,768
|
|
$
|
69,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in
thousands, except per share data)
The aging of sales-type
lease and loan receivables at December 31, 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 31 days past due
|
|
$
|
1,575,968
|
|
$
|
703,146
|
|
$
|
409,583
|
|
$
|
52,848
|
|
$
|
2,741,545
|
|
> 30 days and < 61 days
|
|
|
40,129
|
|
|
15,123
|
|
|
11,586
|
|
|
1,644
|
|
|
68,482
|
|
> 60 days and < 91 days
|
|
|
27,052
|
|
|
7,071
|
|
|
4,517
|
|
|
519
|
|
|
39,159
|
|
> 90 days and < 121 days
|
|
|
8,109
|
|
|
4,530
|
|
|
2,650
|
|
|
254
|
|
|
15,543
|
|
> 120 days
|
|
|
18,705
|
|
|
15,895
|
|
|
3,801
|
|
|
153
|
|
|
38,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,669,963
|
|
$
|
745,765
|
|
$
|
432,137
|
|
$
|
55,418
|
|
$
|
2,903,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due amounts > 90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Still accruing interest
|
|
$
|
8,109
|
|
$
|
4,530
|
|
$
|
|
|
$
|
|
|
$
|
12,639
|
|
Not accruing interest
|
|
|
18,705
|
|
|
15,895
|
|
|
6,451
|
|
|
407
|
|
|
41,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
26,814
|
|
$
|
20,425
|
|
$
|
6,451
|
|
$
|
407
|
|
$
|
54,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 31 days past due
|
|
$
|
1,730,355
|
|
$
|
725,643
|
|
$
|
428,769
|
|
$
|
47,009
|
|
$
|
2,931,776
|
|
> 30 days and < 61 days
|
|
|
45,946
|
|
|
16,006
|
|
|
13,783
|
|
|
1,254
|
|
|
76,989
|
|
> 60 days and < 91 days
|
|
|
28,872
|
|
|
7,547
|
|
|
5,207
|
|
|
495
|
|
|
42,121
|
|
> 90 days and < 121 days
|
|
|
8,139
|
|
|
7,441
|
|
|
3,261
|
|
|
253
|
|
|
19,094
|
|
> 120 days
|
|
|
23,587
|
|
|
18,334
|
|
|
5,288
|
|
|
552
|
|
|
47,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,836,899
|
|
$
|
774,971
|
|
$
|
456,308
|
|
$
|
49,563
|
|
$
|
3,117,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due amounts > 90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Still accruing interest
|
|
$
|
8,139
|
|
$
|
7,441
|
|
$
|
|
|
$
|
|
|
$
|
15,580
|
|
Not accruing interest
|
|
|
23,587
|
|
|
18,334
|
|
|
8,549
|
|
|
805
|
|
|
51,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
31,726
|
|
$
|
25,775
|
|
$
|
8,549
|
|
$
|
805
|
|
$
|
66,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality
We
use credit scores as one of many data elements in making the decision to grant
credit at inception, setting credit lines at inception, managing credit lines
through the life of the customer, and to assist in collections strategy.
We
use a third party to score the majority of the North American portfolio on a
quarterly basis using a commercial credit score. Accounts may not receive a
score because of data issues related to SIC information, customer
identification mismatches between the various data sources and other reasons.
We do not currently score the portfolios outside of North America because the
cost to do so is prohibitive, it is a fragmented process and there is no single
credit score model that covers all countries. However, credit policies are
similar to those in North America.
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in
thousands, except per share data)
The table below shows the
portfolio at December 31, 2010 and December 31 2009 by relative risk class
(low, medium and high) based on the relative scores of the accounts within each
class. A fourth class is shown for accounts that are not scored. The degree of
risk, as defined by the third party, refers to the likelihood that an account
in the next 12 month period may become delinquent. Absence of a score is not
indicative of the credit quality of the account.
|
|
|
|
|
Low risk accounts are
companies with very good credit risk
|
|
|
|
|
|
Medium risk accounts are
companies with average to good credit risk
|
|
|
|
|
|
High risk accounts are
companies with poor credit risk, are delinquent, or are at risk of becoming
delinquent
|
Although the relative score
of accounts within each class is used as a factor for determining the
establishment of a customer credit limit, it is not indicative of our actual history
of losses due to the business essential nature of our products and services.
The aging schedule included
above, showing approximately 1.9% of the portfolio as greater than 90 days past
due, and the roll-forward schedule of the allowance for credit losses, showing
the actual history of losses for the three most recent years ended December 31,
2010 are more representative of the potential loss performance of our portfolio
than relative risk based on scores, as defined by the third party.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2010
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
$
|
1,001,663
|
|
$
|
190,018
|
|
$
|
1,191,681
|
|
|
60.0
|
%
|
|
25.5
|
%
|
|
49.3
|
%
|
Medium
|
|
|
443,139
|
|
|
69,280
|
|
|
512,419
|
|
|
26.5
|
%
|
|
9.3
|
%
|
|
21.2
|
%
|
High
|
|
|
49,183
|
|
|
11,572
|
|
|
60,755
|
|
|
2.9
|
%
|
|
1.6
|
%
|
|
2.5
|
%
|
Not Scored
|
|
|
175,978
|
|
|
474,895
|
|
|
650,873
|
|
|
10.5
|
%
|
|
63.7
|
%
|
|
26.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,669,963
|
|
$
|
745,765
|
|
$
|
2,415,728
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
$
|
21,808
|
|
$
|
12,002
|
|
$
|
33,810
|
|
|
5.0
|
%
|
|
21.7
|
%
|
|
6.9
|
%
|
Medium
|
|
|
260,708
|
|
|
7,640
|
|
|
268,348
|
|
|
60.3
|
%
|
|
13.8
|
%
|
|
55.0
|
%
|
High
|
|
|
147,975
|
|
|
1,406
|
|
|
149,381
|
|
|
34.2
|
%
|
|
2.5
|
%
|
|
30.6
|
%
|
Not Scored
|
|
|
1,646
|
|
|
34,370
|
|
|
36,016
|
|
|
0.4
|
%
|
|
62.0
|
%
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
432,137
|
|
$
|
55,418
|
|
$
|
487,555
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
$
|
1,023,471
|
|
$
|
202,020
|
|
$
|
1,225,491
|
|
|
48.7
|
%
|
|
25.2
|
%
|
|
42.2
|
%
|
Medium
|
|
|
703,847
|
|
|
76,920
|
|
|
780,767
|
|
|
33.5
|
%
|
|
9.6
|
%
|
|
26.9
|
%
|
High
|
|
|
197,158
|
|
|
12,978
|
|
|
210,136
|
|
|
9.4
|
%
|
|
1.6
|
%
|
|
7.2
|
%
|
Not Scored
|
|
|
177,624
|
|
|
509,265
|
|
|
686,889
|
|
|
8.4
|
%
|
|
63.6
|
%
|
|
23.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,102,100
|
|
$
|
801,183
|
|
$
|
2,903,283
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
$
|
1,142,945
|
|
$
|
207,214
|
|
$
|
1,350,159
|
|
|
62.2
|
%
|
|
26.7
|
%
|
|
51.7
|
%
|
Medium
|
|
|
466,616
|
|
|
89,606
|
|
|
556,222
|
|
|
25.4
|
%
|
|
11.6
|
%
|
|
21.3
|
%
|
High
|
|
|
51,211
|
|
|
3,042
|
|
|
54,253
|
|
|
2.8
|
%
|
|
0.4
|
%
|
|
2.1
|
%
|
Not Scored
|
|
|
176,127
|
|
|
475,109
|
|
|
651,236
|
|
|
9.6
|
%
|
|
61.3
|
%
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,836,899
|
|
$
|
774,971
|
|
$
|
2,611,870
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
$
|
20,688
|
|
$
|
10,382
|
|
$
|
31,070
|
|
|
4.5
|
%
|
|
20.9
|
%
|
|
6.1
|
%
|
Medium
|
|
|
288,062
|
|
|
5,675
|
|
|
293,737
|
|
|
63.1
|
%
|
|
11.5
|
%
|
|
58.1
|
%
|
High
|
|
|
147,558
|
|
|
201
|
|
|
147,759
|
|
|
32.3
|
%
|
|
0.4
|
%
|
|
29.2
|
%
|
Not Scored
|
|
|
|
|
|
33,305
|
|
|
33,305
|
|
|
0.0
|
%
|
|
67.2
|
%
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
456,308
|
|
$
|
49,563
|
|
$
|
505,871
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
$
|
1,163,633
|
|
$
|
217,596
|
|
$
|
1,381,229
|
|
|
50.7
|
%
|
|
26.4
|
%
|
|
44.3
|
%
|
Medium
|
|
|
754,678
|
|
|
95,281
|
|
|
849,959
|
|
|
32.9
|
%
|
|
11.6
|
%
|
|
27.3
|
%
|
High
|
|
|
198,769
|
|
|
3,243
|
|
|
202,012
|
|
|
8.7
|
%
|
|
0.4
|
%
|
|
6.5
|
%
|
Not Scored
|
|
|
176,127
|
|
|
508,414
|
|
|
684,541
|
|
|
7.7
|
%
|
|
61.7
|
%
|
|
22.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,293,207
|
|
$
|
824,534
|
|
$
|
3,117,741
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitney Bowes Bank
At
December 31, 2010, PBB had assets of $675 million and liabilities of $626
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 Federal
Deposit Insurance Corporation (FDIC) and the Utah Department of Financial
Institutions.
Leveraged Leases
Our investment in leveraged
lease assets consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Rental receivables
|
|
$
|
1,802,107
|
|
$
|
1,747,811
|
|
Unguaranteed residual values
|
|
|
14,141
|
|
|
13,399
|
|
Principal and interest on non-recourse loans
|
|
|
(1,373,651
|
)
|
|
(1,341,820
|
)
|
Unearned income
|
|
|
(191,591
|
)
|
|
(186,031
|
)
|
|
|
|
|
|
|
|
|
Investment in leveraged leases
|
|
|
251,006
|
|
|
233,359
|
|
Less: deferred taxes related to leveraged leases
|
|
|
(192,128
|
)
|
|
(175,329
|
)
|
|
|
|
|
|
|
|
|
Net investment in leveraged leases
|
|
$
|
58,878
|
|
$
|
58,030
|
|
|
|
|
|
|
|
|
|
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in
thousands, except per share data)
The following is a summary of
the components of income from leveraged leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Pre-tax leveraged lease
income
|
|
$
|
8,334
|
|
$
|
918
|
|
$
|
316
|
|
Income tax effect
|
|
|
(863
|
)
|
|
6,676
|
|
|
7,063
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from leveraged
leases
|
|
$
|
7,471
|
|
$
|
7,594
|
|
$
|
7,379
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from leveraged leases was positively impacted by $2.2 million, $2.8 million and
$2.6 million in 2010, 2009 and 2008, respectively, due to changes in statutory
tax rates.
18. Business Segment Information
We
conduct our business activities in seven reporting segments within two business
groups, Small & Medium Business Solutions and Enterprise Business
Solutions. The principal products and services of each of our reporting
segments are as follows:
Small
& Medium Business 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.
|
Enterprise
Business Solutions:
|
|
|
Production Mail
: Includes the worldwide revenue and related
expenses from the sale, support and other professional services of our
high-speed, production mail systems, sorting and production print equipment.
|
|
|
|
Software
:
Includes the worldwide revenue and related expenses from the sale and support
services of non-equipment-based mailing, customer relationship and
communication and location intelligence software.
|
|
|
|
Management Services
: Includes worldwide revenue and related
expenses from facilities management services; secure mail services;
reprographic, document management services; and litigation support and
eDiscovery services.
|
|
|
|
Mail Services
: Includes worldwide revenue and related expenses from presort mail
services and cross-border mail services.
|
|
|
|
Marketing Services
: Includes revenue and related expenses from
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.
Earnings
before interest and taxes (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.
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Revenue and
EBIT by business segment and geographic area is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
1,879,298
|
|
$
|
2,016,259
|
|
$
|
2,250,399
|
|
International Mailing
|
|
|
922,471
|
|
|
920,398
|
|
|
1,133,652
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
2,801,769
|
|
|
2,936,657
|
|
|
3,384,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
557,219
|
|
|
525,745
|
|
|
616,255
|
|
Software
|
|
|
362,914
|
|
|
345,739
|
|
|
399,814
|
|
Management Services
|
|
|
999,288
|
|
|
1,060,907
|
|
|
1,172,170
|
|
Mail Services
|
|
|
562,526
|
|
|
559,200
|
|
|
541,776
|
|
Marketing Services
|
|
|
141,538
|
|
|
140,923
|
|
|
148,239
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
2,623,485
|
|
|
2,632,514
|
|
|
2,878,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
5,425,254
|
|
$
|
5,569,171
|
|
$
|
6,262,305
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,804,489
|
|
$
|
3,979,493
|
|
$
|
4,335,650
|
|
Outside the United States
|
|
|
1,620,765
|
|
|
1,589,678
|
|
|
1,926,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,425,254
|
|
$
|
5,569,171
|
|
$
|
6,262,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
689,363
|
|
$
|
743,108
|
|
$
|
890,356
|
|
International Mailing
|
|
|
142,875
|
|
|
128,084
|
|
|
184,667
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
832,238
|
|
|
871,192
|
|
|
1,075,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
60,373
|
|
|
51,037
|
|
|
81,514
|
|
Software
|
|
|
42,206
|
|
|
37,335
|
|
|
28,335
|
|
Management Services
|
|
|
92,671
|
|
|
72,307
|
|
|
70,173
|
|
Mail Services
|
|
|
63,330
|
|
|
82,723
|
|
|
68,800
|
|
Marketing Services
|
|
|
26,133
|
|
|
22,938
|
|
|
21,291
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
284,713
|
|
|
266,340
|
|
|
270,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,116,951
|
|
$
|
1,137,532
|
|
$
|
1,345,136
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
931,129
|
|
$
|
971,725
|
|
$
|
1,100,900
|
|
Outside the United States
|
|
|
185,822
|
|
|
165,807
|
|
|
244,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,116,951
|
|
$
|
1,137,532
|
|
$
|
1,345,136
|
|
|
|
|
|
|
|
|
|
|
|
|
77
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,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
122,748
|
|
$
|
139,176
|
|
$
|
146,422
|
|
International Mailing
|
|
|
55,673
|
|
|
53,667
|
|
|
63,389
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
178,421
|
|
|
192,843
|
|
|
209,811
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
5,257
|
|
|
7,079
|
|
|
7,358
|
|
Software
|
|
|
36,559
|
|
|
34,505
|
|
|
37,317
|
|
Management Services
|
|
|
33,398
|
|
|
44,809
|
|
|
65,320
|
|
Mail Services
|
|
|
27,924
|
|
|
31,071
|
|
|
32,045
|
|
Marketing Services
|
|
|
5,479
|
|
|
8,876
|
|
|
8,380
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
108,617
|
|
|
126,340
|
|
|
150,420
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
287,038
|
|
$
|
319,183
|
|
$
|
360,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
60,919
|
|
$
|
78,808
|
|
$
|
100,783
|
|
International Mailing
|
|
|
15,528
|
|
|
25,448
|
|
|
45,473
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
76,447
|
|
|
104,256
|
|
|
146,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
609
|
|
|
1,292
|
|
|
3,613
|
|
Software
|
|
|
4,215
|
|
|
4,371
|
|
|
12,519
|
|
Management Services
|
|
|
17,307
|
|
|
19,766
|
|
|
28,152
|
|
Mail Services
|
|
|
7,243
|
|
|
21,058
|
|
|
30,344
|
|
Marketing Services
|
|
|
626
|
|
|
514
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
30,000
|
|
|
47,001
|
|
|
76,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106,447
|
|
$
|
151,257
|
|
$
|
222,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
U.S. Mailing
|
|
$
|
2,894,074
|
|
$
|
2,948,520
|
|
International Mailing
|
|
|
1,607,190
|
|
|
1,677,082
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
4,501,264
|
|
|
4,625,602
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
547,002
|
|
|
617,483
|
|
Software
|
|
|
1,008,088
|
|
|
944,248
|
|
Management Services
|
|
|
799,290
|
|
|
879,390
|
|
Mail Services
|
|
|
512,785
|
|
|
516,274
|
|
Marketing Services
|
|
|
230,995
|
|
|
234,216
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
3,098,160
|
|
|
3,191,611
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,599,424
|
|
$
|
7,817,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable long-lived assets by
geographic areas:
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,939,467
|
|
$
|
2,846,443
|
|
Outside the United States
|
|
|
996,963
|
|
|
909,099
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,936,430
|
|
$
|
3,755,542
|
|
|
|
|
|
|
|
|
|
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Reconciliation of Segment Amounts to
Consolidated Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
1,116,951
|
|
$
|
1,137,532
|
|
$
|
1,345,136
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(201,324
|
)
|
|
(203,906
|
)
|
|
(216,450
|
)
|
Corporate expense
|
|
|
(198,776
|
)
|
|
(187,254
|
)
|
|
(209,543
|
)
|
Restructuring charges and asset impairments
|
|
|
(182,274
|
)
|
|
(48,746
|
)
|
|
(200,254
|
)
|
Other items
|
|
|
|
|
|
(4,450
|
)
|
|
(5,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
$
|
534,577
|
|
$
|
693,176
|
|
$
|
713,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
287,038
|
|
$
|
319,183
|
|
$
|
360,231
|
|
Corporate depreciation
|
|
|
16,615
|
|
|
19,712
|
|
|
18,886
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization
|
|
$
|
303,653
|
|
$
|
338,895
|
|
$
|
379,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
106,447
|
|
$
|
151,257
|
|
$
|
222,614
|
|
Unallocated amounts
|
|
|
13,321
|
|
|
15,471
|
|
|
14,694
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$
|
119,768
|
|
$
|
166,728
|
|
$
|
237,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
7,599,424
|
|
$
|
7,817,213
|
|
|
|
|
Cash and cash equivalents and short-term
investments
|
|
|
514,972
|
|
|
427,419
|
|
|
|
|
General corporate assets
|
|
|
329,627
|
|
|
326,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
8,444,023
|
|
$
|
8,571,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
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 retirement plans. 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. As of December 31, 2014,
benefit accruals for our U.S. pension plans, the Pitney Bowes Pension Plan and
the Pitney Bowes Pension Restoration Plan, will be determined and frozen and no
future benefit accruals under these plans will occur after that date.
The change in
benefit obligation, plan assets and the funded status of defined benefit
pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,599,506
|
|
$
|
1,605,380
|
|
$
|
507,932
|
|
$
|
384,507
|
|
Service cost
|
|
|
23,157
|
|
|
24,274
|
|
|
6,907
|
|
|
6,853
|
|
Interest cost
|
|
|
89,602
|
|
|
93,997
|
|
|
27,507
|
|
|
25,200
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
1,962
|
|
|
2,231
|
|
Actuarial loss
|
|
|
39,971
|
|
|
17,698
|
|
|
27,129
|
|
|
63,325
|
|
Foreign currency changes
|
|
|
|
|
|
|
|
|
(5,257
|
)
|
|
45,858
|
|
Settlement / curtailment
|
|
|
6,419
|
|
|
(24,297
|
)
|
|
(3,396
|
)
|
|
(1,579
|
)
|
Special termination benefits
|
|
|
8,148
|
|
|
112
|
|
|
557
|
|
|
2,012
|
|
Benefits paid
|
|
|
(134,517
|
)
|
|
(117,658
|
)
|
|
(22,100
|
)
|
|
(20,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
1,632,286
|
|
$
|
1,599,506
|
|
$
|
541,241
|
|
$
|
507,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of
year
|
|
$
|
1,350,045
|
|
$
|
1,175,271
|
|
$
|
414,313
|
|
$
|
312,206
|
|
Actual return on plan assets
|
|
|
149,599
|
|
|
177,119
|
|
|
50,609
|
|
|
48,128
|
|
Company contributions
|
|
|
20,047
|
|
|
115,313
|
|
|
9,291
|
|
|
32,755
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
1,962
|
|
|
2,231
|
|
Foreign currency changes
|
|
|
|
|
|
|
|
|
(3,392
|
)
|
|
39,468
|
|
Benefits paid
|
|
|
(134,517
|
)
|
|
(117,658
|
)
|
|
(22,100
|
)
|
|
(20,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
1,385,174
|
|
$
|
1,350,045
|
|
$
|
450,683
|
|
$
|
414,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
1,385,174
|
|
$
|
1,350,045
|
|
$
|
450,683
|
|
$
|
414,313
|
|
Benefit obligations at end of year
|
|
|
1,632,286
|
|
|
1,599,506
|
|
|
541,241
|
|
|
507,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(247,112
|
)
|
$
|
(249,461
|
)
|
$
|
(90,558
|
)
|
$
|
(93,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset
|
|
$
|
29
|
|
$
|
|
|
$
|
508
|
|
$
|
484
|
|
Current liability
|
|
|
(6,962
|
)
|
|
(19,424
|
)
|
|
(901
|
)
|
|
(957
|
)
|
Non-current liability
|
|
|
(240,179
|
)
|
|
(230,037
|
)
|
|
(90,165
|
)
|
|
(93,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(247,112
|
)
|
$
|
(249,461
|
)
|
$
|
(90,558
|
)
|
$
|
(93,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Information
provided in the table below is only for pension plans with an accumulated
benefit obligation in excess of plan assets at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
1,630,712
|
|
$
|
1,599,506
|
|
$
|
538,637
|
|
$
|
505,673
|
|
Accumulated benefit obligation
|
|
$
|
1,601,746
|
|
$
|
1,568,618
|
|
$
|
502,317
|
|
$
|
464,362
|
|
Fair value of plan assets
|
|
$
|
1,383,571
|
|
$
|
1,350,045
|
|
$
|
447,569
|
|
$
|
411,573
|
|
The accumulated benefit obligation for all U.S. defined benefit plans
at December 31, 2010 and 2009 was $1,603 million and $1,569 million,
respectively. The accumulated benefit obligation for all foreign defined
benefit plans at December 31, 2010 and 2009 was $504 million and $466 million,
respectively.
81
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Pre-tax amounts
recognized in accumulated other comprehensive income (AOCI) consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
719,890
|
|
$
|
742,921
|
|
$
|
168,376
|
|
$
|
161,441
|
|
Prior
service cost/(credit)
|
|
|
2,400
|
|
|
(40
|
)
|
|
541
|
|
|
756
|
|
Transition
obligation (asset)
|
|
|
|
|
|
|
|
|
(282
|
)
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
722,290
|
|
$
|
742,881
|
|
$
|
168,635
|
|
$
|
162,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts
that will be amortized from AOCI into net periodic benefits cost in 2011 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
37,394
|
|
|
|
|
$
|
12,448
|
|
|
|
|
Prior
service cost/(credit)
|
|
|
82
|
|
|
|
|
|
163
|
|
|
|
|
Transition
obligation (asset)
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,476
|
|
|
|
|
$
|
12,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
assumptions used to determine end of year benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.60
|
%
|
|
5.75
|
%
|
|
2.25% - 5.50
|
%
|
|
2.25% - 6.00
|
%
|
Rate of compensation increase
|
|
|
3.50
|
%
|
|
3.50
|
%
|
|
2.50% - 5.50
|
%
|
|
2.50% - 5.60
|
%
|
A discount rate is used to determine the present value of our future
benefit obligations. The discount rate
for our U.S. pension and postretirement medical benefit plans is determined by
matching the expected cash flows associated with our benefit obligations to a
yield curve based on long-term, high quality fixed income debt instruments
available as of the measurement date.
In 2010, we reduced the population of bonds used to derive this yield
curve with the adoption of a bond matching approach which incorporates a
selection of bonds that align with our projected benefit obligations. We believe this bond matching approach more
closely reflects the process we would employ to settle our pension and
postretirement benefit obligations. As
a result of this modification, the pension benefits discount rate increased 45
basis points resulting in a decrease in the projected benefit obligation of $78
million, and the postretirement medical benefits discount rate increased 40
basis points resulting in a decrease in the projected benefit obligation of $8
million.
For the U.K. retirement benefit plan, our largest foreign plan, the
discount rate is determined by discounting each years estimated benefit
payments by an applicable spot rate, derived from a yield curve created from a
large number of high quality corporate bonds.
For our other smaller foreign pension plans, the discount rate is
selected based on high quality fixed income indices available in the country in
which the plan is domiciled.
At December 31, 2010 there were no shares of our common stock included
in the plan assets of our pension plans.
We anticipate making contributions of approximately $130 million and
$15 million to our U.S. and foreign pension plans, respectively during
2011. We will reassess our funding
alternatives as the year progresses.
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The components of the net periodic benefit cost for defined pension
plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
23,157
|
|
$
|
24,274
|
|
$
|
29,699
|
|
$
|
6,907
|
|
$
|
6,853
|
|
$
|
10,562
|
|
Interest cost
|
|
|
89,602
|
|
|
93,997
|
|
|
96,205
|
|
|
27,507
|
|
|
25,200
|
|
|
29,140
|
|
Expected return on plan assets
|
|
|
(123,095
|
)
|
|
(120,662
|
)
|
|
(132,748
|
)
|
|
(28,838
|
)
|
|
(27,193
|
)
|
|
(36,713
|
)
|
Amortization of transition cost
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
(61
|
)
|
|
142
|
|
Amortization of prior service (cost) credit
|
|
|
(2,555
|
)
|
|
(2,547
|
)
|
|
(2,560
|
)
|
|
214
|
|
|
446
|
|
|
628
|
|
Recognized net actuarial loss
|
|
|
32,323
|
|
|
26,063
|
|
|
18,944
|
|
|
10,205
|
|
|
2,486
|
|
|
3,981
|
|
Special termination benefits
|
|
|
8,148
|
|
|
112
|
|
|
2,105
|
|
|
291
|
|
|
2,385
|
|
|
632
|
|
Settlement / curtailment
|
|
|
10,712
|
|
|
4,107
|
|
|
|
|
|
1,285
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (1)
|
|
$
|
38,292
|
|
$
|
25,344
|
|
$
|
11,645
|
|
$
|
17,562
|
|
$
|
10,318
|
|
$
|
8,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
(1) Includes $14.9 million and $1.6 million charged to our
restructuring reserves in 2010 for the U.S. and foreign plans,
respectively. See Note 14 for further
information.
Other changes in plan assets and benefit obligations for defined
benefit pension plans recognized in other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments effects and settlements
|
|
$
|
(4,290
|
)
|
$
|
(28,404
|
)
|
$
|
(464
|
)
|
$
|
|
|
Net actuarial loss (gain)
|
|
|
13,467
|
|
|
(38,407
|
)
|
|
5,748
|
|
|
44,124
|
|
Prior service credit
|
|
|
|
|
|
(353
|
)
|
|
(3,790
|
)
|
|
|
|
Amortization of net actuarial (loss) gain
|
|
|
(32,343
|
)
|
|
(26,063
|
)
|
|
5,441
|
|
|
(2,059
|
)
|
Amortization of prior service (cost) credit
|
|
|
2,575
|
|
|
2,547
|
|
|
(215
|
)
|
|
(512
|
)
|
Net transitional obligation (asset)
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive
income
|
|
$
|
(20,591
|
)
|
$
|
(90,680
|
)
|
$
|
6,634
|
|
$
|
41,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
assumptions used to determine net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
6.05
|
%
|
|
|
6.15
|
%
|
|
|
2.25% - 6.00
|
%
|
|
2.25% - 6.60
|
%
|
|
2.25% - 5.80
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
4.50% - 7.75
|
%
|
|
4.49% - 7.75
|
%
|
|
3.50% - 7.75
|
%
|
Rate of compensation increase
|
|
|
3.50
|
%
|
|
|
4.25
|
%
|
|
|
4.50
|
%
|
|
|
2.50% - 5.60
|
%
|
|
2.50% - 5.10
|
%
|
|
2.50% - 5.50
|
%
|
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 is 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%. 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 2011 and the asset allocation for the U.S. pension plan at
December 31, 2010 and 2009, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
Percentage of Plan Assets at
December 31,
|
|
|
|
|
|
|
|
Asset
category
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
U.S.
equities
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
35
|
%
|
|
Non-U.S.
equities
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
19
|
%
|
|
Fixed income
|
|
|
32
|
%
|
|
|
34
|
%
|
|
|
38
|
%
|
|
Real estate
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
Private
equity
|
|
|
7
|
%
|
|
|
5
|
%
|
|
|
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
and Asset Allocation
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 2011 and the asset allocation for the U.K. pension plan at
December 31, 2010 and 2009, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
Percentage of Plan Assets at
December 31,
|
|
|
|
|
|
|
|
Asset
category
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
U.K.
equities
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
35
|
%
|
|
Non-U.K.
equities
|
|
|
33
|
%
|
|
|
35
|
%
|
|
|
32
|
%
|
|
Fixed income
|
|
|
35
|
%
|
|
|
29
|
%
|
|
|
32
|
%
|
|
Cash
|
|
|
|
%
|
|
|
3
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $338 million and $312 million at December 31, 2010
and 2009, respectively, and the expected long-term rate of return on these plan
assets was 7.25% and 7.50% and in 2010 and 2009, 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, 2010 and 2009, 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, 2010
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
|
|
$
|
20,571
|
|
$
|
|
|
$
|
20,571
|
|
Equity securities
|
|
|
431,098
|
|
|
346,126
|
|
|
|
|
|
777,224
|
|
Debt securities - U.S. and foreign
governments, agencies, and municipalities
|
|
|
104,097
|
|
|
9,878
|
|
|
|
|
|
113,975
|
|
Corporate debt securities
|
|
|
|
|
|
172,722
|
|
|
|
|
|
172,722
|
|
Mortgage-backed securities
|
|
|
|
|
|
156,516
|
|
|
5,389
|
|
|
161,905
|
|
Asset-backed securities
|
|
|
|
|
|
18,698
|
|
|
|
|
|
18,698
|
|
Private equity
|
|
|
|
|
|
|
|
|
69,495
|
|
|
69,495
|
|
Real estate
|
|
|
|
|
|
|
|
|
52,553
|
|
|
52,553
|
|
Derivatives
|
|
|
21
|
|
|
|
|
|
|
|
|
21
|
|
Securities lending fund *
|
|
|
|
|
|
158,155
|
|
|
|
|
|
158,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
535,216
|
|
$
|
882,666
|
|
$
|
127,437
|
|
$
|
1,545,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
51
|
|
$
|
|
|
$
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
51
|
|
$
|
|
|
$
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Securities lending fund at
December 31, 2010 is offset by a liability of $158,155 recorded in the Pitney
Bowes Pension Plan net assets available for benefits.
|
86
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans - Fair Value Measurements at December
31, 2009
|
|
|
|
|
|
|
|
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.
|
87
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Pension Plans - Fair Value Measurements at December
31, 2010
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Equity securities
|
|
|
128,859
|
|
|
164,389
|
|
|
|
|
|
293,248
|
|
Debt securities - U.S. and foreign governments, agencies, and
municipalities
|
|
|
10,751
|
|
|
50,355
|
|
|
|
|
|
61,106
|
|
Corporate debt securities
|
|
|
|
|
|
78,387
|
|
|
|
|
|
78,387
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
88
|
|
|
6,500
|
|
|
|
|
|
6,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
139,698
|
|
$
|
299,631
|
|
$
|
|
|
$
|
439,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
$
|
6,873
|
|
$
|
|
|
$
|
6,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
$
|
6,873
|
|
$
|
|
|
$
|
6,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Pension Plans - Fair Value Measurements at December
31, 2009
|
|
|
|
|
|
|
|
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
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
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 as Level 2 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 as Level 1 are valued using active, high volume trades
for identical securities. Equity securities classified as Level 2 represent
those not listed on an exchange in an active market. These securities are
valued based on quoted market prices of similar securities.
|
|
|
|
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 as Level 1 are valued using active, high
volume trades for identical securities. Debt securities classified as Level 2
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 valued using recently executed transactions,
market price quotations where observable, or bond spreads. The spread data used
are for the same maturity as the security. These securities are classified as
Level 2.
|
|
|
|
Mortgage-Backed
Securities (MBS)
: 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, MBS are valued based on
external price/spread data. If neither pricing method is available, broker
quotes are utilized. When inputs are observable and supported by an active
market, MBS are classified as Level 2 and when inputs are unobservable, MBS are
classified as Level 3.
|
|
|
|
Asset-Backed
Securities (ABS)
: Investments are primarily 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 and are classified as Level 2.
|
|
|
|
Private
Equity
: Investments are comprised of units in fund-of-fund
investment vehicles. Fund-of-funds 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,
and are classified as Level 3 due to the unobservable inputs used to determine
a fair value.
|
|
|
|
Real Estate:
Investments include units in open-ended commingled real estate funds.
Properties that comprise these funds are valued in accordance with the most
appropriate valuation techniques, and are classified as Level 3 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 as Level 1 are valued through a readily available
exchange listed price. Derivative instruments classified as Level 2 are valued
using observable inputs but are not listed or traded on an exchange.
|
|
|
|
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. The
investment 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.
|
89
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 Level 3 assets of the
U.S. pension plans for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS
|
|
Private
equity
|
|
Real estate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
761
|
|
$
|
49,231
|
|
$
|
50,331
|
|
$
|
100,323
|
|
Realized gains / (losses)
|
|
|
1
|
|
|
|
|
|
378
|
|
|
379
|
|
Unrealized gains / (losses)
|
|
|
(139
|
)
|
|
5,652
|
|
|
2,374
|
|
|
7,887
|
|
Purchases, sales, issuances and settlements
(net)
|
|
|
4,766
|
|
|
14,612
|
|
|
(530
|
)
|
|
18,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
5,389
|
|
$
|
69,495
|
|
$
|
52,553
|
|
$
|
127,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Plan Assets to Fair Value
Measurements Hierarchy
The following
table provides 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,
2010:
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
Fair Value of Plan Assets
|
|
$
|
1,385,174
|
|
$
|
450,683
|
|
Cash
|
|
|
(675
|
)
|
|
(15,185
|
)
|
Securities lending fund liability
|
|
|
158,155
|
|
|
|
|
Receivables / Prepaid benefits
|
|
|
(24,041
|
)
|
|
|
|
Payables / Accrued expenses
|
|
|
26,636
|
|
|
|
|
Other
|
|
|
19
|
|
|
(3,042
|
)
|
|
|
|
|
|
|
|
|
Fair Value Per Measurements Hierarchy
|
|
$
|
1,545,268
|
|
$
|
432,456
|
|
|
|
|
|
|
|
|
|
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.
The change in
benefit obligation, plan assets and the funded status for nonpension
postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
|
$
|
254,405
|
|
$
|
244,544
|
|
Service cost
|
|
|
3,724
|
|
|
3,424
|
|
Interest cost
|
|
|
13,828
|
|
|
14,437
|
|
Plan participants contributions
|
|
|
9,182
|
|
|
8,778
|
|
Actuarial loss
|
|
|
33,983
|
|
|
21,489
|
|
Foreign currency changes
|
|
|
1,061
|
|
|
2,509
|
|
Gross benefits paid
|
|
|
(45,971
|
)
|
|
(43,494
|
)
|
Less federal subsidy on benefits paid
|
|
|
2,408
|
|
|
2,718
|
|
Curtailment
|
|
|
7,575
|
|
|
|
|
Special termination benefits
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of year
|
|
$
|
280,386
|
|
$
|
254,405
|
|
|
|
|
|
|
|
|
|
90
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per
share data)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of
year
|
|
$
|
|
|
$
|
|
|
Company contribution
|
|
|
34,381
|
|
|
31,998
|
|
Plan participants contributions
|
|
|
9,182
|
|
|
8,778
|
|
Gross benefits paid
|
|
|
(45,971
|
)
|
|
(43,494
|
)
|
Less federal subsidy on benefits paid
|
|
|
2,408
|
|
|
2,718
|
|
|
|
|
|
|
|
|
|
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
|
|
|
280,386
|
|
|
254,405
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(280,386
|
)
|
$
|
(254,405
|
)
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheets:
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(29,374
|
)
|
$
|
(26,293
|
)
|
Non-current liability
|
|
|
(251,012
|
)
|
|
(228,112
|
)
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(280,386
|
)
|
$
|
(254,405
|
)
|
|
|
|
|
|
|
|
|
Pre-tax amounts recognized in AOCI consist
of:
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
102,910
|
|
$
|
74,044
|
|
Prior service credit
|
|
|
(5,886
|
)
|
|
(8,397
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97,024
|
|
$
|
65,647
|
|
|
|
|
|
|
|
|
|
The discount
rates used in determining the accumulated postretirement benefit obligations
for the U.S. plan were 5.15% in 2010 and 5.35% in 2009. The discount rates used
in determining the accumulated postretirement benefit obligations for the
Canadian plan were 5.15% in 2010 and 5.85% in 2009.
The components
of the net periodic benefit cost for nonpension postretirement benefit plans
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,724
|
|
$
|
3,424
|
|
$
|
3,613
|
|
Interest cost
|
|
|
13,828
|
|
|
14,437
|
|
|
14,410
|
|
Amortization of prior service benefit
|
|
|
(2,511
|
)
|
|
(2,475
|
)
|
|
(2,471
|
)
|
Recognized net actuarial loss
|
|
|
6,793
|
|
|
4,092
|
|
|
3,386
|
|
Curtailment
|
|
|
6,954
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (1)
|
|
$
|
28,979
|
|
$
|
19,478
|
|
$
|
18,938
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
$7.1 million charged to restructuring reserves. See Note 14 for further
information.
91
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Other changes
in plan assets and benefit obligation for nonpension postretirement benefit
plans recognized in other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
34,059
|
|
$
|
21,367
|
|
Amortization
of net actuarial loss
|
|
|
(6,793
|
)
|
|
(4,092
|
)
|
Amortization
of prior service credit
|
|
|
2,511
|
|
|
2,475
|
|
Adjustment
for actual Medicare Part D Premium
|
|
|
979
|
|
|
1,005
|
|
Curtailment
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
recognized in other comprehensive income
|
|
$
|
31,377
|
|
$
|
20,755
|
|
|
|
|
|
|
|
|
|
Weighted
average assumptions used to determine net periodic costs during the years:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate U.S.
|
|
|
5.35%
|
|
|
5.95%
|
|
|
5.90%
|
|
Discount
rate Canada
|
|
|
5.85%
|
|
|
6.60%
|
|
|
5.25%
|
|
The estimated
amounts that will be amortized from AOCI into net periodic benefit cost in 2011
are as follows:
|
|
|
|
|
Net actuarial loss
|
|
$
|
7,977
|
|
Prior
service credit
|
|
|
(2,259
|
)
|
|
|
|
|
|
Total
|
|
$
|
5,718
|
|
|
|
|
|
|
The assumed
health care cost trend rate used in measuring the accumulated postretirement
benefit obligations for the U.S. plan was 7.5% for 2010 and 7.5% for 2009. The
assumed health care trend rate is 7.5% for 2011 and will gradually decline to
5.0% by the year 2017 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
|
|
$
|
616
|
|
$
|
(527
|
)
|
Effect on
postretirement benefit obligations
|
|
$
|
9,366
|
|
$
|
(8,204
|
)
|
|
|
|
|
|
|
|
|
92
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Estimated Future Benefit Payments
Benefit payments, which reflect expected future service, as appropriate,
estimated to be paid during the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonpension
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Gross
|
|
Medicare Part
D Subsidy
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
191,476
|
|
$
|
31,978
|
|
$
|
(2,639
|
)
|
$
|
29,339
|
|
2012
|
|
|
137,775
|
|
|
30,648
|
|
|
(2,883
|
)
|
|
27,765
|
|
2013
|
|
|
126,910
|
|
|
29,277
|
|
|
(3,130
|
)
|
|
26,147
|
|
2014
|
|
|
130,788
|
|
|
28,166
|
|
|
(3,339
|
)
|
|
24,827
|
|
2015
|
|
|
132,588
|
|
|
27,018
|
|
|
(3,543
|
)
|
|
23,475
|
|
2016-2020
|
|
|
688,055
|
|
|
123,020
|
|
|
(9,675
|
)
|
|
113,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,407,592
|
|
$
|
270,107
|
|
$
|
(25,209
|
)
|
$
|
244,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Plans
Our U.S.
employees are eligible to participate in 401(k) savings plans, which are
voluntary defined contribution plans. These plans are designed to help
employees accumulate additional savings for retirement. We make matching
contributions on a portion of eligible pay. In 2010 and 2009, we made matching
contributions of $28.6 million and $27.2 million, respectively.
93
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
20. Earnings per Share
The
calculation of basic and diluted earnings per share for the years ended
December 31, 2010, 2009 and 2008 is presented below. Note that the sum of the
earnings per share amounts may not equal the total due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of
tax
|
|
$
|
310,483
|
|
$
|
431,554
|
|
$
|
447,493
|
|
Loss from discontinued operations
|
|
|
(18,104
|
)
|
|
(8,109
|
)
|
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (numerator for diluted EPS)
|
|
|
292,379
|
|
|
423,445
|
|
|
419,793
|
|
Less: Preference stock dividend
|
|
|
(65
|
)
|
|
(72
|
)
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common stockholders
(numerator for basic EPS)
|
|
$
|
292,314
|
|
$
|
423,373
|
|
$
|
419,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in basic EPS
|
|
|
205,968
|
|
|
206,734
|
|
|
208,425
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
2
|
|
|
3
|
|
|
3
|
|
Preference stock
|
|
|
501
|
|
|
568
|
|
|
601
|
|
Stock options and stock purchase plans
|
|
|
16
|
|
|
7
|
|
|
603
|
|
Other stock plans
|
|
|
266
|
|
|
10
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in diluted EPS
|
|
|
206,753
|
|
|
207,322
|
|
|
209,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.51
|
|
$
|
2.09
|
|
$
|
2.15
|
|
Loss from discontinued operations
|
|
|
(0.09
|
)
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.42
|
|
$
|
2.05
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.50
|
|
$
|
2.08
|
|
$
|
2.13
|
|
Loss from discontinued operations
|
|
|
(0.09
|
)
|
|
(0.04
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.41
|
|
$
|
2.04
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares not used in
calculating diluted weighted-average shares
|
|
|
15,168
|
|
|
18,319
|
|
|
15,749
|
|
|
|
|
|
|
|
|
|
|
|
|
94
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 2010 and 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,348,233
|
|
$
|
1,297,237
|
|
$
|
1,345,742
|
|
$
|
1,434,042
|
|
$
|
5,425,254
|
|
Gross profit (1)
|
|
|
691,788
|
|
|
645,307
|
|
|
679,412
|
|
|
730,424
|
|
|
2,746,931
|
|
Restructuring charges and asset impairments
|
|
|
20,722
|
|
|
48,512
|
|
|
33,805
|
|
|
79,235
|
|
|
182,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
86,763
|
|
|
68,590
|
|
|
96,064
|
|
|
77,390
|
|
|
328,807
|
|
Loss from discontinued operations, net of
income tax
|
|
|
(3,130
|
)
|
|
(2,666
|
)
|
|
(2,536
|
)
|
|
(9,772
|
)
|
|
(18,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before attribution of
noncontrolling interests
|
|
|
83,633
|
|
|
65,924
|
|
|
93,528
|
|
|
67,618
|
|
|
310,703
|
|
Less: Preferred stock dividends of
subsidiaries attributable to noncontrolling interests
|
|
|
4,594
|
|
|
4,543
|
|
|
4,593
|
|
|
4,594
|
|
|
18,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
79,039
|
|
$
|
61,381
|
|
$
|
88,935
|
|
$
|
63,024
|
|
$
|
292,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
82,169
|
|
$
|
64,047
|
|
$
|
91,471
|
|
$
|
72,796
|
|
$
|
310,483
|
|
Loss from discontinued operations
|
|
|
(3,130
|
)
|
|
(2,666
|
)
|
|
(2,536
|
)
|
|
(9,772
|
)
|
|
(18,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
79,039
|
|
$
|
61,381
|
|
$
|
88,935
|
|
$
|
63,024
|
|
$
|
292,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share attributable to common stockholders (2):
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.40
|
|
$
|
0.31
|
|
$
|
0.44
|
|
$
|
0.36
|
|
$
|
1.51
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.05
|
)
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
0.38
|
|
$
|
0.30
|
|
$
|
0.43
|
|
$
|
0.31
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share attributable to common stockholders (2):
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.40
|
|
$
|
0.31
|
|
$
|
0.44
|
|
$
|
0.36
|
|
$
|
1.50
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.05
|
)
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
0.38
|
|
$
|
0.30
|
|
$
|
0.43
|
|
$
|
0.31
|
|
$
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
104,402
|
|
$
|
117,262
|
|
$
|
103,227
|
|
$
|
98,554
|
|
$
|
423,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
104,402
|
|
$
|
117,262
|
|
$
|
103,227
|
|
$
|
98,554
|
|
$
|
423,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share attributable to 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 attributable to 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 quarterly
earnings per share amounts may not equal the annual amount due to rounding.
|
96
PITNEY BOWES INC.
S
CHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2008 TO 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
beginning of year
|
|
Additions
|
|
Deductions
|
|
Balance at
end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
42,781
|
|
$
|
9,266
|
(1)
|
$
|
(20,167
|
) (2)
|
$
|
31,880
|
|
2009
|
|
$
|
45,264
|
|
$
|
10,516
|
(1)
|
$
|
(12,999
|
) (2)
|
$
|
42,781
|
|
2008
|
|
$
|
49,324
|
|
$
|
17,134
|
(1)
|
$
|
(21,194
|
) (2)
|
$
|
45,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for
deferred tax asset (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
95,990
|
|
$
|
22,168
|
|
$
|
(13,717
|
)
|
$
|
104,441
|
|
2009
|
|
$
|
91,405
|
|
$
|
5,628
|
|
$
|
(1,043
|
)
|
$
|
95,990
|
|
2008
|
|
$
|
69,792
|
|
$
|
37,942
|
|
$
|
(16,329
|
)
|
$
|
91,405
|
|
|
|
(1)
|
Includes additions charged
to expenses, additions from acquisitions and impact of foreign exchange
translation.
|
|
|
(2)
|
Includes uncollectible
accounts written off.
|
|
|
(3)
|
Included in Consolidated
Balance Sheet as a liability.
|
97
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
|
|
99
|
|
|
|
|
|
|
|
(21)
|
|
Exhibit (ii)
|
|
Subsidiaries
of the Registrant
|
|
100
|
|
|
|
|
|
|
|
(23)
|
|
Exhibit (iii)
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
103
|
|
|
|
|
|
|
|
(10)(p)
|
|
Exhibit (iv)
|
|
Separation
(Compromise) Agreement dated December 30, 2010, by and between Patrick Keddy
and Pitney Bowes Limited
|
|
104
|
|
|
|
|
|
|
|
(31.1)
|
|
Exhibit 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.
|
|
142
|
|
|
|
|
|
|
|
(31.2)
|
|
Exhibit 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
|
|
143
|
|
|
|
|
|
|
|
(32.1)
|
|
Exhibit 32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
144
|
|
|
|
|
|
|
|
(32.2)
|
|
Exhibit 32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
145
|
|
|
|
|
|
|
|
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
|
|
|
98
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