Pitney Bowes (PBI) 10-Q 6 Nov 09 2009 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information (USD $)
	9 Months Ended Sep. 30, 2009	Sep. 30, 2008
Entity Information Line Items
Entity Registrant Name	PITNEY BOWES INC /DE/
Entity Central Index Key	0000078814
Document Type	10-Q
Document Period End Date	2009-09-30
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well Known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$7,104,955,286
Entity Common Stock Shares Outstanding	207,138,862

Consolidated Statement of Incom

Consolidated Statement of Income (USD $)
In Thousands, except Per Share data	3 Months Ended Sep. 30, 2009		3 Months Ended Sep. 30, 2008		9 Months Ended Sep. 30, 2009		9 Months Ended Sep. 30, 2008
Revenue:
Equipment sales	$225,759		$296,520		$714,780		$910,883
Supplies	83,464		96,864		253,466		305,750
Software	87,295		100,092		254,401		314,617
Rentals	163,711		182,850		487,992		553,658
Financing	171,228		195,632		528,534		591,834
Support services	177,607		193,516		531,200		579,996
Business services	447,756		482,199		1,344,493		1,452,978
Total revenue	1,356,820		1,547,673		4,114,866		4,709,716
Cost and expenses:
Cost of equipment sales	124,819		157,593		387,674		484,988
Cost of supplies	23,785		26,382		68,495		80,673
Cost of software	19,413		25,917		60,480		80,107
Cost of rentals	40,508		36,252		114,372		114,227
Financing interest expense	23,975		27,702		73,865		85,630
Cost of support services	100,541		113,581		300,090		343,507
Cost of business services	335,406		370,213		1,033,933		1,120,193
Selling, general and administrative	435,931		484,650		1,317,410		1,491,154
Research and development	45,052		53,008		138,623		156,176
Restructuring charges and asset impairments	12,845		49,229		12,845		85,137
Other interest expense	27,244		30,037		84,548		91,565
Interest income	(668)		(3,179)		(3,153)		(9,731)
Total costs and expenses	1,188,851		1,371,385		3,589,182		4,123,626
Income from continuing operations before income taxes	167,969		176,288		525,684		586,090
Provision for income taxes	57,691		69,456		192,375		215,389
Income from continuing operations	110,278		106,832		333,309		370,701
(Loss) gain from discontinued operations, net of income tax	(2,429)		(2,063)		5,296		(8,726)
Net income before attribution of noncontrolling interests	107,849		104,769		338,605		361,975
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests	4,622		6,540		13,714		16,134
Pitney Bowes Inc. net income	103,227		98,229		324,891		345,841
Amounts attributable to Pitney Bowes Inc. common stockholders:
Income from continuing operations	105,656		100,292		319,595		354,567
(Loss) gain from discontinued operations	(2,429)		(2,063)		5,296		(8,726)
Pitney Bowes Inc. net income	$103,227		$98,229		$324,891		$345,841
Basic earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders:
Continuing operations	0.51		0.48		1.55		1.7
Discontinued operations	-0.01		-0.01		0.03		-0.04
Net income	0.5	[1]	0.47	[1]	1.57	[1]	1.65	[1]
Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders:
Continuing operations	0.51		0.48		1.54		1.68
Discontinued operations	-0.01		-0.01		0.03		-0.04
Net income	0.5	[1]	0.47	[1]	1.57	[1]	1.64	[1]
Dividends declared per share of common stock	0.36		0.35		1.08		1.05
[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	9 Months Ended Sep. 30, 2009	Dec. 31, 2008
Current assets:
Cash and cash equivalents	$441,128	$376,671
Short-term investments	17,660	21,551
Accounts receivable
Accounts receivable, gross	818,389	924,886
Allowance for doubtful accounts receivables	(46,312)	(45,264)
Accounts receivable, net	772,077	879,622
Finance receivables
Finance receivables	1,408,964	1,501,678
Allowance for credit losses	(43,333)	(45,932)
Finance receivables, net	1,365,631	1,455,746
Inventories	176,626	161,321
Current income taxes	73,386	59,594
Other current assets and prepayments	98,736	78,108
Total current assets	2,945,244	3,032,613
Property, plant and equipment, net	529,079	574,260
Rental property and equipment, net	374,021	397,949
Long-term finance receivables
Finance receivables	1,396,007	1,445,822
Allowance for credit losses	(25,547)	(25,858)
Finance receivables, net	1,370,460	1,419,964
Investment in leveraged leases	231,088	201,921
Goodwill	2,294,594	2,251,830
Intangible assets, net	319,040	375,822
Non-current income taxes	66,280	64,387
Other assets	414,215	417,685
Total assets	8,544,021	8,736,431
Current liabilities:
Accounts payable and accrued liabilities	1,693,697	1,922,399
Current income taxes	112,908	108,662
Notes payable and current portion of long-term obligations	170,783	770,501
Advance billings	452,380	441,556
Total current liabilities	2,429,768	3,243,118
Deferred taxes on income	366,721	254,353
Tax uncertainties and other income tax liabilities	293,476	294,487
Long-term debt	4,218,646	3,934,865
Other non-current liabilities	783,750	823,322
Total liabilities	8,092,361	8,550,145
Noncontrolling interests (Preferred stockholders' equity in subsidiaries)	374,165	374,165
Commitments and contingencies (See Note 18)	-
Stockholders' equity (deficit):
Cumulative preferred stock, $50 par value, 4% convertible	4	7
Cumulative preference stock, no par value, $2.12 convertible	876	976
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)	323,338	323,338
Additional paid-in capital	251,273	259,306
Retained earnings	4,380,513	4,278,804
Accumulated other comprehensive loss	(461,550)	(596,341)
Treasury stock, at cost (116,174,612 and 117,156,719 shares, respectively)	(4,416,959)	(4,453,969)
Total Pitney Bowes Inc. stockholders' equity (deficit)	77,495	(187,879)
Total liabilities, noncontrolling interests and stockholders' equity (deficit)	$8,544,021	$8,736,431

Consolidated Balance Sheet (Par

Consolidated Balance Sheet (Parenthetical) (USD $)
	9 Months Ended Sep. 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	116,174,612	117,156,719

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (USD $)
In Thousands	9 Months Ended Sep. 30, 2009	9 Months Ended Sep. 30, 2008
Cash flows from operating activities:
Net income before attribution of noncontrolling interests	$338,605	$361,975
Restructuring charges, net of tax	8,300	61,864
Restructuring payments	(66,757)	(65,858)
Payments for settlement of derivative instruments	(20,281)	0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	262,683	288,589
Stock-based compensation	16,964	19,563
Changes in operating assets and liabilities, excluding effects of acquisitions:
(Increase) decrease in accounts receivable	134,789	(2,390)
(Increase) decrease in finance receivables	203,588	74,288
(Increase) decrease in inventories	(6,844)	(17,035)
(Increase) decrease in prepaid, deferred expense and other assets	(14,787)	(3,433)
Increase (decrease) in accounts payable and accrued liabilities	(195,842)	(94,858)
Increase (decrease) in current and non-current income taxes	73,457	93,471
Increase (decrease) in advance billings	1,002	21,831
Increase (decrease) in other operating capital, net	(2,453)	18,052
Net cash provided by operating activities	732,424	756,059
Cash flows from investing activities:
Short-term and other investments	(19,616)	21,682
Capital expenditures	(126,509)	(169,978)
Net investment in external financing	(1,216)	(831)
Acquisitions, net of cash acquired	0	(68,976)
Reserve account deposits	(6,236)	16,617
Net cash used in investing activities	(153,577)	(201,486)
Cash flows from financing activities:
Increase (decrease) in notes payable, net	(445,460)	423,899
Proceeds from long-term obligations	297,513	245,582
Principal payments on long-term obligations	(150,000)	(574,585)
Proceeds from issuance of common stock	8,984	16,561
Payments to redeem preferred stock issued by a subsidiary	0	(10,000)
Stock repurchases	0	(333,231)
Dividends paid to common stockholders	(223,182)	(219,447)
Dividends paid to noncontrolling interests	(13,714)	(16,134)
Net cash used in financing activities	(525,859)	(467,355)
Effect of exchange rate changes on cash and cash equivalents	11,469	(5,608)
Increase in cash and cash equivalents	64,457	81,610
Cash and cash equivalents at beginning of period	376,671	377,176
Cash and cash equivalents at end of period	441,128	458,786
Cash interest paid	169,219	209,601
Cash income taxes paid, net	$133,808	$125,745

Basis of presentation

Basis of presentation
	9 Months Ended Sep. 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 new noncontrolling interests accounting guidance, 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 September 30, 2009 and December 31, 2008, our results of operations for the three and nine months ended September 30, 2009 and 2008 and our cash flows for the three and nine months ended September 30, 2009 and 2008 have been included. Operating results for the three and nine months ended September 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. Beginning in the second quarter of 2009, we have separately presented a financing interest expense line item, which represents our estimated cost of borrowing associated with the generation of financing revenues, in the 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.We have evaluated subsequent events through November 6, 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 due to the issuance of perpetual voting preferred stock and the redemption of variable term voting preferred stock by a subsidiary of the Company. See Note 12 to the Condensed Consolidated Financial Statements for additional information. In addition, we had a non-recognizable subsequent event for a legal matter. See Note 18 to the Condensed Consolidated Financial Statements for additional information.

NatureOfOperations

NatureOfOperations
	9 Months Ended Sep. 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
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Recent Accounting Pronouncements	3. Recent Accounting PronouncementsFAIR VALUE MEASUREMENTSOn January 1, 2008, we adopted new accounting guidance on fair value measurements. The new guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It was effective for certain financial assets and liabilities on January 1, 2008 and for all nonfinancial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis on January 1, 2009. The adoption of this guidance has not had a material impact on our financial position, results of operations, or cash flows. See Note 17 to the Condensed Consolidated Financial Statements for additional discussion on fair value measurements. DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIESOn January 1, 2009, we adopted new accounting guidance on disclosures about derivative instruments and hedging activities. The new guidance impacts disclosures only and requires additional qualitative and quantitative information on the use of derivatives and their impact on an entitys financial position, results of operations and cash flows. See Note 17 to the Condensed Consolidated Financial Statements for additional information regarding our derivative instruments and hedging activities.BUSINESS COMBINATIONSOn January 1, 2009, we adopted new accounting guidance on business combinations. The new guidance revises principles and requirements for how a company (a) recognizes and measures in their financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest (previously referred to as minority interest); (b) recognizes and measures the goodwill acquired in a business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. Some of the major impacts of this new guidance include expense recognition for transaction costs and restructuring costs. The adoption of this guidance has not had a material impact on our financial position, results of operations, or cash flows.NONCONTROLLING INTERESTSOn January 1, 2009, we adopted new accounting guidance on noncontrolling interests. The new guidance addresses the accounting and reporting for the outstanding noncontrolling interest (previously referred to as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. It also establishes additional disclosures in the consolidated financial statements that identify and distinguish between the interests of the parents owners and of the noncontrolling owners of a subsidiary. The guidance requires retroactive adoption of the presentation and disclosure requirements for existing minority interests while all other requirements of the guidance are applied prospectively.REVENUE RECOGNITIONIn September 2009, new guidance was introduced addressing the accounting for revenue arrangements with multiple elements and certain revenue arrangements that include software elements. The new literature will allow companies to allocate arrangement consideration in a multiple

Discontinued Operations

Discontinued Operations
	9 Months Ended Sep. 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 nine months ended September 30, 2009 and 2008, respectively: Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Pre-tax income $ - $ - $ 20,624 $ - Tax provision (2,429) (2,063) (15,328) (8,726) (Loss) gain from discontinued operations, net of tax $ (2,429) $ (2,063) $ 5,296 $ (8,726) Net losses for the three months ended September 30, 2009 and September 30, 2008 relate to the accrual of interest on uncertain tax positions. Pre-tax income for the nine months ended September 30, 2009 includes $9.8 million of pre-tax income ($6.0 million net of 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, and $10.9 million of pre-tax income ($6.7 million net of tax) representing the release of reserves during the second quarter of 2009 related to the expiration of an indemnity agreement in April 2009 also associated with the sale of Capital Services. This income was partly offset by the accrual of interest on uncertain tax positions. The net loss for the nine months ended September 30, 2008 relates to the accrual of interest on uncertain tax positions.

Acquisitions

Acquisitions
	9 Months Ended Sep. 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 nine months ended September 30, 2009. During the nine months ended September 30, 2008, we also completed five smaller acquisitions with an aggregate cost of $29.7 million. These acquisitions did not have a material impact on our financial results. No tax deductible goodwill was added during the nine months ended September 30, 2009. The amount of tax deductible goodwill added from acquisitions for the nine months ended September 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 nine months ended September 30, 2009 and 2008 as if our acquisitions had been acquired on January 1 of each year: Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Total revenue $ 1,356,820 $ 1,547,673 $ 4,114,866 $ 4,730,176 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
	9 Months Ended Sep. 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 September 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 $ 103,227 $ 98,229 Less: Preferred stock dividends - - Preference stock dividends (17) (19) Basic earnings per share $ 103,210 207,076 $ 0.50 $ 98,210 207,309 $ 0.47 Effect of dilutive securities: Data for basic earnings per share $ 103,210 207,076 $ 98,210 207,309 Preferred stock - 3 - 3 Preference stock 17 554 19 598 Stock options and stock purchase plans - 5 - 648 Other stock plans - 6 - 98 Diluted earnings per share $ 103,227 207,644 $ 0.50 $ 98,229 208,656 $ 0.47 Basic earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 0.51 $ 0.48 Discontinued operations (0.01) (0.01) Net income $ 0.50 $ 0.47 Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 0.51 $ 0.48 Discontinued operations (0.01) (0.01) Net income $ 0.50 $ 0.47 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 nine months ended September 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 $ 324,891 $ 345,841 Less: Preferred stock dividends - - Preference stock dividends (55) (58) Basic earnings per share $ 324,836 206,610 $ 1.57 $ 345,783 209,113 $ 1.65 Effect of dilutive securities: Data for basic earnings per share $ 324,836 206,610 $ 345,783 209,113 Preferred stock - 3 - 3 Preference stock 55 578 58 602 Stock options and stock purchase plans - 2 - 784 Other stock plans - 5 - 85 Diluted earnings per share $ 324,891 207,198 $ 1.57 $ 345,841 210,587 $ 1.64 Basic earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 1.55 $ 1.70 Discontinued operations 0.03 (0.04) Net income $ 1.57 $ 1.65 Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders: Per Share Per Share Continuing operations $ 1.54 $ 1.68 Discontinued operations 0.03 (0.04) Net income $ 1.57 $ 1.64 Note: The sum of the earnings per share amounts may not equal the totals above due to rounding. Approximately 6.2 million and 2.5 million common stock equivalent shares for the three months ended September 30, 2009 and 2008, respectively, and 6.4 million and 2.1 million common stock equi

Segment Information

Segment Information
	9 Months Ended Sep. 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.As a result of certain organizational changes made during the third quarter of 2009, we have reclassified certain prior year amounts to conform to the current year presentation. The amounts reclassified did not have a material impact to our segment disclosures.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.Revenue and EBIT by business segment for the three and nine months ended September 30, 2009 and 2008 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Revenue: U.S. Mailing $ 491,036 $ 558,038 $ 1,517,377 $ 1,687,229 International Mailing 224,681 271,727 679,893 882,145 Production Mail 126,434 154,554 366,000 439,358 Software 82,361 94,221 240,559 296,134 Mailstream Solutions 924,512 1,078,540 2,803,829 3,304,866 Management Services 259,370 287,989 789,635 891,078 Mail Services 134,042 139,689 413,891 399,875 Marketing Services 38,896 41,455 107,511 113,897 Mailstream Services 432,308 469,133 1,311,037 1,404,850 Total revenue $ 1,356,820 $ 1,547,673 $ 4,114,866 $ 4,709,716 Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 EBIT: (1) U.S. Mailing $ 178,066 $ 221,179 $ 561,232 $ 663,469 International Mailing 29,193 41,123

Inventories

Inventories
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Inventories	8. Inventories Inventories are composed of the following: September 30, December 31, 2009 2008 Raw materials and work in process $ 43,803 $ 41,171 Supplies and service parts 81,734 78,018 Finished products 51,089 42,132 Total $ 176,626 $ 161,321

Fixed Assets

Fixed Assets
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Fixed Assets	9. Fixed Assets September 30, December 31, 2009 2008 Property, plant and equipment $ 1,810,482 $ 1,880,422 Accumulated depreciation (1,281,403) (1,306,162) Property, plant and equipment, net $ 529,079 $ 574,260 Rental property and equipment $ 745,089 $ 932,389 Accumulated depreciation (371,068) (534,440) Rental property and equipment, net $ 374,021 $ 397,949 Depreciation expense was $70.1 million and $76.3 million for the three months ended September 30, 2009 and 2008, respectively. Depreciation expense was $209.7 million and $235.2 million for the nine months ended September 30, 2009 and 2008, respectively.

Intangible Assets and Goodwill

Intangible Assets and Goodwill
	9 Months Ended Sep. 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: September 30, 2009 December 31, 2008 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 429,895 $ (188,019) $ 241,876 $ 423,169 $ (154,619) $ 268,550 Supplier relationships 29,000 (12,567) 16,433 29,000 (10,392) 18,608 Software technology 145,276 (93,144) 52,132 155,035 (78,982) 76,053 Trademarks trade names 23,744 (15,578) 8,166 25,071 (13,310) 11,761 Non-compete agreements 2,238 (1,805) 433 2,652 (1,802) 850 Total intangible assets $ 630,153 $ (311,113) $ 319,040 $ 634,927 $ (259,105) $ 375,822 Amortization expense for intangible assets for the three months ended September 30, 2009 and 2008 was $17.4 million and $18.4 million, respectively. Amortization expense for intangible assets for the nine months ended September 30, 2009 and 2008 was $53.0 million and $53.4 million, respectively. The estimated future amortization expense related to intangible assets is as follows: Amount Remaining for year ended December 31, 2009 $ 18,000 Year ended December 31, 2010 61,000 Year ended December 31, 2011 49,000 Year ended December 31, 2012 44,000 Year ended December 31, 2013 37,000 Thereafter 110,040 Total $ 319,040 Changes in the carrying amount of goodwill by business segment for the nine months ended September 30, 2009 are as follows: Balance at December 31, 2008 (1) Acquired during the period Other (2) Balance at September 30, 2009 U.S. Mailing $ 221,315 $ - $ (2,210) $ 219,105 International Mailing 322,230 - 29,867 352,097 Production Mail 137,067 - 3,044 140,111 Software 623,995 - 9,236 633,231 Mailstream Solutions 1,304,607 - 39,937 1,344,544 Management Services 491,633 - 4,068 495,701 Mail Services 260,793 - (1,241) 259,552 Marketing Services 194,797 - - 194,797 Mailstream Services 947,223 - 2,827 950,050 Total $ 2,251,830 $ - $ 42,764 $ 2,294,594 (1) We have reclassified certain prior year amounts to conform to the current year presentation. See Note 7 for further details.(2) Other includes post closing acquisition and foreign currency translation adjustments.

Long-term Debt

Long-term Debt
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Long-term Debt	11. Long-term Debt On September 15, 2009, we repaid the 8.55% notes with a $150 million face value. The repayment of these notes was funded through cash generated from operations and issuance of commercial paper. The notes were reported in current portion of long-term debt at December 31, 2008.On June 29, 2009, we entered into an interest rate swap for an aggregate notional amount of $100 million to effectively convert our interest payments on a portion of the $400 million, 4.625% fixed rate notes due in 2012, into variable interest rates. The variable rates payable are based on one month LIBOR plus 249 basis points. In July 2009, we entered into three additional interest rate swaps for an aggregate notional amount of $300 million to effectively convert our interest payments on the remainder of the $400 million, 4.625% fixed rate notes due in 2012, into variable interest rates. The variable rates payable are based on one month LIBOR plus 248 basis points for $100 million notional amount and one month LIBOR plus 250 basis points for $200 million notional amount.On March 2, 2009, we issued $300 million of 10-year fixed-rate notes with a coupon rate of 6.25%. The interest is paid semi-annually beginning September 15, 2009. The notes mature on March 15, 2019. We simultaneously unwound four forward starting swap agreements (forward swaps) used to hedge the interest rate risk associated with the forecasted issuance of the fixed-rate debt. The unwind of the derivatives resulted in a loss (and cash payment) of $20.3 million which was recorded to other comprehensive income, net of tax, and will be amortized to net interest expense over the 10-year term of the notes. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper.On March 4, 2008, we issued $250 million of 10-year fixed-rate notes with a coupon rate of 5.60%. The interest is paid semi-annually beginning September 15, 2008. The notes mature on March 15, 2018. We simultaneously entered into two interest rate swaps for a total notional amount of $250 million to convert the fixed-rate 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
	9 Months Ended Sep. 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 PBIH, representing the remaining 75% of the combined voting power of all classes of capital stock, is owned directly or indirectly by Pitney Bowes Inc. The preferred stock, $.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 nine months ended September 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 September 30, 2009, December 31, 2008 or September 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 September 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.In October 2009, PBIH issued $300 million of perpetual voting preferred stock to certain outside institutional investors. These preferred shares are entitled to 25% of the combined voting power of all classes of capital stock of PBIH. All outstanding common stock of PBIH, representing the remaining 75% of the combined voting power of all classes of capital stock, is owned directly or indirectly by Pitney Bowes Inc. The preferred stock is entitled to cumulative dividends at a rate of 6.125% for a period of 7 years after which they become callable and, if remain outstanding, will yield a dividend that increases by 150% every six months thereafter.In October 2009, PBIH redeemed $344 million of its existing variable term preferred stock. The redemption was funded by a combination of the issuance of the $300 million perpetual voting preferred stock and commercial paper.

Comprehensive Income

Comprehensive Income
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Comprehensive Income	13. Comprehensive IncomeComprehensive income for the three and nine months ended September 30, 2009 and 2008 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Pitney Bowes Inc. net income $ 103,227 $ 98,229 $ 324,891 $ 345,841 Other comprehensive income, net of tax: Foreign currency translation adjustments (1) 67,778 (144,453) 115,512 (106,340) Net unrealized (loss) gain on derivatives (319) (614) 6,195 189 Net unrealized gain (loss) on investment securities 139 (178) (91) (253) Amortization of pension and postretirement costs 4,423 3,505 13,175 10,636 Comprehensive income $ 175,248 $ (43,511) $ 459,682 $ 250,073 (1)Includes a net deferred translation gain of $3.4 million and a net deferred translation loss of $13.7 million for the three months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, a net deferred translation loss of $8.6 million and $3.7 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
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Restructuring Charges and Assets Impairments	14. Restructuring Charges and Asset ImpairmentsDuring the third quarter of 2009, we have undertaken a strategic transformation process designed to create long-term flexibility to invest in future growth. We are currently completing the diagnostic phase of this project and are analyzing a wide range of opportunities for process and operational improvements in areas such as our global customer interactions and product development processes. The restructuring charge in the current quarter represents costs associated with initial actions identified as part of the diagnostic phase of this project. The future benefits and related costs, which could be significant, will be recognized as actions are approved and implemented.During the third quarter of 2009, we recorded pre-tax restructuring charges of $12.8 million, of which $10.0 million relates to severance and benefit costs and $2.8 million relates to other exit costs. As of September 30, 2009, 158 employee terminations have occurred under this strategic transformation project. The majority of the liability at September 30, 2009 is expected to be paid during the next twelve months from cash generated from operations.Pre-tax restructuring reserves at September 30, 2009 for the restructuring actions taken in the third quarter of 2009 are composed of the following: Balance at July 1, 2009 Expenses Cash payments Non-cash charges Balance at September 30, 2009 Severance and benefit costs $ - $ 10,040 $ (801) $ - $ 9,239 Other exit costs - 2,805 (1,232) - 1,573 Total $ - $ 12,845 $ (2,033) $ - $ 10,812 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 September 30, 2009, 2,904 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 September 30, 2009 is expected to be paid during the next twelve months from cash generated from operations.Pre-tax restructuring reserves at September 30, 2009 for the restructuring program announced in 2007 are composed of the following: Balance at December 31, 2008 Expenses Cash payments Non-cash charges Balance at September 30, 2009 Severance and benefit costs $ 108,431 $ - $ (55,454) $ - $ 52,977 Other exit costs 32,678 - (9,270) - 23,408 Total $ 141,109 $ - $ (64,724) $ - $ 76,385

Pensions and Other Benefit Prog

Pensions and Other Benefit Programs
	9 Months Ended Sep. 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 September 30, 2009 and 2008 are as follows: United States Foreign Three Months Ended September 30, Three Months Ended September 30, 2009 2008 2009 2008 Service cost $ 6,128 $ 7,662 $ 1,772 $ 2,688 Interest cost 23,745 24,050 6,567 7,436 Expected return on plan assets (30,009) (33,175) (7,107) (9,362) Amortization of transition (credit) cost - - (2) 31 Amortization of prior service (credit) cost (637) (616) 119 164 Amortization of net loss 6,593 4,652 644 1,015 Net periodic benefit cost $ 5,820 $ 2,573 $ 1,993 $ 1,972 The components of net periodic benefit cost for defined benefit pension plans for the nine months ended September 30, 2009 and 2008 are as follows: United States Foreign Nine Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Service cost $ 18,384 $ 21,724 $ 5,047 $ 8,266 Interest cost 71,231 72,430 18,576 22,915 Expected return on plan assets (90,021) (99,567) (20,090) (28,864) Amortization of transition (credit) cost - - (6) 95 Amortization of prior service (credit) cost (1,911) (1,886) 334 504 Amortization of net loss 19,779 14,418 1,835 3,129 Net periodic benefit cost $ 17,462 $ 7,119 $ 5,696 $ 6,045 We are revising our expected 2009 pension plan contributions. We now expect to contribute up to $18 million each to the U.S. and foreign plans for the year. However, we will continue to reassess our funding alternatives as the year progresses. At September 30, 2009, $13.2 million and $10.4 million of contributions have been made to the U.S. and foreign pension plans, respectively.Our pension funds actual asset returns have been 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 nine months ended September 30, 2009 and 2008 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Service cost $ 918 $ 919 $ 2,730 $ 2,703 Interest cost 3,669 3,704 10,959 10,619 Amortization of prior service credit (618) (618) (1,858) (1,854) Amortization of net loss 1,035 911 3,103 2,388 Net periodic benefit cost $ 5,004 $ 4,916 $ 14,934 $ 13,856 For the three months ended September 30, 2009 and 2008, we made $7.9 million and $6.6 million of contributions representing benefit payments, respectively. For the nine months ended September 30, 2009 and 2008, we made $21.3 million and $23.7 million of contributions representing benefit payments, respectively.

Income Taxes

Income Taxes
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Income Taxes	16. Income TaxesThe effective tax rate for the three months ended September 30, 2009 and 2008 was 34.3% and 39.4%, respectively. The effective tax rate for the nine months ended September 30, 2009 and 2008 was 36.6% and 36.8%, respectively. The year-to-date 2009 tax rate was increased by a $12.2 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 tax accrual associated with lease refunds in the U.K. and Ireland of $6.5 million and the impact of a low tax benefit associated with restructuring expenses recorded during 2008. 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. 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. A decision by the Rhode Island U.S. District Court in a similar case that supported our position was overturned on appeal, and the judicial circuits are now divided on this issue. 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. 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
	9 Months Ended Sep. 30, 2009 USD / shares
Notes to consolidated financial statements
Fair Value Measurements	17. Fair Value MeasurementsEffective January 1, 2008, we adopted the fair value measurements guidance for financial assets and liabilities. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. The guidance emphasizes that an entitys valuation technique for measuring fair value should maximize observable inputs and minimize unobservable inputs. Non-recurring nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill and indefinite lived intangible asset impairment testing, and those non-recurring nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination. The new fair value definition and disclosure requirements for these specific nonfinancial assets and nonfinancial liabilities were effective January 1, 2009.The fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:Level 1 Unadjusted quoted prices in active markets for identical assets and liabilities. Examples of Level 1 assets include money market securities and U.S. Treasury securities.Level 2 Observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities; quoted prices in markets that trade infrequently; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Examples of Level 2 assets and liabilities include derivative contracts whose values are determined using a model with inputs that are observable in the market or can be derived from or corroborated by observable market data, such as mortgage-backed securities, asset backed securities, U.S. agency securities, and corporate notes and bonds. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. These inputs may be derived with internally developed methodologies that result in managements best estimate of fair value. During the nine months ended September 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 nine months ended September 30, 2009, respectively. As required by the fair value measurements guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. Recurring Fair Value Measurements at September 30, 2009 by Level Level 1 Level 2 Level 3 Total Assets: Investment securities Money market funds $ 254,114 $ - $ - $ 254,114 U.S. Government and agency issued debt 56,619 10,822 - 67,441 Corporate notes a

Commitments and contingencies

Commitments and contingencies
	9 Months Ended Sep. 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. Imagitas has discontinued its DriverSource program. The plaintiffs in these actions are seeking statutory damages under the DPPA. On April 9, 2008, the District Court granted Imagitas motion for summary judgment in one of the coordinated cases, Rine, et al. v. Imagitas, Inc. (United States District Court, Middle District of Florida, filed August 1, 2006). On July 30, 2008, the District Court issued a final judgment in the Rine lawsuit and stayed all of the other cases filed against Imagitas pending an appellate decision in Rine. On August 27, 2008, the Rine plaintiffs filed an appeal of the District Courts decision in the United States Court of Appeals, Eleventh Judicial Circuit. The 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.On October 28, 2009, the Company and certain of our current and former officers, were named as defendants in NECA-IBEW Health Welfare Fund v. Pitney Bowes Inc. et al., a class action lawsuit filed in the U.S. District Court for the District of Connecticut. The complaint asserts claims under the Securities Exchange Act of 1934 on behalf of those who purchased the common stock of the Company during the period between July 30, 2007 and October 29, 2007. We believe this case is without merit and intend to defend it vigorously.Product WarrantiesWe provide product warranties in conjunction with certain product sales, generally for a period of 90 days