PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
913,276
|
|
|
$
|
856,238
|
|
Short-term investments
|
36,611
|
|
|
12,971
|
|
Accounts receivable (net of allowance of $20,219 and $25,667, respectively)
|
728,250
|
|
|
723,630
|
|
Short-term finance receivables (net of allowance of $25,484 and $45,583, respectively)
|
1,188,292
|
|
|
1,251,090
|
|
Inventories
|
179,678
|
|
|
178,599
|
|
Current income taxes
|
51,836
|
|
|
102,556
|
|
Other current assets and prepayments
|
114,184
|
|
|
134,774
|
|
Total current assets
|
3,212,127
|
|
|
3,259,858
|
|
Property, plant and equipment, net
|
385,377
|
|
|
404,146
|
|
Rental property and equipment, net
|
241,192
|
|
|
258,711
|
|
Long-term finance receivables (net of allowance of $14,610 and $17,847, respectively)
|
1,026,489
|
|
|
1,105,791
|
|
Investment in leveraged leases
|
34,546
|
|
|
138,271
|
|
Goodwill
|
2,136,138
|
|
|
2,147,088
|
|
Intangible assets, net
|
166,214
|
|
|
212,603
|
|
Non-current income taxes
|
94,434
|
|
|
89,992
|
|
Other assets
|
563,374
|
|
|
530,644
|
|
Total assets
|
$
|
7,859,891
|
|
|
$
|
8,147,104
|
|
|
|
|
|
LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
1,809,226
|
|
|
$
|
1,840,465
|
|
Current income taxes
|
240,681
|
|
|
242,972
|
|
Current portion of long-term obligations
|
375,000
|
|
|
550,000
|
|
Advance billings
|
452,130
|
|
|
458,425
|
|
Total current liabilities
|
2,877,037
|
|
|
3,091,862
|
|
Deferred taxes on income
|
69,222
|
|
|
175,944
|
|
Tax uncertainties and other income tax liabilities
|
145,881
|
|
|
194,840
|
|
Long-term debt
|
3,642,375
|
|
|
3,683,909
|
|
Other non-current liabilities
|
718,375
|
|
|
743,165
|
|
Total liabilities
|
7,452,890
|
|
|
7,889,720
|
|
|
|
|
|
Noncontrolling interests (Preferred stockholders’ equity in subsidiaries)
|
296,370
|
|
|
296,370
|
|
Commitments and contingencies (See Note 14)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
Cumulative preferred stock, $50 par value, 4% convertible
|
4
|
|
|
4
|
|
Cumulative preference stock, no par value, $2.12 convertible
|
648
|
|
|
659
|
|
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
|
323,338
|
|
|
323,338
|
|
Additional paid-in capital
|
223,847
|
|
|
240,584
|
|
Retained earnings
|
4,744,802
|
|
|
4,600,217
|
|
Accumulated other comprehensive loss
|
(681,213
|
)
|
|
(661,645
|
)
|
Treasury stock, at cost (122,453,865 and 123,586,842 shares, respectively)
|
(4,500,795
|
)
|
|
(4,542,143
|
)
|
Total Pitney Bowes Inc. stockholders’ equity (deficit)
|
110,631
|
|
|
(38,986
|
)
|
Total liabilities, noncontrolling interests and stockholders’ equity (deficit)
|
$
|
7,859,891
|
|
|
$
|
8,147,104
|
|
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income before attribution of noncontrolling interests
|
$
|
463,539
|
|
|
$
|
635,855
|
|
|
$
|
310,703
|
|
Restructuring payments
|
(74,718
|
)
|
|
(107,002
|
)
|
|
(119,565
|
)
|
Special pension plan contributions
|
(95,000
|
)
|
|
(123,000
|
)
|
|
—
|
|
Tax payments related to sale of leveraged lease assets
|
(114,128
|
)
|
|
—
|
|
|
—
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Restructuring charges and asset impairments
|
33,351
|
|
|
148,151
|
|
|
182,274
|
|
Goodwill impairment
|
18,315
|
|
|
130,150
|
|
|
—
|
|
Depreciation and amortization
|
255,556
|
|
|
272,142
|
|
|
303,653
|
|
Gain on sale of leveraged lease assets, net of tax
|
(12,886
|
)
|
|
(26,689
|
)
|
|
—
|
|
Stock-based compensation
|
18,227
|
|
|
18,692
|
|
|
20,111
|
|
Proceeds from settlement of derivative instruments
|
—
|
|
|
—
|
|
|
31,774
|
|
Deferred tax (benefit) provision
|
(92,999
|
)
|
|
34,358
|
|
|
(34,387
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
(3,068
|
)
|
|
58,951
|
|
|
43,204
|
|
(Increase) decrease in finance receivables
|
147,165
|
|
|
190,153
|
|
|
180,352
|
|
(Increase) decrease in inventories
|
(599
|
)
|
|
(12,830
|
)
|
|
(11,913
|
)
|
(Increase) decrease in other current assets and prepayments
|
(3,131
|
)
|
|
16,905
|
|
|
(8,658
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
(47,023
|
)
|
|
(13,086
|
)
|
|
28,766
|
|
Increase (decrease) in current and non-current income taxes
|
116,013
|
|
|
(257,631
|
)
|
|
5,217
|
|
Increase (decrease) in advance billings
|
3,767
|
|
|
(12,854
|
)
|
|
11,430
|
|
Increase (decrease) in other operating capital, net
|
47,807
|
|
|
(3,278
|
)
|
|
9,150
|
|
Net cash provided by operating activities
|
660,188
|
|
|
948,987
|
|
|
952,111
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchases of investment securities
|
(367,745
|
)
|
|
(406,114
|
)
|
|
(315,355
|
)
|
Proceeds from sales/maturities of investment securities
|
352,124
|
|
|
309,534
|
|
|
192,891
|
|
Capital expenditures
|
(176,586
|
)
|
|
(155,980
|
)
|
|
(119,768
|
)
|
Proceeds from sale of leveraged lease assets
|
105,506
|
|
|
101,784
|
|
|
—
|
|
Net investment in external financing
|
(1,667
|
)
|
|
(2,677
|
)
|
|
(4,718
|
)
|
Reserve account deposits
|
1,636
|
|
|
35,354
|
|
|
10,399
|
|
Proceeds from sale of facility
|
—
|
|
|
683
|
|
|
12,595
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
(77,537
|
)
|
Net cash used in investing activities
|
(86,732
|
)
|
|
(117,416
|
)
|
|
(301,493
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
340,000
|
|
|
—
|
|
|
—
|
|
Principal payments of long-term obligations
|
(550,000
|
)
|
|
—
|
|
|
—
|
|
Decrease in notes payable, net
|
—
|
|
|
(50,000
|
)
|
|
(170,794
|
)
|
Proceeds from issuance of common stock
|
9,314
|
|
|
12,934
|
|
|
11,423
|
|
Dividends paid to stockholders
|
(300,578
|
)
|
|
(299,579
|
)
|
|
(301,456
|
)
|
Dividends paid to noncontrolling interests
|
(18,376
|
)
|
|
(18,375
|
)
|
|
(19,141
|
)
|
Stock repurchases
|
—
|
|
|
(99,997
|
)
|
|
(100,000
|
)
|
Net cash used in financing activities
|
(519,640
|
)
|
|
(455,017
|
)
|
|
(579,968
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
3,222
|
|
|
(4,679
|
)
|
|
976
|
|
Increase in cash and cash equivalents
|
57,038
|
|
|
371,875
|
|
|
71,626
|
|
Cash and cash equivalents at beginning of period
|
856,238
|
|
|
484,363
|
|
|
412,737
|
|
Cash and cash equivalents at end of period
|
$
|
913,276
|
|
|
$
|
856,238
|
|
|
$
|
484,363
|
|
Cash interest paid
|
$
|
190,892
|
|
|
$
|
202,159
|
|
|
$
|
191,880
|
|
Cash income tax payments, net of refunds
|
$
|
206,285
|
|
|
$
|
44,528
|
|
|
$
|
231,550
|
|
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
Preference
stock
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained earnings
|
|
Accumulated other comprehensive loss
|
|
Treasury stock
|
|
Total equity
|
Balance at December 31, 2009
|
$
|
4
|
|
|
$
|
868
|
|
|
$
|
323,338
|
|
|
$
|
256,133
|
|
|
$
|
4,291,393
|
|
|
$
|
(459,792
|
)
|
|
$
|
(4,415,096
|
)
|
|
$
|
(3,152
|
)
|
Net income - Pitney Bowes Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
292,379
|
|
|
—
|
|
|
—
|
|
|
292,379
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,014
|
)
|
|
—
|
|
|
(14,014
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($1.46 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(301,391
|
)
|
|
—
|
|
|
—
|
|
|
(301,391
|
)
|
Preference
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Issuances of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,039
|
)
|
|
—
|
|
|
—
|
|
|
33,249
|
|
|
9,210
|
|
Conversions to common stock
|
—
|
|
|
(116
|
)
|
|
—
|
|
|
(1,618
|
)
|
|
—
|
|
|
—
|
|
|
1,734
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
20,452
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,452
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100,000
|
)
|
|
(100,000
|
)
|
Balance at December 31, 2010
|
4
|
|
|
752
|
|
|
323,338
|
|
|
250,928
|
|
|
4,282,316
|
|
|
(473,806
|
)
|
|
(4,480,113
|
)
|
|
(96,581
|
)
|
Net income - Pitney Bowes Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
617,480
|
|
|
—
|
|
|
—
|
|
|
617,480
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(187,839
|
)
|
|
—
|
|
|
(187,839
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($1.48 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(299,521
|
)
|
|
—
|
|
|
—
|
|
|
(299,521
|
)
|
Preference
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
Issuances of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,283
|
)
|
|
—
|
|
|
—
|
|
|
35,865
|
|
|
8,582
|
|
Conversions to common stock
|
—
|
|
|
(93
|
)
|
|
—
|
|
|
(2,009
|
)
|
|
—
|
|
|
—
|
|
|
2,102
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
18,948
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,948
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(99,997
|
)
|
|
(99,997
|
)
|
Balance at December 31, 2011
|
4
|
|
|
659
|
|
|
323,338
|
|
|
240,584
|
|
|
4,600,217
|
|
|
(661,645
|
)
|
|
(4,542,143
|
)
|
|
(38,986
|
)
|
Net income - Pitney Bowes Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
445,163
|
|
|
—
|
|
|
—
|
|
|
445,163
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,568
|
)
|
|
—
|
|
|
(19,568
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($1.50 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300,527
|
)
|
|
—
|
|
|
—
|
|
|
(300,527
|
)
|
Preference
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
Issuances of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,727
|
)
|
|
—
|
|
|
—
|
|
|
41,100
|
|
|
6,373
|
|
Conversions to common stock
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(237
|
)
|
|
—
|
|
|
—
|
|
|
248
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
18,227
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,227
|
|
Balance at December 31, 2012
|
$
|
4
|
|
|
$
|
648
|
|
|
$
|
323,338
|
|
|
$
|
223,847
|
|
|
$
|
4,744,802
|
|
|
$
|
(681,213
|
)
|
|
$
|
(4,500,795
|
)
|
|
$
|
110,631
|
|
See Notes to Consolidated Financial Statements
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of Pitney Bowes Inc. (we, us, our, or the company) and its wholly owned subsidiaries. The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Operating results of acquired companies are included in the consolidated financial statements from the date of acquisition. Intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.
As a result of the continuing under-performance of our IMS operations, and to enable us to better focus on higher growth cross-border ecommerce parcel opportunities, we began exploring strategic alternatives to exit the IMS operations. The assets and liabilities of IMS met held-for-sale classification and all historical amounts related to the IMS operations, including the related goodwill and asset impairment charges, are presented as discontinued operations and have been excluded from continuing operations and from segment results for all periods presented. The IMS operations were historically part of our Mail Services segment.
Use of Estimates
The preparation of our financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and liabilities. These estimates and assumptions are based on management's best knowledge of current events, historical experience and other information available when the financial statements are prepared. These estimates include, but are not limited to, revenue recognition for multiple element arrangements, goodwill and intangible asset impairment review, allowance for doubtful accounts and credit losses, residual values of leased assets, useful lives of long-lived and intangible assets, restructuring costs, pensions and other postretirement benefits, income tax reserves, deferred tax asset valuation allowance and loss contingencies. Actual results could differ from those estimates and assumptions.
Cash Equivalents and Short-Term Investments
Cash equivalents include short-term, liquid investments with maturities of three months or less at the date of purchase. Short-term investments include investments with a maturity of greater than three months but less than one year from the reporting date.
Accounts Receivable and Allowance for Doubtful Accounts
We estimate our accounts receivable risks and provide an allowance for doubtful accounts accordingly. We evaluate the adequacy of the allowance based on historical loss experience, aging of receivables, adverse situations that may affect a customer's ability to pay and prevailing economic conditions and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual results may differ significantly from estimated reserves.
Accounts receivable are generally due within 30 days after the invoice date. Accounts deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our accounts receivable credit risk is limited because of our large number of customers, small account balances for most of our customers and customer geographic and industry diversification.
Finance Receivables and Allowance for Credit Losses
Finance receivables are composed of sales-type lease receivables and unsecured revolving loan receivables. We estimate our finance receivable risks and provide an allowance for credit losses accordingly. We evaluate the adequacy of the allowance for credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a customer's ability to pay, prevailing economic conditions and our ability to manage the collateral and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual results may differ significantly from estimated reserves.
We establish credit approval limits based on the credit quality of the customer and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90 days past due. We resume revenue recognition when customer payments reduce the account balance aging to 60 days or less past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is limited because of our large number of customers, small account balances for most of our customers and customer geographic and industry diversification.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Fixed Assets and Depreciation
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over their estimated useful lives, which are up to
50
years for buildings,
three
to
15
years for machinery and equipment,
four
to
six
years for rental equipment and
three
to
five
years for computer equipment. Major improvements which add to productive capacity or extend the life of an asset are capitalized while repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.
Fully depreciated assets are retained in fixed assets and accumulated depreciation until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts and the net amounts, less proceeds from disposal, are included in earnings.
Software Development Costs
We capitalize certain costs of software developed for internal use. Capitalized costs include purchased materials and services, payroll and personnel-related costs and interest costs. The cost of internally developed software is amortized on a straight-line basis over its estimated useful life, principally
three
to
10
years.
Costs incurred for the development of software to be sold, leased or otherwise marketed are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to the public. Capitalized software development costs include purchased materials and services and payroll and personnel-related costs attributable to programmers, software engineers, quality control and field certifiers. Capitalized software development costs are amortized generally on a straight-line basis over the product's estimated useful life, principally
three
to
five
years. Software development costs capitalized during
2012
and
2011
were
$4 million
and
$5 million
, respectively. Amortization of capitalized software development costs was
$10 million
,
$10 million
and
$8 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively. At
December 31, 2012
and
2011
, capitalized software development costs included in other assets were
$9 million
and
$14 million
, respectively.
Research and Development Costs
Research and product development costs, which primarily included personnel-related costs, are expensed as incurred. These costs include engineering costs related to research and product development activities in our hardware segments and all engineering costs in our software segment.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The fair value of intangible assets is estimated using a cost, market or income approach. Goodwill represents the excess of the purchase price over the estimated fair values of net tangible and intangible assets acquired. Finite-lived intangible assets are amortized over their estimated useful lives, principally
three
to
15
years, using either the straight-line method or an accelerated attrition method.
Impairment Review for Long-lived Assets
Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an impairment charge is recorded for an amount by which the carrying amount exceeds the fair value of the asset. The fair value of the impaired asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and appraisals, as appropriate. We derive cash flow estimates from our long-term business plans and historical experience.
Impairment Review for Goodwill and Intangible Assets
Goodwill is tested annually for impairment during the fourth quarter or sooner when circumstances indicate an impairment may exist, at the reporting unit level. A reporting unit is the operating segment, or a business that is one level below that operating segment. Reporting units are aggregated as a single reporting unit if they have similar economic characteristics. Goodwill is tested for impairment using a two-step approach. In the first step, the fair value of each reporting unit is determined and compared to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value, the second step of the goodwill impairment test is performed to measure the amount of impairment, if any. In the second step, the fair value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had been acquired in a business combination and the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting unit's goodwill is then compared to the actual carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized for the difference. The fair value of a reporting unit is determined based on a combination of various techniques, including the present value of future cash flows, multiples of competitors and multiples from sales of like businesses.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Intangible assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of the asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and appraisals, as appropriate.
Retirement Plans
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized over the estimated future working life of the plan participants and affect future pension cost. Net periodic pension cost includes current service cost, interest cost and return on plan assets. Net pension cost is also based on a market-related valuation of plan assets where differences between the actual and expected return on plan assets are amortized to pension cost over a five-year period. We recognize the overfunded or underfunded status of pension and other postretirement benefit plans in the Consolidated Balance Sheets. Gains and losses, prior service costs and credits and any remaining transition amounts that have not yet been recognized in net periodic benefit cost are recognized in accumulated other comprehensive income, net of tax, until they are amortized as a component of net periodic benefit cost.
Stock-based Compensation
We measure compensation expense for stock-based awards based on the estimated fair value of the award and recognize the expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period. We estimate the fair value of stock awards using a Black-Scholes valuation model or a Monte Carlo simulation model for those awards that contain a market condition. We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair value of our stock awards. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees and subsequent events are not indicative of the reasonableness of the original estimates of fair value.
Revenue Recognition
We derive our revenue from multiple sources including sales, rentals, financing and services. Certain of our transactions are consummated at the same time and generate revenue from multiple sources. The most common form of these transactions involves the sale or non-cancelable lease of equipment, a meter rental and an equipment maintenance agreement. In these multiple element arrangements, revenue is allocated to each of the elements based on their relative fair values. The allocation of fair values to the various elements does not change the total revenue recognized from a transaction, but impacts the timing of revenue recognition. Revenue is allocated to the meter rental and equipment maintenance agreement elements using their respective fair values, which are determined based on prices charged in standalone and renewal transactions. For a sale transaction, revenue is allocated to the equipment based on a range of selling prices in standalone transactions. For a lease transaction, revenue is allocated to the equipment based on the present value of the remaining minimum lease payments. The allocated equipment fair value is compared to the range of selling prices in standalone transactions during the period to ensure the allocated equipment fair value approximates average selling prices. More specifically, revenue related to our offerings is recognized as follows:
Sales Revenue
Sales of Equipment
We sell equipment directly to our customers and to distributors (re-sellers) throughout the world. We recognize revenue from these sales when the risks and rewards of ownership transfer to the customer, which is generally upon shipment. We recognize revenue from the sale of equipment under sales-type leases as equipment revenue at the inception of the lease. We do not typically offer any rights of return or stock balancing rights. Sales revenue from customized equipment, mail creation equipment and shipping products is generally recognized when installed.
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is generally upon delivery.
Standalone Software Sales and Integration Services
We recognize revenue from standalone software licenses upon delivery of the product when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is probable. For software licenses that are included in a lease contract, we recognize revenue upon shipment of the software unless the lease contract specifies that the license expires at the end of the lease or the price of the software is deemed not fixed or determinable based on historical evidence of similar software leases. In these instances, revenue is recognized on a straight-line basis over the term of the lease contract. We recognize revenue from software requiring integration services at the point of customer acceptance. We recognize revenue related to off-the-shelf perpetual software licenses upon transfer of title, which is generally upon shipment.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Rentals Revenue
We rent equipment, primarily postage meters and mailing equipment, under short-term rental agreements. Rental revenue includes revenue from the subscription for digital meter services. We may invoice in advance for postage meter rentals according to the terms of the agreement. We initially defer these advanced billings and recognize rental revenue on a straight-line basis over the invoice period. Revenues generated from financing customers for the continued use of equipment subsequent to the expiration of the original lease term are classified within rentals revenue.
We defer certain initial direct costs incurred in consummating a transaction and recognize these costs over the expected term of the agreement. Initial direct costs amortized in
2012
,
2011
and
2010
were
$13 million
,
$19 million
and
$27 million
, respectively. Initial direct costs deferred at
December 31, 2012
and
2011
were
$26 million
and
$31 million
, respectively. These costs are included in rental property and equipment, net on our Consolidated Balance Sheets.
Financing Revenue
We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit to our customers for the purchase of postage and related supplies. The vast majority of our leases qualify as sales-type leases using the present value of minimum lease payments classification criteria. We believe that our sales-type lease portfolio contains only normal collection risk. Accordingly, we record the fair value of equipment as sales revenue, the cost of equipment as cost of sales and the minimum lease payments plus the estimated residual value as finance receivables. The difference between the finance receivable and the equipment fair value is recorded as unearned income and is amortized as income over the lease term using the interest method.
Equipment residual values are determined at inception of the lease using estimates of equipment fair value at the end of the lease term. Estimates of future equipment fair value are based primarily on our historical experience. We also consider forecasted supply and demand for our various products, product retirement and future product launch plans, end of lease customer behavior, regulatory changes, remanufacturing strategies, used equipment markets, if any, competition and technological changes. We evaluate residual values on an annual basis or as changes to the above considerations occur.
Support Services Revenue
We provide support services for our equipment primarily through maintenance contracts. Revenue related to these agreements is recognized on a straight-line basis over the term of the agreement.
Business Services Revenue
Business services revenue includes revenue from management services, mail services and marketing services. Management services include outsourcing of mailrooms, copy centers, print management or other document management functions. These service agreements are typically one to five year contracts that contain a monthly service fee and in many cases a “click” charge based on the number of copies made, documents processed, machines in use, etc. The monthly service fee is recognized over the term of the agreement and the “click” charges are recognized as earned. Mail services include the preparation, sortation and aggregation of mail to earn postal discounts and expedite delivery and ecommerce solutions for cross border transactions. Marketing services include direct mail marketing services. Revenue from mail services and marketing services is recognized as the services are provided.
Shipping and Handling
Shipping and handling costs are recorded in cost of revenues.
Product Warranties
We provide product warranties in conjunction with the sale of certain products, generally for a period of 90 days from the date of installation. We estimate our liability for product warranties based on historical claims experience and other currently available evidence. Our product warranty liability at
December 31, 2012
and
2011
was not material.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, Internet and retail marketing costs associated with the acquisition of new customers and recognize these costs over the expected revenue stream ranging from
five
to
nine
years. Deferred marketing costs expensed in
2012
,
2011
and
2010
were
$30 million
,
$34 million
and
$39 million
, respectively. Deferred marketing costs included in other assets in the Consolidated Balance Sheets were
$73 million
and
$84 million
at
December 31, 2012
and
2011
, respectively. We review individual marketing programs for impairment annually or as circumstances warrant.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Restructuring Charges
Costs associated with exit or disposal activities, including lease termination costs and employee severance costs associated with restructuring, are recognized when they are incurred. The cost and related liability for one-time benefit arrangements is recognized when they are both probable and reasonably estimable.
Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in interest rates and foreign currency exchange rates. We limit these risks by following established risk management policies and procedures, including the use of derivatives. We do not use derivatives for trading or speculative purposes.
We use derivative instruments to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results. Derivative instruments typically consist of interest-rate swaps, forward contracts and currency swaps depending upon the underlying exposure. We record our derivative instruments at fair value and the accounting for changes in the fair value of the derivatives depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
To qualify as a hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship must be formally documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness of the hedge relationship is evaluated on a retrospective and prospective basis.
The use of derivative instruments exposes us to counterparty credit risk. To mitigate such risks, we enter into contracts with only those financial institutions that meet stringent credit requirements. We regularly review our credit exposure balances as well as the creditworthiness of our counterparties.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the year. Diluted earnings per share also includes the dilutive effect of outstanding stock options, market stock units, restricted stock, preference stock, preferred stock and stock purchase plans.
Statement of Cash Flows
During the fourth quarter of 2012, we determined that beginning with the three month period ended December 31, 2011 and each subsequent three month period through September 30, 2012, changes in certain investment-related working capital accounts that were classified in the Consolidated Statement of Cash Flows as cash flows from operating activities should have been included in cash flows from investing activities. The Consolidated Statement of Cash Flows for the year ended December 31, 2011 has been revised in this Form 10-K by increasing cash provided by operating activities and increasing cash used by investing activities by
$29 million
.
We have determined that the effect of this reclassification was not material to any of our previously issued consolidated financial statements and will revise our previously issued quarterly financial statements to reflect this reclassification adjustment in future Form 10-Q filings as appropriate. See Note 20.
Translation of Non-U.S. Currency Amounts
In general, the functional currency of our foreign operations is the local currency. Assets and liabilities of subsidiaries operating outside the U.S. are translated at rates in effect at the end of the period and revenue and expenses are translated at average monthly rates during the period. Net deferred translation gains and losses are included as a component of accumulated other comprehensive income.
Loss contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results of operations and financial position. Legal fees are expensed as incurred.
2. Inventories
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Raw materials and work in process
|
$
|
66,221
|
|
|
$
|
63,216
|
|
Supplies and service parts
|
72,551
|
|
|
68,600
|
|
Finished products
|
68,335
|
|
|
71,958
|
|
Inventory at FIFO cost
|
207,107
|
|
|
203,774
|
|
Excess of FIFO cost over LIFO cost
|
(27,429
|
)
|
|
(25,175
|
)
|
Total inventory, net
|
$
|
179,678
|
|
|
$
|
178,599
|
|
3. Fixed Assets
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Land
|
$
|
22,064
|
|
|
$
|
23,852
|
|
Buildings
|
349,061
|
|
|
335,625
|
|
Machinery and equipment
|
1,299,475
|
|
|
1,278,332
|
|
|
1,670,600
|
|
|
1,637,809
|
|
Accumulated depreciation
|
(1,285,223
|
)
|
|
(1,233,663
|
)
|
Property, plant and equipment, net
|
$
|
385,377
|
|
|
$
|
404,146
|
|
|
|
|
|
Rental property and equipment
|
$
|
580,243
|
|
|
$
|
649,343
|
|
Accumulated depreciation
|
(339,051
|
)
|
|
(390,632
|
)
|
Rental property and equipment, net
|
$
|
241,192
|
|
|
$
|
258,711
|
|
Depreciation expense was
$211 million
,
$214 million
and
$243 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively. In 2012, we recorded asset impairment charges of
$7 million
to write down the carrying value of certain assets of IMS (see Note 18). In 2011, we recorded asset impairment charges of
$13 million
associated with a restructuring program (see Note 13).
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
4. Finance Assets
Finance Receivables
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables 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.
Finance receivables at
December 31, 2012
and
2011
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
North America
|
|
International
|
|
Total
|
|
North America
|
|
International
|
|
Total
|
Sales-type lease receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross finance receivables
|
$
|
1,581,711
|
|
|
$
|
461,510
|
|
|
$
|
2,043,221
|
|
|
$
|
1,727,653
|
|
|
$
|
460,101
|
|
|
$
|
2,187,754
|
|
Unguaranteed residual values
|
148,664
|
|
|
21,025
|
|
|
169,689
|
|
|
185,450
|
|
|
20,443
|
|
|
205,893
|
|
Unearned income
|
(316,030
|
)
|
|
(104,258
|
)
|
|
(420,288
|
)
|
|
(348,286
|
)
|
|
(102,618
|
)
|
|
(450,904
|
)
|
Allowance for credit losses
|
(16,979
|
)
|
|
(8,662
|
)
|
|
(25,641
|
)
|
|
(28,661
|
)
|
|
(12,039
|
)
|
|
(40,700
|
)
|
Net investment in sales-type lease receivables
|
1,397,366
|
|
|
369,615
|
|
|
1,766,981
|
|
|
1,536,156
|
|
|
365,887
|
|
|
1,902,043
|
|
Loan receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
414,960
|
|
|
47,293
|
|
|
462,253
|
|
|
436,631
|
|
|
40,937
|
|
|
477,568
|
|
Allowance for credit losses
|
(12,322
|
)
|
|
(2,131
|
)
|
|
(14,453
|
)
|
|
(20,272
|
)
|
|
(2,458
|
)
|
|
(22,730
|
)
|
Net investment in loan receivables
|
402,638
|
|
|
45,162
|
|
|
447,800
|
|
|
416,359
|
|
|
38,479
|
|
|
454,838
|
|
Net investment in finance receivables
|
$
|
1,800,004
|
|
|
$
|
414,777
|
|
|
$
|
2,214,781
|
|
|
$
|
1,952,515
|
|
|
$
|
404,366
|
|
|
$
|
2,356,881
|
|
Loan receivables are due in less than one year. Maturities of gross sales-type lease finance receivables at
December 31, 2012
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
North America
|
|
International
|
|
Total
|
2013
|
$
|
661,770
|
|
|
$
|
142,134
|
|
|
$
|
803,904
|
|
2014
|
443,284
|
|
|
127,040
|
|
|
570,324
|
|
2015
|
274,680
|
|
|
95,268
|
|
|
369,948
|
|
2016
|
146,113
|
|
|
63,029
|
|
|
209,142
|
|
2017
|
47,937
|
|
|
30,273
|
|
|
78,210
|
|
Thereafter
|
7,927
|
|
|
3,766
|
|
|
11,693
|
|
Total
|
$
|
1,581,711
|
|
|
$
|
461,510
|
|
|
$
|
2,043,221
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Allowance for Credit Losses
Activity in the allowance for credit losses for finance receivables for the years ended
December 31, 2012
,
2011
and
2010
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
North
America
|
|
International
|
|
North
America
|
|
International
|
|
Total
|
Balance at December 31, 2009
|
$
|
31,005
|
|
|
$
|
13,077
|
|
|
$
|
25,839
|
|
|
$
|
2,237
|
|
|
$
|
72,158
|
|
Amounts charged to expense
|
13,211
|
|
|
6,719
|
|
|
20,046
|
|
|
2,024
|
|
|
42,000
|
|
Accounts written off
|
(16,424
|
)
|
|
(6,478
|
)
|
|
(19,677
|
)
|
|
(2,149
|
)
|
|
(44,728
|
)
|
Balance at December 31, 2010
|
27,792
|
|
|
13,318
|
|
|
26,208
|
|
|
2,112
|
|
|
69,430
|
|
Amounts charged to expense
|
13,726
|
|
|
5,087
|
|
|
7,631
|
|
|
1,610
|
|
|
28,054
|
|
Accounts written off
|
(12,857
|
)
|
|
(6,366
|
)
|
|
(13,567
|
)
|
|
(1,264
|
)
|
|
(34,054
|
)
|
Balance at December 31, 2011
|
28,661
|
|
|
12,039
|
|
|
20,272
|
|
|
2,458
|
|
|
63,430
|
|
Amounts charged to expense
|
2,276
|
|
|
994
|
|
|
3,278
|
|
|
903
|
|
|
7,451
|
|
Accounts written off
|
(13,958
|
)
|
|
(4,371
|
)
|
|
(11,228
|
)
|
|
(1,230
|
)
|
|
(30,787
|
)
|
Balance at December 31, 2012
|
$
|
16,979
|
|
|
$
|
8,662
|
|
|
$
|
12,322
|
|
|
$
|
2,131
|
|
|
$
|
40,094
|
|
Aging of Receivables
The aging of finance receivables at
December 31, 2012
and
2011
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
North
America
|
|
International
|
|
North
America
|
|
International
|
|
Total
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 31 days
|
$
|
1,497,797
|
|
|
$
|
435,780
|
|
|
$
|
392,108
|
|
|
$
|
45,324
|
|
|
$
|
2,371,009
|
|
> 30 days and < 61 days
|
37,348
|
|
|
9,994
|
|
|
12,666
|
|
|
1,368
|
|
|
61,376
|
|
> 60 days and < 91 days
|
24,059
|
|
|
5,198
|
|
|
4,577
|
|
|
285
|
|
|
34,119
|
|
> 90 days and < 121 days
|
6,665
|
|
|
3,327
|
|
|
2,319
|
|
|
179
|
|
|
12,490
|
|
> 120 days
|
15,842
|
|
|
7,211
|
|
|
3,290
|
|
|
137
|
|
|
26,480
|
|
Total
|
$
|
1,581,711
|
|
|
$
|
461,510
|
|
|
$
|
414,960
|
|
|
$
|
47,293
|
|
|
$
|
2,505,474
|
|
Past due amounts > 90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Still accruing interest
|
$
|
6,665
|
|
|
$
|
3,327
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,992
|
|
Not accruing interest
|
15,842
|
|
|
7,211
|
|
|
5,609
|
|
|
316
|
|
|
28,978
|
|
Total
|
$
|
22,507
|
|
|
$
|
10,538
|
|
|
$
|
5,609
|
|
|
$
|
316
|
|
|
$
|
38,970
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type Lease Receivables
|
|
Loan Receivables
|
|
|
|
North
America
|
|
International
|
|
North
America
|
|
International
|
|
Total
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 31 days
|
$
|
1,641,706
|
|
|
$
|
434,811
|
|
|
$
|
414,434
|
|
|
$
|
38,841
|
|
|
$
|
2,529,792
|
|
> 30 days and < 61 days
|
41,018
|
|
|
10,152
|
|
|
12,399
|
|
|
1,066
|
|
|
64,635
|
|
> 60 days and < 91 days
|
24,309
|
|
|
5,666
|
|
|
4,362
|
|
|
425
|
|
|
34,762
|
|
> 90 days and < 121 days
|
4,912
|
|
|
3,207
|
|
|
2,328
|
|
|
186
|
|
|
10,633
|
|
> 120 days
|
15,708
|
|
|
6,265
|
|
|
3,108
|
|
|
419
|
|
|
25,500
|
|
Total
|
$
|
1,727,653
|
|
|
$
|
460,101
|
|
|
$
|
436,631
|
|
|
$
|
40,937
|
|
|
$
|
2,665,322
|
|
Past due amounts > 90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Still accruing interest
|
$
|
4,912
|
|
|
$
|
3,207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,119
|
|
Not accruing interest
|
15,708
|
|
|
6,265
|
|
|
5,436
|
|
|
605
|
|
|
28,014
|
|
Total
|
$
|
20,620
|
|
|
$
|
9,472
|
|
|
$
|
5,436
|
|
|
$
|
605
|
|
|
$
|
36,133
|
|
Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client’s financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, it is a localized process and there is no single credit score model that covers all countries.
The table below shows the North America portfolio at
December 31, 2012
and
2011
by relative risk class (low, medium, high) based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. 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.
|
|
•
|
Low risk accounts are companies with very good credit scores and are considered to approximate the top
30%
of all commercial borrowers.
|
|
|
•
|
Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle
40%
of all commercial borrowers.
|
|
|
•
|
High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom
30%
of all commercial borrowers.
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Sales-type lease receivables
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
Low
|
$
|
1,016,413
|
|
|
$
|
1,096,676
|
|
Medium
|
450,432
|
|
|
473,394
|
|
High
|
43,658
|
|
|
58,177
|
|
Not Scored
|
71,208
|
|
|
99,406
|
|
Total
|
$
|
1,581,711
|
|
|
$
|
1,727,653
|
|
Loan receivables
|
|
|
|
|
|
Risk Level
|
|
|
|
|
|
Low
|
$
|
254,567
|
|
|
$
|
269,547
|
|
Medium
|
136,069
|
|
|
115,490
|
|
High
|
14,624
|
|
|
21,081
|
|
Not Scored
|
9,700
|
|
|
30,513
|
|
Total
|
$
|
414,960
|
|
|
$
|
436,631
|
|
Troubled Debt
We maintain a program for U.S. clients in our North America loan portfolio who are experiencing financial difficulties, but are able to make reduced payments over an extended period of time. Upon acceptance into the program, the client’s credit line is closed and interest accrual is suspended. There is generally no forgiveness of debt or reduction of balances owed. The balance of loans in this program, related loan loss allowance and write-offs are insignificant to the overall portfolio.
Leveraged Leases
Our investment in leveraged lease assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Rental receivables
|
$
|
83,254
|
|
|
$
|
810,306
|
|
Unguaranteed residual values
|
14,177
|
|
|
13,784
|
|
Principal and interest on non-recourse loans
|
(55,092
|
)
|
|
(606,708
|
)
|
Unearned income
|
(7,793
|
)
|
|
(79,111
|
)
|
Investment in leveraged leases
|
34,546
|
|
|
138,271
|
|
Less: deferred taxes related to leveraged leases
|
(19,372
|
)
|
|
(101,255
|
)
|
Net investment in leveraged leases
|
$
|
15,174
|
|
|
$
|
37,016
|
|
During 2012 and 2011, we sold certain non-U.S. leveraged lease assets for cash. The investment in each of the leveraged leases at the time of sale was
$109 million
. The leveraged lease assets sold in 2012 resulted in after-tax gain of
$13 million
and the leveraged lease assets sold in 2011 resulted in an after-tax gain of
$27 million
.
Pitney Bowes Bank
The Pitney Bowes Bank (the Bank) is an indirect wholly owned subsidiary whose primary business is to provide financing solutions to clients that rent or lease postage meters. The Bank's key product offering, Purchase Power, is a revolving credit solution, which enables clients to finance their postage costs when they refill their meter. The Bank also provides a deposit solution to those clients that prefer to prepay postage and earn interest on their deposits. When a client refills their postage meter, the funds are withdrawn from the savings account to pay for the postage.
The Bank's assets consist primarily of finance receivables, short and long-term investments and cash and liabilities consist primarily of deposit accounts. At
December 31, 2012
, the Bank had assets of
$796 million
and liabilities of
$733 million
. At
December 31,
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2011
, the Bank had assets of
$738 million
and liabilities of
$680 million
. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions.
5. Intangible Assets and Goodwill
Intangible assets
Intangible assets at
December 31, 2012
and
2011
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Customer relationships
|
$
|
407,901
|
|
|
$
|
(269,100
|
)
|
|
$
|
138,801
|
|
|
$
|
409,489
|
|
|
$
|
(237,536
|
)
|
|
$
|
171,953
|
|
Supplier relationships
|
29,000
|
|
|
(22,113
|
)
|
|
6,887
|
|
|
29,000
|
|
|
(19,213
|
)
|
|
9,787
|
|
Software & technology
|
169,632
|
|
|
(151,628
|
)
|
|
18,004
|
|
|
170,286
|
|
|
(143,456
|
)
|
|
26,830
|
|
Trademarks & trade names
|
35,078
|
|
|
(32,615
|
)
|
|
2,463
|
|
|
33,908
|
|
|
(30,076
|
)
|
|
3,832
|
|
Non-compete agreements
|
7,471
|
|
|
(7,412
|
)
|
|
59
|
|
|
7,564
|
|
|
(7,363
|
)
|
|
201
|
|
Total intangible assets
|
$
|
649,082
|
|
|
$
|
(482,868
|
)
|
|
$
|
166,214
|
|
|
$
|
650,247
|
|
|
$
|
(437,644
|
)
|
|
$
|
212,603
|
|
Amortization expense for intangible assets was
$45 million
,
$58 million
and
$61 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively. The future amortization expense for intangible assets as of
December 31, 2012
was as follows:
|
|
|
|
|
Year ended December 31,
|
|
2013
|
$
|
37,634
|
|
2014
|
36,944
|
|
2015
|
33,763
|
|
2016
|
25,412
|
|
2017
|
11,491
|
|
Thereafter
|
20,970
|
|
Total
|
$
|
166,214
|
|
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange rates, impairments, future acquisitions and accelerated amortization.
Goodwill
In 2011, based on the results of our annual goodwill impairment review, management determined that the international operations of our Management Services segment (PBMSi) were impaired. The fair value of PBMSi was determined using a combination of techniques including the present value of future cash flows, derived from our long-term plans and historical experience, multiples of competitors and multiples from sales of like businesses. The inputs used to determine the fair value were classified as Level 3 in the fair value hierarchy. Based on the results of our impairment test, we recorded a goodwill impairment charge of
$84 million
and an intangible asset impairment charge of
$5 million
to write-down the carrying value of goodwill and intangible assets to their respective implied fair values.
The intangible asset impairment charge is included in restructuring changes and asset impairments in the Consolidated Statements of Income.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The changes in the carrying amount of goodwill, by reporting segment, for the years ended
December 31, 2012
and
2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross value before accumulated impairment
|
|
Accumulated impairment
|
|
December 31, 2011
|
|
Impairment
|
|
Other
(2)
|
|
December 31, 2012
|
North America Mailing
|
$
|
352,897
|
|
|
$
|
—
|
|
|
$
|
352,897
|
|
|
$
|
—
|
|
|
$
|
2,977
|
|
|
$
|
355,874
|
|
International Mailing
|
176,285
|
|
|
—
|
|
|
176,285
|
|
|
—
|
|
|
(5,158
|
)
|
|
171,127
|
|
Small & Medium Business Solutions
|
529,182
|
|
|
—
|
|
|
529,182
|
|
|
—
|
|
|
(2,181
|
)
|
|
527,001
|
|
Production Mail
|
140,371
|
|
|
—
|
|
|
140,371
|
|
|
—
|
|
|
4,276
|
|
|
144,647
|
|
Software
|
667,124
|
|
|
—
|
|
|
667,124
|
|
|
—
|
|
|
4,094
|
|
|
671,218
|
|
Management Services
|
487,223
|
|
|
(84,500
|
)
|
|
402,723
|
|
|
—
|
|
|
1,176
|
|
|
403,899
|
|
Mail Services
(1)
|
259,105
|
|
|
(45,650
|
)
|
|
213,455
|
|
|
(18,315
|
)
|
|
—
|
|
|
195,140
|
|
Marketing Services
|
194,233
|
|
|
—
|
|
|
194,233
|
|
|
—
|
|
|
—
|
|
|
194,233
|
|
Enterprise Business Solutions
|
1,748,056
|
|
|
(130,150
|
)
|
|
1,617,906
|
|
|
(18,315
|
)
|
|
9,546
|
|
|
1,609,137
|
|
Total
|
$
|
2,277,238
|
|
|
$
|
(130,150
|
)
|
|
$
|
2,147,088
|
|
|
$
|
(18,315
|
)
|
|
$
|
7,365
|
|
|
$
|
2,136,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross value before accumulated impairment
|
|
Accumulated impairment
|
|
December 31, 2010
|
|
Impairment
|
|
Other
(2)
|
|
December 31, 2011
|
North America Mailing
|
$
|
357,909
|
|
|
$
|
—
|
|
|
$
|
357,909
|
|
|
$
|
—
|
|
|
$
|
(5,012
|
)
|
|
$
|
352,897
|
|
International Mailing
|
193,761
|
|
|
—
|
|
|
193,761
|
|
|
—
|
|
|
(17,476
|
)
|
|
176,285
|
|
Small & Medium Business Solutions
|
551,670
|
|
|
—
|
|
|
551,670
|
|
|
—
|
|
|
(22,488
|
)
|
|
529,182
|
|
Production Mail
|
129,246
|
|
|
—
|
|
|
129,246
|
|
|
—
|
|
|
11,125
|
|
|
140,371
|
|
Software
|
678,111
|
|
|
—
|
|
|
678,111
|
|
|
—
|
|
|
(10,987
|
)
|
|
667,124
|
|
Management Services
|
494,432
|
|
|
—
|
|
|
494,432
|
|
|
(84,500
|
)
|
|
(7,209
|
)
|
|
402,723
|
|
Mail Services
(1)
|
259,101
|
|
|
—
|
|
|
259,101
|
|
|
(45,650
|
)
|
|
4
|
|
|
213,455
|
|
Marketing Services
|
194,233
|
|
|
—
|
|
|
194,233
|
|
|
—
|
|
|
—
|
|
|
194,233
|
|
Enterprise Business Solutions
|
1,755,123
|
|
|
—
|
|
|
1,755,123
|
|
|
(130,150
|
)
|
|
(7,067
|
)
|
|
1,617,906
|
|
Total
|
$
|
2,306,793
|
|
|
$
|
—
|
|
|
$
|
2,306,793
|
|
|
$
|
(130,150
|
)
|
|
$
|
(29,555
|
)
|
|
$
|
2,147,088
|
|
|
|
(1)
|
Impairment charges for the Mail Services segment relate to IMS and have been classified as discontinued operations in the Consolidated Statements of Income. See Note 18.
|
|
|
(2)
|
Primarily foreign currency translation adjustments for the period.
|
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Accounts payable
|
$
|
361,169
|
|
|
$
|
334,036
|
|
Customer deposits
|
698,770
|
|
|
684,469
|
|
Employee related liabilities
|
356,188
|
|
|
330,492
|
|
Miscellaneous other
|
393,099
|
|
|
491,468
|
|
Accounts payable and accrued liabilities
|
$
|
1,809,226
|
|
|
$
|
1,840,465
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
7. Debt
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Term loans
|
$
|
230,000
|
|
|
$
|
150,000
|
|
4.625%
|
notes due 2012
|
—
|
|
|
400,000
|
|
3.875%
|
notes due 2013
|
375,000
|
|
|
375,000
|
|
4.875%
|
notes due 2014
(1)
|
450,000
|
|
|
450,000
|
|
5.00%
|
notes due 2015
|
400,000
|
|
|
400,000
|
|
4.75%
|
notes due 2016
|
500,000
|
|
|
500,000
|
|
5.75%
|
notes due 2017
|
500,000
|
|
|
500,000
|
|
4.75%
|
notes due 2018
|
350,000
|
|
|
350,000
|
|
5.60%
|
notes due 2018
|
250,000
|
|
|
250,000
|
|
6.25%
|
notes due 2019
|
300,000
|
|
|
300,000
|
|
5.25%
|
notes due 2022
(2)
|
110,000
|
|
|
—
|
|
5.25%
|
notes due 2037
(3)
|
500,000
|
|
|
500,000
|
|
Other
(4)
|
52,375
|
|
|
58,909
|
|
Total debt
|
4,017,375
|
|
|
4,233,909
|
|
Current portion long-term debt
|
375,000
|
|
|
550,000
|
|
Long-term debt
|
$
|
3,642,375
|
|
|
$
|
3,683,909
|
|
Term loans at December 31, 2012 bear interest at the applicable London Interbank Offered Rate (LIBOR) plus
2.25%
or Prime Rate plus
1.25%
, at our option. Interest is payable and resets quarterly and the loans mature in
2015
and
2016
. Term loans at December 31, 2011 were repaid during 2012.
|
|
(1)
|
We have interest rate swap agreements with an aggregate notional value of
$450 million
that effectively convert the fixed rate interest payments on this debt issue into variable interest rates. We pay a weighted-average variable rate based on
three-month LIBOR
plus
305
basis points and receive a fixed rate of
4.875%
. The weighted-average rate paid during
2012
and
2011
was
3.5%
.
|
|
|
(2)
|
In November 2012, we issued
$110 million
of 10-year notes with a coupon rate of
5.25%
. Interest is paid quarterly beginning February 2013. The notes mature on November 27, 2022; however, we may redeem some or all of the notes at anytime on or after November 27, 2015 at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. The proceeds from the notes will be used for general corporate purposes, including the repayment of 2013 debt maturities.
|
|
|
(3)
|
Under the terms of these notes, in January 2017, bondholders may redeem the notes, in whole or in part, at par plus accrued interest.
|
|
|
(4)
|
Other consists of the unamortized net proceeds received from unwinding of interest rate swaps, the mark-to-market adjustment of interest rate swaps and debt discounts and premiums.
|
We have a commercial paper program that is an important source of liquidity for us and a committed credit facility of
$1.0 billion
to support commercial paper issuances. There were no outstanding commercial paper borrowings at
December 31, 2012
or
2011
. As of
December 31, 2012
, we had not drawn upon the credit facility. The credit facility expires in
April 2016
.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Annual maturities of outstanding debt at
December 31, 2012
are as follows:
|
|
|
|
|
2013
|
$
|
375,000
|
|
2014
|
450,000
|
|
2015
|
450,000
|
|
2016
|
680,000
|
|
2017
|
500,000
|
|
Thereafter
|
1,510,000
|
|
Total
|
$
|
3,965,000
|
|
8. Income Taxes
Income from continuing operations before taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
U.S.
|
$
|
458,456
|
|
|
$
|
463,814
|
|
|
$
|
407,060
|
|
International
|
146,157
|
|
|
22,727
|
|
|
149,129
|
|
Total
|
$
|
604,613
|
|
|
$
|
486,541
|
|
|
$
|
556,189
|
|
The provision for income taxes from continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
U.S. Federal:
|
|
|
|
|
|
Current
|
$
|
174,705
|
|
|
$
|
(68,505
|
)
|
|
$
|
175,827
|
|
Deferred
|
16,136
|
|
|
135,305
|
|
|
(24,632
|
)
|
|
190,841
|
|
|
66,800
|
|
|
151,195
|
|
U.S. State and Local:
|
|
|
|
|
|
Current
|
3,187
|
|
|
33,922
|
|
|
27,169
|
|
Deferred
|
(26,273
|
)
|
|
(15,546
|
)
|
|
(17,518
|
)
|
|
(23,086
|
)
|
|
18,376
|
|
|
9,651
|
|
International:
|
|
|
|
|
|
Current
|
65,412
|
|
|
67,835
|
|
|
44,989
|
|
Deferred
|
(82,862
|
)
|
|
(85,401
|
)
|
|
7,763
|
|
|
(17,450
|
)
|
|
(17,566
|
)
|
|
52,752
|
|
|
|
|
|
|
|
Total current
|
243,304
|
|
|
33,252
|
|
|
247,985
|
|
Total deferred
|
(92,999
|
)
|
|
34,358
|
|
|
(34,387
|
)
|
Total provision for income taxes
|
$
|
150,305
|
|
|
$
|
67,610
|
|
|
$
|
213,598
|
|
|
|
|
|
|
|
Effective tax rate
|
24.9
|
%
|
|
13.9
|
%
|
|
38.4
|
%
|
The effective tax rate for
2012
includes tax benefits of
$32 million
from the sale of non-U.S. leveraged lease assets,
$47 million
of tax benefits from the resolution of U.S. tax examinations and tax accruals of
$43 million
for the repatriation of additional non-U.S. earnings that arose as a result of one-time events including the sale of leveraged lease assets and Canadian tax law changes.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The effective tax rate for 2011 includes
$90 million
of tax benefits from the IRS tax settlements (see Other Matters below), a
$34 million
tax benefit from the sale of non-U.S. leveraged lease assets and a
$4 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. In addition, the effective tax rate for 2011 was increased due to a reduced tax benefit associated with the goodwill impairment charges.
The effective tax rate for 2010 includes
$16 million
of tax benefits associated with previously unrecognized deferred taxes on outside basis differences, a
$15 million
charge for the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock units previously granted to our employees and a
$9 million
charge for the write-off of deferred tax assets related to the U.S. health care reform legislation that eliminated the tax deduction for retiree health care costs to the extent of federal subsidies received by companies that provide retiree prescription drug benefits equivalent to Medicare Part D coverage.
The items described in the immediately preceding paragraphs that generated significant tax rate fluctuations are not expected to recur in future periods.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Act) was signed into law. Among others provisions, the Act retroactively extends through 2013 certain expired provisions including the research credit and controlled foreign corporation look-thru rules. As a result, we expect an immaterial decrease to our 2013 tax rate.
The items accounting for the difference between income taxes computed at the federal statutory rate and our provision for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Federal statutory provision
|
$
|
211,614
|
|
|
$
|
170,289
|
|
|
$
|
194,668
|
|
State and local income taxes
|
1,694
|
|
|
16,327
|
|
|
14,729
|
|
Impact of non-U.S. leveraged lease asset sales
|
(30,367
|
)
|
|
(31,423
|
)
|
|
—
|
|
Other impact of foreign operations
|
22,699
|
|
|
16,388
|
|
|
13,556
|
|
Tax exempt income/reimbursement
|
(1,992
|
)
|
|
(2,674
|
)
|
|
(2,352
|
)
|
Federal income tax credits/incentives
|
(8,918
|
)
|
|
(10,741
|
)
|
|
(7,580
|
)
|
Unrealized stock compensation benefits
|
3,456
|
|
|
3,538
|
|
|
15,149
|
|
Resolution of U.S. tax examinations
|
(47,380
|
)
|
|
(94,225
|
)
|
|
(8,230
|
)
|
U.S. health care reform tax change
|
—
|
|
|
—
|
|
|
9,070
|
|
Outside basis differences
|
—
|
|
|
—
|
|
|
(15,798
|
)
|
Other, net
|
(501
|
)
|
|
131
|
|
|
386
|
|
Provision for income taxes
|
$
|
150,305
|
|
|
$
|
67,610
|
|
|
$
|
213,598
|
|
Other impacts of foreign operations include income of foreign affiliates taxed at rates other than the 35% U.S. statutory rate, the accrual or release of tax uncertainty amounts related to foreign operations, the tax impacts of foreign earnings repatriation and the U.S. foreign tax credit impacts of other foreign income taxed in the U.S.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Deferred tax liabilities and assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
$
|
(65,205
|
)
|
|
$
|
(69,092
|
)
|
Deferred profit (for tax purposes) on sale to finance subsidiary
|
(157,279
|
)
|
|
(157,397
|
)
|
Lease revenue and related depreciation
|
(306,612
|
)
|
|
(422,541
|
)
|
Amortizable intangibles
|
(104,156
|
)
|
|
(99,980
|
)
|
Other
|
(35,157
|
)
|
|
(49,044
|
)
|
Deferred tax liabilities
|
(668,409
|
)
|
|
(798,054
|
)
|
|
|
|
|
Deferred tax assets:
|
|
|
|
Nonpension postretirement benefits
|
119,002
|
|
|
198,379
|
|
Pension
|
117,509
|
|
|
40,956
|
|
Inventory and equipment capitalization
|
26,778
|
|
|
24,806
|
|
Restructuring charges
|
20,793
|
|
|
8,185
|
|
Long-term incentives
|
35,056
|
|
|
37,019
|
|
Net operating loss and tax credit carry forwards
|
194,134
|
|
|
180,281
|
|
Tax uncertainties gross-up
|
28,492
|
|
|
46,773
|
|
Other
|
89,406
|
|
|
99,996
|
|
Valuation allowance
|
(142,176
|
)
|
|
(111,438
|
)
|
Deferred tax assets
|
488,994
|
|
|
524,957
|
|
|
|
|
|
Total deferred taxes, net
|
$
|
(179,415
|
)
|
|
$
|
(273,097
|
)
|
The above amounts are classified as current or long-term in the Consolidated Balance Sheets in accordance with the asset or liability to which they related or based on the expected timing of the reversal. A valuation allowance was recognized to reduce the total deferred tax assets to an amount that will more-likely-than-not be realized. The valuation allowance relates primarily to certain foreign, state and local net operating loss and tax credit carryforwards that are more likely than not to expire unutilized.
We have net operating loss carry forwards of
$339 million
as of
December 31, 2012
. Most of these losses can be carried forward indefinitely.
As of December 31, 2012 we have not provided for income taxes on
$750 million
of cumulative undistributed earnings of subsidiaries outside the U.S. as these earnings will be either indefinitely reinvested or remitted substantially free of additional tax; however, we estimate that withholding taxes on such remittances would be approximately
$10 million
. Determination of the liability that would be incurred if these earnings were remitted to the U.S. is not practicable as there is a significant amount of uncertainty with respect to determining the amount of foreign tax credits and other indirect tax consequences that may arise from the distribution of these earnings.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Uncertain Tax Positions
A reconciliation of the amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Balance at beginning of year
|
$
|
198,635
|
|
|
$
|
531,790
|
|
|
$
|
515,565
|
|
Increases from prior period positions
|
11,811
|
|
|
67,065
|
|
|
17,775
|
|
Decreases from prior period positions
|
(17,985
|
)
|
|
(140,107
|
)
|
|
(27,669
|
)
|
Increases from current period positions
|
28,255
|
|
|
28,686
|
|
|
43,804
|
|
Decreases from current period positions
|
—
|
|
|
—
|
|
|
(8,689
|
)
|
Decreases relating to settlements with tax authorities
|
(1,948
|
)
|
|
(18,204
|
)
|
|
(1,434
|
)
|
Reductions from lapse of applicable statute of limitations
|
(71,863
|
)
|
|
(270,595
|
)
|
|
(7,562
|
)
|
Balance at end of year
|
$
|
146,905
|
|
|
$
|
198,635
|
|
|
$
|
531,790
|
|
The amount of the unrecognized tax benefits at
December 31, 2012
,
2011
and
2010
that would affect the effective tax rate if recognized was
$127 million
,
$160 million
and
$249 million
, respectively.
On a regular basis, we conclude tax return examinations, statutes of limitations expire, and court decisions interpret tax law. We regularly assess tax uncertainties in light of these developments. As a result, it is reasonably possible that the amount of our unrecognized tax benefits will decrease in the next 12 months, and we expect this change could be up to
10%
of our unrecognized tax benefits. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes or discontinued operations as appropriate. During the years ended
December 31, 2012
,
2011
and
2010
, we recorded interest and penalties of
$(28) million
,
$(83) million
and
$15 million
, respectively, primarily in discontinued operations. We had
$11 million
and
$67 million
accrued for the payment of interest and penalties at
December 31, 2012
and
2011
, respectively.
Other Tax Matters
As is the case with other large corporations, our tax returns are examined each year by tax authorities in the U.S., other countries and local jurisdictions in which we have operations. Except for issues arising out of certain partnership investments, the IRS examinations of tax years prior to 2009 are closed to audit. Other than the pending application of legal principles to specific issues arising in earlier years, only post-2007 Canadian tax years are subject to examination. Other significant tax filings subject to examination include various post-2004 U.S. state and local, post-2007 German, and post-2008 French and U.K. tax filings. We have other less significant tax filings currently under examination or subject to examination.
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. We believe we have established tax reserves that are appropriate given the possibility of tax adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax law and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative, on our results of operations, financial position and cash flows.
On August 27, 2012, the Third Circuit Court of Appeals overturned a prior Tax Court decision and ruled in favor of the IRS and adverse to the Historic Boardwalk Hall LLC, a partnership in which we had made an investment in the year 2000. The decision has been appealed and, therefore, the judgment is not yet final. Based on our partnership contractual relationship, we do not expect this matter to have a material effect on our results of operations.
9. Noncontrolling Interests (Preferred Stockholders’ Equity in Subsidiaries)
Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary, has
300,000
shares, or
$300 million
, of outstanding perpetual voting preferred stock (the Preferred Stock) held by certain 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%
through 2016 after which it becomes callable and, if it remains outstanding, will yield a dividend that increases by
50%
every six months thereafter. No dividends were in arrears at
December 31, 2012
or
December 31, 2011
. There was no change in the carrying value of noncontrolling interests during the years ended
December 31, 2012
or
2011
.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
10. Stockholders' Equity
Preferred Stock
We have two classes of Preferred Stock issued and outstanding: the 4% Preferred Stock and the $2.12 Preference Stock
.
The 4% Preferred Stock is entitled to cumulative dividends of
$2
per year and can be converted into
24.24
shares of common stock, subject to adjustment in certain events. The preferred stock is redeemable at our option at a price of
$50
per share, plus dividends accrued through the redemption date. We are authorized to issue
600,000
shares of 4% Preferred Stock. At
December 31, 2012
and
2011
, there were
85
shares outstanding. There are no unpaid dividends in arrears.
The $2.12 Preference Stock is entitled to cumulative dividends of
$2.12
per year and can be converted into
16.53
shares of common stock, subject to adjustment in certain events. The preference stock is redeemable at our option at a price of
$28
per share. We are authorized to issue
5,000,000
shares of $2.12 Preference Stock. At
December 31, 2012
and
2011
, there were
23,928 shares
and
24,336 shares
outstanding, respectively. There are no unpaid dividends in arrears.
Common Stock
We have
480,000,000
shares of common stock authorized and
323,337,912 shares
were issued at
December 31, 2012
and
2011
. At
December 31, 2012
,
38,428,301
shares were reserved for issuance under our stock plans and dividend reinvestment program,
2,060
shares were reserved for issuance upon conversion of the 4% Preferred Stock and
395,530
shares were reserved for issuance upon conversion of the $2.12 Preference Stock. The following table summarizes the changes in Common Stock and Treasury Stock:
|
|
|
|
|
|
|
|
Treasury
|
|
Outstanding
|
Balance at December 31, 2009
|
116,140,084
|
|
|
207,197,828
|
|
Repurchases of common stock
|
4,687,304
|
|
|
(4,687,304
|
)
|
Issuance of common stock
|
(876,794
|
)
|
|
876,794
|
|
Conversions to common stock
|
(43,684
|
)
|
|
43,684
|
|
Balance at December 31, 2010
|
119,906,910
|
|
|
203,431,002
|
|
Repurchases of common stock
|
4,692,200
|
|
|
(4,692,200
|
)
|
Issuance of common stock
|
(963,448
|
)
|
|
963,448
|
|
Conversions to common stock
|
(48,820
|
)
|
|
48,820
|
|
Balance at December 31, 2011
|
123,586,842
|
|
|
199,751,070
|
|
Issuance of common stock
|
(1,118,089
|
)
|
|
1,118,089
|
|
Conversions to common stock
|
(14,888
|
)
|
|
14,888
|
|
Balance at December 31, 2012
|
122,453,865
|
|
|
200,884,047
|
|
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Foreign currency translation adjustments
|
$
|
81,250
|
|
|
$
|
83,952
|
|
|
$
|
137,521
|
|
Net unrealized loss on derivatives
|
(7,777
|
)
|
|
(8,438
|
)
|
|
(10,445
|
)
|
Net unrealized gain on investment securities
|
4,513
|
|
|
4,387
|
|
|
1,439
|
|
Net unamortized loss on pension and postretirement plans
|
(759,199
|
)
|
|
(741,546
|
)
|
|
(602,321
|
)
|
Accumulated other comprehensive loss
|
$
|
(681,213
|
)
|
|
$
|
(661,645
|
)
|
|
$
|
(473,806
|
)
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
11. Stock-Based Compensation
The following table shows stock-based compensation expense as included in the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Cost of equipment sales
|
$
|
1,212
|
|
|
$
|
1,292
|
|
|
$
|
1,397
|
|
Cost of support services
|
522
|
|
|
557
|
|
|
602
|
|
Cost of business services
|
721
|
|
|
770
|
|
|
831
|
|
Selling, general and administrative
|
15,176
|
|
|
15,689
|
|
|
16,936
|
|
Research and development
|
596
|
|
|
640
|
|
|
686
|
|
Stock-based compensation expense
|
18,227
|
|
|
18,948
|
|
|
20,452
|
|
Income tax
|
(6,061
|
)
|
|
(6,170
|
)
|
|
(7,265
|
)
|
Stock-based compensation expense, net of tax
|
$
|
12,166
|
|
|
$
|
12,778
|
|
|
$
|
13,187
|
|
Stock Plans
We have a long-term incentive program whereby eligible employees may be granted restricted stock units, market stock units, non-qualified stock options, other stock-based awards, cash or any combination thereof. The Executive Compensation Committee of the Board of Directors administers these plans. We settle employee stock compensation awards with treasury shares. At
December 31, 2012
, there were
16,644,439
shares available for future grants under our long-term incentive program.
Restricted Stock Units
Restricted stock units are granted to employees and entitle the holder to shares of common stock as the units vest, typically over a four year service period. The fair value of the units is determined on the grant date based on our stock price at that date less the present value of expected dividends. The following table summarizes information about restricted stock units during
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Shares
|
|
Weighted average grant date fair value
|
|
Shares
|
|
Weighted average grant date fair value
|
Restricted stock units outstanding at beginning of year
|
1,629,055
|
|
|
$
|
22.33
|
|
|
1,637,242
|
|
|
$
|
25.55
|
|
Granted
|
999,381
|
|
|
14.72
|
|
|
662,049
|
|
|
22.44
|
|
Vested
|
(598,543
|
)
|
|
22.27
|
|
|
(543,688
|
)
|
|
26.89
|
|
Forfeited
|
(120,733
|
)
|
|
18.75
|
|
|
(126,548
|
)
|
|
23.12
|
|
Restricted stock units outstanding at end of year
|
1,909,160
|
|
|
$
|
17.68
|
|
|
1,629,055
|
|
|
$
|
22.33
|
|
At
December 31, 2012
, there was
$15 million
of unrecognized compensation cost related to restricted stock units that is expected to be recognized over a weighted-average period of
2.2 years
. The intrinsic value of restricted stock units outstanding at
December 31, 2012
was
$20 million
. The intrinsic value of restricted stock units vested during
2012
,
2011
and
2010
was
$11 million
,
$13 million
and
$9 million
, respectively.
Market Stock Units
In 2012, we issued market stock units to key executives and other eligible employees. Each market stock unit award reflects a base number of shares (Base Shares) that the recipient may receive before adjusting for performance and market conditions. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on the company's attainment of a specified income target and a market condition based on total shareholder return of our common stock (including dividends) over a three-year period, and may range from
50%
to
200%
of the Base Shares granted. The expense for these awards, net of estimated forfeitures, is recorded over the performance period based on the fair value of the award, determined on the grant date using a Monte Carlo simulation model.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following table summarizes information about market stock units during
2012
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted average grant date fair value
|
Market stock units outstanding at January 1, 2012
|
—
|
|
|
$
|
—
|
|
Granted
|
205,013
|
|
|
17.91
|
|
Forfeited
|
(6,868
|
)
|
|
17.91
|
|
Market stock units outstanding at December 31, 2012
|
198,145
|
|
|
$
|
17.91
|
|
The fair value of market stock units was determined based on the following assumptions:
|
|
|
|
|
Year Ended December 31, 2012
|
Expected dividend yield
|
6.7
|
%
|
Expected stock price volatility
|
29.7
|
%
|
Risk-free interest rate
|
0.4
|
%
|
At
December 31, 2012
, there was
$1 million
of unrecognized compensation cost related to market stock units that is expected to be recognized over a weighted-average period of
1.6 years
.
Stock Options
Under our stock option plan, certain officers and employees are granted options at prices equal to the market value of our common shares at the date of grant. Options vest ratably over three or four years and expire ten years from the date of grant.
The following table summarizes information about stock option activity during
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Shares
|
|
Per share weighted average exercise prices
|
|
Shares
|
|
Per share weighted average exercise prices
|
Options outstanding at beginning of the year
|
14,471,464
|
|
|
$
|
36.42
|
|
|
14,506,522
|
|
|
$
|
37.38
|
|
Granted
|
600,000
|
|
|
15.71
|
|
|
1,312,910
|
|
|
26.07
|
|
Exercised
|
—
|
|
|
—
|
|
|
(55,484
|
)
|
|
25.15
|
|
Canceled
|
(525,361
|
)
|
|
36.15
|
|
|
(1,266,537
|
)
|
|
37.61
|
|
Forfeited
|
(892,858
|
)
|
|
40.20
|
|
|
(25,947
|
)
|
|
27.27
|
|
Options outstanding at the end of the year
|
13,653,245
|
|
|
$
|
35.28
|
|
|
14,471,464
|
|
|
$
|
36.42
|
|
Options exercisable at the end of the year
|
11,762,341
|
|
|
$
|
37.44
|
|
|
11,478,630
|
|
|
$
|
39.13
|
|
At
December 31, 2012
, there was
$1 million
of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of
1.7 years
. The options outstanding and exercisable at
December 31, 2012
had no intrinsic value. There were no options exercised in 2012 or 2010 and the intrinsic value of options exercised in 2011 was less than
$1 million
.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following table summarizes information about stock options outstanding and exercisable at
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of per share exercise prices
|
|
Shares
|
|
Per share weighted-average exercise price
|
|
Weighted-average remaining contractual life
|
|
Shares
|
|
Per share weighted-average exercise price
|
|
Weighted-average remaining contractual life
|
$13.39 - $22.99
|
|
1,959,735
|
|
|
$
|
20.14
|
|
|
8.0
|
years
|
|
906,744
|
|
|
$
|
22.09
|
|
|
7.1
|
years
|
$23.00 - $30.99
|
|
2,471,949
|
|
|
25.42
|
|
|
7.1
|
years
|
|
1,634,036
|
|
|
25.09
|
|
|
6.6
|
years
|
$31.00 - $38.99
|
|
2,962,324
|
|
|
34.73
|
|
|
2.8
|
years
|
|
2,962,324
|
|
|
34.73
|
|
|
2.8
|
years
|
$39.00 - $48.03
|
|
6,259,237
|
|
|
44.17
|
|
|
2.4
|
years
|
|
6,259,237
|
|
|
44.17
|
|
|
2.4
|
years
|
|
|
13,653,245
|
|
|
$
|
35.28
|
|
|
4.2
|
years
|
|
11,762,341
|
|
|
$
|
37.44
|
|
|
3.5
|
years
|
We estimate the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the volatility of our stock price, a risk-free interest rate, the expected dividend yield of our stock and expected life of the award. Expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S. treasuries with a term equal to the expected option term. The expected life of the award and expected dividend yield are based on historical experience. The fair value of stock options granted during the year was determined using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Expected dividend yield
|
9.3
|
%
|
|
6.1
|
%
|
|
6.1
|
%
|
Expected stock price volatility
|
30.0
|
%
|
|
26.1
|
%
|
|
25.6
|
%
|
Risk-free interest rate
|
1.2
|
%
|
|
3.3
|
%
|
|
3.2
|
%
|
Expected life
|
7.9
|
years
|
|
7.4
|
years
|
|
7.3
|
years
|
Weighted-average fair value per option granted
|
$0.48
|
|
$3.45
|
|
$2.82
|
Employee Stock Purchase Plan
We maintain a non-compensatory Employee Stock Purchase Plan that enables substantially all U.S. and Canadian employees to purchase shares of our common stock at an offering price of
95%
of the average market price on the offering date. At no time will the exercise price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. Employees purchased
291,859
shares and
258,667
shares in
2012
and
2011
, respectively. We have reserved
4,816,935
common shares for future purchase under the ESPP.
Directors' Stock Plan
Each non-employee director is granted shares of restricted stock on an annual basis. In 2012 and 2011, we granted
26,653
shares and
22,000
shares to non-employee directors, respectively.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
12. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1
– Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2
– Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
– Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management's best estimate of fair value and that are significant to the fair value of the asset or liability.
The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at
December 31, 2012
and
2011
. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds / commercial paper
|
$
|
581,648
|
|
|
$
|
34,369
|
|
|
$
|
—
|
|
|
$
|
616,017
|
|
Equity securities
|
—
|
|
|
25,106
|
|
|
—
|
|
|
25,106
|
|
Commingled fixed income securities
|
—
|
|
|
29,359
|
|
|
—
|
|
|
29,359
|
|
Debt securities - U.S. and foreign governments, agencies and municipalities
|
124,221
|
|
|
18,908
|
|
|
—
|
|
|
143,129
|
|
Debt securities - corporate
|
—
|
|
|
43,926
|
|
|
—
|
|
|
43,926
|
|
Mortgage-backed / asset-backed securities
|
—
|
|
|
162,375
|
|
|
—
|
|
|
162,375
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
10,117
|
|
|
—
|
|
|
10,117
|
|
Foreign exchange contracts
|
—
|
|
|
2,582
|
|
|
—
|
|
|
2,582
|
|
Total assets
|
$
|
705,869
|
|
|
$
|
326,742
|
|
|
$
|
—
|
|
|
$
|
1,032,611
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
(1,174
|
)
|
|
$
|
—
|
|
|
$
|
(1,174
|
)
|
Total liabilities
|
$
|
—
|
|
|
$
|
(1,174
|
)
|
|
$
|
—
|
|
|
$
|
(1,174
|
)
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds / commercial paper
|
$
|
239,157
|
|
|
$
|
300,702
|
|
|
$
|
—
|
|
|
$
|
539,859
|
|
Equity securities
|
—
|
|
|
22,097
|
|
|
—
|
|
|
22,097
|
|
Commingled fixed income securities
|
—
|
|
|
27,747
|
|
|
—
|
|
|
27,747
|
|
Debt securities - U.S. and foreign governments, agencies and municipalities
|
93,175
|
|
|
19,042
|
|
|
—
|
|
|
112,217
|
|
Debt securities - corporate
|
—
|
|
|
31,467
|
|
|
—
|
|
|
31,467
|
|
Mortgage-backed / asset-backed securities
|
—
|
|
|
134,262
|
|
|
—
|
|
|
134,262
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
15,465
|
|
|
—
|
|
|
15,465
|
|
Foreign exchange contracts
|
—
|
|
|
4,230
|
|
|
—
|
|
|
4,230
|
|
Total assets
|
$
|
332,332
|
|
|
$
|
555,012
|
|
|
$
|
—
|
|
|
$
|
887,344
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
(1,439
|
)
|
|
$
|
—
|
|
|
$
|
(1,439
|
)
|
Total liabilities
|
$
|
—
|
|
|
$
|
(1,439
|
)
|
|
$
|
—
|
|
|
$
|
(1,439
|
)
|
Investment Securities
The valuation of investment securities is based on the market approach using 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 and other highly liquid, 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.
|
|
|
•
|
Commingled Fixed Income Securities:
Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. The value of the funds is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These commingled funds are not listed on an exchange in an active market and are classified as Level 2.
|
|
|
•
|
Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities:
Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities valued using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities are classified as Level 2.
|
|
|
•
|
Debt Securities – Corporate:
Corporate debt securities are valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
|
|
|
•
|
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 Bank. The Bank's investment securities are classified as available-for-sale and recorded at fair value on the Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the type of investment and maturity. Unrealized holding gains and losses are recorded, net of tax, in accumulated other comprehensive income.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
At
December 31, 2012
and
2011
, available-for-sale securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
Money market funds / commercial paper
|
$
|
44,611
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
44,664
|
|
U.S. and foreign governments, agencies and municipalities
|
127,807
|
|
|
3,972
|
|
|
(56
|
)
|
|
131,723
|
|
Corporate
|
41,095
|
|
|
2,851
|
|
|
(20
|
)
|
|
43,926
|
|
Mortgage-back / asset-back securities
|
162,180
|
|
|
3,340
|
|
|
(3,145
|
)
|
|
162,375
|
|
Total
|
$
|
375,693
|
|
|
$
|
10,216
|
|
|
$
|
(3,221
|
)
|
|
$
|
382,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
Money market funds / commercial paper
|
$
|
25,253
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
25,296
|
|
U.S. and foreign governments, agencies and municipalities
|
93,995
|
|
|
4,264
|
|
|
(8
|
)
|
|
98,251
|
|
Corporate
|
31,114
|
|
|
935
|
|
|
(582
|
)
|
|
31,467
|
|
Mortgage-back / asset-back securities
|
131,982
|
|
|
3,303
|
|
|
(1,023
|
)
|
|
134,262
|
|
Total
|
$
|
282,344
|
|
|
$
|
8,545
|
|
|
$
|
(1,613
|
)
|
|
$
|
289,276
|
|
At
December 31, 2012
, the amortized cost and estimated fair value of investment securities have scheduled maturities as follows:
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
Estimated fair value
|
Within 1 year
|
$
|
86,867
|
|
|
$
|
87,014
|
|
After 1 year through 5 years
|
56,732
|
|
|
58,117
|
|
After 5 years through 10 years
|
65,019
|
|
|
65,869
|
|
After 10 years
|
167,075
|
|
|
171,688
|
|
Total
|
$
|
375,693
|
|
|
$
|
382,688
|
|
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. We have no investments in inactive markets that 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. We record our derivative instruments at fair value. The accounting for changes in the fair value of the derivatives depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
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.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The fair value of our derivative instruments at
December 31, 2012
and
2011
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Designation of Derivatives
|
|
Balance Sheet Location
|
|
2012
|
|
2011
|
Derivatives designated as
hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
78
|
|
|
$
|
780
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
10,117
|
|
|
15,465
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
(320
|
)
|
|
(79
|
)
|
Derivatives not designated as
hedging instruments
|
|
Other current assets and prepayments:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
2,504
|
|
|
3,450
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
(854
|
)
|
|
(1,360
|
)
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
12,699
|
|
|
19,695
|
|
|
|
Total derivative liabilities
|
|
(1,174
|
)
|
|
(1,439
|
)
|
|
|
Total net derivative assets
|
|
$
|
11,525
|
|
|
$
|
18,256
|
|
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. The following represents the results of fair value hedging relationships for the years ended
December 31, 2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Derivative Gain
Recognized in Earnings
|
|
Hedged Item Expense
Recognized in Earnings
|
Derivative Instrument
|
|
Location of Gain (Loss)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
9,994
|
|
|
$
|
11,583
|
|
|
$
|
(31,137
|
)
|
|
$
|
(33,125
|
)
|
Foreign Exchange Contracts
We enter into foreign currency exchange contracts to mitigate the currency risk associated with 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 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
December 31, 2012
and
2011
, we had outstanding contracts associated with these anticipated transactions with a notional amount of
$25 million
and
$19 million
, respectively. These contracts had a
net liability
value of less than
$1 million
at
December 31, 2012
and a
net asset
value of
$1 million
at
December 31, 2011
.
The amounts included in AOCI at
December 31, 2012
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 years ended
December 31, 2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
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
|
|
2012
|
|
2011
|
|
|
2012
|
|
2011
|
Foreign exchange contracts
|
|
$
|
(2,055
|
)
|
|
$
|
2,141
|
|
|
Revenue
|
|
$
|
1,298
|
|
|
$
|
(166
|
)
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
(185
|
)
|
|
(719
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,113
|
|
|
$
|
(885
|
)
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
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. Outstanding foreign exchange contracts to buy or sell various currencies had a
net asset
value of
$2 million
at
December 31, 2012
and
December 31, 2011
. All outstanding contracts at
December 31, 2012
mature within one year.
The following represents the results of our non-designated derivative instruments for the years ended
December 31, 2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Derivative Gain (Loss)
Recognized in Earnings
|
Derivatives Instrument
|
|
Location of Derivative Gain (Loss)
|
|
2012
|
|
2011
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
$
|
(4,254
|
)
|
|
$
|
(17,214
|
)
|
Credit-Risk-Related Contingent Features
Certain derivative instruments contain credit-risk-related contingent features that would require us to post collateral based on a combination of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At
December 31, 2012
, we were not required to post any collateral.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and accounts payable approximate fair value because of the short maturity of these instruments.
The fair value of our debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of our debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt at
December 31, 2012
and
2011
was as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Carrying value
|
$
|
4,017,375
|
|
|
$
|
4,233,909
|
|
Fair value
|
$
|
4,200,970
|
|
|
$
|
4,364,176
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
13. Restructuring Charges and Asset Impairments
Activity in our restructuring reserves for the years ended
December 31, 2012
,
2011
and
2010
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefits costs
|
|
Pension and
Retiree
Medical
|
|
Asset
impairments
|
|
Other exit
costs
|
|
Total
|
Balance at December 31, 2009
|
$
|
73,792
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,834
|
|
|
$
|
88,626
|
|
Expenses, net
|
114,873
|
|
|
23,620
|
|
|
9,799
|
|
|
38,163
|
|
|
186,455
|
|
Gain on sale of facility
|
—
|
|
|
—
|
|
|
(8,897
|
)
|
|
—
|
|
|
(8,897
|
)
|
Cash payments
|
(87,026
|
)
|
|
—
|
|
|
8,897
|
|
|
(41,436
|
)
|
|
(119,565
|
)
|
Non-cash charges
|
—
|
|
|
(23,620
|
)
|
|
(9,799
|
)
|
|
—
|
|
|
(33,419
|
)
|
Balance at December 31, 2010
|
101,639
|
|
|
—
|
|
|
—
|
|
|
11,561
|
|
|
113,200
|
|
Expenses, net
|
101,043
|
|
|
8,178
|
|
|
13,528
|
|
|
12,471
|
|
|
135,220
|
|
Gain on sale of facility
|
—
|
|
|
—
|
|
|
(601
|
)
|
|
—
|
|
|
(601
|
)
|
Cash payments
|
(97,646
|
)
|
|
—
|
|
|
601
|
|
|
(9,957
|
)
|
|
(107,002
|
)
|
Non-cash charges
|
—
|
|
|
(8,178
|
)
|
|
(13,528
|
)
|
|
—
|
|
|
(21,706
|
)
|
Balance at December 31, 2011
|
105,036
|
|
|
—
|
|
|
—
|
|
|
14,075
|
|
|
119,111
|
|
Expenses, net
|
24,992
|
|
|
—
|
|
|
—
|
|
|
(1,627
|
)
|
|
23,365
|
|
Cash payments
|
(67,488
|
)
|
|
—
|
|
|
—
|
|
|
(7,230
|
)
|
|
(74,718
|
)
|
Non-cash charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2012
|
$
|
62,540
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,218
|
|
|
$
|
67,758
|
|
During 2012, we took actions to further streamline our business operations and reduce our cost structure. These actions consisted primarily of workforce reductions and resulted in a pre-tax restructuring charge of
$38 million
. We anticipate that these actions will result in annualized benefits of
$45 million
to
$55 million
. Restructuring charges are net of reversals of
$15 million
for changes in estimated reserves for prior period programs. Total restructuring reserves at
December 31, 2012
are expected to be paid over the next 12-24 months. We expect to fund these payments from cash flows from operations.
Restructuring charges in 2011 and 2010 represent charges taken in connection with a series of strategic transformation initiatives announced in 2009. These initiatives were designed to transform and enhance the way we operate as a global company, enhance our responsiveness to changing market conditions and create improved processes and systems and were implemented over a three year period through 2011.
Restructuring charges and asset impairments on the Consolidated Statements of Income also includes asset impairment charges unrelated to restructuring programs, which are not included in the table above and excludes restructuring charges related to discontinued operations, which are included in the table above. Asset impairment charges unrelated to restructuring programs were
$5 million
in both
2011
and
2010
.
14. 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 clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.
In October 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 in September 2010. After briefing on the motion to dismiss was completed, the plaintiffs filed a new amended complaint on February 17, 2012. We have moved to dismiss this new amended complaint. We expect to prevail in this legal action; however, as litigation is inherently unpredictable, there can be no assurance in this regard. If the plaintiffs do prevail, the results may
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
have a material effect on our financial position, results of operations or cash flows. 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.
15. Leases
We lease office facilities, sales and service offices, equipment and other properties under operating lease agreements extending from three to eight years. Certain leases require us to pay property taxes, insurance and routine maintenance and include renewal options and escalation clauses. Rental expense was
$100 million
,
$117 million
and
$118 million
in
2012
,
2011
and
2010
, respectively. Future minimum lease payments under non-cancelable operating leases at
December 31, 2012
were as follows:
|
|
|
|
|
Years ending December 31,
|
|
2013
|
$
|
90,936
|
|
2014
|
69,945
|
|
2015
|
49,835
|
|
2016
|
32,355
|
|
2017
|
18,647
|
|
Thereafter
|
22,360
|
|
Total minimum lease payments
|
$
|
284,078
|
|
16. Segment Information
We conduct our business activities in
seven
reporting segments within
two
business groups, Small & Medium Business Solutions and Enterprise Business Solutions. The principal products and services of each of our reporting segments are as follows:
Small & Medium Business Solutions:
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 and related software.
Software
:
Includes the worldwide revenue and related expenses from the sale and support services of non-equipment-based mailing, client 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; print outsourcing services; and litigation support and eDiscovery services.
Mail Services
: Includes worldwide revenue and related expenses from presort mail services and cross-border ecommerce solutions.
Marketing Services
:
Includes revenue and related expenses from direct marketing services for targeted clients.
Segment 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. Segment EBIT excludes interest, taxes, general corporate expenses not allocated to a particular business segment, restructuring charges, asset impairments and goodwill charges which are recognized on a consolidated basis. Management uses segment EBIT to measure profitability and performance at the segment level. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. Segment information for our Mail Services segment for all periods presented has been restated to reflect the presentation of the IMS business as a discontinued operation.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Financial information for our reportable segments for the years ended
December 31, 2012
,
2011
and
2010
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Revenue:
|
|
|
|
|
|
|
|
North America Mailing
|
$
|
1,818,952
|
|
|
$
|
1,961,198
|
|
|
$
|
2,100,677
|
|
International Mailing
|
675,637
|
|
|
707,416
|
|
|
674,759
|
|
Small & Medium Business Solutions
|
2,494,589
|
|
|
2,668,614
|
|
|
2,775,436
|
|
Production Mail
|
512,109
|
|
|
544,483
|
|
|
561,447
|
|
Software
|
393,380
|
|
|
407,402
|
|
|
374,750
|
|
Management Services
|
920,958
|
|
|
948,891
|
|
|
999,288
|
|
Mail Services
|
445,093
|
|
|
411,634
|
|
|
407,897
|
|
Marketing Services
|
137,886
|
|
|
141,572
|
|
|
141,538
|
|
Enterprise Business Solutions
|
2,409,426
|
|
|
2,453,982
|
|
|
2,484,920
|
|
Total revenue
|
$
|
4,904,015
|
|
|
$
|
5,122,596
|
|
|
$
|
5,260,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
EBIT:
|
|
|
|
|
|
|
|
North America Mailing
|
$
|
688,665
|
|
|
$
|
727,999
|
|
|
$
|
755,153
|
|
International Mailing
|
78,979
|
|
|
98,601
|
|
|
78,950
|
|
Small & Medium Business Solutions
|
767,644
|
|
|
826,600
|
|
|
834,103
|
|
Production Mail
|
25,644
|
|
|
32,562
|
|
|
60,896
|
|
Software
|
37,958
|
|
|
38,182
|
|
|
40,046
|
|
Management Services
|
55,198
|
|
|
76,321
|
|
|
92,671
|
|
Mail Services
|
101,005
|
|
|
103,026
|
|
|
84,714
|
|
Marketing Services
|
28,061
|
|
|
26,184
|
|
|
26,133
|
|
Enterprise Business Solutions
|
247,866
|
|
|
276,275
|
|
|
304,460
|
|
Total EBIT
|
1,015,510
|
|
|
1,102,875
|
|
|
1,138,563
|
|
Reconciling items:
|
|
|
|
|
|
|
|
Interest, net
(1)
|
(188,386
|
)
|
|
(197,266
|
)
|
|
(201,324
|
)
|
Corporate and other expenses
|
(199,394
|
)
|
|
(198,020
|
)
|
|
(199,089
|
)
|
Restructuring charges and asset impairments
|
(23,117
|
)
|
|
(136,548
|
)
|
|
(181,961
|
)
|
Goodwill impairment
|
—
|
|
|
(84,500
|
)
|
|
—
|
|
Income from continuing operations before income taxes
|
$
|
604,613
|
|
|
$
|
486,541
|
|
|
$
|
556,189
|
|
|
|
(1)
|
Includes financing interest expense, other interest expense and interest income.
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
North America Mailing
|
$
|
104,957
|
|
|
$
|
123,252
|
|
|
$
|
133,877
|
|
International Mailing
|
26,804
|
|
|
29,961
|
|
|
36,424
|
|
Small & Medium Business Solutions
|
131,761
|
|
|
153,213
|
|
|
170,301
|
|
Production Mail
|
13,344
|
|
|
12,139
|
|
|
12,974
|
|
Software
|
24,324
|
|
|
34,389
|
|
|
36,962
|
|
Management Services
|
33,008
|
|
|
27,416
|
|
|
33,398
|
|
Mail Services
|
32,446
|
|
|
26,636
|
|
|
27,924
|
|
Marketing Services
|
3,888
|
|
|
3,693
|
|
|
5,479
|
|
Enterprise Business Solutions
|
107,010
|
|
|
104,273
|
|
|
116,737
|
|
Total for reportable segments
|
238,771
|
|
|
257,486
|
|
|
287,038
|
|
Reconciliation to consolidated amount:
|
|
|
|
|
|
Unallocated amount
|
16,785
|
|
|
14,656
|
|
|
16,615
|
|
Consolidated depreciation and amortization
|
$
|
255,556
|
|
|
$
|
272,142
|
|
|
$
|
303,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Capital expenditures:
|
|
|
|
|
|
|
|
North America Mailing
|
$
|
78,511
|
|
|
$
|
57,308
|
|
|
$
|
67,731
|
|
International Mailing
|
29,642
|
|
|
13,905
|
|
|
999
|
|
Small & Medium Business Solutions
|
108,153
|
|
|
71,213
|
|
|
68,730
|
|
Production Mail
|
12,694
|
|
|
11,326
|
|
|
8,326
|
|
Software
|
1,550
|
|
|
5,142
|
|
|
4,215
|
|
Management Services
|
32,846
|
|
|
18,853
|
|
|
17,307
|
|
Mail Services
|
17,676
|
|
|
34,987
|
|
|
7,243
|
|
Marketing Services
|
2,436
|
|
|
364
|
|
|
626
|
|
Enterprise Business Solutions
|
67,202
|
|
|
70,672
|
|
|
37,717
|
|
Total for reportable segments
|
175,355
|
|
|
141,885
|
|
|
106,447
|
|
Reconciliation to consolidated amount:
|
|
|
|
|
|
Unallocated amount
|
1,231
|
|
|
14,095
|
|
|
13,321
|
|
Consolidated capital expenditures
|
$
|
176,586
|
|
|
$
|
155,980
|
|
|
$
|
119,768
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Assets:
|
|
|
|
|
|
|
|
North America Mailing
|
$
|
3,101,959
|
|
|
$
|
3,350,457
|
|
|
$
|
3,488,322
|
|
International Mailing
|
871,162
|
|
|
789,337
|
|
|
962,973
|
|
Small & Medium Business Solutions
|
3,973,121
|
|
|
4,139,794
|
|
|
4,451,295
|
|
Production Mail
|
408,657
|
|
|
504,939
|
|
|
547,002
|
|
Software
|
929,509
|
|
|
932,389
|
|
|
1,058,057
|
|
Management Services
|
700,972
|
|
|
688,766
|
|
|
799,290
|
|
Mail Services
|
397,745
|
|
|
454,585
|
|
|
512,785
|
|
Marketing Services
|
221,269
|
|
|
235,462
|
|
|
230,995
|
|
Enterprise Business Solutions
|
2,658,152
|
|
|
2,816,141
|
|
|
3,148,129
|
|
Total for reportable segments
|
6,631,273
|
|
|
6,955,935
|
|
|
7,599,424
|
|
Reconciliation to consolidated amount:
|
|
|
|
|
|
Cash and cash equivalents
|
913,276
|
|
|
856,238
|
|
|
484,363
|
|
Short-term investments
|
36,611
|
|
|
12,971
|
|
|
30,609
|
|
Other corporate assets
|
278,731
|
|
|
321,960
|
|
|
329,627
|
|
Consolidated assets
|
$
|
7,859,891
|
|
|
$
|
8,147,104
|
|
|
$
|
8,444,023
|
|
Geographic data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Revenues
|
|
|
|
|
|
United States
|
$
|
3,357,274
|
|
|
$
|
3,475,473
|
|
|
$
|
3,672,842
|
|
Outside United States
|
1,546,741
|
|
|
1,647,123
|
|
|
1,587,514
|
|
Total
|
$
|
4,904,015
|
|
|
$
|
5,122,596
|
|
|
$
|
5,260,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Identifiable long-lived assets:
|
|
|
|
|
|
United States
|
$
|
2,831,810
|
|
|
$
|
2,749,101
|
|
|
$
|
2,939,467
|
|
Outside United States
|
836,346
|
|
|
910,048
|
|
|
996,963
|
|
Total
|
$
|
3,668,156
|
|
|
$
|
3,659,149
|
|
|
$
|
3,936,430
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
17. Retirement Plans and Postretirement Medical Benefits
We have several defined benefit retirement plans. Benefits are primarily based on employees' compensation and years of service. Our contributions are determined based on the funding requirements of U.S. federal and other governmental laws and regulations. We use a measurement date of December 31 for all of our retirement plans. U.S. employees hired after January 1, 2005, Canadian employees hired after April 1, 2005 and U.K. employees hired after July 1, 2005 are not eligible for our defined benefit retirement plans. Benefit accruals for all participants in our U.K. pension plans will be frozen effective June 30, 2013. Benefit accruals for participants with 16 or more years of service as of March 31, 2013 in our two largest U.S. pension plans and all participants in our Canadian pension plans, will be frozen effective December 31, 2014.
In January 2013, the Board of Directors approved a plan to freeze benefit accruals under our two largest U.S. pension plans for certain participants on March 31, 2013. The freeze is effective for those participants with less than 16 years of service as of March 31, 2013. We are in the process of re-measuring the assets and liabilities of these plans, but currently estimate that annual pension costs for 2013 will be
$10
-
$15
million lower than 2012 pension costs.
The benefit obligations and funded status of defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Accumulated benefit obligation
|
$
|
1,802,811
|
|
|
$
|
1,684,050
|
|
|
$
|
648,439
|
|
|
$
|
543,599
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
1,707,390
|
|
|
$
|
1,632,286
|
|
|
$
|
581,904
|
|
|
$
|
541,241
|
|
Service cost
|
18,939
|
|
|
19,450
|
|
|
7,763
|
|
|
7,310
|
|
Interest cost
|
81,040
|
|
|
87,738
|
|
|
27,793
|
|
|
28,329
|
|
Plan participants' contributions
|
—
|
|
|
—
|
|
|
1,106
|
|
|
1,868
|
|
Actuarial loss
|
145,641
|
|
|
94,495
|
|
|
45,537
|
|
|
30,648
|
|
Foreign currency changes
|
—
|
|
|
—
|
|
|
22,115
|
|
|
(6,424
|
)
|
Settlement / curtailment
|
6
|
|
|
2,941
|
|
|
(1,489
|
)
|
|
16
|
|
Special termination benefits
|
—
|
|
|
1,489
|
|
|
601
|
|
|
277
|
|
Benefits paid
|
(130,339
|
)
|
|
(131,009
|
)
|
|
(21,504
|
)
|
|
(21,361
|
)
|
Benefit obligation at end of year
|
1,822,677
|
|
|
1,707,390
|
|
|
663,826
|
|
|
581,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets available for benefits
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
1,426,536
|
|
|
1,385,174
|
|
|
438,848
|
|
|
450,683
|
|
Actual return on plan assets
|
193,696
|
|
|
41,388
|
|
|
44,928
|
|
|
(7,478
|
)
|
Company contributions
|
94,039
|
|
|
130,983
|
|
|
30,089
|
|
|
18,616
|
|
Plan participants' contributions
|
—
|
|
|
—
|
|
|
1,106
|
|
|
1,868
|
|
Settlement / curtailment
|
—
|
|
|
—
|
|
|
(1,489
|
)
|
|
—
|
|
Foreign currency changes
|
—
|
|
|
—
|
|
|
17,353
|
|
|
(3,480
|
)
|
Benefits paid
|
(130,339
|
)
|
|
(131,009
|
)
|
|
(21,504
|
)
|
|
(21,361
|
)
|
Fair value of plan assets at end of year
|
1,583,932
|
|
|
1,426,536
|
|
|
509,331
|
|
|
438,848
|
|
|
|
|
|
|
|
|
|
Funded status
|
$
|
(238,745
|
)
|
|
$
|
(280,854
|
)
|
|
$
|
(154,495
|
)
|
|
$
|
(143,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Consolidated Balance Sheets
|
|
|
|
|
|
|
|
Non-current asset
|
$
|
175
|
|
|
$
|
40
|
|
|
$
|
530
|
|
|
$
|
888
|
|
Current liability
|
(7,456
|
)
|
|
(11,323
|
)
|
|
(967
|
)
|
|
(852
|
)
|
Non-current liability
|
(231,464
|
)
|
|
(269,571
|
)
|
|
(154,058
|
)
|
|
(143,092
|
)
|
Net amount recognized
|
$
|
(238,745
|
)
|
|
$
|
(280,854
|
)
|
|
$
|
(154,495
|
)
|
|
$
|
(143,056
|
)
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Projected benefit obligation
|
$
|
1,821,300
|
|
|
$
|
1,705,732
|
|
|
$
|
660,110
|
|
|
$
|
579,646
|
|
Accumulated benefit obligation
|
$
|
1,801,433
|
|
|
$
|
1,682,392
|
|
|
$
|
645,361
|
|
|
$
|
541,723
|
|
Fair value of plan assets
|
$
|
1,582,379
|
|
|
$
|
1,424,837
|
|
|
$
|
505,084
|
|
|
$
|
435,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax amounts recognized in AOCI consists of:
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Net actuarial loss
|
$
|
879,323
|
|
|
$
|
858,531
|
|
|
$
|
242,668
|
|
|
$
|
224,731
|
|
Prior service cost
|
1,229
|
|
|
2,159
|
|
|
541
|
|
|
541
|
|
Transition asset
|
—
|
|
|
—
|
|
|
(263
|
)
|
|
(273
|
)
|
Total
|
$
|
880,552
|
|
|
$
|
860,690
|
|
|
$
|
242,946
|
|
|
$
|
224,999
|
|
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in
2013
are as follows:
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
Net actuarial loss
|
$
|
72,382
|
|
|
$
|
13,191
|
|
Prior service cost
|
803
|
|
|
99
|
|
Transition asset
|
—
|
|
|
(10
|
)
|
Total
|
$
|
73,185
|
|
|
$
|
13,280
|
|
The components of net periodic benefit cost for defined benefit pension plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Service cost
|
$
|
18,939
|
|
|
$
|
19,450
|
|
|
$
|
23,157
|
|
|
$
|
7,763
|
|
|
$
|
7,310
|
|
|
$
|
6,907
|
|
Interest cost
|
81,040
|
|
|
87,738
|
|
|
89,602
|
|
|
27,793
|
|
|
28,329
|
|
|
27,507
|
|
Expected return on plan assets
|
(121,623
|
)
|
|
(123,058
|
)
|
|
(123,095
|
)
|
|
(32,299
|
)
|
|
(31,784
|
)
|
|
(28,838
|
)
|
Amortization of transition credit
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
|
(9
|
)
|
Amortization of prior service cost
|
803
|
|
|
147
|
|
|
(2,575
|
)
|
|
112
|
|
|
170
|
|
|
214
|
|
Recognized net actuarial loss
|
52,957
|
|
|
37,522
|
|
|
32,343
|
|
|
14,103
|
|
|
11,135
|
|
|
10,205
|
|
Special termination benefits
|
—
|
|
|
1,489
|
|
|
8,148
|
|
|
601
|
|
|
277
|
|
|
291
|
|
Settlement / curtailment
|
(48
|
)
|
|
3,036
|
|
|
10,712
|
|
|
444
|
|
|
274
|
|
|
1,285
|
|
Net periodic benefit cost
|
$
|
32,068
|
|
|
$
|
26,324
|
|
|
$
|
38,292
|
|
|
$
|
18,507
|
|
|
$
|
15,701
|
|
|
$
|
17,562
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Curtailments effects and settlements
|
$
|
48
|
|
|
$
|
(95
|
)
|
|
$
|
(444
|
)
|
|
$
|
(274
|
)
|
Net actuarial loss
|
73,701
|
|
|
176,164
|
|
|
32,596
|
|
|
67,934
|
|
Prior service credit
|
(127
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial (loss) gain
|
(52,957
|
)
|
|
(37,522
|
)
|
|
(14,103
|
)
|
|
(11,135
|
)
|
Amortization of prior service (cost) credit
|
(803
|
)
|
|
(147
|
)
|
|
(112
|
)
|
|
(170
|
)
|
Net transitional obligation (asset)
|
—
|
|
|
—
|
|
|
10
|
|
|
9
|
|
Total recognized in other comprehensive income
|
$
|
19,862
|
|
|
$
|
138,400
|
|
|
$
|
17,947
|
|
|
$
|
56,364
|
|
Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined benefit pension plans include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
Used to determine benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.05%
|
|
4.95%
|
|
5.60%
|
Rate of compensation increase
|
3.50%
|
|
3.50%
|
|
3.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
Used to determine net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.95%
|
|
5.60%
|
|
5.75%
|
Expected return on plan assets
|
7.75%
|
|
8.00%
|
|
8.00%
|
Rate of compensation increase
|
3.50%
|
|
3.50%
|
|
3.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
Used to determine benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
1.95
|
%
|
-
|
4.65%
|
|
1.80
|
%
|
-
|
6.10%
|
|
2.25
|
%
|
-
|
5.50%
|
Rate of compensation increase
|
1.50
|
%
|
-
|
3.50%
|
|
2.10
|
%
|
-
|
4.60%
|
|
2.50
|
%
|
-
|
5.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
Used to determine net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
1.80
|
%
|
-
|
6.10%
|
|
2.00
|
%
|
-
|
5.50%
|
|
2.25
|
%
|
-
|
6.00%
|
Expected return on plan assets
|
3.25
|
%
|
-
|
7.50%
|
|
4.00
|
%
|
-
|
7.75%
|
|
4.50
|
%
|
-
|
7.75%
|
Rate of compensation increase
|
2.10
|
%
|
-
|
4.60%
|
|
2.10
|
%
|
-
|
5.50%
|
|
2.50
|
%
|
-
|
5.60%
|
A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a yield curve based on long-term, high-quality fixed income debt instruments available as of the measurement date. For the U.K. retirement benefit plan, our largest foreign plan, the discount rate is determined by discounting each year's estimated benefit payments by an applicable spot rate, derived from a yield curve created from a large number of high-quality corporate bonds. For our other smaller foreign pension plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.
The expected return on plan assets is based on historical and expected rates of return for current and planned asset classes in the plans' investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio is based on the asset allocation at the end of the year for our U.S. pension plans and the target asset allocation for our international pension plans, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns. When assessing the expected future returns for the portfolio, management places more emphasis on the expected future returns than historical returns.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Investment Strategy and Asset Allocation - U.S. Pension Plans
The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least
7.25%
. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. Investments within the private equity and real estate portfolios are comprised of limited partnership units in primary and secondary fund of funds and units in open-ended commingled real estate funds, respectively. These types of investment vehicles are used in an effort to gain greater asset diversification. We do not have any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment managers are reviewed periodically.
The target asset allocation for
2013
and the actual asset allocations at
December 31, 2012
and
2011
, for the U.S. pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
Target allocation
|
|
Percent of Plan Assets at December 31,
|
|
2013
|
|
2012
|
|
2011
|
Asset category
|
|
|
|
|
|
U.S. equities
|
14
|
%
|
|
14
|
%
|
|
18
|
%
|
Non-U.S. equities
|
14
|
%
|
|
15
|
%
|
|
16
|
%
|
Fixed income
|
62
|
%
|
|
61
|
%
|
|
56
|
%
|
Real estate
|
2
|
%
|
|
4
|
%
|
|
4
|
%
|
Private equity
|
8
|
%
|
|
6
|
%
|
|
6
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The target asset allocation used to manage the investment portfolio is based on the broad asset categories shown above. The plan asset categories presented in the fair value hierarchy are subsets of the broad asset categories.
Investment Strategy and Asset Allocation - Foreign Pension Plans
Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate personnel. The investment strategies adopted by our foreign plans vary by country and plan, with each strategy tailored to achieve the expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. The U.K. plan represents
73%
of the non-U.S. pension assets. The U.K. pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least
7.25%
. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. We do not have any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment managers are reviewed periodically.
The target asset allocation for
2013
and the actual asset allocations at
December 31, 2012
and
2011
, for the U.K. pension plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Percent of Plan Assets at December 31,
|
|
2013
|
|
2012
|
|
2011
|
Asset category
|
|
|
|
|
|
U.K. equities
|
32
|
%
|
|
32
|
%
|
|
34
|
%
|
Non-U.K. equities
|
33
|
%
|
|
31
|
%
|
|
28
|
%
|
Fixed income
|
35
|
%
|
|
36
|
%
|
|
32
|
%
|
Cash
|
—
|
%
|
|
1
|
%
|
|
6
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The target asset allocation used to manage the investment portfolio is based on the broad asset categories shown above. The plan asset categories presented in the fair value hierarchy are subsets of the broad asset categories.
The fair value of the U.K. plan assets was
$370 million
and
$326 million
at
December 31, 2012
and
2011
, respectively, and the expected long-term rate of return on these plan assets was
7.25%
in both
2012
and
2011
.
Fair Value Measurements of Plan Assets
The following tables show, by level within the fair value hierarchy, the financial assets and liabilities that are accounted for at fair value on a recurring basis at
December 31, 2012
and
2011
, respectively, for the U.S. and foreign pension plans. 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 placement within the fair value hierarchy levels.
United States Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money market funds
|
$
|
—
|
|
|
$
|
17,363
|
|
|
$
|
—
|
|
|
$
|
17,363
|
|
Equity securities
|
250,303
|
|
|
203,766
|
|
|
—
|
|
|
454,069
|
|
Commingled fixed income securities
|
—
|
|
|
200,899
|
|
|
—
|
|
|
200,899
|
|
Debt securities - U.S. and foreign governments, agencies and municipalities
|
53,984
|
|
|
35,461
|
|
|
—
|
|
|
89,445
|
|
Debt securities - corporate
|
—
|
|
|
621,691
|
|
|
—
|
|
|
621,691
|
|
Mortgage-backed securities
|
—
|
|
|
39,552
|
|
|
3,191
|
|
|
42,743
|
|
Asset-backed securities
|
—
|
|
|
547
|
|
|
—
|
|
|
547
|
|
Private equity
|
—
|
|
|
—
|
|
|
91,805
|
|
|
91,805
|
|
Real estate
|
—
|
|
|
—
|
|
|
63,168
|
|
|
63,168
|
|
Derivatives
|
738
|
|
|
—
|
|
|
—
|
|
|
738
|
|
Securities lending collateral
(1)
|
—
|
|
|
104,375
|
|
|
—
|
|
|
104,375
|
|
Total plan assets at fair value
|
$
|
305,025
|
|
|
$
|
1,223,654
|
|
|
$
|
158,164
|
|
|
$
|
1,686,843
|
|
Securities lending payable
(1)
|
|
|
|
|
|
|
(104,375
|
)
|
Cash
|
|
|
|
|
|
|
618
|
|
Other
|
|
|
|
|
|
|
846
|
|
Fair value of plan assets available for benefits
|
|
|
|
|
|
|
|
|
$
|
1,583,932
|
|
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money market funds
|
$
|
—
|
|
|
$
|
22,064
|
|
|
$
|
—
|
|
|
$
|
22,064
|
|
Equity securities
|
218,010
|
|
|
262,152
|
|
|
—
|
|
|
480,162
|
|
Commingled fixed income securities
|
—
|
|
|
177,349
|
|
|
—
|
|
|
177,349
|
|
Debt securities - U.S. and foreign governments, agencies and municipalities
|
60,411
|
|
|
16,745
|
|
|
—
|
|
|
77,156
|
|
Debt securities - corporate
|
—
|
|
|
467,281
|
|
|
—
|
|
|
467,281
|
|
Mortgage-backed securities
|
—
|
|
|
57,922
|
|
|
3,702
|
|
|
61,624
|
|
Asset-backed securities
|
—
|
|
|
919
|
|
|
—
|
|
|
919
|
|
Private equity
|
—
|
|
|
—
|
|
|
88,870
|
|
|
88,870
|
|
Real estate
|
—
|
|
|
—
|
|
|
57,918
|
|
|
57,918
|
|
Derivatives
|
293
|
|
|
—
|
|
|
—
|
|
|
293
|
|
Securities lending collateral
(1)
|
—
|
|
|
119,528
|
|
|
—
|
|
|
119,528
|
|
Total plan assets at fair value
|
$
|
278,714
|
|
|
$
|
1,123,960
|
|
|
$
|
150,490
|
|
|
$
|
1,553,164
|
|
Securities lending payable
(1)
|
|
|
|
|
|
|
(119,528
|
)
|
Cash
|
|
|
|
|
|
|
1,108
|
|
Other
|
|
|
|
|
|
|
(8,208
|
)
|
Fair value of plan assets available for benefits
|
|
|
|
|
|
|
|
|
$
|
1,426,536
|
|
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
Foreign Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money market funds
|
$
|
—
|
|
|
$
|
7,130
|
|
|
$
|
—
|
|
|
$
|
7,130
|
|
Equity securities
|
96,442
|
|
|
213,662
|
|
|
—
|
|
|
310,104
|
|
Commingled fixed income securities
|
—
|
|
|
157,332
|
|
|
—
|
|
|
157,332
|
|
Debt securities - U.S. and foreign governments, agencies and municipalities
|
—
|
|
|
18,937
|
|
|
—
|
|
|
18,937
|
|
Debt securities - corporate
|
—
|
|
|
6,935
|
|
|
—
|
|
|
6,935
|
|
Derivatives
|
—
|
|
|
(114
|
)
|
|
—
|
|
|
(114
|
)
|
Total plan assets at fair value
|
$
|
96,442
|
|
|
$
|
403,882
|
|
|
$
|
—
|
|
|
$
|
500,324
|
|
Cash
|
|
|
|
|
|
|
4,414
|
|
Other
|
|
|
|
|
|
|
4,593
|
|
Fair value of plan assets available for benefits
|
|
|
|
|
|
|
|
|
$
|
509,331
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money market funds
|
$
|
—
|
|
|
$
|
7,236
|
|
|
$
|
—
|
|
|
$
|
7,236
|
|
Equity securities
|
113,257
|
|
|
150,787
|
|
|
—
|
|
|
264,044
|
|
Commingled fixed income securities
|
—
|
|
|
127,611
|
|
|
—
|
|
|
127,611
|
|
Debt securities - U.S. and foreign governments, agencies and municipalities
|
—
|
|
|
13,616
|
|
|
—
|
|
|
13,616
|
|
Debt securities - corporate
|
—
|
|
|
7,150
|
|
|
—
|
|
|
7,150
|
|
Derivatives
|
—
|
|
|
382
|
|
|
—
|
|
|
382
|
|
Total plan assets at fair value
|
$
|
113,257
|
|
|
$
|
306,782
|
|
|
$
|
—
|
|
|
$
|
420,039
|
|
Cash
|
|
|
|
|
|
|
16,424
|
|
Other
|
|
|
|
|
|
|
2,385
|
|
Fair value of plan assets available for benefits
|
|
|
|
|
|
|
|
|
$
|
438,848
|
|
The following information relates to our classification of investments into the fair value hierarchy:
|
|
•
|
Money Market Funds:
Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies and other highly liquid, low-risk securities. Money market funds are principally used for overnight deposits. The money market funds are classified as Level 2 since they are not actively traded on an exchange.
|
|
|
•
|
Equity Securities:
Equity securities include U.S. and foreign common stock, American Depository Receipts, preferred stock and commingled funds. Equity securities classified as Level 1 are valued using active, high volume trades for identical securities. Equity securities classified as Level 2 represent those not listed on an exchange in an active market. These securities are valued based on quoted market prices of similar securities.
|
|
|
•
|
Commingled Fixed Income Securities:
Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Value of the funds is based on the net asset value (NAV) per unit as reported by the fund manager. NAV is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled fixed income securities are not listed on an active exchange and are classified as Level 2.
|
|
|
•
|
Debt Securities - U.S. and Foreign Governments, Agencies and Municipalities:
Government securities include treasury notes and bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include general obligation securities and revenue-backed securities. Debt securities classified as Level 1 are valued using active, high volume trades for identical securities. Debt securities classified as Level 2 are valued through benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.
|
|
|
•
|
Corporate Debt Securities
: Investments are comprised of both investment grade debt (≥BBB-) and high-yield debt (≤BBB-). The fair value of corporate debt securities is valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
|
|
|
•
|
Mortgage-Backed Securities (MBS)
: Investments are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage obligations, commercial MBS, and commingled funds. These securities are valued based on external pricing indices. When external index pricing is not observable, MBS are valued based on external price/spread data. If neither pricing method is available, broker quotes are utilized. When inputs are observable and supported by an active market, MBS are classified as Level 2 and when inputs are unobservable, MBS are classified as Level 3.
|
|
|
•
|
Asset-Backed Securities (ABS)
: Investments are primarily comprised of credit card receivables, auto loan receivables, student loan receivables, and Small Business Administration loans. These securities are valued based on external pricing indices or external price/spread data and are classified as Level 2.
|
|
|
•
|
Private Equity
: Investments are comprised of units in fund-of-fund investment vehicles. Fund-of-funds consist of various private equity investments and are used in an effort to gain greater diversification. The investments are valued in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.
|
|
|
•
|
Real Estate:
Investments include units in open-ended commingled real estate funds. Properties that comprise these funds are valued in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
•
|
Derivatives:
Instruments are comprised of futures, forwards, options and warrants and are used to gain exposure to a desired investment as well as for defensive hedging purposes against currency and interest rate fluctuations. Derivative instruments classified as Level 1 are valued through a readily available exchange listed price. Derivative instruments classified as Level 2 are valued using observable inputs but are not listed or traded on an exchange.
|
|
|
•
|
Securities Lending Fund:
Investment represents a commingled fund through our custodian's securities lending program. The U.S. pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This collateral is invested in a short-term fixed income securities commingled fund. The commingled fund is not listed or traded on an exchange and is classified as Level 2. This amount invested in the fund is offset by a corresponding liability reflected in the U.S. pension plan's net assets available for benefits.
|
Level 3 Gains and Losses
The following table summarizes the changes in the fair value of Level 3 assets for the year ended
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
Private equity
|
|
Real estate
|
|
Total
|
Balance at beginning of year
|
$
|
3,702
|
|
|
$
|
88,870
|
|
|
$
|
57,918
|
|
|
$
|
150,490
|
|
Realized (losses) gains
|
(3
|
)
|
|
(13
|
)
|
|
1,780
|
|
|
1,764
|
|
Unrealized (losses) gains
|
(20
|
)
|
|
742
|
|
|
5,711
|
|
|
6,433
|
|
Net purchases, sales and settlements
|
(488
|
)
|
|
2,206
|
|
|
(2,241
|
)
|
|
(523
|
)
|
Balance at end of year
|
$
|
3,191
|
|
|
$
|
91,805
|
|
|
$
|
63,168
|
|
|
$
|
158,164
|
|
There are no shares of our common stock included in the plan assets of our pension plans.
During 2013, we anticipate making contributions of
$10 million
to our U.S. pension plans and
$20 million
to our foreign pension plans. We will reassess our funding alternatives as the year progresses.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Nonpension Postretirement Benefits
We provide certain health care and life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. The cost of these benefits is recognized over the period the employee provides credited service to the company. Employees hired before January 1, 2005 in the U.S. and before April 1, 2005 in Canada become eligible for retiree health care benefits after reaching age 55 or in the case of employees of Pitney Bowes Management Services after reaching age 60 and with the completion of the required service period. U.S. employees hired after January 1, 2005 and Canadian employees hired after April 1, 2005, are not eligible for retiree health care benefits. Effective January 1, 2013, we amended our retiree medical coverage for certain eligible retirees by eliminating company provided coverage in some instances in favor of a Retirement Reimbursement Account and a third party health insurance exchange to assist retirees in making health care coverage choices. These changes do not impact active employees or pre-age 65 retirees who are not otherwise Medicare eligible.
The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Benefit obligation
|
|
|
|
Benefit obligation at beginning of year
|
$
|
285,828
|
|
|
$
|
280,386
|
|
Service cost
|
3,563
|
|
|
3,328
|
|
Interest cost
|
11,187
|
|
|
13,528
|
|
Plan participants' contributions
|
9,547
|
|
|
8,861
|
|
Actuarial loss
|
4,150
|
|
|
20,792
|
|
Foreign currency changes
|
697
|
|
|
(648
|
)
|
Plan amendment
|
8,501
|
|
|
—
|
|
Curtailment
|
—
|
|
|
3,245
|
|
Special termination benefits
|
—
|
|
|
300
|
|
Benefits paid
|
(40,616
|
)
|
|
(43,964
|
)
|
Benefit obligation at end of year
(1)
|
$
|
282,857
|
|
|
$
|
285,828
|
|
|
|
(1)
|
The benefit obligation for the U.S. nonpension postretirement plans was
$256 million
and
$262 million
at
December 31, 2012
and
2011
, respectively.
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Fair value of plan assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
Company contribution
|
31,069
|
|
|
35,103
|
|
Plan participants' contributions
|
9,547
|
|
|
8,861
|
|
Gross benefits paid
|
(40,616
|
)
|
|
(43,964
|
)
|
Fair value of plan assets at end of year
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Funded status
|
$
|
(282,857
|
)
|
|
$
|
(285,828
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
Current liability
|
$
|
(25,483
|
)
|
|
$
|
(28,855
|
)
|
Non-current liability
|
(257,374
|
)
|
|
(256,973
|
)
|
Net amount recognized
|
$
|
(282,857
|
)
|
|
$
|
(285,828
|
)
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Pretax amounts recognized in AOCI consist of:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Net actuarial loss
|
$
|
106,654
|
|
|
$
|
115,713
|
|
Prior service credit
|
8,872
|
|
|
(5,696
|
)
|
Total
|
$
|
115,526
|
|
|
$
|
110,017
|
|
The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Service cost
|
$
|
3,563
|
|
|
$
|
3,328
|
|
|
$
|
3,724
|
|
Interest cost
|
11,187
|
|
|
13,528
|
|
|
13,828
|
|
Amortization of prior service benefit
|
(1,724
|
)
|
|
(2,504
|
)
|
|
(2,511
|
)
|
Recognized net actuarial loss
|
8,214
|
|
|
7,666
|
|
|
6,793
|
|
Curtailment
|
—
|
|
|
2,839
|
|
|
6,954
|
|
Special termination benefits
|
—
|
|
|
300
|
|
|
191
|
|
Net periodic benefit cost
|
$
|
21,240
|
|
|
$
|
25,157
|
|
|
$
|
28,979
|
|
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Net actuarial loss
|
$
|
(195
|
)
|
|
$
|
22,201
|
|
Amortization of net actuarial loss
|
4,631
|
|
|
(9,980
|
)
|
Amortization of prior service credit
|
1,724
|
|
|
2,504
|
|
Adjustment for actual Medicare Part D Premium
|
(651
|
)
|
|
(2,040
|
)
|
Curtailment
|
—
|
|
|
308
|
|
Total recognized in other comprehensive income
|
$
|
5,509
|
|
|
$
|
12,993
|
|
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in
2013
are as follows:
|
|
|
|
|
Net actuarial loss
|
$
|
8,961
|
|
Prior service credit
|
661
|
|
Total
|
$
|
9,622
|
|
The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Discount rate used to determine benefit obligation
|
|
|
|
|
|
U.S.
|
3.50
|
%
|
|
4.50
|
%
|
|
5.15
|
%
|
Canada
|
3.90
|
%
|
|
4.15
|
%
|
|
5.15
|
%
|
|
|
|
|
|
|
Discount rate used to determine net period benefit cost
|
|
|
|
|
|
U.S.
|
4.50
|
%
|
|
5.15
|
%
|
|
5.35
|
%
|
Canada
|
4.15
|
%
|
|
5.15
|
%
|
|
5.85
|
%
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was
7.50%
for
2012
and
7.50%
for
2011
. The assumed health care trend rate is
7.00%
for
2013
and will gradually decline to
5.0%
by the year
2017
and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in the assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
Effect on total of service and interest cost components
|
573
|
|
|
(477
|
)
|
Effect on postretirement benefit obligation
|
10,086
|
|
|
(8,703
|
)
|
Estimated Future Benefit Payments
Benefit payments expected to be paid, which reflect expected future service, are shown in the table below. Nonpension benefit payments are net of expected Medicare Part D subsidy.
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Nonpension Benefits
|
Years ending December 31,
|
|
|
|
2013
|
$
|
139,394
|
|
|
$
|
25,959
|
|
2014
|
137,336
|
|
|
24,905
|
|
2015
|
130,778
|
|
|
23,826
|
|
2016
|
132,252
|
|
|
22,932
|
|
2017
|
134,710
|
|
|
22,037
|
|
2018 - 2022
|
700,363
|
|
|
98,604
|
|
|
$
|
1,374,833
|
|
|
$
|
218,263
|
|
Savings Plans
We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement. We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were
$30 million
in both
2012
and
2011
.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
18. Discontinued Operations and Assets Held for Sale
Discontinued operations include our IMS operations (see Note 1) and our Capital Services business, which was sold in 2006. The details of discontinued operations are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
International Mail Services
|
|
|
|
|
|
Revenue
|
$
|
135,222
|
|
|
$
|
155,378
|
|
|
$
|
164,898
|
|
Cost of revenue
|
120,251
|
|
|
142,165
|
|
|
163,818
|
|
SG&A
|
19,565
|
|
|
28,220
|
|
|
22,379
|
|
Restructuring charges and asset impairments
|
10,234
|
|
|
11,603
|
|
|
313
|
|
Goodwill impairment
|
18,315
|
|
|
45,650
|
|
|
—
|
|
Impairment on assets held for sale
|
6,941
|
|
|
—
|
|
|
—
|
|
Loss before taxes
|
(40,084
|
)
|
|
(72,260
|
)
|
|
(21,612
|
)
|
Tax benefit
|
(15,003
|
)
|
|
(23,025
|
)
|
|
(7,828
|
)
|
Net loss
|
(25,081
|
)
|
|
(49,235
|
)
|
|
(13,784
|
)
|
|
|
|
|
|
|
Capital Services, net of tax
|
34,312
|
|
|
266,159
|
|
|
(18,104
|
)
|
Income (loss) from discontinued operations
|
$
|
9,231
|
|
|
$
|
216,924
|
|
|
$
|
(31,888
|
)
|
In connection with our decision to exit our IMS operations, during the third quarter of 2012, we conducted a goodwill impairment review. We determined the fair value of the IMS operations based on third-party written offers to purchase the business as well applying an income approach with revised cash flow projections. The inputs used to determine the fair value of IMS were classified as Level 3 in the fair value hierarchy. Based on the results of our impairment test, in the third quarter of 2012, we recorded a goodwill impairment charge of
$18 million
and asset impairment charges of
$10 million
to write-down the carrying value of goodwill, intangible assets and fixed assets to their respective implied fair values. Based on the terms of the proposed agreement, we recorded an additional pre-tax loss of
$7 million
in the fourth quarter to write down the carrying value of the net assets of IMS to their estimated fair value less costs to sell.
In 2011, due to the under-performance of our IMS operations and based on information developed during the early stages of our annual budgeting and long-term planning process started in the third quarter, we concluded that it was appropriate to perform a goodwill impairment review for IMS. We determined the fair value of IMS using a combination of techniques including the present value of future cash flows, multiples of competitors and multiples from sales of like businesses, and determined that the IMS reporting unit was impaired. The inputs used to determine the fair value of IMS were classified as Level 3 in the fair value hierarchy. Based on the results of our impairment test, we recorded a goodwill impairment charge of
$46 million
and an intangible asset impairment charge of
$12 million
to write-down the carrying value of goodwill and intangible assets to their respective implied fair values.
The assets and liabilities of IMS consists primarily of accounts receivable and accounts payable and other current accruals. At December 31, 2012, assets of IMS were
$25 million
and liabilities were
$25 million
.
The amount recognized for Capital Services in 2012 relates to tax benefits from the resolution of tax examinations. In 2011, we entered into a series of settlements with the IRS in connection with their examinations of our tax years 2001-2008. We agreed upon both the tax treatment of a number of disputed issues, including issues related to the Capital Services business, and revised tax calculations. As a result of these settlements, an aggregate
$264 million
benefit was recognized in discontinued operations. The amount in 2010 includes the accrual of interest on uncertain tax positions.
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
19. Earnings per Share
The calculations of basic and diluted earnings per share are presented below. The sum of earnings per share amounts may not equal the totals due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Numerator:
|
|
|
|
|
|
|
|
|
Amounts attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
435,932
|
|
|
$
|
400,556
|
|
|
$
|
324,267
|
|
Income (loss) from discontinued operations
|
9,231
|
|
|
216,924
|
|
|
(31,888
|
)
|
Net income (numerator for diluted EPS)
|
445,163
|
|
|
617,480
|
|
|
292,379
|
|
Less: Preference stock dividend
|
(51
|
)
|
|
(58
|
)
|
|
(65
|
)
|
Income attributable to common stockholders (numerator for basic EPS)
|
$
|
445,112
|
|
|
$
|
617,422
|
|
|
$
|
292,314
|
|
Denominator (in thousands):
|
|
|
|
|
|
|
|
|
Weighted-average shares used in basic EPS
|
200,389
|
|
|
201,976
|
|
|
205,968
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
Preferred stock
|
2
|
|
|
2
|
|
|
2
|
|
Preference stock
|
398
|
|
|
445
|
|
|
501
|
|
Stock plans
|
577
|
|
|
343
|
|
|
282
|
|
Weighted-average shares used in diluted EPS
|
201,366
|
|
|
202,766
|
|
|
206,753
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
2.18
|
|
|
$
|
1.98
|
|
|
$
|
1.57
|
|
Discontinued operations
|
0.05
|
|
|
1.07
|
|
|
(0.15
|
)
|
Net income - Pitney Bowes Inc.
|
$
|
2.22
|
|
|
$
|
3.06
|
|
|
$
|
1.42
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
2.16
|
|
|
$
|
1.98
|
|
|
$
|
1.57
|
|
Discontinued operations
|
0.05
|
|
|
1.07
|
|
|
(0.15
|
)
|
Net income - Pitney Bowes Inc.
|
$
|
2.21
|
|
|
$
|
3.05
|
|
|
$
|
1.41
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from diluted earnings per share (in thousands):
|
13,801
|
|
|
14,016
|
|
|
15,168
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
20. Quarterly Financial Data (unaudited)
The following table sets forth selected unaudited quarterly data for the years ended
December 31, 2012
and
2011
. The amounts in the tables below have been revised from the amounts previously filed to reflect the results of IMS as a discontinued operation (see Note 18).
The sum of the quarterly earnings per share amounts may not equal the quarterly total or annual amount due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Total
|
2012
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
1,220,136
|
|
|
$
|
1,213,356
|
|
|
$
|
1,183,216
|
|
|
$
|
1,287,307
|
|
|
$
|
4,904,015
|
|
Cost and expenses
|
1,059,107
|
|
|
1,055,241
|
|
|
1,045,515
|
|
|
1,139,539
|
|
|
4,299,402
|
|
Income from continuing operations
|
161,029
|
|
|
158,115
|
|
|
137,701
|
|
|
147,768
|
|
|
604,613
|
|
Provision for income taxes
|
15,493
|
|
|
52,765
|
|
|
37,823
|
|
|
44,224
|
|
|
150,305
|
|
Income from continuing operations
|
145,536
|
|
|
105,350
|
|
|
99,878
|
|
|
103,544
|
|
|
454,308
|
|
Gain (loss) from discontinued operations
|
17,728
|
|
|
(1,133
|
)
|
|
(18,751
|
)
|
|
11,387
|
|
|
9,231
|
|
Net income before attribution of noncontrolling interests
|
163,264
|
|
|
104,217
|
|
|
81,127
|
|
|
114,931
|
|
|
463,539
|
|
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests
|
4,594
|
|
|
4,594
|
|
|
4,594
|
|
|
4,594
|
|
|
18,376
|
|
Net income - Pitney Bowes Inc.
|
$
|
158,670
|
|
|
$
|
99,623
|
|
|
$
|
76,533
|
|
|
$
|
110,337
|
|
|
$
|
445,163
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
140,942
|
|
|
$
|
100,756
|
|
|
$
|
95,284
|
|
|
$
|
98,950
|
|
|
$
|
435,932
|
|
Gain from discontinued operations
|
17,728
|
|
|
(1,133
|
)
|
|
(18,751
|
)
|
|
11,387
|
|
|
9,231
|
|
Net income - Pitney Bowes Inc.
|
$
|
158,670
|
|
|
$
|
99,623
|
|
|
$
|
76,533
|
|
|
$
|
110,337
|
|
|
$
|
445,163
|
|
Basic earnings per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.70
|
|
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
2.18
|
|
Discontinued operations
|
0.09
|
|
|
(0.01
|
)
|
|
(0.09
|
)
|
|
0.06
|
|
|
0.05
|
|
Net income - Pitney Bowes Inc.
|
$
|
0.79
|
|
|
$
|
0.50
|
|
|
$
|
0.38
|
|
|
$
|
0.55
|
|
|
$
|
2.22
|
|
Diluted earnings per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.70
|
|
|
$
|
0.50
|
|
|
$
|
0.47
|
|
|
$
|
0.49
|
|
|
$
|
2.16
|
|
Discontinued operations
|
0.09
|
|
|
(0.01
|
)
|
|
(0.09
|
)
|
|
0.06
|
|
|
0.05
|
|
Net income - Pitney Bowes Inc.
|
$
|
0.79
|
|
|
$
|
0.50
|
|
|
$
|
0.38
|
|
|
$
|
0.55
|
|
|
$
|
2.21
|
|
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Total
|
2011
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
1,279,184
|
|
|
$
|
1,275,500
|
|
|
$
|
1,262,757
|
|
|
$
|
1,305,155
|
|
|
$
|
5,122,596
|
|
Cost and expenses
|
1,139,147
|
|
|
1,112,937
|
|
|
1,101,815
|
|
|
1,282,156
|
|
|
4,636,055
|
|
Income from continuing operations
|
140,037
|
|
|
162,563
|
|
|
160,942
|
|
|
22,999
|
|
|
486,541
|
|
Provision (benefit) for income taxes
|
43,552
|
|
|
54,190
|
|
|
2,038
|
|
|
(32,170
|
)
|
|
67,610
|
|
Income from continuing operations
|
96,485
|
|
|
108,373
|
|
|
158,904
|
|
|
55,169
|
|
|
418,931
|
|
(Loss) gain from discontinued operations
|
(5,588
|
)
|
|
(2,844
|
)
|
|
18,457
|
|
|
206,899
|
|
|
216,924
|
|
Net income before attribution of noncontrolling interests
|
90,897
|
|
|
105,529
|
|
|
177,361
|
|
|
262,068
|
|
|
635,855
|
|
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests
|
4,594
|
|
|
4,594
|
|
|
4,593
|
|
|
4,594
|
|
|
18,375
|
|
Net income - Pitney Bowes Inc.
|
$
|
86,303
|
|
|
$
|
100,935
|
|
|
$
|
172,768
|
|
|
$
|
257,474
|
|
|
$
|
617,480
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
91,891
|
|
|
$
|
103,779
|
|
|
$
|
154,311
|
|
|
$
|
50,575
|
|
|
$
|
400,556
|
|
(Loss) gain from discontinued operations
|
(5,588
|
)
|
|
(2,844
|
)
|
|
18,457
|
|
|
206,899
|
|
|
216,924
|
|
Net income - Pitney Bowes Inc.
|
$
|
86,303
|
|
|
$
|
100,935
|
|
|
$
|
172,768
|
|
|
$
|
257,474
|
|
|
$
|
617,480
|
|
Basic earnings per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.45
|
|
|
$
|
0.51
|
|
|
$
|
0.77
|
|
|
$
|
0.25
|
|
|
$
|
1.98
|
|
Discontinued operations
|
(0.03
|
)
|
|
(0.01
|
)
|
|
0.09
|
|
|
1.04
|
|
|
1.07
|
|
Net income - Pitney Bowes Inc.
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
$
|
0.86
|
|
|
$
|
1.29
|
|
|
$
|
3.06
|
|
Diluted earnings per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.45
|
|
|
$
|
0.51
|
|
|
$
|
0.76
|
|
|
$
|
0.25
|
|
|
$
|
1.98
|
|
Discontinued operations
|
(0.03
|
)
|
|
(0.01
|
)
|
|
0.09
|
|
|
1.03
|
|
|
1.07
|
|
Net income - Pitney Bowes Inc.
|
$
|
0.42
|
|
|
$
|
0.49
|
|
|
$
|
0.85
|
|
|
$
|
1.28
|
|
|
$
|
3.05
|
|
As discussed in Note 1, we have revised each of our statements of cash flows by reducing operating cash flows and increasing investing cash flows for the year-to-date periods ended March, June and September 2012 by
$25 million
,
$30 million
and
$35 million
, respectively. We have determined that these adjustments are not material to our consolidated financial statements for any of the affected periods. However, we will reflect these revisions in future Form 10-Q filings as appropriate.
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at beginning of year
|
|
Additions
|
|
Deductions
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
2012
|
|
$
|
25,667
|
|
|
$
|
13,112
|
|
(1)
|
$
|
(18,560
|
)
|
(2)
|
$
|
20,219
|
|
2011
|
|
$
|
26,649
|
|
|
$
|
9,161
|
|
(1)
|
$
|
(10,143
|
)
|
(2)
|
$
|
25,667
|
|
2010
|
|
$
|
39,334
|
|
|
$
|
9,266
|
|
(1)
|
$
|
(21,951
|
)
|
(2)
|
$
|
26,649
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax asset
|
2012
|
|
$
|
111,438
|
|
|
$
|
40,078
|
|
|
$
|
(9,340
|
)
|
|
$
|
142,176
|
|
2011
|
|
$
|
104,441
|
|
|
$
|
16,709
|
|
|
$
|
(9,712
|
)
|
|
$
|
111,438
|
|
2010
|
|
$
|
95,990
|
|
|
$
|
22,168
|
|
|
$
|
(13,717
|
)
|
|
$
|
104,441
|
|
|
|
(1)
|
Includes additions charged to expenses, additions from acquisitions and impact of foreign exchange.
|
|
|
(2)
|
Includes uncollectible accounts written off
.
|
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