|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income before attribution
of noncontrolling interests
|
|
$
|
196,427
|
|
$
|
149,557
|
|
|
|
|
|
|
|
|
|
Restructuring payments
|
|
|
(51,968
|
)
|
|
(66,755
|
)
|
Special pension plan
contribution
|
|
|
(123,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Restructuring charges and asset
impairments, net of tax
|
|
|
20,869
|
|
|
45,397
|
|
Depreciation and amortization
|
|
|
137,635
|
|
|
156,831
|
|
Stock-based compensation
|
|
|
8,656
|
|
|
10,785
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
(Increase) decrease in accounts
receivables
|
|
|
82,030
|
|
|
95,043
|
|
(Increase) decrease in finance
receivables
|
|
|
139,793
|
|
|
125,642
|
|
(Increase) decrease in
inventories
|
|
|
(7,435
|
)
|
|
(31,848
|
)
|
(Increase) decrease in prepaid,
deferred expense and other assets
|
|
|
4,466
|
|
|
(4,638
|
)
|
Increase (decrease) in accounts
payable and accrued liabilities
|
|
|
(85,361
|
)
|
|
(64,096
|
)
|
Increase (decrease) in current
and non-current income taxes
|
|
|
115,384
|
|
|
(6,448
|
)
|
Increase (decrease) in advance
billings
|
|
|
885
|
|
|
10,912
|
|
Increase (decrease) in other
operating capital, net
|
|
|
11,020
|
|
|
3,420
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
449,401
|
|
|
423,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Short-term and other
investments
|
|
|
(36,236
|
)
|
|
(83,904
|
)
|
Capital expenditures
|
|
|
(88,017
|
)
|
|
(58,639
|
)
|
Net investment in external
financing
|
|
|
(3,132
|
)
|
|
(2,641
|
)
|
Acquisitions, net of cash
acquired
|
|
|
|
|
|
(10,350
|
)
|
Reserve account deposits
|
|
|
18,088
|
|
|
19,467
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(109,297
|
)
|
|
(136,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Decrease in notes payable, net
|
|
|
(50,000
|
)
|
|
(77,335
|
)
|
Proceeds from issuance of
common stock
|
|
|
7,170
|
|
|
5,455
|
|
Stock repurchases
|
|
|
(49,998
|
)
|
|
|
|
Dividends paid to common
stockholders
|
|
|
(150,863
|
)
|
|
(151,406
|
)
|
Dividends paid to
noncontrolling interests
|
|
|
(9,188
|
)
|
|
(9,137
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(252,879
|
)
|
|
(232,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
|
6,860
|
|
|
(8,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
|
94,085
|
|
|
46,714
|
|
Cash and cash equivalents at
beginning of period
|
|
|
484,363
|
|
|
412,737
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period
|
|
$
|
578,448
|
|
$
|
459,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$
|
100,131
|
|
$
|
94,868
|
|
|
|
|
|
|
|
|
|
Cash income tax (refund)
payments, net
|
|
$
|
(7,859
|
)
|
$
|
138,226
|
|
|
|
|
|
|
|
|
|
PITNEY BOWES INC.
N
OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)
1. Description of Business and Basis of
Presentation
Description of Business
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 14 for information
regarding our reportable segments.
Basis of Presentation
The accompanying unaudited Condensed Consolidated
Financial Statements of Pitney Bowes Inc. and its subsidiaries (PBI, the
company, we, us, and our) have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for
interim financial information and the instructions to Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In addition, the December
31, 2010 Condensed Consolidated Balance Sheet data was derived from audited
financial statements, but does not include all disclosures required by GAAP. In
our opinion, all adjustments (consisting of only normal recurring adjustments)
considered necessary to present fairly our financial position at June 30, 2011
and December 31, 2010, our results of operations for the three and six months
ended June 30, 2011 and 2010 and cash flows for the six months ended June 30,
2011 and 2010 have been included. Operating results for the three and six
months ended June 30, 2011 are not necessarily indicative of the results that
may be expected for any other interim period or the year ending December 31,
2011.
These statements should be read in conjunction with the financial
statements and notes thereto included in our Annual Report to Stockholders on
Form 10-K for the year ended December 31, 2010 (2010 Annual Report). Certain
prior year amounts have been reclassified to conform to the current period
presentation.
2. Recent Accounting Pronouncements
On January 1, 2011, new accounting guidance became effective addressing
the accounting for revenue arrangements with multiple elements and certain
revenue arrangements that include software. This guidance allows companies to
allocate consideration in a multiple element arrangement in a way that better
reflects the economics of the transaction and results in the elimination of the
residual method. In addition, tangible products that have software components
that are essential to the functionality of the tangible product were scoped
out of the software revenue guidance. The adoption of this guidance did not
have a material impact on our financial position, results of operations or cash
flows, nor did it result in any additional disclosures beyond those already
included in our 2010 Annual Report. Refer to Note 1 to the Consolidated
Financial Statements in our 2010 Annual Report for further information.
In June 2011, new guidance was introduced that would eliminate the
current option to report other comprehensive income and its components in the
statement of stockholders equity, and require an entity to present items of
net income and other comprehensive income in one continuous statement, referred
to as the statement of comprehensive income, or in two separate, but
consecutive, statements. This guidance would be effective in the first quarter
of 2012, with early adoption permitted. This guidance will result in a change
in the way we present other comprehensive income and its components, but will
not have an impact on our financial position, results of operations or cash
flows.
3. Discontinued Operations
The loss from discontinued operations primarily relates to the accrual
of interest on liabilities for uncertain tax positions retained in connection
with the sale of our Capital Services business in 2006, offset in part during
the second quarter of 2011 by the release of reserves primarily related to a
Capital Services sales tax dispute. For the three months ended June 30, 2011
and 2010, the loss from discontinued operations was $1 million and $3 million,
respectively, and for the six months ended June 30, 2011 and 2010, the loss
from discontinued operations was $3 million and $6 million, respectively.
6
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)
4. Inventories
Inventories at June 30, 2011
and December 31, 2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2011
|
|
December
31,
2010
|
|
|
|
|
|
|
|
Raw materials and work in
process
|
|
$
|
54,395
|
|
$
|
46,664
|
|
Supplies and service parts
|
|
|
61,238
|
|
|
63,991
|
|
Finished products
|
|
|
61,871
|
|
|
58,312
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
177,504
|
|
$
|
168,967
|
|
|
|
|
|
|
|
|
|
If
all inventories valued at LIFO had been stated at current costs, inventories
would have been $27 million and $26 million higher than reported at June 30,
2011 and December 31, 2010, respectively.
5. Intangible Assets and Goodwill
Intangible assets at June
30, 2011 and December 31, 2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December
31, 2010
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
460,524
|
|
$
|
(248,972
|
)
|
$
|
211,552
|
|
$
|
453,523
|
|
$
|
(229,143
|
)
|
$
|
224,380
|
|
Supplier relationships
|
|
|
29,000
|
|
|
(17,642
|
)
|
|
11,358
|
|
|
29,000
|
|
|
(16,192
|
)
|
|
12,808
|
|
Software & technology
|
|
|
174,823
|
|
|
(129,193
|
)
|
|
45,630
|
|
|
172,188
|
|
|
(118,390
|
)
|
|
53,798
|
|
Trademarks & trade
names
|
|
|
37,305
|
|
|
(32,345
|
)
|
|
4,960
|
|
|
36,322
|
|
|
(30,224
|
)
|
|
6,098
|
|
Non-compete agreements
|
|
|
8,030
|
|
|
(7,700
|
)
|
|
330
|
|
|
7,845
|
|
|
(7,486
|
)
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
709,682
|
|
$
|
(435,852
|
)
|
$
|
273,830
|
|
$
|
698,878
|
|
$
|
(401,435
|
)
|
$
|
297,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to
intangible assets was
$14 million and $16 million for the three months ended June 30, 2011 and 2010,
respectively, and $29 million and $32 million for the six months ended June 30,
2011 and 2010, respectively. The future amortization expense as of June
30, 2011 is as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
Remaining
for year ended December 31, 2011
|
|
$
|
28,761
|
|
Year ended
December 31, 2012
|
|
|
52,413
|
|
Year ended
December 31, 2013
|
|
|
47,081
|
|
Year ended
December 31, 2014
|
|
|
41,560
|
|
Year ended
December 31, 2015
|
|
|
36,273
|
|
Thereafter
|
|
|
67,742
|
|
|
|
|
|
|
Total
|
|
$
|
273,830
|
|
|
|
|
|
|
Actual amortization expense may differ from the amounts above due to,
among other things, future acquisitions, impairments, accelerated amortization
and fluctuations in foreign currency exchange rates.
7
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)
The changes in
the carrying amount of goodwill, by reporting segment, for the six months ended
June 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2010 (1)
|
|
Acquired
during the
period
|
|
Other (2)
|
|
Balance at
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
North America Mailing
|
|
$
|
357,918
|
|
$
|
|
|
$
|
11,343
|
|
$
|
369,261
|
|
International Mailing
|
|
|
181,530
|
|
|
|
|
|
14,052
|
|
|
195,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small &
Medium Business Solutions
|
|
|
539,448
|
|
|
|
|
|
25,395
|
|
|
564,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
141,476
|
|
|
|
|
|
2,919
|
|
|
144,395
|
|
Software
|
|
|
678,101
|
|
|
|
|
|
(1,948
|
)
|
|
676,153
|
|
Management Services
|
|
|
494,433
|
|
|
|
|
|
3,384
|
|
|
497,817
|
|
Mail Services
|
|
|
259,102
|
|
|
|
|
|
253
|
|
|
259,355
|
|
Marketing Services
|
|
|
194,233
|
|
|
|
|
|
|
|
|
194,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Business Solutions
|
|
|
1,767,345
|
|
|
|
|
|
4,608
|
|
|
1,771,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,306,793
|
|
$
|
|
|
$
|
30,003
|
|
$
|
2,336,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Prior year
amounts have been reclassified to conform to the current year presentation.
|
(2)
|
Primarily
foreign currency translation adjustments.
|
6. Long-term Debt
There have
been no significant changes to long-term debt since December 31, 2010.
In April 2011, we entered into two interest rate swap agreements with
an aggregate notional value of $450 million to effectively convert the fixed
rate interest payments on our $450 million 4.875% notes due in 2014 into
variable rates. Under the terms of these agreements, we pay a weighted-average
variable rate based on three month LIBOR plus 305 basis points and receive
fixed rate payments of 4.875%.
7. Income Taxes
The effective tax rate for the three months ended June 30, 2011 and
2010 was 33.3% and 33.9%, respectively, and the effective tax rate for the six
months ended June 30, 2011 and 2010 was 32.2% and 41.1%, respectively. The
year-to-date 2011 rate includes a $9 million tax benefit arising from a
favorable conclusion of a foreign tax examination and a $2 million charge from
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. The year-to-date 2010 rate included a $9
million charge from 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
and a $9 million charge from 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.
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 IRS exam of tax years 2001-2004 is estimated to be completed within the
next six months and the examination of years 2005-2008 within the next 12-to-18
months. In connection with the 2001-2004 exam, during July 2011 we entered into
a series of settlements with the IRS under which we agreed on the tax treatment
of a number of disputed issues and we agreed to revised tax calculations. In
the third quarter, we expect to release approximately $50 million of tax
reserves including interest, about $30 million of which will be released
through Discontinued Operations. We also expect our additional liability to be
approximately $400 million
8
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)
of tax and interest that has previously been paid through the purchase
of tax bonds. Consequently, this settlement will have no impact on our cash
position. In connection with the 2005-2008 IRS exam, we have received notices
of proposed adjustments to our filed returns. 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. 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 two-thirds of our unrecognized
tax benefits. Tax reserves have been established which we believe to be
appropriate given the possibility of tax adjustments. However, depending upon
the size of the reserve as compared to the ultimate determination of such
matters, the resolution could have a material impact, positive or negative, on
our results of operations, financial position and cash flows.
8. Noncontrolling Interests (Preferred
Stockholders Equity in Subsidiaries)
In 2009, Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary
of ours, 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 50% every six months thereafter.
The carrying value of the Preferred Stock is reported as Noncontrolling
interests (Preferred stockholders equity in subsidiaries) on the Condensed
Consolidated Balance Sheets. Preferred Stock dividends are reported in the
Condensed Consolidated Statements of Income as Preferred stock dividends of
subsidiaries attributable to noncontrolling interests. No dividends were in
arrears at June 30, 2011 or December 31, 2010.
There was no change in the carrying value of noncontrolling interests
during the period ended June 30, 2011 or the year ended December 31, 2010.
9. Comprehensive Income (Loss)
Comprehensive income (loss) for the three and six months ended June 30,
2011 and 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Net income - Pitney Bowes Inc.
|
|
$
|
100,935
|
|
$
|
61,381
|
|
$
|
187,239
|
|
$
|
140,420
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
25,164
|
|
|
(110,043
|
)
|
|
75,981
|
|
|
(143,385
|
)
|
Net unrealized gain on
derivatives
|
|
|
438
|
|
|
1,181
|
|
|
387
|
|
|
1,501
|
|
Net unrealized gain on
investment securities
|
|
|
1,236
|
|
|
1,938
|
|
|
1,111
|
|
|
2,082
|
|
Amortization of pension and
postretirement costs
|
|
|
8,496
|
|
|
6,975
|
|
|
17,165
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
136,269
|
|
$
|
(38,568
|
)
|
$
|
281,883
|
|
$
|
14,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Fair Value Measurements and Derivative
Instruments
The fair value measurement guidance established a fair value hierarchy
that prioritizes the inputs used to measure fair value. The three levels of the
fair value hierarchy are as follows:
Level 1
Unadjusted quoted prices in active
markets for identical assets and liabilities.
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.
9
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise noted)
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 June 30, 2011 and December 31, 2010, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds / commercial paper
|
|
$
|
371,439
|
|
$
|
9,757
|
|
$
|
|
|
$
|
381,196
|
|
Equity securities
|
|
|
|
|
|
24,486
|
|
|
|
|
|
24,486
|
|
Debt securities - U.S. and foreign
governments, agencies and municipalities
|
|
|
80,685
|
|
|
31,580
|
|
|
|
|
|
112,265
|
|
Debt securities - corporate
|
|
|
|
|
|
33,272
|
|
|
|
|
|
33,272
|
|
Mortgage-back / asset-back securities
|
|
|
|
|
|
120,825
|
|
|
|
|
|
120,825
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
13,827
|
|
|
|
|
|
13,827
|
|
Foreign exchange contracts
|
|
|
|
|
|
3,129
|
|
|
|
|
|
3,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
452,124
|
|
$
|
236,876
|
|
$
|
|
|
$
|
689,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
$
|
3,012
|
|
$
|
|
|
$
|
3,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
|
|
$
|
3,012
|
|
$
|
|
|
$
|
3,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds / commercial paper
|
|
$
|
256,074
|
|
$
|
1,531
|
|
$
|
|
|
$
|
257,605
|
|
Equity securities
|
|
|
|
|
|
23,410
|
|
|
|
|
|
23,410
|
|
Debt securities - U.S. and foreign
governments, agencies and municipalities
|
|
|
74,425
|
|
|
30,725
|
|
|
|
|
|
105,150
|
|
Debt securities - corporate
|
|
|
|
|
|
22,262
|
|
|
|
|
|
22,262
|
|
Mortgage-back / asset-back securities
|
|
|
|
|
|
106,479
|
|
|
|
|
|
106,479
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
10,280
|
|
|
|
|
|
10,280
|
|
Foreign exchange contracts
|
|
|
|
|
|
2,887
|
|
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
330,499
|
|
$
|
197,574
|
|
$
|
|
|
$
|
528,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
$
|
6,907
|
|
$
|
|
|
$
|
6,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
|
|
$
|
6,907
|
|
$
|
|
|
$
|
6,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
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
classified as Level 2 as they are not separately listed on an exchange.
|
|
|
|
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.
|
|
|
|
Mortgage-Backed Securities (MBS) / Asset-Backed Securities
(ABS):
These
securities are valued based on external pricing indices. When external index
pricing is not observable, MBS and ABS are valued based on external
price/spread data. These securities are classified as Level 2.
|
Investment
securities include investments held by The Pitney Bowes Bank (PBB). PBB, a
wholly-owned subsidiary, is a Utah-chartered Industrial Loan Company (ILC). The
banks investments at June 30, 2011 were $339 million. These investments were
reported on the Condensed Consolidated Balance Sheets as cash and cash
equivalents of $102 million, short-term investments of $45 million and other
assets of $192 million. The banks investments at December 31, 2010 were $246
million and were reported as cash and cash equivalents of $61 million, short-term
investments of $27 million and other assets of $158 million.
We
have not experienced any write-offs in our investment portfolio. The majority
of our MBS are either guaranteed or supported by the U.S. government. Market
events have not caused our money market funds to experience declines in their
net asset value below $1.00 per share or to incur imposed limits on
redemptions. We have no investments in inactive markets which would warrant a
possible change in our pricing methods or classification within the fair value
hierarchy. Further, we have no investments in auction rate securities.
Derivative Instruments
In
the normal course of business, we are exposed to the impact of interest rate
changes and foreign currency fluctuations. We limit these risks by following
established risk management policies and procedures, including the use of
derivatives. We use derivatives to manage the related cost of debt and to limit
the effects of foreign exchange rate fluctuations on financial results. We do
not use derivatives for trading or speculative purposes.
As
required by 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 is based on the market approach using observable market inputs,
such as forward rates.
11
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
The following is a summary
of our derivative fair values at June 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Designation
of Derivatives
|
|
Balance
Sheet Location
|
|
June 30,
2011
|
|
December
31,
2010
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
41
|
|
$
|
160
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
13,827
|
|
|
10,280
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
980
|
|
|
716
|
|
Derivatives
not designated as hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
3,088
|
|
|
2,727
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
2,032
|
|
|
6,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Assets
|
|
$
|
16,956
|
|
$
|
13,167
|
|
|
|
Total Derivative Liabilities
|
|
|
3,012
|
|
|
6,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Derivative Assets
|
|
$
|
13,944
|
|
$
|
6,260
|
|
|
|
|
|
|
|
|
|
|
|
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.
At
June 30, 2011, we have outstanding interest rate swaps with an aggregate
notional value of $850 million that effectively convert fixed rate interest
payments on the $400 million 4.625% notes due in 2012 (the 2012 Swaps) and the
$450 million 4.875% notes due in 2014 (the 2014 Swaps) into variable rates.
Under
the terms of the 2012 Swaps, we pay a weighted-average variable rate based on
one month LIBOR plus 249 basis points and receive a fixed rate of 4.625%. Under
the terms of the 2014 Swaps, we pay a weighted-average variable rate based on
three month LIBOR plus 305 basis points and receive a fixed rate of 4.875%. At
June 30, 2011 and December 31, 2010, the aggregate fair value of these interest
rate swaps was an asset of $14 million and $10 million, respectively.
The
following represents the results of fair value hedging relationships for the
three and six months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain Recognized
in Earnings
|
|
Hedged Item Expense
Recognized in Earnings
|
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
Location of Gain
(Loss)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
4,961
|
|
$
|
4,089
|
|
$
|
(10,109
|
)
|
$
|
(8,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain Recognized
in Earnings
|
|
Hedged Item Expense
Recognized in Earnings
|
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
Location of Gain
(Loss)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
12,179
|
|
$
|
8,619
|
|
$
|
(20,219
|
)
|
$
|
(16,250
|
)
|
12
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
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 accumulated other comprehensive
income (AOCI) 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 June 30, 2011 and December 31, 2010, we had outstanding contracts
associated with these anticipated transactions with a notional amount of $27
million and $25 million, respectively. The fair value of these contracts at
June 30, 2011 and December 31, 2010 was a liability of $1 million.
As
of June 30, 2011, substantially all of the net derivative loss recognized in
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.
The
following represents the results of cash flow hedging relationships for the
three and six months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
Derivative
Gain (Loss)
Recognized in AOCI
(Effective Portion)
|
|
Location of Gain (Loss)
(Effective Portion)
|
|
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
2011
|
|
2010
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
618
|
|
$
|
1,092
|
|
|
Revenue
|
|
$
|
(122
|
)
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(292
|
)
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(414
|
)
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
|
|
Location of Gain (Loss)
(Effective Portion)
|
|
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
2011
|
|
2010
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
303
|
|
$
|
1,137
|
|
|
Revenue
|
|
$
|
(131
|
)
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(554
|
)
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(685
|
)
|
$
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 adjustment on the derivatives are
both recorded in earnings. At June 30, 2011, outstanding foreign exchange
contracts to buy or sell various currencies had a net asset value of $1
million. These contracts mature by November 2011. At December 31, 2010,
outstanding foreign exchange contracts to buy or sell various currencies had a
net liability value of $3 million.
The
following represents the results of our non-designated derivative instruments
for the three and six months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain (Loss)
Recognized in Earnings
|
|
|
|
|
|
|
|
Derivatives Instrument
|
|
Location of Derivative Gain (Loss)
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Selling,
general and administrative expense
|
|
$
|
(13,619
|
)
|
$
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain (Loss)
Recognized in Earnings
|
|
|
|
|
|
|
|
Derivatives Instrument
|
|
Location of Derivative Gain (Loss)
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Selling,
general and administrative expense
|
|
$
|
(20,861
|
)
|
$
|
(7,471
|
)
|
13
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
Credit-Risk-Related Contingent Features
Certain
derivative instruments contain provisions that would require us to post
collateral upon a significant downgrade in our long-term senior unsecured debt
ratings. At June 30, 2011, our long-term senior unsecured debt ratings were
BBB+ / A2. Based on derivative values at June 30, 2011, we would have been
required to post $1 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 values of our remaining financial
instruments at June 30, 2011 and December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December
31, 2010
|
|
|
|
|
|
|
|
|
|
Carrying
value (1)
|
|
Fair
value
|
|
Carrying
value (1)
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
668,170
|
|
$
|
672,044
|
|
$
|
512,771
|
|
$
|
514,906
|
|
Loans receivable
|
|
$
|
434,288
|
|
$
|
434,288
|
|
$
|
459,235
|
|
$
|
459,235
|
|
Derivatives, net
|
|
$
|
13,944
|
|
$
|
13,944
|
|
$
|
6,260
|
|
$
|
6,260
|
|
Long-term debt
|
|
$
|
(4,298,595
|
)
|
$
|
(4,507,309
|
)
|
$
|
(4,301,337
|
)
|
$
|
(4,388,923
|
)
|
(1)
Carrying value includes accrued interest and deferred fee income, where
applicable.
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
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
11. 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 at least 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
the six months ended June 30, 2011, we recorded pre-tax restructuring charges
and asset impairments associated with this program of $33 million, which
included $22 million for employee severance and benefit costs, a $4 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 $5
million. Through June 30, 2011, the cumulative charges for this program are
$284 million. The majority of the liability at June 30, 2011 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 for the six months ended June 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and
benefits costs
|
|
Pension
and
Retiree
Medical
|
|
Asset
impairments,
net
|
|
Other
exit
costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
$
|
88,169
|
|
$
|
|
|
$
|
|
|
$
|
6,787
|
|
$
|
94,956
|
|
Expenses, net of reserve adjustments
|
|
|
22,327
|
|
|
4,439
|
|
|
1,179
|
|
|
5,329
|
|
|
33,274
|
|
Cash payments
|
|
|
(41,664
|
)
|
|
|
|
|
|
|
|
(9,324
|
)
|
|
(50,988
|
)
|
Non-cash charges
|
|
|
|
|
|
(4,439
|
)
|
|
(1,179
|
)
|
|
|
|
|
(5,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011
|
|
$
|
68,832
|
|
$
|
|
|
$
|
|
|
$
|
2,792
|
|
$
|
71,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Activity
in the reserves for the restructuring actions taken in connection with the 2007
program for the six months ended June 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and
benefits costs
|
|
Other
exit costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
$
|
13,470
|
|
$
|
4,774
|
|
$
|
18,244
|
|
Reserve adjustments
|
|
|
(1,702
|
)
|
|
(554
|
)
|
|
(2,256
|
)
|
Cash payments
|
|
|
(442
|
)
|
|
(538
|
)
|
|
(980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011
|
|
$
|
11,326
|
|
$
|
3,682
|
|
$
|
15,008
|
|
|
|
|
|
|
|
|
|
|
|
|
15
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
12. Commitments and Contingencies
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. These lawsuits were originally filed in six different states and
later coordinated in the U.S. 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 violated 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
. (U.S. 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
Massachusetts, 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. Based upon our current
understanding of the facts and applicable laws, we do not believe there is a
reasonable possibility that any loss has been incurred.
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, we moved to dismiss the
complaint. The parties have completed briefing on this motion and the motion is
now pending before the court. Based upon our current understanding of the facts
and applicable laws, we do not believe there is a reasonable possibility that
any loss has been incurred.
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
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
13. 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 finance receivables at June 30, 2011 and December 31, 2010 are
shown in the tables below. Finance receivables of our Canadian operations were
previously included in the International segment. In line with changes made in
our segment presentation (see Note 14), Canadian finance receivables are now
included with U.S. finance receivables in the North America segment. Prior year
disclosures have been reclassified to conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
Sales-type lease receivables
|
|
|
|
|
|
|
|
|
|
|
Gross finance receivables
|
|
$
|
1,829,573
|
|
$
|
488,594
|
|
$
|
2,318,167
|
|
Unguaranteed residual values
|
|
|
205,157
|
|
|
21,777
|
|
|
226,934
|
|
Unearned income
|
|
|
(372,308
|
)
|
|
(111,613
|
)
|
|
(483,921
|
)
|
Allowance for credit losses
|
|
|
(27,608
|
)
|
|
(13,424
|
)
|
|
(41,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in sales-type lease receivables
|
|
|
1,634,814
|
|
|
385,334
|
|
|
2,020,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
417,771
|
|
|
43,393
|
|
|
461,164
|
|
Allowance for credit losses
|
|
|
(24,381
|
)
|
|
(2,495
|
)
|
|
(26,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in loan receivables
|
|
|
393,390
|
|
|
40,898
|
|
|
434,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in finance receivables
|
|
$
|
2,028,204
|
|
$
|
426,232
|
|
$
|
2,454,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2010
|
|
|
|
|
|
|
|
North
America
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
Sales-type lease receivables
|
|
|
|
|
|
|
|
|
|
|
Gross finance receivables
|
|
$
|
1,940,833
|
|
$
|
474,895
|
|
$
|
2,415,728
|
|
Unguaranteed residual values
|
|
|
235,392
|
|
|
20,333
|
|
|
255,725
|
|
Unearned income
|
|
|
(415,891
|
)
|
|
(107,592
|
)
|
|
(523,483
|
)
|
Allowance for credit losses
|
|
|
(27,792
|
)
|
|
(13,318
|
)
|
|
(41,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in sales-type lease receivables
|
|
|
1,732,542
|
|
|
374,318
|
|
|
2,106,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
453,362
|
|
|
34,193
|
|
|
487,555
|
|
Allowance for credit losses
|
|
|
(26,208
|
)
|
|
(2,112
|
)
|
|
(28,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in loan receivables
|
|
|
427,154
|
|
|
32,081
|
|
|
459,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in finance receivables
|
|
$
|
2,159,696
|
|
$
|
406,399
|
|
$
|
2,566,095
|
|
|
|
|
|
|
|
|
|
|
|
|
17
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
Activity in the allowance for
credit losses for the six months ended June 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
International
|
|
North
America
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2011
|
|
$
|
27,792
|
|
$
|
13,318
|
|
$
|
26,208
|
|
$
|
2,112
|
|
$
|
69,430
|
|
Amounts charged to expense
|
|
|
6,497
|
|
|
5,097
|
|
|
5,703
|
|
|
1,248
|
|
|
18,545
|
|
Accounts written off
|
|
|
(6,681
|
)
|
|
(4,991
|
)
|
|
(7,530
|
)
|
|
(865
|
)
|
|
(20,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2011
|
|
$
|
27,608
|
|
$
|
13,424
|
|
$
|
24,381
|
|
$
|
2,495
|
|
$
|
67,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aging of finance
receivables at June 30, 2011 and December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
International
|
|
North
America
|
|
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 31 days past due
|
|
$
|
1,731,328
|
|
$
|
455,880
|
|
$
|
396,980
|
|
$
|
41,440
|
|
$
|
2,625,628
|
|
> 30 days and < 61 days
|
|
|
42,783
|
|
|
11,892
|
|
|
11,991
|
|
|
1,081
|
|
|
67,747
|
|
> 60 days and < 91 days
|
|
|
24,479
|
|
|
5,482
|
|
|
3,635
|
|
|
357
|
|
|
33,953
|
|
> 90 days and < 121 days
|
|
|
9,203
|
|
|
4,709
|
|
|
2,047
|
|
|
247
|
|
|
16,206
|
|
> 120 days
|
|
|
21,780
|
|
|
10,631
|
|
|
3,118
|
|
|
268
|
|
|
35,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,829,573
|
|
$
|
488,594
|
|
$
|
417,771
|
|
$
|
43,393
|
|
$
|
2,779,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due amounts > 90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Still accruing interest
|
|
$
|
9,203
|
|
$
|
4,709
|
|
$
|
|
|
$
|
|
|
$
|
13,912
|
|
Not accruing interest
|
|
|
21,780
|
|
|
10,631
|
|
|
5,165
|
|
|
515
|
|
|
38,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
30,983
|
|
$
|
15,340
|
|
$
|
5,165
|
|
$
|
515
|
|
$
|
52,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 31 days past due
|
|
$
|
1,831,655
|
|
$
|
447,459
|
|
$
|
430,042
|
|
$
|
32,389
|
|
$
|
2,741,545
|
|
> 30 days and < 61 days
|
|
|
45,234
|
|
|
10,018
|
|
|
12,081
|
|
|
1,149
|
|
|
68,482
|
|
> 60 days and < 91 days
|
|
|
29,380
|
|
|
4,743
|
|
|
4,711
|
|
|
325
|
|
|
39,159
|
|
> 90 days and < 121 days
|
|
|
8,654
|
|
|
3,985
|
|
|
2,712
|
|
|
192
|
|
|
15,543
|
|
> 120 days
|
|
|
25,910
|
|
|
8,690
|
|
|
3,816
|
|
|
138
|
|
|
38,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,940,833
|
|
$
|
474,895
|
|
$
|
453,362
|
|
$
|
34,193
|
|
$
|
2,903,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due amounts > 90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Still accruing interest
|
|
$
|
8,654
|
|
$
|
3,985
|
|
$
|
|
|
$
|
|
|
$
|
12,639
|
|
Not accruing interest
|
|
|
25,910
|
|
|
8,690
|
|
|
6,528
|
|
|
330
|
|
|
41,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
34,564
|
|
$
|
12,675
|
|
$
|
6,528
|
|
$
|
330
|
|
$
|
54,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
18
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
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.
The
table below shows the North American portfolio at June 30, 2011 and December
31, 2010 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 relative risk 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 losses for the six months ended June 30,
2011 are more representative of the potential loss performance of our portfolio
than relative risk based on scores, as defined by the third party.
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
Sales-type lease receivables
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
Low
|
|
$
|
1,165,660
|
|
$
|
1,191,682
|
|
Medium
|
|
|
496,408
|
|
|
512,419
|
|
High
|
|
|
60,538
|
|
|
60,755
|
|
Not Scored
|
|
|
106,967
|
|
|
175,977
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,829,573
|
|
$
|
1,940,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
|
|
Low
|
|
$
|
248,149
|
|
$
|
274,156
|
|
Medium
|
|
|
152,001
|
|
|
155,615
|
|
High
|
|
|
15,806
|
|
|
21,768
|
|
Not Scored
|
|
|
1,815
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
417,771
|
|
$
|
453,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged
Leases
|
|
|
|
|
|
|
|
|
Our investment in leveraged
lease assets consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2011
|
|
December
31,
2010
|
|
|
|
|
|
|
|
Rental receivables
|
|
$
|
1,838,183
|
|
$
|
1,802,107
|
|
Unguaranteed residual
values
|
|
|
14,587
|
|
|
14,141
|
|
Principal and interest on
non-recourse loans
|
|
|
(1,396,219
|
)
|
|
(1,373,651
|
)
|
Unearned income
|
|
|
(194,499
|
)
|
|
(191,591
|
)
|
|
|
|
|
|
|
|
|
Investment in leveraged
leases
|
|
|
262,052
|
|
|
251,006
|
|
Less: deferred taxes
related to leveraged leases
|
|
|
(201,291
|
)
|
|
(192,128
|
)
|
|
|
|
|
|
|
|
|
Net investment in leveraged
leases
|
|
$
|
60,761
|
|
$
|
58,878
|
|
|
|
|
|
|
|
|
|
19
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
The
components of income from leveraged leases for the three and six months ended
June 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax leveraged lease
income
|
|
$
|
1,558
|
|
$
|
1,360
|
|
$
|
3,094
|
|
$
|
2,735
|
|
Income tax effect
|
|
|
(81
|
)
|
|
(72
|
)
|
|
(163
|
)
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from leveraged
leases
|
|
$
|
1,477
|
|
$
|
1,288
|
|
$
|
2,931
|
|
$
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Segment Information
We
conduct our business activities in seven reporting segments within two business
groups, Small & Medium Business Solutions and Enterprise Business
Solutions. As a result of certain organizational changes effective January 1,
2011, we have reclassified certain prior year amounts to conform to the current
year presentation. The principal products and services of each of our reporting
segments are as follows:
Small
& Medium Business Solutions:
|
|
|
North America Mailing
: Includes the U.S. and Canadian 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 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 outside North America.
|
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.
|
Earnings
before interest and taxes (EBIT), a non-GAAP measure, is determined by
deducting from segment revenue the related costs and expenses attributable to
the segment. EBIT excludes interest, taxes, general corporate expenses and
restructuring charges, which are generally managed across the entire company on
a consolidated basis, and asset impairments. EBIT is useful to management in
demonstrating the operational profitability of the segments excluding centrally
managed costs, and is also used for purposes of measuring the performance of
our management team. Segment EBIT; however, may not be indicative of our
overall consolidated performance and therefore, should be read in conjunction
with our consolidated results of operations.
20
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
Revenue
and EBIT by business segment for the three and six months ended June 30, 2011
and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Mailing
|
|
$
|
493,653
|
|
$
|
520,581
|
|
$
|
1,002,692
|
|
$
|
1,055,244
|
|
International Mailing
|
|
|
176,158
|
|
|
155,579
|
|
|
346,691
|
|
|
327,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
669,811
|
|
|
676,160
|
|
|
1,349,383
|
|
|
1,382,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
133,769
|
|
|
121,466
|
|
|
265,375
|
|
|
247,345
|
|
Software
|
|
|
99,783
|
|
|
84,195
|
|
|
195,768
|
|
|
165,202
|
|
Management Services
|
|
|
240,461
|
|
|
248,809
|
|
|
482,085
|
|
|
503,425
|
|
Mail Services
|
|
|
134,273
|
|
|
129,139
|
|
|
278,556
|
|
|
277,162
|
|
Marketing Services
|
|
|
36,377
|
|
|
37,468
|
|
|
66,376
|
|
|
69,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
644,663
|
|
|
621,077
|
|
|
1,288,160
|
|
|
1,262,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,314,474
|
|
$
|
1,297,237
|
|
$
|
2,637,543
|
|
$
|
2,645,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Mailing
|
|
$
|
175,786
|
|
$
|
179,531
|
|
$
|
355,447
|
|
$
|
365,805
|
|
International Mailing
|
|
|
26,735
|
|
|
17,121
|
|
|
49,928
|
|
|
37,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small & Medium Business Solutions
|
|
|
202,521
|
|
|
196,652
|
|
|
405,375
|
|
|
403,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Mail
|
|
|
9,223
|
|
|
9,010
|
|
|
16,397
|
|
|
20,917
|
|
Software
|
|
|
9,542
|
|
|
5,727
|
|
|
15,054
|
|
|
9,511
|
|
Management Services
|
|
|
19,979
|
|
|
22,181
|
|
|
41,008
|
|
|
42,273
|
|
Mail Services
|
|
|
9,819
|
|
|
5,197
|
|
|
20,084
|
|
|
30,474
|
|
Marketing Services
|
|
|
6,792
|
|
|
7,337
|
|
|
10,952
|
|
|
11,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Business Solutions
|
|
|
55,355
|
|
|
49,452
|
|
|
103,495
|
|
|
115,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EBIT
|
|
|
257,876
|
|
|
246,104
|
|
|
508,870
|
|
|
518,402
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net (1)
|
|
|
(48,527
|
)
|
|
(50,329
|
)
|
|
(99,122
|
)
|
|
(99,163
|
)
|
Corporate expenses
|
|
|
(45,179
|
)
|
|
(43,496
|
)
|
|
(85,380
|
)
|
|
(86,230
|
)
|
Restructuring charges and asset impairments
|
|
|
(4,994
|
)
|
|
(48,512
|
)
|
|
(31,018
|
)
|
|
(69,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
159,176
|
|
$
|
103,767
|
|
$
|
293,350
|
|
$
|
263,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest, net includes financing interest
expense, other interest expense and interest income.
21
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
15. Pensions and Other Benefit Programs
Defined Benefit Pension Plans
The
components of net periodic benefit cost for defined benefit pension plans for
the three and six months ended June 30, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
4,702
|
|
$
|
5,825
|
|
$
|
1,929
|
|
$
|
1,719
|
|
Interest cost
|
|
|
21,931
|
|
|
22,253
|
|
|
7,198
|
|
|
6,699
|
|
Expected return on plan
assets
|
|
|
(31,711
|
)
|
|
(30,513
|
)
|
|
(8,088
|
)
|
|
(7,032
|
)
|
Amortization of transition
credit
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
(2
|
)
|
Amortization of prior
service cost (credit)
|
|
|
37
|
|
|
(657
|
)
|
|
44
|
|
|
70
|
|
Recognized net actuarial
loss
|
|
|
9,347
|
|
|
8,046
|
|
|
2,787
|
|
|
2,458
|
|
Settlement
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
Special termination
benefits (1)
|
|
|
368
|
|
|
|
|
|
10
|
|
|
|
|
Curtailment (1)
|
|
|
394
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
5,068
|
|
$
|
5,513
|
|
$
|
4,102
|
|
$
|
3,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
9,725
|
|
$
|
11,542
|
|
$
|
3,814
|
|
$
|
3,494
|
|
Interest cost
|
|
|
43,870
|
|
|
45,049
|
|
|
14,255
|
|
|
13,628
|
|
Expected return on plan assets
|
|
|
(61,529
|
)
|
|
(61,548
|
)
|
|
(16,033
|
)
|
|
(14,270
|
)
|
Amortization of transition credit
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
(4
|
)
|
Amortization of prior service cost (credit)
|
|
|
73
|
|
|
(1,289
|
)
|
|
88
|
|
|
139
|
|
Recognized net actuarial loss
|
|
|
18,761
|
|
|
16,118
|
|
|
5,525
|
|
|
5,001
|
|
Settlement
|
|
|
|
|
|
3,440
|
|
|
|
|
|
|
|
Special termination benefits (1)
|
|
|
760
|
|
|
|
|
|
10
|
|
|
|
|
Curtailment (1)
|
|
|
2,096
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
13,756
|
|
$
|
13,312
|
|
$
|
7,879
|
|
$
|
7,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts charged to
restructuring. See Note 11 for further information.
|
|
Through
June 30, 2011, we contributed $127 million and $12 million to our U.S. and
foreign pension plans, respectively, which includes a special contribution of
$123 million to our U.S. plan. We will continue to assess our funding
alternatives as the year progresses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonpension Postretirement Benefit Plans
|
|
The
components of net periodic benefit cost for nonpension postretirement benefit
plans for the three and six months ended June 30, 2011 and 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
796
|
|
$
|
932
|
|
$
|
1,667
|
|
$
|
1,862
|
|
Interest cost
|
|
|
3,300
|
|
|
3,514
|
|
|
6,771
|
|
|
6,912
|
|
Amortization of prior service credit
|
|
|
(687
|
)
|
|
(627
|
)
|
|
(1,252
|
)
|
|
(1,255
|
)
|
Amortization of net loss
|
|
|
1,839
|
|
|
1,734
|
|
|
3,833
|
|
|
3,397
|
|
Special termination benefits (1)
|
|
|
46
|
|
|
|
|
|
113
|
|
|
|
|
Curtailment (1)
|
|
|
386
|
|
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
5,680
|
|
$
|
5,553
|
|
$
|
12,368
|
|
$
|
10,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts charged to
restructuring. See Note 11 for further information.
|
22
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands of dollars, unless otherwise
noted)
Contributions
for benefit payments were $8 million and $6 million for the three months ended
June 30, 2011 and 2010, respectively, and $15 million and $13 million for the
six months ended June 30, 2011 and 2010, respectively.
16. Earnings per Share
The
calculation of basic and diluted earnings per share for the three and six
months ended June 30, 2011 and 2010 is presented below. The sum of earnings per
share amounts may not equal the totals due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
101,570
|
|
$
|
64,047
|
|
$
|
189,756
|
|
$
|
146,216
|
|
Loss from discontinued operations
|
|
|
(635
|
)
|
|
(2,666
|
)
|
|
(2,517
|
)
|
|
(5,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (numerator for diluted EPS)
|
|
|
100,935
|
|
|
61,381
|
|
|
187,239
|
|
|
140,420
|
|
Less: Preference stock dividend
|
|
|
(14
|
)
|
|
(16
|
)
|
|
(29
|
)
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common stockholders (numerator for basic EPS)
|
|
$
|
100,921
|
|
$
|
61,365
|
|
$
|
187,210
|
|
$
|
140,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in basic EPS
|
|
|
203,171
|
|
|
207,517
|
|
|
203,372
|
|
|
207,412
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
2
|
|
Preference stock
|
|
|
453
|
|
|
509
|
|
|
454
|
|
|
518
|
|
Stock options and stock purchase plans
|
|
|
34
|
|
|
28
|
|
|
39
|
|
|
25
|
|
Other stock plans
|
|
|
425
|
|
|
3
|
|
|
360
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in diluted EPS
|
|
|
204,085
|
|
|
208,059
|
|
|
204,227
|
|
|
207,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.50
|
|
$
|
0.31
|
|
$
|
0.93
|
|
$
|
0.70
|
|
Loss from discontinued operations
|
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.50
|
|
$
|
0.30
|
|
$
|
0.92
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.50
|
|
$
|
0.31
|
|
$
|
0.93
|
|
$
|
0.70
|
|
Loss from discontinued operations
|
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.49
|
|
$
|
0.30
|
|
$
|
0.92
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares not used in calculating diluted weighted-average
shares
|
|
|
14,224
|
|
|
14,879
|
|
|
14,023
|
|
|
15,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
February 14, 2011, we granted approximately 1.3 million stock options and 0.6
million restricted stock units to employees.
23
I
tem 2:
Managements 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 Condensed
Consolidated Financial Statements contained in this report and our Annual
Report to Stockholders on Form 10-K for the year ended December 31, 2010 (2010
Annual 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-Q 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 or in the financial health
of national posts
|
|
|
timely development and acceptance of new products
|
|
|
declining physical mail volumes
|
|
|
success in gaining product approval in 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, fire, explosions and other disasters beyond our
control
|
Overview
For
the second quarter 2011, revenue increased 1% to $1,314 million compared to the
prior year. Foreign currency translation contributed 3% to revenue growth.
Excluding the effects of foreign currency translation in the quarter, equipment
sales and software revenue increased 1% and 13%, respectively, compared to the
prior year; but were offset by declines in rental revenue (7%), financing
revenue (7%), supplies revenue (3%) and services revenue (3%).
Net
income from continuing operations attributable to common stockholders was $102
million, or $0.50 per diluted share for the quarter compared to $64 million or
$0.31 per diluted share for the same period in the prior year. Net income from
continuing operations attributable to common stockholders for the six months
ended June 30, 2011 was $190 million, or $0.93 per diluted share compared to
$146 million or $0.70 per diluted share for the six months ended June 30, 2010.
The
disruption caused by the fire at our Dallas mail presort facility resulted in
the loss of $9 million in revenue and $0.03 per diluted share in the quarter.
At the end of June, we completed the outfitting of a new facility and began
processing customer mail from this facility. We expect to be operating at or
above pre-fire capacity in this facility in the third quarter. To date, we have
received $25 million as partial payment from insurance companies, of which $15
million was received as of June 30, 2011.
24
We
generated $449 million in cash from operations, which was used primarily to pay
$151 million of dividends to our common stockholders, fund capital investments
of $88 million, reduce debt by $50 million and repurchase $50 million of our
common stock.
Outlook
The
worldwide economy and business environment continues to be uncertain,
especially for 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 completely offset the impact of lower revenues. We
remain focused on streamlining our business operations and creating more
flexibility in our cost structure.
Our
growth strategies focus on leveraging our expertise in physical communications
with our expanding capabilities in digital and hybrid communications. We see
long-term opportunities in delivering products, software, services and
solutions that help customers grow their business by more effectively managing
their physical and digital communications with their customers.
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 July, we entered into a series of settlements with the IRS in
connection with their examination of our tax years 2001-2004 under which we
agreed on the tax treatment of a number of disputed issues and to revised tax
calculations. In the third quarter, we expect to release approximately $50
million of tax reserves, about $30 million of which will be released through
Discontinued Operations. We also expect to owe approximately $400 million of
tax and interest that has previously been paid through the purchase of tax
bonds. Consequently, this settlement will have no impact on our cash position.
The IRS exam of tax years 2001-2004 is estimated to be completed within
the next six months and the examination of years 2005-2008 within the next
12-to-18 months. The ultimate resolution of any remaining matters could have a
material impact, positive or negative, on our results of operations, financial
position and cash flows. See Note 7 to the unaudited Condensed Consolidated
Financial Statements for further information.
25
RESULTS OF OPERATIONS
Second Quarter 2011 compared to Second
Quarter 2010
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 for the business segments for the three months ended June 30, 2011 and
2010. EBIT, a non-GAAP measure, is determined by deducting from segment revenue
the related costs and expenses attributable to the segment. EBIT excludes
interest, taxes, general corporate expenses and restructuring charges, which
are generally managed across the entire company on a consolidated basis, and
asset impairments. EBIT is useful to management in demonstrating the
operational profitability of the segments excluding centrally managed costs,
and is also used for purposes of measuring the performance of our management
team. Segment EBIT; however, may not be indicative of our overall consolidated
performance and therefore, should be read in conjunction with our consolidated
results of operations. Refer to Note 14 to the Condensed Consolidated Financial
Statements for a reconciliation of segment EBIT to income from continuing
operations before income taxes. Amounts in the table below may not sum to the
total due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
%
change
|
|
2011
|
|
2010
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America Mailing
|
|
$
|
494
|
|
$
|
521
|
|
|
(5
|
)%
|
$
|
176
|
|
$
|
180
|
|
|
(2
|
)%
|
International
Mailing
|
|
|
176
|
|
|
156
|
|
|
13
|
%
|
|
27
|
|
|
17
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMB Solutions
|
|
|
670
|
|
|
676
|
|
|
(1
|
)%
|
|
203
|
|
|
197
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
Mail
|
|
|
134
|
|
|
121
|
|
|
10
|
%
|
|
9
|
|
|
9
|
|
|
2
|
%
|
Software
|
|
|
100
|
|
|
84
|
|
|
19
|
%
|
|
10
|
|
|
6
|
|
|
67
|
%
|
Management
Services
|
|
|
240
|
|
|
249
|
|
|
(3
|
)%
|
|
20
|
|
|
22
|
|
|
(10
|
)%
|
Mail
Services
|
|
|
134
|
|
|
129
|
|
|
4
|
%
|
|
10
|
|
|
5
|
|
|
89
|
%
|
Marketing
Services
|
|
|
36
|
|
|
37
|
|
|
(3
|
)%
|
|
7
|
|
|
7
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EB Solutions
|
|
|
645
|
|
|
621
|
|
|
4
|
%
|
|
55
|
|
|
49
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,314
|
|
$
|
1,297
|
|
|
1
|
%
|
$
|
258
|
|
$
|
246
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
& Medium Business Solutions
During
the quarter, Small & Medium Business Solutions revenue decreased 1% to $670
million and EBIT increased 3% to $203 million, compared to prior year. Within
the Small & Medium Business Solutions group during the quarter:
North
America Mailing revenue decreased 5% to $494 million compared to the prior
year, driven primarily by lower equipment, financing, rental, supplies and
service revenues. Equipment sales continue to be negatively impacted by
increased lease extensions. Lease extensions are profitable transactions but
generate less revenue than new equipment sales. Declining equipment sales in
prior periods is also driving the decline in financing revenue. Rental,
supplies and service revenues were lower than prior year primarily due to lower
volumes and fewer placements of new meters. Foreign currency translation had a
1% favorable impact on revenue. EBIT decreased 2% to $176 million, compared to
prior year. However, EBIT margin of 35.6% improved over the prior year margin of
34.5% due to the benefits of our ongoing productivity initiatives, lower credit
losses and extensions of customer leases.
International Mailing revenue increased 13% to $176 million compared to
the prior year, primarily driven by foreign currency translation. Within
International Mailing, equipment sales increased 5%, but were offset by a
decline of 9% in rental revenue, primarily due to a higher mix of equipment
sales revenue compared to rentals revenue in France. EBIT increased 56% to $27
million compared to the prior year, primarily due to past and ongoing
productivity initiatives. Foreign currency translation had a positive impact of
11% on EBIT.
Enterprise
Business Solutions
During
the quarter, Enterprise Business Solutions revenue increased 4% to $645
million and EBIT increased 12% to $55 million, compared to prior year. Within
the Enterprise Business Solutions group during the quarter:
Production Mail revenue increased 10% over the prior year to $134
million due to higher sales of inserting equipment in North America and Asia.
Foreign currency translation had a 5% favorable impact on revenue. Production
Mail EBIT of $9 million was
26
consistent with the prior year. EBIT in the quarter was impacted by
investments of $4 million in the development of Volly
TM
, our secure digital mail
delivery service; however, the impact of these investments was offset by the
higher equipment sales and the favorable impact of foreign currency translation
of 2%.
Software revenue increased 19% over the prior year to $100 million.
Acquisitions made in the latter half of 2010 accounted for 8% of the increase
and foreign currency translation accounted for 7% of the increase. The
remaining increase was primarily due to higher licensing revenue in all
regions. We continue to enter into multi-year software licensing agreements,
which will increase recurring revenue streams in future periods. Software EBIT
increased 67% to $10 million primarily due to the increase in revenue.
Management Services revenue decreased 3% to $240 million. Foreign
currency had a 3% favorable impact on revenue. EBIT decreased 10% to $20
million, compared to the prior year. The decrease in revenue and EBIT was
primarily due to account contractions and terminations in the U.S. last year.
Mail Services revenue increased 4% to $134 million
and EBIT increased 89% to $10 million compared to the prior year. However,
current year revenue and EBIT were both adversely impacted $9 million by
the fire that disrupted operations at our Dallas mail presort facility and
prior year revenue and EBIT includes the negative impact of a one-time out
of period adjustment of $21 million and $16 million, respectively, primarily
related to the correction of rates used previously to estimate earned but
unbilled International Mail Services revenue for the periods 2007 through
the first quarter 2010. Excluding these items, revenue and EBIT decreased
4% and 13%, respectively, primarily due to lower shipping volumes coupled
with higher shipping rates charged by international carriers in our International
Mail Services business.
Marketing Services revenue decreased 3% to $36 million compared to the
prior year primarily due to fewer household moves and a transition to a recently introduced online service for movers. EBIT
decreased 7% to $7 million primarily due to the decrease in revenue and
investments made in our new online service.
Revenue and Cost of revenue by source
The following tables show revenue and cost of revenue by source for the
three months ended June 30, 2011 and 2010. Amounts in the tables may not sum to
the total due to rounding.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
% change
|
|
|
|
|
|
|
|
|
|
Equipment
sales
|
|
$
|
243
|
|
$
|
228
|
|
|
7
|
%
|
Supplies
|
|
|
79
|
|
|
77
|
|
|
2
|
%
|
Software
|
|
|
106
|
|
|
88
|
|
|
20
|
%
|
Rentals
|
|
|
143
|
|
|
150
|
|
|
(5
|
)%
|
Financing
|
|
|
150
|
|
|
157
|
|
|
(4
|
)%
|
Support
services
|
|
|
177
|
|
|
175
|
|
|
1
|
%
|
Business
services
|
|
|
418
|
|
|
422
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,314
|
|
$
|
1,297
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
equipment sales
|
|
$
|
104
|
|
$
|
101
|
|
|
43.0
|
%
|
|
44.3
|
%
|
Cost of
supplies
|
|
|
26
|
|
|
24
|
|
|
32.5
|
%
|
|
31.4
|
%
|
Cost of
software
|
|
|
25
|
|
|
21
|
|
|
23.6
|
%
|
|
24.0
|
%
|
Cost of
rentals
|
|
|
33
|
|
|
34
|
|
|
23.0
|
%
|
|
22.9
|
%
|
Financing
interest expense
|
|
|
22
|
|
|
22
|
|
|
14.8
|
%
|
|
13.9
|
%
|
Cost of
support services
|
|
|
115
|
|
|
112
|
|
|
65.3
|
%
|
|
63.7
|
%
|
Cost of
business services
|
|
|
325
|
|
|
338
|
|
|
77.8
|
%
|
|
80.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
651
|
|
$
|
652
|
|
|
49.5
|
%
|
|
50.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
Equipment sales revenue increased 7% to $243 million compared to the
prior year. Foreign currency translation accounted for 5% of the increase. The
underlying increase was driven by a 12% increase in Production Mail and a 5%
increase in International Mailing, partially offset by a 5% decrease in North
America Mailing equipment sales. Cost of equipment sales as a percentage of
revenue
27
decreased to 43.0% compared to 44.3% in the prior year primarily due to
the mix of higher margin product sales in the mailing and production mail
businesses and lease extensions.
Supplies
Supplies revenue increased 2% to $79 million compared to the prior
year, with foreign currency translation having a 5% favorable impact. The
underlying decrease was due to lower supplies usage resulting from reduced mail
volumes and fewer installed meters worldwide. Cost of supplies as a percentage
of revenue was 32.5% compared with 31.4% in the prior year primarily due to the
increasing mix of lower margin supplies sales.
Software
Software revenue increased 20% to $106 million compared to the prior
year. Acquisitions accounted for 7% of the increase and favorable foreign
currency translation contributed an additional 7%. The remaining increase was
primarily due to higher licensing revenue in all regions. Cost of software as a
percentage of revenue improved to 23.6% compared with 24.0% in the prior year
due to an increase in high margin licensing revenue.
Rentals
Rentals revenue decreased 5% to $143 million compared to the prior year as
customers in the United States continue to downsize to smaller, fully featured
machines and fewer installed meters. Internationally, rentals revenue has been
impacted by the weak economic conditions and the higher mix of equipment sales
revenue compared to rentals revenue in France. Foreign currency translation had
a favorable impact of 2%. Cost of rentals as a percentage of revenue was 23.0%,
consistent with the 22.9% in the prior year.
Financing
Financing revenue decreased 4% to $150 million compared to the prior
year. Lower equipment sales in prior periods have resulted in a decline in our
worldwide lease portfolio. Foreign currency translation had a favorable impact
of 2%.
Financing interest expense as a percentage of revenue increased to
14.8% compared to 13.9% in the prior year, principally due to a higher overall
effective interest rate. In computing our financing interest expense, which
represents our 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 increased 1% to $177 million compared to the
prior year, with foreign currency translation having a 4% favorable impact. The
underlying decrease in revenue is due to lower new mailing equipment placements
in the United States. Cost of support services as a percentage of revenue
increased to 65.3% compared with 63.7% in the prior year primarily due to a
more complex installation process associated with the Connect+
TM
product.
Business Services
Business services revenue decreased 1% to $418 million compared to the
prior year, with foreign currency translation having a 4% favorable impact. The
underlying decrease in revenue is primarily driven by the loss of several large
contracts during 2010, the impact of the fire at our Dallas mail presort
facility and the timing of new business. Cost of business services as a
percentage of revenue improved to 77.8% compared with 80.1% in the prior year
primarily due to the reduction to prior year revenue from the one-time out of
period adjustment in the International Mail Services business.
Selling, general and administrative
(SG&A)
SG&A expenses increased $10 million, or 2%; however, foreign
currency translation increased SG&A by $17 million, or 4% and acquisitions
completed after the second quarter 2010 increased SG&A by $7 million, or
2%. The underlying decrease in SG&A of $14 million, or 3% is primarily due
to our cost reduction initiatives. As a percentage of revenue, SG&A was
33.2% compared with 32.9% in the prior year.
Research and development
Research
and development expenses decreased $1 million, or 2% from the prior year due to
cost reduction initiatives and the completion of development work for Connect+
TM
, which was launched in 2010.
Restructuring charges and asset impairments
See Note 11 to the unaudited Condensed Consolidated Financial
Statements.
Income taxes
See Note 7 to the unaudited Condensed Consolidated Financial
Statements.
28
Discontinued operations
See Note 3 to the unaudited Condensed Consolidated Financial
Statements.
Preferred stock dividends of subsidiaries
attributable to noncontrolling interests
See Note 8 to the unaudited Condensed Consolidated Financial
Statements.
Six Months Ended June 30, 2011 compared to
Six Months Ended June 30, 2010
The following tables show revenue and cost of revenue by source for the
six months ended June 30, 2011 and 2010. Amounts in the tables may not sum to
the total due to rounding.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
% change
|
|
|
|
|
|
|
|
|
|
Equipment
sales
|
|
$
|
485
|
|
$
|
467
|
|
|
4
|
%
|
Supplies
|
|
|
161
|
|
|
162
|
|
|
(1
|
)%
|
Software
|
|
|
205
|
|
|
172
|
|
|
19
|
%
|
Rentals
|
|
|
286
|
|
|
306
|
|
|
(7
|
)%
|
Financing
|
|
|
304
|
|
|
319
|
|
|
(5
|
)%
|
Support
services
|
|
|
355
|
|
|
355
|
|
|
|
%
|
Business
services
|
|
|
841
|
|
|
863
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
2,638
|
|
$
|
2,645
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
equipment sales
|
|
$
|
219
|
|
$
|
207
|
|
|
45.2
|
%
|
|
44.3
|
%
|
Cost of
supplies
|
|
|
52
|
|
|
50
|
|
|
32.1
|
%
|
|
30.5
|
%
|
Cost of
software
|
|
|
50
|
|
|
42
|
|
|
24.4
|
%
|
|
24.6
|
%
|
Cost of
rentals
|
|
|
65
|
|
|
71
|
|
|
22.9
|
%
|
|
23.4
|
%
|
Financing
interest expense
|
|
|
45
|
|
|
44
|
|
|
15.0
|
%
|
|
13.7
|
%
|
Cost of
support services
|
|
|
231
|
|
|
226
|
|
|
64.9
|
%
|
|
63.7
|
%
|
Cost of
business services
|
|
|
659
|
|
|
668
|
|
|
78.3
|
%
|
|
77.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
1,321
|
|
$
|
1,308
|
|
|
50.1
|
%
|
|
49.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
Equipment sales revenue increased 4% to $485 million compared to the
prior year primarily due to a favorable impact from foreign currency
translation. Equipment sales were up 9% in Production Mail due to sales of
production print equipment but were offset by lower equipment sales in North
America Mailing. Cost of equipment sales as a percentage of revenue increased
to 45.2% compared to 44.3% in the prior year primarily due to the impact of
foreign currency translation and a higher mix of lower margin product sales in
the North American Mailing and Production Mail businesses in the first quarter
2011.
Supplies
Supplies revenue decreased 1% to $161 million compared to the prior
year, with foreign currency translation having a 3% favorable impact. This
decrease was due to lower supplies usage resulting from reduced mail volumes
and fewer installed meters worldwide. Cost of supplies as a percentage of
revenue increased to 32.1% compared with 30.5% in the prior year primarily due
to the increasing mix of lower margin product sales worldwide.
Software
Software revenue increased 19% to $205 million compared to the prior
year. Acquisitions accounted for 8% of the increase and foreign currency
translation accounted for an additional 5% increase. The remaining increase was
due to higher licensing revenue in all regions. Cost of software as a
percentage of revenue improved slightly to 24.4% compared with 24.6% in the
prior year primarily due to the increase in high margin licensing revenue.
29
Rentals
Rentals revenue decreased 7% to $286 million compared to the prior year as
customers in the U.S. continue to downsize to smaller, fully featured machines
and the weak economic conditions continue to have an adverse impact on the
international rental market. Foreign currency translation had a favorable
impact of 1%. Cost of rentals as a percentage of revenue improved to 22.9%
compared with 23.4% in the prior year primarily due to lower depreciation
associated with higher levels of lease extensions.
Financing
Financing revenue decreased 5% to $304 million compared to the prior
year as lower equipment sales in prior periods have resulted in a decline in
our worldwide lease portfolio. Foreign currency translation had a favorable
impact of 1%. Financing interest expense as a percentage of revenue increased
to 15.0% compared to 13.7% in the prior year primarily due to higher overall
effective interest rates.
Support Services
Support services revenue was unchanged at $355 million compared to the
prior year. Foreign currency translation had a 3% favorable impact on revenue.
The underlying decrease was driven by lower new equipment placements worldwide.
Cost of support services as a percentage of revenue increased to 64.9% compared
with 63.7% in the prior year primarily due to a more complex installation
process associated with the Connect+
TM
product.
Business Services
Business services revenue decreased 3% to $841 million compared to the
prior year primarily due to the loss of several large contracts during 2010 and
the impact of the fire at our Dallas mail presort facility. Foreign currency
translation had a 1% favorable impact. Cost of business services as a
percentage of revenue increased to 78.3% compared with 77.4% in the prior year
primarily due to lower revenues and higher shipping costs in our International
Mail Services businesses.
Selling, general and administrative
(SG&A)
SG&A expenses decreased $4 million (less than 1%) compared to the
prior year. However, the impact of foreign currency translation resulted in an
increase of $20 million, or 2%, and acquisitions completed after the second
quarter 2010 increased SG&A by $12 million, or 1%. The underlying decrease
in SG&A of $35 million, or 4%, was due to our cost reduction initiatives.
As a percentage of revenue, SG&A was 32.8% compared with 32.9% in the prior
year.
Research and development
Research
and development expenses decreased $7 million, or 9% from the prior year due to cost
reduction initiatives and the completion of development work for Connect+
TM
.
Restructuring charges and asset impairments
See Note 11 to the Condensed Consolidated Financial Statements.
Income taxes
See Note 7 to the Condensed Consolidated Financial Statements.
Discontinued operations
See Note 3 to the Condensed Consolidated Financial Statements.
Preferred stock dividends of subsidiaries
attributable to noncontrolling interests
See Note 8 to the Condensed Consolidated Financial Statements.
30
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:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
$
|
449
|
|
$
|
424
|
|
Net cash
used in investing activities
|
|
|
(109
|
)
|
|
(136
|
)
|
Net cash
used in financing activities
|
|
|
(253
|
)
|
|
(232
|
)
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
|
7
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Increase in
cash and cash equivalents
|
|
$
|
94
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
2011 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. Decreases
in finance receivables and accounts receivables contributed $140 million and $82
million of cash, respectively. Due to declining equipment sales, finance
receivables have declined as cash collections exceed the financing of new
business. Similarly, accounts receivables have declined primarily due to cash
collections in excess of new billings. In addition, the timing of tax payments
and tax refunds received contributed $115 million. Partially offsetting these
inflows was a special contribution to our U.S. pension plan of $123 million,
restructuring payments of $52 million and payments of accounts payable and
accrued liabilities of $85 million.
Net
cash used in investing activities consisted of capital expenditures of $88
million and the net purchase of investment securities of $36 million.
Net
cash used in financing activities consisted primarily of dividends paid to
common stockholders of $151 million, net payments of commercial paper borrowings
of $50 million and the repurchase of $50 million of our common stock.
2010 Cash
Flows
Cash
provided by operating activities included decreases in finance receivables and
accounts receivables of $126 million and $95 million, respectively. The
decrease in finance receivables is due to the decline in the finance
receivables portfolio as a result of reduced equipment sales from prior
periods. The decrease in accounts receivables is primarily due to lower billings
and strong collections. Partially offsetting these factors was an increase in
inventory of $32 million, a reduction in accounts payable and accrued
liabilities of $64 million due to the timing of payments and $67 million in
restructuring payments.
Net
cash used in investing activities consisted principally of the net purchase of
short-term investments of $84 million and capital expenditures of $59 million.
Net
cash used in financing activities included dividends paid to common stockholders of $151
million and net payments of commercial paper borrowings of $77 million.
Capital Expenditures
Capital
expenditures for the six months ended June 30, 2011 and 2010 included additions
to property, plant and equipment of $56 million and $26 million, respectively,
and additions to rental equipment and related inventories of $32 million
and $32 million, respectively. Capital expenditures for property, plant and
equipment were significantly higher this year compared to the prior year
due to the replacement of equipment destroyed by the fire at our Dallas presort
mail facility. We have no material commitments for capital expenditures at
June 30, 2011.
31
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 June 30, 2011, the line of credit had not been drawn upon.
At June 30, 2011, there was no outstanding commercial
paper. During the quarter ended June 30, 2011, borrowings under our commercial
paper program averaged $186 million at a weighted-average interest rate of
0.20% and the maximum amount of commercial paper issued at any point in time
was $293 million.
There have been no significant changes to long-term debt since December
31, 2010. In April 2011, we entered into interest rate swap agreements with an
aggregate notional value of $450 million that effectively converted the fixed
rate interest payments on our $450 million 4.875% notes due in 2014 into
variable rates. Under the terms of these agreements, we pay a weighted-average
variable rate based on three month LIBOR plus 305 basis points and receive
fixed rate payments of 4.875%.
At June 30, 2011, we had $159 million of cash and cash equivalents held
by our foreign subsidiaries. It is our intention to permanently reinvest these
funds in our foreign operations and we do not currently foresee a need to
repatriate these funds in order to fund our U.S. operations or obligations.
However, if these funds are needed for our operations in the U.S., we could be
required to pay additional U.S. taxes to repatriate these funds.
We expect to contribute up to $130 million and $25 million to our
U.S. and foreign pension plans, respectively in 2011. Through June 30, 2011,
total contributions to our U.S. and foreign pension plans were $127 million and
$12 million, respectively, which included a special contribution of $123
million to our U.S. plan. We will continue to assess 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 or long-term
debt and borrowing capacity under our existing credit agreements.
Recent Accounting Pronouncements
See Note 2 to the unaudited Condensed Consolidated Financial
Statements.
Regulatory Matters
There have been no significant changes to the regulatory matters
disclosed in our 2010 Annual Report.
32
I
tem 3:
Quantitative and Qualitative Disclosures about Market Risk
There were no material changes to the disclosures made in the 2010
Annual Report regarding this matter.
I
tem 4: Controls
and Procedures
Disclosure
controls and procedures are designed to reasonably assure that information
required to be disclosed in reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Disclosure controls and procedures are
also designed to reasonably assure that such information is accumulated and
communicated to our management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), as appropriate to allow timely decisions
regarding required disclosure.
Under the direction of our CEO and 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 June 30, 2011, based on
the evaluation of these controls and procedures required by paragraph (b) of
Rule 13a-15 or Rule 15d-15 under the Exchange Act. In addition, no changes in
internal control over financial reporting occurred during the three months
ended June 30, 2011 that have materially affected, or are reasonably likely to
materially affect, such internal control over financial reporting. It should be
noted that any system of controls is based in part upon certain assumptions
designed to obtain reasonable (and not absolute) assurance as to its
effectiveness, and there can be no assurance that any design will succeed in
achieving its stated goals. Notwithstanding this caution, the disclosure
controls and procedures are designed to provide reasonable assurance of
achieving their stated objectives, and the CEO and CFO have concluded that the
disclosure controls and procedures are effective at that reasonable assurance
level.
33
P
ART II. OTHER INFORMATION
I
tem 1: Legal
Proceedings
See Note 12 to the unaudited
Condensed Consolidated Financial Statements.
I
tem 1A: Risk
Factors
There were no
material changes to the risk factors identified in the 2010 Annual Report.
I
tem 2: Unregistered
Sales of Equity Securities and Use of Proceeds
Repurchases
of Equity Securities
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 February 2011, our Board of Directors approved
an increase of $100 million in our share repurchase authorization to $150
million. Through June 30, 2011, we repurchased 2,089,500 shares of our common
stock at a total cost of $50 million. At June 30, 2011, we have remaining
authorization to repurchase up to $100 million of our common stock.
The following
table summarizes our share repurchase activity under active programs through
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000
|
|
January 2011
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000
|
|
February 2011
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
March 2011
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
April 2011
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
May 2011
|
|
|
1,320,200
|
|
$
|
24.34
|
|
|
1,320,200
|
|
$
|
117,868
|
|
June 2011
|
|
|
769,300
|
|
$
|
23.22
|
|
|
769,300
|
|
$
|
100,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,089,500
|
|
$
|
23.93
|
|
|
2,089,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
tem 6: Exhibits
See Index of
Exhibits.
34
S
ignatures
Pursuant to the requirements 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.
|
|
|
PITNEY BOWES INC.
|
|
|
Date: August 5, 2011
|
|
|
|
|
/s/ Michael Monahan
|
|
|
|
Michael Monahan
|
|
Executive Vice President and Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
|
|
/s/ Steven J. Green
|
|
|
|
Steven J. Green
|
|
Vice President Finance and Chief Accounting Officer
|
|
(Principal Accounting Officer)
|
35
Exhibit
Index
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
Status or incorporation by reference
|
|
|
|
|
|
|
|
|
|
|
(12)
|
|
Computation of ratio of
earnings to fixed charges
|
|
Page
37
|
|
|
|
|
|
(31.1)
|
|
Certification of Chief
Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
|
|
Page
38
|
|
|
|
|
|
(31.2)
|
|
Certification of Chief
Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
|
|
Page
39
|
|
|
|
|
|
(32.1)
|
|
Certification of Chief
Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
Page
40
|
|
|
|
|
|
(32.2)
|
|
Certification of Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
Page
41
|
|
|
|
|
|
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
|
|
|
36
Pitney Bowes (NYSE:PBI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Pitney Bowes (NYSE:PBI)
Historical Stock Chart
From Jul 2023 to Jul 2024