Document and Entity Information
Document and Entity Information (USD $) | ||
6 Months Ended
Jun. 30, 2009 | Jun. 30, 2008
| |
Entity Information Line Items | ||
Entity Registrant Name | PITNEY BOWES INC. | |
Entity Central Index Key | 0000078814 | |
Document Type | 10-Q | |
Document Period End Date | 2009-06-30 | |
Amendment Flag | false | |
Amendment Description | ||
Current Fiscal Year End Date | --12-31 | |
Entity Well Known Seasoned Issuer | Yes | |
Entity Voluntary Filers | Yes | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Public Float | $7,104,955,286 | |
Entity Common Stock Shares Outstanding | 207,053,403 |
Consolidated Statement of Incom
Consolidated Statement of Income (USD $) | |||||||||||||||||||
In Thousands, except Per Share data | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 | |||||||||||||||
Revenue: | |||||||||||||||||||
Equipment sales | $257,196 | $311,650 | $489,021 | $614,363 | |||||||||||||||
Supplies | 81,973 | 101,286 | 170,002 | 208,886 | |||||||||||||||
Software | 87,380 | 109,120 | 167,106 | 214,525 | |||||||||||||||
Rentals | 156,151 | 185,855 | 324,281 | 370,808 | |||||||||||||||
Financing | 174,508 | 197,263 | 357,306 | 396,202 | |||||||||||||||
Support services | 179,246 | 194,955 | 353,593 | 386,480 | |||||||||||||||
Business services | 442,008 | 487,957 | 896,737 | 970,779 | |||||||||||||||
Total revenue | 1,378,462 | 1,588,086 | 2,758,046 | 3,162,043 | |||||||||||||||
Cost and expenses: | |||||||||||||||||||
Cost of equipment sales | 139,770 | 166,282 | 262,855 | 327,395 | |||||||||||||||
Cost of supplies | 21,369 | 26,419 | 44,710 | 54,291 | |||||||||||||||
Cost of software | 21,570 | 26,453 | 41,067 | 54,190 | |||||||||||||||
Cost of rentals | 38,013 | 39,671 | 73,864 | 77,975 | |||||||||||||||
Financing interest expense | 25,438 | 27,552 | 49,890 | 57,928 | |||||||||||||||
Cost of support services | 101,223 | 115,931 | 199,549 | 229,926 | |||||||||||||||
Cost of business services | 352,306 | 383,009 | 712,213 | 762,300 | |||||||||||||||
Selling, general and administrative | 424,265 | 497,689 | 867,793 | 994,184 | |||||||||||||||
Research and development | 46,622 | 53,168 | 93,571 | 103,168 | |||||||||||||||
Restructuring charges and asset impairments | 0 | 18,815 | 0 | 35,908 | |||||||||||||||
Other interest expense | 29,553 | 30,137 | 57,304 | 61,528 | |||||||||||||||
Interest income | (933) | (3,562) | (2,485) | (6,552) | |||||||||||||||
Total costs and expenses | 1,199,196 | 1,381,564 | 2,400,331 | 2,752,241 | |||||||||||||||
Income from continuing operations before income taxes | 179,266 | 206,522 | 357,715 | 409,802 | |||||||||||||||
Provision for income taxes | 62,535 | 70,386 | 134,684 | 145,933 | |||||||||||||||
Income from continuing operations | 116,731 | 136,136 | 223,031 | 263,869 | |||||||||||||||
Gain (loss) from discontinued operations, net of income tax | 5,102 | (2,831) | 7,725 | (6,663) | |||||||||||||||
Net income before attribution of noncontrolling interests | 121,833 | 133,305 | 230,756 | 257,206 | |||||||||||||||
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests | 4,571 | 4,796 | 9,092 | 9,594 | |||||||||||||||
Pitney Bowes Inc. net income | 117,262 | 128,509 | 221,664 | 247,612 | |||||||||||||||
Amounts attributable to Pitney Bowes Inc. common stockholders: | |||||||||||||||||||
Income from continuing operations | 112,160 | 131,340 | 213,939 | 254,275 | |||||||||||||||
Gain (loss) from discontinued operations | 5,102 | (2,831) | 7,725 | (6,663) | |||||||||||||||
Pitney Bowes Inc. net income | $117,262 | $128,509 | $221,664 | $247,612 | |||||||||||||||
Basic earnings per share of common stock attributable to Pitney Bowes Inc. common shareholders: | |||||||||||||||||||
Continuing operations | 0.54 | 0.63 | 1.04 | 1.21 | |||||||||||||||
Discontinued operations | 0.02 | -0.01 | 0.04 | -0.03 | |||||||||||||||
Net income | 0.57 | [1] | 0.62 | [1] | 1.07 | [1] | 1.18 | [1] | |||||||||||
Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common shareholders: | |||||||||||||||||||
Continuing operations | 0.54 | 0.63 | 1.03 | 1.2 | |||||||||||||||
Discontinued operations | 0.02 | -0.01 | 0.04 | -0.03 | |||||||||||||||
Net income | 0.57 | [1] | 0.61 | [1] | 1.07 | [1] | 1.17 | [1] | |||||||||||
Dividends declared per share of common stock | 0.36 | 0.35 | 0.72 | 0.7 | |||||||||||||||
[1]The sum of the earnings per share amounts may not equal the totals above due to rounding. |
Consolidated Balance Sheet
Consolidated Balance Sheet (USD $) | ||
In Thousands | 6 Months Ended
Jun. 30, 2009 | Dec. 31, 2008
|
Current assets: | ||
Cash and cash equivalents | $445,262 | $376,671 |
Short-term investments | 23,399 | 21,551 |
Accounts receivable | ||
Accounts receivable, gross | 842,766 | 924,886 |
Allowance for doubtful accounts receivables | (46,647) | (45,264) |
Accounts receivable, net | 796,119 | 879,622 |
Finance receivables | ||
Finance receivables | 1,408,002 | 1,501,678 |
Allowance for credit losses | (42,814) | (45,932) |
Finance receivables, net | 1,365,188 | 1,455,746 |
Inventories | 171,267 | 161,321 |
Current income taxes | 91,465 | 59,594 |
Other current assets and prepayments | 102,911 | 78,108 |
Total current assets | 2,995,611 | 3,032,613 |
Property, plant and equipment, net | 546,805 | 574,260 |
Rental property and equipment, net | 365,852 | 397,949 |
Long-term finance receivables | ||
Finance receivables | 1,407,772 | 1,445,822 |
Allowance for credit losses | (25,091) | (25,858) |
Finance receivables, net | 1,382,681 | 1,419,964 |
Investment in leveraged leases | 212,235 | 201,921 |
Goodwill | 2,276,151 | 2,251,830 |
Intangible assets, net | 341,612 | 375,822 |
Non-current income taxes | 58,044 | 64,387 |
Other assets | 389,188 | 417,685 |
Total assets | 8,568,179 | 8,736,431 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 1,722,404 | 1,922,399 |
Current income taxes | 103,042 | 108,662 |
Notes payable and current portion of long-term obligations | 292,869 | 770,501 |
Advance billings | 491,073 | 441,556 |
Total current liabilities | 2,609,388 | 3,243,118 |
Deferred taxes on income | 320,842 | 254,353 |
FIN 48 uncertainties and other income tax liabilities | 296,711 | 294,487 |
Long-term debt | 4,209,129 | 3,934,865 |
Other non-current liabilities | 788,244 | 823,322 |
Total liabilities | 8,224,314 | 8,550,145 |
Noncontrolling interests (Preferred stockholders' equity in subsidiaries) | 374,165 | 374,165 |
Commitments and contingencies (See Note 18) | - | |
Stockholders' deficit: | ||
Cumulative preferred stock, $50 par value, 4% convertible | 7 | 7 |
Cumulative preference stock, no par value, $2.12 convertible | 969 | 976 |
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued) | 323,338 | 323,338 |
Additional paid-in capital | 249,312 | 259,306 |
Retained earnings | 4,351,845 | 4,278,804 |
Accumulated other comprehensive loss | (533,571) | (596,341) |
Treasury stock, at cost (116,321,121 and 117,156,719 shares, respectively) | (4,422,200) | (4,453,969) |
Total Pitney Bowes Inc. stockholders' deficit | (30,300) | (187,879) |
Total liabilities and stockholders' deficit | $8,568,179 | $8,736,431 |
Consolidated Balance Sheet (Par
Consolidated Balance Sheet (Parenthetical) (USD $) | ||
6 Months Ended
Jun. 30, 2009 | Dec. 31, 2008
| |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Preferred stock par value | $50 | |
Preferred stock conversion dollar value | 4% | |
Preference stock par value | no par value | |
Preference stock conversion dollar value | 2.12 | |
Common stock, par value | $1 | |
Common stock, shares authorized | 480,000,000 | |
Common stock, shares issued | 323,337,912 | |
Treasury stock, shares | 116,321,121 | 117,156,719 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (USD $) | ||
In Thousands | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Cash flows from operating activities: | ||
Net income before attribution of noncontrolling interests | $230,756 | $257,206 |
Restructuring charges, net of tax | 0 | 22,746 |
Restructuring payments | (49,110) | (36,874) |
Payments for settlement of derivative instruments | (20,281) | 0 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 175,240 | 193,982 |
Stock-based compensation | 11,632 | 12,754 |
Changes in operating assets and liabilities, excluding effects of acquisitions: | ||
(Increase) decrease in accounts receivable | 99,037 | (28,839) |
(Increase) decrease in finance receivables | 165,142 | 52,243 |
(Increase) decrease in inventories | (4,738) | (12,298) |
(Increase) decrease in prepaid, deferred expense and other assets | (20,652) | (7,556) |
Increase (decrease) in accounts payable and accrued liabilities | (167,582) | (85,208) |
Increase (decrease) in current and non-current income taxes | 16,449 | 48,844 |
Increase (decrease) in advance billings | 42,891 | 53,219 |
Increase (decrease) in other operating capital, net | 4,603 | 229 |
Net cash provided by operating activities | 483,387 | 470,448 |
Cash flows from investing activities: | ||
Short-term and other investments | (506) | 28,157 |
Capital expenditures | (90,190) | (115,346) |
Net investment in external financing | (356) | 2,637 |
Acquisitions, net of cash acquired | 0 | (68,503) |
Reserve account deposits | 1,532 | 18,452 |
Net cash used in investing activities | (89,520) | (134,603) |
Cash flows from financing activities: | ||
Increase (decrease) in notes payable, net | (476,085) | 104,349 |
Proceeds from long-term obligations | 297,513 | 245,582 |
Principal payments on long-term obligations | 0 | (219,109) |
Proceeds from issuance of common stock | 5,100 | 11,447 |
Stock repurchases | 0 | (272,413) |
Dividends paid to stockholders | (148,623) | (146,702) |
Dividends paid to noncontrolling interests | (9,092) | (9,594) |
Net cash used in financing activities | (331,187) | (286,440) |
Effect of exchange rate changes on cash and cash equivalents | 5,911 | 2,831 |
Increase in cash and cash equivalents | 68,591 | 52,236 |
Cash and cash equivalents at beginning of period | 376,671 | 377,176 |
Cash and cash equivalents at end of period | 445,262 | 429,412 |
Cash interest paid | 99,103 | 120,877 |
Cash income taxes paid, net | $119,132 | $94,164 |
Basis of presentation
Basis of presentation | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Basis of Presentation | 1. Basis of Presentation The terms we, us, and our are used in this report to refer collectively to Pitney Bowes Inc. and its subsidiaries.The accompanying unaudited Condensed Consolidated Financial Statements of Pitney Bowes Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2008 condensed consolidated balance sheet data was derived from audited financial statements, which were revised in the current period to reflect presentation changes for the adoption of FASB Statement of Financial Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In our opinion, all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly our financial position at June 30, 2009 and December 31, 2008, our results of operations for the three and six months ended June 30, 2009 and 2008 and our cash flows for the three and six months ended June 30, 2009 and 2008 have been included. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2009. These statements should be read in conjunction with the financial statements and notes thereto included in our 2008 Annual Report to Stockholders on Form 10-K. Certain prior year amounts have been reclassified to conform with the current period presentation. In the second quarter of 2009, we have separately presented a financing interest expense line item, which represents our cost of borrowing associated with the generation of financing revenues, in the Condensed Consolidated Statements of Income. In computing our financing interest expense, we assumed a 10:1 leveraging ratio of debt to equity and applied our overall effective interest rate to the average outstanding finance receivables.In accordance with SFAS No. 165, Subsequent Events, we have evaluated subsequent events through August 5, 2009, the date of issuance of the unaudited condensed consolidated financial statements. During this period we did not have any material recognizable subsequent events. We did, however, have non-recognizable subsequent events by entering into three interest rate swaps for a combined notional amount of $300 million in July 2009. See Note 11 to the Condensed Consolidated Financial Statements for additional discussion on the interest rate swaps. |
NatureOfOperations
NatureOfOperations | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Nature of Operations | 2. Nature of OperationsWe are a provider of leading-edge, global, integrated mail and document management solutions for organizations of all sizes. We operate in two business groups: Mailstream Solutions and Mailstream Services. Mailstream Solutions includes worldwide revenue and related expenses from the sale, rental, and financing of mail finishing, mail creation, shipping equipment and software; production mail equipment; supplies; mailing support and other professional services; payment solutions; and mailing, customer communication and location intelligence software. Mailstream Services includes worldwide revenue and related expenses from facilities management services; secure mail services; reprographics, document management, and other value-added services for targeted customer markets; mail services operations, which include presort mail services and international mail services; and marketing services. See Note 7 to the Condensed Consolidated Financial Statements for details of our reporting segments and a description of their activities. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Recent Accounting Pronouncements | 3. Recent Accounting PronouncementsIn September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), to define how the fair value of assets and liabilities should be measured in accounting standards where it is allowed or required. In addition to defining fair value, the Statement established a framework within GAAP for measuring fair value and expanded required disclosures surrounding fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date by one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, to clarify the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This FSP was effective immediately. In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, to provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. We adopted SFAS 157 for financial assets and financial liabilities on January 1, 2008, and the adoption did not have a material impact on our financial position, results of operations, or cash flows. We adopted SFAS 157 for nonfinancial items on January 1, 2009, and the adoption did not have a material impact on our financial position, results of operations, or cash flows. We currently do not have any financial assets that are valued using inactive markets, and as such are not impacted by the issuances of FSP 157-3 and FSP 157-4. See Note 17 to the Condensed Consolidated Financial Statements for additional discussion on fair value measurements.In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how a company (a) recognizes and measures in their financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest (previously referred to as minority interest); (b) recognizes and measures the goodwill acquired in a business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. SFAS 141(R) requires fair value measurements at the date of acquisition, with limited exceptions specified in the Statement. Some of the major impacts of this new standard include expense recognition for transaction costs and restructuring co |
Discontinued Operations
Discontinued Operations | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Discontinued Operations | 4. Discontinued OperationsThe following table shows selected financial information included in discontinued operations for the three and six months ended June 30, 2009 and 2008, respectively: Three Months Ended June 30, Six Months Ended June 30, Discontinued Operations 2009 2008 2009 2008 Pre-tax income $ 10,851 $ - $ 20,624 $ - Tax provision (5,749) (2,831) (12,899) (6,663) Gain (loss) from discontinued operations, net of tax $ 5,102 $ (2,831) $ 7,725 $ (6,663) For the three months ended June 30, 2009, $10.9 million of pre-tax income, net of $4.2 million in tax, represents the release of reserves related to the expiration of an indemnity agreement in April 2009 associated with the sale of our Capital Services portfolio in 2006. This income was partially offset by the accrual of interest on uncertain tax positions. The net loss for the three months ended June 30, 2008 relates to the accrual of interest on uncertain tax positions. Pre-tax income for the six months ended June 30, 2009 includes the indemnity settlement as discussed and $9.8 million of pre-tax income, net of $3.8 million in tax, for a bankruptcy settlement received during the first quarter of 2009 pertaining to the leasing of certain aircraft from our former Capital Services business which was sold in 2006. This income was partly offset by the accrual of interest on uncertain tax positions. The net loss for the six months ended June 30, 2008 relates to the accrual of interest on uncertain tax positions. |
Acquisitions
Acquisitions | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Acquisitions | 5. AcquisitionsOn April 21, 2008, we acquired Zipsort, Inc. for $40 million in cash, net of cash acquired. Zipsort, Inc. acts as an intermediary between customers and the U.S. Postal Service. Zipsort, Inc. offers mailing services that include presorting of first class, standard class, flats, permit and international mail as well as metering services. We assigned the goodwill to the Mail Services segment. The following table summarizes selected financial data for the opening balance sheet of the Zipsort, Inc. acquisition in 2008: 2008 Zipsort, Inc. Purchase price allocation: Current assets $ 708 Other non-current assets 11,707 Intangible assets 7,942 Goodwill 25,294 Current liabilities (2,975) Non-current liabilities (2,885) Purchase price, net of cash acquired $ 39,791 Intangible assets: Customer relationships $ 7,658 Non-compete agreements 284 Total intangible assets $ 7,942 Intangible assets amortization period: Customer relationships 15 years Non-compete agreements 4 years Total weighted average 15 years There were no acquisitions during the six months ended June 30, 2009. During the six months ended June 30, 2008, we also completed four smaller acquisitions with an aggregate cost of $29.2 million. These acquisitions did not have a material impact on our financial results. No tax deductible goodwill was added during the six months ended June 30, 2009. The amount of tax deductible goodwill added from acquisitions for the six months ended June 30, 2008 was $27.4 million. Consolidated impact of acquisitionsThe Condensed Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition. These acquisitions increased our revenue and earnings but, including related financing costs, did not materially impact earnings either on an aggregate or per share basis.The following table provides unaudited pro forma consolidated revenue for the three and six months ended June 30, 2009 and 2008 as if our acquisitions had been acquired on January 1 of each year: Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Total revenue $ 1,378,462 $ 1,589,843 $ 2,758,046 $ 3,164,070 The pro forma earnings results of these acquisitions were not material to net income or earnings per share. The pro forma consolidated results do not purport to be indicative of actual results that would have occurred had the acquisitions been completed on January 1, 2009 and 2008, nor do they purport to be indicative of the results that will be obtained in the future. |
Earnings per Share
Earnings per Share | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Earnings per Share | 6. Earnings per ShareA reconciliation of the basic and diluted earnings per share computations for the three months ended June 30, 2009 and 2008 is as follows: 2009 2008 Income Weighted Average Shares Per Share Income Weighted Average Shares Per Share Pitney Bowes Inc. net income $ 117,262 $ 128,509 Less: Preferred stock dividends - - Preference stock dividends (19) (19) Basic earnings per share $ 117,243 206,539 $ 0.57 $ 128,490 208,050 $ 0.62 Effect of dilutive securities: Data for basic earnings per share $ 117,243 206,539 $ 128,490 208,050 Preferred stock - 3 - 3 Preference stock 19 594 19 601 Stock options and stock purchase plans - - - 819 Other stock plans - 2 - 70 Diluted earnings per share $ 117,262 207,138 $ 0.57 $ 128,509 209,543 $ 0.61 Basic earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 0.54 $ 0.63 Discontinued operations 0.02 (0.01) Net income $ 0.57 $ 0.62 Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 0.54 $ 0.63 Discontinued operations 0.02 (0.01) Net income $ 0.57 $ 0.61 Note: The sum of the earnings per share amounts may not equal the totals above due to rounding. A reconciliation of the basic and diluted earnings per share computations for the six months ended June 30, 2009 and 2008 is as follows: 2009 2008 Income Weighted Average Shares Per Share Income Weighted Average Shares Per Share Pitney Bowes Inc. net income $ 221,664 $ 247,612 Less: Preferred stock dividends - - Preference stock dividends (38) (39) Basic earnings per share $ 221,626 206,400 $ 1.07 $ 247,573 209,942 $ 1.18 Effect of dilutive securities: Data for basic earnings per share $ 221,626 206,400 $ 247,573 209,942 Preferred stock - 3 - 3 Preference stock 38 595 39 604 Stock options and stock purchase plans - - - 855 Other stock plans - 4 - 77 Diluted earnings per share $ 221,664 207,002 $ 1.07 $ 247,612 211,481 $ 1.17 Basic earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 1.04 $ 1.21 Discontinued operations 0.04 (0.03) Net income $ 1.07 $ 1.18 Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 1.03 $ 1.20 Discontinued operations 0.04 (0.03) Net income $ 1.07 $ 1.17 Note: The sum of the earnings per share amounts may not equal the totals above due to rounding. In accordance with SFAS No. 128, Earnings per Share, approximately 6.4 million and 2.0 million common stock equivalent shares for the three months ended June 30, 2009 and 2008, respectively, and 6. |
Segment Information
Segment Information | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Segment Information | 7. Segment InformationWe conduct our business activities in seven business segments within the Mailstream Solutions and Mailstream Services business groups. We calculate earnings before interest and taxes (EBIT) by deducting from revenue the related costs and expenses attributable to the segment. EBIT, a non-GAAP measure, is useful to management in demonstrating the operational profitability of the segments by excluding interest and taxes, which are generally managed across the entire company on a consolidated basis. Segment EBIT also excludes general corporate expenses, restructuring charges and asset impairments.Mailstream Solutions:U.S. Mailing: Includes the U.S. revenue and related expenses from the sale, rental and financing of our mail finishing, mail creation, shipping equipment and software; supplies; support and other professional services; and payment solutions.International Mailing: Includes the non-U.S. revenue and related expenses from the sale, rental and financing of our mail finishing, mail creation, shipping equipment and software; supplies; support and other professional services; and payment solutions.Production Mail: Includes the worldwide revenue and related expenses from the sale, financing, support and other professional services of our high-speed, production mail systems and sorting equipment.Software: Includes the worldwide revenue and related expenses from the sale and support services of non-equipment-based mailing, customer communication and location intelligence software.Mailstream Services:Management Services: Includes worldwide facilities management services; secure mail services; reprographic, document management services; and litigation support and eDiscovery services.Mail Services: Includes presort mail services and cross-border mail services.Marketing Services: Includes direct marketing services for targeted customers; web-tools for the customization of promotional mail and marketing collateral; and other marketing consulting services.Revenue and EBIT by business segment for the three and six months ended June 30, 2009 and 2008 are as follows: Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Revenue: U.S. Mailing $ 505,159 $ 550,849 $ 1,013,682 $ 1,103,434 International Mailing 217,900 302,085 455,212 610,418 Production Mail 130,137 149,400 239,566 284,804 Software 82,823 102,250 158,198 201,913 Mailstream Solutions 936,019 1,104,584 1,866,658 2,200,569 Management Services 263,763 300,454 530,265 603,089 Mail Services 138,598 134,764 279,849 260,186 Marketing Services 40,082 48,284 81,274 98,199 Mailstream Services 442,443 483,502 891,388 961,474 Total revenue $ 1,378,462 $ 1,588,086 $ 2,758,046 $ 3,162,043 Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 EBIT: (1) U.S. Mailing $ 195,044 $ 220,526 $ 387,878 $ 444,481 International Mailing 27,069 51,462 58,008 101,397 Production Mail 10,413 15,350 15,480 23,933 Software 5,219 6,317 7,823 12,795 Mailstream Solutions 237,745 293,655 469,189 5 |
Inventories
Inventories | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Inventories | 8. Inventories Inventories are composed of the following: June 30, December 31, 2009 2008 Raw materials and work in process $ 47,303 $ 41,171 Supplies and service parts 78,373 78,018 Finished products 45,591 42,132 Total $ 171,267 $ 161,321 |
Fixed Assets
Fixed Assets | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Fixed Assets | 9. Fixed Assets June 30, December 31, 2009 2008 Property, plant and equipment $ 1,826,971 $ 1,880,422 Accumulated depreciation (1,280,166) (1,306,162) Property, plant and equipment, net $ 546,805 $ 574,260 Rental property and equipment $ 736,338 $ 932,389 Accumulated depreciation (370,486) (534,440) Rental property and equipment, net $ 365,852 $ 397,949 Depreciation expense was $69.6 million and $78.5 million for the three months ended June 30, 2009 and 2008, respectively. Depreciation expense was $139.6 million and $158.9 million for the six months ended June 30, 2009 and 2008, respectively. |
Intangible Assets and Goodwill
Intangible Assets and Goodwill | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Intangible Assets and Goodwill | 10. Intangible Assets and Goodwill Intangible assets are composed of the following: June 30, 2009 December 31, 2008 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 424,042 $ (176,228) $ 247,814 $ 423,169 $ (154,619) $ 268,550 Supplier relationships 29,000 (11,842) 17,158 29,000 (10,392) 18,608 Software technology 151,783 (84,828) 66,955 155,035 (78,982) 76,053 Trademarks trade names 24,998 (15,885) 9,113 25,071 (13,310) 11,761 Non-compete agreements 2,693 (2,121) 572 2,652 (1,802) 850 Total intangible assets $ 632,516 $ (290,904) $ 341,612 $ 634,927 $ (259,105) $ 375,822 Amortization expense for intangible assets for the three months ended June 30, 2009 and 2008 was $18.2 million and $17.9 million, respectively. Amortization expense for intangible assets for the six months ended June 30, 2009 and 2008 was $35.6 million and $35.0 million, respectively. The estimated future amortization expense related to intangible assets is as follows: Amount Remaining for year ended December 31, 2009 $ 31,000 Year ended December 31, 2010 59,000 Year ended December 31, 2011 53,000 Year ended December 31, 2012 47,000 Year ended December 31, 2013 44,000 Thereafter 107,612 Total $ 341,612 Changes in the carrying amount of goodwill by business segment for the six months ended June 30, 2009 are as follows: Balance at December 31, 2008 Acquired during the period Other (1) Balance at June 30, 2009 U.S. Mailing $ 142,365 $ - $ 246 $ 142,611 International Mailing 322,230 - 16,112 338,342 Production Mail 137,067 - 238 137,305 Software 623,995 - 7,728 631,723 Mailstream Solutions 1,225,657 - 24,324 1,249,981 Management Services 491,633 - 912 492,545 Mail Services 260,793 - (983) 259,810 Marketing Services 273,747 - 68 273,815 Mailstream Services 1,026,173 - (3) 1,026,170 Total $ 2,251,830 $ - $ 24,321 $ 2,276,151 (1) Other includes post closing acquisition and foreign currency translation adjustments. |
Long-term Debt
Long-term Debt | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Long-term Debt | 11. Long-term Debt On June 29, 2009, we entered into an interest rate swap for an aggregate notional amount of $100 million to effectively convert our interest payments on a portion of the $400 million, 4.625% fixed rate notes due in 2012, into variable interest rates. The variable rates payable are based on one month LIBOR plus 249 basis points. In July 2009, we entered into three additional interest rate swaps for an aggregate notional amount of $300 million to effectively convert our interest payments on the remainder of the $400 million, 4.625% fixed rate notes due in 2012, into variable interest rates. The variable rates payable are based on one month LIBOR plus 248 basis points for $100 million notional amount and one month LIBOR plus 250 basis points for $200 million notional amount. On March 2, 2009, we issued $300 million of 10-year fixed-rate notes with a coupon rate of 6.25%. The interest is paid semi-annually beginning September 15, 2009. The notes mature on March 15, 2019. We simultaneously unwound four forward starting swap agreements (forward swaps) used to hedge the interest rate risk associated with the forecasted issuance of the fixed-rate debt. The unwind of the derivatives resulted in a loss (and cash payment) of $20.3 million which was recorded to other comprehensive income, net of tax, and will be amortized to net interest expense over the 10-year term of the notes. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper.On March 4, 2008, we issued $250 million of 10-year fixed-rate notes with a coupon rate of 5.60%. The interest is paid semi-annually beginning September 2008. The notes mature on March 15, 2018. We simultaneously entered into two interest rate swaps for a total notional amount of $250 million to convert the fixed-rate notes to a floating rate obligation bearing interest at 6 month LIBOR plus 111.5 basis points. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper and repurchase of our stock. |
Noncontrolling Interest
Noncontrolling Interest | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Noncontrolling Interests (Preferred Stockholders' Equity in Subsidiaries) | 12. Noncontrolling Interests (Preferred Stockholders Equity in Subsidiaries)Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary of the Company, has 3,750,000 shares outstanding or $375 million of variable term voting preferred stock owned by certain outside institutional investors. These preferred shares are entitled to 25% of the combined voting power of all classes of capital stock of PBIH. All outstanding common stock of Pitney Bowes International Holdings, Inc., representing the remaining 75% of the combined voting power of all classes of capital stock, is owned directly or indirectly by Pitney Bowes Inc. The preferred stock, $.01 par value, is entitled to cumulative dividends at rates set at auction. The weighted average dividend rate was 4.8% for the three months and six months ended June 30, 2009 and 2008, respectively. Preferred dividends are included in noncontrolling interests (preferred stock dividends of subsidiaries) in the Condensed Consolidated Statements of Income. The preferred stock is subject to mandatory redemption based on certain events, at a redemption price not less than $100 per share, plus the amount of any dividends accrued or in arrears. No dividends were in arrears at June 30, 2009, December 31, 2008 or June 30, 2008. A rollforward of noncontrolling interests is as follows: Beginning balance, January 1, 2008 $ 384,165 Movements: Share redemptions (1) (10,000) Ending balance, December 31, 2008 and June 30, 2009 $ 374,165 (1) At December 31, 2007, a subsidiary of the Company had 100 shares or $10 million of 9.11% Cumulative Preferred Stock, mandatorily redeemable in 20 years, owned by an institutional investor. In August 2008, we redeemed 100% of this Preferred Stock resulting in a net loss of $1.8 million. |
Comprehensive Income
Comprehensive Income | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Comprehensive Income | 13. Comprehensive IncomeComprehensive income for the three and six months ended June 30, 2009 and 2008 are as follows: Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Pitney Bowes Inc. net income $ 117,262 $ 128,509 $ 221,664 $ 247,612 Other comprehensive income, net of tax: Foreign currency translation adjustments (1) 107,164 1,413 47,734 38,113 Net unrealized gain (loss) on derivatives 164 (225) 6,514 803 Net unrealized loss on investment securities (151) (284) (230) (75) Amortization of pension and postretirement costs 4,157 3,562 8,752 7,131 Comprehensive income $ 228,596 $ 132,975 $ 284,434 $ 293,584 (1)Includes a net deferred translation loss of $6.4 million and $0.3 million for the three months ended June 30, 2009 and 2008, respectively. For the six months ended June 30, 2009 and 2008, a net loss of $12.0 million and a net gain of $10.0 million, respectively, were recorded. These amounts are associated with intercompany loans denominated in a foreign currency that have been designated as a hedge of net investment. |
Restructuring Charges and Asset
Restructuring Charges and Assets Impairments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Restructuring Charges and Assets Impairments | 14. Restructuring Charges and Asset ImpairmentsPre-tax restructuring reserves at June 30, 2009 are composed of the following: Balance at December 31, 2008 Expenses Cash payments Non-cash charges Balance at June 30, 2009 Severance and benefit costs $ 108,431 $ - $ (42,264) $ - $ 66,167 Other exit costs 32,678 - (6,846) - 25,832 Total $ 141,109 $ - $ (49,110) $ - $ 91,999 We recorded pre-tax restructuring charges and asset impairments during 2008 and 2007. These charges primarily related to a program we announced in November 2007 to lower our cost structure, accelerate efforts to improve operational efficiencies, and transition our product line.As of June 30, 2009, 2,743 terminations have occurred under this program and approximately 300 additional positions have been eliminated since the inception of the program. The majority of the liability at June 30, 2009 is expected to be paid by the end of 2009 from cash generated from operations. |
Pensions and Other Benefit Prog
Pensions and Other Benefit Programs | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Pensions and Other Benefit Programs | 15. Pensions and Other Benefit ProgramsDefined Benefit Pension PlansThe components of net periodic benefit cost for defined benefit pension plans for the three months ended June 30, 2009 and 2008 are as follows: United States Foreign Three Months Ended June 30, Three Months Ended June 30, 2009 2008 2009 2008 Service cost $ 4,916 $ 7,031 $ 1,683 $ 2,887 Interest cost 23,262 24,190 6,217 7,748 Expected return on plan assets (29,861) (33,196) (6,727) (9,748) Amortization of transition (credit) cost - - (2) 32 Amortization of prior service (credit) cost (678) (635) 112 170 Amortization of net loss 6,159 4,883 611 1,055 Net periodic benefit cost $ 3,798 $ 2,273 $ 1,894 $ 2,144 The components of net periodic benefit cost for defined benefit pension plans for the six months ended June 30, 2009 and 2008 are as follows: United States Foreign Six Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Service cost $ 12,256 $ 14,062 $ 3,275 $ 5,578 Interest cost 47,486 48,380 12,009 15,479 Expected return on plan assets (60,012) (66,392) (12,983) (19,502) Amortization of transition (credit) cost - - (4) 64 Amortization of prior service (credit) cost (1,274) (1,270) 215 340 Amortization of net loss 13,186 9,766 1,191 2,114 Net periodic benefit cost $ 11,642 $ 4,546 $ 3,703 $ 4,073 We are revising our expected 2009 pension plan contributions. We now expect to contribute up to $15 million each to the U.S. and foreign plans. We will continue to reassess our funding alternatives as the year progresses. At June 30, 2009, $10.3 million and $7.8 million of contributions have been made to the U.S. and foreign pension plans, respectively.Our pension funds actual asset returns have performed in line with our portfolio benchmark indices. Our funded status will be highly dependent on the market returns and the prevailing discount rate used to value our year-end obligations.Nonpension Postretirement Benefit PlansThe components of net periodic benefit cost for nonpension postretirement benefit plans for the three and six months ended June 30, 2009 and 2008 are as follows: Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Service cost $ 1,010 $ 892 $ 1,812 $ 1,784 Interest cost 3,728 3,459 7,290 6,915 Amortization of prior service credit (620) (618) (1,240) (1,236) Amortization of net loss 1,122 738 2,068 1,477 Net periodic benefit cost $ 5,240 $ 4,471 $ 9,930 $ 8,940 For the three months ended June 30, 2009 and 2008, we made $5.5 million and $8.3 million of contributions representing benefit payments, respectively. Contributions for benefit payments were $13.4 million and $17.1 million for the six months ended June 30, 2009 and 2008. |
Income Taxes
Income Taxes | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Income Taxes | 16. Income TaxesThe effective tax rate for the three months ended June 30, 2009 and 2008 was 34.9% and 34.1%, respectively. The effective tax rate for the six months ended June 30, 2009 and 2008 was 37.7% and 35.6%, respectively. The year-to-date 2009 tax rate was increased by a $12.0 million write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of stock units previously granted to our employees. This write-off of deferred tax assets will not require us to pay any taxes. The year-to-date 2008 tax rate was increased by a $6.5 million tax accrual associated with lease refunds in the U.K. and Ireland. We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. Tax reserves have been established which we believe to be appropriate given the possibility of tax adjustments. Determining the appropriate level of tax reserves requires us to exercise judgment regarding the uncertain application of tax law. The amount of reserves is adjusted when information becomes available or when an event occurs indicating a change in the reserve is appropriate. Future changes in tax reserve requirements could have a material impact on our results of operations.We are continually under examination by tax authorities in the United States, other countries and local jurisdictions in which we have operations. The years under examination vary by jurisdiction. The current IRS exam of tax years 2001-2004 is estimated to be completed within the next two years and the examination of years 2005-2007 has commenced. In connection with the 2001-2004 exam, we have received notices of proposed adjustments to our filed returns. We have accrued our best estimate of the tax, interest and penalties that may result from these proposed adjustments in accordance with FIN 48. We are disputing a formal request from the IRS in the form of a civil summons to provide certain company workpapers. We believe that certain documents being sought should not be produced because they are privileged. In a similar case, the U.S. District Court in Rhode Island ruled that certain company workpapers were privileged. The IRS has appealed that decision. Also in connection with the 2001-2004 audit, we have entered into a settlement with the IRS regarding the tax treatment of certain lease transactions related to the Capital Services business that we sold in 2006. Prior to 2007, we accrued and paid the IRS the additional tax and interest associated with this settlement. A variety of post-1999 tax years remain subject to examination by other tax authorities, including the U.K., Canada, France, Germany and various U.S. states. We have accrued our best estimate of the tax, interest and penalties that may result from these tax uncertainties in these and other jurisdictions in accordance with FIN 48. However, the resolution of such matters could have a material impact on our results of operations, financial position and cash flows. |
Fair value measurements
Fair value measurements | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Fair Value Measurements | 17. Fair Value MeasurementsEffective January 1, 2008, we adopted SFAS 157 for financial assets and liabilities. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. SFAS 157 emphasizes that an entitys valuation technique for measuring fair value should maximize observable inputs and minimize unobservable inputs. Non-recurring nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill and indefinite lived intangible asset impairment testing, and those non-recurring nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination. The new fair value definition and disclosure requirements for these specific nonfinancial assets and nonfinancial liabilities were effective January 1, 2009.SFAS 157 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy as defined by SFAS 157 are as follows:Level 1 Unadjusted quoted prices in active markets for identical assets and liabilities. Examples of Level 1 assets include money market securities and U.S. Treasury securities.Level 2 Observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities; quoted prices in markets that trade infrequently; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Examples of Level 2 assets and liabilities include derivative contracts whose values are determined using a model with inputs that are observable in the market or can be derived from or corroborated by observable market data, such as mortgage-backed securities, asset backed securities, U.S. agency securities, and corporate notes and bonds. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. These inputs may be derived with internally developed methodologies that result in managements best estimate of fair value. During the six months ended June 30, 2009 and for the year ended December 31, 2008, we had no Level 3 recurring measurements. 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 as of June 30, 2009 and December 31, 2008, respectively. As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. Recurring Fair Value Measurements at June 30, 2009 by Level Level 1 Level 2 Level 3 Total Assets: Investment securities Money market funds $ 222,435 $ - $ - $ 222,435 U.S. Government and agency issued debt 54,637 11,352 - 65,989 Corporate notes and bonds - 8,365 - 8,365 Asset backed securities - 1,344 - |
Commitments and contingencies
Commitments and contingencies | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to consolidated financial statements | |
Commitments and Contingencies | 18. Commitments and ContingenciesIn the ordinary course of business, we are routinely defendants in or party to a number of pending and threatened legal actions. These may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with customers; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, customers or others. Our wholly-owned subsidiary, Imagitas, Inc., is a defendant in ten purported class actions filed in six different states. These lawsuits have been coordinated in the United States District Court for the Middle District of Florida, In re: Imagitas, Drivers Privacy Protection Act Litigation (Coordinated, May 28, 2007). Each of these lawsuits alleges that the Imagitas DriverSource program violated the federal Drivers Privacy Protection Act (DPPA). Under the DriverSource program, Imagitas entered into contracts with state governments to mail out automobile registration renewal materials along with third party advertisements, without revealing the personal information of any state resident to any advertiser. The DriverSource program assisted the state in performing its governmental function of delivering these mailings and funding the costs of them. The plaintiffs in these actions are seeking both statutory damages under the DPPA and an injunction against the continuation of the program. On April 9, 2008, the District Court granted Imagitas motion for summary judgment in one of the coordinated cases, Rine, et al. v. Imagitas, Inc. (United States District Court, Middle District of Florida, filed August 1, 2006). On July 30, 2008, the District Court issued a final judgment in the Rine lawsuit and stayed all of the other cases filed against Imagitas pending an appellate decision in Rine. On August 27, 2008, the Rine plaintiffs filed an appeal of the District Courts decision in the United States Court of Appeals, Eleventh Judicial Circuit. The appellate process in this case is proceeding. We expect to prevail in the lawsuits against Imagitas; however, as litigation is inherently unpredictable, there can be no assurance in this regard. If the plaintiffs do prevail, the results may have a material effect on our financial position, future results of operations or cash flows, including, for example, our ability to offer certain types of goods or services in the future.Product WarrantiesWe provide product warranties in conjunction with certain product sales, generally for a period of 90 days from the date of installation. Our product warranty liability reflects our best estimate of probable liability for product warranties based on historical claims experience, which has not been significant, and other currently available evidence. Accordingly, our product warranty liability at June 30, 2009 and December 31, 2008, respectively, was not material. |