The effective tax rate for the six months ended June 30, 2010 and 2009 was 41.1% and 37.7%, respectively. The year-to-date 2010 rate was increased by $9.1 million of tax charges related to the write-off of deferred tax assets as a result of the recent health care reform legislation in the U.S. This legislation, signed in March 2010, includes a provision eliminating the tax deduction for retiree health care costs to the extent of federal subsidies received by companies that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. The tax rates for 2010 and 2009 included $9.1 million and $12.0 million, respectively, of tax charges related to the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock units previously granted to our employees. These write-offs of deferred tax assets will not require us to pay any taxes The 2010 rate also includes benefits and charges associated with previously unrecognized deferred taxes on outside basis differences and unremitted earnings..
See Note 4 to the Condensed Consolidated Financial Statements.
See Note 11 to the Condensed Consolidated Financial Statements.
We believe that cash flow from operations, existing cash and liquid investments, as well as borrowing capacity under our commercial paper program, our existing credit facility and debt capital markets should be sufficient to finance our capital requirements and to cover our customer deposits. Our potential uses of cash include but are not limited to the following: growth and expansion opportunities; internal investments; customer financing; restructuring payments; tax payments; interest and dividend payments; pension and other benefit plan funding; acquisitions; and share repurchase program.
We continue to review our liquidity profile. We have carefully monitored for material changes in the creditworthiness of those banks acting as derivative counterparties, depository banks or credit providers to us through credit ratings and the credit default swap market. We have determined that there has not been a material variation in the underlying sources of cash flows currently used to finance the operations of the company. To date, we have had consistent access to the commercial paper market.
Net cash provided by operating activities consists primarily of net income adjusted for non-cash items and changes in operating assets and liabilities. Cash provided by operating activities included decreases in finance receivable and accounts receivable balances of $125.6 million and $95.0 million, respectively. The decrease in finance receivables is due to the decline in the finance receivables portfolio as a result of reduced equipment sales from prior periods. The decrease in accounts receivable is primarily due to lower billings and strong collections. Partially offsetting these factors was an increase in inventory of $31.8 million, timing of tax payment and $66.8 million in restructuring payments.
Net cash used in investing activities consisted principally of capital expenditures of $58.6 million.
Net cash used in financing activities included a decrease of $77.3 million of commercial paper and dividends paid to common stockholders of $151.4 million for the six months ended June 30, 2010.
2009 Cash Flows
Net cash provided by operating activities consists primarily of net income adjusted for non-cash items and changes in operating assets and liabilities. Cash provided by operating activities included decreases in finance receivables and accounts receivable balances of $165.1 million and $99.0 million, respectively, resulting from lower levels of new business and strong collections. Partially offsetting these factors was a reduction in accounts payable and accrued liabilities of $167.6 million, primarily due to lower compensation accruals as well as $49.1 million in restructuring payments associated with the prior year cost reduction initiatives and a $20.3 million payment for the unwinding of derivatives related to the March 2009 debt issuance.
Net cash used in investing activities consisted principally of capital expenditures of $90.2 million.
Net cash used in financing activities consisted primarily of a decrease in notes payable of $476.1 million due to the repayment of commercial paper, which was partially offset by the proceeds from long term obligations of $297.5 million related to the March 2009 debt issuance. Dividends paid to stockholders were $148.6 million for the six months ended June 30, 2009.
Capital Expenditures
During the first six months of 2010, capital expenditures included $26.2 million in net additions to property, plant and equipment and $32.4 million in net additions to rental equipment and related inventories compared with $45.2 million and $45.0 million, respectively, in the same period in 2009. The decrease in capital expenditures is due to lower placement of new postage meters and tighter control over capital spending.
Financings and Capitalization
We have a commercial paper program that is a significant source of liquidity for the Company. During 2010, we have continued to have consistent access to the commercial paper market. As of June 30, 2010, we had $143 million of outstanding commercial paper issuances. We also have a committed line of credit which supports commercial papers issuance and is provided by a syndicate of 15 banks until 2013. In May 2010, we renewed our line of credit for $1.25 billion. As of June 30, 2010, this line of credit had not been drawn down. We are a Well-Known Seasoned Issuer with the SEC which allows us to issue debt securities, preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units in an expedited fashion.
We believe our financing needs in the short and long-term can be met from cash generated internally, the issuance of commercial paper, debt issuance under our effective shelf registration statement and borrowing capacity under our existing credit agreements.
Recent Accounting Pronouncements
See Note 3 to the Condensed Consolidated Financial Statements.
Regulatory Matters
With exception of the impact of the U.S. health care reform legislation disclosed in Note 15 to the Condensed Consolidated Financial Statements, there have been no significant changes to the regulatory matters disclosed in our 2009 Annual Report on Form 10-K.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There were no material changes to the disclosures made in the Annual Report on Form 10-K for the year ended December 31, 2009 regarding this matter.
Item 4: Controls and Procedures
Disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.
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Under the direction of our CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting. The CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2010. In addition, no changes in internal control over financial reporting occurred during the three months ended June 30, 2010, that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives, and the CEO and CFO have concluded that the disclosure controls and procedures are effective at that reasonable assurance level.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
See Note 17 to the Condensed Consolidated Financial Statements.
Item 1A: Risk Factors
There were no material changes to the risk factors identified in the Annual Report on Form 10-K for the year ended December 31, 2009.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
We repurchase shares of our common stock under a systematic program to manage the dilution created by shares issued under employee stock plans and for other purposes. This program authorizes repurchases in the open market. We have not repurchased or acquired any other shares of our common stock during 2010 in any other manner.
No shares were purchased during the second quarter of 2010. In May 2010, the Board of Directors approved an expansion of the company’s share repurchase authorization to $150 million.
Item 3: Defaults Upon Senior Securities
None.
Item 4: Removed and Reserved
Item 5: Other Information
None.
Item 6: Exhibits
See Index of Exhibits.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| PITNEY BOWES INC. |
| |
August 5, 2010 | |
| |
| /s/ Michael Monahan |
| |
| Michael Monahan |
| Executive Vice President and |
| Chief Financial Officer |
| (Principal Financial Officer) |
| |
| /s/ S. J. Green |
| |
| S. J. Green |
| Vice President – Finance and |
| Chief Accounting Officer |
| (Principal Accounting Officer) |
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Exhibit Index
| | | | |
Exhibit
Number | | Description | | Status or incorporation by reference |
| | | | | |
| | | | |
3 (a.2) | | Certificate of Amendment of Restated Certificate of Incorporation of Pitney Bowes Inc. | | Incorporated by reference to Exhibit (3) (a.2) to Form 8-K as filed with the Commission on May 12, 2010. (Commission file number 1-3579) |
| | | | |
3 (b.1) | | Amendment to the Pitney Bowes Inc. Amended and Restated By-laws (effective May 10, 2010) | | Incorporated by reference to Exhibit (3)(b.1) to Form 8-K as filed with the Commission on May 12, 2010. (Commission file number 1-3579) |
| | | | |
10(a) | | Compensation arrangement for Vicki O’Meara dated June 1, 2010 | | Page 37 |
| | | | |
(12) | | Computation of ratio of earnings to fixed charges | | Page 39 |
| | | | |
(31.1) | | Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended | | Page 40 |
| | | | |
(31.2) | | Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended | | Page 41 |
| | | | |
(32.1) | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 | | Page 42 |
| | | | |
(32.2) | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 | | Page 43 |
| | | | |
101.INS | | XBRL Report Instance Document | | |
| | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | |
| | | | |
101.CAL | | XBRL Taxonomy Calculation Linkbase Document | | |
| | | | |
101.DEF | | XBRL Taxonomy Definition Linkbase Document | | |
| | | | |
101.LAB | | XBRL Taxonomy Label Linkbase Document | | |
| | | | |
101.PRE | | XBRL Taxonomy Presentation Linkbase Document | | |
36
